SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission file number 33-28417
SITEK, INCORPORATED
(FORMERLY KNOWN AS DENTMART GROUP, INC. AND ELGIN CORPORATION)
--------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 86-0923886
------------------------------- -------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1817 WEST 4TH STREET, TEMPE, AZ 85281
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(480) 921-8555
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 12,307,813 shares of common
stock outstanding as of November 2, 1999.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and March 31, 1999....................................................1
Consolidated Statements of Operations
Three Months and Six Months ended September 30, 1999 and 1998
(unaudited)...........................................................2
Consolidated Statements of Cash Flow
Six Months ended September 30, 1999 and 1998 (unaudited)..............3
Consolidated Statement of Stockholders' Equity Period from
June 23, 1998, date of inception, to September 30, 1999...............4
Notes to Consolidated Financial Statements (unaudited)................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...............................................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..........19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................................19
Item 2. Changes in Securities and Use of Proceeds ...........................19
Item 4. Submission of Matters to a Vote of Security Holders .................19
Item 5. Other Information ...................................................20
Item 6. Exhibits and Reports on form 8-K ....................................20
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND MARCH 31, 1999
September 30, March 31,
1999 1999
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 1,789,023 $ 863
Accounts receivable 1,727,005 207,934
Related party receivable 42,650 58,161
Inventory 3,299,803 5,389,000
Prepaid financing fees 99,167 568,533
Prepaid VAT 22,751 910,000
Prepaid expenses and other assets 132,865 117,592
Deferred tax asset 213,000 --
----------- -----------
Total current assets 7,326,264 7,252,083
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $51,927 as of
Sept. 30, 1999, and $14,214 as of March 31, 1999 362,818 90,707
----------- -----------
DEPOSITS 86,186 37,466
GOODWILL, less accumulated amortization of $33,203 524,595 --
COVENANT NOT TO COMPETE, less accumulated
amortization of $5,000 19,000 --
----------- -----------
TOTAL ASSETS $ 8,318,863 $ 7,380,256
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 578,964 $ 154,000
Advances from related parties 160,941 388,418
Notes Payable 1,434,459 5,745,510
Accounts Payable 811,399 268,774
Customer deposits 794,855 171,250
Accrued expenses 1,560,494 308,080
VAT payable 576,998 910,000
Income Tax Payable 834,000 --
Convertible debentures 80,000 80,000
Deferred Revenue 20,644 20,644
----------- -----------
Total current liabilities 6,852,754 8,046,676
----------- -----------
CAPITAL LEASE OBLIGATION 5,529 --
----------- -----------
DEFERRED REVENUE, long term portion 27,526 37,848
----------- -----------
DEFERRED RENT PAYABLE 40,023 9,367
CONVERTIBLE DEBENTURES 182,500 --
----------- -----------
LINE OF CREDIT 207,181 207,181
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued -- --
Common stock, $.005 par value 50,000,000
authorized, 12,307,813 shares issued and
outstanding as of September 30, 1999,
12,230,813 shares issued and outstanding with
5,000 shares issuable as of March 31, 1999 61,539 61,179
Additional paid-in-capital 74,115 2,475
Retained earnings (deficit) 867,696 (984,470)
----------- -----------
Total Equity 1,003,350 (920,816)
----------- -----------
TOTAL LIABILITIES & EQUITY $ 8,318,863 $ 7,380,256
=========== ===========
1
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,592,619 $ 157,000 $ 13,016,289 $ 157,000
Cost of goods sold 2,724,864 119,042 5,632,164 119,042
------------ ------------ ------------ ------------
Gross profit 3,867,755 37,958 7,384,125 37,958
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 1,613,059 265,538 3,030,232 265,538
Research development & engineering 386,328 111,862 667,137 111,862
------------ ------------ ------------ ------------
Total operating expenses 1,999,387 377,400 3,697,369 377,400
------------ ------------ ------------ ------------
Income (loss) from operations 1,868,368 (339,442) 3,686,756 (339,442)
Other income (expense)
Interest (expense) (307,280) -- (945,868) --
Other income 41,839 204 27,078 204
------------ ------------ ------------ ------------
(265,441) 204 (918,790) 204
Income (loss) before income taxes 1,602,927 (339,238) 2,767,966 (339,238)
------------ ------------ ------------ ------------
Income taxes 659,800 -- 915,800 --
------------ ------------ ------------ ------------
Net income (loss) $ 943,127 $ (339,238) $ 1,852,166 $ (339,238)
============ ============ ============ ============
Basic earnings (loss) per share $ .08 $ (.03) $ .15 $ (.03)
============ ============ ============ ============
Diluted earnings (loss) per share $ .08 $ (.03) $ .15 $ (.03)
============ ============ ============ ============
</TABLE>
2
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1999 and 1998 (unaudited)
Six Months ended
--------------------------
September 30,
--------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,852,166 $ (339,238)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of prepaid financing fees 126,395 --
Depreciation & amortization 73,400 --
Deferred taxes (185,000) --
Gain recognized on sale leaseback transaction (10,322) --
Deferred rent expense 30,656 --
Change in assets and liabilities
Accounts receivable (1,453,705) (97,000)
Inventory 2,301,809 --
Prepaid financing fees 417,971 --
Prepaid VAT 887,249 --
Prepaid expenses and other assets (17,966) (22,736)
Advances from related parties (227,477) 250,425
Accounts payable 49,560 137,516
Customer deposits 425,595 --
Accrued expense 994,649 124,322
Income tax payable 814,000 --
VAT payable (333,002) --
Profit sharing liability (61,359) --
----------- -----------
Net cash provided by (used in)
operating activities 5,684,619 53,289
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Related party receivables 15,511 --
Purchase of VSM, net of cash (106,268) --
Capital expenditures, net of retirements (97,273) (418,407)
----------- -----------
Net cash (used in) investing activities (188,030) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Prepayments of financing fee (75,000) --
Borrowings on line of credit 1,387,964 --
Repayments of line of credit (963,000) --
Proceeds from issuance of convertible debentures 182,500 75,000
Repayment of notes payable (8,311,051) --
Proceeds from notes payable 4,000,000 340,000
Repayment of capital lease (1,842) --
Issuance of common stock 72,000 1,000
----------- -----------
Net cash provided by (used in)
financing activities (3,708,429) 416,000
----------- -----------
Net increase in cash 1,788,160 50,882
Cash, beginning 863 --
----------- -----------
Cash, ending $ 1,789,023 $ 50,882
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisition of VSM Inc.:
Cash purchase price $ 1,000,000 $ --
=========== ===========
Working capital acquired, net of cash and
cash equivalents $ (678,194) $ --
Fair value of other assets acquired, principally
property and equipment 210,035 --
Long-term debt assumed (7,371) --
----------- -----------
$ (475,530) $ --
=========== ===========
For the six months ended September 30,1999, cash payments for interest/financing
expense and income taxes were $227,095 and $292,000, respectively. In the six
months ended September 30, 1998, no cash payments for interest and income tax
were made.
3
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period from June 23, 1998, date of inception to September 30, 1999
<TABLE>
<CAPTION>
Common stock Additional
------------------------- paid-in Retained
Shares Amount capital earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of stock, June 23, 1998 1,000,000 $ 1,000 $ -- $ -- $ 1,000
Effect of merger/recapitalization 11,230,813 60,154 0 (60,154) --
Stock issuable for services 5,000 25 2,475 0 2,500
Net (loss) -- 0 0 (924,316) (924,316)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1999 12,235,813 $ 61,179 $ 2,475 $ (984,470) $ (920,816)
Net income -- -- -- $ 1,852,166 $ 1,852,166
Issuance of stock 72,000 $ 360 $ 71,640 $ -- $ 72,000
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1999 12,307,813 $ 61,539 $ 74,115 $ 867,696 $ 1,003,350
=========== =========== =========== =========== ===========
</TABLE>
4
<PAGE>
SITEK, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED SEPTEMBER 30, 1999
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of SITEK,
Incorporated and Subsidiaries (the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited consolidated financial statements
included herein have been prepared on a consistent basis with the March 31, 1999
audited consolidated financial statements and include all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation. Operating results for the three and six month periods ended
September 30, 1999 are not necessarily indicative of future operating results.
For further information refer to the financial statements and footnotes included
in the company's annual report on Form 10-K for the fiscal year ended March 31,
1999.
The consolidated financial statements include the accounts of SITEK,
Incorporated and its wholly-owned subsidiaries, Advanced Technology Services,
Inc. (ATSI), CMP Solutions, Inc. (CMPS), and VSM Corporation (VSM). All
significant intercompany accounts are eliminated upon consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company recognizes revenue from the sale of products when the risks and
rewards of ownership transfer to the customers, which is generally at the time
of shipment. No significant obligations remain after the product is shipped.
Cost for installation and warranty are accrued when the corresponding sales are
recognized.
NOTE B. BASIC AND DILUTED EARNINGS PER SHARE
Basic net income per common share is computed based on weighted average common
shares outstanding during the period. Diluted net income per share is computed
using the weighted average common and dilutive common equivalent shares
outstanding during the period. Convertible debt is considered a common stock
equivalent and is included in the weighted average shares computation using the
treasury stock method. The effect of 1,053,000 stock options and 24,562 warrants
are not included because they are anti-dilutive.
5
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 943,127 $ (339,238) $ 1,852,166 $ (339,238)
Weighted average shares outstanding 12,307,813 10,521,776 12,291,989 9,760,034
Effect of dilutive securities:
Convertible debt 36,715 -- 52,429 --
Stock options 41,667 -- 25,000 --
Diluted weighted average shares outstanding 12,386,195 10,521,776 12,369,418 9,760,034
Basic earnings per share .08 (.03) .15 (.03)
Diluted earnings per share .08 (.03) .15 (.03)
</TABLE>
NOTE C. INVENTORIES
Inventories are valued at the lower of cost or market. Cost of pre-owned
equipment held for resale is determined on the specific identification method.
Costs of all other inventories are determined on a first-in, first-out (FIFO)
basis. Inventories consisted of the following:
September 30, March 31,
1999 1999
---------- ----------
Pre-owned equipment held for resale $3,100,823 $5,389,000
Raw materials 142,638 --
Work-in-process 56,342 --
---------- ----------
Total $3,299,803 $5,389,000
========== ==========
6
<PAGE>
NOTE D. ACCRUED EXPENSES
The components of accrued expenses are as follows:
September 30, March 31,
1999 1999
---------- ----------
Finder's Fee $ 787,000 $ --
Profit sharing 194,137 --
Shareholder expense 125,000 125,000
Installation and warranty 114,072 --
Interest expense 79,459 24,506
Directors fees 36,000 72,000
Compensation and benefits 78,789 --
Legal/audit 36,000 67,074
Insurance 44,916 --
Other 65,121 19,500
---------- ----------
Total $1,560,494 $ 308,080
========== ==========
NOTE E. CONVERTIBLE DEBENTURES
As of September 30, 1999, the Company had issued convertible debentures of
$262,500 of which $35,000 were issued during the three months ended September
30, 1999. The debentures are convertible into the Company's common stock at any
time after one year from purchase through their maturity date of June 7, 2001.
The debentures bear interest at 9.5%, payable annually in restricted common
stock. If paid in common stock, the debentures are convertible into common stock
at 80% of the average of the five day closing bid prices, as reported by
Bloomberg, for the five consecutive trading days immediately preceding the date
of conversion, but in no event at a price lower than $3.50 per share or higher
than $5.00 per share. The debentures are subject to a mandatory conversion
feature on June 7, 2001, at which time all debentures outstanding will be
converted to shares of common stock. There is no beneficial conversion feature
associated with the convertible debentures as the fair market value, as
determined by an independent valuation, is lower than the bid price. Effective
September 17, 1999, the Company issued 4,562 warrants to an organization in
compensation for debenture sales. The Company used the Black-Scholes model to
value the warrants using fair market value as determined by independent
valuation; a 45% volitality factor; a five year expected life and a risk free
interest rate of 5%, resulting in a nominal value.
NOTE F. BUSINESS COMBINATION
On April 28, 1999, the Company acquired a company, VSM Corporation, engaged in
the manufacture and/or refurbishment of semiconductor process equipment and
subassemblies, including ultra-pure gas and chemical handling systems. The
Company completed this transaction by paying $ 1,000,000 in cash for all the
common stock. The excess of the total acquisition cost over the fair value of
the net assets acquired of $557,798 is being amortized over seven years by the
straight-line method. The covenant not to compete of $ 24,000 is being amortized
over two years, the term of the agreement, by the straight-line method. The
acquisition has been accounted for as a purchase and results of operations of
7
<PAGE>
VSM since the date of acquisition are included in the consolidated financial
statements. VSM sales and net loss for the year ended December 31, 1998 totaled
$4,374,558 and $(138,345), respectively.
In conjunction with this transaction, the Company borrowed $ 1,000,000 from TLD
Funding Group. The note bears interest at approximately 24% per year. The note
payable is due on April 28, 2001. On July 16, 1999, this note payable was
partially paid off through the refinancing with Imperial Bank referred to in
Note L.
NOTE G. CONTINGENCIES
The Company has been named a defendant in a lawsuit filed by a former employee
of and a former consultant to a company controlled by certain shareholders of
the Company alleging wrongful termination, amounts owed for consulting services
and misappropriated trade secrets. Management denies these allegations and
intends to defend itself vigorously. The defendants have demanded the value of
1,000,000 shares of the Company's stock. No provision has been made to the
financial statements as a result of this lawsuit.
NOTE H. SALES BY GEOGRAPHIC AREA
The following table presents information about the Company's sales (attributed
to countries based on the location of the customer) by geographic area:
8
<PAGE>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
United Kingdom $ 3,401,643 $ -- $ 6,374,129 $ --
Japan -- -- 891,717 --
United States 1,869,565 75,000 2,620,893 75,000
Netherlands 1,185,850 82,000 1,795,850 82,000
Italy -- -- 499,000 --
France -- -- 450,000 --
Mexico 47,556 -- 138,875 --
Malaysia -- -- 84,312 --
Denmark -- -- 70,000 --
Other 88,005 -- 91,513 --
----------- ----------- ----------- -----------
Total $ 6,592,619 $ 157,000 $13,016,289 $ 157,000
=========== =========== =========== ===========
NOTE I. INCOME TAX MATTERS
Pretax income from continuing operations for the three months and six months
ended September 30, 1999 was taxed all domestically.
The income tax provisions charged to continuing operations for the three months
and six months ended September 30, 1999 were as follows:
Three Months ended Six Months Ended
September 30, 1999 September 30, 1999
--------- ---------
Current:
U.S. federal $ 510,000 $ 863,000
State 132,000 221,000
Deferred tax expense (benefit) 17,800 (168,200)
--------- ---------
$ 659,800 $ 915,800
--------- ---------
The income tax provision charged to continuing operations for the three months
and six months ended September 30, 1999 differ from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income from
operations due to the following:
9
<PAGE>
Three Months Ended Six Months Ended
September 30, 1999 September 30, 1999
--------- ---------
Computed "expected" tax $ 561,000 $ 969,000
Increase (decrease) in income taxes
resulting from:
Nondeductible expenses 11,000 22,000
State taxes, net of federal benefit 85,000 146,000
Change in valuation allowance -- (255,000)
Other 2,800 33,800
--------- ---------
$ 659,800 $ 915,800
--------- ---------
Three Months Ended Six Months Ended
September 30, 1998 September 30, 1998
--------- ---------
Computed "expected" tax (benefit) $(119,000) $(119,000)
Increase (decrease) in income taxes
resulting from:
Nondeductible expenses 67,000 67,000
State taxes, net of federal benefit (18,000) (18,000)
Change in valuation allowance 70,000 70,000
--------- ---------
$ -- $ --
--------- ---------
Net deferred tax assets consist of the following components at September 30,
1999:
Deferred tax asset:
Other current liabilities $ 213,000
=========
The components giving rise to the net deferred tax assets described above have
been included in the accompanying consolidated balance sheet as a current asset
as of September 30, 1999.
The Company's deferred tax assets were fully reserved at March 31, 1999.
10
<PAGE>
NOTE J. EMPLOYMENT AGREEMENTS
During the three months ended September 30, 1999, the Company entered into
employment agreements with the following Executives: the President of CMPS/Vice
President of Sitek, Incorporated (President CMPS), the President of ATSI/Vice
President of Sitek, Incorporated (President ATSI), and the Vice President of
Sitek, Incorporated (Vice President) each for a period of five years, unless
terminated earlier, and which shall automatically renew for additional
three-year terms unless either party gives written one-year notice for the
President ATSI and the Vice President, and written six months notice for the
President CMPS. If the agreements are not renewed, Sitek shall pay the Executive
an amount equal to one-year salary. The Executive may terminate the agreement at
any time upon thirty day written notice. The agreement calls for compensation as
follows: annual base salary with potential annual increases; an incentive bonus
of up to 40% of the Executive's annual base salary based one-half on the
employee's individual performance as evaluated by the CEO and one-half on
achieving budgeted operating income goals for the company; and a monthly auto
allowance. The Company may terminate this agreement at any time without cause,
by giving 120 days' written notice to the Executive. Within seventy-two hours of
termination without cause, the Company shall pay the Executive the base salary
due him through the date of termination plus an additional five years' salary.
The Company will also be responsible for insurance and other benefits for the
Executive and his family for a period of three years after termination without
cause. If the Executive is terminated without cause, all non-vested options and
shares in the company due the Executive shall vest and these shares and options
shall have piggyback registration rights in any subsequent public offering for a
period of ten years. In the event of death the agreement shall terminate
immediately and the Executive's beneficiaries shall be entitled to receive the
base salary and benefits due the Executive through the term of the agreement. In
the event the company is acquired, merged or taken over by another entity, the
Executive's stock options shall vest immediately and this agreement shall
automatically renew for five years.
NOTE K. PROFIT SHARING PLANS
In connection with the acquisition referred to in Note F, VSM had a profit
sharing plan for the benefit of its employees. An employee must be twenty-one
(21) and work at least 1000 hours in the plan year to be eligible. The Company
did not make a contribution to the plan for the three or six-month periods ended
September 30, 1999.
Effective July 31, 1999, the Company established the Sitek, Incorporated Profit
Sharing and 401K Plan. The Board of Directors has not established an employer
matching contribution and has not declared a contribution for the three months
ended September 30, 1999.
11
<PAGE>
On September 28, 1999, the Company authorized the merger of the VSM profit
sharing plan into the Sitek, Incorporated Profit Sharing and 401K Plan. The
merger was completed subsequent to September 30, 1999.
NOTE L. CREDIT AGREEMENT
On July 16, 1999, the Company entered into a six-month credit agreement with
Imperial Bank in the amount of $ 3,000,000. The loan bears interest at 15% and
is secured by substantially all assets associated with the United Kingdom
operation. The credit amount was guaranteed by a stockholder and required a
non-refundable fee of $ 75,000 which is being amortized over the life of the
loan. If the bank does not receive 50% of the proceeds from the sale of the
inventory in the United Kingdom within three days of collection, then an
additional 5% will be charged. The proceeds of this credit agreement were used
to repay the balance of the short-term note payable to TLD Funding Group and the
debt incurred in the VSM acquisition. As of September 30, 1999, the balance
outstanding under this credit agreement is $902,028 and the shareholder
guarantee has been released. The principle balance has been repaid in full
subsequent to September 30, 1999.
NOTE M. FINDER'S FEE AGREEMENT
Effective May 20, 1999, the Company agreed to pay a finder's fee to Bruar
Associates in exchange for efforts in arranging the purchase of pre-owned
semiconductor equipment located in the United Kingdom. The fee is based upon 15%
of net sales proceeds relating to the purchased equipment when and if such sales
exceed $6,583,000. Fees are due on the next $ 8,417,000 in net sales proceeds.
The agreement expires on May 31, 2002. As of September 30, 1999, the Company has
accrued $ 787,000 in finder's fees of which $346,000 was recognized in the three
months ended September 30, 1999 as management expects sales to exceed
$15,000,000. Subsequent to September 30, 1999, the Company paid $383,000 in
related finder's fees.
NOTE N. SEGMENT INFORMATION
Financial information with respect to the reportable segments follows for the
three months and six months ending September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
Corporate and
VSM ATSI CMPS unallocated Total
--- ---- ---- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue from external customers $1,251,177 $5,257,498 $ 76,466 $ 7,478 $6,592,619
Segment operating income (loss) 163,971 2,635,376 (212,313) (718,666) 1,868,368
Segment assets 1,247,783 5,779,540 363,769 927,801 8,318,863
Six Months Ended September 30, 1999
Corporate and
VSM ATSI CMPS unallocated Total
--- ---- ---- ----------- -----
Revenue from external customers $1,773,280 $11,110,695 $ 124,836 $ 7,478 $13,016,289
Segment operating income (loss) 369,133 5,004,415 (374,079) (1,312,713) 3,686,756
Segment assets 1,247,783 5,779,540 363,769 927,801 8,318,863
Three and Six Months Ended September 30, 1998
Corporate and
VSM ATSI CMPS unallocated Total
--- ---- ---- ----------- -----
Revenue from external customers -- $157,000 -- -- $ 157,000
Segment operating income (loss) -- 27,989 (115,904) (251,527) (339,442)
Segment assets -- 114,338 439,187 35,000 589,025
</TABLE>
12
<PAGE>
NOTE O. SHAREHOLDERS' AGREEMENT
Sitek entered into a contract with certain of its shareholders as of August 1,
1999 in which the shareholders agree to restrict the transfer and disposition of
their shares of common stock. The shareholders, which control a combined total
of 8,371,477 shares of Sitek common stock, agree to offer their shares first to
the other shareholders participating in the agreement on the same basis as a
third party offer, and then, if not fully exercised, to the Company. The Company
is not obligated to purchase the shares. Upon termination of the Shareholder's
employment with the Company, each Shareholder must offer to sell a portion of
his or her shares to the other participating shareholders and to the Company at
a predetermined price. The agreement expires August 1, 2001.
NOTE P. 1999 STOCK INCENTIVE PLAN
On January 19, 1999, the Board of Directors adopted the 1999 Stock Incentive
Plan and reserved a total of 1,500,000 shares for issuance. The Plan provides
for the grant of options which qualify as incentive stock options under Section
422 of the Internal Revenue Code and nonstatutory stock options which do not
specifically qualify for favorable income tax treatment under the IRS Code. The
Plan is administered by the Compensation Committee of the Board of Directors.
Stockholders approved the Plan as of the September 28, 1999 annual stockholder's
meeting and the reserve was increased to 2,500,000 shares. As of September 30,
1999, the Company has outstanding option grants under the 1999 plan to certain
employees of 903,000 shares with an exercise price equal to the fair market
value as of the date of grant. During the three months ended September 30, 1999,
the Company granted 753,000 options.
NOTE Q. RESTATEMENT
The September 30, 1998 previously reported numbers have been changed to reflect
certain year-end audit adjustments with an effect of increasing the net loss for
the periods ended September 30, 1998 by $239,070.
NOTE R. SUBSEQUENT EVENTS
On October 25, 1999, the Company entered into an employment agreement with a
Senior Staff Engineer (Engineer) for a period of three years, unless terminated
earlier, which shall automatically renew for one additional three year period
unless the Company gives the Engineer six months written notice. The agreement
calls for compensation as follows: a base salary and a annual performance-based
bonus, in addition to 75,000 common stock options issued at fair market value
which will vest per the 1999 Stock Incentive Plan. In the event Sitek elects to
sell or otherwise be acquired or to enter into a merger agreement with another
entity, all exercisable and non-exercisable stock options shall become 100%
vested. If the Engineer is terminated without cause, the Company shall pay the
base salary through the balance of the agreement plus one year in addition to
providing the Engineer full benefits for the same period of time or until the
Engineer finds other employment, whichever comes first.
In addition, the Company has repaid the principle balance in full due under the
Imperial Bank credit facility as detailed in Note L subsequent to September 30,
1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including projections of
results of operations and financial condition, statements of future economic
performance, and general or specific statements of future expectations and
beliefs. The matters covered by such forward-looking statements are subject to
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to differ materially
from those contemplated or implied by such forward-looking statements. Important
factors which may cause actual results to differ include, but are not limited
to, matters which are discussed in more detail in the Company's Form 10-K for
the 1999 fiscal year.
RESULTS OF OPERATIONS
Sitek began operations on July 14, 1998 when it acquired all the outstanding
stock of CMP Solutions, Inc. (CMPS). On July 24, 1998, all of the outstanding
stock of Advanced Technology Services, Inc. (ATSI) was contributed to Sitek as a
wholly owned subsidiary. ATSI was formed on July 23, 1998.
NET SALES
Sitek's net sales of $ 6,593,000 in the three months ended September 30, 1999
and $ 13,016,000 in the six months ended September 30, 1999 were principally due
to resales by ATSI of $5,257,000 and $ 11,111,000, respectively, of pre-owned
semiconductor capital equipment. The current fiscal year net sales increased
significantly over sales in the three and six-month periods ended September 30,
1998 when Sitek was operating in a developmental stage.
Net sales of $ 1,251,000 were generated during the three months ended September
30, 1999 by VSM, which Sitek acquired in April, 1999. VSM has earned net sales
of $ 1,773,000 since being acquired by Sitek.
CMPS continued developing its market and generated net sales of $ 76,000 during
the three months and $ 125,000 for the six months ended September 30, 1999.
GROSS MARGIN
Sitek's gross margin was 58.7% for the three months ended September 30, 1999 and
56.7% for the six months ended September 30, 1999 compared with 24.2% for the
three month and six-month periods ended September 30, 1998 primarily due to
sales in the current fiscal year of the pre-owned UK inventory obtained at
attractive prices.
OPERATING EXPENSE
Operating expenses of $ 1,999,000 in the three months ended September 30, 1999
or 30.3% of sales and $ 3,698,000 for the six months ended September 30, 1999 or
28.4% of sales were significantly higher in absolute dollars than the expenses
incurred in the same periods for fiscal 1999 when Sitek operated as a
developmental stage company. Sitek has concentrated on building its
administrative, selling, and research, development and engineering staff and
infrastructure during the current fiscal year to support the growth in sales
volume.
Research, development, and engineering expenses of $ 386,000 or 5.9% for the
three months and $ 665,000 or 5.1% of sales for the six months ended September
30, 1999 were incurred primarily to complete the development of a new CMP wafer
carrier, which is expected to improve product yields for customers using
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existing CMP (Chemical Mechanical Planarization) tools. The carrier head is
anticipated to be available for initial beta site sales in the third quarter of
fiscal 2000 with production versions available in the fourth quarter of fiscal
2000. Sitek also began design work during the three months ended September 30,
1999 on a proprietary CMP system which is targeted for high through-put, high
quality, low cost semiconductor planarization requirements. The equipment is
anticipated to be available for beta site sales during fiscal 2001. CMPS
incurred engineering expenses associated with development of planarization
processes related to its foundry operation. Engineering expenses incurred in the
three and six months ended September 30, 1998 or $112,000 were primarily due to
engineering efforts in setting up the CMPS facility.
Sitek incurred $1,613,000 or 24.5% of sales in the three months and $ 3,032,000
or 23.3% of sales during the six months ended September 30, 1999 in selling,
general and administrative expense primarily relating to general business
activities including selling and administrative wages, travel, legal and
accounting, facility rent, and equipment rentals as well as $ 346,000 and $
787,000, respectively, in finder's fees expenses associated with the U.K.
pre-owned inventory acquisition as referred to in Note M. Selling, general, and
administrative expenses of $ 266,000 for the three and six months ended
September 30, 1998 were primarily due to start-up costs.
INTEREST EXPENSE
Interest expense during the three months ended September 30, 1999 was $307,000
or 4.7% of net sales as compared to $946,000 for the six months ended September
30, 1999 or 7.3% of sales. Sitek has reduced its interest expense in the three
months ended September 30, 1999 from three months ended June 30, 1999 due to
debt repayment and due to lower interest rates on the Imperial Bank credit
facility discussed in Note L. No interest was incurred in the six months ended
September 30, 1998.
Sitek also has available a line of credit with TLD for amounts up to $ 1,000,000
to be utilized to purchase equipment for resale. The line bears interest on each
advance at 1% of the advance amount for the initial 30 days and 2% per month
thereafter. The Company also must pay a financing fee of 7% at the time of each
advance under the line. At September 30, 1999, the Company owed $ 514,000 under
this line of credit.
In April 1999, Sitek entered into a loan agreement with TLD to borrow $
1,000,000 to be used to purchase all the outstanding shares of VSM. Payment is
due on April 28, 2001. Interest is charged at 1% per month for the initial 90
days and 2% per month thereafter. The note includes financing fees of $ 70,000,
which are amortized over the life of the loan. This loan was partially
refinanced in July, 1999 with Imperial Bank as discussed in Note L. The balance
due TLD on this loan as of September 30, 1999 is $532,000.
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Sitek has sold convertible debentures totaling $ 35,000 during the three months
ended September 30, 1999 and $ 182,500 during the current fiscal year. The
debentures earn interest at the rate of 9.5% and may be converted into the
Company's common stock after one year from purchase through June 7, 2001 at
which time they mature. The debentures are subject to mandatory conversion to
common stock upon maturity. The conversion price is based upon a formula, but in
no case at a price lower than $ 3.50 or higher than $ 5.00.
PLAN OF OPERATIONS
In March 1999, ATSI purchased substantially all of the pre-owned semiconductor
production equipment from a semiconductor plant in the United Kingdom. As a
result, ATSI net revenues from equipment resale operations during the three and
six months ended September 30, 1999 significantly exceeded revenues earned in
the previous fiscal period ending March 31, 1999.
During the three months ended September 30, 1999, CMPS continued in the
development phase and made efforts in marketing its foundry capabilities. CMPS
had revenues of $ 76,000 during the three months ended September 30, 1999 and $
125,000 for the six months ended September 30, 1999. The Company expects
continued development and facilitization expenses for CMPS during the next 12
months and anticipates CMPS revenues to increase in the second half of its
fiscal year ended March 31, 2000.
On April 28, 1999, Sitek purchased all the outstanding shares of VSM for
$1,000,000. VSM is located in Tempe, Arizona and is engaged in the manufacture
and/or refurbishment of semiconductor process equipment and subassemblies. The
VSM ultra-pure gas and chemical handling systems have wide applications in wafer
manufacturing operations and plant facilities. VSM has recently introduced a
proprietary furnace system that is utilized in the fabrication of nonvolatile
semiconductor memory circuits and other devices. Subsequent to September 30,
1999, a patent application was filed with the U.S. Patent and Trademark Office
for protection of intellectual property associated with this system.
Sitek has hired advanced development engineers and is developing a new chemical
mechanical planarization wafer carrier, which is expected to improve customer
device yields. The carrier head is anticipated to be available for initial beta
site sales in the third quarter of fiscal 2000 with production versions expected
in late fiscal 2000. Subsequent to September 30, 1999, a patent application was
filed to protect Sitek's intellectual property associated with the wafer carrier
technology.
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During the next 12 months, Sitek expects to engage in funding efforts and
acquisitions, physically consolidate operations, increase CMPS's revenues,
introduce the new carrier head product, and develop VSM's business. Sitek also
expects to acquire all of the capital stock of Global Semiconductor
Technologies, Inc., an Arizona corporation ("GST") and Advanced Control
Technologies, Inc., an Arizona corporation ("ACT"), both located in Tempe,
Arizona and affiliated through common ownership by certain shareholders. At the
present time, Sitek shares office space and staff with GST and ACT. All
expenditures to date between the companies have been treated as loans to or from
these entities.
Sitek plans to raise additional capital with a possible private or public
placement of an undetermined number of shares of Sitek preferred and/or common
stock. Sitek plans to apply any such additional capital to product development,
equipment, and corporate acquisitions in addition to working capital
requirements above those funded from operations.
LIQUIDITY AND SOURCES OF CAPITAL
Sitek believes it will need additional capital to meet its funding needs,
including repayment of debt obligations when due, future acquisitions, product
development, and the continued costs of compliance with reporting requirements
of the Securities Exchange Act of 1934. CMPS will need additional funding before
it is able to generate material revenues. There is no assurance that Sitek will
be able to attract additional capital or that the funds, if acquired, will be
sufficient to complete and integrate the acquisitions of GST or ACT, or to meet
Sitek's product development or operating capital requirements.
Neither management nor other of Sitek's shareholders has made commitments to
provide additional funds to Sitek. Accordingly, there can be no assurance that
any additional funds will be available to Sitek to allow it to cover its capital
needs. Management has a contingency plan to allow Sitek to sustain itself
without additional funding. However, the success of this plan depends upon: (i)
ATSI retaining its market position and substantially increasing its sales
revenues in the next 12 months; (ii) CMPS reaching production status and
attracting customers with minimal funding; (iii) VSM generating sufficient
revenues to fund its operations; (iv) the wafer carrier product achieving market
acceptance and (v) ACT and GST generating approximately adequate revenues to
cover operating expenses during fiscal 2000, assuming SITEK acquires ACT and
GST.
Irrespective of whether Sitek's cash assets meet Sitek's operational capital
needs during the next 12 months, Sitek might compensate providers of services by
issuances of Sitek's common stock in lieu of cash.
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EXPECTED PURCHASES OF SIGNIFICANT EQUIPMENT
Depending on market conditions, demand, and the availability of funding, Sitek
expects to purchase certain silicon wafer processing and metrology equipment
during fiscal year 2000. Sitek believes this equipment will increase the
likelihood of Sitek's success in generating material revenues at its CMPS
foundry and engineering/manufacturing services operation.
During the next 12 months, Sitek expects to update business and manufacturing
systems for all aspects of Sitek. To conserve cash, Sitek may elect to lease
rather than purchase these systems.
YEAR 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 Compliance issue. As the
Year 2000 approaches, such systems may be unable to accurately process certain
data-based information.
Sitek's currently installed computer systems and software products have been
updated and made Year 2000 compliant.
Sitek relies exclusively on personal computer ("PC") based systems. Sitek has
certified all PC systems under its control. All accounting programs and the PC
system hardware have been upgraded and made Year 2000 compliant at a cost of $
2,000. The Company expects any future expenditures required, if any, to correct
Year 2000 issues on installed computer systems will not be material. However,
there can be no assurance that such upgrades or adjustments to hardware and
software will be sufficient to make Sitek's computers or equipment Year 2000
compliant in a timely manner or that allocated resources will be sufficient. A
failure to become Year 2000 compliant on its computers or equipment could
disrupt materially Sitek's operating results and financial condition.
Because there are a large number of potential vendors and customers for
pre-owned semiconductor equipment and because the Year 2000 compliance of these
potential vendors and customers is unknown and is unreasonably burdensome to
ascertain, Sitek is unable to determine the impact, if any, of Year 2000
compliance issues on its pre-owned semiconductor equipment sales. If Sitek is
unable to address its Year 2000 compliance successfully or in a timely fashion,
the Company may need to devote more resources to the process and additional
costs may be incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the values of
financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices.
Interest Rate Risk - The company evaluated the potential effect that near term
changes in interest rates would have had on the fair value of its interest rate
risk sensitive financial instruments at year-end. Since the company's current
debt has high interest rates, any near term changes in interest rates would not
have a material adverse affect.
Foreign Exchange Rate Risk - The company conducts business in various parts of
the world and in various foreign currencies. As of September 30, 1999, the
company did not have any material foreign currency transactions. The company
expects to have foreign currency exchange rate risk in the future.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
Sitek was named as a defendant in a lawsuit that was filed on April 1,
1999. The lawsuit involves two separate claims by two plaintiffs; EDMOND L.
LONERGAN AND ROBERT F. RUSSO, JR. V. SITEK, INCORPORATED, ET AL., Superior Court
for the State of Arizona, County of Maricopa, Case No. CV 99-05785. The first
plaintiff, Edmond Lonergan, alleges that he was not paid for consulting services
by Global Semiconductor Technologies, Inc., a company controlled by certain
shareholders of Sitek. Mr. Lonergan also claims that Global Semiconductor
Technologies, Inc. and/or the other defendants misappropriated trade secrets in
conducting the reverse merger of Dentmart into Sitek. The second plaintiff,
Robert Russo, Jr., was a former employee of Global Semiconductor Technologies,
Inc. Mr. Russo claims that he was wrongfully terminated. Sitek filed its answer
denying these allegations and intends to defend itself vigorously. Mr. Lonergan
and Mr. Russo have demanded the value of 1,000,000 shares of Sitek's capital
stock and other damages to be proven at trial in their complaint. There has been
no change in the status of this lawsuit since June 30, 1999.
ITEM 2: CHANGES IN SECURITIES USE OF PROCEEDS.
During the three month period ending September 30, 1999, in reliance on the
exemption from registration set forth in Section 4(2) of the Securities Act of
1933, the Company issued debentures in the aggregate of $35,000 convertible into
shares of the Company's common stock to two investors. Each of the investors is
an accredited investor.
The debentures bear an interest rate of 9.5 percent per year and are
payable in the form of the Company's common stock at the market price, defined
as 80 percent of the average of the five-day closing bid price as reported by
Bloomberg, LP for the five consecutive trading days prior to conversion, but in
no event at a price less than $3.50 per share or more than $5.00 per share.
During the same three month period, in reliance on the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933, the
Company issued 4,562 warrants to a financial consulting company in consideration
of consulting services provided. The warrants entitle the holder to purchase
4,562 shares of the company's common stock at a purchase price of $5.00 per
share and expire on December 31, 2004.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on September 28, 1999 in Tempe
Arizona
(a) Four incumbent directors were re-elected without opposition to serve
another one-year term in office. The election results were as follows:
Name of Director Votes For Votes Withheld
- ---------------- --------- --------------
Dr. Don M. Jackson, Jr. 11,349,425 0
Maurice L. McGill 11,349,425 0
L. Richard Myers 11,349,425 0
Dr. Dan L. Shunk 11,349,425 0
(b) The stockholders approved the 1999 Stock Incentive Plan as originally
adopted the the Board of Directors on January 19, 1999 with a total of
1,5000,000 shares of Common Stock reserved and subsequently amended by the Board
on August 16, 1999 increasing by 1,000,000 shares resulting in 2,500,000 shares
of Common Stock reserved.
votes for 8,529,137
votes against 13
votes abstained 5,000
broker non-votes 0
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(c) The stockholders ratified the selection of McGladrey & Pullen, LLP as
the Company's independent auditors for fiscal 2000. The vote was as follows:
votes for 11,340,425
votes against 9,000
votes abstained 0
broker non-votes 0
ITEM 5: OTHER INFORMATION.
(a) On July 16, 1999, the Company entered into a Credit Agreement with
Imperial Bank pursuant to which Imperial Bank agreed to provide a $3,000,000
line of credit to the Company for the use of refinancing existing inventory
debt. A copy of the Credit Agreement is filed herewith.
(b) On July 2, 1999, the Company entered into a five-year employment
agreement with its Vice President, Mark Simon. A copy of the employment
agreement is filed herewith.
(b) On July 2, 1999, the Company entered into a five-year employment
agreement with its Vice President, Julian Gates. A copy of the employment
agreement is filed herewith.
(b) On July 2, 1999, the Company entered into a five-year employment
agreement with its Vice President, Parag Modi. A copy of the employment
agreement is filed herewith.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index following the signature page, which is incorporated
herein by reference.
(b) Reports on form 8-K
On May 13, 1999, the Company filed a form 8-K to report in Item 2, an
acquisition of all the outstanding shares of VSM Corporation for $1,000,000
pursuant to a Stock Purchase Agreement dated April 28, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SITEK, INCORPORATED
(Registrant)
Date: November 15, 1999 By: /s/ Dr. Don M. Jackson
-------------------------------------
Dr. Don M. Jackson
President and Chief Executive Officer
Date: November 15, 1999 By: /s/ Gloria Zemla
-------------------------------------
Gloria Zemla
Chief Financial Officer
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SITEK, Incorporated
Exhibit Index to Quarterly Report on Form 10-Q
For the Quarter Period Ended September 30, 1999
Exhibit No. Incorporated by
Filed Herewith Description Reference To:
- -------------- ----------- -------------
2.1 Stock Purchase Agreement Form 8-K filed with the
dated April 28, 1999 SEC on May 13, 1999
3.1 Articles of Incorporation of Form 8-K-filed with the
Registrant SEC on August 17, 1998
3.2 Bylaws of Registrant Form 10-K filed with the
SEC on April 17, 1998
10.1 Credit Agreement Filed Herewith
with Imperial Bank
dated July 16, 1999
10.2 Shareholders' Agreement Filed Herewith
dated August 1, 1999
10.3 *Employment Agreement Filed Herewith
with Mark Simon dated
July 2, 1999
10.4 *Employment Agreement Filed Herewith
with Julian Gates dated
July 2, 1999
10.5 *Employment Agreement Filed Herewith
with Parag Modi dated
July 2, 1999
27.1 Financial Data Schedule Filed Herewith
* Management Contract or compensatory plan.
CREDIT AGREEMENT
by and between
SITEK, INCORPORATED, a Delaware corporation,
ADVANCED TECHNOLOGY SERVICES, INC., an Arizona corporation
and
IMPERIAL BANK, a California banking corporation
Dated as of
July 16, 1999
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TABLE OF CONTENTS
PAGE
RECITALS .................................................................... 1
ARTICLE 1 DEFINITION OF TERMS.......................................... 2
1.1 Definitions.................................................. 2
1.2 References................................................... 6
1.3 Accounting Terms............................................. 6
ARTICLE 2 THE LOAN..................................................... 8
2.1 Commitment................................................... 8
2.2 Note......................................................... 8
2.3 Advance...................................................... 8
2.4 Loan Payments................................................ 8
2.5 Principal Prepayments; Excess Balance Payment................ 9
2.6 Method of Payment............................................ 9
2.7 Assignment................................................... 9
2.8 Fees......................................................... 9
ARTICLE 3 SECURITY..................................................... 10
3.1 Security..................................................... 10
3.2 Security Documents........................................... 10
ARTICLE 4 CONDITIONS PRECEDENT......................................... 11
4.1 Disbursement of Loan......................................... 11
4.2 No Event of Default.......................................... 12
4.3 No Material Adverse Effect................................... 12
4.4 Representations and Warranties............................... 12
ARTICLE 5 REPRESENTATIONS AND WARRANTIES............................... 13
5.1 Recitals..................................................... 13
5.2 Organization and Good Standing............................... 13
5.3 Authorization and Power...................................... 13
5.4 Security Documents........................................... 13
5.5 No Conflicts or Consents..................................... 13
5.6 No Litigation................................................ 13
5.7 Financial Condition.......................................... 14
5.8 Taxes........................................................ 14
5.9 No Stock Purchase............................................ 14
5.10 Survival of Representations and Warranties................... 14
5.11 Enforceable Obligations...................................... 14
5.12 No Default................................................... 14
5.13 Significant Debt Agreements.................................. 14
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5.14 ERISA........................................................ 14
5.15 Compliance with Law.......................................... 15
5.16 Solvent...................................................... 15
5.17 Investment Borrower Act...................................... 15
5.18 Title........................................................ 15
5.19 Environmental Matters........................................ 15
5.20 Licenses, Tradenames......................................... 15
5.21 Year 2000 Compliance......................................... 15
5.22 Equipment and Accounts Receivable Lien....................... 16
ARTICLE 6 AFFIRMATIVE COVENANTS........................................ 17
6.1 Financial Statements, Reports and Documents.................. 17
6.2 Maintenance of Existence and Rights; Conduct of Business;
Management................................................... 18
6.3 Operations and Properties.................................... 18
6.4 Authorizations and Approvals................................. 18
6.5 Compliance with Law.......................................... 18
6.6 Payment of Taxes and Other Indebtedness...................... 18
6.7 Compliance with Significant Debt Agreements and
Other Agreements............................................. 19
6.8 Compliance with Credit Documents............................. 19
6.9 Notice of Default............................................ 19
6.10 Other Notices................................................ 19
6.11 Books and Records; Access.................................... 19
6.12 ERISA Compliance............................................. 19
6.13 Further Assurances........................................... 19
6.14 Insurance.................................................... 20
6.15 Year 2000 Compliance......................................... 20
ARTICLE 7 NEGATIVE COVENANTS........................................... 22
7.1 No Debt...................................................... 22
7.2 Liens........................................................ 22
7.3 Existence.................................................... 22
7.4 Amendments to Organizational Documents....................... 22
7.5 Margin Stock................................................. 22
7.6 Distributions................................................ 23
7.7 [Intentionally deleted.]..................................... 23
7.8 Transfer Collateral.......................................... 23
7.9 Merger; Sale of Assets....................................... 23
7.10 Financial Covenants.......................................... 23
ARTICLE 8 EVENTS OF DEFAULT............................................ 24
8.1 Events of Default............................................ 24
8.2 Remedies Upon Event of Default............................... 26
8.3 Performance by Lender........................................ 27
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ARTICLE 9 MISCELLANEOUS................................................ 28
9.1 Modification................................................. 28
9.2 Waiver....................................................... 28
9.3 Payment of Expenses.......................................... 28
9.4 Notices...................................................... 28
9.5 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial..... 29
9.6 Reference Provision.......................................... 30
9.7 Invalid Provisions........................................... 31
9.8 Binding Effect............................................... 31
9.9 Entirety..................................................... 31
9.10 Headings..................................................... 31
9.11 Survival..................................................... 31
9.12 No Third Party Beneficiary................................... 31
9.13 Time......................................................... 32
9.14 Schedules and Exhibits Incorporated.......................... 32
9.15 Counterparts................................................. 32
EXHIBIT "A" Form of Compliance Certificate
-iii-
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CREDIT AGREEMENT
BY THIS CREDIT AGREEMENT (together with any amendments or modifications,
the "Credit Agreement"), entered into as of this 16th day of July, 1999 by and
between SITEK, INCORPORATED, a Delaware corporation ("SITEK"), ADVANCED
TECHNOLOGY SERVICES, INC., an Arizona corporation ("ATSI"; and together with
SITEK, the "Borrower"), and IMPERIAL BANK, a California banking corporation (the
"Lender"), in consideration of the mutual promises herein contained and for
other valuable consideration, the parties hereto do hereby agree as follows:
RECITALS
A. Borrower has applied to Lender for a term loan (the "Loan") in the
principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) for the
purpose of refinancing the Borrower's existing inventory debt.
B. As a condition for extending such financial accommodations, Lender has
required that Borrower enter into this Credit Agreement, establishing the terms
and conditions thereof.
<PAGE>
ARTICLE 1
DEFINITION OF TERMS
1.1 DEFINITIONS. For the purposes of this Credit Agreement, unless the
context otherwise requires, the following terms shall have the respective
meanings assigned to them in this Article 1 or in the Section hereof referred to
below:
"ACCOUNTS RECEIVABLE" means, at any time, the accounts receivable of
ATSI.
"AFFILIATE" of any Person means any Person which, directly or
indirectly, controls or is controlled by such Person. For the purposes of this
definition, "control" (including, with correlative meanings, the term
"controlled by"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"ATSI": See the Preamble hereto.
"AUTHORIZED OFFICER" means one or more officers of Borrower duly
authorized (and so certified to Lender by the corporate secretary of Borrower
pursuant to a certificate of authority and incumbency from time to time
satisfactory to Lender in the exercise of Lender's reasonable discretion),
acting alone, to request Advances under the provisions of this Credit Agreement
and execute and deliver documents, instruments, agreements, reports, statements
and certificates in connection herewith.
"BANKING DAY" means a day of the year on which banks are not required
or authorized to close in Inglewood, California and Phoenix, Arizona.
"BORROWER": See the Preamble hereto.
"CHANGE IN CONTROL" means the occurrence or existence of the following
events or conditions without the prior written consent of Lender, if different
than the state of affairs as of the Closing Date:
(a) the acquisition by any Person or two or more Persons acting
in concert of Control of the Borrower.
"CLOSING DATE" means the date of delivery of this Credit Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means all property subject to the Security Documents.
"CONTROL" when used with respect to any Person means the power,
directly or indirectly, to direct the management policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
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"CONTROLLED GROUP" means, severally and collectively, the members of
the group controlling, controlled by and/or in common control of Borrower,
within the meaning of Section 4001(b) of ERISA.
"CREDIT AGREEMENT": See the Preamble hereto.
"CREDIT DOCUMENTS" means this Credit Agreement, the Note (including any
renewals, extensions and refundings thereof), the Security Documents, the
Guarantee Agreement and any written agreements, certificates or documents (and
with respect to this Credit Agreement and such other written agreements and
documents, any amendments or supplements thereto or modifications thereof)
executed or delivered pursuant to the terms of this Credit Agreement.
"DEFAULT RATE" means at any time five percent (5%) per annum over the
then applicable interest rate.
"DOLLARS" and the sign "$" mean lawful currency of the United States of
America.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all final and permanent regulations issued pursuant
thereto. References herein to sections and subsections of ERISA are deemed to
refer to any successor or substitute provisions therefor.
"EVENT OF DEFAULT": See Section 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"FINANCIAL COVENANTS": See Section 7.10 hereof.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after the
date hereof so as to properly reflect the financial condition, and the results
of operations and changes in the financial position, of Borrower, including
without limitation accounting rules promulgated pursuant to Regulations SX and
SK, except that any accounting principle or practice required to be changed by
the said Accounting Principles Board or Financial Accounting Standards Board (or
other appropriate board or committee of the said Boards) in order to continue as
a generally accepted accounting principle or practice may be so changed.
"GOVERNMENTAL AUTHORITY" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or any of its business,
operations or properties.
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"GUARANTEE AGREEMENT" means the Unconditional Guarantee of Payment
dated of even date herewith, executed by Guarantor in favor of Lender.
"GUARANTOR" means, jointly and severally, Don M. Jackson, Jr. and
Barbara Jackson, husband and wife.
"INDEBTEDNESS" of a Person means each of the following (without
duplication): (a) obligations of that Person to any other Person for payment of
borrowed money, (b) capital lease obligations, (c) notes and drafts drawn or
accepted by that Person payable to any other Person, whether or not representing
obligations for borrowed money (but without duplication of indebtedness for
borrowed money), (d) any obligation for the purchase price of property the
payment of which is deferred for more than one year or evidenced by a note or
equivalent instrument, (e) guarantees of Indebtedness of third parties, and (f)
a recourse or nonrecourse payment obligation of any other Person that is secured
by a Lien on any property of the first Person, whether or not assumed by the
first Person, up to the fair market value (from time to time) of such property
(absent manifest evidence to the contrary, the fair market value of such
property shall be the amount determined under GAAP for financial reporting
purposes).
"LENDER": See the Preamble hereto.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness whether
arising by agreement or under any statute or law, or otherwise.
"LOAN": See Recital A hereto.
"LOAN FEE": See Section 2.8 hereto.
"MATERIAL ADVERSE EFFECT" means any circumstance or event which (i) has
any material adverse effect upon the validity or enforceability of any Credit
Document, (ii) materially impairs the ability of Borrower to fulfill its
obligations under the Credit Documents, or (iii) causes an Event of Default or
any event which, with notice or lapse of time or both, would become an Event of
Default.
"MATURITY DATE" means January 16, 2000.
"NET INCOME" means, for any period, the net income of Borrower for such
period in accordance with GAAP, determined on a consolidated basis.
"NOTE" means that Promissory Note of even date herewith in the amount
of the Loan, executed by Borrower and delivered pursuant to the terms of this
Credit agreement, together with any renewals, extensions, modifications or
replacements thereof.
"OBLIGATION" means all present and future indebtedness, obligations and
liabilities of Borrower to Lender, and all renewals and extensions thereof, or
any part thereof, arising pursuant to this Credit Agreement or represented by
the Note, including without limitation the Loan and all interest accruing
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thereon, and attorneys' fees incurred in the enforcement or collection thereof,
regardless of whether such indebtedness, obligations and liabilities are direct,
indirect, fixed, contingent, joint, several or joint and several; together with
all indebtedness, obligations and liabilities of Borrower evidenced or arising
pursuant to any of the other Credit Documents, and all renewals and extensions
thereof, or part thereof.
"PAYMENT DATE" means the first day of each month, commencing the first
day of the first month after the Closing Date, provided that if any such day is
not a Banking Day, then such Payment Date shall be the next successive Banking
Day.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or substantially all of the Pension Benefit Guaranty
Corporation's functions under ERISA.
"PERMITTED LIENS" means:
(a) Liens in Lender's favor.
(b) Liens for taxes not delinquent.
(c) Liens resulting from or hereafter arising from the TLD
Funding Credit Facility.
"PERSON" includes an individual, a corporation, a joint venture, a
partnership, a trust, a limited liability Borrower, an unincorporated
organization or a government or any agency or political subdivision thereof.
"PLAN" means an employee defined benefit plan or other plan maintained
by Borrower for employees of Borrower and covered by Title IV of ERISA, or
subject to the minimum funding standards under Section 412 of the Code.
"PLEDGE AGREEMENT": See Section 3.1(b) hereof.
"PRINCIPAL PAYMENTS": See Section 2.4(c) hereof.
"QUARTERLY END DATE" means each March 31, June 30, September 30 and
December 31.
"REGULATION U" means Regulation U promulgated by the Board of Governors
of the Federal Reserve System, 12 C.F.R. Part 221, or any other regulation
hereafter promulgated by said Board to replace the prior Regulation U and having
substantially the same function.
"REPORTABLE EVENT" means any "reportable event" as described in Section
4043(b) of ERISA with respect to which the thirty (30) day notice requirement
has not been waived by the PBGC.
"SECURITY AGREEMENT": See Section 3.1(a) hereof.
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"SECURITY DOCUMENTS": See Section 3.2 hereof.
"SEMICONDUCTOR EQUIPMENT" means, at any time, the semiconductor
equipment held as inventory by ATSI.
"SIGNIFICANT DEBT AGREEMENT" means all documents, instruments and
agreements executed by Borrower, evidencing, securing or ensuring any
Indebtedness of Borrower or any guaranty in excess of $100,000.00 in outstanding
principal (or principal equivalent) amount.
"SITEK": See the Preamble hereto.
"SUBSIDIARY" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"TLD FUNDING" means TLD Funding Group, Inc., an Arizona corporation.
"TLD FUNDING CREDIT FACILITY" means that certain credit facility
provided to Borrower by TLD Funding in an amount equal to $1,000,000.00 for the
purchase of equipment inventory.
"VAT TAXES" means value added taxes that may be imposed by the United
Kingdom.
1.2 REFERENCES. Capitalized terms shall be equally applicable to both the
singular and the plural forms of the terms therein defined. References to
"Credit Agreement," "this Agreement," "herein," "hereof," "hereunder," or other
like words mean this Credit Agreement as amended, supplemented, restated or
otherwise modified and in effect from time to time.
1.3 ACCOUNTING TERMS. Except as expressly provided to the contrary herein,
all accounting terms shall be interpreted and all accounting determinations
shall be made in accordance with GAAP, except as otherwise specifically provided
for herein. To the extent any change in GAAP affects any computation or
determination required to be made pursuant to this Credit Agreement, such
computation or determination shall be made as if such change in GAAP had not
occurred unless Borrower and Lender agree in writing on an adjustment to such
computation or determination to account for such change in GAAP.
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ARTICLE 2
THE LOAN
2.1 COMMITMENT. Subject to the conditions herein set forth, Lender agrees
to make the Loan available to or for the benefit of Borrower, and Borrower
agrees to draw upon the Loan, in the manner and upon the terms and conditions
herein expressed, amounts that shall not exceed the sum of $3,000,000.00.
2.2 NOTE. The Loan shall be evidenced by the Note.
2.3 ADVANCE. Lender shall disburse the Loan in a single advance, subject to
all of the terms and conditions provided herein for the purpose of refinancing
Borrower's existing inventory debt.
2.4 LOAN PAYMENTS. The Loan shall bear interest and be payable to Lender
upon the following terms and conditions:
(a) Interest on the Loan shall accrue at the rate of fifteen percent
(15.0%) per annum.
(b) All accrued interest on the Loan shall be due and payable on each
Payment Date.
(c) Fifty percent (50%) of the net proceeds (after VAT Taxes) of the
sale of the Semiconductor Equipment shall be due and payable three (3)
Banking Days after collection (in good and marketable funds), and fifty
percent (50%) of the proceeds from the Accounts Receivable shall be due and
payable three (3) Banking Days after collection (in good and marketable
funds) (collectively, "Principal Payments").
(d) If any Principal Payment and/or payment of interest is not
received by Lender when such payment is due, then in addition to the
remedies conferred upon the Lender under the Credit Documents, a late
charge of five percent (5%) of the amount of the installment due and unpaid
will be added to the delinquent amount to compensate the Lender for the
expense of handling the delinquency for any payment past due, regardless of
any notice and cure period.
(e) Upon the occurrence of an Event of Default and after maturity,
including maturity upon acceleration, the unpaid principal balance, all
accrued and unpaid interest and all other amounts payable hereunder shall
bear interest at the Default Rate.
(f) The unpaid principal balance, all accrued and unpaid interest and
all other amounts payable hereunder with respect to the Loan shall be due
and payable in full on the Maturity Date.
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2.5 PRINCIPAL PREPAYMENTS; EXCESS BALANCE PAYMENT. Borrower may prepay the
outstanding principal balance of the Loan in whole or in part at any time prior
to the Maturity Date without penalty or premium as stated in such notice by
Borrower, provided that such prepayment also includes accrued interest to the
date of such prepayment on the principal amount prepaid.
2.6 METHOD OF PAYMENT. All payments of interest on the Note shall be made
to Lender before 2:00 p.m. (Inglewood, California local time), in immediately
available funds. All Principal Payments shall be made to Lender before 2:00 p.m.
(Inglewood, California local time), in immediately available funds no later than
three (3) Banking Days after Borrower has collected (in good and marketable
funds) the proceeds from the Accounts Receivable and/or the sale of
Semiconductor Equipment. All payments made on the Note shall be credited, to the
extent of the amount thereof, in the following manner: (i) first, to the payment
of costs, fees or other charges incurred in connection with the Loan; (ii)
second, to the payment of accrued interest on the Loan; and (iii) third, to the
reduction of the principal balance of the Loan.
2.7 ASSIGNMENT. Borrower shall have no right to the proceeds of the Loan
other than to have the same disbursed by Lender in accordance with the
disbursement provisions contained in this Credit Agreement. Any assignment or
transfer, voluntary or involuntary, of this Credit Agreement or any right
hereunder shall not be binding upon or in any way affect Lender without its
written consent.
2.8 FEES. In connection with the Loan, Borrower agrees to pay to Lender on
the Closing Date a non-refundable fee in the amount of $75,000.00 (the "Loan
Fee").
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ARTICLE 3
SECURITY
3.1 SECURITY. So long as any Loan is outstanding, Borrower shall cause such
Loan and Borrower's obligations under this Credit Agreement to be secured at all
times by the following:
(a) A valid and effective security agreement (the "Security
Agreement"), duly executed and delivered by or on behalf of Borrower,
granting Lender a valid and enforceable security interest in all of its
personal property as described therein, subject to no prior Liens except
for Permitted Liens.
(b) A pledge and irrevocable proxy security agreement from the
Borrower (the "Pledge Agreement"), assigning, transferring, pledging and
delivering to Lender and granting to Lender a security interest in all of
ATSI's common stock.
(c) Until such time as Lender shall obtain a perfected security
interest in ATSI's equipment inventory in the United Kingdom, Borrower
shall cause the Loan and Borrower's obligations under this Credit Agreement
to be guaranteed by Guarantor pursuant to the Guarantee Agreement. Lender
shall use best efforts to complete such perfection within twenty-one (21)
days of the Closing Date.
3.2 SECURITY DOCUMENTS. All of the documents required by this Article 3
shall be in form satisfactory to Lender and Lender's counsel, and, together with
any Financing Statements for filing and/or recording, and any other items
required by Lender to fully perfect and effectuate the liens and security
interests of Lender contemplated by the Security Agreement, and this Credit
Agreement, may heretofore or hereinafter be referred to as the "Security
Documents."
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ARTICLE 4
CONDITIONS PRECEDENT
The obligation of Lender to make the Loan is subject to the full prior
satisfaction of each of the following conditions precedent:
4.1 DISBURSEMENT OF LOAN. Prior to disbursing the Loan, Lender shall have
received the following each in form and substance satisfactory to Lender:
(a) THIS CREDIT AGREEMENT. This Credit Agreement, duly executed and
delivered to Lender by Borrower.
(b) THE NOTE. The Note, duly executed, drawn to the order of Lender
and otherwise as provided in Article 2 hereof.
(c) ORGANIZATIONAL DOCUMENTS. A copy of the current organizational
documents of Borrower, including all amendments thereto, certified as
current and complete by the appropriate authority of the state of its
formation, together with evidence of its good standing in its state of
formation.
(d) MEMBER AUTHORIZATION. An authorization signed by its members,
authorizing the Loan, the execution, delivery, and performance of this
Credit Agreement, the Note, the Credit Documents, and all advances of
credit hereunder.
(e) SECURITY AGREEMENT. The Security Agreement, duly executed and
delivered to Lender by Borrower.
(f) PLEDGE AGREEMENT. The Pledge Agreement, duly executed and
delivered to Lender by Borrower.
(g) GUARANTEE AGREEMENT. The Guarantee Agreement, duly executed and
delivered to Lender.
(h) LENDER'S FEES AND COSTS. Payment of the Loan Fee plus Lender's
other fees and costs.
(i) COMPLIANCE CERTIFICATE. A Compliance Certificate substantially in
the form of Exhibit "A" attached hereto, indicating that Borrower is in
compliance with the Financial Covenants as of June 30, 1999.
(j) FINANCING STATEMENTS. Financing Statements, duly executed and
delivered to Lender by Borrower.
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(k) ACCOUNTS RECEIVABLE. A listing and aging of the accounts
receivable of Borrower as of June 30, 1999.
(l) INVENTORY. A listing of Borrower's equipment inventory located in
the United Kingdom subject to Lender's Lien as of June 30, 1999.
(m) BORROWER'S FINANCIAL STATEMENTS. Borrower's 1998 fiscal year end
financial statements audited by a certified public accountant reasonably
acceptable to Lender and June 30, 1999 financial statements.
(n) UCC RELEASES. UCC-2 Termination Statements from TLD Funding.
(o) ADDITIONAL INFORMATION. Such other information and documents as
may reasonably be required by Lender or Lender's counsel.
4.2 NO EVENT OF DEFAULT. No Event of Default known to Borrower shall have
occurred and be continuing, or result from Lender's making of any Loan.
4.3 NO MATERIAL ADVERSE EFFECT. Since the date of the most recent financial
statements provided to Lender by Borrower, no change shall have occurred in the
business or financial condition of Borrower that could have a Material Adverse
Effect.
4.4 REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Article 5 hereof shall be true and correct in all material
respects, with the same force and effect as though made on and as of the Closing
Date (other than those of such representations which by their express terms
speak to a date prior to that date, which representations shall, in all material
respects, be true and correct as of such respective date).
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan, Borrower represents and warrants to
Lender that:
5.1 RECITALS. The recitals and statements of intent appearing in this
Credit Agreement are true and correct.
5.2 ORGANIZATION AND GOOD STANDING. It is duly organized, validly existing
and in good standing in all states and/or countries in which the nature of its
business and property makes such qualifications necessary or appropriate. It has
the legal power and authority to own its properties and assets and to transact
the business in which it is engaged and is or will be qualified in those states
and/or countries wherein the nature of its proposed business and property will
make such qualifications necessary or appropriate in the future.
5.3 AUTHORIZATION AND POWER. It has the power and requisite authority to
execute, deliver and perform this Credit Agreement, the Note and the other
Credit Documents to be executed by it; it is duly authorized to, and has taken
all action, corporate or otherwise, necessary to authorize it to, execute,
deliver and perform this Credit Agreement, the Note and such other Credit
Documents and is and will continue to be duly authorized to perform this Credit
Agreement, the Note and such other Credit Documents.
5.4 SECURITY DOCUMENTS. The liens, security interests and assignments
created by the Security Documents will, when granted, be valid, effective and
enforceable liens, security interests and assignments, except to the extent (if
any) otherwise agreed in writing by Lender.
5.5 NO CONFLICTS OR CONSENTS. Neither the execution and delivery of this
Credit Agreement, the Note or the other Credit Documents to which it is a party,
nor the consummation of any of the transactions herein or therein contemplated,
nor compliance with the terms and provisions hereof or with the terms and
provisions thereof, (a) will materially contravene or conflict with: (i) any
provision of law, statute or regulation to which it is subject, (ii) any
judgment, license, order or permit applicable to it, (iii) any indenture, credit
agreement, mortgage, deed of trust, or other agreement or instrument to which it
is a party or by which it may be bound, or to which it may be subject, or (b)
will violate any provision of its organizational documents. No consent,
approval, authorization or order of any court or Governmental Authority or other
Person is required in connection with the execution and delivery by it of the
Credit Documents or to consummate the transactions contemplated hereby or
thereby, or if required, such consent, approval, authorization or order shall
have been obtained.
5.6 NO LITIGATION. Except for those matters that have been previously
disclosed to Lender in writing, there are no actions, suits or legal, equitable,
arbitration or administrative proceedings pending, or to its actual knowledge
overtly threatened, against Borrower that would, if adversely determined, have a
Material Adverse Effect.
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5.7 FINANCIAL CONDITION. It has delivered to Lender copies of the
Borrower's most recent financial statements. Such financial statements, in all
material respects, fairly and accurately present the financial position of
Borrower as of such date, have been prepared in accordance with GAAP and neither
contain any untrue statement of a material fact nor fail to state a material
fact required in order to make such financial statement not misleading. Since
the date thereof, Borrower has not discovered any obligations, liabilities or
indebtedness (including contingent and indirect liabilities and obligations or
unusual forward or long-term commitments) which in the aggregate are material
and adverse to the financial position or business of Borrower that should have
been but were not reflected in such financial statements. No changes having a
Material Adverse Effect have occurred in the financial condition or business of
Borrower since the date of such financial statements.
5.8 TAXES. It has filed or caused to be filed all returns and reports which
are required to be filed by any jurisdiction, and has paid or made provision for
the payment of all taxes, assessments, fees or other governmental charges
imposed upon its properties, income or franchises, as to which the failure to
file or pay would have a Material Adverse Effect, except such assessments or
taxes, if any, which are being contested in good faith by appropriate
proceedings.
5.9 NO STOCK PURCHASE. No part of the proceeds of any financial
accommodation made by Lender in connection with this Credit Agreement will be
used to purchase or carry "margin stock," as that term is defined in Regulation
U, or to extend credit to others for the purpose of purchasing or carrying such
margin stock.
5.10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made herein shall survive the execution of this Credit Agreement and
delivery of all other documents and instruments in connection with the Loan
and/or this Credit Agreement, so long as Lender has any commitment to lend
hereunder and until the Loan has been paid in full and all of Borrower's
obligations under this Credit Agreement, the Note and all Security Documents
have been fully discharged. Any investigation at any time made by or on behalf
of Lender shall not diminish Lender's right to rely on the representations and
warranties herein.
5.11 ENFORCEABLE OBLIGATIONS. This Credit Agreement, the Note and the other
Credit Documents are the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
as limited by bankruptcy, insolvency or other laws or equitable principles of
general application relating to the enforcement of creditors' rights.
5.12 NO DEFAULT. No event or condition has occurred and is continuing that
constitutes an Event of Default.
5.13 SIGNIFICANT DEBT AGREEMENTS. It is not in default in any material
respect under any Significant Debt Agreement.
5.14 ERISA. (a) No Reportable Event has occurred and is continuing with
respect to any Plan; (b) PBGC has not instituted proceedings to terminate any
Plan; (c) neither the Borrower, any member of the Controlled Group, nor any
duly-appointed administrator of a Plan (i) has incurred any liability to PBGC
with respect to any Plan other than for premiums not yet due or payable or (ii)
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has instituted or intends to institute proceedings to terminate any Plan under
Section 4041 or 4041A of ERISA; and (d) each Plan of Borrower has been
maintained and funded in all material respects in accordance with its terms and
in all material respects in accordance with all provisions of ERISA applicable
thereto. Neither the Borrower nor any of its Subsidiaries participates in, or is
required to make contributions to, any Multi-employer Plan (as that term is
defined in Section 3(37) of ERISA).
5.15 COMPLIANCE WITH LAW. It is in substantial compliance with all laws,
rules, regulations, orders, writs, injunctions and decrees that are applicable
to it, or its properties, noncompliance with which would have a Material Adverse
Effect.
5.16 SOLVENT. It (both before and after giving effect to the Loan
contemplated hereby) is solvent, has assets having a fair value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured, and has, and will have, access to adequate capital
for the conduct of its business and the ability to pay its debts from time to
time incurred in connection therewith as such debts mature.
5.17 INVESTMENT BORROWER ACT. It is not, and is not directly or indirectly
controlled by, or acting on behalf of, any person which is, an "Investment
Borrower" within the meaning of the Investment Borrower Act of 1940, as amended.
5.18 TITLE. It has good and marketable title to the Collateral.
5.19 ENVIRONMENTAL MATTERS. Except as previously disclosed to Lender in
writing, it, to the best of its knowledge after due investigation, is in
compliance in all material respects with all applicable environmental, health
and safety statutes and regulations and Borrower does not have any material
contingent liability in connection with any improper treatment, disposal or
release into the environment of any hazardous or toxic waste or substance.
5.20 LICENSES, TRADENAMES. It, as of the date hereof, possesses all
necessary trademarks, tradenames, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with valid trademarks, tradenames, copyright patents and license rights of
others.
5.21 YEAR 2000 COMPLIANCE. Borrower and its Subsidiaries, as applicable,
have reviewed the areas within their operations and business which could be
adversely affected by, and have developed or are developing a program to address
on a timely basis, the Year 2000 Problem and have made related appropriate
inquiry of material suppliers and vendors, and based on such review and program,
the Year 2000 Problem will not have a material adverse effect upon their
financial condition, operations or business as now conducted. "Year 2000
Problem" means the possibility that any computer applications or equipment used
by Borrower may be unable to recognize and properly perform date sensitive
functions involving certain dates prior to and any dates on or after December
31, 1999.
5.22 EQUIPMENT AND ACCOUNTS RECEIVABLE LIEN. Upon TLD Funding releasing its
lien on the Semiconductor Equipment and Accounts Receivable, Lender shall have a
first priority security interest in the Semiconductor Equipment and Accounts
Receivable, and such equipment and accounts receivable shall not be subject to
any other liens or consignment.
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ARTICLE 6
AFFIRMATIVE COVENANTS
Until payment in full of the Loan and the complete performance of the
Obligation, Borrower agrees that:
6.1 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS. It shall deliver, or cause
to be delivered, to Lender each of the following:
(a) ANNUAL STATEMENTS OF BORROWER. As soon as available and in any
event within ninety (90) days after the close of each fiscal year of
Borrower, audited financial statements of Borrower, including its balance
sheet as of the close of such fiscal year and statements of income of
Borrower for such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable detail
and accompanied by an unqualified opinion thereon of independent public
accountants of recognized national standing selected by Borrower and
acceptable to Lender, to the effect that such financial statements have
been prepared in accordance with GAAP.
(b) MONTHLY STATEMENTS OF BORROWER. As soon as available, and in any
event within thirty (30) days after the end of each month (except for that
at the close of the fiscal year), copies of the balance sheet of Borrower
as of the end of such month, cash flow statement and statement of income of
Borrower for that month and for the portion of the fiscal year ending with
such month, in each case setting forth in comparative form the figures for
the corresponding period of the preceding fiscal year, all in reasonable
detail and fairly stated, certified by Borrower and prepared by Borrower in
accordance with GAAP.
(c) COMPLIANCE CERTIFICATE OF BORROWER. Within thirty (30) days after
the end of each quarter hereafter and ninety (90) days after the year of
each fiscal year of Borrower, a certificate signed by the chief financial
officer of the Borrower, substantially in the form of Exhibit "A" attached
hereto certifying that after a review of the activities of Borrower during
such period, Borrower has observed, performed and fulfilled each and every
obligation and covenant contained herein and no Event of Default exists
under any of the same or, if any Event of Default shall have occurred,
specifying the nature and status thereof, and stating that all financial
statements of Borrower delivered to Lender during the respective period
pursuant to Sections 6.1(a) and 6.1(b) hereof, to his/her knowledge, fairly
present in all material respect the financial position of the Borrower and
the results of its operations at the dates and for the periods indicated,
and have been prepared in accordance with GAAP, together with a calculation
of the Financial Covenants.
(d) GUARANTOR STATEMENTS. Within seven (7) days of the Closing Date,
personal financial statements of each individual Guarantor in form and
level of detail satisfactory to Lender.
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(e) WEEKLY REPORTS. Within five (5) days after the end of each week,
reports as to its collection of accounts receivable and sale of inventory
substantially in a form acceptable to Lender.
(f) OTHER INFORMATION. Such other information concerning the business,
properties or financial condition of Borrower as Lender shall reasonably
request.
6.2 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS; MANAGEMENT.
It will preserve and maintain its existence and all of its rights, privileges,
licenses, permits, franchises and other rights necessary or desirable in the
normal conduct of its business, conduct its business in an orderly and efficient
manner consistent with good business practices and maintain professional
management of its business.
6.3 OPERATIONS AND PROPERTIES. It will keep in good working order and
condition, ordinary wear and tear excepted, all of its assets and properties
which are necessary to the conduct of its business.
6.4 AUTHORIZATIONS AND APPROVALS. It will maintain, at its own expense, all
such governmental licenses, authorizations, consents, permits and approvals as
may be required to enable it to comply with its obligations hereunder and under
the other Credit Documents and to operate its businesses as presently or
hereafter duly conducted.
6.5 COMPLIANCE WITH LAW. It will comply with all applicable laws, rules,
regulations, and all final, nonappealable orders of any Governmental Authority
applicable to it or any of its property, business operations or transactions,
including without limitation, any environmental laws applicable to it, a breach
of which could result in a Material Adverse Effect.
6.6 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. It will pay and discharge (i)
all income taxes and payroll taxes, (ii) all taxes, assessments, fees and other
governmental charges imposed upon it or upon its income or profits, or upon any
property belonging to it, before delinquent, which become due and payable, (iii)
all lawful claims (including claims for labor, materials and supplies), which,
if unpaid, might become a Lien upon any of its property and (iv) all of its
Indebtedness as it becomes due and payable, except as prohibited hereunder;
provided, however, that it shall not be required to pay any such tax,
assessment, charge, levy, claims or Indebtedness if and so long as the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate actions and appropriate accruals and reserves therefor have been
established in accordance with GAAP.
6.7 COMPLIANCE WITH SIGNIFICANT DEBT AGREEMENTS AND OTHER AGREEMENTS. It
will comply in all material respects with (i) all Significant Debt Agreements,
and (ii) all agreements and contracts to which it is a party, a breach of which
could result in a Material Adverse Effect.
6.8 COMPLIANCE WITH CREDIT DOCUMENTS. It will comply with any and all
covenants and provisions of this Credit Agreement, the Note and all other Credit
Documents.
6.9 NOTICE OF DEFAULT. It will furnish to Lender immediately upon becoming
actually aware of the existence of any event or condition that constitutes an
Event of Default, a written notice specifying the nature and period of existence
thereof and the action which it is taking or proposes to take with respect
thereto.
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6.10 OTHER NOTICES. It will promptly notify Lender of (a) any Material
Adverse Effect, (b) any waiver, release or default under any Significant Debt
Agreement, (c) any claim not covered by insurance against Borrower or any of
Borrower's properties, and (d) the commencement of, and any material
determination in, any litigation with any third party or any proceeding before
any Governmental Authority affecting it, except litigation or proceedings which,
if adversely determined, would not have a Material Adverse Effect.
6.11 BOOKS AND RECORDS; ACCESS. Upon three (3) Banking Days notice from
Lender, it will give any authorized representative of Lender access during
normal business hours to, and permit such representative to examine, copy or
make excerpts from, any and all books, records and documents in its possession
of and relating to the Loan, and to inspect any of its properties. It will
maintain complete and accurate books and records of its transactions in
accordance with good accounting practices.
6.12 ERISA COMPLIANCE. With respect to its Plans, it shall (a) at all times
comply with the minimum funding standards set forth in Section 302 of ERISA and
Section 412 of the Code or shall have duly obtained a formal waiver of such
compliance from the proper authority; (b) at Lender's request, within thirty
(30) days after the filing thereof, furnish to Lender copies of each annual
report/return (Form 5500 Series), as well as all schedules and attachments
required to be filed with the Department of Labor and/or the Internal Revenue
Service pursuant to ERISA, in connection with each of its Plans for each year of
the plan; (c) notify Lender within a reasonable time of any fact, including, but
not limited to, any Reportable Event arising in connection with any of its
Plans, which constitutes grounds for termination thereof by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer such Plan, together with a statement, if requested by Lender, as to
the reason therefor and the action, if any, proposed to be taken with respect
thereto; and (d) furnish to Lender within a reasonable time, upon Lender's
request, such additional information concerning any of its Plans as may be
reasonably requested.
6.13 FURTHER ASSURANCES. It will make, execute or endorse, and acknowledge
and deliver or file or cause the same to be done, all such notices,
certifications and additional agreements, undertakings or other assurances, and
take any and all such other action, as Lender may, from time to time, deem
reasonably necessary or proper to fully evidence the Loan.
6.14 INSURANCE. It shall maintain in full force and effect at all times all
insurance coverages required under the terms of this Credit Agreement and/or the
Security Documents to which it is a party. In addition, it shall maintain in
full force and effect at all times:
(a) Policies of all risk coverage insurance covering all tangible
personalty in which Lender has been granted or obtained a security interest
to secure the Obligation, in coverage amounts not less than, from time to
time, the fair market value thereof.
(b) Policies of insurance evidencing personal liability and property
damage liability coverages in amounts not less than $1,000,000.00 (combined
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single limit for bodily injury and property damage), and an umbrella excess
liability coverage in an amount not less than $2,000,000.00 shall be in
effect with respect to Borrower.
(c) Policies of workers' compensation insurance in amounts and with
coverages as legally required.
Without limitation of the foregoing, it shall at all times maintain insurance
coverages in scope and amount not less than, and not less extensive than, the
scope and amount of insurance coverages customary in the trades or businesses in
which it is from time to time engaged. All of the aforesaid insurance coverages
shall be issued by insurers reasonably acceptable to Lender.
Copies of all policies of insurance evidencing such coverages in effect
from time to time and showing Lender as Lender's loss payee shall be delivered
to Lender within fifteen (15) days of the Closing Date and upon reasonable
notice upon issuance of new policies thereafter. From time to time, promptly
upon Lender's request, it shall provide evidence satisfactory to Lender (i) that
required coverage in required amounts is in effect, and (ii) that Lender is
shown as Lender's loss payee with respect to all such coverages, as Lender's
interest may appear, by standard (non-attribution) loss payable endorsement,
additional insured endorsement, insurer's certificate or other means acceptable
to Lender in its reasonable discretion. At Lender's option, it shall deliver to
Lender certified copies of all such policies of insurance in effect from time to
time, to be retained by Lender so long as Lender shall have any commitment to
lend hereunder and/or any portion of the Obligation shall be outstanding or
unsatisfied. All such insurance policies shall provide for at least thirty (30)
days prior written notice of the cancellation or modification thereof to Lender.
6.15 YEAR 2000 COMPLIANCE. It will perform all acts reasonably necessary to
ensure that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) all customers, suppliers and vendors that are material to
Borrower's business, become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive review and
assessment of all Borrower's systems and adopting a detailed plan, with itemized
budget, for the remediation, monitoring and testing of such systems. As used in
this paragraph, "Year 2000 Compliant" shall mean, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with the terms of this
paragraph as Bank may from time to time require.
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ARTICLE 7
NEGATIVE COVENANTS
Until payment in full of the Loan and the performance of the Obligation,
Borrower shall not, without receiving the prior express written consent of
Lender:
7.1 NO DEBT. ATSI shall not become or remain obligated either directly or
as a guarantor or surety for any Indebtedness for borrowed money, or for any
Indebtedness incurred in connection with the acquisition of any property, real
or personal, tangible or intangible including, but not limited to, lease
purchase agreements, except:
(a) Indebtedness to the Lender.
(b) Leases and specific equipment financed by TLD Funding.
(c) Indebtedness secured by liens permitted under Section 7.2 hereof.
Notwithstanding anything contained herein, ATSI may obtain additional financing
for new equipment from TLD Funding pursuant to the TLD Funding Credit Facility
provided that ATSI shall inform Lender in writing of such new financing on the
date of such financing.
7.2 LIENS. On and after the date hereof, Borrower will not create or suffer
to exist Liens upon its property, real or personal, including without limitation
its patents, copyrights and trademarks, except (i) Liens, if any, for the
benefit of Lender, and (ii) Permitted Liens.
7.3 EXISTENCE. Dissolve or liquidate, or merge or consolidate with or into
any other entity, or turn over the management or operation of its property,
assets or business to any other Person or make any substantial change in the
character of its business.
7.4 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Amend its organizational
documents if the result thereof could result in the occurrence directly or
indirectly of a Material Adverse Effect.
7.5 MARGIN STOCK. Use any proceeds of the Loan, or any proceeds of any
other or future financial accommodation from Lender for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any "margin stock"
as that term is defined in Regulation U or to reduce or retire any indebtedness
undertaken for such purposes within the meaning of said Regulation U, and will
not use such proceeds in a manner that would involve Borrower in a violation of
Regulation U or of any other Regulation of the Board of Governors of the Federal
Reserve System, nor use such proceeds for any purpose not permitted by Section 7
of the Exchange Act, or any of the rules or regulations respecting the
extensions of credit promulgated thereunder.
7.6 DISTRIBUTIONS. Declare or pay any dividends or make any distribution of
any kind, other than in the event of an initial public offering, a distribution
for settlement of company liabilities up to $150,000.00.
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7.7 [Intentionally deleted.]
7.8 TRANSFER COLLATERAL. Assign, transfer or convey any of its right, title
and interest in the Collateral; provided, however, that ATSI may transfer cash
to any Subsidiary of Borrower solely for the purpose of funding normal operating
expenses of such Subsidiary provided that no Event of Default and no event, that
with the giving of notice or the passage of time, or both, would be an Event of
Default (including, but not limited to, the failure to make Principal Payments
as provided herein and in the Note), shall have occurred and be continuing on
the date of such transfer of cash.
7.9 MERGER; SALE OF ASSETS. (i) Sell, lease, transfer or dispose of
substantially all of the Collateral to another entity; or (ii) consolidate with
or merge the Collateral into another entity, or permit any transfer of the
ownership of the Collateral, permit any other entity to merge into it or
consolidate with it, or permit any transfer of the ownership or power to
control, Borrower.
7.10 FINANCIAL COVENANTS. Permit its Net Income for any two (2) consecutive
fiscal months for any fiscal year to be less than zero (i.e. net loss).
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ARTICLE 8
EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. An "Event of Default" shall exist if any one or more
of the following events (herein collectively called "Events of Default") shall
occur and be continuing:
(a) Borrower shall fail to pay any principal of, or interest on, the
Note when the same shall become due or payable and such failure continues
for five (5) Banking Days after notice thereof to Borrower.
(b) Any failure or neglect to perform or observe any of the covenants,
conditions, provisions or agreements of Borrower contained herein, or in
any of the other Credit Documents (other than a failure or neglect
described in one or more of the other provisions of this Section 8.1) and
such failure or neglect either cannot be remedied or, if it can be
remedied, it continues unremedied for a period of fifteen (15) days after
written notice thereof to Borrower.
(c) Any warranty, representation or statement contained in this Credit
Agreement or any of the other Credit Documents, or which is contained in
any certificate or statement furnished or made to Lender pursuant hereto or
in connection herewith or with the Loan, shall be or shall prove to have
been false when made or furnished.
(d) The occurrence of any material "event of default" or "default" by
Borrower under any Credit Document, or any agreement, now or hereafter
existing, to which Lender or an Affiliate of Lender, and Borrower or an
Affiliate of Borrower are a party.
(e) Borrower shall (i) fail to pay any Indebtedness of Borrower (other
than the Note) due under any Significant Debt Agreement, or any interest or
premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) or within any applicable
grace period, (ii) fail to perform or observe any term, covenant, or
condition on its part to be performed or observed under any agreement or
instrument relating to such Indebtedness, within any applicable grace
period when required to be performed or observed, if the effect of such
failure to perform or observe is to accelerate the maturity of such
Indebtedness, or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
prepayment), prior to the stated maturity thereof, or (iii) allow the
occurrence of any material event of default with respect to such
Indebtedness.
(f) Any one or more of the Credit Documents shall have been determined
to be invalid or unenforceable against Borrower executing the same in
accordance with the respective terms thereof, or shall in any way be
terminated or become or be declared ineffective or inoperative, so as to
deny Lender the substantial benefits contemplated by such Credit Document
or Credit Documents.
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(g) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of itself or of all
or a substantial part of its assets, (ii) file a voluntary petition in
bankruptcy or admit in writing that it is unable to pay its debts as they
become due, (iii) make a general assignment for the benefit of creditors,
(iv) file a petition or answer seeking reorganization of an arrangement
with creditors or to take advantage of any bankruptcy or insolvency laws,
(v) file an answer admitting the material allegations of, or consent to, or
default in answering, a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate action for
the purpose of effecting any of the foregoing
(h) An involuntary petition or complaint shall be filed against
Borrower, seeking bankruptcy or reorganization of Borrower, or the
appointment of a receiver, custodian, trustee, intervenor or liquidator of
Borrower, or all or substantially all of its assets, and such petition or
complaint shall not have been dismissed within sixty (60) days of the
filing thereof; or an order, order for relief, judgment or decree shall be
entered by any court of competent jurisdiction or other competent authority
approving a petition or complaint seeking reorganization of Borrower,
appointing a receiver, custodian, trustee, intervenor or liquidator of
Borrower, or all or substantially all of its assets, and such order,
judgment or decree shall continue unstayed and in effect for a period of
sixty (60) days.
(i) Any final judgment(s) (excluding those the enforcement of which is
suspended pending appeal) for the payment of money in excess of the sum of
$100,000 in the aggregate (other than any judgment covered by insurance
where coverage has been acknowledged by the insurer) shall be rendered
against Borrower, and such judgment or judgments shall not be satisfied,
settled, bonded or discharged at least ten (10) days prior to the date on
which any of its assets could be lawfully sold to satisfy such judgment.
(j) Either (i) proceedings shall have been instituted to terminate, or
a notice of termination shall have been filed with respect to, any Plans
(other than a Multi-Employer Pension Plan as that term is defined in
Section 4001(a)(3) of ERISA) by Borrower, any member of the Controlled
Group, PBGC or any representative of any thereof, or any such Plan shall be
terminated, in each case under Section 4041 or 4042 of ERISA, and such
termination shall give rise to a liability of the Borrower or the
Controlled Group to the PBGC or the Plan under ERISA having an effect in
excess of $100,000 or (ii) a Reportable Event, the occurrence of which
would cause the imposition of a lien in excess of $100,000 under Section
4062 of ERISA, shall have occurred with respect to any Plan (other than a
Multi-Employer Pension Plan as that term is defined in Section 4001(a)(3)
of ERISA) and be continuing for a period of sixty (60) days.
(k) Any of the following events shall occur with respect to any Multi-
Employer Pension Plan (as that term is defined in Section 4001(a)(3) of
ERISA) to which Borrower contributes or contributed on behalf of its
employees and Lender determines in good faith that the aggregate liability
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likely to be incurred by Borrower, as a result of any of the events
specified in Subsections (i), (ii) and (iii) below, will have an effect in
excess of $100,000; (i) Borrower incurs a withdrawal liability under
Section 4201 of ERISA; (ii) any such plan is "in reorganization" as that
term is defined in Section 4241 of ERISA; or (iii) any such Plan is
terminated under Section 4041A of ERISA.
(l) The occurrence of a change in the ownership structure without the
written consent of Lender, which will not be unreasonably withheld.
(m) The dissolution, liquidation, sale, transfer, lease or other
disposal of all or substantially all of the assets or business of Borrower.
(n) Any failure to observe any of the Financial Covenants.
(o) A substantial change of the Borrower's executive management group.
(p) The occurrence of any adverse change in the financial condition of
Borrower that Lender in its reasonable discretion deems material, or if
Lender in good faith shall believe that the prospect of payment or
performance of the Loan is impaired.
8.2 REMEDIES UPON EVENT OF DEFAULT. If an Event of Default shall have
occurred and be continuing, then Lender may, at its sole option, exercise any
one or more of the following rights and remedies, and any other remedies
provided in any of the Credit Documents, as Lender in its sole discretion may
deem necessary or appropriate, all of which remedies shall be deemed cumulative,
and not alternative:
(i) Declare the principal of, and all interest then accrued on,
the Note and any other liabilities hereunder to be forthwith due and
payable, whereupon the same shall become immediately due and payable
without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind
all of which Borrower hereby expressly waives, anything contained
herein or in the Note to the contrary notwithstanding,
(ii) Reduce any claim to judgment, and/or
(iii) Without notice of default or demand, pursue and enforce any
of Lender' rights and remedies under the Credit Documents, or
otherwise provided under or pursuant to any applicable law or
agreement; provided, however, that if any Event of Default specified
in Sections 8.1(g) and 8.1(h) shall occur, the principal of, and all
interest on, the Note and other liabilities hereunder shall thereupon
become due and payable concurrently therewith, without any further
action by Lender and without presentment, demand, protest, notice of
default, notice of acceleration or of intention to accelerate or other
notice of any kind, all of which Borrower hereby expressly waives.
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Upon the occurrence and during the continuance of any Event of Default,
Lender is hereby authorized at any time and from time to time, with five (5)
days notice to Borrower, to setoff and apply any and all moneys, securities or
other property of Borrower and the proceeds therefrom, now or hereafter held or
received by or in transit to Lender or its agents, from or for the account of
Borrower, whether for safe keeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special) and credits
of Borrower, and any and all claims of Borrower against Lender at any time
existing. Lender agrees promptly to notify Borrower prior to and after any such
setoff and application, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of Lender under
this Section 8.2 are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which Lender may have.
8.3 PERFORMANCE BY LENDER. Should Borrower fail to perform any covenant,
duty or agreement with respect to the payment of taxes, obtaining licenses or
permits, or any other requirement contained herein or in any of the Credit
Documents within the period provided herein, if any, for correction of such
failure, Lender may, with five (5) days prior notice, at its option, perform or
attempt to perform such covenant, duty or agreement on behalf of Borrower. In
such event, Borrower shall, at the request of Lender, promptly pay any amount
expended by Lender in such performance or attempted performance to Lender at its
office in Inglewood, California, together with interest thereon at the Default
Rate, from the date of such expenditure until paid. Notwithstanding the
foregoing, it is expressly understood that Lender does not assume any liability
or responsibility for the performance of any duties of Borrower hereunder or
under any of the Credit Documents or other control over the management and
affairs of Borrower.
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ARTICLE 9
MISCELLANEOUS
9.1 MODIFICATION. All modifications, consents, amendments or waivers of any
provision of any Credit Document, or consent to any departure by Borrower
therefrom, shall be effective only if the same shall be in writing and accepted
by Lender.
9.2 WAIVER. No failure to exercise, and no delay in exercising, on the part
of Lender, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other further exercise thereof
or the exercise of any other right. The rights of Lender hereunder and under the
Credit Documents shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Credit Agreement, the Note or
any Credit Documents, nor consent to departure therefrom, shall be effective
unless in writing and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.
9.3 PAYMENT OF EXPENSES. Borrower shall pay all costs and expenses of
Lender (including, without limitation, the attorneys' fees of Lender's legal
counsel) incurred by Lender in connection with the documentation of the Loan,
and the preservation and enforcement of Lender's rights under this Credit
Agreement, the Note, and/or the other Credit Documents; provided, however, that
notwithstanding the aforesaid, with respect to any legal action between the
parties hereto that is pursued to judgment the prevailing party only shall be
reimbursed by the other party for all costs and expenses (including, without
limitation, reasonable attorneys' fees and costs) incurred in connection with
the preservation and enforcement of its rights under this Credit Agreement, the
Note and/or other Credit Documents. In addition, Borrower shall pay all costs
and expenses of Lender in connection with the negotiation, preparation,
execution and delivery of any and all amendments, modifications and supplements
of or to this Credit Agreement, the Note or any other Credit Document. Borrower
shall receive a written estimate of all legal fees and related legal costs and
will have an opportunity to review all such estimates prior to its approval,
which shall not be unreasonably withheld.
9.4 NOTICES. Except for telephonic notices permitted herein, any notices or
other communications required or permitted to be given by this Credit Agreement
or any other documents and instruments referred to herein must be (i) given in
writing and personally delivered or mailed by prepaid certified or registered
mail or sent by overnight delivery service, or (ii) made by telefacsimile
delivered or transmitted, to the party to whom such notice or communication is
directed, to the address of such party as follows:
Borrower: SITEK, Incorporated
1817 West 4th Street
Tempe, Arizona 85281
Attention: Gloria Zemla - CFO
Telecopier: (602) __________
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with a copy to: Robert S. Bornhoft, Esq.
Quarles & Brady
One East Camelback Road
Suite 400
Phoenix, Arizona 85012
Telecopier: (602) __________
Lender: Imperial Bank
9920 South La Cienega Boulevard
Suite 636
Inglewood, California 90301
Attention: Lending Services
Telecopier: (310) 417-5695
With a copy to: Imperial Bank
400 East Van Buren
Suite 900
Phoenix, Arizona 85004
Attention: Edmund Ozorio
Telecopier: (602) 261-7881
Any notice to be personally delivered may be delivered to the principal offices
(determined as of the date of such delivery) of the party to whom such notice is
directed. Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is personally delivered
as aforesaid; or, if mailed, on the third day after it is mailed as aforesaid;
or, if transmitted by telefacsimile, on the day that such notice is transmitted
as aforesaid. Any party may change its address for purposes of this Credit
Agreement by giving notice of such change to the other parties pursuant to this
Section 9.4.
9.5 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL. The Loan
Documents shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of California, except to the extent
Lender has greater rights or remedies under Federal law, whether as a national
bank or otherwise, in which case such choice of California law shall not be
deemed to deprive Lender of any such rights and remedies as may be available
under Federal law. Subject to the provisions of Section 9.6 hereof, each party
consents to the personal jurisdiction and venue of the state courts located in
Los Angeles, State of California in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient and agrees that any litigation initiated by any of them in connection
with this Agreement shall be venued in the Superior Court of Los Angeles County,
California. The parties waive any right to trial by jury in any action or
proceeding based on or pertaining to this Agreement or any of the Credit
Documents.
9.6 REFERENCE PROVISION.
(a) Each controversy, dispute or claim ("Claim") between the parties
arising out of or relating to this Agreement and/or any of the Credit
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Documents, which is not settled in writing within ten days after the "Claim
Date" (defined as the date on which a party gives written notice to all
other parties that a controversy, dispute or claim exists), will be settled
by a reference proceeding in Los Angeles, California, in accordance with
the provisions of Section 638 ET SEQ. of the California Code of Civil
Procedure, or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any Claim, including whether such
Claim is subject to the reference proceeding and the parties waive their
rights to initiate any legal proceedings against each other in any court or
jurisdiction other than the Superior Court of Los Angeles (the "Court").
The referee shall be a retired Judge selected by mutual agreement of the
parties, and if they cannot so agree with in thirty days (30) after the
Claim Date, the referee shall be selected by the Presiding Judge of the
Court. The referee shall be appointed to sit as a temporary judge, as
authorized by law. The referee shall (a) be requested to set the matter for
hearing within sixty (60) days after the Claim Date and (b) try any and all
issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered
by the referee will be final, binding and conclusive and judgment shall be
entered pursuant to CCP 644 in the Court. All discovery permitted by this
Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for
any reason whatsoever, including, without limitation, legal objections
raised to such discovery or unavailability of a witness due to absence or
illness. No party shall be entitled to "priority" in conducing discovery.
Depositions may be taken by either party upon seven (7) days written
notice, and, request for production of inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
(b) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the
State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable
orders that will be binding upon the parties. The referee shall issue a
single judgment at the close of the reference proceeding which shall
dispose of all of the claims of the parties that are the subject to the
reference. The parties hereto expressly reserve the right to contest or
appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties expressly reserve the right to
findings of fact, conclusions of law, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial,
if granted, is also to be a reference proceeding under this provision.
(c) No provision of Paragraphs (a) or (b) of this Section 9.6,
however, shall limit the right of Lender to bring action for possession of
any collateral in any jurisdiction, wherever located, in accordance with
the provisions of the Security Documents.
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9.7 INVALID PROVISIONS. If any provision of any Credit Document is held to
be illegal, invalid or unenforceable under present or future laws during the
term of this Credit Agreement, such provision shall be fully severable; such
Credit Document shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of such Credit Document; and
the remaining provisions of such Credit Document shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from such Credit Document. Furthermore, in lieu of
each such illegal, invalid or unenforceable provision there shall be added as
part of such Credit Document a provision mutually agreeable to Borrower and
Lender as similar in terms to such illegal, invalid or unenforceable provision
as may be possible and be legal, valid and enforceable.
9.8 BINDING EFFECT. The Credit Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors, assigns and
legal representatives; provided, however, that Borrower may not, without the
prior written consent of Lender, assign any rights, powers, duties or
obligations thereunder.
9.9 ENTIRETY. The Credit Documents embody the entire agreement between the
parties and supersede all prior agreements and understandings, if any, relating
to the subject matter hereof and thereof.
9.10 HEADINGS. Section headings are for convenience of reference only and
shall in no way affect the interpretation of this Credit Agreement.
9.11 SURVIVAL. All representations and warranties made by Borrower herein
shall survive delivery of the Note and the making of the Loan.
9.12 NO THIRD PARTY BENEFICIARY. The parties do not intend the benefits of
this Credit Agreement to inure to any third party, nor shall this Credit
Agreement be construed to make or render Lender liable to any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Borrower, or for debts or claims accruing to any such persons against
Borrower. Notwithstanding anything contained herein or in the Note, or in any
other Credit Document, or any conduct or course of conduct by any or all of the
parties hereto, before or after signing this Credit Agreement or any of the
other Credit Documents, neither this Credit Agreement nor any other Credit
Document shall be construed as creating any right, claim or cause of action
against Lender, or any of its officers, directors, agents or employees, in favor
of any materialman, supplier, contractor, subcontractor, purchaser or lessee of
any property owned by Borrower, nor to any other person or entity other than
Borrower.
9.13 TIME. Time is of the essence hereof.
9.14 SCHEDULES AND EXHIBITS INCORPORATED. All schedules and exhibits
attached hereto, if any, are hereby incorporated into this Credit Agreement by
each reference thereto as if fully set forth at each such reference.
-28-
<PAGE>
9.15 COUNTERPARTS. This Credit Agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Credit Agreement as
of the day and year first above written.
SITEK, INCORPORATED, a Delaware corporation
By:
-------------------------------------------
Name: Don M. Jackson, Jr.
-----------------------------------------
Title: President
----------------------------------------
ADVANCED TECHNOLOGY SERVICES, INC., an
Arizona corporation
By:
-------------------------------------------
Name: Don M. Jackson, Jr.
-----------------------------------------
Title: Chairman
----------------------------------------
IMPERIAL BANK, a California banking corporation
By:
-------------------------------------------
Name: Edmund Ozorio
-----------------------------------------
Title: Vice President
----------------------------------------
-29-
<PAGE>
EXHIBIT "A"
COMPLIANCE CERTIFICATE
FOR PERIOD ENDING
------------------
("REPORTING PERIOD")
Imperial Bank Arizona
400 East Van Buren
Suite 900
Phoenix, Arizona 85004
Attention: Edmund Ozorio
Telecopier: (602) 261-7881 Date:_____________(1)
Dear Ladies and Gentlemen:
This Compliance Certificate refers to the Credit Agreement dated as of July
16, 1999 (as it may hereafter be amended, modified, extended or restated from
time to time, the "Credit Agreement"), between SITEK, Incorporated, a Delaware
corporation and Advanced Technology Services, Inc., an Arizona corporation
(together, the "Borrower") and Imperial Bank, a California banking corporation.
Capitalized terms used and not otherwise defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
Pursuant to Section 6.1 of the Credit Agreement, the undersigned, hereby
certifies that:
1. To the best of the undersigned's knowledge, after a review of the
activities of Borrower during the Reporting Period, Borrower has observed,
performed and fulfilled each and every obligation and covenant contained in the
Credit Agreement and no "Event of Default" thereunder exists [or if so,
specifying the nature and extent thereof and any corrective actions taken or to
be taken].
- ----------
(1) To be submitted within 30 days after the end of each quarter.
<PAGE>
2. All financial statements of Borrower delivered to Lender during the
Reporting Period, to the undersigned's knowledge, fairly present in all material
respect the financial position of the Borrower and the results of its operations
at the dates and for the periods indicated and have been prepared in accordance
with GAAP.
3. Pursuant to Section 7.10 of the Credit Agreement, as of the Reporting
Date, the Borrower _____ satisfies _____ does not satisfy the requirements that
the Borrower not incur a net loss in any two (2) consecutive months.
SITEK, INCORPORATED, a Delaware corporation
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
ADVANCED TECHNOLOGY SERVICES, INC., an
Arizona corporation
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
-2-
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (the "Agreement"), by and among SITEK,
Incorporated, a Delaware corporation (the "Company"), and certain of the
Company's shareholders indicated on the signature pages of this Agreement (the
"Shareholders"), is effective as of August 1, 1999.
RECITALS
A. The Shareholders determined that it is in their respective best
interests to restrict the transfer of the common stock of the Company held by
the Shareholders and certain subsequent shareholders and to provide for the
repurchase of such common stock under certain circumstances. The number of
shares of the common stock issued and outstanding on the date of this Agreement
to each Shareholder are set forth on EXHIBIT A attached to this Agreement.
B. The purpose of this Agreement is to impose certain restrictions, which
the Shareholders and the Company agree are reasonable, on the transfer and
disposition by the Shareholders of their shares of common stock of the Company,
and provide certain rights to the Company and the Shareholders to repurchase
from the Shareholders all or a portion of their shares of common stock under
certain circumstances. The shares of common stock of the Company may be
repurchased by the Company at increasing cost and decreasing number of shares in
recognition of the services performed by the Shareholders for the Company during
the term of this Agreement.
AGREEMENTS
In consideration of their mutual promises contained in this Agreement, the
parties to this Agreement agree as follows:
1. GENERAL RESTRICTION. Until August 1, 2001, except as expressly permitted
by this Agreement, no Shareholder shall transfer in any manner or permit to be
transferred in any manner, any shares of common stock of the Company ("Shares"),
which are now owned or which hereafter may be acquired by such Shareholder prior
to August 1, 2001. For purposes of this Agreement, reference to a "transfer" of
the Shares means any disposition of the Shares or any interest in the Shares,
including, without limitation, any sale, gift, assignment, pledge or
encumbrance, whether such disposition occurs voluntarily, by operation of law or
otherwise. Except as otherwise expressly provided in this Agreement, any Shares
transferred (whether or not in compliance with the terms of this Agreement) will
continue to be subject to the provisions and restrictions contained in this
Agreement, and any transferee of such Shares will be deemed to have accepted and
consented to be bound by the provisions and restrictions of this Agreement as if
such transferee had originally executed this Agreement as a party to this
Agreement.
<PAGE>
2. VOLUNTARY SALE.
(a) GENERAL. One or more Shareholders (collectively, "Offering
Shareholder") who receives a bona fide written offer ("Third Party Offer") from
a purchaser (other than a Permitted Transferee, as defined later in this
Agreement) to purchase some or all of the Shares held by such Shareholder
("Offered Shares") may sell such Shares to such purchaser in accordance with
this Section 2.
(b) OFFER TO OTHER SHAREHOLDERS. The Offering Shareholder must first give
written notice ("Sale Notice") to the Company and all of the other Shareholders
(the "Other Shareholders") of the Third Party Offer, specifying the purchaser,
the price for the Offered Shares (the "Third Party Price") and the payment terms
of the proposed sale (the "Third Party Payment Terms"). The Sale Notice will
constitute an offer by the Offering Shareholder to sell the Offered Shares to
the Other Shareholders at the Third Party Price and on the Third Party Payment
Terms. The Other Shareholders have the exclusive right and option for a period
of 30 days after the date the Sale Notice is given ("First Option Period") to
accept such offer with respect to all of the Offered Shares. The Other
Shareholders purchase the Offered Shares on a pro rata basis in proportion to
each Other Shareholder's ownership of the Other Shareholders' total shares or in
such other proportion as the Other Shareholders they may agree on in writing, by
giving the Offering Shareholder written notice of intent to purchase the Offered
Shares within the First Option Period. Any Other Shareholder who accepts such
offer must notify the Offering Shareholder and the Other Shareholders in writing
of such acceptance within the First Option Period.
If the Other Shareholders do not purchase all of the Offered Shares within
the First Option Period, then the Other Shareholders who have elected to
exercise their option as set forth above (the "Electing Shareholders") shall
have the further exclusive right and option for a period of 20 days following
the expiration of the First Option Period ("Second Option Period"), to accept
the offer as to all of the remaining Offered Shares. Such option shall be
exercised by the Electing Shareholders on a pro rata basis in proportion to each
Electing Shareholder's ownership of the total of the Electing Shareholder's
shares, or in such other proportion as they may agree on in writing, by giving
the Offering Shareholder written notice of intent to purchase the Offered Shares
within the Second Option Period.
(c) OFFER TO THE COMPANY. If the option to purchase the Offered Shares is
not exercised by the Other Shareholders pursuant to Section 2(b) as to all of
the Offered Shares, then the Company shall have the exclusive right and option
for a period of 30 days after the expiration of the Second Option Period ("Third
Option Period"), in its own behalf and exercisable in the same manner as the
Other Shareholders, to accept the offer as to all of the remaining Offered
Shares. The Company may exercise such option by giving the Offering Shareholder
written notice of intent to purchase the Offered Shares within the Third Option
Period.
(d) RIGHT TO SELL. If the offers referred to in Sections 2(b) and 2(c) are
not accepted in the aggregate by the Company or the Other Shareholders as to all
of the Offered Shares within the applicable option periods, then the Offered
Shares may be sold by the Offering Shareholder to the proposed purchaser
specified in the Sale Notice at any time within 60 days after the expiration of
<PAGE>
the last option period, but only at the Third Party Price and on the Third Party
Payment Terms. The Offered Shares which are sold to the proposed purchaser will
not remain subject to the restrictions on such Shares set forth in this
Agreement. If the Offered Shares are not sold by the Offering Shareholder to the
proposed purchaser in accordance with this Section 2(d), or if there is a change
in any of the terms of the Third Party Offer, the Offered Shares may not be sold
to the proposed purchaser unless the Offering Shareholder again fully complies
with the provisions of Sections 2(b) and 2(c).
3. PERMITTED TRANSFERS. A Shareholder may, during his or her lifetime,
transfer Shares to his or her spouse, to a lineal ancestor or lineal descendant,
to a custodian or guardian for any such person, to the trustee or trustees of a
trust for the exclusive benefit of the Shareholder or any such person or persons
(a "Permitted Transferee"). However, as a condition to the transfer, the
Permitted Transferee must acknowledge and agree to be bound by the provisions of
this Agreement. Any Shares transferred to a Permitted Transferee will remain
subject to this Agreement following such transfer.
4. PLEDGE. A Shareholder may not pledge or otherwise grant a security
interest in the Shares unless the Shareholder obtains the written consent of the
Shareholders prior to granting any such pledge or other security interest and
the pledgee expressly acknowledges and agrees in writing to be bound by the
provisions of this Agreement.
5. DEATH OF A SHAREHOLDER.
(a) GENERAL. The provisions of this Section 5 will apply when Shares are
transferred by will, intestacy or other operation of law due to a Shareholder's
death. Upon the death of a Shareholder, the Shareholder's personal
representative must give written notice of such death to the Company and the
other Shareholders as soon as practicable, but in no event later than 90 days
after the appointment of the personal representative. Alternatively, the Company
or any other Shareholder with knowledge of such death may give written notice of
it to the Shareholder's personal representative, the Company and the other
Shareholders, as the case may be.
(b) OPTION TO PURCHASE. Upon the death of a Shareholder, first the
remaining Shareholders (excluding the spouse of the decedent and any of his
Permitted Transferees) and then the Company will have the exclusive right and
option to purchase from the decedent's personal representative, other successors
in interest of the decedent, if any (collectively, "Successors"), the decedent's
spouse and all of the decedent's Permitted Transferees, all of the Shares
registered in the name of the decedent's spouse and Permitted Transferees on the
date of the decedent's death. The option shall be exercisable first by the
remaining Shareholders and then by the Company within the option periods and
otherwise in the manner provided in Sections 2(b) and 2(c), at the Contract
Price in immediately available funds; provided, however, that for purposes of
this Section 5(b) the option periods specified in Sections 2(b) and 2(c) shall
begin to run from the date the written notice of the death of the Shareholder is
given pursuant to Section 5(a).
<PAGE>
6. CALL RIGHT ON OFFICER'S TERMINATION OF EMPLOYMENT.
(a) Upon termination of the Shareholder's employment relationship with the
Company, each of the Shareholders who is an employee of the Company as of the
date of this Agreement ("Employee Shareholders") must voluntarily offer to sell
a portion of his or her Shares to the Other Shareholders and the Company as
described below:
Percentage and price of
Employee Shareholder Shares Employee Shareholder
terminates employment: must offer to sell back:
---------------------- ------------------------
Between August 1, 1999 and July 31, 2000 50% at $0.25
Between August 1, 2000 and July 31, 2001 25% at $0.75
After July 31, 2001 0%
(b) If Employee Shareholder terminates his employment, he must notify the
Company of his or her employment termination, in writing, within seven days of
such termination or as otherwise required by Company policies or other
agreements with the Company, whichever is earlier. If the Company terminates
Employee Shareholder's employment, no notice is required other than that called
for under Shareholder Employee's other agreement(s) with the Company.
(c) The Other Shareholders are entitled to exercise such option within 30
days following their receipt of the notice of employment termination. The option
is exercisable first by the Other Shareholders and then by the Company within
the option periods and otherwise in the manner provided in Sections 2(b) and
2(c); provided, however, that for purposes of this Section 6 the option periods
specified in Sections 2(b) and 2(c) will begin to run from the date the written
notice of the employment termination is given pursuant to Section 6(b) and the
Shares will be offered at the price indicated in Section 6(a).
7. Death of Spouse; Marital Property.
(a) GENERAL. The creation of an interest in Shares registered in the name
of a Shareholder in favor of the Stockholder's spouse by operation of marital or
community property laws during the Shareholder's lifetime will not be a
violation of this Agreement as long as (i) the Shares in which such interest is
created continue to be registered solely in the name of such Shareholder and
(ii) such Shareholder maintains full management, voting and control rights with
respect to such Shares. The Shares of a Shareholder and any interest of such
Shareholder's spouse in such Shares will remain subject to this Agreement
regardless of the termination, for any reason, of their marital relationship.
During the marriage, such Shareholder's obligation to sell Shares registered in
his or her name pursuant to this Agreement will include any interest of the
Shareholder's spouse in such Shares.
(b) OPTION TO PURCHASE UPON DIVORCE. If (i) the marriage of a Shareholder
(the "Divorced Shareholder") is terminated by divorce, dissolution or legal
separation, (ii) the former spouse of such Divorced Shareholder owns Shares
registered in his or her name or is determined to have a marital, community or
other property interest in the Shares registered in the name of such Divorced
Shareholder and (iii) the Shares are not received by such Divorced Shareholder
<PAGE>
in accordance with a property settlement agreement, if any, or pursuant to the
decree of divorce, dissolution or legal separation, then the Divorced
Shareholder will have the option to purchase, and the former spouse of the
Divorced Shareholder must sell, if such option is exercised, all of the former
spouse's Shares registered in his or her name and all of the former spouse's
marital, community or other property interest in the Shares registered in the
name of the Divorced Shareholder. Such option may be exercised by the Divorced
Shareholder giving his or her former spouse written notice within six months
after the date of the entry of the decree of divorce, dissolution or legal
separation that the Divorced Stockholder has elected to exercise such option. If
the Divorced Shareholder does not exercise such option within such six month
period, then the Company will have the option to purchase from the former spouse
all such Shares registered in the former spouse's name and all of the marital,
community or other property interest in the Shares registered in the name of the
Divorced Shareholder. The Company may exercise its option to purchase the Shares
by giving the former spouse written notice within 30 days after the expiration
of such six month option period that the Company has elected to exercise such
option. The Shares and/or interest in the Shares purchased pursuant to this
Section 7(b) will be purchased at the Contract Price.
8. CONTRACT PRICE. The Contract Price shall be (i) the closing price for
the Shares as reported by the national exchange or market on which it is
publicly traded on the day preceding the day of payment, or (ii) if the Shares
are not reported by a national exchange or market, by agreement of the Company
and the selling Shareholder, or (iii) if no agreement can be made between the
aforementioned parties, by a qualified third party appraiser selected by mutual
agreement and whose fees will be paid equally by the Company and the selling
Shareholder ("Contract Price").
9. NOTICE. All notices required to be given under this Agreement will be
deemed to have been received by the parties on the date it is given by personal
delivery or by delivery via first class certified postage paid letter by the
United States Post Office to the proper party's address as identified below each
signature, and as modified from time to time in accordance with this section.
10. TRANSFER IN VIOLATION OF AGREEMENT. Any transfer or attempted transfer
of any Shares in violation of this Agreement shall be void.
11. LEGENDS ON CERTIFICATES. All certificates representing shares of common
stock of the Company now or hereafter subject to this Agreement will have the
following legend written, stamped or printed on the face or reverse thereof:
Any sale, assignment, transfer, pledge or other disposition of the shares
of stock represented by this certificate is restricted by and subject to
the terms of a Shareholders' Agreement effective August 1, 1999 and may be
sold, assigned, transferred, pledged or otherwise disposed of only upon
proof of compliance therewith. A copy of such Agreement is on file with the
Secretary of the Company. By acceptance of this Certificate, the holder
hereof agrees to be bound by the terms of such Agreement.
<PAGE>
12. TERMINATION OF AGREEMENT. This Agreement will terminate upon the
earlier of the written agreement of all parties hereto or August 1, 2001.
Thereafter any Shares otherwise subject to this Agreement may be transferred
free and clear of the restrictions to this Agreement. Upon the request of a
Shareholder, the Company must remove the restrictive legend referred to in
Section 11 from any Shares which are no longer subject to this Agreement.
13. SPECIFIC PERFORMANCE. The Shareholders and the Company agree it is
impossible to measure in money the damages which will accrue to them or to the
personal representative of a Shareholder by reason of a failure of any of them
to perform any of their obligations under this Agreement. Therefore, if any of
them shall institute any action or proceeding to enforce the provisions of this
Agreement, any person (including the Company) against whom such action or
proceeding is brought hereby waives the claim or defense that such person has an
adequate remedy at law, and such person shall not assert in any action or
proceeding the claim or defense that such remedy at law exists.
14. BINDING EFFECT. This Agreement is binding upon and inures to the
benefit of the Company, the Shareholders and their respective heirs, legatees,
trustees, custodians, personal representatives, guardians, executors,
administrators, successors, transferees and assigns.
15. AMENDMENTS. This Agreement may be waived, altered, amended or repealed,
in whole or in part, only by the written consent of the Company and the
Shareholders.
16. SEVERABILITY. The provisions contained in this Agreement are severable,
and in the event any one or more of the provisions hereof is determined for any
reason to be invalid, illegal or unenforceable, such determination shall not
affect the validity, legality or enforceability of the remaining provisions, and
the rights and obligations of the parties shall be construed and enforced as
though this Agreement did not contain such invalid, illegal or unenforceable
provision.
17. GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the internal laws of the State of Arizona. The Company and each
Shareholder agrees that all legal proceedings relating to a party's rights or
obligations under this Agreement must be heard by the state or federal courts
located in the State of Arizona, Maricopa County.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. ATTORNEY'S FEES AND COSTS. If the Company or a Shareholder initiates
and is the prevailing party in legal proceedings against the Company or another
Shareholder to enforce one or more provisions of this Agreement, such party will
be entitled to recover reasonable attorney's fees and costs incurred by such
party in enforcing such provision or provisions against the other parties to the
transaction.
20. GENDER. References in this Agreement to the masculine gender include
the feminine and neuter.
<PAGE>
21. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the Company and the Original Stockholders, and supersedes any prior agreements
between or among them relating to the subject matter hereof, except any
Employment Agreements between the Company and the Original Shareholders and the
Share Exchange Agreement and Registration Rights Agreement dated July 31, 1998,
between the Company and the Original Stockholders that became effective July 31,
1998.
/ / /
/ / /
/ / /
/ / /
/ / /
IN WITNESS WHEREOF, the Company and the Shareholders have executed this
Agreement as of the date first written above.
"COMPANY"
SITEK, Incorporated
Don Jackson, Jr., President
"SHAREHOLDERS"
Don Jackson, Jr.
Home Address
[Spouse's Signature]
_________________, solely for the purpose of
obligating the marital community with
Don Jackson, Jr. and their community assets,
but not with respect to her sole and
separate property
<PAGE>
Julian Gates
Home Address
Mark G. Simon
Home Address
[Spouse's Signature]
_________________, solely for the purpose of
obligating the marital community with Mark G.
Simon and their community assets, but not
with respect to her sole and separate
property
Vince Birdwell
Home Address
[Spouse's Signature]
_________________, solely for the purpose of
obligating the marital community with Vince
Birdwell and their community assets, but not
with respect to her sole and separate
property
Paul Burke
Home Address
Parag Modi
Home Address
<PAGE>
[Spouse's Signature]
_________________, solely for the purpose of
obligating the marital community with Parag
Modi and their community assets, but not with
respect to her sole and separate property
Kevin B. Jackson
Home Address
[Spouse's Signature]
_________________, solely for the purpose of
obligating the marital community with Kevin
B. Jackson and their community assets, but
not with respect to her sole and separate
property
Paul D. Jackson
Home Address
[Spouse's Signature]
________________, solely for the purpose of
obligating the marital community with Paul D.
Jackson and their community assets, but not
with respect to her sole and separate
property
<PAGE>
EXHIBIT A
SHAREHOLDER SHARES OF COMMON STOCK
----------- ----------------------
Vince Birdwell 952,054
Paul Burke 539,463
Julian Gates 1,186,200
Don Jackson 1,186,200
Kevin Jackson 948,960
Paul Jackson 1,186,200
Parag Modi 1,186,200
Mark Simon 1,186,200
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
SITEK INCORPORATED
FOUNDER-EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of July 2, 1999
by and between SITEK, Inc., a Delaware corporation ("SITEK"), and Mark Simon, an
individual and SITEK founder ("Simon"). An executive position may be occupied by
Simon in SITEK, one or more of its divisions or any of its wholly owned
subsidiaries ("Subsidiary"). This agreement is also binding for any Subsidiary
to which Simon is assigned.
Simon and SITEK wish to provide mutual promises and assurances that will define
the nature and terms and conditions of their relationship. Therefore, in
consideration of the mutual promises, acknowledgments and representations
herein, the parties agree as follows:
1. EMPLOYMENT AND DUTIES. Simon will work exclusively and on a full-time basis
for SITEK and shall devote his best efforts to accomplishing the goals and
objectives mutually established with SITEK's Chief Executive Officer ("CEO").
Simon's primary title shall be Vice President of SITEK. Simon may also have
titles and executive responsibilities for one or more SITEK divisions or
subsidiaries.
2 TERM. Employment under this Agreement shall commence on the effective date and
shall continue for a period of five (5) years, unless earlier terminated as set
forth in Section 5 below. Thereafter, this Agreement shall automatically renew
for additional three (3)-year terms unless either party gives the other written
notice of non-renewal at least six (6) months prior to the expiration of the
initial term or any renewal term.
3 COMPENSATION.
(a) BASE SALARY. SITEK agrees to pay Simon a base salary, before deducting all
applicable withholdings, at the rate of $120,000 per year, which shall be
payable in accordance with SITEK's standard payroll policies as they may be
revised from time to time. SITEK shall consider increases in the annual
rate of pay to be effective on Simon's anniversary date of each year,
commencing on the anniversary date in the year 1999.
(b) INCENTIVE BONUS. Simon shall be entitled to participate in a bonus plan for
SITEK Executives. By meeting specific objectives established with the CEO,
Simon may earn, in addition to his base salary, an incentive bonus of up to
40% of Simon's base salary per year based one-half on Simon's individual
performance (as mutually agreed upon with the CEO) and one half on the
Executive staff's achieving its planned and budgeted operating income goals
for the company. This incentive bonus will be paid on an annual basis not
later than the end of the third fiscal month of each following fiscal year.
<PAGE>
(c) AUTO ALLOWANCE. Simon is entitled to an automobile allowance of $650 per
month (after withholding), paid on the last day of the month as a payroll
item. Payment of Auto Allowance shall begin on condition of cash
availability.
4. BENEFITS. In addition to the compensation described above, while Simon is
employed, SITEK shall provide Simon the benefits described in this section. All
benefits shall terminate upon expiration or termination of this Agreement and
unused benefits shall have no cash value and shall not be compensated to Simon
upon termination or expiration of this agreement.
(a) HEALTH AND MEDICAL INSURANCE. SITEK shall pay for and provide Simon and his
family with the same type of health, medical, dental and vision insurance
as is provided from time to time to all of SITEK's Founder Executives.
(b) LIFE AND DISABILITY INSURANCE. SITEK will purchase a term life insurance
policy for Simon in an amount equal to five (5) times Simon's annual income
provided Simon meets all the usual and customary qualifying criteria
established by Simon's life insurance provider. In addition to any
disability income available from the Arizona Worker's Compensation Fund,
SITEK shall also purchase a long-term disability insurance policy for Simon
that will provide a disability benefit to Simon equal to one-half of
Simon's annual income. Simon shall be subject to all exclusions,
limitations and restrictions contained in the life and disability policies
provided and SITEK shall not be a guarantor of any benefits available under
these policies.
(c) PAID TIME OFF. Simon shall have three weeks annual vacation. If Simon is
unable, due to the demands of his position, take vacation, the vacation
shall accrue into the next year. Simon may accrue unused vacation up to 27
weeks. Simon shall also be entitled to an additional 10 working days of
time off for personal business or illness. Personal business or illness
shall not accrue from year to year.
(d) EXPENSE REIMBURSEMENT. SITEK shall, upon receipt of appropriate
documentation, reimburse Simon for his reasonable travel, lodging and other
ordinary and necessary business expenses consistent with SITEK's policies
as in effect from time to time.
(e) 401K PROGRAM. When such plan becomes available, Simon will be eligible to
participate in SITEK's 401K retirement program under the same terms as
those applicable to all SITEK Executives.
<PAGE>
5. TERMINATION. SITEK may terminate this Agreement at any time in the manner
provided herein. Simon may terminate this Agreement at any time upon delivery of
thirty days' written notice. Termination of this Agreement shall terminate
completely Simon's employment with SITEK.
(a) NOTICE OF NON-RENEWAL. Notice of non-renewal shall be given in writing at
least one-year prior to expiration of the then current term, in which case,
this Agreement shall not be automatically renewed and shall terminate upon
expiration of the then current term. In the case of non-renewal, Simon
shall receive severance pay of one-year's salary it the rate at the time of
non-renewal notice and one year of medical insurance after leaving the
company.
(b) FOR CAUSE. SITEK may terminate this Agreement for cause upon written notice
to Simon stating the facts constituting such cause. If Simon is terminated
for cause, SITEK shall be obligated to pay Simon base salary at the current
rate due him through the date of termination. For purposes of this section,
"cause" shall include: (1) neglect of duties as established by mutual
consent (2) the appropriation or attempted appropriation of a material
business opportunity of SITEK, including attempting to secure or securing
any personal profit in connection with any transaction entered into on
behalf of SITEK; (3) the misappropriation or attempted misappropriation of
any of SITEK's funds or property; (4) the conviction of, the indictment for
(or its procedural equivalent), or the entering of a guilty plea or plea of
no contest with respect to, a felony, or any other crime with respect to
which imprisonment is a possible punishment.
(c) WITHOUT CAUSE. SITEK may terminate this Agreement at any time without
cause, by giving 120 days' written notice to Simon. Within seventy-two
hours of termination without cause, SITEK shall pay to Simon the base
salary due him through the date of termination plus the amount remaining in
his term of employment plus an additional five years' salary. SITEK shall
provide paid medical insurance for Simon and his family and other benefits
for a period of three (3) years after termination without cause. If Simon
is terminated without cause, SITEK will also vest all non-vested options
and shares in the company due Simon and Simon's shares and options shall
have "piggyback" registration rights in any subsequent public offering for
a period of ten (10) years
(d) DISABILITY. If during the term of this Agreement, Simon fails to perform
his duties hereunder because of illness or other incapacity for a period of
300 consecutive, SITEK shall have the right to terminate this Agreement
without further obligation hereunder except for any amounts payable
pursuant to disability plans generally applicable to SITEK's Executives.
(e) DEATH. If Simon dies during the term of this Agreement, this Agreement
shall terminate immediately, and Simon's beneficiaries shall be entitled to
receive the base salary and benefits due Simon through the term of the
agreement, and any other death benefits generally applicable to Executives.
(f) UNFRIENDLY TAKEOVER OF SITEK. In the event that control of SITEK is
obtained under hostile or unfriendly circumstances, Simon's stock and
options shall immediately vest and Simon's employment agreement shall
automatically renew for five additional years.
<PAGE>
6. NONDISCLOSURE OF PROPRIETARY INFORMATION. SITEK, due in part to Simon's
direction and leadership, invents, develops, manufactures and markets processes
and products that involve experimental or inventive work. SITEK's success
depends upon the protection of these processes and products by patent or by
secrecy. Simon will substantially contribute to and have access to much of
SITEK's "Proprietary Information." It is mutually agreed that SITEK and Simon
will keep such information secret:
(a) "Proprietary Information" shall mean: (1.) any and all methods, inventions,
improvements, information, data or discoveries, whether or not patentable,
that are secret, proprietary, confidential or generally undisclosed,
(including information originated or provided by Simon) in any area of
knowledge, including information concerning trade secrets, processes,
software, products, patents, inventions, formulae, apparatus, techniques,
technical data, improvements, specifications, servicing, attributes and
relative attributes relating to any of SITEK's equipment, devices,
processes or products; and (2.) the identities of SITEK's customers and
potential customers ("Customers") including Customers Simon successfully
cultivates or maintains during his Engagement using SITEK's products, name
or infrastructure; the identities of contact persons at Customers; the
preferences, likes, dislikes and technical and other requirements of
Customers and contact persons with respect to product types, pricing, sales
calls, timing, sales terms, rental terms, lease, terms, service plans, and
other marketing terms and techniques; SITEK's business methods, practices,
strategies, forecasts, know-how, pricing, and marketing plans and
techniques; the identity of key accounts; the identity of potential key
accounts; and the identities of SITEK's key customer representatives and
Executives. Proprietary Information shall not be deemed to include (1.)
information that was known to Simon on a non-confidential basis prior to
the Engagement with SITEK of this Agreement or (2.) information that is or
hereafter becomes known to the general public without a breach or fault on
the part of Simon.
(b) Simon acknowledges that SITEK has exclusive property rights to certain
Proprietary Information and Simon hereby assigns all rights he might
possess in certain Proprietary Information to SITEK. Except as required in
the performance of the duties of his employment with SITEK, Simon will not
at any time during or after the term of his Engagement, without the prior
written consent of SITEK, directly or indirectly use, communicate,
disclose, disseminate, lecture upon, publish articles or otherwise put in
the public domain, any Proprietary Information or any other information of
a secret, proprietary, confidential or general undisclosed nature relating
to SITEK, its products, Customers, processes or services, including
information relating to testing, research, development, manufacturing,
marketing or selling.
<PAGE>
(c) All documents, records, notebooks, notes, memoranda, data bases, and
similar repositories containing Proprietary Information made or compiled by
Simon at any time during his term of employment, including any and all
copies thereof, are and shall be the property of SITEK, shall be held by
him in trust solely for the benefit of SITEK, and shall be delivered to
SITEK by him on the termination of his employment or at any other time upon
the request of SITEK.
(d) Simon agrees to certify in writing at or before final termination of the
employment that Simon no longer has in Simon's possession, custody or
control any copies of any business documents generated at or relating to
SITEK nor SITEK's Proprietary Information, whether in hard copy, on a
computer's hard drive, on disks or in any other form or media.
(e) All pertinent information regarding SITEK's business disclosed to, learned
by or developed by Simon during the course of the employment shall be
presumed to be Proprietary Information.
(f) Simon agrees to provide notification, at the start of any new engagement or
employment, to all subsequent Employers or contracting parties who are
involved in any way in the semiconductor industry or are otherwise SITEK's
competitors, of the terms and conditions of this Agreement, along with a
copy of this Agreement.
7. INVENTIONS.
(a) For purposes of this section, the term "Inventions" shall mean discoveries,
concepts, and ideas, whether patentable or not, including improvements,
know-how, data, processes, methods, formulae, and techniques, concerning
SITEK activities, business and products that Simon makes, discovers or
conceives either solely or jointly with others during employment by SITEK
and, if based on or related to Proprietary Information, at any time after
termination of such employment. All Inventions shall be solely the property
of SITEK and Simon agrees to perform the requirements of this Section with
respect thereto without the payment by SITEK of any royalty or any
consideration other than as provided in this Agreement.
(b) Simon shall maintain his own and cause his staff to maintain written
notebooks in which he and they shall set forth on a current basis
information as to all Inventions describing in detail the procedures
employed and the results achieved as well as information as to any studies
or research projects undertaken on SITEK's behalf, whether or not in
Simon's opinion a given project has resulted in an Invention. The written
notebooks shall at all times be the property of SITEK and shall be
surrendered to SITEK upon termination of employment or upon request of
SITEK.
(c) Simon shall apply, at SITEK's request, support and expense, for United
States and foreign letters patent in Simon's name (or jointly if the patent
has several authors).
<PAGE>
(d) Simon hereby assigns to SITEK all rights to Inventions, and to applications
for United States and/or foreign letters patent and to United States and/or
foreign letters patent granted upon Inventions generated under this
agreement and during the term of Simon's employment.
(e) Simon shall acknowledge and deliver promptly to SITEK without charge to
SITEK but at its expense such written instruments (including applications
and assignments) and do such other acts, such as giving testimony in
support of Simon's inventorship, as may be necessary in the opinion of
SITEK to obtain, maintain, extend, reissue and enforce United States and/or
foreign letters patent relating to the Inventions and to vest the entire
right and title thereto in SITEK or its nominee.
(f) Simon's obligation to assist SITEK in obtaining and enforcing patents for
Inventions in any and all countries shall continue beyond employment but
SITEK shall compensate Simon at a reasonable rate for time actually spent
at SITEK's request on such assistance. If SITEK is unable for any reason
whatsoever to secure Simon's signature to any lawful and necessary document
required to apply for or execute any patent application with respect to any
Inventions, including renewals, extensions, continuations, division or
continuations in part thereof, Simon hereby irrevocably designates and
appoints SITEK and its duly authorized officers and agents, as his agents
and attorneys-in-fact to act for and in his behalf and instead of Simon, to
execute and file any application and to do all other lawful permitted acts
to further the prosecution and issuance of patents with the same legal
force and effect as if executed by Simon.
(g) As a matter of record Simon has identified on Exhibit A attached hereto all
inventions or improvements relevant to the activity of SITEK which have
been made or conceived or first reduced to practice by Simon alone or
jointly with others prior to his Engagement by SITEK, that he desires to
remove from the operation of this and Simon covenants that such list is
complete. If there is no such list or if no Exhibit A is attached, Simon
represents that he has made no such inventions and improvements at the time
of signing this Agreement.
(h) Simon will assign rights to SITEK to certain inventions, discoveries,
concepts or ideas, or improvements thereof, or know-how related thereto, as
having been made or acquired by him prior to his being engaged by SITEK. In
return, SITEK will remunerate Simon a fair value for this intellectual
property. If SITEK and Simon are unable to agree on a fair value, they will
agree to a value established by a mutually acceptable third party expert.
8. NON-SOLICITATION OF CUSTOMERS OR EMPLOYEES OF SITEK.
(a) For a period of one year after termination of this Agreement, Simon agrees
not to solicit or call on any third party or entity, any customer or
potential customer of SITEK whom Simon solicited or called on during the
one year period immediately prior to the termination of his employment, or
such customers or potential customers with which he became acquainted or of
which he learned during his last year of employment unless the products or
service represented do not compete with any of the products or services
manufactured, assembled, distributed, offered or sold by SITEK.
<PAGE>
(b) During the term of this Agreement and for a period of one year after
termination this Agreement, Simon will not solicit any of SITEK's Employees
for a competing business or otherwise induce or attempt to induce such
Employees to terminate their employment with SITEK.
9. EXCLUSIVE ENGAGEMENT. During the period of this Agreement, Simon shall not,
without the Board's express written consent, engage in any employment,
consulting activity or business other than for SITEK. Activity as a passive
investor in or outside director for another business enterprise shall not be
considered a violation of this section for so long as such business enterprise
is not competing or conducting business with SITEK and so long as such
activities do not adversely impact the performance of Simon's duties to SITEK.
10. NON-COMPETE. The parties acknowledge that Simon has acquired or will acquire
much knowledge and information concerning SITEK's business and Customers as the
result of Simon's status as founder and Executive employee. The parties further
acknowledge that the scope of business in which SITEK is engaged is worldwide
and very competitive, that such business is one in which few companies can
compete successfully, and that competition by Simon in that business would
injure SITEK severely. Accordingly, Simon agrees that during his employment and
for a period of one year following the end of the employment, Simon will not
take any of the following actions within 1,500 miles of Simon's principal office
location, or, in the event Simon had an assigned territory, in the territory or
territories Simon worked in on behalf of SITEK:
(a) Directly or indirectly, sell or attempt to sell products or services
for or on behalf of any business that manufactures, assembles,
distributes, offers or sells any products or services that compete with
any services or products then manufactured, assembled, distributed,
offered or sold by SITEK;
(b) Persuade or attempt to persuade any potential customer or client to
which SITEK has made a proposal or sale, or with which SITEK has been
having discussions, not to transact business with SITEK, or instead to
transact business with Simon, another person or organization;
(c) Solicit the business of any company that has been a customer or client
of SITEK at any time during Simon's employment, provided, however, if
Simon becomes employed by or represents a business that exclusively
sells products or services that do not compete with products or
services then marketed or intended to be marketed by SITEK, such
contact shall be permissible.
11. COMPLIANCE WITH LAW AND AMENDMENT BY COURT: If there is any conflict between
any provision of this Agreement and any statue, law, regulation or judicial
precedent, the latter shall prevail, but the provisions of this Agreement thus
affected shall be curtailed and limited only to the extent necessary to bring it
within the requirements of the law. If any part of this Agreement shall be held
by a court of proper jurisdiction to be indefinite, invalid or otherwise
unenforceable, the entire Agreement shall not fail on account thereof, but: (i)
the balance of the Agreement shall continue in full force and effect unless such
construction would clearly be contrary to the intention of the parties or would
result in an unconscionable injustice; and (ii) the court shall amend the
Agreement to the extent necessary to make the Agreement valid and enforceable.
<PAGE>
12. FREEDOM FROM ENGAGEMENT RESTRICTIONS. Simon represents and warrants that
Simon has not entered into any agreement, whether express, implied, oral, or
written, that poses an impediment to Simon's employment by SITEK including
Simon's compliance with the terms of this Agreement. In particular, Simon is not
subject to a preexisting non-competition agreement, and no restrictions or
limitations exist respecting Simon's ability to perform fully Simon's
obligations to SITEK.
13. THIRD PARTY TRADE SECRETS. During Simon's employment, Simon agrees not to
copy, refer to, or in any way use information that is proprietary to any third
party (including any previous Employers). Simon represents and warrants that he
has not improperly taken any documents, listings, hardware, software, discs, or
any other tangible medium that embodies Proprietary Information from any third
party, and that Simon does not intend to copy, refer to, or in any way use
information that is proprietary to any third party in performing Simon's duties
for SITEK.
14. INJUNCTIVE RELIEF. Simon acknowledges that a breach of this Agreement is
likely to result in irreparable and unreasonable harm to SITEK, that damages
caused by a breach would be extremely difficult to calculate, and that
injunctive relief, as well as damages, would be appropriate.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Simon, his
heirs, executors, assigns, and administrators and shall inure to the benefit of
SITEK, its successors, and assigns.
16. WAIVER. No waiver of any of the provisions of this Agreement shall be deemed
to, or shall constitute a waiver of, any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
17. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona, and each of the parties consents to the exclusive jurisdiction of such
courts and waives any objection to jurisdiction or venue of such courts.
18. CONSTRUCTION. The language in all parts of this Agreement shall in all cases
be construed as a whole according to its fair meaning and not strictly for nor
against any party. The Section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment or any
exhibits thereof.
<PAGE>
19. NONDELEGABILITY OF SIMON'S RIGHTS AND SITEK ASSIGNMENT RIGHTS. The
obligations, rights and benefits of Simon hereunder are personal and may not be
delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon reasonable notice to Simon, SITEK may transfer Simon to an
affiliate of SITEK, which affiliate shall assume the obligations of SITEK under
this Agreement. This Agreement shall be assigned automatically to any entity
merging with or acquiring SITEK or its business.
20. SEVERABILITY. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
21. ATTORNEYS' FEES. Except as otherwise provided herein, in the event any party
hereto institutes an action or other proceeding to enforce any rights arising
out of this Agreement, the party prevailing in such action or other proceeding
shall be paid all reasonable costs and attorneys' fees by the non-prevailing
party, such fees to be set by the court and not by a jury and to be included in
any judgment entered in such proceeding.
22. NOTICES. All notices required or permitted hereunder shall be in writing and
shall be deemed duly given upon receipt if either personally delivered, sent by
certified mail, return receipt requested, or sent by a nationally-recognized
overnight courier service, addressed to the parties as follows:
If to SITEK: SITEK, Inc.
Attention: President/Chief Executive Officer
1817 W. 4th Street
Tempe, AZ 85281
With a copy to: Quarles & Brady
Attention: David T. Barton
One East Camelback Road, Suite 400
Phoenix, AZ 85012
If to Simon: Mark Simon
943 N. Blue Marlin
Gilbert, AZ 85234
or to such other address as any party may provide to the other in accordance
with this Section.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof (I.E., Simon's employment
by SITEK) and supersedes all prior or contemporaneous understandings or
agreements in regard thereto. No modification or addition to this Agreement
shall be valid unless in writing, specifically referring to this Agreement and
signed by all parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
EMPLOYER: EXECUTIVE:
SITEK, Inc., Mark Simon
A Delaware Corporation
- ------------------------------------ ------------------------------------
Don M. Jackson, Jr. Mark Simon
Its President/Chief Executive Officer
Date:
-------------------------------
<PAGE>
Exhibit A
Simon Personal Intellectual Property List
SITEK INCORPORATED
FOUNDER-EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of July 2, 1999
by and between SITEK, Inc., a Delaware corporation ("SITEK"), and Julian Gates,
an individual and SITEK founder (" Gates"). An executive position may be
occupied by Gates in SITEK, one or more of its divisions or any of its wholly
owned subsidiaries ("Subsidiary"). This agreement is also binding for any
Subsidiary to which Gates is assigned.
Gates and SITEK wish to provide mutual promises and assurances that will define
the nature and terms and conditions of their relationship. Therefore, in
consideration of the mutual promises, acknowledgments and representations
herein, the parties agree as follows:
1. EMPLOYMENT AND DUTIES. Gates will work exclusively and on a full-time basis
for SITEK and shall devote his best efforts to accomplishing the goals and
objectives mutually established with SITEK's Chief Executive Officer ("CEO").
Gates' primary title shall be Vice President of SITEK. Gates may also have
titles and executive responsibilities for one or more SITEK divisions or
subsidiaries.
2. TERM. Employment under this Agreement shall commence on the effective date
and shall continue for a period of five (5) years, unless earlier terminated as
set forth in Section 5 below. Thereafter, this Agreement shall automatically
renew for additional three (3)-year terms unless either party gives the other
written notice of non-renewal at least one (1) year prior to the expiration of
the initial term or any renewal term.
3. COMPENSATION.
(a) Base Salary. SITEK agrees to pay Gates a base salary, before deducting all
applicable withholdings, at the rate of $125,000 per year, which shall be
payable in accordance with SITEK's standard payroll policies as they may be
revised from time to time. SITEK shall consider increases in the annual
rate of pay to be effective on Gates' anniversary date of each year,
commencing on July 2, 1999.
(b) Incentive Bonus. Gates shall be entitled to participate in a bonus plan for
SITEK Executives. By meeting specific objectives established with the CEO,
Gates may earn, in addition to his base salary, an incentive bonus of up to
40% of Gates' base salary per year based one-half on Gates' individual
performance (as mutually agreed upon with the CEO) and one half on the
Executive staff's achieving its planned and budgeted operating income goals
for the company. This incentive bonus will be paid on an annual basis not
later than the end of the third fiscal month of each following fiscal year.
<PAGE>
(c) Auto Allowance. Gates is entitled to an automobile allowance of $650 per
month (after withholding), paid on the last day of the month as a payroll
item. Payment of Auto Allowance shall begin on condition of cash
availability.
4. BENEFITS. In addition to the compensation described above, while Gates is
employed, SITEK shall provide Gates the benefits described in this section. All
benefits shall terminate upon expiration or termination of this Agreement and
unused benefits shall have no cash value and shall not be compensated to Gates
upon termination or expiration of this agreement.
(a) HEALTH AND MEDICAL INSURANCE. SITEK shall pay for and provide Gates and his
family with the same type of health, medical, dental and vision insurance
as is provided from time to time to all of SITEK's Founder Executives.
(b) LIFE AND DISABILITY INSURANCE. SITEK will purchase a term life insurance
policy for Gates in an amount equal to five (5) times Gates' annual income
provided Gates meets all the usual and customary qualifying criteria
established by Gates' life insurance provider. In addition to any
disability income available from the Arizona Worker's Compensation Fund,
SITEK shall also purchase a long-term disability insurance policy for Gates
that will provide a disability benefit to Gates equal to one-half of Gates'
annual income. Gates shall be subject to all exclusions, limitations and
restrictions contained in the life and disability policies provided and
SITEK shall not be a guarantor of any benefits available under these
policies.
(c) PAID TIME OFF. Gates shall have three weeks annual vacation. If Gates is
unable, due to the demands of his position, take vacation, the vacation
shall accrue into the next year. Gates may accrue unused vacation up to 27
weeks.
(d) EXPENSE REIMBURSEMENT. SITEK shall, upon receipt of appropriate
documentation, reimburse Gates for his reasonable travel, lodging and other
ordinary and necessary business expenses consistent with SITEK's policies
as in effect from time to time.
(e) 401K PROGRAM. When such plan becomes available, Gates will be eligible to
participate in SITEK's 401K retirement program under the same terms as
those applicable to all SITEK Executives.
<PAGE>
5. TERMINATION. SITEK may terminate this Agreement at any time in the manner
provided herein. Gates may terminate this Agreement at any time upon delivery of
thirty days' written notice. Termination of this Agreement shall terminate
completely Gates' employment with SITEK.
(a) NOTICE OF NON-RENEWAL. Notice of non-renewal shall be given in writing at
least one-year prior to expiration of the then current term, in which case,
this Agreement shall not be automatically renewed and shall terminate upon
expiration of the then current term. In the case of non-renewal, SITEK
shall pay Gates a severance payment of one year's salary calculated on the
salary paid Gates at the time of notice of non-renewal.
(b) FOR CAUSE. SITEK may terminate this Agreement for cause upon written notice
to Gates stating the facts constituting such cause. If Gates is terminated
for cause, SITEK shall be obligated to pay Gates base salary at the current
rate due him through the date of termination. For purposes of this section,
"cause" shall include: (1) neglect of duties as established by mutual
consent (2) the appropriation or attempted appropriation of a material
business opportunity of SITEK, including attempting to secure or securing
any personal profit in connection with any transaction entered into on
behalf of SITEK; (3) the misappropriation or attempted misappropriation of
any of SITEK's funds or property; (4) the conviction of, the indictment for
(or its procedural equivalent), or the entering of a guilty plea or plea of
no contest with respect to, a felony, or any other crime with respect to
which imprisonment is a possible punishment.
(c) WITHOUT CAUSE. SITEK may terminate this Agreement at any time without
cause, by giving 120 days' written notice to Gates. Within seventy-two
hours of termination without cause, SITEK shall pay to Gates the base
salary due him through the date of termination plus the amount remaining in
his term of employment plus an additional five years' salary. SITEK shall
provide paid medical insurance for Gates and his family and other benefits
for a period of three (3) years after termination without cause. If Gates
is terminated without cause, SITEK will also vest all non-vested options
and shares in the company due Gates and Gates' shares and options shall
have "piggyback" registration rights in any subsequent public offering for
a period of ten (10) years
(d) DISABILITY. If during the term of this Agreement, Gates fails to perform
his duties hereunder because of illness or other incapacity for a period of
300 consecutive days, SITEK shall have the right to terminate this
Agreement without further obligation hereunder except for any amounts
payable pursuant to disability plans generally applicable to SITEK's
Executives.
(e) DEATH. If Gates dies during the term of this Agreement, this Agreement
shall terminate immediately, and Gates' legal representatives shall be
entitled to receive the base salary and benefits due Gates through the term
of the agreement, and any other death benefits generally applicable to
Executives.
(f) UNFRIENDLY TAKEOVER OF SITEK. In the event that control of SITEK is
obtained under hostile or unfriendly circumstances, Gates' stock and
options shall immediately vest and Gates' employment shall automatically
renew for five additional years.
<PAGE>
6. Nondisclosure of Proprietary Information. SITEK, due in part to Gates'
direction and leadership, invents, develops, manufactures and markets processes
and products that involve experimental or inventive work. SITEK's success
depends upon the protection of these processes and products by patent or by
secrecy. Gates will substantially contribute to and have access to much of
SITEK's "Proprietary Information." It is mutually agreed that SITEK and Gates
will keep such information secret:
(a) "Proprietary Information" shall mean: (1.) any and all methods, inventions,
improvements, information, data or discoveries, whether or not patentable,
that are secret, proprietary, confidential or generally undisclosed,
(including information originated or provided by Gates) in any area of
knowledge, including information concerning trade secrets, processes,
software, products, patents, inventions, formulae, apparatus, techniques,
technical data, improvements, specifications, servicing, attributes and
relative attributes relating to any of SITEK's equipment, devices,
processes or products; and (2.) the identities of SITEK's customers and
potential customers ("Customers") including Customers Gates successfully
cultivates or maintains during his Engagement using SITEK's products, name
or infrastructure; the identities of contact persons at Customers; the
preferences, likes, dislikes and technical and other requirements of
Customers and contact persons with respect to product types, pricing, sales
calls, timing, sales terms, rental terms, lease, terms, service plans, and
other marketing terms and techniques; SITEK's business methods, practices,
strategies, forecasts, know-how, pricing, and marketing plans and
techniques; the identity of key accounts; the identity of potential key
accounts; and the identities of SITEK's key customer representatives and
Executives. Proprietary Information shall not be deemed to include (1.)
information that was known to Gates on a non-confidential basis prior to
the Engagement with SITEK of this Agreement or (2.) information that is or
hereafter becomes known to the general public without a breach or fault on
the part of Gates.
(b) Gates acknowledges that SITEK has exclusive property rights to certain
Proprietary Information and Gates hereby assigns all rights he might
possess in certain Proprietary Information to SITEK. Except as required in
the performance of the duties of his employment with SITEK, Gates will not
at any time during or after the term of his Engagement, without the prior
written consent of SITEK, directly or indirectly use, communicate,
disclose, disseminate, lecture upon, publish articles or otherwise put in
the public domain, any Proprietary Information or any other information of
a secret, proprietary, confidential or general undisclosed nature relating
to SITEK, its products, Customers, processes or services, including
information relating to testing, research, development, manufacturing,
marketing or selling.
<PAGE>
(c) All documents, records, notebooks, notes, memoranda, data bases, and
similar repositories containing Proprietary Information made or compiled by
Gates at any time during his term of employment, including any and all
copies thereof, are and shall be the property of SITEK, shall be held by
him in trust solely for the benefit of SITEK, and shall be delivered to
SITEK by him on the termination of his employment or at any other time upon
the request of SITEK.
(d) Gates agrees to certify in writing at or before final termination of the
employment that Gates no longer has in Gates' possession, custody or
control any copies of any business documents generated at or relating to
SITEK nor SITEK's Proprietary Information, whether in hard copy, on a
computer's hard drive, on disks or in any other form or media.
(e) All pertinent information regarding SITEK's business disclosed to, learned
by or developed by Gates during the course of the employment shall be
presumed to be Proprietary Information.
(f) Gates agrees to provide notification, at the start of any new engagement or
employment, to all subsequent Employers or contracting parties who are
involved in any way in the semiconductor industry or are otherwise SITEK's
competitors, of the terms and conditions of this Agreement, along with a
copy of this Agreement.
7. INVENTIONS.
(a) For purposes of this section, the term "Inventions" shall mean discoveries,
concepts, and ideas, whether patentable or not, including improvements,
know-how, data, processes, methods, formulae, and techniques, concerning
SITEK activities, business and products that Gates makes, discovers or
conceives either solely or jointly with others during employment by SITEK
and, if based on or related to Proprietary Information, at any time after
termination of such employment. All Inventions shall be solely the property
of SITEK and Gates agrees to perform the requirements of this Section with
respect thereto without the payment by SITEK of any royalty or any
consideration other than as provided in this Agreement.
(b) Gates shall apply, at SITEK's request, support and expense, for United
States and foreign letters patent in Gates' name (or jointly if the patent
has several authors).
(c) Gates hereby assigns to SITEK all rights to Inventions, and to applications
for United States and/or foreign letters patent and to United States and/or
foreign letters patent granted upon Inventions generated under this
agreement and during the term of Gates' employment.
(d) Gates shall acknowledge and deliver promptly to SITEK without charge to
SITEK but at its expense such written instruments (including applications
and assignments) and do such other acts, such as giving testimony in
support of Gates' inventorship, as may be necessary in the opinion of SITEK
to obtain, maintain, extend, reissue and enforce United States and/or
foreign letters patent relating to the Inventions and to vest the entire
right and title thereto in SITEK or its nominee.
(e) Gates' obligation to assist SITEK in obtaining and enforcing patents for
Inventions in any and all countries shall continue beyond employment but
SITEK shall compensate Gates at a reasonable rate for time actually spent
at SITEK's request on such assistance. If SITEK is unable for any reason
whatsoever to secure Gates' signature to any lawful and necessary document
required to apply for or execute any patent application with respect to any
Inventions, including renewals, extensions, continuations, division or
continuations in part thereof, Gates hereby irrevocably designates and
appoints SITEK and its duly authorized officers and agents, as his agents
and attorneys-in-fact to act for and in his behalf and instead of Gates, to
execute and file any application and to do all other lawful permitted acts
to further the prosecution and issuance of patents with the same legal
force and effect as if executed by Gates.
(f) As a matter of record Gates has identified on Exhibit A attached hereto all
inventions or improvements relevant to the activity of SITEK which have
been made or conceived or first reduced to practice by Gates alone or
jointly with others prior to his Engagement by SITEK, that he desires to
remove from the operation of this and Gates covenants that such list is
complete. If there is no such list or if no Exhibit A is attached, Gates
represents that he has made no such inventions and improvements at the time
of signing this Agreement.
(g) Gates will assign rights to SITEK to certain inventions, discoveries,
concepts or ideas, or improvements thereof, or know-how related thereto, as
having been made or acquired by him prior to his being engaged by SITEK. In
return, SITEK will remunerate Gates a fair value for this intellectual
property. If SITEK and Gates are unable to agree on a fair value, they will
agree to a value established by a mutually acceptable third party expert.
8. Non-solicitation of Customers or Employees of SITEK.
(a) For a period of one year after termination of this Agreement, Gates agrees
not to solicit or call on any third party or entity, any customer or
potential customer of SITEK whom Gates solicited or called on during the
one year period immediately prior to the termination of his employment, or
such customers or potential customers with which he became acquainted or of
which he learned during his last year of employment unless the products or
service represented do not compete with any of the products or services
manufactured, assembled, distributed, offered or sold by SITEK.
(b) During the term of this Agreement and for a period of one year after
termination this Agreement, Gates will not solicit any of SITEK's Employees
for a competing business or otherwise induce or attempt to induce such
Employees to terminate their employment with SITEK.
9. EXCLUSIVE ENGAGEMENT. During the period of this Agreement, Gates shall not,
without the Board's express written consent, engage in any employment,
consulting activity or business other than for SITEK. Activity as a passive
investor in or outside director for another business enterprise shall not be
considered a violation of this section for so long as such business enterprise
is not competing or conducting business with SITEK and so long as such
activities do not adversely impact the performance of Gates' duties to SITEK.
10. NON-COMPETE. The parties acknowledge that Gates has acquired or will acquire
much knowledge and information concerning SITEK's business and Customers as the
result of Gates' status as founder and Executive employee. The parties further
acknowledge that the scope of business in which SITEK is engaged is worldwide
and very competitive, that such business is one in which few companies can
compete successfully, and that competition by Gates in that business would
injure SITEK severely. Accordingly, Gates agrees that during his employment and
for a period of one year following the end of the employment, Gates will not
take any of the following actions within 1,500 miles of Gates' principal office
location, or, in the event Gates had an assigned territory, in the territory or
territories Gates worked in on behalf of SITEK:
(a) Directly or indirectly, sell or attempt to sell products or services for or
on behalf of any business that manufactures, assembles, distributes, offers
or sells any products or services that compete with any services or
products then manufactured, assembled, distributed, offered or sold by
SITEK;
(b) Persuade or attempt to persuade any potential customer or client to which
SITEK has made a proposal or sale, or with which SITEK has been having
discussions, not to transact business with SITEK, or instead to transact
business with Gates, another person or organization;
(c) Solicit the business of any company that has been a customer or client of
SITEK at any time during Gates' employment, provided, however, if Gates
becomes employed by or represents a business that exclusively sells
products or services that do not compete with products or services then
marketed or intended to be marketed by SITEK, such contact shall be
permissible.
11. COMPLIANCE WITH LAW AND AMENDMENT BY COURT: If there is any conflict between
any provision of this Agreement and any statue, law, regulation or judicial
precedent, the latter shall prevail, but the provisions of this Agreement thus
affected shall be curtailed and limited only to the extent necessary to bring it
within the requirements of the law. If any part of this Agreement shall be held
by a court of proper jurisdiction to be indefinite, invalid or otherwise
unenforceable, the entire Agreement shall not fail on account thereof, but: (i)
the balance of the Agreement shall continue in full force and effect unless such
construction would clearly be contrary to the intention of the parties or would
result in an unconscionable injustice; and (ii) the court shall amend the
Agreement to the extent necessary to make the Agreement valid and enforceable.
12. FREEDOM FROM ENGAGEMENT RESTRICTIONS. Gates represents and warrants that
Gates has not entered into any agreement, whether express, implied, oral, or
written, that poses an impediment to Gates' employment by SITEK including Gates'
compliance with the terms of this Agreement. In particular, Gates is not subject
to a preexisting non-competition agreement, and no restrictions or limitations
exist respecting Gates' ability to perform fully Gates' obligations to SITEK.
13. THIRD PARTY TRADE SECRETS. During Gates' employment, Gates agrees not to
copy, refer to, or in any way use information that is proprietary to any third
party (including any previous Employers). Gates represents and warrants that he
has not improperly taken any documents, listings, hardware, software, discs, or
any other tangible medium that embodies Proprietary Information from any third
party, and that Gates does not intend to copy, refer to, or in any way use
information that is proprietary to any third party in performing Gates' duties
for SITEK.
14. INJUNCTIVE RELIEF. Gates acknowledges that a breach of this Agreement is
likely to result in irreparable and unreasonable harm to SITEK, that damages
caused by a breach would be extremely difficult to calculate, and that
injunctive relief, as well as damages, would be appropriate.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Gates, his
heirs, executors, assigns, and administrators and shall inure to the benefit of
SITEK, its successors, and assigns.
16. WAIVER. No waiver of any of the provisions of this Agreement shall be deemed
to, or shall constitute a waiver of, any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
17. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona, and each of the parties consents to the exclusive jurisdiction of such
courts and waives any objection to jurisdiction or venue of such courts.
18. CONSTRUCTION. The language in all parts of this Agreement shall in all cases
be construed as a whole according to its fair meaning and not strictly for nor
against any party. The Section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment or any
exhibits thereof.
19. NONDELEGABILITY OF GATES' RIGHTS AND SITEK ASSIGNMENT RIGHTS. The
obligations, rights and benefits of Gates hereunder are personal and may not be
delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon reasonable notice to Gates, SITEK may transfer Gates to an
affiliate of SITEK, which affiliate shall assume the obligations of SITEK under
this Agreement. This Agreement shall be assigned automatically to any entity
merging with or acquiring SITEK or its business.
20. SEVERABILITY. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
21. ATTORNEYS' FEES. Except as otherwise provided herein, in the event any party
hereto institutes an action or other proceeding to enforce any rights arising
out of this Agreement, the party prevailing in such action or other proceeding
shall be paid all reasonable costs and attorneys' fees by the non-prevailing
party, such fees to be set by the court and not by a jury and to be included in
any judgment entered in such proceeding.
22. NOTICES. All notices required or permitted hereunder shall be in writing and
shall be deemed duly given upon receipt if either personally delivered, sent by
certified mail, return receipt requested, or sent by a nationally-recognized
overnight courier service, addressed to the parties as follows:
If to SITEK: SITEK, Inc.
Attention: President/Chief Executive Officer
1817 W. 4th Street
Tempe, AZ 85281
With a copy to: Quarles & Brady
Attention: David T. Barton
One East Camelback Road, Suite 400
Phoenix, AZ 85012
If to Gates: Julian Gates
8807 S. 47th Place
Tempe, AZ 85041
or to such other address as any party may provide to the other in accordance
with this Section.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof (I.E., Gates' employment
by SITEK) and supersedes all prior or contemporaneous understandings or
agreements in regard thereto. No modification or addition to this Agreement
shall be valid unless in writing, specifically referring to this Agreement and
signed by all parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
EMPLOYER: EXECUTIVE:
SITEK, Inc., Julian Gates
A Delaware Corporation
- ------------------------------------ ------------------------------------
Don M. Jackson, Jr. Julian Gates
Its President/Chief Executive Officer
Date:
-------------------------------
<PAGE>
Exhibit A
Gates Personal Intellectual Property List
SITEK INCORPORATED
FOUNDER-EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of July 2, 1999
by and between SITEK, Inc., a Delaware corporation ("SITEK"), and Parag S. Modi,
an individual and SITEK founder (" Modi"). An executive position may be occupied
by Modi in SITEK, one or more of its divisions or any of its wholly owned
subsidiaries ("Subsidiary"). This agreement is also binding for any Subsidiary
to which Modi is assigned.
Modi and SITEK wish to provide mutual promises and assurances that will define
the nature and terms and conditions of their relationship. Therefore, in
consideration of the mutual promises, acknowledgments and representations
herein, the parties agree as follows:
1. EMPLOYMENT AND DUTIES. Modi will work exclusively and on a full-time basis
for SITEK and shall devote his best efforts to accomplishing the goals and
objectives mutually established with SITEK's Chief Executive Officer ("CEO").
Modi's primary title shall be Vice President of SITEK. Modi may also have titles
and executive responsibilities for one or more SITEK divisions or subsidiaries.
2. TERM. Employment under this Agreement shall commence on the effective date
and shall continue for a period of five (5) years, unless earlier terminated as
set forth in Section 5 below. Thereafter, this Agreement shall automatically
renew for additional three (3)-year terms unless either party gives the other
written notice of non-renewal at least one (1) year prior to the expiration of
the initial term or any renewal term.
3. COMPENSATION.
(a) BASE SALARY. SITEK agrees to pay Modi a base salary, before deducting all
applicable withholdings, at the rate of $105,000 per year, which shall be
payable in accordance with SITEK's standard payroll policies as they may be
revised from time to time. SITEK shall consider increases in the annual
rate of pay to be effective on Modi's anniversary date of each year,
commencing on the anniversary date in the year 2000.
(b) INCENTIVE BONUS. Modi shall be entitled to participate in a bonus plan for
SITEK Executives. By meeting specific objectives established with the CEO,
Modi may earn, in addition to his base salary, an incentive bonus of up to
40% of Modi's base salary per year based one-half on Modi's individual
performance (as mutually agreed upon with the CEO) and one half on the
Executive staff's achieving its planned and budgeted operating income goals
for the company. This incentive bonus will be paid on an annual basis not
later than the end of the third fiscal month of each following fiscal year.
<PAGE>
(c) AUTO ALLOWANCE. Modi is entitled to an automobile allowance of $650 per
month (after withholding), paid on the last day of the month as a payroll
item. Payment of Auto Allowance shall begin on condition of cash
availability.
4. BENEFITS. In addition to the compensation described above, while Modi is
employed, SITEK shall provide Modi the benefits described in this section. All
benefits shall terminate upon expiration or termination of this Agreement and
unused benefits shall have no cash value and shall not be compensated to Modi
upon termination or expiration of this agreement.
(a) HEALTH AND MEDICAL INSURANCE. SITEK shall pay for and provide Modi and his
family with the same type of health, medical, dental and vision insurance
as is provided from time to time to all of SITEK's Founder Executives.
(b) LIFE AND DISABILITY INSURANCE. SITEK will purchase a term life insurance
policy for Modi in an amount equal to five (5) times Modi's annual income
provided Modi meets all the usual and customary qualifying criteria
established by Modi's life insurance provider. In addition to any
disability income available from the Arizona Worker's Compensation Fund,
SITEK shall also purchase a long-term disability insurance policy for Modi
that will provide a disability benefit to Modi equal to one-half of Modi's
annual income. Modi shall be subject to all exclusions, limitations and
restrictions contained in the life and disability policies provided and
SITEK shall not be a guarantor of any benefits available under these
policies.
(c) PAID TIME OFF. Modi shall have three weeks annual vacation. If Modi is
unable, due to the demands of his position, take vacation, the vacation
shall accrue into the next year. Modi may accrue unused vacation up to 27
weeks.
(d) EXPENSE REIMBURSEMENT. SITEK shall, upon receipt of appropriate
documentation, reimburse Modi for his reasonable travel, lodging and other
ordinary and necessary business expenses consistent with SITEK's policies
as in effect from time to time.
(e) 401K PROGRAM. When such plan becomes available, Modi will be eligible to
participate in SITEK's 401K retirement program under the same terms as
those applicable to all SITEK Executives.
<PAGE>
5. TERMINATION. SITEK may terminate this Agreement at any time in the manner
provided herein. Modi may terminate this Agreement at any time upon delivery of
thirty days' written notice. Termination of this Agreement shall terminate
completely Modi's employment with SITEK.
(a) NOTICE OF NON-RENEWAL. Notice of non-renewal shall be given in writing at
least one-year prior to expiration of the then current term, in which case,
this Agreement shall not be automatically renewed and shall terminate upon
expiration of the then current term. In the case of non-renewal, Modi shall
receive one-year severance pay and paid benefits for one year beyond the
term of the contract.
(b) FOR CAUSE. SITEK may terminate this Agreement for cause upon written notice
to Modi stating the facts constituting such cause. If Modi is terminated
for cause, SITEK shall be obligated to pay Modi base salary at the current
rate due him through the date of termination. For purposes of this section,
"cause" shall include: (1) neglect of duties as established by mutual
consent (2) the appropriation or attempted appropriation of a material
business opportunity of SITEK, including attempting to secure or securing
any personal profit in connection with any transaction entered into on
behalf of SITEK; (3) the misappropriation or attempted misappropriation of
any of SITEK's funds or property; (4) the conviction of, the indictment for
(or its procedural equivalent), or the entering of a guilty plea or plea of
no contest with respect to, a felony, or any other crime with respect to
which imprisonment is a possible punishment.
(c) WITHOUT CAUSE. SITEK may terminate this Agreement at any time without
cause, by giving 120 days' written notice to Modi. Within seventy-two hours
of termination without cause, SITEK shall pay to Modi the base salary due
him through the date of termination plus the amount remaining in his term
of employment plus an additional five years' salary. SITEK shall provide
paid medical insurance for Modi and his family and other benefits for a
period of three (3) years after termination without cause. If Modi is
terminated without cause, SITEK will also vest all non-vested options and
shares in the company due Modi and Modi's shares and options shall have
"piggyback" registration rights in any subsequent public offering for a
period of ten (10) years
(d) DISABILITY. If during the term of this Agreement, Modi fails to perform his
duties hereunder because of illness or other incapacity for a period of 300
consecutive days, SITEK shall have the right to terminate this Agreement
without further obligation hereunder except for any amounts payable
pursuant to disability plans generally applicable to SITEK's Executives.
(e) DEATH. If Modi dies during the term of this Agreement, this Agreement shall
terminate immediately, and Modi's beneficiaries shall be entitled to
receive the base salary and benefits due Modi through the term of the
agreement, and any other death benefits generally applicable to Executives.
<PAGE>
6. NONDISCLOSURE OF PROPRIETARY INFORMATION. SITEK, in part due to Modi's
direction and leadership, invents, develops, manufactures and markets processes
and products that involve experimental or inventive work. SITEK's success
depends upon the protection of these processes and products by patent or by
secrecy. Modi will substantially contribute to and have access to much of
SITEK's "Proprietary Information." It is mutually agreed that SITEK and Modi
will keep such information secret:
(a) "Proprietary Information" shall mean: (1.) any and all methods, inventions,
improvements, information, data or discoveries, whether or not patentable,
that are secret, proprietary, confidential or generally undisclosed,
(including information originated or provided by Modi) in any area of
knowledge, including information concerning trade secrets, processes,
software, products, patents, inventions, formulae, apparatus, techniques,
technical data, improvements, specifications, servicing, attributes and
relative attributes relating to any of SITEK's equipment, devices,
processes or products; and (2.) the identities of SITEK's customers and
potential customers ("Customers") including Customers Modi successfully
cultivates or maintains during his Engagement using SITEK's products, name
or infrastructure; the identities of contact persons at Customers; the
preferences, likes, dislikes and technical and other requirements of
Customers and contact persons with respect to product types, pricing, sales
calls, timing, sales terms, rental terms, lease, terms, service plans, and
other marketing terms and techniques; SITEK's business methods, practices,
strategies, forecasts, know-how, pricing, and marketing plans and
techniques; the identity of key accounts; the identity of potential key
accounts; and the identities of SITEK's key customer representatives and
Executives. Proprietary Information shall not be deemed to include (1.)
information that was known to Modi on a non-confidential basis prior to the
Engagement with SITEK of this Agreement or (2.) information that is or
hereafter becomes known to the general public without a breach or fault on
the part of Modi.
(b) Modi acknowledges that SITEK has exclusive property rights to certain
Proprietary Information and Modi hereby assigns all rights he might possess
in certain Proprietary Information to SITEK. Except as required in the
performance of the duties of his employment with SITEK, Modi will not at
any time during or after the term of his Engagement, without the prior
written consent of SITEK, directly or indirectly use, communicate,
disclose, disseminate, lecture upon, publish articles or otherwise put in
the public domain, any Proprietary Information or any other information of
a secret, proprietary, confidential or general undisclosed nature relating
to SITEK, its products, Customers, processes or services, including
information relating to testing, research, development, manufacturing,
marketing or selling.
<PAGE>
(c) All documents, records, notebooks, notes, memoranda, data bases, and
similar repositories containing Proprietary Information made or compiled by
Modi at any time during his term of employment, including any and all
copies thereof, are and shall be the property of SITEK, shall be held by
him in trust solely for the benefit of SITEK, and shall be delivered to
SITEK by him on the termination of his employment or at any other time upon
the request of SITEK.
(d) Modi agrees to certify in writing at or before final termination of
employment that Modi no longer has in Modi's possession, custody or control
any copies of any business documents generated at or relating to SITEK nor
SITEK's Proprietary Information, whether in hard copy, on a computer's hard
drive, on disks or in any other form or media.
(e) All pertinent information regarding SITEK's business disclosed to, learned
by or developed by Modi during the course of the employment shall be
presumed to be Proprietary Information.
(f) Modi agrees to provide notification, at the start of any new engagement or
employment, to all subsequent Employers or contracting parties who are
involved in any way in the semiconductor industry or are otherwise SITEK's
competitors, of the terms and conditions of this Agreement, along with a
copy of this Agreement.
7. INVENTIONS.
(a) For purposes of this section, the term "Inventions" shall mean discoveries,
concepts, and ideas, whether patentable or not, including improvements,
know-how, data, processes, methods, formulae, and techniques, concerning
SITEK activities, business and products that Modi makes, discovers or
conceives either solely or jointly with others during employment by SITEK
and, if based on or related to Proprietary Information, at any time after
termination of such employment. All Inventions shall be solely the property
of SITEK and Modi agrees to perform the requirements of this Section with
respect thereto without the payment by SITEK of any royalty or any
consideration other than as provided in this Agreement.
(b) Modi shall maintain his own and cause his staff to maintain written
notebooks in which he and they shall set forth on a current basis
information as to all Inventions describing in detail the procedures
employed and the results achieved as well as information as to any studies
or research projects undertaken on SITEK's behalf, whether or not in Modi's
opinion a given project has resulted in an Invention. The written notebooks
shall at all times be the property of SITEK and shall be surrendered to
SITEK upon termination of employment or upon request of SITEK.
(c) Modi shall apply, at SITEK's request, support and expense, for United
States and foreign letters patent in Modi's name (or jointly if the patent
has several authors).
(d) Modi hereby assigns to SITEK all rights to Inventions, and to applications
for United States and/or foreign letters patent and to United States and/or
foreign letters patent granted upon Inventions generated under this
agreement and during the term of Modi's employment.
<PAGE>
(e) Modi shall acknowledge and deliver promptly to SITEK without charge to
SITEK but at its expense such written instruments (including applications
and assignments) and do such other acts, such as giving testimony in
support of Modi's inventorship, as may be necessary in the opinion of SITEK
to obtain, maintain, extend, reissue and enforce United States and/or
foreign letters patent relating to the Inventions and to vest the entire
right and title thereto in SITEK or its nominee.
(f) Modi's obligation to assist SITEK in obtaining and enforcing patents for
Inventions in any and all countries shall continue beyond employment but
SITEK shall compensate Modi at a reasonable rate for time actually spent at
SITEK's request on such assistance. If SITEK is unable for any reason
whatsoever to secure Modi's signature to any lawful and necessary document
required to apply for or execute any patent application with respect to any
Inventions, including renewals, extensions, continuations, division or
continuations in part thereof, Modi hereby irrevocably designates and
appoints SITEK and its duly authorized officers and agents, as his agents
and attorneys-in-fact to act for and in his behalf and instead of Modi, to
execute and file any application and to do all other lawful permitted acts
to further the prosecution and issuance of patents with the same legal
force and effect as if executed by Modi.
(g) As a matter of record Modi has identified on Exhibit A attached hereto all
inventions or improvements relevant to the activity of SITEK which have
been made or conceived or first reduced to practice by Modi alone or
jointly with others prior to his Engagement by SITEK, that he desires to
remove from the operation of this and Modi covenants that such list is
complete. If there is no such list or if no Exhibit A is attached, Modi
represents that he has made no such inventions and improvements at the time
of signing this Agreement.
(h) Modi will assign rights to SITEK to certain inventions, discoveries,
concepts or ideas, or improvements thereof, or know-how related thereto, as
having been made or acquired by him prior to his being engaged by SITEK.
8. NON-SOLICITATION OF CUSTOMERS OR EMPLOYEES OF SITEK.
(a) For a period of one year after termination of this Agreement, Modi agrees
not to solicit or call on any third party or entity, any customer or
potential customer of SITEK whom Modi solicited or called on during the one
year period immediately prior to the termination of his employment, or such
customers or potential customers with which he became acquainted or of
which he learned during his last year of employment unless the products or
service represented do not compete with any of the products or services
manufactured, assembled, distributed, offered or sold by SITEK.
(b) During the term of this Agreement and for a period of one year after
termination this Agreement, Modi will not solicit any of SITEK's Employees
for a competing business or otherwise induce or attempt to induce such
Employees to terminate their employment with SITEK.
<PAGE>
9. EXCLUSIVE ENGAGEMENT. During the period of this Agreement, Modi shall not,
without the Board's express written consent, engage in any employment,
consulting activity or business other than for SITEK. Activity as a passive
investor in or outside director for another business enterprise shall not be
considered a violation of this section for so long as such business enterprise
is not competing or conducting business with SITEK and so long as such
activities do not adversely impact the performance of Modi's duties to SITEK.
10. NON-COMPETE. The parties acknowledge that Modi has acquired or will acquire
much knowledge and information concerning SITEK's business and Customers as the
result of Modi's status as founder and Executive employee. The parties further
acknowledge that the scope of business in which SITEK is engaged is worldwide
and very competitive, that such business is one in which few companies can
compete successfully, and that competition by Modi in that business would injure
SITEK severely. Accordingly, Modi agrees that during his employment and for a
period of one year following the end of the employment, Modi will not take any
of the following actions within 1,500 miles of Modi's principal office location,
or, in the event Modi had an assigned territory, in the territory or territories
Modi worked in on behalf of SITEK:
(a) Directly or indirectly, sell or attempt to sell products or services for or
on behalf of any business that manufactures, assembles, distributes, offers
or sells any products or services that compete with any services or
products then manufactured, assembled, distributed, offered or sold by
SITEK;
(b) Persuade or attempt to persuade any potential customer or client to which
SITEK has made a proposal or sale, or with which SITEK has been having
discussions, not to transact business with SITEK, or instead to transact
business with Modi, another person or organization;
(c) Solicit the business of any company that has been a customer or client of
SITEK at any time during Modi's employment, provided, however, if Modi
becomes employed by or represents a business that exclusively sells
products or services that do not compete with products or services then
marketed or intended to be marketed by SITEK, such contact shall be
permissible.
11. COMPLIANCE WITH LAW AND AMENDMENT BY COURT: If there is any conflict between
any provision of this Agreement and any statue, law, regulation or judicial
precedent, the latter shall prevail, but the provisions of this Agreement thus
affected shall be curtailed and limited only to the extent necessary to bring it
within the requirements of the law. If any part of this Agreement shall be held
by a court of proper jurisdiction to be indefinite, invalid or otherwise
unenforceable, the entire Agreement shall not fail on account thereof, but: (i)
the balance of the Agreement shall continue in full force and effect unless such
construction would clearly be contrary to the intention of the parties or would
result in an unconscionable injustice; and (ii) the court shall amend the
Agreement to the extent necessary to make the Agreement valid and enforceable.
12. FREEDOM FROM ENGAGEMENT RESTRICTIONS. Modi represents and warrants that Modi
has not entered into any agreement, whether express, implied, oral, or written,
that poses an impediment to Modi's employment by SITEK including Modi's
compliance with the terms of this Agreement. In particular, Modi is not subject
to a preexisting non-competition agreement, and no restrictions or limitations
exist respecting Modi's ability to perform fully Modi's obligations to SITEK.
<PAGE>
13. THIRD PARTY TRADE SECRETS. During Modi's employment, Modi agrees not to
copy, refer to, or in any way use information that is proprietary to any third
party (including any previous Employers). Modi represents and warrants that he
has not improperly taken any documents, listings, hardware, software, discs, or
any other tangible medium that embodies Proprietary Information from any third
party, and that Modi does not intend to copy, refer to, or in any way use
information that is proprietary to any third party in performing Modi's duties
for SITEK.
14. INJUNCTIVE RELIEF. Modi acknowledges that a breach of this Agreement is
likely to result in irreparable and unreasonable harm to SITEK, that damages
caused by a breach would be extremely difficult to calculate, and that
injunctive relief, as well as damages, would be appropriate.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Modi, his
heirs, executors, assigns, and administrators and shall inure to the benefit of
SITEK, its successors, and assigns.
16. WAIVER. No waiver of any of the provisions of this Agreement shall be deemed
to, or shall constitute a waiver of, any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
17. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona, and each of the parties consents to the exclusive jurisdiction of such
courts and waives any objection to jurisdiction or venue of such courts.
18. CONSTRUCTION. The language in all parts of this Agreement shall in all cases
be construed as a whole according to its fair meaning and not strictly for nor
against any party. The Section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment or any
exhibits thereof.
19. NONDELEGABILITY OF MODI'S RIGHTS AND SITEK ASSIGNMENT RIGHTS. The
obligations, rights and benefits of Modi hereunder are personal and may not be
delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon reasonable notice to Modi, SITEK may transfer Modi to an
affiliate of SITEK, which affiliate shall assume the obligations of SITEK under
this Agreement. This Agreement shall be assigned automatically to any entity
merging with or acquiring SITEK or its business.
20. SEVERABILITY. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
<PAGE>
21. ATTORNEYS' FEES. Except as otherwise provided herein, in the event any party
hereto institutes an action or other proceeding to enforce any rights arising
out of this Agreement, the party prevailing in such action or other proceeding
shall be paid all reasonable costs and attorneys' fees by the non-prevailing
party, such fees to be set by the court and not by a jury and to be included in
any judgment entered in such proceeding.
22. NOTICES. All notices required or permitted hereunder shall be in writing and
shall be deemed duly given upon receipt if either personally delivered, sent by
certified mail, return receipt requested, or sent by a nationally-recognized
overnight courier service, addressed to the parties as follows:
If to SITEK: SITEK, Inc.
Attention: President/Chief Executive Officer
1817 W. 4th Street
Tempe, AZ 85281
With a copy to: Quarles & Brady
Attention: David T. Barton
One East Camelback Road, Suite 400
Phoenix, AZ 85012
If to Modi: Parag S. Modi
3670 E. Cedarwood Lane
Phoenix, AZ 85044
or to such other address as any party may provide to the other in accordance
with this Section.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof (I.E., Modi's employment
by SITEK) and supersedes all prior or contemporaneous understandings or
agreements in regard thereto. No modification or addition to this Agreement
shall be valid unless in writing, specifically referring to this Agreement and
signed by all parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
EMPLOYER: EXECUTIVE:
SITEK, Inc., Parag S. Modi
A Delaware Corporation
- ------------------------------------ ------------------------------------
Don M. Jackson, Jr. Parag S. Modi
Its President/Chief Executive Officer
Date:
-------------------------------
<PAGE>
Exhibit A
Modi Personal Intellectual Property List
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 849862
<NAME> SITEK, INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,789,023
<SECURITIES> 0
<RECEIVABLES> 1,769,655
<ALLOWANCES> 0
<INVENTORY> 3,299,803
<CURRENT-ASSETS> 7,326,264
<PP&E> 414,745
<DEPRECIATION> 51,927
<TOTAL-ASSETS> 8,318,863
<CURRENT-LIABILITIES> 6,852,754
<BONDS> 0
0
0
<COMMON> 61,539
<OTHER-SE> 941,811
<TOTAL-LIABILITY-AND-EQUITY> 8,318,863
<SALES> 13,016,289
<TOTAL-REVENUES> 13,016,289
<CGS> 5,632,164
<TOTAL-COSTS> 5,632,164
<OTHER-EXPENSES> 3,670,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 945,868
<INCOME-PRETAX> 2,767,966
<INCOME-TAX> 915,800
<INCOME-CONTINUING> 1,852,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,852,166
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
