-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HO1Oy3tj3wktOXxxcSMM6ouC8F7Oz/SlV5rwR422JyApwksbBVQZYkucU9KDaSD0 v6itIdzxJ65oerDj8HA3vA== 0001012870-98-000323.txt : 19980212 0001012870-98-000323.hdr.sgml : 19980212 ACCESSION NUMBER: 0001012870-98-000323 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 36 FILED AS OF DATE: 19980211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATG INC CENTRAL INDEX KEY: 0001054000 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 942657762 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-46107 FILM NUMBER: 98532675 BUSINESS ADDRESS: STREET 1: 47375 FREMONT BLVD CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5104903008 MAIL ADDRESS: STREET 1: 47375 FREMONT BLVD CITY: FREMONT STATE: CA ZIP: 94538 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- ATG INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------
CALIFORNIA 4955 94-2657762 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
47375 FREMONT BOULEVARD FREMONT, CALIFORNIA 94538 (510) 490-3008 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) -------------- DOREEN M. CHIU PRESIDENT AND CHIEF EXECUTIVE OFFICER ATG INC. 47375 FREMONT BOULEVARD FREMONT, CALIFORNIA 94538 (510) 490-3008 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S AGENT FOR SERVICE) COPIES OF COMMUNICATIONS TO: BRIAN A. SULLIVAN, ESQ. RICHARD A. PEERS, ESQ. DAVID K. RITENOUR, ESQ. CHRISTINA L. VAIL, ESQ. GRAHAM & JAMES LLP HELLER EHRMAN WHITE & MCAULIFFE 801 SOUTH FIGUEROA STREET, SUITE 1400 525 UNIVERSITY AVENUE LOS ANGELES, CALIFORNIA 90017-5554 PALO ALTO, CALIFORNIA 94301-1900 TELEPHONE: (213) 624-2500 TELEPHONE: (650) 324-7000 FACSIMILE: (213) 623-4581 FACSIMILE: (650) 324-0638 -------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box: [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] ________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] _________ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] ________ If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, check the following box: [_] CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE - ----------------------------------------------------------------------------------------------------- Common Stock......................... 1,955,000 Shares $10.00 $19,550,000 $5,768 - ----------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
(1)Includes 255,000 shares that the Underwriters may purchase from the Registrant to cover over-allotments, if any. (2)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) promulgated under the Securities Act. -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE A SALE OF ANY OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, FEBRUARY 11, 1998 1,700,000 SHARES [LOGO] COMMON STOCK All 1,700,000 shares of Common Stock offered hereby are being sold by ATG Inc. (the "Company"). Prior to this offering (the "Offering") there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $8.00 and $10.00 per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The Company has applied to have the Common Stock included on the Nasdaq National Market upon completion of this Offering under the symbol "ATGC." THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS," COMMENCING ON PAGE 6 OF THIS PROSPECTUS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRICE PROCEEDS TO UNDERWRITING TO PUBLIC DISCOUNTS(1) COMPANY(2) - -------------------------------------------------------------------------------- Per Share....................................... $ $ $ - -------------------------------------------------------------------------------- Total(3)........................................ $ $ $ - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(1) Excludes a non-accountable expense allowance payable to the representative of the Underwriters (the "Representative") and the value of warrants to be issued to the Representative to purchase up to 170,000 shares of Common Stock at a price per share equal to 120% of the Price to Public as shown above (the "Representative's Warrants"). See "Underwriting" for information relating to indemnification of the Underwriters. (2) Before deducting expenses payable by the Company, estimated at $1 million, including the non-accountable expense allowance payable to the Representative. (3) The Company has granted to the Underwriters a 45-day option to purchase up to 255,000 additional shares of Common Stock, solely for the purpose of covering over-allotments, if any. To the extent that the option is exercised, the Underwriters will offer the additional shares at the Price to Public as shown above. If the Underwriters exercise this option in full, the total Price to Public, Underwriting Discounts and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the several Underwriters subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the certificates representing such shares will be made against payment therefor at the offices of Van Kasper & Company, San Francisco, California on or about , 1998. VAN KASPER & COMPANY , 1998 DESCRIPTION OF PHOTOGRAPHS ---------------- FORWARD-LOOKING STATEMENTS THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS," AS DEFINED UNDER APPLICABLE LAW, THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S OR ITS MANAGEMENT'S PLANS, OBJECTIVES, EXPECTATIONS, INTENTIONS, BELIEFS AND ESTIMATES. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including "Risk Factors" and the Company's Consolidated Financial Statements and the Notes thereto, appearing elsewhere in this Prospectus. THE COMPANY The Company, founded in 1976, is a radioactive and hazardous waste management company that offers comprehensive treatment solutions for low-level radioactive waste ("LLRW") and low-level mixed waste ("LLMW") generated by the U.S. Department of Defense ("DOD") and U.S. Department of Energy ("DOE"), as well as commercial entities, such as nuclear power plants, medical facilities and research institutions. The Company's thermal treatment technologies vitrify waste into leach-resistant glass for long-term storage or disposal. Compared with the more traditional incineration methods, the Company's vitrification process results in significantly less effluents, provides a more stable end product and achieves comparable volume and mass reduction at similar total treatment and disposal costs. The Company's growth strategy is to: (i) increase its share of the domestic commercial LLRW treatment market; (ii) establish a significant position in the emerging domestic LLMW treatment market; (iii) increase its participation in large-scale domestic and international waste clean-up projects; (iv) expand into selected Pacific Rim markets; and (v) enhance its on-site waste treatment capabilities. The Company operates one of only two commercial facilities in the United States licensed to thermally treat a broad spectrum of LLRW, and is the only company in the United States licensed to vitrify both commercial and government-generated LLRW. The licensing process for constructing and operating an LLRW treatment facility is lengthy and may require three to five years if the license covers thermal treatment methods. The Company believes that U.S. nuclear power plants, medical and research institutions and other commercial generators currently spend in excess of $150 million annually on commercial LLRW treatment. The Company's licensed facilities in Richland, Washington and its proposed facilities in Aiken, South Carolina are strategically located close to two major DOE sites, the Hanford and Savannah River Reservations. The DOE estimates that the total treatment costs for the LLRW stored at its Hanford and Savannah River Reservations alone will exceed $850 million through 2010. In addition to these two DOE sites, the Company currently treats LLRW from other DOE sites and expects to continue to do so in the future. Since 1988, the Company has treated several million pounds of LLRW, over 115,000 pounds of which have been treated since September 1997 using the Company's SAFGLAS vitrification system. In 1994, the Company commenced the licensing process for its Richland facilities to treat LLMW, which is LLRW mixed with hazardous constituents. The Company believes its Richland facilities will receive final approval in 1998 for full-scale thermal and non-thermal LLMW processing, which is anticipated to begin in 1999. The Company believes that its mixed waste treatment facility will be the first privately owned facility in the United States licensed to thermally and non-thermally treat a broad spectrum of commercial and government-generated LLMW. The Company has been awarded the first privatized contracts to thermally and non-thermally treat LLMW from DOE-Hanford, with the contract for thermal treatment having a maximum value of $24 million for treating 175,000 cubic feet of waste over ten years. The DOE estimates that the LLMW treatment costs for Hanford and Savannah River alone will exceed $580 million through 2010. The Company expects to compete for LLMW treatment contracts at all DOE sites. The Company operates through its Fixed Facilities Group, which manages its waste treatment operations, and its Field Engineering Group, which addresses on-site decontamination and decommissioning of radioactive facilities ("D&D") and environmental restoration of sites contaminated with radioactive and hazardous waste. 3 Historically, a majority of the Company's revenue has been derived from on-site services. The Company has completed over 150 environmental restoration projects since 1989 and provided D&D services for over a decade. The synergies between the on-site remediation services of its Field Engineering Group and the waste treatment operations of its Fixed Facilities Group enhance the Company's ability to compete for commercial and government LLRW and LLMW treatment contracts. In the last three years, the Company has formed teaming relationships with, among others, Lockheed Martin Corporation ("Lockheed Martin"), Morrison Knudsen Corporation ("Morrison Knudsen") and Jacobs Engineering Group Inc. ("Jacobs Engineering") to pursue large contract awards requiring diverse waste management and treatment expertise. The Company intends to continue to enter into such relationships and is currently in the early stage of pursuing similar strategic alliances with foreign entities in selected Pacific Rim markets with established LLRW or LLMW clean-up initiatives or where scarcity of land and high disposal costs create an opportunity for vitrification treatment technologies. The Company was incorporated in Texas in 1976 under the name "Allied Nuclear, Inc.," reincorporated in California in 1980 and changed its name to "ATG Inc." in 1987. Its principal executive offices are located at 47375 Fremont Boulevard, Fremont, California 94538, and its telephone number is: (510) 490- 3008. THE OFFERING Common Stock offered....................... 1,700,000 shares Common Stock to be outstanding after the Offering.................................. 13,215,896 shares(1) Use of proceeds............................ For capital expenditures, repayment of short-term indebtedness, and working capital and general corporate purposes, which may include acquisitions and joint ventures. Proposed Nasdaq National Market symbol .... ATGC
- -------------------- (1) Based on the number of shares outstanding on December 31, 1997. Excludes 1,000,000 shares of Common Stock reserved for issuance upon exercise of outstanding stock options at a weighted average exercise price of $2.09 per share, 298,927 of which were exercisable on such date. See "Description of Capital Stock--Options." Unless otherwise indicated, all information in this Prospectus assumes (i) that the Underwriters' over-allotment option and the Representative's Warrants are not exercised, and (ii) that all of the outstanding shares of the Company's Series A Preferred Stock, no par value per share (the "Preferred Stock"), and all of the outstanding shares of the Series A and Series B Redeemable Non- Voting Preferred Stock issued by the Company's consolidated subsidiary, ATG Richland Corporation ("ATG Richland"), are converted prior to the closing of the Offering into an aggregate of 3,983,595 shares of Common Stock. Unless the context suggests otherwise, references in this Prospectus to the "Company" mean ATG Inc. and its consolidated subsidiaries. SAFGLAS(TM), GASVIT(TM) and PLASTIMELT(TM) are trademarks of the Company for which registration is pending. All other trademarks, service marks or trade names referred to in this Prospectus are the property of the respective owners thereof. 4 SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, --------------------------- 1995 1996 1997 -------- -------- -------- STATEMENT OF OPERATIONS DATA: Revenue.......................................... $ 16,070 $ 18,235 $ 19,107 Gross profit..................................... 6,411 7,153 7,935 Operating income................................. 209 497 915 Interest income (expense), net................... (141) 13 58 -------- -------- -------- Income before income taxes....................... 68 510 973 Provision (benefit) for income taxes............. 2 2 (45) -------- -------- -------- Net income....................................... $ 66 $ 508 $ 1,018 ======== ======== ======== Pro forma net income per share(1) Basic.......................................... $ 0.09 Diluted........................................ 0.08 ======== Pro forma weighted average shares outstanding(1) Basic.......................................... 11,516 Diluted........................................ 12,284 ========
DECEMBER 31, 1997 ----------------------------------- PRO FORMA ACTUAL PRO FORMA(2) AS ADJUSTED(3) ------- ------------ -------------- BALANCE SHEET DATA: Working capital.......................... $ 1,652 $ 1,652 $14,881 Total assets............................. 37,227 37,227 50,456 Total indebtedness (including current portion)................................ 7,582 7,582 7,582 Mandatorily redeemable preferred stock... 19,416 -- -- Shareholders' equity..................... 296 19,712 32,941
- -------------------- (1) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the basis for calculating pro forma net income per share. (2) Presented on a pro forma basis to give effect to the conversion of all outstanding shares of Mandatorily Redeemable Preferred Stock into an aggregate of 3,983,595 shares of Common Stock prior to the closing of the Offering. (3) Adjusted to reflect the sale of 1,700,000 shares of Common Stock offered hereby. See "Use of Proceeds" and "Capitalization." 5 RISK FACTORS In addition to the other information set forth in this Prospectus, investors should carefully consider the following risk factors when evaluating the Company and its business before purchasing shares of the Common Stock offered hereby. DEPENDENCE ON GOVERNMENT LICENSES, PERMITS AND APPROVALS The radioactive and hazardous waste management industry is highly regulated. The Company is required to have federal, state and local governmental licenses, permits and approvals for its waste treatment facilities and services. Such licenses, permits or approvals are subject to denial, revocation or modification under a variety of circumstances. Failure to obtain, or to comply with the conditions of, applicable licenses, permits or approvals could adversely affect the Company's business, financial condition and results of operations. As its business expands and as it introduces new technologies, the Company will be required to obtain additional operating licenses, permits or approvals. It may be required to obtain additional operating licenses, permits or approvals if new environmental legislation or regulations are enacted or promulgated or existing legislation or regulations are amended, re-interpreted or enforced differently than in the past. Any new requirements which raise compliance standards may require the Company to modify its waste treatment technologies to conform to more stringent regulatory requirements. There can be no assurance that the Company will be able to continue to comply with all of the environmental and other regulatory requirements applicable to its business. See "Business--Environmental Laws and Regulations; Licensing Processes Applicable to LLRW and LLMW Treatment Facilities." NO ASSURANCE OF SUCCESSFUL DEVELOPMENT, COMMERCIALIZATION OR ACCEPTANCE OF TECHNOLOGIES The Company is in the process of developing, refining and implementing its technologies for the treatment of LLRW, LLMW and other wastes. The Company's future growth will be dependent in part upon the acceptance and implementation of these technologies, particularly its recently developed vitrification technologies for the treatment of LLRW and LLMW. There can be no assurance that successful development of all these technologies will occur in the near future, or even if successfully developed, that the Company will be able to successfully commercialize such technologies. The successful commercialization of the Company's vitrification technologies may depend in part on ongoing comparisons with other competing technologies and more traditional treatment, storage and disposal alternatives, as well as the continuing high cost and limited availability of commercial disposal options. There can be no assurance that the Company's vitrification and related technologies will prove to be commercially viable or cost-effective, or if commercially viable and cost- effective, that the Company will be successful in timely securing the requisite regulatory licenses, permits and approvals for such technologies or that such technologies will be selected for use in future waste treatment projects. The Company's LLMW thermal treatment contract with DOE-Hanford requires the Company to obtain all of the required licenses, permits and approvals for, and to build and place in operation, its LLMW treatment facility by December 31, 1999. The Company's inability to develop, commercialize or secure the requisite licenses, permits and approvals for its waste treatment technologies on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Waste Treatment Technologies." DEPENDENCE ON ENVIRONMENTAL LAWS AND REGULATIONS A substantial portion of the Company's revenue is generated as a result of requirements arising under federal and state laws, regulations and programs related to protection of the environment. Environmental laws and regulations are, and will continue to be, a principal factor affecting demand for the services offered by the Company. The level of enforcement activities by federal, state and local environmental protection agencies and changes in such laws and regulations also affect the demand for such services. If the requirements of compliance with environmental laws and regulations were to be modified in the future, particularly those relating to the transportation, treatment, storage or disposal of LLRW, LLMW or other wastes, the demand for the Company's services, and its business, financial condition and results of operations, could be materially adversely affected. 6 See "Business--Environmental Laws and Regulations; Licensing Processes Applicable to LLRW and LLMW Treatment Facilities." DEPENDENCE ON FEDERAL GOVERNMENT; LIMITS ON GOVERNMENT SPENDING; GOVERNMENT CONTRACTING For the fiscal years ended December 31, 1995, 1996 and 1997, approximately 86.3%, 76.8% and 71.3%, respectively, of the Company's total revenue was derived from federal government contracts. The Company expects that the percentage of its revenue attributable to such contracts will continue to be substantial for the foreseeable future. The Company's government contracts generally are subject to cancellation, delay or modification at the sole option of the government. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and "Business--Customers." The Company is dependent on government appropriations to fund many of its contracts. Efforts to reduce the federal budget deficit could adversely affect the availability and timing of government funding for the clean-up of DOE, DOD and other federal government sites. The failure by the government to fund future restoration of such sites could have an adverse effect on the Company's business, financial condition and results of operations. In addition, the taxing authority of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") has expired. Although bills to reauthorize Superfund were introduced in Congress in late calendar 1997 and action is anticipated in 1998, the potential for further delay could adversely affect the environmental remediation industry. See "Business--Environmental Laws and Regulations; Licensing Processes Applicable to LLRW and LLMW Treatment Facilities." As a provider of services to federal and other government agencies, the Company also faces risks associated with government contracting, which include substantial fines and penalties for, among other matters, failure to follow procurement integrity and bidding rules and employing improper billing practices or otherwise failing to follow prescribed cost accounting standards. Government contracting requirements are complex, highly technical and subject to varying interpretations. As a result of its government contracting business, the Company has been, and expects to be in the future, the subject of audits, and may in the future be subject to investigations, by government agencies. Failure to comply with the terms of one or more of its government contracts could result in damage to the Company's business reputation and the Company's suspension or disqualification from future government contract projects for a significant period of time. The fines and penalties which could result from noncompliance with applicable standards and regulations, or the Company's suspension or disqualification, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Environmental Contractor Risks." SEASONALITY AND FLUCTUATION IN QUARTERLY RESULTS The Company's revenue is dependent on its contract backlog and the timing and performance requirements of each contract. Revenue in the first and second quarters has historically been lower than in the third and fourth quarters, as the Company's customers have tended to be more cautious about transporting radioactive waste during the months when transportation is more likely to be adversely affected by severe weather conditions. The Company's revenue is also affected by the timing of its clients' planned remediation activities and need for waste treatment services, which generally increase during the third and fourth quarters. Due to this variation in demand, the Company's quarterly results fluctuate. Accordingly, specific quarterly or interim results should not be considered indicative of results to be expected for any future quarter or for the full year. Due to the foregoing factors, it is possible that in future quarters the Company's operating results will not meet the expectations of securities analysts and investors. In such event, the price of the Common Stock could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANAGEMENT OF GROWTH Since 1994, the Company has experienced significant growth, attributable in large part to an increase in the number and size of contracts awarded. The Company is currently pursuing a growth strategy intended to expand its business domestically and internationally. The Company's historical growth has placed, and any future 7 growth may place, significant demands on its operational, managerial and financial resources. There can be no assurance that the Company's current management and systems will be adequate to address any future expansion of the Company's business. In such event, any inability to manage the Company's growth effectively could have a material adverse effect on the Company's business, financial condition and results of operations. EQUIPMENT PERFORMANCE; SAFETY AND LICENSE VIOLATIONS The Company's ability to perform under current waste treatment contracts and to successfully bid for future contracts is dependent upon the consistent performance of its waste treatment systems at its fixed facilities in conformity with safety and other requirements of the licenses under which the Company operates. The Company's fixed facilities are subject to frequent routine inspections by the regulatory authorities issuing such licenses. In the event that any of the Company's principal waste treatment systems were to be shut down for any appreciable period of time, either due to equipment breakdown or as the result of regulatory action in response to an alleged safety or other violation of the terms of the licenses under which the Company operates, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business--Waste Treatment Technologies" and "--Operations and Services." ENVIRONMENTAL CONTRACTOR AND REGULATORY MATTERS The rapidly developing and changing regulatory framework governing the Company's business creates significant risks, including potential liabilities from violations of environmental statutes and regulations and liabilities to customers and third parties for damages arising from services performed. The Company's failure to comply with such statutes and regulations, or with the terms and conditions of licenses and permits it holds under these and other statutes and regulations, may result in the imposition of substantial fines and penalties and could adversely affect the Company's ability to carry on its business as presently constituted. In performing services, the Company could potentially be liable for claims brought by its customers for breach of contract, personal injury, property damage, and negligence, including claims for lack of timely performance or for failure to deliver the service promised (including improper or negligent performance or design, failure to meet specifications, and breaches of express or implied warranties). The damages available to a customer, should it prevail in its claims, are potentially large and could include consequential damages. The Company's potential liability is amplified by the increasing tendency to attempt to shift various liabilities arising out of remediation of environmental contamination to contractors through contractual indemnities, such as provisions seeking to require the contractor to assume liabilities for damage or injury to third parties and property and for environmental fines and penalties. Radioactive and hazardous waste management contractors also potentially face liabilities to third parties from various claims, including claims for property damage, personal injury or wrongful death stemming from a release of radioactive or hazardous substances, improper handling of explosives and other hazardous materials, or otherwise. In addition, increasing numbers of claimants assert that companies performing radioactive and hazardous waste management services should be adjudged strictly liable (i.e., liable for damages even though their services were performed using reasonable care), on the grounds that such services involved "abnormally dangerous activities." The Company has adopted a range of risk management programs designed to reduce these risks and potential liabilities, including policies to seek contractual indemnities, other contract administration procedures, and employee health, safety, training and environmental monitoring programs; however, there can be no assurance that such programs will protect the Company from such risks and liabilities. See "Business--Operations and Services" and "--Risk Management and Insurance." COMPETITION In general, the market for radioactive and hazardous waste management services is highly competitive. The Company faces competition in its principal current and planned business lines from both established domestic companies and foreign companies attempting to introduce European waste treatment technologies into the United States. Many of the Company's competitors have greater financial, managerial, technical and marketing resources than the Company. To the extent that competitors possess or develop superior or more cost-effective waste treatment solutions or field service capabilities, or otherwise possess or acquire competitive advantages compared 8 to the Company, the Company's ability to compete effectively could be materially adversely affected. Any increase in the number of licensed commercial LLRW treatment facilities or disposal sites in the United States or any decrease in the treatment or disposal fees charged by such facilities or sites could increase the competition faced by the Company or reduce the competitive advantage of certain of the Company's treatment technologies. See "Business--Market Overview" and "--Competition." INTERNATIONAL EXPANSION A key component of the Company's growth strategy is to expand its business into selected Pacific Rim markets. There can be no assurance that the Company or its strategic alliance partners will be able to market its technologies or services successfully in foreign markets. In addition, there are certain risks inherent in foreign operations, including general economic conditions in each country, varying regulations applicable to the Company's business, seasonal reductions in business activities, fluctuations in foreign currencies or the U.S. Dollar, expropriation, nationalization, war, insurrection, terrorism and other political risks, the overlap of different tax structures, risks of increases in taxes, tariffs and other governmental fees and involuntary renegotiation of contracts with foreign governments. There can be no assurance that laws or administrative practices relating to taxation, foreign exchange or other matters of foreign countries within which the Company operates or will operate will not change. Any such change could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Growth Strategy." DEPENDENCE ON KEY PERSONNEL The Company's future success depends on its continuing ability to attract, retain and motivate highly qualified managerial, technical and marketing personnel. The Company is highly dependent upon the continuing contributions of its key managerial, technical and marketing personnel. The Company's employees may voluntarily terminate their employment with the Company at any time, and competition for qualified technical personnel, in particular, is intense. The loss of the services of any of the Company's managerial, technical or marketing personnel could materially adversely affect the Company's business, financial condition and results of operations. The Company maintains a $1.5 million key man life insurance policy on the life of each of Doreen M. Chiu and Frank Y. Chiu. There can be no assurance that such amount will be sufficient to compensate the Company for the loss of the services of these individuals. See "Business--Employees" and "Management." FOCUS ON LARGER PROJECTS The Company increasingly pursues large, multi-year contracts as a method of achieving more predictable revenue, more consistent utilization of equipment and personnel, and greater leverage of sales and marketing costs. These larger projects impose significant risks if actual costs are higher than those estimated at the time of bid. A loss on one or more of such larger contracts could have a material adverse effect on the business, financial condition and results of operations of the Company. In addition, failure to obtain, or delay in obtaining, targeted large, multi-year contracts could result in significantly less revenue to the Company than anticipated. See "Business-- Customers," "--Sales and Marketing" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." POTENTIAL ENVIRONMENTAL LIABILITY AND INSURANCE Since the Company routinely works with radioactive and hazardous materials, the Company may be subject to liability claims by employees, customers and third parties. There can be no assurance that the Company's existing liability insurance is adequate to cover claims asserted against the Company, that all claims asserted against the Company will be covered by insurance or that the Company will be able to maintain such insurance in the future. An uninsured claim, if successful and of sufficient magnitude, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Risk Management and Insurance." 9 DEPENDENCE ON AND LIMITED PROTECTION OF TECHNOLOGY AND INTELLECTUAL PROPERTY; POTENTIAL LITIGATION The Company's ability to compete effectively is dependent upon its vitrification and other waste treatment technologies. The Company principally relies upon a combination of trade secret and trademark laws, employee and third party non-disclosure agreements, licenses from owners of patents and other intellectual property rights, and other methods to establish and protect the proprietary aspects of its waste treatment technologies. In addition, the Company has filed one patent application currently pending in the U.S. Patent and Trademark Office. There can be no assurance that the patent will issue, and there can be no assurance regarding the scope, validity or value of any patents or other methods of intellectual property rights protection relied upon by the Company. Further, there can be no assurance that the steps taken to protect proprietary technologies by the Company and the owners of any licensed patents and other intellectual property rights will be adequate to prevent the use of these technologies by third parties. There can be no assurance that others will not develop proprietary technologies and processes which are the same as or superior to those of the Company. In the event that the Company pursues overseas projects, there can be no assurance that steps taken by the Company and the owners of any licensed patents and other intellectual property rights to protect their proprietary technologies will be adequate under the laws of certain foreign countries. The loss of patent or other forms of intellectual property rights protection on the Company's technology or the circumvention of such protection by competitors could have a material adverse effect on the Company's ability to compete successfully with its waste treatment technologies. See "Business--Intellectual Property." Many technology fields are characterized by the existence of a large number of patents and frequent litigation regarding possible infringement. Although the Company does not believe that any of its technologies infringes the patent rights of third parties, there can be no assurance that infringement claims will not be asserted against the Company in the future or that any such claims will not require the Company to enter into royalty or other settlement arrangements or result in costly litigation. NEED FOR ADDITIONAL CAPITAL In addition to the proceeds from the Offering, the Company believes that it will need additional capital in order to implement its growth strategy. There can be no assurance that the Company will be successful in raising the requisite amount of financing when needed, or, that if successful, the terms of such financing will be favorable to the Company. If the Company is not successful in raising such financing, it will need to curtail or scale back its planned expansion, which could adversely affect the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-- Growth Strategy." ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE; DILUTION Prior to the Offering there has been no public market for the Common Stock. Although the Company has applied to have the Common Stock included on the Nasdaq National Market, there can be no assurance that an active trading market for the Common Stock will develop or be sustained after the Offering. The initial public offering price will be determined through negotiations between the Company and the Representative, and may not be indicative of the market price at which the Common Stock will trade after the Offering. (See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price.) Additionally, the market price of the Common Stock may be subject to significant fluctuations in response to variations in actual and anticipated quarterly operating results and other factors, including announcements of new contracts or technical innovations by the Company or its competitors, changes in government regulations relating to the environment, the volume of market transactions in the Common Stock and general market conditions. Purchasers of the Common Stock offered hereby will incur immediate and substantial dilution in the net tangible book value of their shares. See "Dilution." To the extent that the Representative's Warrants, any of the outstanding options to purchase an aggregate of 1,000,000 shares of Common Stock or any options granted in the future under the Company's 1998 Stock Ownership Incentive Plan or 1998 Non-Employee Directors' Stock Option Plan are exercised, the percentage ownership interests of the Company's shareholders will be diluted 10 proportionately. See "Underwriting," "Description of Capital Stock--Options," "Management--Employee Benefit Plans--Stock Ownership Incentive Plan" and "-- Board of Directors--Non-Employee Directors' Stock Option Plan." SHARES ELIGIBLE FOR FUTURE SALE Future sales of substantial amounts of Common Stock in the public market could have an adverse effect on the market price of the Common Stock. Upon completion of the Offering, the Company will have outstanding approximately 13,215,896 shares of Common Stock (13,470,896 shares, if the Underwriters' over-allotment option is exercised in full), of which 1,700,000 shares offered hereby (1,955,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradeable without restriction or further registration under the Securities Act to the extent they are not held by "affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 11,515,896 shares of Common Stock outstanding upon completion of the Offering will be "restricted securities" as that term is defined in Rule 144. The Company's officers, directors and certain shareholders have executed lock-up agreements generally providing that they will not sell or otherwise dispose of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Van Kasper & Company. Taking into account the existence of such lock-up agreements and assuming the shareholders are not released from these agreements, all 11,515,896 shares constituting restricted securities will become eligible for sale under Rule 144 180 days after the date of this Prospectus, of which 2,520,926 shares will be held by affiliates. Shares eligible to be sold by affiliates are generally subject to volume limitations under Rule 144. The existence of a large number of shares eligible for future sale could have an adverse effect on the Company's ability to raise additional equity capital or on the price at which such equity capital could be raised. See "Shares Eligible for Future Sale." ABSENCE OF DIVIDENDS The Company has never declared or paid any dividends on the Common Stock. The Company currently anticipates that it will retain all future earnings for use in the operation and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of the Company's outstanding bank borrowings currently prohibit the payment by the Company of dividends without the lender's prior approval. See "Dividend Policy." 11 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby, at an assumed initial public offering price of $9.00 per share (the midpoint of the price range set forth on the outside front cover page of this Prospectus), and after deducting estimated offering expenses and underwriting discounts, are estimated to be approximately $13,229,000 ($15,329,000 if the Underwriters' over-allotment option is exercised in full). The Company intends to use the net proceeds from the Offering approximately as follows: (i) $4.0 million for capital equipment at its Richland, Washington facilities; (ii) $2.0 million to develop its future U.S. east coast waste treatment facilities; (iii) $4.0 million to repay all amounts of principal and interest outstanding under its bank line of credit; and (iv) the balance for working capital and general corporate purposes, which may include possible acquisitions or joint ventures in connection with the expansion of its existing business lines. The Company is not currently a party to any commitments or agreements relating to, and is not currently involved in any negotiations with respect to, any such acquisitions or joint ventures. The Company expects that the net proceeds of the Offering, together with anticipated cash flow from operations and available borrowings under the Company's credit facility, will satisfy its cash requirements for the next 12 months. See "Risk Factors--Need for Additional Capital." Pending application of the net proceeds of the Offering to the uses described above, the Company intends to invest the proceeds in short-term investment grade, interest- bearing securities. DIVIDEND POLICY The Company currently intends to retain any future earnings for use in the operation and growth of its business. The Company does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. Any future decision to declare or pay cash dividends on the Common Stock will depend upon the results of operations, financial condition and capital expenditure plans of the Company at that time, as well as other factors that the Company's Board of Directors (the "Board"), in its sole discretion, may consider relevant. In addition, the terms of the Company's bank borrowings currently prohibit the payment by the Company of cash dividends on the Common Stock without the lender's prior approval. 12 DILUTION As of December 31, 1997, the pro forma net tangible book value per share of the Common Stock was $1.67. Pro forma net tangible book value per share of Common Stock is equal to the total tangible assets of the Company less total liabilities, divided by the number of shares of Common Stock deemed to be outstanding. After giving effect to the issuance of shares in the Offering at an assumed initial public offering price of $9.00 per share, and after deducting estimated offering expenses and underwriting discounts, the adjusted pro forma net tangible book value per share of Common Stock as of December 31, 1997 would have been $2.46. This represents an immediate dilution of $6.54 per share to new investors purchasing Common Stock in the Offering. The following table illustrates this per share dilution. Assumed initial public offering price per share ................ $9.00 Pro forma net tangible book value per share as of December 31, 1997(1) ..................................................... $1.67 Increase attributable to the Offering ........................ .79 ----- Adjusted pro forma net tangible book value per share after Offering ...................................................... 2.46 ----- Dilution to new investors....................................... $6.54 =====
The following table summarizes, on a pro forma basis as of December 31, 1997, the number of shares purchased from the Company, the total consideration paid and the average price per share paid by the existing shareholders of the Company and new investors purchasing shares offered hereby, assuming an initial public offering price of $9.00 per share:
SHARES PURCHASED TOTAL CONSIDERATION ------------------ ------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing shareholders(1)........ 11,515,896 87.1% $21,488,000 58.4% $1.87 New investors........... 1,700,000 12.9 15,300,000 41.6 9.00 ---------- ----- ----------- ----- Total................. 13,215,896 100.0% $36,788,000 100.0% ========== ===== =========== =====
- --------------------- (1) The above computations assume no exercise after December 31, 1997 of any of the outstanding options to purchase shares of the Common Stock. As of December 31, 1997, there were options outstanding to purchase a total of 1,000,000 shares of Common Stock at a weighted average exercise price of $2.09 per share, 298,927 of which were exercisable on such date. To the extent these options are exercised, there will be further dilution to new investors. See "Description of Capital Stock--Options." 13 CAPITALIZATION The following table sets forth the actual and pro forma capitalization of the Company as of December 31, 1997, and the pro forma capitalization as adjusted to give effect to the sale of 1,700,000 shares of Common Stock offered hereby, and the receipt and application of the estimated net proceeds therefrom. The pro forma capitalization gives effect to the conversion of all outstanding shares of Mandatorily Redeemable Preferred Stock into an aggregate of 3,983,595 shares of Common Stock prior to the closing of the Offering. The capitalization information set forth in the table below is unaudited and qualified by and should be read in conjunction with the Company's more detailed Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
DECEMBER 31, 1997 ------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ----------- (IN THOUSANDS) Current portion of long-term debt............... $ 1,380 $ 1,380 $ 1,380 ======= ======= ======= Long-term debt, less current portion............ $ 6,202 $ 6,202 $ 6,202 ------- ------- ------- Mandatorily Redeemable Preferred Stock: Series A and ATG Richland's Series A and B Preferred Stock, no par value, 6,000,000 shares authorized, 3,029,291 shares issued and outstanding (actual); none issued and outstanding (pro forma and as adjusted)...... 19,416 -- -- ------- ------- ------- Shareholders' equity: Common Stock, no par value, 20,000,000 shares authorized, 7,532,301 shares issued and outstanding (actual); 11,515,896 shares issued and outstanding (pro forma); 13,215,896 shares issued and outstanding (as adjusted).................................... 6,337 21,795 35,024 Deferred compensation......................... (272) (272) (272) Accumulated deficit........................... (5,769) (1,811) (1,811) ------- ------- ------- Total shareholders' equity.................. 296 19,712 32,941 ------- ------- ------- Total capitalization...................... $25,914 $25,914 $39,143 ======= ======= =======
14 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected statement of operations data for the years ended December 31, 1995, 1996 and 1997 and the selected balance sheet data as of December 31, 1996 and 1997 are derived from and are qualified by reference to and should be read in conjunction with the more detailed Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus, audited by Coopers & Lybrand L.L.P., independent accountants. The selected statement of operations data for the year ended December 31, 1994 and selected balance sheet data as of December 31, 1994 and 1995 are also derived from audited financial statements of the Company which are not included herein. The selected statement of operations data for the year ended December 31, 1993 and the selected balance sheet data as of December 31, 1993 are derived from unaudited financial statements of the Company which are not included herein.
YEARS ENDED DECEMBER 31, --------------------------------------------- 1993 1994 1995 1996 1997 ----------- ------- ------- ------- ------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenue........................ $11,451 $11,723 $16,070 $18,235 $19,107 Cost of revenue................ 6,277 7,194 9,659 11,082 11,172 ------- ------- ------- ------- ------- Gross profit................... 5,174 4,529 6,411 7,153 7,935 Sales, general and administrative expenses....... 4,453 4,876 6,202 6,656 7,020 ------- ------- ------- ------- ------- Operating income (loss)........ 721 (347) 209 497 915 Interest income (expense), net. (394) (19) (141) 13 58 ------- ------- ------- ------- ------- Income (loss) before income taxes......................... 327 (366) 68 510 973 Income tax expense (benefit)... -- (2) 2 2 (45) ------- ------- ------- ------- ------- Net income (loss).............. $ 327 $ (364) $ 66 $ 508 $ 1,018 ======= ======= ======= ======= ======= Pro forma net income per share(1) Basic........................ $ 0.09 Diluted...................... 0.08 ======= Pro forma weighted average shares outstanding(1) Basic........................ 11,516 Diluted...................... 12,284 =======
DECEMBER 31, ------------------------------------------------------- PRO FORMA 1993 1994 1995 1996 1997 1997 ----------- ------- ------- ------- ------- ----------- (UNAUDITED) (UNAUDITED) BALANCE SHEET DATA: Working capital ........ $ 569 $ 2,359 $ 3,903 $ 4,333 $ 1,652 $ 1,652 Total assets............ 10,396 15,699 21,182 26,976 37,227 37,227 Total indebtedness (including current portion)............... 5,032 5,050 5,284 3,983 7,582 7,582 Mandatorily redeemable preferred stock........ -- 5,444 9,403 16,319 19,416 -- Shareholders' equity.... 1,480 1,491 890 630 296 19,712
- --------------------- (1) See Note 2 of Notes to Consolidated Financial Statements--Computation of Pro Forma Net Income Per Share. Historical income (loss) per share prior to 1997 has not been presented since such amounts are not deemed meaningful due to the significant change in the Company's capital structure that will occur in connection with the Offering. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto and the other financial information included elsewhere in this Prospectus. Except for the historical information contained herein, the discussions in this Prospectus contain forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in the section entitled "Risk Factors" as well as those discussed elsewhere in this Prospectus. OVERVIEW The Company is a radioactive and hazardous waste management company that offers comprehensive treatment solutions for LLRW, LLMW and other waste generated by the DOD, DOE and commercial entities such as nuclear power plants, medical facilities and research institutions. Founded in 1976 to provide technical consulting and support services to participants in the nuclear power industry, the Company expanded into D&D services in 1980 when it received its first multi-year contract for a DOE facility. Following an employee leveraged buy-out in 1984, new management commenced the diversification of the Company's business into waste processing and treatment. The Company principally derives its revenue from the waste treatment operations of its Fixed Facilities Group and the on-site remediation services of its Field Engineering Group. The U.S. government represented 86.3%, 76.8% and 71.3% of the Company's total annual revenue for the years 1995, 1996 and 1997, respectively. Revenue from commercial entities, primarily nuclear power plants, industrial concerns and medical and research institutions, has increased in recent years and is expected to represent an increasing portion of the Company's business. Revenue from waste treatment processing is recognized as waste is processed. Field engineering services are provided under fixed price, cost plus or unit price contracts. Revenue from fixed price and cost plus contracts is recognized utilizing the percentage of completion method of accounting; revenue from unit price contracts is recognized as the units are processed and completed. Revenue also includes non-refundable fees received under the terms of technology transfer agreements. The Company's revenue is dependent on the amount of its contract backlog, the timing and performance requirements of each contract and, in the case of government contracts, annual budget limitations and public sector budget constraints. Revenue in the first and second quarters has historically been lower than in the third and fourth quarters, as the Company's customers have tended to be more cautious about transporting radioactive waste during the months when transportation is more likely to be adversely affected by severe weather conditions. The Company's revenue is also affected by the timing of its clients' planned remediation activities and need for waste treatment services, which generally increase during the third and fourth quarters. Due to this variation in demand, the Company's quarterly results fluctuate. Accordingly, specific quarterly or interim results should not be considered indicative of results to be expected for any future quarter or for the full year. Gross profit percentages reflect the mix of the Company's business, which varies from time to time. Gross profit margins are generally higher for technology transfer agreements involving up-front, non-refundable, exclusive licensing fees payable to the Company, and, due to the extensive expertise the Company has developed in this area, when the Company is processing radioactive waste, while margins on nonradioactive waste projects generally are lower. The Company intends to focus a significant portion of its business on SAFGLAS vitrification of LLRW in 1998 and on LLMW processing in 1999. The Company operates its fixed facilities under regulation of, and licenses and permits issued by, various federal, state and local agencies. There is no assurance as to the successful outcome of any pending licensing and permitting efforts. The licensing and permitting process is subject to regulatory approval, time delays, community opposition and potentially stricter governmental regulation. The Company's inability to obtain licenses or permits on a timely basis, delays or changes in facility construction programs or the cancellation of pending projects could have a material adverse effect on the Company's financial position and results of operations. 16 The Company has historically relied upon the integration of proven technologies with the Company's know-how and processes, and has not incurred significant levels of research and development spending. Most of the research and development activities conducted to date have related to the design and construction of its fixed operating facilities, particularly in connection with the SAFGLAS system. The Company anticipates that its research and development efforts will continue to be moderate and that the costs associated with future research and development will not be material to the Company's results of operations. The Company increasingly pursues multi-year and longer term contracts as a method of achieving more predictable revenue, more consistent utilization of equipment and personnel, and greater leverage of sales and marketing costs. The Company currently focuses on large, multi-year site-specific and term contracts in the areas of LLRW and LLMW treatment, environmental restoration and D&D, and has in recent years been awarded a number of large government term contracts which, in most cases, require several years to complete. These government term contracts are subject to cancellation, delay or modification at the sole option of the government at any time, to annual funding limitations and public sector budget constraints and, in many cases, to actual delivery orders being released. Such projects, which may create an opportunity for the Company to realize margins higher than on other types of contracts, also impose heightened risks of loss if, for example, actual costs are higher than those estimated at the time of bid. A loss on one or more of such larger contracts could have a material adverse effect on the Company's financial condition and results of operations. In addition, failure to obtain, or delay in obtaining, targeted large, multi-year contracts could result in significantly less revenue to the Company than anticipated. RESULTS OF OPERATIONS The following table sets forth certain statement of operations data as a percentage of total revenue for the periods indicated:
YEARS ENDED DECEMBER 31, ------------------- 1995 1996 1997 ----- ----- ----- Revenue............................................... 100.0% 100.0% 100.0% Cost of revenue....................................... 60.1 60.8 58.5 ----- ----- ----- Gross profit.......................................... 39.9 39.2 41.5 Sales, general and administrative expenses............ 38.6 36.5 36.7 ----- ----- ----- Operating income...................................... 1.3 2.7 4.8 Interest income (expense), net........................ (0.9) 0.1 0.3 Provision (benefit) for income taxes.................. -- -- (0.2) ----- ----- ----- Net income............................................ 0.4% 2.8% 5.3% ===== ===== =====
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996 Revenue. Revenue for 1997 was $19.1 million, an increase of $0.9 million, or 4.8%, compared to $18.2 million in 1996. The growth in revenue resulted from a change in mix of the business services and the receipt of fees for technology transfer agreements. Revenue from waste treatment services was $9.6 million in 1997 compared to $8.9 million in 1996. Revenue from field engineering services was $7.5 million in 1997 compared to $9.3 million in 1996. During 1997 the Company entered into two technology transfer agreements (with total 1997 revenue of approximately $2.0 million derived from up-front, non-refundable, exclusive licensing fees) that provided for the transfer of rights to the processes and technology of the Company on an exclusive basis in selected Asian territories. Revenue from various agencies of the U.S. government accounted for 71.3% and 76.8% of total revenue in 1997 and 1996, respectively. One contract with an agency of the U.S. government accounted for approximately 21.0% of the Company's total revenue for 1997. Two contracts with agencies of the U.S. government accounted for 12.5% and 12.0%, respectively, of the Company's total revenue for 1996. Gross Profit. Gross profit for 1997 was $7.9 million, an increase of $0.7 million, or 10.9%, compared to $7.2 million for 1996. Gross profit as a percentage of revenue increased to 41.5% in 1997 compared to 39.2% in 1996. Gross profit percentages reflect the various mixes of the Company's business services from time to time. 17 Gross profit in 1997 includes the effect of the technology transfer licensing fee revenue. Gross profit margins are generally higher for technology transfer agreements and, due to the extensive expertise the Company has developed in this area, when the Company is processing radioactive waste, while margins on nonradioactive waste projects generally are lower. Although the gross profit margins increased from 1997 to 1996, there can be no assurance that similar margins will be attained in future periods. Any shift in the mix of business in future periods to lower margin projects could adversely affect the Company's results of operations. Sales, General and Administrative Expenses. Sales, general and administrative expenses (including stock-based compensation expense) were $7.0 million for 1997, an increase of $0.3 million, or 5.5%, compared to $6.7 million in 1996. Sales, general and administrative expenses were 36.7% of revenue in 1997 compared to 36.5% of revenue in 1996. Sales, general and administrative expenses support the domestic sales and marketing activities and the financial, administrative, information systems and human resources functions of the Company. The overall increase as a percentage of revenue is attributable to the Company's hiring in 1997 of senior management personnel to support the Company's future growth. Interest Income and Interest Expense. Interest income was $58,000 in 1997 compared to $142,000 in 1996. The decrease in interest income is attributable to a lower overall average of cash available for investment in 1997. In 1996 the Company sold $5.9 million of preferred stock and invested the net proceeds in interest bearing accounts until they were needed for capital expenditures and working capital. In 1997 the Company sold $1.7 million in additional preferred stock. Interest expense was nil in 1997 as the result of the Company capitalizing $891,000 of interest on construction in progress in accordance with generally accepted accounting principles. (See Note 5 of Notes to Consolidated Financial Statements.) Interest expense in 1996 was $129,000, which was net of $446,000 of interest capitalized on construction in progress. COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995 Revenue. Revenue for 1996 was $18.2 million, an increase of $2.1 million, or 13.5%, compared to $16.1 million for 1995. The growth in revenue resulted from increases in the size and number of both field engineering and waste treatment projects, and an increase in the number of new customers. Revenue from waste treatment services was $8.9 million in 1996 compared to $8.0 million in 1995. Revenue from field engineering services was $9.3 million in 1996 compared to $8.1 million in 1995. Revenue from various agencies of the U.S. government accounted for 76.8% and 86.3% of total revenue in 1996 and 1995, respectively. One contract with an agency of the U.S. government accounted for 12.5% and 21.9% of the Company's total revenue in 1996 and 1995, respectively. A contract with one other agency of the U.S. government accounted for 12.0% of the Company's total revenue for 1996. Gross Profit. Gross profit for 1996 was $7.2 million, an increase of $0.8 million, or 11.6%, compared to $6.4 million in 1995. Gross profit as a percentage of revenue remained relatively constant at 39.2% in 1996 compared to 39.9% in 1995. Gross profit percentages reflect the various mixes of the Company's business services from time to time. The decrease in the gross profit percentage from 1995 to 1996 reflects this change in mix. Sales, General and Administrative Expenses. Sales, general and administrative expenses (including stock-based compensation expense) were $6.7 million for 1996, an increase of $0.5 million, or 7.3%, compared to $6.2 million for 1995. Sales, general and administrative expenses were 36.5% of revenue in 1996 compared to 38.6% of revenue in 1995. The overall decrease as a percentage of revenue is attributable to the Company's effort to maintain a level of costs that does not increase at the same rate as revenue. Interest Income and Interest Expense. Interest income was $142,000 in 1996 compared to $185,000 in 1995. The decrease in interest income is attributable to a lower overall average of cash available for investment in 1996 than in 1995 due to the timing of sales of preferred stock and the use of the cash for capital expenditures and working capital. Interest expense for 1996 was $129,000 compared to $326,000 for 1995. The higher interest expense in 1995 resulted from an increase in working capital borrowing to finance the increase in accounts receivable in 1995 over 1994. Accounts receivable increased from approximately $3.9 million at fiscal year-end 1994 to $7.4 million at fiscal year-end 1995. Additionally, in 1995 and 1996 the Company capitalized a portion 18 of its interest expense in accordance with generally accepted accounting principles. The interest expense capitalized was directly attributable to construction in progress on the SAFGLAS system. LIQUIDITY AND CAPITAL RESOURCES Prior to 1994, the Company financed its operations, acquired equipment and met its working capital requirements through sales of common stock, borrowings under its revolving line of credit and long-term loans and capital leases secured by property and equipment. In 1994 the Company sold 900,000 shares of Preferred Stock at $5.00 per share. The proceeds from this financing were used to acquire property and equipment in the amount of $3.2 million, and the balance for working capital needs. In 1995 the Company's subsidiary, ATG Richland, sold 860,000 shares of its Series A Redeemable Non-Voting Preferred Stock at $5.00 per share and in 1996 sold 990,355 shares of its Series B Redeemable Non-Voting Preferred Stock at $6.00 per share. Of the $10.2 million raised in these two financings, $7.3 million was used to acquire property and equipment, and $2.9 million for working capital. In 1997 ATG Richland sold an additional 278,936 shares of its Series B Redeemable Non-Voting Preferred Stock at $6.00 per share. The $1.7 million raised in this transaction was primarily used to fund the installation and start-up of the SAFGLAS system at the Company's Richland facilities. During 1995 the Company used cash of $3.4 million in its operating activities. Operating cash used in 1995 resulted primarily from an increase in accounts receivable related to significant growth in sales. In 1996, cash of $2.9 million was generated from operations, primarily from increased profitability and reduction in accounts receivable as well as other working capital changes. In 1997, cash of $1.0 million was generated from operations, primarily from increased profitability. Significant outlays of cash have been needed to acquire property and equipment, primarily for the Company's Richland facilities. Property and equipment acquisitions totaled $2.7 million, $4.6 million and $7.8 million in 1995, 1996 and 1997, respectively. The Company anticipates that continued expansion of its Richland LLRW treatment facilities will cost approximately $4.0 million, which the Company plans to finance from the proceeds of the Offering. The Company currently expects to spend an additional approximately $10 million for the construction of the mixed waste treatment facility to be sited at its Richland facilities. The working capital of the Company was approximately $1.7 million at December 31, 1997. The Company's principal sources of liquidity at December 31, 1997 consisted of $2.6 million of cash and cash equivalents. It is anticipated that bank borrowings will be repaid from the proceeds of the Offering. The Company is presently in negotiations to increase the principal amount of its bank line of credit to $10.0 million. The Company believes that the net proceeds from the Offering, together with the availability of its line of credit and cash generated from operations, will be sufficient to meet the Company's capital requirements for the next 12 months. Depending on its rate of growth and profitability, the Company may require additional equity or debt financing to meet its future working capital or capital expenditure needs. There can be no assurance that such additional financing will be available or, if available, that such financing can be obtained on terms satisfactory to the Company. ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. It does not, however, require a specific format for the statement, but requires the Company to display an amount representing total comprehensive income for the period in that financial statement. SFAS No. 130 is effective for the Company's 1998 fiscal year. YEAR 2000 MODIFICATIONS The Company is not highly dependent on internal computer systems, and does not, as a general matter, interact electronically with its customers or suppliers. The Company is currently reviewing its computer systems in order to evaluate what, if any, corrections or modifications may be necessary for the year 2000. 19 BUSINESS See "Glossary" for definition of certain terms used in this section and elsewhere in this Prospectus. GENERAL The Company, founded in 1976, is a radioactive and hazardous waste management company that offers comprehensive treatment solutions for LLRW and LLMW generated by the DOD, the DOE and commercial entities such as nuclear power plants, medical facilities and research institutions. The Company's thermal treatment technologies vitrify waste into leach-resistant glass for long-term storage or disposal. Compared with the more traditional incineration methods, the Company's vitrification process results in significantly less effluents, provides a more stable end product and achieves comparable volume and mass reduction at similar total treatment and disposal costs. The Company operates through its Fixed Facilities Group, which manages its waste treatment operations, and its Field Engineering Group, which addresses D&D of radioactive facilities and environmental restoration of sites contaminated with radioactive and hazardous waste. The synergies between the on-site remediation services of its Field Engineering Group and the waste treatment operations of its Fixed Facilities Group enhance the Company's ability to compete for commercial and government LLRW and LLMW treatment contracts. The Company directs waste removed from the field to its fixed facilities for treatment when more cost-effective for the customer. In addition, the Company's radioactive material license issued by the State of Washington with respect to its Richland facilities includes reciprocity provisions that the Company believes allow it to thermally and non-thermally treat radioactive waste at customer sites in all fifty states. The Company believes that it possesses a number of competitive advantages which distinguish it from other radioactive and hazardous waste management companies, including the broad and comprehensive spectrum of the services it offers, the extensive portfolio of licenses and permits it holds or is in the process of obtaining, the cost-efficiency and environmental integrity of its waste treatment technologies, and its established positioning with both commercial and government customers, as well as with U.S. federal, state and local environmental regulators. MARKET OVERVIEW General. The worldwide environmental services industry is diverse and growing. This growth has been driven by extensive legislation and governmental regulation aimed at protecting the environment and requiring responsible parties to clean up existing environmental hazards. According to industry publications, the overall worldwide market for environmental services, including solid waste management and water treatment services, was approximately $300 billion in 1996, including approximately $140 billion in the United States, and is expected to grow over the succeeding decade at an annual rate of 5%, with the U.S. growth rate estimated at 4% annually and the growth rate in Asia (excluding Japan) estimated at 17% annually over this same period. The Company believes that the specific environmental services markets within which it competes have evolved so that actual remediation and site clean-up, including the treatment and disposal of LLRW, LLMW and hazardous waste, will command a growing portion of environmental resources worldwide. The following is a description of each of these types of waste and a summary of the potential market for the services offered by the Company. LLRW Treatment Market. Radioactive waste is categorized as either high-level radioactive waste or low-level radioactive waste. Such waste is generated by government facilities and by commercial enterprises such as nuclear power plants, medical laboratories and university and industrial research and development facilities. LLRW is all radioactive material other than high-level radioactive waste ("HLW"). HLW is primarily comprised of spent nuclear fuel rods from nuclear reactors and highly radioactive waste generated by the processing of nuclear materials for weapons production. Most LLRW consists of relatively large amounts of 20 waste materials contaminated with small amounts of radioactivity, such as contaminated equipment, protective clothing, paper, rags, packing material, liquids and sludge. The Company has been engaged in the business of handling, treating, storing and disposing of LLRW since 1988. The Company estimates that currently more than $150 million is spent annually in the United States on the treatment of commercial LLRW. The Company believes that the size of the commercial LLRW treatment market in the United States will increase significantly as the result of the LLRW required to be treated in connection with the expected decommissioning of up to ten nuclear power plants in the United States over the next decade. Significant demand exists in the United States for the volume and mass reduction of commercially generated LLRW, as there are at present only two full-service disposal sites in the nation accepting such waste. These sites, which are located in Barnwell, South Carolina and Richland, Washington, base the disposal fees charged to customers on the volume and mass of the waste to be disposed. The Barnwell disposal site, which currently services the majority of commercial LLRW generators in the United States, has increased its disposal fees by approximately 300% over the past five years. The current disposal fees at this site are approximately $400 per cubic foot, and from $4.00 to $7.00 per pound, depending upon the waste's density and activity levels. The disposal fees charged by the Richland site are significantly lower, but this site is only permitted to accept waste generated in 11 states. In addition, there is a disposal facility in Clive, Utah that also charges disposal fees significantly lower than those charged by the Barnwell site, but it is currently permitted to accept LLRW with only small concentrations of radioactivity. See "-- Competition." There are at present only two companies licensed to offer volume and mass reduction by thermal treatment of a broad spectrum of commercial LLRW in the United States: the Company, through its SAFGLAS vitrification technology, and GTS Duratek, Inc. ("Duratek"), through its incineration treatment processes. Significant amounts of LLRW are also generated by and stored on federal government sites, principally the former nuclear weapon production facilities administered by the DOE. The DOE estimates that there is in excess of 53 million cubic feet of LLRW either currently stored or expected to be generated during the next 20 years at DOE facilities throughout the United States alone. Of this estimated total, DOE-Hanford and DOE-Savannah River account for approximately 6% and 34%, respectively. The DOE also estimates that the total treatment costs for the LLRW at these two sites alone will exceed $850 million through the year 2010. LLMW Treatment Market. Low-level mixed waste is low-level radioactive waste co-mingled with hazardous substances regulated by the Resource Conservation and Recovery Act of 1976 ("RCRA") and/or toxic substances regulated by the Toxic Substances Control Act of 1976 ("TSCA"). LLMW results from a variety of activities, including the processing of nuclear materials used in nuclear weapon production, nuclear energy research and the generation of nuclear energy. The clean-up of government-generated LLMW is driven by the Federal Facilities Compliance Act of 1992 (the "FFCA"), which requires that radioactivity-contaminated federal facilities meet waste clean-up targets by specified dates. For example, DOE-Hanford is required to commence non-thermal treatment of the LLMW stored there by September 30, 1999, and thermal treatment of such waste by December 31, 2000. Significant quantities of untreated LLMW have accumulated in the United States, as approved treatment solutions applicable to a broad range of such waste streams have previously not been available. The DOE estimates that there is in excess of 7.7 million cubic feet of LLMW either currently stored or anticipated to be generated over the next two decades throughout the United States at DOE facilities alone, with approximately 16% and 9% of this estimated total allocated to the DOE's Hanford and Savannah River Reservations, respectively. The DOE also estimates that the treatment cost for the LLMW at these sites alone will exceed $580 million through the year 2010. The Company is not aware of any reliable estimates of the existing backlog of commercially generated LLMW awaiting treatment at generators' sites. However, according to a survey study sponsored by the Nuclear Regulatory Commission ("NRC") and the Environmental Protection Agency ("EPA"), approximately 140,000 cubic feet of LLMW was commercially generated in the United States in 1990. The Company believes that the size of the commercial LLMW treatment market in the United States will increase significantly as the result of the LLMW required to be treated in connection with the expected decommissioning of up to ten nuclear power plants in the United States over the next decade. 21 The Company believes that its mixed waste treatment facility will, upon completion of its pending permitting process, be the first privately owned facility in the United States licensed to thermally and non-thermally treat a broad spectrum of commercial and government-generated LLMW. Hazardous Waste Treatment Market. Hazardous waste is waste that is classified as hazardous under RCRA and/or toxic under TSCA. The list of "hazardous substances" covered by these laws is extensive and includes a large number of chemicals, metals, pesticides, biological agents, toxic pollutants and other substances. The Company to date has not attempted to penetrate the large and highly competitive hazardous waste treatment market, except as a component of the environmental restoration and D&D services provided by its Field Engineering Group. Historically, the Company has processed a broad range of hazardous substances at client sites in the execution of environmental restoration and D&D projects. GROWTH STRATEGY To expand its business, the Company plans to (i) establish significant positions in certain emerging or underserved, higher-margin segments within the markets for treatment of LLRW, LLMW, hazardous and other waste, (ii) increase its participation on teams bidding for and executing large-scale, multi-year D&D and environmental restoration contracts, and (iii) enhance its ability to provide on-site full-service solutions for D&D and environmental restoration projects. The Company's growth strategy is focused on achieving the following five objectives: Increase Market Share in Domestic Commercial LLRW Treatment Market. The Company intends to increase its share of the domestic commercial LLRW treatment market by marketing its SAFGLAS vitrification system as a competitive alternative to incineration, the only other thermal treatment method widely available in the United States for commercial LLRW. As disposal costs have increased significantly in recent years, the volume and mass reduction achievable by thermal treatment has become a critical factor in selecting a waste treatment solution for many commercial LLRW generators. With the commencement of the commercial operation of its SAFGLAS system in the third quarter of 1997, the Company now offers a non- incineration thermal process that results in total treatment and disposal costs for the customer comparable to those achieved by incineration. Additionally, the end-stage glass product resulting from this process is more suitable for long-term storage and disposal than incineration fly ash. The Company believes that any competitor attempting to build and operate a commercial LLRW thermal treatment facility in the United States would require several years to secure the requisite regulatory approvals. Establish Significant Position in Domestic LLMW Treatment Market. The Company intends to establish a significant position in the United States market for treatment of LLMW. The market for domestic LLMW treatment is in an early stage because approved technologies capable of treating a broad spectrum of low-level mixed waste streams previously have not been available. The Company has developed its GASVIT vitrification system for LLMW treatment and anticipates completing the pending licensing process for both thermal and non-thermal LLMW treatment methods at its Richland facilities in the fourth quarter of 1998. Thereafter, the Company expects to take approximately six and 12 months, respectively, to place its non- thermal and thermal treatment processes in operation. As a consequence, the Company believes it is positioned to be the first company to own and operate a private facility in the United States capable of thermally and non-thermally treating a broad spectrum of low-level mixed waste streams produced by commercial and government waste generators. The Company believes that any competitor attempting to build and operate a commercial LLMW thermal treatment facility in the United States would require a significant start-up period in which to develop and commercialize its technology and secure the requisite regulatory approvals. Consequently, the Company may have several years in which to establish its position in this market before experiencing significant competition. 22 Enhance its Ability to Compete for Large Project Contract Awards. The Company intends to increase its participation on project teams led by large firms when such relationships are a practical requirement to compete successfully for large project contract awards. Increasingly, large-scale, multi-year D&D and environmental restoration contracts, whether to be performed domestically or overseas, require a team of companies with complementary expertise and skills within the industry, usually led by a large, multinational engineering or construction company. The Company believes that its expertise in niche areas within the radioactive and hazardous waste management industry makes it an attractive candidate for inclusion in teams competing for such contracts. In the last three years, the Company has been a member of teams executing DOE and DOD projects led by, among others, Lockheed Martin, Morrison Knudsen and Jacobs Engineering. Expand into Pacific Rim Markets. The Company intends to offer its SAFGLAS and GASVIT vitrification technologies for local treatment of LLRW and LLMW in selected Pacific Rim markets. The high cost of LLRW and LLMW disposal costs in a number of Pacific Rim countries favors thermal treatment for such wastes, while regulatory restrictions and other environmental concerns may limit incineration as a treatment process. The Company also believes there is a significant market for vitrification in the treatment and recycling of fly ash resulting from incineration of municipal waste in certain Pacific Rim markets where scarce land resources make landfill disposal of the ash uneconomical. Vitrification of fly ash through the Company's GASVIT system will allow the ash to be recycled for use as construction material and for other reuse purposes. To further promote use of its technologies and to establish strategic alliance relationships designed to accelerate penetration of these markets, the Company has entered into exclusive technology transfer agreements covering its technologies for Hong Kong, Taiwan and The People's Republic of China. Enhance On-Site Full-Service Treatment Capabilities. In order to enhance its ability to provide in-house a full range of D&D and environmental restoration services, including the application of vitrification treatment technology on-site, the Company is in the process of developing smaller- scale, transportable field applications of its GASVIT technology. The Company believes there is a significant trend in favor of D&D and environmental restoration contractors able to provide in-house a full range of such services on-site, including site assessment, feasibility study preparation, remediation design, remediation and removal actions, and thermal and non-thermal waste treatment. The Company believes that the development of smaller-scale, transportable GASVIT units will further distinguish it from most other radioactive and hazardous waste management companies. WASTE TREATMENT TECHNOLOGIES A summary description of the Company's principal waste treatment technologies for LLRW and LLMW is provided in the following table: PRINCIPAL TECHNOLOGIES - ----------------------------------------------------------------------------
WASTE STREAMS NATURE OF TECHNOLOGY TREATED PROCESS OPERATING STATUS - ---------------------------------------------------------------------------- SAFGLAS LLRW Thermal Commercial operation commenced in September 1997. - ---------------------------------------------------------------------------- GASVIT LLRW Thermal Commercial operation: LLMW LLRW scheduled for mid-1998 LLMW scheduled for late 1999 - ---------------------------------------------------------------------------- PLASTIMELT LLMW Non-Thermal Commercial operation scheduled for early 1999.
The core technology employed in the SAFGLAS and GASVIT systems is vitrification. Although not widely utilized in this country to date, vitrification technologies have been successfully used in Europe for over thirty 23 years, principally in the area of HLW treatment. The EPA has identified vitrification as the Best Demonstrated Achievable Technology (BDAT) for the treatment of HLW, and the Company believes that vitrification will prove to be equally effective in the treatment of waste contaminated with lower levels of radioactivity. In addition, the vitrification process results in significantly less effluents than the more traditional incineration methods of waste treatment. Accordingly, the Company believes vitrification is widely perceived as an environmentally superior waste treatment method. There can be no assurance that the steps taken to protect the Company's technologies will be adequate to prevent the use of such technologies by third parties. See "Risk Factors--Dependence on and Limited Protection of Technology and Intellectual Property; Potential Litigation." [PLACE FOR SAFGLAS BLOCK DIAGRAM] The SAFGLAS system is the only non-incineration thermal process at present permitted in the United States to treat both commercial and government-generated LLRW. SAFGLAS--Thermal Treatment of LLRW by Vitrification. The SAFGLAS system treats a broad spectrum of LLRW in the form of dry active wastes (protective clothing, paper, rags, plastics, wood), low activity resins, aqueous based liquids and sludges, and oils, which eliminates the customer's need to pre- sort wastes to fit the specialized capabilities of a particular waste processor's technology. The primary unit is a Joule-heated glass melter with a multi-zone process chamber based on a technology that has been successfully used for over 15 years in research on hazardous waste treatment. LLRW is fed into a closed pool of molten glass at temperatures in excess of 2000(degrees)F. Most of the organic constituents are destroyed and the radioactive solids are captured within the glass, which is periodically drained into drums for disposal. The Company adapted the basic process to the treatment of LLRW, including devising the systems for feed preparation, waste feeding, and effluent treatment and monitoring. The SAFGLAS system can reduce the volume of the input waste by a factor of up to 200 to 1 and the mass of the input waste by a factor of up to 96%. The Company believes that the highly stable and leach-resistant nature of the glass produced by the SAFGLAS process, as compared to incineration ash, will be significant for waste generators concerned with the potential long-term liabilities associated with the land disposal of LLRW. The basic SAFGLAS system is currently being enhanced through the addition of a high temperature drum oven that will process biological LLRW as well as materials with a high water content, and a small (100 lbs./hr.) version of the Company's GASVIT system that will process wastes that either require small batch processing or have very corrosive effluent gas that requires "scrubbing" to remove corrosive constituents. Both the drum oven and the small GASVIT unit exhaust into the second chamber of the basic SAFGLAS unit. The Company therefore refers to the combination of these integrated technologies as the SAFGLAS system. The combination of these processes is designed to treat approximately 12,000 pounds per day at full capacity, which is presently anticipated to occur in 1999. The Company's license allows it to operate the SAFGLAS system 24 hours a day. 24 [PLACE FOR GASVIT PICTURE] GASVIT--Thermal Destruction of LLMW by Gasification/Vitrification. The Company has acquired licensing rights to use a proprietary plasma arc technology developed by Integrated Environmental Technologies, LLC ("IET"), for the treatment of LLMW. The IET plasma arc technology is being integrated with the Company's technologies to form the GASVIT system. The GASVIT system will be used as part of the SAFGLAS system for processing LLRW and will also be used as the primary component in the Company's LLMW thermal processing facility. Materials are fed into a process chamber where a combination of a carbon induced plasma and joule heating at temperatures in excess of 2200(degrees)F transforms complex organic materials into a "syngas," which is a mixture of hydrogen and carbon monoxide. The syngas can be either used as fuel or destroyed in a subsequent flameless oxidation process. As with the SAFGLAS system process, the end result of the GASVIT system process is a glass-like material. The GASVIT system can reduce the volume of the input waste by a factor of up to 200 to 1, and the mass of the input waste by a factor of up to 96%. A 50 lbs./hr. prototype gasification/vitrification process chamber has been in operation at IET's facilities in Richland, Washington since June 1997. IET's process chamber is based on several prototype units constructed and tested for the DOE, including a 100 lbs./hr. process chamber which has been tested at the DOE's Hanford Reservation since 1996. The GASVIT system is being licensed for a total throughput of 12,000 pounds per day; however, the initial unit will provide only 50% of the permitted capacity. The Company intends to add another unit as its capacity needs increase. PLASTIMELT--Non-Thermal Encapsulation of LLMW. The Company has developed the PLASTIMELT process for the encapsulation of LLMW in a plastic matrix when the volume or mass reduction achievable by thermal treatment methods is uneconomical or impractical. In this process, molten plastic is extruded into or around the LLMW to create a waste form that meets applicable requirements for land disposal. The Company has integrated this technology with its supercompaction processes in a system which achieves a volume reduction factor of greater than 9 to 1. OPERATIONS AND SERVICES The Company provides radioactive and hazardous waste management services through two operating units, the Fixed Facilities Group and the Field Engineering Group. FIXED FACILITIES GROUP. The core of the Company's fixed facilities operations, situated on a 45-acre site in Richland, Washington, is one of the largest commercial radioactive waste treatment and storage centers in the United States. This facility is currently licensed to handle, treat and store a wide variety of LLRW and the Company is in the process of securing the licenses, permits and approvals required in order for this facility to thermally and non-thermally treat a broad spectrum of low-level mixed waste streams produced by both commercial and government generators. The Company also owns a four acre facility in Fremont, California which, in addition to housing the Company's corporate offices, includes a mercury fluorescent tube lamp recycling facility, and a LLRW storage and transfer station that supports its Richland operations. 25 In 1997, the Company purchased 30 acres of undeveloped industrial land in Aiken, South Carolina, located adjacent to the DOE's Savannah River Reservation. The Company presently intends to construct a fixed facility principally devoted to LLRW treatment on this site. The construction of this facility will provide the Company with two LLRW processing sites, each situated adjacent to one of the two full-service commercial LLRW disposal sites currently open in the United States. LLRW Treatment Services. Since 1988, the Company has treated and recycled several million pounds of LLRW at its Richland facilities. Since being placed in operation in September 1997, through January 31, 1998, the SAFGLAS system has operated continuously for 2,880 hours and processed in excess of 115,000 pounds of LLRW. In addition to the DOE, DOD and other agencies of the U.S. government, customers for the Company's LLRW treatment services include over 20% of the nation's nuclear power plants, many major corporations, and numerous universities, laboratories, hospitals and other research and medical institutions. In 1995, the DOE awarded the Company, in a competitive bidding process, a fixed unit price contract to process LLRW generated by the Hanford Reservation. The maximum value of the contract to the Company is $17 million over five years. LLMW Treatment Services. In December 1994, the Company began the licensing, design and facility construction process for a mixed waste treatment and storage facility to be sited at its Richland facilities. The Company intends to use the mixed waste facility to treat LLMW, initially from the Hanford Reservation, and subsequently from other DOE and other U.S. government and commercial generators of LLMW. The Company intends to thermally treat LLMW by means of its GASVIT system; when it is uneconomical or impractical to treat LLMW by a thermal method, the Company intends to employ a number of stabilization and encapsulation processes, including the Company's PLASTIMELT process. In November 1995, the DOE awarded the Company, in a competitive bidding process, the first privatized contract to thermally treat LLMW generated by the Hanford Reservation. This contract has a maximum value to the Company of $24 million for treating 175,000 cubic feet of waste over ten years. The Company has until the year 1999 to permit and construct an LLMW treatment facility and to commence LLMW treatment. In addition, the DOE awarded the Company in September 1997, in a competitive bidding process, the first privatized contract to non-thermally treat LLMW generated by the Hanford Reservation. This contract has a maximum value to the Company of $5 million over a three year period commencing when the Company begins LLMW treatment thereunder. Fluorescent Tube Recycling Services. The Company developed its own technology for the recycling of mercury fluorescent light tubes and placed it in operation at its Fremont facilities in 1994. The clients for this service include large industrial concerns, electrical contractors, hazardous waste disposal companies and various federal, state and local governmental agencies. The Company's process involves the separation of the primary components of glass, mercury and aluminum. The lamps are directed through the feed system, mass transported and crushed and separated under negative pressure. The crushed glass and aluminum are processed into storage bins for recycling. The remaining phosphor powder is conveyed through a separate system and thermally processed under vacuum to extract the constituent mercury to below regulated levels. The recovered mercury is then recycled. The Company's system is designed to accommodate the processing of 10 million lamps annually, and currently processes approximately 1 million lamps annually. FIELD ENGINEERING GROUP. The principal services provided by the Company's Field Engineering Group are (i) D&D of nuclear power plants and other facilities contaminated with LLRW, LLMW and hazardous waste, and (ii) environmental restoration of sites contaminated with LLRW, LLMW and hazardous waste. The Company's comprehensive capabilities include site investigation, characterization and assessment, negotiation with regulatory agencies and procurement of required regulatory approvals, preparation of feasibility and remedial design studies, removal and remediation actions, waste brokerage and transportation, waste treatment using the Company's technologies on-site or at the Company's fixed facilities, and storage of waste at the Company's fixed facilities. 26 Decontamination and Decommissioning Services. Historically, D&D services have been the Company's core specialty area. The Company has been involved in D&D projects for over a decade and currently is involved in several D&D projects for the DOE. Customers for the Company's D&D services include nuclear power plants, universities and other research institutions that utilize radioactive isotopes in a variety of research projects, hospitals with radiological medicine departments, companies employing nuclear materials in manufacturing and the DOE and DOD, which oversee the nation's nuclear weapon production facilities. The Company believes that there are significant near-term opportunities in domestic D&D, particularly in the commercial D&D market, as up to ten U.S. nuclear power plants are expected to be decommissioned over the next decade. The Company estimates that the average total cost of decontaminating and decommissioning a domestic nuclear power plant is approximately $300-$500 million. In addition, there are over 5,000 radioactivity-contaminated DOD and DOE facilities which are scheduled to be decommissioned over the next decade. Environmental Restoration Services. The Company has historically concentrated on environmental removal and remediation actions at contaminated DOD sites. There are over 420 DOD sites contaminated with LLRW or LLMW. According to the Defense Environmental Restoration Program Annual Report to Congress for Fiscal Year 1996, allocations for funding environmental restoration work on DOD sites are projected to be $2 billion a year through the year 2000. Since 1989 the Company has executed more than 150 field engineering projects relating to the environmental restoration of sites contaminated with LLRW, LLMW, or hazardous waste throughout the United States and U.S. territories. In addition, the Company is currently performing under three Total Environmental Restoration Contracts (TERCs) with the U.S. Army Corps of Engineers, two Pre- placed Remedial Action Contracts (PRACs) with the U.S. Army Corps of Engineers, two Remedial Action Contracts (RACs) with the U.S. Navy and four environmental restoration contracts with the DOE, collectively covering a 40 state area. For its military and industrial clients, the Company executes environmental restoration projects either on a planned or quick response basis. In the execution of both planned and quick response environmental restoration projects involving both LLRW and LLMW, the Company believes that it is one of only six domestic companies having the in-house capability of providing on- site full-service solutions from site investigation through the waste treatment stage for D&D and environmental restoration projects involving LLRW and LLMW. The Company believes that the reciprocity provisions of its radioactive material license issued by the State of Washington with respect to the Company's Richland facilities allow the Company to thermally and non- thermally treat radioactive waste at customer sites in all fifty states. BACKLOG The Company's backlog consists of confirmed purchase order contracts that have been received and which are scheduled for completion within 12 months. A large percentage of these contracts are with agencies and facilities within the U.S. government, principally the DOD and DOE, and many have been awarded under indefinite delivery or quantity terms. These contracts are subject to cancellation, delay or modification at the sole option of the government at any time, to annual funding limitations and public sector budget constraints and to actual delivery orders being released. Accordingly, the Company's backlog as of a particular date may not be indicative of sales for any period and the Company therefore believes that backlog is not a reliable indicator of future revenue. The Company's backlog for contracts planned to be completed in fiscal 1998 that are not subject to indefinite delivery or quantity terms is $8.2 million. See "Risk Factors--Dependence on Federal Government; Limits on Government Spending; Government Contracting" and "--Seasonality and Fluctuation in Quarterly Results." 27 CUSTOMERS The Company's services are provided to a broad range of federal, state and local government and commercial clients in the United States. Demand for the Company's services and the distribution of such demand are heavily influenced by the level of implementation and enforcement of existing and new environmental regulations, funding levels for government projects and spending patterns of commercial clients. Primarily due to its technical expertise, extensive portfolio of environmental licenses and permits and full-service capabilities on-site, the Company has successfully bid on and executed a substantial number of waste treatment, environmental restoration, D&D and other contracts with the DOD, DOE and a number of other federal government agencies, as both a prime contractor and as a subcontractor. In fiscal 1995, 1996 and 1997, the percentage of the Company's total revenue attributable to such contracts was 86.3%, 76.8% and 71.3%, respectively. One contract with the U.S. Army Corps of Engineers-Sacramento District accounted for 21.0% of the Company's total revenue in the year ended December 31, 1997. One contract with the U.S. Army-- Fort Irwin accounted for 21.9% and 12.5% of the Company's total revenue in the years ended December 31, 1995 and 1996, respectively. A contract with the U.S. Army--Presidio accounted for 12.0% of the Company's total revenue in the year ended December 31, 1996. The Company also serves numerous commercial clients, including large industrial concerns, nuclear power plants, hospitals, laboratories and other medical institutions, and universities. A substantial portion of the Company's commercial work represents new contracts awarded by existing clients. No single commercial client accounted for 10% or more of the Company's revenue in fiscal years 1995, 1996 or 1997. See "Risk Factors-- Dependence on Federal Government; Limits on Government Spending; Government Contracting." SALES AND MARKETING The Company relies on a direct sales and marketing staff of six employees, its executive management team and project managers, and brokers and other intermediaries, to market its waste treatment and field engineering services nationwide and internationally. Historically, the Company relied on discrete waste treatment projects and limited term remediation projects that typically involved planned clean-ups of sites that were contaminated in the normal course of manufacturing activity or quick response clean-ups of spills. The Company now targets its marketing efforts on large, multi-year private sector and government site-specific and term contracts in the areas of LLRW and LLMW treatment, environmental restoration and D&D. The Company's key marketing strategy in the waste treatment area is to focus its resources on emerging or underserved markets in which it has technological or licensing advantages over existing and potential competitors. The Company intends to further develop its network of strong client relationships with the DOD, the DOE, other federal government agencies, leading domestic and foreign industrial concerns and its other most significant clients, and with major national and multinational engineering, construction and architectural engineering firms and other of its co-participants in teams executing large, multi-year environmental restoration and D&D projects. The Company believes that these strategies have been validated by the significant number of additional contracts awarded to it by existing customers for which it previously provided significant services, and the number of teams on which it has participated in recent years in the execution of large, multi-year environmental restoration and D&D projects. See "Risk Factors--Focus on Larger Projects." To further promote use of its technologies and to establish strategic alliances designed to accelerate its penetration of selected Pacific Rim markets, the Company has entered into exclusive technology transfer agreements covering its technologies for Hong Kong, Taiwan, and The People's Republic of China. These agreements require the Company to provide assistance and know-how to its alliance partners, which have the right to exclusively market the Company's technologies in these territories. The Company will share in any profits generated from these efforts and is also entitled to a royalty on revenue generated by the use of its vitrification technologies in these territories. The Company is entitled to independently pursue opportunities within these territories if its alliance partners decline to do so, and, if certain minimum revenue is not achieved in these territories within an agreed upon period, the Company may terminate the agreements. 28 COMPETITION In general, the radioactive and hazardous waste management industry is highly competitive. The Company faces varying levels of competition in its principal current and planned business lines. The Company believes that it currently has only one principal competitor, Duratek, for the thermal treatment of domestic LLRW, and a handful of small to mid-size competitors in the non-thermal treatment of domestic LLRW. With respect to the domestic LLMW treatment market, the Company believes that there are only four other companies currently processing LLMW at their own facilities, all of which are doing so under limited licenses which restrict them from accepting a broad spectrum of low-level mixed waste streams. Upon completion of the pending licensing process for its mixed waste treatment facility, the Company believes that it will operate the first private facility in the nation licensed to thermally and non-thermally treat a broad spectrum of low-level mixed waste streams produced by both commercial and government generators. The Company is aware that the commercial LLRW disposal site in Clive, Utah is seeking to expand its acceptance criteria so that it can receive waste with radioactivity levels higher than it is currently permitted to accept, and that one or more additional domestic commercial LLRW disposal sites have commenced the licensing process. Any increase in the number of licensed commercial LLRW disposal sites in the United States or any decrease in the disposal fees for LLRW charged by such sites could increase the competition faced by the Company or reduce the competitive advantage of certain of the Company's treatment technologies. The market for D&D and environmental restoration services is highly competitive, with numerous companies of varying size, geographical presence and capabilities participating. The Company believes that fewer than six of these companies have the in-house capability of providing on-site full-service solutions from site investigation through the waste treatment stage for D&D and environmental restoration projects involving LLRW and LLMW. The Company believes that the principal competitive factors applicable to all areas of its business are price, breadth of services offered, range and breadth of environmental licenses and permits held, reputation for customer service and dependability, technical proficiency and environmental integrity, operational experience, quality of working relations with federal, state and local environmental regulators and proximity to customers and licensed waste disposal sites. The Company believes that it is, and will continue to be, able to compete favorably on the basis of these factors. The Company also believes that it has several competitive advantages, including its vitrification technologies, broad range of environmental services offered, ability to provide in-house full-service environmental solutions at customers' sites, the range and breadth of environmental licenses and permits held and applied for, geographical positioning, and integrated technological approach to waste treatment solutions. Many of the Company's competitors have substantially greater managerial, technical and marketing resources than the Company, and there can be no assurance that one or more of the Company's competitors do not possess or will not develop waste treatment technologies or field service capabilities that are superior to or more cost effective than those of the Company. In certain aspects of the Company's business, substantial capital resources are required for facilities and equipment, and many of the Company's competitors have substantially greater financial resources than the Company. See "Risk Factors--Competition." ENVIRONMENTAL CONTRACTOR RISKS Although the Company believes that it generally benefits from increased environmental regulations affecting business, and from enforcement of those regulations, increased regulation and enforcement also create significant risks for the Company. The assessment, remediation, analysis, handling, treatment and management of radioactive or hazardous substances necessarily involve significant risks, including the risk of potentially large liabilities arising from violations of environmental laws and regulations and of liabilities to customers and third parties for damages arising from performing services, either of which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company, as a provider of services to federal and other government agencies, is also subject to the specific risks associated with government contracting. 29 In May 1997, the U.S. Army terminated for default its contract with the Company under which the Company acted as a prime contractor to "surface clear" ordnance from a U.S. Army firing range at Fort Irwin, California. This contract was otherwise scheduled to expire in June 1997. The termination related to services provided by a Company subcontractor, and was based on the U.S. Army's contention that scrap ordnance had been improperly certified by the subcontractor as free of hazardous and explosive material. Subsequently, the U.S. Army also demanded repayment from the Company of alleged reprocurement costs totaling $945,000. The Company believes that it fully complied with the terms of the contract and applicable laws and regulations, and has challenged the default termination in the Court of Federal Claims. Additionally, the Company believes it has no obligation to make repayments to the U.S. Army because the costs sought are not proper reprocurement costs. The Company has tendered the Army's claim to its insurance carrier and believes that all costs and liability (if any) associated with the claim will be covered by the Company's comprehensive general liability policy. The matter is presently being handled on behalf of the Company by its insurer. See "Risk Factors -- Environmental contractor and Regulatory Matters" and "Dependence on Federal Government; Limits on Government Spending; Government contracting." See "Risk Factors--Environmental Contractor and Regulatory Matters" and "-- Dependence on Federal Government; Limits on Government Spending; Government Contracting." RISK MANAGEMENT AND INSURANCE The Company has adopted a range of risk management programs designed to reduce potential liabilities, including policies to seek indemnity in its contracts, other contract administration procedures, and employee health, safety, training, and environmental monitoring programs. In addition, as a result of the substantial number of government contracts it has been awarded over the past several years, the Company has implemented a government contracts compliance program. Although the Company believes its risk management programs are appropriate, the Company cannot assure their adequacy and their failure to adequately protect the Company could have a material adverse effect on the Company's business, financial condition and results of operations. The Company carries nuclear liability, comprehensive general liability, comprehensive property damage, workers' compensation and other insurance coverage that management considers adequate for the protection of the Company's assets and operations. However, there can be no assurance that the coverage limits of such policies will be adequate or that insurance will continue to be available to the Company on commercially reasonable terms in the future. A successful claim against the Company in excess of its insurance coverage, or outside the scope of such coverage, could have a material adverse effect on the Company's business, financial condition and results of operations. Claims against the Company, regardless of their merit or outcome, and whether or not insured, may also have an adverse effect on the Company's reputation, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors-- Potential Environmental Liability and Insurance." INTELLECTUAL PROPERTY The Company regards aspects of its waste treatment technologies and know-how as proprietary and relies primarily on a combination of trade secret and trademark laws, employee and third party non-disclosure agreements, licenses from owners of patents and other intellectual property rights, and other methods to protect such technologies and know-how. The Company presently has a patent application pending for the SAFGLAS system as incorporating a multi- zone process chamber; however, there can be no assurance that such application will be granted. The Company believes that the ownership of patents is not presently a significant factor in its business and that its success does not depend on the ownership of patents. However, there can be no assurance that the Company will be successful in protecting the proprietary aspects of its technology, nor that its proprietary rights will preclude competitors from developing waste treatment technologies equivalent or superior to that of the Company. In addition, effective protection for the proprietary aspects of the Company's technologies may be unavailable or limited in certain foreign countries. While the Company is not aware that any of its waste treatment technologies infringe the rights of any third parties, there can be no assurance that third parties will not claim infringement by the Company with respect to its existing or future waste treatment technologies. See "Risk Factors--Dependence on and Limited Protection of Technology and Intellectual Property; Potential Litigation." 30 The Company from time to time licenses the rights to use the intellectual property of third parties embodied in certain subsystems of the Company's technologies. In particular, the Company licenses certain such rights from the owner of the patented technology embodied in the basic SAFGLAS system melter and from IET in connection with the design, construction and use of the melter incorporated into the GASVIT system. The former license is non-exclusive and royalty-free, but requires the Company to pay to the owner of the patent a license fee in the amount of $35,000 for each SAFGLAS process chamber built by the Company during a five-year period. With respect to any melter purchased by the Company from IET, other than the two units it has initially contracted to purchase, the Company's license with IET requires the payment of a royalty fee to IET in the amount of 3% of the gross revenue generated by the Company from processing radioactive waste using a treatment system incorporating such a melter. The Company requires each of its technical and engineering employees to enter into standard agreements pursuant to which the employee agrees to keep confidential all proprietary information of the Company and to assign to the Company all rights in any proprietary information or technology developed by the employee during his or her employment or made thereafter as a result of any inventions conceived or work done during such employment. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's technology without authorization or to develop similar technology independently. ENVIRONMENTAL LAWS AND REGULATIONS; LICENSING PROCESSES APPLICABLE TO LLRW AND LLMW TREATMENT FACILITIES Environmental Laws and Regulations. Extensive and evolving environmental protection laws and regulations have been adopted in the United States during recent decades in response to public concern over the environment. The operations of the Company and of the Company's customers are subject to these evolving laws and regulations. The requirements of these laws and regulations impose substantial potential liabilities. For example, a failure to comply with current or future regulations could result in substantial fines, suspension of production, alteration of manufacturing processes, cessation of operations, or the expenditure of substantial clean-up costs. The requirements also create a demand for many of the services offered by the Company. Under the Atomic Energy Act of 1954 (the "AEA") and the Energy Reorganization Act of 1974, the NRC regulates the receipt, possession, use and transfer of radioactive materials. Pursuant to its authority under the AEA, the NRC has adopted regulations that address the management and disposal of LLRW and that require the licensing of commercial LLRW disposal sites. RCRA provides a comprehensive framework for regulation of the handling, transportation, treatment, storage and disposal of hazardous waste. Strict standards are imposed under RCRA on hazardous waste generators and transporters, and on operators of hazardous waste treatment, storage and disposal facilities. The Land Disposal Restrictions developed under the Hazardous and Solid Waste Amendments of 1984 prohibit land disposal of specified wastes unless these wastes meet or are treated to meet Best Demonstrated Achievable Technology (BDAT) treatment standards, subject to certain exemptions. Under current regulations, waste residues derived from listed hazardous wastes are generally considered to be hazardous wastes subject to RCRA standards unless they are delisted through a formal rulemaking process that may last for several years. Liability under RCRA may be imposed for improper handling, transportation, treatment, storage or disposal of hazardous wastes, or for failure to take corrective action to address releases of hazardous wastes. CERCLA, and subsequent amendments including the Superfund Amendments and Reauthorization Act ("SARA"), imposes strict, joint and several liability upon (among other parties) owners or operators of facilities where a release of hazardous substances has occurred, upon parties who generated hazardous substances that were released at such facilities and upon parties who arranged for the transportation of hazardous substances to such facilities. Liability under CERCLA may be imposed on the Company if releases of hazardous substances occur at treatment, storage, or disposal sites used by the Company. This liability potentially extends to off-site storage and disposal facilities used by the Company, any LLMW treatment and storage facilities owned by the Company, and releases at a customer's facility caused by the Company. Because customers of the Company also 31 face the same type of liabilities, CERCLA and SARA create incentives for potential customers of the Company to avoid off-site treatment and disposal of hazardous substances in favor of on-site treatment and recycling. The Emergency Planning Community Right-to-Know Act, which is part of SARA, requires full disclosure of certain environmental releases to the public and contributes to public awareness and activism regarding corporate environmental management issues. To the extent a generator's waste can be reported as being recycled, public pressure can be eliminated or significantly reduced and the generator's image enhanced. The radioactive and hazardous components of LLMW are governed by separate sets of laws and regulations discussed above. The radioactive component is governed by the AEA and is regulated by the DOE for waste at DOE facilities and by the NRC for commercially generated waste. The hazardous waste component is governed by RCRA, CERCLA, and/or TSCA, and is regulated by the EPA, and by the laws of the individual states. The Company designs its LLMW and hazardous waste treatment and processing systems with the goal of minimizing the potential for release of hazardous substances into the environment. In addition, the Company has developed plans to manage and minimize the risk of CERCLA or RCRA liability, including the training of operators, use of operational controls and structuring of its relationships with the entities responsible for the handling of waste materials and by-products. In transporting radioactive materials, the Company is subject to the requirements developed by the U.S. Department of Transportation under the Hazardous Materials Transportation Act, as amended by the Hazardous Materials Transportation Uniform Safety Act. Shippers and carriers of radioactive materials must comply with both the general requirements for hazardous materials transportation and with specific requirements for the transportation of radioactive materials. The Clean Air Act of 1970, as amended (the "Clean Air Act"), imposes strict requirements upon owners and operators of facilities and equipment which emit pollutants into the environment, including incinerators. Although the Company believes that its waste treatment systems effectively trap particulates and prevent hazardous emissions from being released into the environment, the Clean Air Act may require additional controls. The Clean Water Act of 1972 (the "Clean Water Act") establishes standards, permits and procedures for controlling the discharge of pollutants from industrial and municipal wastewater sources. The Company believes that its waste treatment technologies generally will not be subject to the water pollution control requirements of the Clean Water Act because they are designed to have no residual wastewater discharge. TSCA provides the EPA with the authority to regulate certain commercially produced chemical substances. TSCA also established a comprehensive regulatory program for polychlorinated biphenyls ("PCBs") which is analogous to the RCRA program for hazardous waste. Other federal, state, and local environmental, health and safety requirements may also be applicable to the Company's business. For example, the federal Occupational Safety and Health Act imposes requirements designed to protect the health and safety of workers, and the NRC has set regulatory standards for worker exposure to radioactive materials. In addition, the requirements of various other statutes, including the FFCA and the Uranium Mill Tailings Radiation Control Act, may create opportunities for additional use of the Company's services. Licensing Processes Applicable to LLRW and LLMW Treatment Facilities. The process of applying for and obtaining the licenses and permits necessary to operate a radioactive waste treatment facility is lengthy and complex. The basic requirement is to obtain a radioactive material license from the state in which the facility is to be located. The first step in this process is securing site and land use designation approval from local authorities. Most local authorities require a public hearing before such an approval is granted. Due to public concern about the safety of radioactive material handling, the initial site approval step is often the most difficult. Upon site approval, the applicant must submit an application to the NRC or the state's nuclear regulatory agency 32 if the state has signed an agreement to implement the NRC's regulations. This stage of the process may take two years or longer, and in some cases, may result in denial of a license. If the applicant intends to use a thermal treatment method at its site, then additional permits would be needed from the local authorities responsible for implementing the Clean Air Act regulations. The process for approving a thermal treatment method will generally include public hearings, environmental assessments and numerous interactions with regulators to resolve licensing and permitting issues. The licensing requirements applicable to a mixed waste facility are even more complex. In addition to the steps summarized above, the applicant must submit a RCRA Part A and Part B permit application to the appropriate agencies. For processing of PCBs, a TSCA permit from the EPA must also be obtained. In parallel with the RCRA/TSCA Part B permitting process, the applicant must submit an application to the agencies that issue radioactive material licenses and those that issue permits pursuant to the Clean Air Act. Several revisions to each document submitted may have to be made before the review process is complete and the application is granted. From the time the initial application is filed, the mixed waste licensing and permitting process could take as long as five years. The Company initiated the mixed waste licensing process for its Richland facilities in 1995 and expects to be able to commence non-thermal mixed waste treatment there in the second quarter of 1999. In March of 1995, the Company submitted a siting application to the Washington State Department of Ecology ("WDOE"). After conducting two different public hearings, WDOE approved the Company's siting application in December of 1995. Immediately after procuring this approval, the Company submitted a RCRA Part A and Part B permit application to WDOE for an integrated waste treatment plant utilizing stabilization, macro-encapsulation, physical extraction and other non-thermal treatment processes. In 1996, the application was amended to include the processing of mixed wastes using the GASVIT thermal treatment technology. A copy of the application was also submitted to the EPA for a joint EPA/WDOE permitting process covering PCBs under TSCA regulation. The Company is at present involved in negotiations with the agencies to resolve their comments thereon. The next step in the permitting process is the development of the permit language by the agencies and the holding of public hearings to solicit public comments, as required by RCRA and TSCA regulations. The Company presently anticipates receiving final approval from WDOE and the EPA of its applications relating to non-thermal and thermal treatment prior to the end of the fourth quarter of fiscal 1998. In the event that the Company were to engage in the business of treating LLRW and LLMW received from foreign generators at its fixed facilities, it would be required to obtain a radioactive waste import permit from the NRC. The Company's fixed facilities may have to obtain permits under the Clean Water Act, the Clean Air Act, RCRA and state equivalents. The requirement to obtain such permits depends upon a facility's location and the expected emissions from the facility. Additional state and local licenses or approvals may also be required. EMPLOYEES At December 31, 1997, the Company employed 168 full-time employees. To date, the Company has been successful in attracting and retaining qualified managerial and technical personnel, although there can be no assurance that this success will continue. See "Risk Factors--Dependence on Key Personnel." At December 31, 1997, 34 of the Company's employees were represented by labor unions under collective bargaining agreements. The Company cannot predict whether any of its employees who currently are not represented by unions will elect to be so represented in the future. The Company considers its relations with its employees to be good and has never experienced a work stoppage or strike. 33 PROPERTIES AND FACILITIES The Company's principal properties, all of which are owned by the Company, are located in Richland, Wash., Fremont, Calif. and Aiken, S.C., and occupy 45, four and 30 acres, respectively. The facilities sited on the Richland property presently consist of 13 buildings, covering an area of approximately 100,000 square feet, devoted to the Company's existing LLRW and future LLMW treatment operations. The Company presently plans to construct two additional buildings on this site of approximately 14,000 square feet in aggregate. The facilities sited on the Fremont property consist of a 10,000 square foot corporate office building, a 20,000 square foot fluorescent tube recycling facility, and a 10,000 square foot LLRW storage area. The Company currently plans to construct three buildings on its Aiken property: a 4,000 square foot office building, a 5,000 square foot laboratory and warehouse building, and a 23,000 square foot building to receive, sort, treat and store LLRW. In addition, the Company leases an approximately 1,200 square foot project management office in Honolulu, Hawaii, and an approximately 2,500 square foot project management office in Oak Ridge, Tennessee (approximately one mile from the DOE's Oak Ridge Reservation). The Honolulu lease expires in June 2000, while the Oak Ridge lease is month-to-month. The Company's Fremont property is encumbered by a deed of trust (the "First Deed of Trust") securing the performance of the Company under a $1.5 million Promissory Note held by Midland Loan Services. The First Deed of Trust provides for an interest rate of 9.5% per annum, a maturity date of December 2001, monthly payments of principal and interest of $13,736 and a balloon payment at maturity. At December 31, 1997, the principal amount secured by the First Deed of Trust was $1,456,586. The Company's Fremont property is also encumbered by a second deed of trust (the "Second Deed of Trust") securing the performance of the Company under a $400,000 Term Loan Agreement with Sanwa Bank California. The Term Loan Agreement provides for a variable annual interest rate of prime plus 1.75%, a maturity date of September 30, 2002, and monthly payments of principal and interest of $6,667. At December 31, 1997, the principal amount secured by the Second Deed of Trust was $379,999. The Company's Richland property is encumbered by a deed of trust (the "Richland Deed of Trust") securing the payment by the Company of a $750,000 Promissory Note held by West One Bank (the "West One Note"). The West One Note provides for an interest rate of 8.75% during the first 42 months and an interest rate of prime plus 2.75% (with a ceiling of 12% and a floor of 5.5%) during the final 42 months until maturity. At December 31, 1997, the principal balance secured by the Richland Deed of Trust was $342,589. There are no encumbrances on the Company's Aiken, South Carolina property. The Company believes that its existing and planned facilities will support its operations for the foreseeable future and are adequately covered by insurance. LEGAL PROCEEDINGS From time to time the Company is a party to litigation or administrative proceedings relating to claims arising from its operations in the normal course of business. Management of the Company, on the advice of counsel, believes that the ultimate resolution of litigation currently pending against the Company is unlikely, either individually or in the aggregate, to have a material adverse effect on the Company's business, financial condition or results of operations. 34 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers, directors and director designees of the Company and their ages as of the date of this Prospectus are as follows:
NAME AGE POSITION ---- --- -------- Doreen M. Chiu.......... 44 Chairman of the Board, President and Chief Executive Officer Frank Y. Chiu........... 44 Executive Vice-President and Director William M. Hewitt....... 51 President--Waste Management Services and Director Designee(1) Steven J. Guerrettaz.... 52 Chief Financial Officer and Director Designee(1) Fred Feizollahi......... 52 Vice-President--Technology and Engineering Eric C. Su.............. 37 Vice-President--Marketing and Planning Edward L. Vinecour...... 59 Director Andrew C. Kadak......... 51 Director Designee(1)(2) Earl E. Gjelde.......... 53 Director Designee(1)(2)
- --------------------- (1) Each Director Designee has consented to become a director of the Company on or before completion of the Offering. (2) Has agreed to serve as member of Audit and Compensation Committees upon election to Board. Doreen M. Chiu has served as President, Chief Executive Officer and Chairman of the Board since joining the Company in 1984. Prior to joining the Company, Ms. Chiu owned her own certified public accounting firm. Ms. Chiu is a California CPA and holds a Bachelor of Arts degree in Business Administration from the University of Wisconsin. Ms. Chiu is the wife of Frank Chiu. Frank Y. Chiu joined the Company in 1980 as Financial Controller, became Vice-President and a director of the Company in 1984, and became Executive Vice-President in 1992. Mr. Chiu holds a Bachelor of Arts degree in Business Administration and a Master's degree in Business Administration from the University of Wisconsin. Mr. Chiu is the husband of Doreen Chiu. William M. Hewitt joined the Company in April 1997 as President--Waste Management Services, and has been nominated and has agreed to serve as a director of the Company on or before completion of the Offering. Mr. Hewitt has over 25 years of domestic and international professional management experience, primarily in the waste minimization and environmental fields. From 1994 until joining the Company, Mr. Hewitt was the President of Hewitt Management Services, Inc., a consulting firm providing strategic planning and other business advice in the areas of pollution prevention, waste minimization and strategic environmental management. During this period, Mr. Hewitt also served as a Group President of Philip Environmental Services Companies, in which capacity he designed and implemented the strategic, organizational and marketing approach for integrating that group of companies. From 1990 to 1994, he held a number of positions with companies in the WMX Technologies Affiliates group, including Vice-President, Strategic Planning, of Rust International, Inc. from 1993 to 1994, and President of Rust Federal Environmental Services (formerly CWM FES) from 1991 to 1993. Prior to joining WMX, Mr. Hewitt was the Vice-President for Major Programs and served on the Board of Directors of Roy F. Weston Inc. Mr. Hewitt holds a Bachelor of Science degree in Chemical Engineering from the University of Rhode Island and a Master of Science degree in Mechanical/Nuclear Engineering from Catholic University of America. Steven J. Guerrettaz has served as Chief Financial Officer since joining the Company in December 1997, and has been nominated and has agreed to serve as a director of the Company on or before completion of the Offering. From May 1994 until joining the Company, Mr. Guerrettaz was the Vice President--Finance of 35 Thermatrix Inc., a publicly traded supplier of flameless thermal oxidation equipment for the thermal treatment of volatile organic compounds and hazardous air pollutants. From 1988 to 1994, Mr. Guerrettaz was the Vice President--Regional Controller for Chemical Waste Management, Inc. Mr. Guerrettaz is a former audit partner of Arthur Andersen LLP. He is a California CPA and holds a Bachelor of Science degree in accounting from San Jose State University. Fred Feizollahi joined the Company in 1995 as Director of Technology and Engineering, and since 1995 has been Vice-President--Technology and Engineering. Mr. Feizollahi has over 26 years of experience in radioactive and hazardous waste remediation and management, decontamination and decommissioning, and the design and operation of waste treatment equipment and technologies. Prior to joining the Company, he worked as a Senior Project Manager for Morrison Knudsen from 1991 to 1995 and as a Staff Engineer/Project Engineer for Bechtel Power Corporation from 1981 to 1991. Mr. Feizollahi, who holds a Bachelor of Science degree in Mechanical Engineering from the University of Maryland, is a registered California Professional Engineer. Eric C. Su has served as Vice-President--Marketing and Planning since 1995. Mr. Su joined the Company in 1993 as Director of Business Development. Prior to joining the Company, he acted as a sales and marketing consultant for a number of companies, including the Company, from 1990 to 1993. From 1987 to 1990, Mr. Su held various marketing positions with General Electric Company. Prior thereto, he held positions in sales and marketing with W.R. Grace and Company from 1984 to 1987, and in process engineering with E.I. DuPont de Nemours and Company from 1982 to 1984. Mr. Su holds a Bachelor of Science degree in Chemical Engineering from Arizona State University. Edward L. Vinecour has served as a director of the Company since 1984. Mr. Vinecour joined the Company in 1984, serving as its Vice President--Marketing before retiring and becoming a consultant to the Company in 1992. Mr. Vinecour has a Bachelor of Science degree in Biochemistry from Suffolk University. Andrew C. Kadak has been nominated and has agreed to serve as a director of the Company on or before completion of the Offering. Mr. Kadak has over 30 years of experience in the nuclear power industry. Since 1997 he has been President of Kadak Associates, Incorporated, a firm providing consulting services to the nuclear power industry. From 1989 to 1997, Mr. Kadak served as President and Chief Executive Officer of Yankee Atomic Electric Company ("Yankee"), a company which operates nuclear power plants in the Northeastern United States. In that capacity, he oversaw the decommissioning of Yankee's nuclear power plant in Rowe, Massachusetts. Mr. Kadak serves on the Board of Directors of the American Nuclear Society, a nuclear industry trade group, and is currently a visiting Senior Lecturer in the Nuclear Engineering Department of the Massachusetts Institute of Technology ("MIT"). He holds a Bachelor of Science degree in Mechanical Engineering from Union College, a Master's degree in Business Administration from Northeastern University and a Master of Science degree and a Ph.D. in Nuclear Engineering from MIT. Earl E. Gjelde has been nominated and has agreed to serve as a director of the Company on or before completion of the Offering. Since 1993 Mr. Gjelde has been Managing Director of Summit Energy Group, Ltd., an energy development company. From 1991 to 1993, he served as Vice President of Waste Management Inc., and from 1989 to 1993 as Vice President of Chemical Waste Management, Inc. From 1982 to 1989, he served in a number of senior federal government positions, including Under Secretary of the U.S. Department of the Interior ("Interior") from 1987 to 1989, and as Chief Operating Officer of Interior from 1985 to 1989. Mr. Gjelde is currently a member of the boards of directors of two publicly held companies: DIDAX, Inc., a company in the Internet field, and Electrosource, Inc., a technology company specializing in metals and bi- metals extrusion and battery development and manufacturing. He holds a Bachelor of Science degree in Engineering from Oregon State University. BOARD OF DIRECTORS There are currently three members of the Board. The Company intends to increase the number of directors on or prior to completion of the Offering. Management has nominated Messrs. Hewitt, Guerrettaz, Kadak and Gjelde to fill the additional Board seats. The directors serve until the next annual meeting of shareholders or 36 until successors are elected and qualified. The Company's executive officers are appointed by and serve at the discretion of the Board. The Board has established an Audit Committee and a Compensation Committee. The functions of the Audit Committee include recommending to the Board the selection and retention of independent auditors, reviewing the scope of the annual audit and the progress and results of the auditors' work, and reviewing the Company's financial statements and internal accounting and auditing procedures. The functions of the Compensation Committee include establishing the compensation of the Chief Executive Officer, reviewing and approving executive compensation policies and practices, reviewing salaries and bonuses for certain executive officers, and considering such other matters as the Board may, from time to time, delegate to the Compensation Committee. Each non-employee director will receive a cash fee of $2,000 per Board meeting attended and an additional $2,000 per Board committee meeting attended if such committee meeting is held on a day different from that of a Board meeting. The directors are reimbursed for expenses incurred in connection with the performance of their services as directors. Non-Employee Directors' Stock Option Plan In February 1998, the Board adopted the Company's 1998 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") to provide for the automatic grant of options to purchase shares of Common Stock to non-employee directors of the Company. The Directors' Plan is administered by the Board. To date, no options have been granted under the Directors' Plan. The maximum number of shares of Common Stock that may be issued pursuant to options granted under the Directors' Plan is 200,000. Pursuant to the terms of the Directors' Plan, each person serving as a director of the Company who is not an employee of the Company (a "Non-Employee Director") shall automatically be granted an option to purchase 20,000 shares of Common Stock upon the later of the date such person first becomes a Non-Employee Director or the date of the effectiveness of the initial public offering of the Common Stock, with 5,000 of such shares vesting immediately and the balance vesting in three equal installments on the three succeeding anniversaries of the grant date. The exercise price of the options granted under the Directors' Plan must equal or exceed the fair market value of the Common Stock on the date of grant. No option granted under the Directors' Plan may be exercised after the expiration of ten years from the date it was granted. Options granted under the Directors' Plan are generally non-transferable except by will or by the laws of descent and distribution. The Directors' Plan will terminate at the discretion of the Board; provided, however, that in no event will the term of the Directors' Plan extend beyond the tenth anniversary of its adoption by the Board. In the event of certain changes of control of the Company (as defined in the Directors' Plan), any outstanding options will automatically become fully vested and will terminate if not exercised prior to such change of control. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS During its fiscal year ended December 31, 1997, the Company had no compensation committee or other committee of the Board performing similar functions, and all decisions concerning compensation of executive officers were made by the Chairman of the Board. On January 14, 1998, the Board created a Compensation Committee consisting of Doreen M. Chiu, Frank Y. Chiu and Edward L. Vinecour. No interlocking relationship exists between any member of the Company's Compensation Committee and any member of any other company's board of directors or compensation committee. See "Management--Executive Officers and Directors." 37 EXECUTIVE COMPENSATION The following table sets forth information with respect to compensation paid by the Company during the fiscal year ended December 31, 1997, to the Chief Executive Officer and the three other most highly compensated executive officers of the Company whose total salary and bonus during such year exceeded $100,000 (collectively, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION -------------------- NAME AND PRINCIPAL POSITION SALARY BONUS --------------------------- ---------- --------- Doreen M. Chiu......................................... $ 150,000 $ 0 Chief Executive Officer Frank Y. Chiu.......................................... 120,000 0 Executive Vice-President William M. Hewitt(1)................................... 103,269 30,000 President--Waste Management Services Eric C. Su............................................. 108,127 0 Vice-President--Marketing and Planning
- --------------------- (1) Mr. Hewitt joined the Company in April 1997 at an initial annual base salary of $150,000. The amount of salary reflected in the table is the prorated amount paid to him in 1997. Steven J. Guerrettaz was appointed to the position of Chief Financial Officer of the Company in December 1997, with an initial annual base salary of $150,000. Options to purchase an aggregate of 60,000 shares of Common Stock, at an exercise price of $5.00 per share, have been granted to Mr. Guerrettaz. The options vest in four equal installments during the period beginning on June 30, 1998 and ending on December 31, 2000, with accelerated vesting as to options covering 10,000 shares upon an initial public offering of the Common Stock and as to options covering 20,000 shares upon the Company's obtaining specified financing for its LLMW treatment facility. Each of the Named Executive Officers receives perquisites and other personal benefits from the Company, the aggregate amount of which during fiscal 1997 did not exceed the lesser of $50,000 or 10% of the annual base salary reported for such Named Executive Officer. The Named Executive Officers did not receive any additional compensation in fiscal 1997. To date, the Company has not made any awards under its 1998 Stock Ownership Incentive Plan to any of the Named Executive Officers or any other person. None of the Named Executive Officers is a party to an employment agreement with the Company. 38 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information with respect to grants of stock options to the Named Executive Officers during fiscal 1997.
POTENTIAL REALIZABLE VALUE AT ASSUMED PERCENT OF ANNUAL RATES NUMBER OF TOTAL OF STOCK PRICE SHARES OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE FAIR VALUE TERM(4) OPTIONS EMPLOYEES PRICE PER AT DATE -------------------------- EXPIRATION NAME GRANTED IN YEAR SHARE OF GRANT 0% 5% 10% DATE - ---- ---------- ---------- --------- ---------- -------- -------- -------- ---------- Doreen M. Chiu(1)....... 150,000 27.8% $1.00 $2.00 12/31/06 $150,000 $338,668 $628,123 Frank Y. Chiu(1)........ 159,900 29.7% 1.00 2.00 12/31/06 159,900 361,021 669,579 William M. Hewitt(2).... 70,000 15.9% 5.00 5.00 03/31/07 -- 220,113 557,810 Eric C. Su(3)........... 20,000 3.7% 1.00 2.00 12/31/06 20,000 45,156 83,750
- --------------------- (1) 500 of the option shares vest on each of December 31, 1997, 1998 and 1999, the balance vesting on December 31, 2000. (2) 36,666 of the option shares vest on May 1, 1998, and 16,667 of the option shares vest on each of May 1, 1999 and May 1, 2000. (3) 500 of the option shares vest on December 31, 1997, 9,500 of the option shares vest on December 31, 1998 and the remaining 10,000 option shares vest on December 31, 1999. (4) This column shows the hypothetical gains or option spreads of the options granted based on (i) the fair market value of the Common Stock on the date of grant, as determined by the Board, and (ii) assumed annual compound stock appreciation rates of 0%, 5% and 10% over 10 years. The assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of future Common Stock prices. AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES The following table sets forth certain information regarding the year-end value of options held by the Named Executive Officers. No options were exercised by the Named Executive Officers during 1997.
NUMBER OF SHARES SUBJECT VALUE OF UNEXERCISED TO UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1997 DECEMBER 31, 1997(1) ------------------------- ------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Doreen M. Chiu........... 500 149,500 $ 3,000 $ 897,000 Frank Y. Chiu............ 3,500 222,400 23,700 1,391,100 William M. Hewitt........ 0 70,000 0 140,000 Eric C. Su............... 70,500 19,500 486,000 117,000
- --------------------- (1) Based on the estimated fair market value of the Common Stock as of December 31, 1997 ($7.00), as determined by the Board, minus the per share exercise price, multiplied by the number of shares underlying the option. 39 EMPLOYEE BENEFIT PLANS Stock Ownership Incentive Plan In February 1998, the Board adopted the Company's 1998 Stock Ownership Incentive Plan (the "Incentive Plan"). The Incentive Plan authorizes the award of stock options, shares of restricted stock and performance units (which may be paid in cash or shares of Common Stock). The Incentive Plan reserves for issuance an aggregate of 500,000 shares of Common Stock, no more than 250,000 shares of which may be issued in the form of shares of restricted stock. The Incentive Plan is intended to advance the interests of the Company by encouraging the Company's employees who contribute to the Company's long-term success and development to acquire and retain an ownership interest in the Company. To date, no awards have been made under the Incentive Plan. The Incentive Plan will be administered by the Board. The Board will select employees to receive awards under the Incentive Plan and determine the terms, conditions and limitations applicable to each award. Each award will be evidenced by a grant letter from the Board to the recipient setting forth the terms and conditions of the award. The Incentive Plan will terminate at the discretion of the Board; provided, however, that in no event will the term of the Incentive Plan extend beyond the tenth anniversary of its adoption by the Board. Stock options granted pursuant to the Incentive Plan may either be incentive stock options ("ISOs") intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or stock options not intended to so qualify. Each stock option awarded under the Incentive Plan must have an exercise price equal to at least 100% of the fair market value of the Common Stock on the date of grant, and ISOs granted to any employee possessing more than 10% of the combined voting power of all classes of stock of the Company must have an exercise price equal to at least 110% of such fair market value. Optionees may exercise options under the Incentive Plan by paying cash, by tendering shares of Common Stock, by using a cashless exercise procedure provided for in the Incentive Plan, or by a combination thereof, as permitted by the Board. Options vest in equal installments over a five year period and, upon a change of control of the Company (as defined in the Incentive Plan), any outstanding options become fully vested and immediately exercisable. Options granted under the Incentive Plan are generally non-transferable except by will or by the laws of descent and distribution. No option granted under the Incentive Plan may be exercised after the expiration of ten years from the date it was granted. Employee Stock Purchase Plan In February 1998, the Board approved the Company's Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 200,000 shares of Common Stock. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Code. Under the Purchase Plan, the Board may authorize participation by eligible employees of the Company, including officers, in periodic offerings following the adoption of the Purchase Plan. The offering period for any offering will be determined by the Board, but in no event will be more than 27 months. Employees are eligible to participate if they are employed by the Company or an affiliate of the Company designated by the Board. Employees who participate in an offering may have up to 15% of their earnings (provided that such amount does not exceed $25,000 in value per calendar year) withheld pursuant to the Purchase Plan and applied, on specified dates determined by the Board, to the purchase of shares of Common Stock. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the Common Stock on the commencement date of each offering period or the relevant purchase date. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with the Company. In the event of certain changes of control of the Company (as defined in the Purchase Plan), the Board has discretion to provide that each right to purchase Common Stock will be assumed or an equivalent right substituted by the successor corporation, or the Board may shorten the offering period and provide for all sums 40 collected by payroll deductions to be applied to purchase stock immediately prior to the change in control. The Purchase Plan will terminate at the discretion of the Board. 401(k) Plan In 1995, the Company established a tax-qualified employee savings and retirement plan (the "401(k) Plan") covering all of its employees. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the lower of 15% of such compensation or the annual limit prescribed by statute ($9,500 in 1997) and contribute the amount of such reduction to the 401(k) Plan. The 401(k) Plan allows for matching contributions to the 401(k) Plan by the Company, such matching and the amount of such matching to be determined at the sole discretion of the Board. To date, no such matching contributions have been made with respect to the 401(k) Plan. The trustee under the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in numerous investment options. The 401(k) Plan is intended to qualify under Section 401 of the Code so that contributions by employees to the 401(k) Plan, and income earned on plan contributions, are not taxable until withdrawn, and so that the contributions by employees will be deductible by the Company when made. LIMITATION ON DIRECTORS' LIABILITY The Company's Articles of Incorporation (the "Articles") provide that, pursuant to the California Corporations Code, the liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent permissible under California law. This is intended to eliminate the personal liability of a director for monetary damages in an action brought by, or in the right of, the Company for breach of a director's duties to the Company or its shareholders. This provision in the Articles does not eliminate the directors' fiduciary duty and does not apply to certain liabilities: (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (ii) for acts or omissions that a director believes to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of the director; (iii) for any transaction from which a director derived an improper personal benefit; (iv) for acts or omissions that show a reckless disregard for the director's duty to the Company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Company or its shareholders; (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders; (vi) with respect to certain transactions or the approval of transactions in which a director has a material financial interest; and (vii) expressly imposed by statute for approval of certain improper distributions to shareholders or certain loans or guarantees. This provision also does not limit or eliminate the rights of the Company or any shareholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. The inclusion of the above provision in the Articles may have the effect of reducing the likelihood of shareholder derivative suits against directors and may discourage or deter shareholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefitted the Company and its shareholders. The Company believes that it is the position of the Securities and Exchange Commission (the "Commission") that insofar as the foregoing provision may be invoked to disclaim liability for damages arising under the Securities Act, the provision is against public policy as expressed in the Securities Act and is therefore unenforceable. The Company believes that the foregoing provision of its Articles is necessary to attract and retain qualified persons as directors. 41 CERTAIN TRANSACTIONS The following is a summary of certain transactions to which the Company was or is a party and in which certain executive officers, directors or shareholders of the Company had or have a direct or indirect material interest. From 1992 to 1997, Doreen M. Chiu, the Company's Chairman of the Board and Chief Executive Officer, extended a series of loans to the Company, each of which is repayable in full upon demand (collectively, the "Loan"). The Loan, which is unsecured, bears interest at an annual rate of 10%, payable concurrently with principal. The outstanding principal balance of the Loan, including accrued interest, at December 31, 1997 was $1,280,180. Doreen M. Chiu and Frank Y. Chiu, the Executive Vice-President and a director of the Company, have guaranteed the obligations of the Company under (i) an Accounts Receivable Credit Agreement between the Company and Sanwa Bank California pursuant to which the Company may borrow an aggregate of $4,000,000; (ii) a Promissory Note in the principal amount of $3,000,500 held by Safeco Credit Company, Inc.; (iii) a Term Loan Agreement in the principal amount of $400,000 held by Sanwa Bank California; (iv) an Equipment Lease between the Company and Great Western Leasing that provides for an aggregate rental amount of $215,673; (v) an Equipment Lease between the Company and The CIT Group/Equipment Financing, Inc. that provides for an aggregate rental amount of $174,640; and (vi) a Commercial Lease Agreement between the Company and California Thrift and Loan with an aggregate rental amount of $125,767. In connection with the sale by the Company of shares of Preferred Stock, Doreen M. Chiu and Frank Y. Chiu granted a security interest in certain of their personal assets to the holders of the Preferred Stock to secure the performance of the obligations of the Chius to purchase the Preferred Stock from such holders in certain defined circumstances under the Co-Sale and Put Option Agreement among the Company, the Chius and each such holder. In connection with the repurchase by the Company of all of the shares of Common Stock owned by him, Edward L. Vinecour, a director of the Company, in 1992 entered with the Company into (i) a Consultant Agreement, pursuant to which, in consideration of certain future consulting services to be rendered by Mr. Vinecour to the Company, the Company agreed to pay him consulting fees in a monthly amount of $5,000 for a period of 10 years commencing in August of 1992 and assumed the payment obligations under a mortgage loan with a then remaining principal balance of $146,351, requiring monthly mortgage payments of $1,816 over a period of 15 years, and (ii) a Non-Competition Agreement, pursuant to which, in consideration of Mr. Vinecour's agreement not to compete with the business of the Company, the Company agreed to pay him the sum of $290,000 in installments. Of the original sum of $290,000 due to Mr. Vinecour under the Non-Competition Agreement, $65,000 has been paid by the Company as of December 31, 1997, with Mr. Vinecour agreeing to extend payment of the entire balance until the year 2000. The Company believes that each of the foregoing transactions was on terms at least as favorable to the Company as those that could have been obtained from nonaffiliated third parties. The Company currently intends that any future transactions with affiliates of the Company will be on terms at least as favorable to the Company as those that can be obtained from nonaffiliated third parties. 42 PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding beneficial ownership of Common Stock as of December 31, 1997, and immediately following the completion of the Offering, by (i) each person who is known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock, (ii) each director, director designee and Named Executive Officer having beneficial ownership of Common Stock, and (iii) all executive officers, directors and director designees as a group:
PERCENT OF SHARES OUTSTANDING ----------------- NAME AND ADDRESS OF BENEFICIAL SHARES BENEFICIALLY BEFORE AFTER OWNER(2) OWNED(1) OFFERING OFFERING ------------------------------ ------------------- -------- -------- Doreen M. Chiu(3)..................... 2,511,426 21.81% 19.0 % Edward L. Vinecour.................... 100,000 * * Eric C. Su............................ 80,500 * * William M. Hewitt..................... 36,666 * * Frank Y. Chiu(3)...................... 3,500 * * All executive officers, directors and director designees as a group (9 persons).......................... 2,787,092 23.66% 20.67%
- --------------------- * Less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options or warrants held by that person that are currently exercisable, or will become exercisable within 60 days from the date hereof, are deemed outstanding. Such shares, however, are not deemed outstanding for purposes of computing the percentage ownership of any other person. (2) The address of each beneficial owner identified is care of the Company, 47375 Fremont Boulevard, Fremont, California 94538. Each person has sole voting and investment power over the shares of Common Stock listed opposite his or her name, subject to community property laws where applicable. (3) Does not include shares beneficially owned by spouse. 43 DESCRIPTION OF CAPITAL STOCK The following description of the capital stock of the Company and certain provisions of the Articles is a summary and is qualified in its entirety by the provisions of the Articles, which have been filed as an exhibit to the Company's Registration Statement of which this Prospectus is a part. The authorized capital stock of the Company currently consists of 20,000,000 shares of Common Stock, no par value per share ("Common Stock"), of which 7,532,301 shares are currently outstanding, and 1,000,000 shares of Preferred Stock, of which 900,000 shares are currently outstanding. As of December 31, 1997, there were 66 record holders of the Common Stock. COMMON STOCK The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. The holders of Common Stock are entitled to cumulative voting rights with respect to the election of directors so long as at least one shareholder has given notice at the meeting of shareholders prior to the voting of that shareholder's desire to cumulate votes. Subject to preferences that may be applicable to any shares of preferred stock issued in the future, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of the Common Stock are entitled to share ratably with the holders of any then outstanding preferred stock in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock. Holders of Common Stock have no preemptive rights and no right to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of the Offering will be, fully paid and nonassessable. PREFERRED STOCK The following is a brief summary of certain of the rights, preferences, privileges, restrictions and limitations of the outstanding shares of Preferred Stock. Dividends. Any dividends declared by the Board are to be distributed pari passu among all holders of Preferred Stock and all holders of Common Stock in proportion to the number of shares of Common Stock which would be held by each such holder if all shares of Preferred Stock were converted into Common Stock at the then effective Conversion Price (as defined below). Liquidation Preference; Right of First Offer. In the event of a liquidation, dissolution or winding up of the Company, the holders of Preferred Stock are entitled to a cash payment equal to the Liquidation Value (as defined below) of each share held, before any distribution of the Company's assets to holders of the Common Stock. The "Liquidation Value" per share means an amount equal to (i) $5.00 plus (ii) a premium equal to an annual rate of ten percent (10%) of such amount compounded annually from the date the share was issued (the "Issue Date"), plus (iii) all declared but unpaid dividends thereon. Each holder of Preferred Stock has certain rights of first offer to subscribe for new issuances of securities by the Company (not including securities offered to the public pursuant to a registration statement filed under the Securities Act). Voluntary Conversion. Each share of Preferred Stock is, at the option of the holder, convertible into such number of shares as results from dividing $5.00 by the Conversion Price then in effect. The initial Conversion Price is $5.00, subject to adjustments for subsequent dilutive issuances of securities by the Company. In addition, the Conversion Price is specifically adjusted upon the closing of an underwritten public offering of the Common Stock after July 1, 1996 to the lower of (i) the then current Conversion Price and (ii) the price determined by multiplying the price to the public in such underwriting by .25. The Conversion Price is currently $5.00. 44 Automatic Conversion. Immediately prior to the closing of a firm commitment, underwritten public offering of the Common Stock having an aggregate price to the public of not less than $12 million and closing on or prior to June 30, 1998, each share of Preferred Stock is automatically converted into 1 2/3 shares of Common Stock. Each such share is also automatically converted into shares of Common Stock at the then effective Conversion Price at the election of the holders of a majority of the outstanding shares of Preferred Stock. Redemption. Commencing on or about the third anniversary of the Issue Date, each holder of Preferred Stock will have the right to demand that the Company redeem all or any part of the shares of Preferred Stock held by him at a redemption price per share consisting of a base redemption price of $6.67, plus any declared but unpaid dividends thereon. Voting Rights. Except as otherwise required by law and as to certain matters set forth in the Articles as requiring the prior affirmative vote or written consent of the holders of not less than a majority of the outstanding shares of Preferred Stock, the Preferred Stock is non-voting. The matters set forth in the Articles include (i) the payment by the Company of cash dividends, (ii) the redemption or repurchase by the Company of any of the Common Stock (other than from employees, officers, directors and consultants of the Company upon the termination of their relationship with the Company), (iii) the sale of all or substantially all of the assets of the Company or the consummation by the Company of any transaction or series of transactions resulting in a change of control of the Company, and (iv) the Company's incurrence of any indebtedness or grant of any security interest in any of the Company's assets, other than in connection with equipment leases entered into in the ordinary course of business, a revolving credit line from a commercial bank that does not exceed 80% of eligible accounts receivable or the refinancing of existing mortgages. Registration Rights. Pursuant to the terms of a Shareholder Rights Agreement between the Company and each purchaser of Preferred Stock, if the Company determines to register any of its securities (other than a registration relating solely to employee benefit plans or a transaction covered by Rule 145 promulgated under the Securities Act), then the holders of Preferred Stock have piggyback registration rights to cause the Company to include the shares of Common Stock issued upon conversion of the Preferred Stock (the "Registrable Shares") to be included in the related registration statement (a "Piggyback Registration"). The Company may, however, reduce on a pro rata basis, to the extent so advised by the underwriters of the offering, the amount of Registrable Shares to be included in any such registration. Additionally, the holders of an aggregate of at least 300,000 Registrable Shares (as adjusted for stock splits or reverse stock splits), or a lesser number, if the offering thereof results in aggregate proceeds (net of selling expenses) exceeding $15 million, have a demand right on two separate occasions to cause the Company to register such Registrable Shares, and each holder of Registrable Shares has the additional right on an unlimited number of occasions, subject to certain timing limitations, to cause the Company to register his Registrable Shares on Form S-3 under the Securities Act, if the aggregate price to the public of the shares offered thereby exceeds $1.5 million (each, a "Demand Registration"). The Company is obligated to pay all registration expenses (other than underwriting discounts and commissions and subject to certain limitations) incurred by virtue of including shares of Common Stock subject to such registration rights in either a Demand Registration or Piggyback Registration. OTHER CONVERSION RIGHTS Immediately prior to the closing of a firm commitment, underwritten public offering of the Common Stock having an aggregate price to the public of not less than $12 million and closing on or prior to June 30, 1998, each outstanding share of the Series A and Series B Redeemable Non-Voting Preferred Stock issued by ATG Richland is automatically converted into Common Stock at a stated conversion ratio of one share of Series A Redeemable Non-Voting Preferred Stock into 1.4119814 shares of Common Stock and one share of Series B Redeemable Non-Voting Preferred Stock into 1 share of Common Stock. As of December 31, 1997, 860,000 shares of Series A Redeemable Non-Voting Preferred Stock and 1,269,291 shares of Series B Redeemable Non-Voting Preferred Stock were outstanding. 45 OTHER REGISTRATION RIGHTS As parties to certain portions of the Shareholder Rights Agreement between the Company and each purchaser of Preferred Stock, certain holders of Common Stock have acquired piggyback registration rights, with respect to all shares of Common Stock owned by them, identical to those held by the purchasers of Preferred Stock with respect to the Registrable Shares owned by them. Certain other holders of Common Stock who are not parties to certain portions of the Shareholder Rights Agreement have piggyback registration rights, with respect to all shares of Common Stock owned by them, similar to the piggyback registration rights held by the purchasers of the Preferred Stock. OPTIONS At December 31, 1997, options to purchase up to 1,000,000 shares of Common Stock, at a weighted average exercise price of $2.09, were outstanding, 298,927 of which were exercisable on such date. OVER-ALLOTMENT OPTION AND REPRESENTATIVE'S WARRANTS The Company has granted the Underwriters an over-allotment option, pursuant to which the Underwriters have the right, exercisable during the 45-day period after the date of this Prospectus, to purchase up to 255,000 additional shares of Common Stock from the Company at the same price per share as the Company will receive for the 1,700,000 shares that the Underwriters have agreed to purchase in the Offering. In addition, the Company has agreed to issue to Van Kasper & Company, as the Representative, for nominal consideration, the Representative's Warrants, pursuant to which the Representative will have the right, exercisable for a period of four years beginning one year from the date of this Prospectus, to purchase up to 170,000 shares of Common Stock at an exercise price per share equal to 120% of the initial public offering price of the Offering. See "Underwriting." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Boston EquiServe. 46 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have 13,215,896 shares of Common Stock outstanding (assuming no exercise of outstanding stock options after December 31, 1997). Of these shares, the 1,700,000 shares sold in the Offering will be freely tradeable without restriction or registration under the Securities Act unless they are held by "affiliates" of the Company, as that term is defined in Rule 144. The remaining 11,515,896 shares will be "restricted securities" as defined in Rule 144 ("Restricted Shares"). Of such Restricted Shares, 10,222,584 Restricted Shares are subject to lock-up agreements with the Underwriters. As a result of the lock-up agreements and the provisions of Rule 144(k) and Rule 144 generally, all currently outstanding shares will be available for sale in the public market upon expiration of the lock-up agreements 180 days after the date of this Prospectus, subject to the provisions of Rule 144. See "Underwriting." In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of (i) 1.0% of the then outstanding shares of the Common Stock (approximately 132,159 shares immediately after the Offering) and (ii) the average weekly trading volume during the four calendar weeks preceding such sale. Sales under Rule 144 are also currently subject to certain requirements as to the manner of sale, notice and availability of current public information about the Company. Rule 144 also provides that affiliates who own securities that are not Restricted Shares must nonetheless comply with the same restrictions applicable thereunder to Restricted Shares, as if such securities were Restricted Shares, with the exception of the one-year holding period requirement. A person who has not been an affiliate of the Company at any time within three months prior to the sale and has beneficially owned the Restricted Shares for at least two years is entitled to sell such shares under Rule 144(k) without regard to the volume limitations or any of the other requirements described above. An employee, officer or director of or consultant to the Company who purchased or was awarded shares or options to purchase shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701 promulgated under the Securities Act, which permits affiliates and non-affiliates to sell their Rule 701 shares without having to comply with Rule 144's holding period restrictions, in each case commencing 90 days after the date of this Prospectus. In addition, non-affiliates may sell Rule 701 shares without complying with the public information, volume and notice provisions of Rule 144. The Company intends to file with the Commission registration statements on Form S-8 under the Securities Act to register the shares of Common Stock reserved for issuance under the Incentive Plan, the Directors' Plan and the Purchase Plan, thus permitting the resale of shares issued under such plans by non-affiliates in the public market without restriction under the Securities Act. Such registration statements will be filed at management's discretion following the closing of the Offering and will be automatically effective upon filing. Prior to the Offering, there has been no public market for the Common Stock, and any sale of substantial amounts of Common Stock in the open market may adversely affect the market price of Common Stock offered hereby. 47 UNDERWRITING The Underwriters, acting through the Representative, have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement with the Company, to purchase from the Company the number of shares of Common Stock set forth opposite their respective names:
NUMBER OF UNDERWRITER SHARES ----------- --------- Van Kasper & Company............................................... --------- Total............................................................ 1,700,000 =========
The shares of Common Stock are being offered by the Underwriters named herein, subject to their right to reject any order in whole or in part, and to certain other conditions. The Underwriters are committed to purchase all of the above shares of Common Stock if any are purchased. The Representative has advised the Company that the Underwriters propose to offer the shares of Common Stock at the offering price set forth on the outside front cover page of this Prospectus: (i) to the public; and (ii) to certain dealers at that price less a concession of not more than $0. per share, of which a discount of $0. may be reallowed to other dealers. After the consummation of the Offering, the public offering price, concession and reallowance to dealers may be changed by the Representative as a result of market conditions and other factors. No such change shall affect the amount of proceeds to be received by the Company as set forth on the outside front cover page of this Prospectus. The Company has granted the Underwriters the over-allotment option, pursuant to which the Underwriters have the right, exercisable during the 45-day period after the date of this Prospectus, to purchase up to 255,000 additional shares of Common Stock from the Company at the initial offering price, less underwriting discounts. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of Common Stock offered hereby. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage of the additional Common Stock that the number of shares of Common Stock to be purchased by the Underwriter set forth in the above table bears to the total number of shares of Common Stock listed in such table. Upon completion of the Offering, the Company has agreed to sell to the Representative, for nominal consideration, the Representative's Warrants, pursuant to which the Representative will have the right to purchase up to 170,000 shares of Common Stock at an exercise price per share equal to 120% of the initial public offering price. The Representative's Warrants are exercisable for a period of four years beginning one year from the date of this Prospectus. The Representative's Warrants will contain provisions providing for adjustment of exercise price and number and type of securities issuable upon exercise should one or more of certain specified events occur. In addition, the Company has granted certain rights to the holders of the Representative's Warrants to register the Representative's Warrants and the Common Stock underlying the Representative's Warrants under the Securities Act. The Company has agreed to pay the Representative a non-accountable expense allowance equal to 1.5% of the total proceeds of the Offering (including with respect to shares of Common Stock underlying the over-allotment option, if and to the extent it is exercised) for expenses in connection with the Offering, payable at the close of the Offering. 48 The Underwriting Agreement contains covenants of indemnity among the Underwriters and the Company against certain civil liabilities, including liabilities under the Securities Act. The Company's officers and directors and certain beneficial owners of the Common Stock have agreed not to, directly or indirectly, offer to sell, contract to sell, sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock or any rights to purchase or acquire Common Stock for the 180-day period commencing with the date of this Prospectus (the "lock-up period") without the prior written consent of Van Kasper & Company. All 10,222,584 shares of Common Stock subject to the lock-up agreements will become eligible for immediate public sale following expiration of the lock-up period, subject to the provisions of the Securities Act and the rules promulgated thereunder, including Rule 144. Van Kasper & Company may, in its sole discretion, and at any time without notice, release all or a portion of the securities subject to the lock-up agreements. In addition, the Company has agreed that until the expiration of the lock-up period, the Company will not, without the prior written consent of Van Kasper & Company, offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, any options or warrants to purchase Common Stock or any securities convertible into or exchangeable for shares of Common Stock, except for sales of shares of Common Stock in the Offering, the issuance of shares of Common Stock upon the exercise of outstanding options, warrants and rights or pursuant to the conversion of all of the outstanding shares of the Preferred Stock and of ATG Richland's Series A and Series B Redeemable Non-Voting Preferred Stock into an aggregate of 3,983,595 shares of Common Stock, and the grant of options to purchase or the issuance of shares of Common Stock under the Incentive Plan, the Directors' Plan or the Purchase Plan. The Representative has advised the Company that, pursuant to Regulation M promulgated under the Securities Exchange Act of 1934, as amended, certain persons participating in the Offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, which may have the effect of stabilizing or maintaining the market price of the Common Stock at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of the Common Stock on behalf of the Underwriters for the purpose of pegging, fixing or maintaining the price of the Common Stock. A "syndicate covering transaction" is the bid for or the purchase of the Common Stock on behalf of the Underwriters to reduce a short position created in connection with the Offering. The Underwriters may also cover all or a portion of such short position by exercising the over-allotment option. A "penalty bid" is an arrangement permitting the Representative to reclaim the selling concession otherwise accruing to an Underwriter or syndicate member in connection with the Offering if the Common Stock originally sold by such Underwriter or syndicate member is purchased by the Representative in a syndicate covering transaction and has therefore not been effectively placed by such Underwriter or syndicate member. The Representative has advised the Company that such transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. The Representative has advised the Company that the Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Prior to the Offering, there has been no public market for the Company's securities. The initial public offering price of the Common Stock was determined by negotiations between the Company and the Representative. Among the factors considered in such negotiations were prevailing market conditions, the results of operations of the Company in recent periods, market valuations of publicly traded companies that the Company and the Representative believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development, the current state of the Company's industry and the economy as a whole, and other factors deemed relevant by the Company and the Representative. 49 LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Graham & James LLP, Los Angeles, California. Certain legal matters with respect to the Offering will be passed upon for the Underwriters by Heller Ehrman White & McAuliffe, Palo Alto, California. EXPERTS The Consolidated Financial Statements of the Company as of December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997, included in this Prospectus, have been included herein in reliance on the report thereon of Coopers & Lybrand L.L.P., independent accountants, given upon the authority of that firm as experts in accounting and auditing. In May 1996, the Board appointed Coopers & Lybrand L.L.P. as the Company's independent certified public accountants. Prior thereto, Storek, Carlson & Strutz ("SC&S") served as the Company's independent accountants. The change in accountants from SC&S to Coopers & Lybrand L.L.P. was effective for fiscal 1995, was unanimously approved by the Board and was not due to any disagreements between the Company and SC&S on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures. ADDITIONAL INFORMATION The Company has filed with the Commission in Washington, D.C. a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock being offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement, and such exhibits and schedules. A copy of the Registration Statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission in Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549, and at the Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part of the Registration Statement may be obtained from such offices upon payment of the fees prescribed by the Commission. In addition, the Registration Statement may be accessed at the Commission's site on the World Wide Web located at (http://www.sec.gov). Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. 50 GLOSSARY The following is a glossary of certain environmental industry and Company- specific terms used in this Prospectus: AEA.............................. The U.S. Atomic Energy Act of 1954. BDAT............................. Best Demonstrated Achievable Technology. As identified by the EPA, the most effective commercially available means of treating specific types of hazardous waste. BDATs may change with advances in treatment technologies. CERCLA........................... The U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980. Also known as "Superfund." Clean Air Act.................... The U.S. Clean Air Act of 1970. Clean Water Act.................. The U.S. Clean Water Act of 1972. D&D.............................. Decontamination and decommissioning of facilities contaminated with radioactivity. DOD.............................. The U.S. Department of Defense. DOE.............................. The U.S. Department of Energy. EPA.............................. The U.S. Environmental Protection Agency. FFCA............................. The U.S. Federal Facilities Compliance Act of 1992. GASVIT........................... The Company's name and trademark for a vitrification technology developed by the Company for treatment of LLRW and LLMW streams. High-level radioactive waste..... Radioactive waste primarily composed of spent nuclear fuel rods from nuclear reactors and highly radioactive waste generated by the processing of nuclear materials for weapons production. HLW.............................. High-level radioactive waste. LLMW............................. Low-level mixed waste. LLRW............................. Low-level radioactive waste. Low-level mixed waste............ LLRW co-mingled with hazardous substances regulated by RCRA and/or toxic substances regulated by TSCA. Low-level radioactive waste...... All radioactive waste other than HLW. NRC.............................. The U.S. Nuclear Regulatory Commission. PCBs............................. Polychlorinated biphenyls, a substance regulated under TSCA. PLASTIMELT....................... The Company's name and trademark for a technology developed by the Company for the macroencapsulation of LLMW. RCRA............................. The U.S. Resource Conservation and Recovery Act of 1976. SAFGLAS.......................... The Company's name and trademark for a vitrification technology developed by the Company for treatment of LLRW streams.
51 GLOSSARY--(CONTINUED) SARA............................. The U.S. Superfund Amendments and Reauthorization Act of 1986. Superfund........................ See "CERCLA." TSCA............................. The U.S. Toxic Substances Control Act of 1976. Vitrification.................... A non-incineration, thermal treatment process which converts radioactive and other waste into an environmentally stable, leach-resistant glass product. The EPA has identified vitrification as the BDAT for HLW. WDOE............................. The Washington State Department of Ecology.
52 ATG INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants.......................................... F-2 Consolidated Balance Sheets................................................ F-3 Consolidated Statements of Operations...................................... F-4 Consolidated Statements of Shareholders' Equity............................ F-5 Consolidated Statements of Cash Flows...................................... F-6 Notes to Consolidated Financial Statements................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders ATG Inc. and Subsidiary: We have audited the accompanying consolidated balance sheets of ATG Inc. and its subsidiary as of December 31, 1996 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ATG Inc. and its subsidiary as of December 31, 1996 and 1997 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. San Jose, California January 31, 1998 (except for Note 16 as to which the date is February , 1998) - ------------------------------------------------------------------------------- To the Board of Directors and Shareholders of ATG Inc. and Subsidiary: The consolidated financial statements and notes thereto included herein have been adjusted to give effect to the proposed conversion of the ATG Inc. Series A Preferred Stock, ATG Richland Series A Preferred Stock and ATG Richland Series B Preferred Stock into 3,983,595 shares of common stock of ATG Inc., which is more fully described in Note 16 to the financial statements. The above report is in the form that will be signed by Coopers & Lybrand L.L.P. upon obtaining the approval of the preferred shareholders for the revised conversion ratios, assuming that from January 31, 1998 to the effective date of such conversion, no other events shall have occurred that would affect the accompanying consolidated financial statements or notes thereto. Coopers & Lybrand L.L.P. San Jose, California January 31, 1998 F-2 ATG INC. CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands) --------
DECEMBER 31, -------------------------------------- 1997 PRO FORMA SHAREHOLDERS' EQUITY 1996 1997 (NOTE 2) ------- ------- -------------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............. $ 2,969 $ 2,586 Accounts receivable, net of allowance for doubtful accounts of $46 in 1996 and $119 in 1997..................... 6,907 8,435 Prepayments and other current assets.. 1,554 1,477 ------- ------- Total current assets................ 11,430 12,498 Property and equipment, net............. 15,045 22,104 Intangible and other assets, net........ 501 1,928 Deferred income taxes................... -- 697 ------- ------- Total assets........................ $26,976 $37,227 ======= ======= LIABILITIES Current liabilities: Short-term borrowings................. $ 2,836 $ 3,996 Current portion of long-term debt and capitalized leases................... 1,053 1,380 Accounts payable...................... 2,014 3,246 Accrued liabilities................... 1,091 944 Payable to related parties............ 103 1,280 ------- ------- Total current liabilities........... 7,097 10,846 Long-term debt and capitalized leases, net.................................... 2,930 6,202 Deferred income taxes................... -- 467 ------- ------- Total liabilities................... 10,027 17,515 ------- ------- Commitments and contingencies (Note 10) Mandatorily Redeemable Preferred Stock: Series A and ATG Richland Series A and B, no par value Authorized: 6,000,000 shares in 1996 and 1997 Issued and outstanding: 2,750,355 shares in 1996; 3,029,291 shares in 1997; and none pro forma; stated at liquidation value.................... 16,319 19,416 ------- ------- SHAREHOLDERS' EQUITY Common Stock, no par value: Authorized: 20,000,000 shares in 1996 and 1997 Issued and outstanding: 7,532,301 shares in 1996 and 1997 and 11,515,896 pro forma................. 5,948 6,337 21,795 Deferred compensation................. -- (272) (272) Accumulated deficit..................... (5,318) (5,769) (1,811) ------- ------- ------- Total common stock, deferred compensation and accumulated deficit............................ 630 296 $19,712 ======= ======= ======= Total liabilities and shareholders' equity............................. $26,976 $37,227 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 ATG INC. CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) --------
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1995 1996 1997 ---------- ---------- ---------- Revenue (Note 2).......................... $ 16,070 $ 18,235 $ 19,107 Cost of revenue........................... 9,659 11,082 11,172 ---------- ---------- ---------- Gross profit.......................... 6,411 7,153 7,935 Sales, general and administrative expenses................................. 6,033 6,487 6,903 Stock-based compensation expense.......... 169 169 117 ---------- ---------- ---------- Operating income...................... 209 497 915 ---------- ---------- ---------- Interest income (expense): Interest income......................... 185 142 58 Interest expense........................ (326) (129) -- ---------- ---------- ---------- Interest income (expense), net........ (141) 13 58 ---------- ---------- ---------- Income before income taxes................ 68 510 973 Provision (benefit) for income taxes...... 2 2 (45) ---------- ---------- ---------- Net income............................ $ 66 $ 508 $ 1,018 ========== ========== ========== Pro forma net income per share Basic................................... $ 0.09 Diluted................................. 0.08 ========== Pro forma shares used in calculating pro forma net income per share Basic................................... 11,516 Diluted................................. 12,284 ==========
The accompanying notes are an integral part of these consolidated financial statements. F-4 ATG INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (amounts in thousands) --------
TOTAL COMMON STOCK, DEFERRED COMMON STOCK COMPENSATION ------------- DEFERRED ACCUMULATED AND ACCUMULATED SHARES AMOUNT COMPENSATION DEFICIT DEFICIT ------ ------ ------------ ----------- --------------- Balance, January 1, 1995................... 7,439 $5,598 $(338) $(3,768) $ 1,492 Accretion on redeemable preferred stock................ -- -- -- (836) (836) Amortized deferred compensation......... -- -- 169 -- 169 Net income............ -- -- -- 66 66 ----- ------ ----- ------- ------- Balance, December 31, 1995................... 7,439 5,598 (169) (4,538) 891 Issuance of common stock................ 93 350 -- -- 350 Accretion on redeemable preferred stock................ -- -- -- (1,288) (1,288) Amortized deferred compensation......... -- -- 169 -- 169 Net income............ -- -- -- 508 508 ----- ------ ----- ------- ------- Balance, December 31, 1996................... 7,532 5,948 -- (5,318) 630 Accretion on redeemable preferred stock................ -- -- -- (1,469) (1,469) Stock based compensation......... -- 389 (389) -- -- Amortized deferred compensation......... -- -- 117 117 Net income............ -- -- -- 1,018 1,018 ----- ------ ----- ------- ------- Balance, December 31, 1997................... 7,532 $6,337 $(272) $(5,769) $ 296 ===== ====== ===== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 ATG INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) --------
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1995 1996 1997 ---------- ---------- ---------- Cash flows from operating activities: Net income............................... $ 66 $ 508 $ 1,018 Adjustments to reconcile net income with cash flow from operations: Depreciation and amortization.......... 458 671 746 Provision for doubtful accounts........ -- 6 73 Compensation expense for shares issued and options granted................... 169 169 117 Income tax benefit..................... -- -- (45) Change in current assets and liabilities: Accounts receivable.................. (3,560) 534 (1,601) Prepayments and other current assets. (369) 230 (140) Other assets......................... (444) 290 -- Accounts payable and accrued liabilities......................... 255 455 1,085 Deferred income taxes................ -- -- (230) ---------- ---------- ---------- Net cash provided by (used in) operating activities.............. (3,425) 2,863 1,023 ---------- ---------- ---------- Cash flows from investing activities: Property and equipment acquisitions...... (1,249) (4,647) (3,505) Other assets............................. 131 (23) (1,210) ---------- ---------- ---------- Net cash used in investing activities.. (1,118) (4,670) (4,715) ---------- ---------- ---------- Cash flows from financing activities: Loans from (payments to) related parties. -- (61) 1,177 Repayment of capital leases.............. (466) (735) (461) Repayment of long-term debt.............. (842) (216) (196) Bank borrowings, net of repayments....... 1,771 48 1,160 Proceeds from issuance of preferred stock, net.............................. 3,123 5,627 1,629 ---------- ---------- ---------- Net cash provided by financing activities............................ 3,586 4,663 3,309 ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents............................... (957) 2,856 (383) Cash and cash equivalents, beginning of year...................................... 1,070 113 2,969 ---------- ---------- ---------- Cash and cash equivalents, end of year..... $ 113 $ 2,969 $ 2,586 ========== ========== ========== Supplemental Disclosures of non-cash investing and financing activities: Income taxes paid........................ $ 1 $ 2 $ 2 ========== ========== ========== Interest paid, net of interest capitalized............................. $ 266 $ 622 $ -- ========== ========== ========== Acquisition of equipment with capital lease financing......................... $ 1,407 $ -- $ 4,256 ========== ========== ========== Compensation expense for shares issued and options granted..................... $ 169 $ 169 $ 117 ========== ========== ========== Conversion of notes payable to common stock................................... $ -- $ 350 $ -- ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands, except per share data) -------- 1. FORMATION AND BUSINESS OF THE COMPANY: The accompanying consolidated financial statements of ATG Inc. (the "Company" or "ATG") include the accounts of its wholly-owned subsidiary, ATG Richland Corporation ("ATG Richland"). The Company provides technical personnel and specialized services and products primarily to the U.S. Government and the nuclear power industry throughout the United States. Services principally consist of compaction, reduction, decontamination, vitrification and disposal of low-level dry active nuclear and other hazardous waste, site remediation and fluorescent lamp recycling. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The consolidated financial statements include the accounts of ATG and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates include assessing the collectibility of accounts receivable and the recoverability of self- constructed assets and provisions for contingencies. Actual results could materially differ from the Company's estimates. Revenue Recognition Revenue includes fees for waste processing services and technology license fees. Revenue under cost plus fixed fee and fixed unit price contracts mainly relating to site remediation is recorded as costs are incurred or units are completed and includes estimated fees earned according to the terms of the contracts. Revenue from U.S. government contracts includes estimates of reimbursable overhead and general and administrative expenses, which are subject to final determination by the U.S. federal government upon project completion. Revisions to costs and income resulting from contract settlements, which are due to differences between actual and budgeted performance, are recognized in the period in which the revisions are determined. Revenue from waste processing is generally recognized upon the completion of the waste treatment process. Revenue from licensing or technology transfer agreements is recognized when received unless there are future commitments, in which case the revenues are recognized over the term of the agreement. Revenues of $1,975 were recognized pursuant to technology transfer agreements in 1997. Losses on contracts are charged to cost of revenue as soon as such losses become known. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Property and Equipment Property and equipment are stated at cost and are depreciated on the straight-line basis over the estimated useful lives of the assets, which range from three to fifteen years. Cost includes expenditures for major F-7 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- improvements and replacements and the net amount of interest costs related to qualifying construction projects. Expenditures for major renewals and betterments are capitalized and expenditures for maintenance and repair expenses are charged to expense as incurred. The Company's policy is to regularly review the carrying amount of specialized assets and to evaluate the remaining life and recoverability of such equipment in light of current market conditions. Risks and Uncertainties The Company operates its fixed facilities under regulations of, and permits issued by, various state and federal agencies. The Company, typically, is in the process of seeking new permits, renewals and/or expansion permits. There is no assurance of the outcome of any permitting efforts. The permitting process is subject to regulatory approval, time delays, local opposition and potentially stricter governmental regulation. Substantial losses which would have a material adverse effect on the Company's consolidated financial position, could be incurred by the Company in the event a permit is not granted, if facility construction programs are delayed or changed, or if projects are otherwise abandoned. The Company reviews the status of permitting projects on a periodic basis to assess realizability of related asset values. As of December 31, 1997, management believes that assets which could currently be affected by permitting efforts are recoverable at their recorded values. The market for the Company's services is substantially dependent on state and federal legislation and regulations. The availability of new contracts depends largely on governmental authorities. In order to build or retain its market share the Company must continue to successfully compete for new government and private sector contracts. Income Taxes The Company accounts for income taxes under the liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Concentration of Credit Risk The majority of the Company's cash, cash equivalents and short-term investments are held with major banks in the United States. The Company's customers mainly consist of agencies of the U.S. government and large U.S. companies. The Company performs ongoing credit evaluation of its customers' financial condition. As of December 31, 1997, agencies of the U.S. government represented 46.6% of accounts receivable and 71.3% of total revenue for the year then ended. As of December 31, 1996, agencies of the U.S. government represented 70.0% of accounts receivable and 76.8% of total revenue for the year then ended. As of December 31, 1995, agencies of the U.S. government represented 84.0% of accounts receivable and 86.3% of total revenue for the year then ended. The Company generally does not require collateral. Computation of Pro Forma Net Income Per Share The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), effective December 31, 1997. SFAS 128 requires the presentation of basic and diluted earnings per share. Basic income per share is computed by dividing income available to common F-8 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- shareholders by the weighted average number of common shares outstanding for the period. Diluted income per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the conversion of convertible preferred stock (using the "if converted" method) and exercise of stock options for all periods. Pro forma basic net income per share and pro forma diluted net income per share are computed using the weighted average number of shares of Common Stock outstanding and the incremental inclusion of 3,983,595 shares of common stock issuable upon the conversion of preferred stock. Unaudited Pro Forma Consolidated Balance Sheet Upon closing of the Company's proposed initial public offering, all outstanding shares of mandatorily redeemable preferred stock will be converted into 3,983,595 shares of common stock. (See Note 16.) The unaudited pro forma consolidated balance sheet as of December 31, 1997, reflects this conversion. Accretion of $3,958 has been reclassified from pro forma mandatorily redeemable preferred stock to pro forma accumulated deficit. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period, resulting from transactions and other events and circumstances from nonowner sources. The Company is reviewing the impact of adopting SFAS No. 130, which is effective for the Company in 1998. In June, 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 requires publicly-held companies to report financial and other information about key revenue- producing segments of the entity for which such information is available and is utilized by the chief operating decision maker. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements would be provided. SFAS No. 131 is effective for the Company in 1998. The Company currently evaluates its operations as one segment. F-9 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- 3. ACCOUNTS RECEIVABLE:
1996 1997 ------ ------ U.S. Government: Amounts billed................................................ $3,502 $3,142 Amounts unbilled.............................................. 1,433 845 ------ ------ Total U.S. Government....................................... 4,935 3,987 Commercial customers: Amounts billed................................................ -- 2,067 Amounts unbilled.............................................. 2,018 2,500 ------ ------ Total commercial 2,018 4,567 ------ ------ Total accounts receivable..................................... 6,953 8,554 Less: allowance for doubtful receivables........................ (46) (119) ------ ------ $6,907 $8,435 ====== ======
Recoverable costs and accrued profit on progress completed but not billed on U.S. government contracts is based on estimates of reimbursable overhead and general and administrative expenses calculated in accordance with contractually determined methods of calculation. These amounts are subject to final determination by the U.S. federal government after the contracts have been completed. As such, the actual recoverable amounts on these contracts may differ from these estimates. The U.S. federal government has reviewed and approved reimbursable expenses for contracts in progress through 1995. 4. RESTRICTED INVESTMENTS: The Company owns several certificates of deposit, Treasury Bills and Bonds, which are collateral for performance bonds. The certificates of deposit, which are included in intangible and other assets, have an aggregate value of $30 and $210 at December 31, 1996 and 1997, respectively, bear interest at 4.7% per annum, and have an original maturity of twelve months. The Treasury Bills, which are included in intangible and other assets, have an aggregate value of $254 at December 31, 1996 and 1997, respectively, bear interest at 5.7% and have an original maturity of twelve months. The Bonds, which are included in prepayments and other current assets, have an aggregate value of $133 and $959 at December 31, 1996 and 1997 respectively, and have an original maturity of between one and five years. 5. PROPERTY AND EQUIPMENT:
1996 1997 ------- ------- Land.......................................................... $ 581 $ 761 Buildings..................................................... 2,864 2,848 Machinery and equipment....................................... 7,429 5,183 Office furniture and equipment................................ 662 1,427 ------- ------- Property and equipment at cost................................ 11,536 10,219 Less: accumulated depreciation and amortization............... (3,060) (2,840) ------- ------- 8,476 7,379 Construction-in-progress...................................... 6,569 14,725 ------- ------- $15,045 $22,104 ======= =======
F-10 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- Depreciation and amortization expense was $417, $630 and $698 for 1995, 1996 and 1997, respectively. Property and equipment costs include capitalized labor and overhead, including interest costs related to the construction of buildings, building improvements and equipment. Capitalized interest costs totaled $479, $446 and $891 in 1995, 1996 and 1997, respectively. All property and equipment serve as collateral to holders of the Company's Series A Preferred Stock, notes payable agreements to a bank and other creditors. As of December 31, 1996 and 1997, machinery and equipment included assets acquired under capital leases with a capitalized cost of $3,000 and $7,256, respectively. Related accumulated amortization totaled $1,945 and $2,318, in 1996 and 1997, respectively. 6. PAYABLE TO RELATED PARTIES The Company has a payable to its Chairman and Chief Executive Officer of $1,280 at December 31, 1997 and $103 at December 31, 1996. The amount is repayable on demand and bears interest at 10% per annum. The Company has a payable to a Director of $225 at December 31, 1997 and December 31, 1996. The amount is repayable on July 1, 2000 and is non-interest bearing. The amount is included in long term debt. 7. BANK LINE OF CREDIT: Under a revolving credit facility with a bank, the Company may borrow up to the lesser of 90% of eligible accounts receivable or $4,000. Borrowings under this credit agreement were $3,996 at December 31, 1997, bear interest at prime plus 0.50% (9.0% at December 31, 1997) and are collateralized by accounts receivable, property and equipment and the personal guarantees of the majority shareholder. Borrowings under the credit agreement were $2,836 as of December 31, 1996, and bore interest at prime plus 1.25% (9.5% at December 31, 1996). The facility agreement expires June 1998. The credit agreement requires the Company to comply with certain covenants including capital asset acquisition limits, limits on additional debt, minimum levels of tangible net worth and dividend payment restrictions. At December 31, 1997 and at various dates throughout the year the Company was in violation of certain covenants. The Company has obtained waivers in respect of these violations as of December 31, 1997. 8. LONG TERM DEBT: Long term debt consists of mortgage debt, notes payable and equipment notes payable. The mortgage debt bears interest at annual rates between 8.75% and 10.5%, matures between the years 2000 and 2007, and is collateralized by certain of the Company's buildings. The notes payable bear interest at annual rates between 8% and 10%, mature between 1998 and 2002, and are collateralized by the Company's equipment. Equipment notes bear interest at annual rates between 7.9% and 11.9%, mature between 1999 and 2000, and are collateralized by specific equipment. F-11 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- Future minimum principal payments are as follows:
MORTGAGE NOTES EQUIPMENT TOTAL LONG DEBT PAYABLE NOTES TERM DEBT -------- ------- --------- ---------- 1998...................................... $ 177 $ 11 $24 $ 212 1999...................................... 170 12 24 206 2000...................................... 139 237 17 393 2001...................................... 1,382 13 -- 1,395 2002...................................... 15 25 -- 40 Thereafter................................ 82 -- -- 82 ------ ---- --- ------ 1,965 298 65 2,328 Less: current portion..................... 177 11 24 212 ------ ---- --- ------ $1,788 $287 $41 $2,116 ====== ==== === ======
9. CAPITAL LEASE OBLIGATIONS: As of December 31, 1997, future minimum lease payments under non-cancelable capital leases are as follows: 1998.................................................................... $1,667 1999.................................................................... 1,392 2000.................................................................... 1,175 2001.................................................................... 917 2002.................................................................... 746 Thereafter.............................................................. 799 ------ Total minimum lease payments............................................ 6,696 Less amount representing interest....................................... 1,442 ------ Present value of future minimum lease payments.......................... 5,254 Less: current portion................................................... 1,168 ------ Total capital lease obligations, net of current portion................. $4,086 ======
10. COMMITMENTS AND CONTINGENCIES: The Company retained the services of a former shareholder, who is also a current director, as a technical consultant, for the ten year period beginning August 1, 1992, for an annual fee of $60. From time to time the Company is a party to litigation or administrative proceedings relating to claims arising from its operations in the normal course of business. Management of the Company, on the advice of counsel, believes that the ultimate resolution of litigation currently pending against the Company is unlikely, either individually or in the aggregate, to have a material adverse effect on the Company's business, financial condition or results of operations. F-12 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- 11. STOCK BASED COMPENSATION PLANS: Stock Options The Company has issued non-qualified stock options to employees and consultants. The following option activity occurred in the three years ended December 31, 1997:
OPTIONS GRANTED AND OUTSTANDING ------------------------------- WEIGHTED AVERAGE EXERCISE EXERCISE PRICE PER SHARES PRICE SHARE --------- ----------- --------- Balance, January 1, 1995........................ 100,000 $0.10 $0.10 Options granted................................. 295,000 $0.10-$7.50 $3.11 --------- ----------- ----- Balance, December 31, 1995...................... 395,000 $0.10-$7.50 $2.34 Options granted................................. 51,000 $0.10 $0.10 --------- ----------- ----- Balance, December 31, 1996...................... 446,000 $0.10-$7.50 $2.09 Options granted................................. 554,000 $1.00-$5.00 $2.10 --------- ----------- ----- Balance, December 31, 1997...................... 1,000,000 $0.10-$7.50 $2.09 ========= =========== =====
In connection with the grant of options for the purchase of 554,000 shares of Common Stock to employees during the period from January 1, 1997 through December 31, 1997, the Company recorded aggregate deferred compensation expense of approximately $389 representing the difference between the deemed fair value of the Common Stock and the option exercise price at date of grant. Such deferred compensation will be amortized over the vesting period relating to these options, of which $117 has been amortized during the year ended December 31, 1997, and is included in the statement of operations within the caption "Stock-based compensation expense". Stock Compensation Effective January 1, 1996 the Company has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). The Company, however, applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation. Determination of compensation cost for stock-based compensation based on the fair value of the grant date for awards consistent with provisions of SFAS No. 123 would not result in a significant difference from the reported net income for the periods presented.
1996 1997 ------ ------ Net income.................................................. $ 508 $1,018 Accretion on mandatorily redeemable preferred stock......... (1,288) (1,469) ------ ------ Net (loss) available to common shareholders................. $ (780) $ (451) Net (loss)--FAS 123 adjusted ............................... $ (780) $ (593) Earnings per share--as reported (Note 14) Basic and diluted........................................... $(0.10) $(0.06) Earnings per share--FAS 123 adjusted Basic and diluted........................................... $(0.10) $(0.08)
F-13 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- The fair value of each option grant for the Plan is estimated on the date of the grant using the Black-Scholes option-pricing model with weighted average risk free interest rates of 6.47% and 6.16% in 1996 and 1997, respectively, and an expected life of 5 years, no dividends and 0% volatility in all periods. The following table summarizes the stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------- ----------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE AVERAGE FAIR EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE VALUE AT DATE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE OF GRANT -------- ----------- ----------- -------- ----------- -------- -------------- $0.10 316,000 -- $0.10 221,492 $0.10 $ 0.10 $1.00 403,500 -- $1.00 47,435 $1.00 $ 2.00 $5.00 180,500 -- $5.00 30,000 $5.00 $ 5.00 - $7.00 $7.50 100,000 -- $7.50 -- $7.50 $0.10
Restricted Stock During 1992, 1993 and 1994, the Company agreed to issue at no cost a total of 1,013,475 common shares to its majority shareholder and president. The agreement required that the shareholder/president remain employed by the Company through December 31, 1996. Deferred compensation expense represents the difference between the issue price of the restricted stock and the deemed fair value of the shares for financial statement purposes. Deferred compensation was amortized over the employment period during which the shares were restricted. Compensation expense of $169 was recognized in both 1995 and 1996. 12. MANDATORILY REDEEMABLE PREFERRED STOCK: ATG issued 900,000 shares of Series A Preferred Stock in 1994 at $5.00 per share. ATG Richland issued 860,000 shares of Series A Preferred Stock in 1995 at $5.00 per share and 990,355 and 278,936 shares of Series B Preferred Stock in 1996 and 1997, respectively, at $6.00 per share, under the following terms and conditions: Upon the written request of the holders of the Preferred Stock, but not before the fifth anniversary of the issue date (third anniversary in the case of the ATG Richland Series B Preferred Stock), the issuing corporation is required to redeem the Preferred Stock held by holders thereof requesting such redemption. The redemption price is $6.67 for ATG Series A Preferred Stock and ATG Richland Series A Preferred Stock and $8.00 for ATG Richland Series B Preferred Stock. In the event of liquidation, dissolution or winding up of the issuing corporation, the holders of Preferred Stock are entitled to a distribution in preference to holders of Common Stock of the issuing corporation, equivalent to the issue price plus a premium equal to 10% interest from the date of the issue. If funds are insufficient for full payment of these amounts, the entire assets and funds of the issuing corporation legally available are distributed ratably among the holders of Preferred Stock. Certain property and equipment has been provided as collateral for the Company's Series A Preferred Stock issued in 1994. Any dividends declared by the issuing corporation are to be distributed pari passu among all holders of its Preferred Stock and all holders of its Common Stock in proportion to the number of shares of Common Stock which would be held by each such holder if all classes of Preferred Stock were converted into Common Stock at the then effective conversion price. F-14 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- Except as otherwise required by law and as to certain matters set forth in the issuing corporation's articles of incorporation as requiring the prior affirmative vote or written consent of the holders of not less than a majority of the outstanding shares of Preferred Stock, the Preferred Stock is non- voting. The shares of each series of Preferred Stock are automatically converted under defined circumstances into shares of the Company's Common Stock at specified conversion ratios upon the occurrence of an initial public offering of such Common Stock. 13. INCOME TAXES: The components of income tax expense (benefit) are approximately as follows:
1995 1996 1997 ---- ---- ---- Current Federal.................................................... -- -- (383) State...................................................... 2 2 158 Deferred: Federal.................................................... -- -- 214 State...................................................... -- -- (34) --- --- ---- Total.................................................... 2 2 (45) --- --- ----
The Company's effective tax rate differs from the U.S. federal statutory tax rate, as follows:
1995 1996 1997 ----- ----- ----- Income tax provision at statutory rate.................... 34.0% 34.0% 34.0% State taxes, net of federal tax effect.................... 0.8 0.1 1.6 Non-deductible items...................................... -- 0.5 3.2 Net operating loss benefit................................ (32.5) (29.5) (48.3) Other..................................................... -- (4.8) 4.9 ----- ----- ----- Effective tax rate........................................ 2.3% 0.3% (4.6)% ===== ===== =====
Components of the deferred income tax balance are as follows:
1995 1996 1997 ---- ---- ---- Deferred tax assets........................................... Net operating loss carryforwards............................ $741 $569 $308 Accrued expenses............................................ 25 34 245 Tax credits................................................. 100 100 120 Other....................................................... 14 17 24 ---- ---- ---- Deferred tax assets....................................... $880 $720 $697 ==== ==== ==== Deferred tax liabilities Depreciation and amortization............................... $348 $310 $467 ==== ==== ==== Valuation allowance........................................... (532) (410) -- ---- ---- ---- Net deferred tax asset........................................ $-- $-- $230 ==== ==== ====
F-15 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- Although realization of the deferred tax assets is not assured, the Company believes that all deferred tax assets will be realized. As of December 31, 1997, the Company had Federal net operating loss carryforwards (NOLs) of approximately $905,231 available to offset future taxable income. These NOLs expire in the years 2009 through 2011. NOL's may be limited pursuant to the limitation rules of Internal Revenue Code Section 382. The change in valuation allowance was a net decrease of $410 for the year ended December 31, 1997. 14. EARNINGS PER SHARE (EPS) DISCLOSURES: In accordance with the disclosure requirements of SFAS 128, a reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows:
1997 1995 1996 1997 PRO FORMA ------ ------ ------ ----------- (UNAUDITED) Numerator--Basic and Diluted EPS Net income............................... $ 66 $ 508 $1,018 $1,018 Accretion on mandatorily redeemable preferred stock......................... (836) (1,288) (1,469) (1,469) ------ ------ ------ ------ Net loss available to common shareholders............................ $ (770) $ (780) $ (451) (451) ====== ====== ====== Reversal of accretion on mandatorily redeemable preferred stock.............. 1,469 ------ Pro forma net income available to common shareholders............................ $1,018 ====== Denominator--Basic EPS Common shares outstanding................ 7,439 7,532 7,532 7,532 Conversion of mandatorily redeemable preferred stock......................... -- -- -- 3,984 Common equivalent shares pursuant to Staff Accounting Bulletin No. 98........ -- -- -- -- ------ ------ ------ ------ 7,439 7,532 7,532 11,516 ------ ------ ------ ------ Basic earnings (loss) per share............ $(0.10) $(0.10) $(0.06) $ 0.09 ====== ====== ====== ====== Denominator--Diluted EPS Denominator--Basic EPS..................... 7,589 7,682 7,682 11,516 Effect of Dilutive Securities Common stock options..................... -- -- -- 768 ------ ------ ------ ------ 7,589 7,682 7,682 12,284 ------ ------ ------ ------ Diluted earnings (loss) per share.......... $(0.10) $(0.10) $(0.06) $ 0.08 ====== ====== ====== ======
15. EMPLOYEE RETIREMENT PLAN: The Company maintains a Qualified Retirement Plan (401(k) Plan) which covers substantially all employees. Eligible employees may contribute up to 15% of their annual compensation, as defined, to this plan. The Company may also make a discretionary contribution. To date the Company has not made contributions to the 401(k) Plan. F-16 ATG INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (all dollar amounts in thousands, except per share data) -------- 16. SUBSEQUENT EVENTS: In February 1998, the Company's Board of Directors ("the Board") authorized the filing of a registration statement with the Securities and Exchange Commission for the Company's initial public offering (the "Offering") of its common stock. The Company and preferred shareholders agreed that all outstanding shares of ATG Series A Preferred Stock and ATG Richland Series A and Series B Preferred Stock automatically convert into 3,983,595 shares of common stock of the Company upon completion of the Offering, assuming the Offering gross proceeds are not less than $12,000 and the Offering is completed on or prior to June 30, 1998. Such conversion is reflected in the unaudited pro forma shareholders equity at December 31, 1997 in the accompanying consolidated balance sheet. The underwriters of the public Offering have been granted warrants, exercisable for a period of four years beginning one year from the Offering date, to purchase up to 170,000 shares of common stock at an exercise price per share equal to 120% of the initial offering price to the public. In February 1998, the Board approved the Company's Employee Stock Purchase Plan ("the Purchase Plan") covering an aggregate of 200,000 shares of common stock. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code of 1986. Under the Purchase Plan, the Board may authorize participation by eligible employees of the Company, including officers, in periodic offerings following the adoption of the Purchase Plan. In February 1998, the Board adopted the Company's 1998 Stock Ownership Incentive Plan (the "Incentive Plan"). The Incentive Plan authorizes the award of stock options, shares of restricted stock and performance units (which may be paid in cash or shares of Common Stock). The Incentive Plan reserves for issuance an aggregate of 500,000 shares of Common Stock, no more than 250,000 shares of which may be issued in the form of shares of restricted stock. The Incentive Plan is intended to advance the interests of the Company by encouraging the Company's employees who contribute to the Company's long-term success and development to acquire and retain an ownership interest in the Company. To date, no awards have been made under the Incentive Plan. Stock options granted pursuant to the Incentive Plan may either be incentive stock options ("ISOs") intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, or stock options not intended to so qualify. In February 1998, the Board adopted the Company's 1998 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") to provide for the automatic grant of options to purchase shares of Common Stock to non-employee directors of the Company. The Directors' Plan is administered by the Board. To date, no options have been granted under the Directors' Plan. The maximum number of shares of Common Stock that may be issued pursuant to options granted under the Directors' Plan is 200,000. Pursuant to the terms of the Directors' Plan, each person serving as a director of the Company who is not an employee of the Company (a "Non-Employee Director") shall automatically be granted an option to purchase 20,000 shares of Common Stock upon the later of the date such person first becomes a Non-Employee Director or the date of the effectiveness of the initial public offering of the Common Stock, with 5,000 of such shares vesting immediately and the balance vesting in three equal installments on the three succeeding anniversaries of the grant date. F-17 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESMAN OR ANY PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS OR ANY OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JU- RISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICI- TATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ---- Forward-Looking Statements................................................ 2 Prospectus Summary........................................................ 3 Risk Factors.............................................................. 6 Use of Proceeds........................................................... 12 Dividend Policy........................................................... 12 Dilution.................................................................. 13 Capitalization............................................................ 14 Selected Consolidated Financial Data...................................... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 16 Business.................................................................. 20 Management................................................................ 35 Certain Transactions...................................................... 42 Principal Shareholders.................................................... 43 Description of Capital Stock.............................................. 44 Shares Eligible for Future Sale........................................... 47 Underwriting.............................................................. 48 Legal Matters............................................................. 50 Experts................................................................... 50 Additional Information.................................................... 50 Glossary.................................................................. 51 Index to Financial Statements............................................. F-1
---------------- UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1,700,000 SHARES [LOGO] COMMON STOCK ---------------- PROSPECTUS ---------------- VAN KASPER & COMPANY , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth an itemized statement of all expenses to be incurred in connection with the issuance and distribution of the securities that are the subject of this Registration Statement other than underwriting discounts and commissions. All expenses incurred with respect to the distribution will be paid by the Company, and such amounts, other than the Securities and Exchange Commission registration fee and the NASD filing fee, are estimates only. Securities and Exchange Commission registration fee.............. $ 5,768 NASD filing fee.................................................. 2,455 Nasdaq National Market listing fee............................... 50,000 Printing and engraving expenses.................................. 100,000 Transfer agent and registrar fees................................ 10,000 Legal fees and expenses.......................................... 250,000 Accounting fees and expenses..................................... 150,000 "Blue sky" fees and expenses..................................... 15,000 Directors and Officers Insurance................................. 100,000 Representative's non-accountable expense allowance............... 255,000 Other expenses................................................... 61,777 ---------- Total........................................................ $1,000,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Articles of Incorporation ("Articles") provide that, pursuant to the California Corporations Code, the liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent permissible under California law. This is intended to eliminate the personal liability of a director for monetary damages in an action brought by, or in the right of, the Company for breach of a director's duties to the Company or its shareholders. This provision in the Articles does not eliminate the directors' fiduciary duty and does not apply for certain liabilities: (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (ii) for acts or omissions that a director believes to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of the director; (iii) for any transaction from which a director derived an improper personal benefit; (iv) for acts or omissions that show a reckless disregard for the director's duty to the Company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Company or its shareholders; (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders; (vi) with respect to certain transactions or the approval of transactions in which a director has a material financial interest; and (vii) expressly imposed by statute for approval of certain improper distributions to shareholders or certain loans or guarantees. This provision also does not limit or eliminate the rights of the Company or any shareholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. Section 317 of the California Corporations Code ("Section 317") provides that a California corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. II-1 Section 317 also provides that a California corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under similar standards, except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine that despite the adjudication of liability, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper. Section 317 provides further that to the extent a director or officer of a California corporation has been successful in the defense of any action, suit or proceeding referred to in the previous paragraphs or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith; that indemnification authorized by Section 317 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation may purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 317. The Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the Underwriters of the Company and its officers and directors for certain liabilities arising under the Securities Act or otherwise. The Company believes that it is the position of the Commission that insofar as any of the foregoing provisions may be invoked to disclaim liability for damages arising under the Securities Act, the provision is against public policy as expressed in the Securities Act and is therefore unenforceable. Such limitation of liability also does not affect the availability of equitable remedies such as injunctive relief or rescission. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Except as set forth in this item, no securities of the Registrant have been sold by the Registrant since January 1, 1994 without registration under the Securities Act. In February 1994, the Company sold 900,000 shares of its Series A Preferred Stock for an aggregate purchase price of $4,500,000 to a number of Taiwanese investors and Taiwanese expatriates in the United States. The Company employed the services of a private placement agent to whom it paid a placement fee of 5% in connection with this transaction. In March 1995, the Company's subsidiary, ATG Richland Corporation ("ATG Richland"), sold 860,000 shares of its Series A Redeemable Non-Voting Preferred Stock for an aggregate purchase price of $4,300,000 to a number of Taiwanese investors and Taiwanese expatriates in the United States. The Company employed the services of a private placement agent to whom it paid a placement fee of 5% in connection with this transaction. In June 1996, ATG Richland sold 990,355 shares of its Series B Redeemable Non-Voting Preferred Stock for an aggregate purchase price of $5,942,130 to a number of Taiwanese investors and Taiwanese expatriates in the United States. The Company employed the services of a private placement agent to whom it paid a placement fee of 5% in connection with this transaction. In August 1997, ATG Richland sold 278,936 shares of its Series B Redeemable Non-Voting Preferred Stock for an aggregate purchase price of $1,673,616 to a number of Taiwanese investors and Taiwanese expatriates in the United States. The Company employed the services of a private placement agent to whom it paid a placement fee of 5% in connection with this transaction. Since January 1, 1994, the Company has issued options to purchase a total of 1,000,000 shares of its Common Stock to a total of 45 officers, directors and employees of the Company. The exercise price of the foregoing options granted by the Company ranged from $0.10 to $7.50 per share. II-2 The Company believes that the issuances of preferred stock described above were exempt from the registration requirements of the Securities Act, by virtue of Section 4(2) thereof and/or Regulation S promulgated under the Securities Act ("Regulation S"). The Company believes that the issuances of options described above were exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof or because the issuances of such options did not involve the "sale," as such term is defined in Section 2(3) of the Securities Act, of a security. The Company is in the process of seeking shareholder approval to amend its Articles of Incorporation and those of ATG Richland to modify the terms of the conversion rights attached to the Preferred Stock authorized to be issued by each such entity. The Company does not intend to pay or give, directly or indirectly, any commission or other remuneration in connection with seeking such approval. The Company believes that any offer and sale of Common Stock deemed to occur in connection with the modification of such rights will be exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereof and/or Regulation S. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following exhibits, which are furnished with this Registration Statement, are filed as a part of this Registration Statement:
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE ------- ------------------- ------------- 1.1 Form of Underwriting Agreement 1.2 Form of Representative's Warrants 3.1 Articles of Incorporation of the Company 3.2 Bylaws of the Company 4.1 Specimen Common Stock Certificate* 5.1 Opinion and Consent of Graham & James LLP* 9.1 Voting Trust Agreement 10.1 Assumption Agreement, dated September 2, 1992, between the Company, as transferee, Tippett-Richardson, as transferor, and Confederation Life Insurance Company, as lender 10.2 Deed of Trust (Non-Construction) & Assignment of Rents, dated September 18, 1997, between the Company, as trustor, First Bancorp, as trustee, and Sanwa Bank California, as beneficiary 10.3 Deed of Trust, dated August 5, 1993, between the Company and ATG Richland, collectively as trustor, Chicago Title Insurance Company, as trustee, and West One Bank, as beneficiary 10.4 Accounts Receivable Credit Agreement, dated April 19, 1996, between the Company and Sanwa Bank California 10.5 Amendment of Commercial Credit Agreement, dated April 30, 1997, between the Company and Sanwa Bank California 10.6 Amendment of Commercial Credit Agreement, dated June 26, 1997, between the Company and Sanwa Bank California 10.7 Third Amendment to Accounts Receivable Credit Agreement, dated August 1, 1997, between the Company and Sanwa Bank California 10.8 Term Loan Agreement, dated September 18, 1997, between the Company and Sanwa Bank California 10.9 Letter from the Company to Steve Guerrettaz, dated December 2, 1997, regarding terms of employment 10.10 Letter from the Company to Fred Feizollahi, dated February 20, 1995, regarding terms of employment
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EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE ------- ------------------- ------------- 10.11 Consultant Agreement, dated as of July 1, 1992, between the Company and Edward Vinecour 10.12 Non-Competition Agreement, dated as of July 1, 1992, between the Company and Edward Vinecour 10.13 Collective Bargaining Agreement between the Company and the International Union of Operating Engineers No. 280 10.14 Form of Stock Purchase Agreement 10.15 Continuing Guaranty, dated as of April 19, 1996, provided by Doreen Chiu in favor of Sanwa Bank 10.16 Continuing Guaranty, dated as of April 19, 1996, provided by Frank Chiu in favor of Sanwa Bank 10.17 Continuing Guaranty, dated as of May 20, 1997, provided by Doreen Chiu in favor of Safeco Credit Company, Inc. 10.18 Continuing Guaranty, dated as of May 20, 1997, provided by Frank Chiu in favor of Safeco Credit Company, Inc. 10.19 Small Business Administration (SBA) Guaranty, dated August 6, 1993, provided by Doreen Chiu and Frank Chiu in favor of West One Bank 10.20 Guaranty Agreement, dated September 1, 1994, provided by Doreen Chiu and Frank Chiu in favor of Great Western Leasing 10.21 Guaranty, dated January 13, 1994, provided by Doreen Chiu and Frank Chiu in favor of The CIT Group/Equipment Financing Inc. 10.22 Guaranty of Commercial Lease Agreement, dated December 20, 1994, provided by Doreen Chiu and Frank Chiu in favor of California Thrift & Loan 10.23 Contract No. MGK-SBB-A26602, dated September 5, 1997, awarded to the Company by Waste Management Federal Services of Hanford, Inc.+* 10.24 Purchase Order No. MW6-SBV-357079, dated November 3, 1995, issued to the Company by Westinghouse Hanford Company+* 10.25 Contract No. DE-AC06-95RL13129, dated January 4, 1995, among the U.S. Department of Energy, as the procuring agency, the U.S. Small Business Administration, as contractor, and the Company, as subcontractor+* 10.26 Gasification Vitrification Chamber Purchase and License Agreement, dated August 1997, between the Company and Integrated Environmental Technologies, LLC+* 10.27 Purchase Agreement between the Company and Integrated Environmental Technologies, LLC+* 10.28 Technology Transfer Purchase and Royalty Fee Agreement, dated September 30, 1997, between the Company and Regent Star Ltd.+* 10.29 Technology Transfer and Purchase Agreement, dated June 28, 1997, between the Company and Pacific Trading Company+* 10.30 Contract No. N62474-97-D-1511 among Engineering Field Activity West, Naval Facilities Engineering Command, Code 0222, as the procuring agency, the U.S. Small Business Administration, as contractor, and the Company, as subcontractor+* 10.31 Contract No. DACW05-98-C-0001, dated September 24, 1997, awarded to the Company by the U.S. Army Corps of Engineers, Sacramento District+* 10.32 Contract No. DACA05-97-R-0003, dated October 25, 1996, awarded to the Company by the U.S. Army Corps of Engineers+* 10.33 Contract No. N62742-96-D-1314, dated January 21, 1997, awarded to the Company by the Pacific Division Naval Facilities Engineering Command+*
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EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE ------- ------------------- ------------- 10.34 Contract No. DAAA09-95-G-0007, dated September 7, 1996, among the U.S. Army Corps of Engineers, as the procuring agency, the U.S. Small Business Administration, as contractor, and the Company, as subcontractor+* 10.35 Contract No. DAKF04-92-D-0007, dated February 8, 1991, among the Fort Irwin Directorate of Contracting, as the procuring agency, the U.S. Small Business Administration, as contractor, and the Company, as subcontractor+* 10.36 Subcontract Agreement, dated May 26, 1995, between the Company and Morrison Knudsen Corporation+* 10.37 Subcontract No. QB00205K, dated December 18, 1997, between the Company and Bechtel Savannah River, Inc.+* 10.38 Contract No. C30314, dated August 1991, awarded to the Company by the Washington Public Power Supply System+* 10.39 Promissory Note, dated December 31, 1997, provided by the Company to Doreen M. Chiu 10.40 1998 Stock Ownership Incentive Plan* 10.41 Employee Stock Purchase Plan* 10.42 1998 Non-Employee Directors' Stock Option Plan* 21.1 List of Subsidiaries of Registrant 23.1 Consent of Graham & James LLP (included in its opinion to be filed as Exhibit 5.1 hereto)* 23.2 Consent of Coopers & Lybrand L.L.P. 24.1 Power of Attorney (included in signature page) 27.1 Financial Data Schedule 99.1 Consent of Andrew C. Kadak 99.2 Consent of Earl E. Gjelde 99.3 Consent of William M. Hewitt 99.4 Consent of Steven J. Guerrettaz
- --------------------- * To be filed by amendment. + Certain portions of this agreement have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for an order granting confidential treatment pursuant to Rule 406 of the General Rules and Regulations under the Securities Act. (b) The following financial statement schedule is included herein:
PAGE ---- Schedule II--Valuation and Qualifying Accounts.......................... S-2
ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-5 (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on February 11, 1998. ATG INC. /s/ Doreen M. Chiu By: _________________________________ Doreen M. Chiu Chairman, Chief Executive Officer and President POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Doreen M. Chiu and Steven J. Guerrettaz, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement and a new Registration Statement filed pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Doreen M. Chiu Chairman, Chief Executive February 11, 1998 ____________________________________ Officer and President Doreen M. Chiu (Principal Executive Officer) /s/ Steven J. Guerrettaz Chief Financial Officer February 11, 1998 ____________________________________ (Principal Financial and Steven J. Guerrettaz Accounting Officer) /s/ Frank Y. Chiu Director February 11, 1998 ____________________________________ Frank Y. Chiu /s/ Edward L. Vinecour Director February 11, 1998 ____________________________________ Edward L. Vinecour
II-7 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders ATG Inc. and Subsidiary: Our report on the consolidated financial statements of ATG Inc. and subsidiary is included on page F-2 of this Form S-1. In connection with our audits of the financial statements, we have also audited the related financial statement schedule on page S-2. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. San Jose California January 31, 1998 S-1 ATG INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BEGINNING COSTS AND BALANCE AT ACCOUNT DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS END OF PERIOD ------------------- ---------- ---------- ---------- ------------- Allowance for doubtful accounts: Year ended December 31, 1995................... $40 $-- $-- $ 40 Year ended December 31, 1996................... 40 6 -- 46 Year ended December 31, 1997................... 46 73 -- 119
S-2 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE ------- ------------------- ------------- 1.1 Form of Underwriting Agreement 1.2 Form of Representative's Warrants 3.1 Articles of Incorporation of the Company 3.2 Bylaws of the Company 4.1 Specimen Common Stock Certificate* 5.1 Opinion and Consent of Graham & James LLP* 9.1 Voting Trust Agreement 10.1 Assumption Agreement, dated September 2, 1992, between the Company, as transferee, Tippett-Richardson, as transferor, and Confederation Life Insurance Company, as lender 10.2 Deed of Trust (Non-Construction) & Assignment of Rents, dated September 18, 1997, between the Company, as trustor, First Bancorp, as trustee, and Sanwa Bank California, as beneficiary 10.3 Deed of Trust, dated August 5, 1993, between the Company and ATG Richland, collectively as trustor, Chicago Title Insurance Company, as trustee, and West One Bank, as beneficiary 10.4 Accounts Receivable Credit Agreement, dated April 19, 1996, between the Company and Sanwa Bank California 10.5 Amendment of Commercial Credit Agreement, dated April 30, 1997, between the Company and Sanwa Bank California 10.6 Amendment of Commercial Credit Agreement, dated June 26, 1997, between the Company and Sanwa Bank California 10.7 Third Amendment to Accounts Receivable Credit Agreement, dated August 1, 1997, between the Company and Sanwa Bank California 10.8 Term Loan Agreement, dated September 18, 1997, between the Company and Sanwa Bank California 10.9 Letter from the Company to Steve Guerrettaz, dated December 2, 1997, regarding terms of employment 10.10 Letter from the Company to Fred Feizollahi, dated February 20, 1995, regarding terms of employment 10.11 Consultant Agreement, dated as of July 1, 1992, between the Company and Edward Vinecour 10.12 Non-Competition Agreement, dated as of July 1, 1992, between the Company and Edward Vinecour 10.13 Collective Bargaining Agreement between the Company and the International Union of Operating Engineers No. 280 10.14 Form of Stock Purchase Agreement 10.15 Continuing Guaranty, dated as of April 19, 1996, provided by Doreen Chiu in favor of Sanwa Bank 10.16 Continuing Guaranty, dated as of April 19, 1996, provided by Frank Chiu in favor of Sanwa Bank
EXHIBIT INDEX--(CONTINUED)
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE ------- ------------------- ------------- 10.17 Continuing Guaranty, dated as of May 20, 1997, provided by Doreen Chiu in favor of Safeco Credit Company, Inc. 10.18 Continuing Guaranty, dated as of May 20, 1997, provided by Frank Chiu in favor of Safeco Credit Company, Inc. 10.19 Small Business Administration (SBA) Guaranty, dated August 6, 1993, provided by Doreen Chiu and Frank Chiu in favor of West One Bank 10.20 Guaranty Agreement, dated September 1, 1994, provided by Doreen Chiu and Frank Chiu in favor of Great Western Leasing 10.21 Guaranty, dated January 13, 1994, provided by Doreen Chiu and Frank Chiu in favor of The CIT Group/Equipment Financing Inc. 10.22 Guaranty of Commercial Lease Agreement, dated December 20, 1994, provided by Doreen Chiu and Frank Chiu in favor of California Thrift & Loan 10.23 Contract No. MGK-SBB-A26602, dated September 5, 1997, awarded to the Company by Waste Management Federal Services of Hanford, Inc.+* 10.24 Purchase Order No. MW6-SBV-357079, dated November 3, 1995, issued to the Company by Westinghouse Hanford Company+* 10.25 Contract No. DE-AC06-95RL13129, dated January 4, 1995, among the U.S. Department of Energy, as the procuring agency, the U.S. Small Business Administration, as contractor, and the Company, as subcontractor+* 10.26 Gasification Vitrification Chamber Purchase and License Agreement, dated August 1997, between the Company and Integrated Environmental Technologies, LLC+* 10.27 Purchase Agreement between the Company and Integrated Environmental Technologies, LLC+* 10.28 Technology Transfer Purchase and Royalty Fee Agreement, dated September 30, 1997, between the Company and Regent Star Ltd.+* 10.29 Technology Transfer and Purchase Agreement, dated June 28, 1997, between the Company and Pacific Trading Company+* 10.30 Contract No. N62474-97-D-1511 among Engineering Field Activity West, Naval Facilities Engineering Command, Code 0222, as the procuring agency, the U.S. Small Business Administration, as contractor, and the Company, as subcontractor+* 10.31 Contract No. DACW05-98-C-0001, dated September 24, 1997, awarded to the Company by the U.S. Army Corps of Engineers, Sacramento District+* 10.32 Contract No. DACA05-97-R-0003, dated October 25, 1996, awarded to the Company by the U.S. Army Corps of Engineers+* 10.33 Contract No. N62742-96-D-1314, dated January 21, 1997, awarded to the Company by the Pacific Division Naval Facilities Engineering Command+* 10.34 Contract No. DAAA09-95-G-0007, dated September 7, 1996, among the U.S. Army Corps of Engineers, as the procuring agency, the U.S. Small Business Administration, as contractor, and the Company, as subcontractor+* 10.35 Contract No. DAKF04-92-D-0007, dated February 8, 1991, among the Fort Irwin Directorate of Contracting, as the procuring agency, the U.S. Small Business Administration, as contractor, and the Company, as subcontractor+* 10.36 Subcontract Agreement, dated May 26, 1995, between the Company and Morrison Knudsen Corporation+*
EXHIBIT INDEX--(CONTINUED)
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE ------- ------------------- ------------- 10.37 Subcontract No. QB00205K, dated December 18, 1997, between the Company and Bechtel Savannah River, Inc.+* 10.38 Contract No. C30314, dated August 1991, awarded to the Company by the Washington Public Power Supply System+* 10.39 Promissory Note, dated December 31, 1997, provided by the Company to Doreen M. Chiu 10.40 1998 Stock Ownership Incentive Plan* 10.41 Employee Stock Purchase Plan* 10.42 1998 Non-Employee Directors' Stock Option Plan* 21.1 List of Subsidiaries of Registrant 23.1 Consent of Graham & James LLP (included in its opinion to be filed as Exhibit 5.1 hereto)* 23.2 Consent of Coopers & Lybrand L.L.P. 24.1 Power of Attorney (included in signature page) 27.1 Financial Data Schedule 99.1 Consent of Andrew C. Kadak 99.2 Consent of Earl E. Gjelde 99.3 Consent of William M. Hewitt 99.4 Consent of Steven J. Guerrettaz
- --------------------- * To be filed by amendment. + Certain portions of this agreement have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for an order granting confidential treatment pursuant to Rule 406 of the General Rules and Regulations under the Securities Act. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 ATG Inc. (a California corporation) 1,700,000 Shares of Common Stock UNDERWRITING AGREEMENT ____________, 1998 VAN KASPER & COMPANY As Representative of the several Underwriters named in Schedule I 600 California Street, Suite 1700 San Francisco, California 94108-2704 Ladies and Gentlemen: ATG Inc., a California corporation (the "Company"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "Underwriters") 1,700,000 shares (the "Firm Shares") of the Company's no par value Common Stock (the "Common Stock"). In addition, the Company also proposes to grant to the Underwriters an option to purchase up to an additional 255,000 shares of the Common Stock on the terms and for the purposes set forth in Section 2(b) (the "Option Shares"). The Firm Shares and any Option Shares purchased pursuant to this Agreement are referred to below as the "Shares". Van Kasper & Company is acting as representative of the several Underwriters and in that capacity is referred to in this Agreement as the "Representative". The Company hereby confirms its agreements with the several Underwriters as set forth below. 1. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to and agrees with each Underwriter as follows: (a) A Registration Statement (Registration No. 333-______) on Form S- 1 under the Securities Act of 1933, as amended (the "Securities Act"), including such amendments to such Registration Statement as may have been required to the date of this Agreement, relating to the Shares has been prepared by the Company under and in conformity with the provisions of the Securities Act, the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. After the execution of this Agreement, the Company will file with the Commission either (i) if such Registration Statement, as it may have been amended, has been declared by the Commission to be effective under the Securities Act, either (A) if the Company relies on Rule 434 of the Rules and Regulations, a Term Sheet (defined below) relating to the Shares, that identifies the Preliminary Prospectus (defined below) that it supplements and contains such information as is required or permitted by Rules 434, 430A and 424(b) of the Rules and Regulations or (B) if the Company does not rely on Rule 434, a prospectus in the form most recently included in an amendment to such Registration Statement (or, if no such amendment has been filed, in such Registration Statement), with such changes or insertions as are required by Rule 430A of the Rules and Regulations or permitted by Rule 424(b) of the Rules and Regulations, and in the case of either (i)(A) or (i)(B) of this sentence, as has been provided to and approved by the Representative prior to the execution of this Agreement, or (ii) if such Registration Statement, as it may have been amended, has not been declared by the Commission to be effective pursuant to Section 8 of the Securities Act, an amendment to such Registration Statement, including a form of prospectus, a copy of which amendment has been furnished to and approved by the Representative prior to the execution of this Agreement. As used in this Agreement, the term "Registration Statement" means such Registration Statement, including all financial schedules and exhibits thereto and including any information omitted therefrom pursuant to Rule 430A of the Rules and Regulations and included in the Prospectus (defined below), in the form in which it became effective from and after the time it became effective, and any Registration Statement filed pursuant to Rule 462(b) of the Rules and Regulations with respect to the Common Stock (a "Rule 462(b) Registration Statement"), and, in the event of any amendment thereto after the effective date of such Registration Statement (the "Effective Date"), shall also mean (from and after the effectiveness of such amendment) such registration statement as so amended (including any 462(b) Registration Statement); the term "Preliminary Prospectus" means each prospectus subject to completion filed with such registration statement or any amendment thereto (including the prospectus subject to completion, if any, included in the Registration Statement or any amendment thereto at the time it was or is declared effective); the term "Prospectus" means: (A) if the Company relies on Rule 434, the Term Sheet relating to the Shares that is first filed pursuant to Rule 424(b)(7), together with the Preliminary Prospectus identified therein that such Term Sheet supplements; (B) if the Company does not rely on Rule 434, the prospectus first filed with the Commission pursuant to Rule 424(b); or (C) if the Company does not rely on Rule 434 and if no prospectus is required to be filed pursuant to Rule 424(b), the prospectus included in the Registration Statement; provided, that if any revised prospectus that is provided to the Underwriters by - -------- the Company for "use in connection with the offering of the Shares" differs from the 2 prospectus on file with the Commission at the time the Registration Statement became or becomes, as the case may be, effective, whether or not the revised prospectus is required to be filed with the Commission pursuant to Rule 424(b)(3) of the Rules and Regulations, the term "Prospectus" shall mean such revised prospectus from and after the time it is first provided to the Underwriters for such use. The term "Term Sheet" as used in this Agreement means any term sheet that satisfies the requirements of Rule 434. Any reference in this Agreement to the "date" of a prospectus that includes a Term Sheet means the date of such Term Sheet. (b) No order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued and no proceedings for that purpose are pending or, to the best knowledge of the Company, threatened or contemplated by the Commission; no order suspending the sale of the Shares in any jurisdiction has been issued and no proceedings for that purpose are pending or, to the best knowledge of the Company, threatened or contemplated, and any request of the Commission for additional information (to be included in the Registration Statement, any Preliminary Prospectus or the Prospectus or otherwise) has been complied with. (c) When the Preliminary Prospectus was filed with the Commission it (i) contained all statements required to be contained therein and complied in all respects with the requirements of the Securities Act, the Rules and Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Commission thereunder (the "Exchange Act Rules and Regulations") and (ii) did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. When the Registration Statement or any amendment thereto was or is declared effective, it (i) contained or will contain all statements required to be contained therein and complied or will comply in all respects with the requirements of the Securities Act, the Rules and Regulations, the Exchange Act and the Exchange Act Rules and Regulations and (ii) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. When the Prospectus or any amendment or supplement to the Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or supplement is not required to be so filed, when the Registration Statement or the amendment thereto containing such amendment or supplement to the Prospectus was or is declared effective) and at all times subsequent thereto up to and including the Closing Date (defined below) and any date on which Option Shares are to be purchased, the Prospectus, as amended or supplemented at any such time, (i) contained or will contain all statements required to be contained therein and complied or will comply in all respects with the requirements of the Securities Act, the Rules and Regulations, the Exchange Act and the Exchange Act Rules and Regulations, 3 and (ii) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing provisions of this paragraph (c) do not apply to statements or omissions made in any Preliminary Prospectus, the Registration Statement or any amendment thereto or the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representative specifically for use therein. (d) The subsidiaries (each, a "Subsidiary" and collectively the "Subsidiaries") of the Company and the jurisdiction of incorporation of each Subsidiary are listed on Exhibit A hereto. As used in this Agreement, the word "subsidiary" means any corporation, partnership, joint venture, limited liability company or other entity of which the Company directly or indirectly owns 50 percent or more of the equity or that the Company directly or indirectly controls. The Company has no subsidiaries other than the Subsidiaries listed on Exhibit A to this Agreement, and except as set forth on such Exhibit, the Company owns 100 percent of the issued and outstanding stock of each of the Subsidiaries. Exhibit B hereto lists each entity in which the Company or any Subsidiary holds an equity interest, whether as a shareholder, partner, member, joint venturer or otherwise. Except as set forth on Exhibit B, neither the Company nor any Subsidiary has any equity interest in any person. (e) Each of the Company and its Subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has full power (corporate and other) and authority to own or lease its properties and conduct its business as described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) and as currently being conducted and proposed to be conducted by it and is duly qualified as a foreign corporation and in good standing in all jurisdictions in which the character of the property owned or leased or the nature of the business transacted by it makes qualification necessary (except where the failure to be so qualified would not have a material adverse effect on the business, properties, condition (financial or otherwise), results of operations or prospects of the Company or such Subsidiary). Each of the Company and its Subsidiaries is in possession of and operating in compliance with all authorizations, licenses, certificates, consents, orders and permits from federal, state, local, foreign and other governmental or regulatory authorities that are material to the conduct of its business, all of which are valid and in full force and effect. (f) Since the respective dates as of which information is given in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), there has not been any material loss or interference with the business of the Company or any Subsidiary from fire, explosion, flood, 4 earthquake or other calamity, whether or not covered by insurance, or from any court or governmental action, order or decree, or any changes in the capital stock or long-term debt of the Company or any Subsidiary, or any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any Subsidiary, or any material change, or a development known to the Company that might cause or result in a material change, in or affecting the business, properties, condition (financial or otherwise), results of operation or prospects of the Company or any Subsidiary, whether or not arising from transactions in the ordinary course of business, in each case other than as is set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), and since such dates, except in the ordinary course of business, neither the Company nor any Subsidiary has entered into any material transaction not described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). (g) There is no agreement, contract, license, lease or other document required to be described in the Registration Statement or the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) or to be filed as an exhibit to the Registration Statement which is not described or filed as required. All contracts described in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), if any, are in full force and effect on the date hereof, and none of the Company, its Subsidiaries or any other party thereto is in material breach of or default under any such contract. (h) The authorized and outstanding capital stock of the Company is set forth in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), and the description of the Common Stock and of the Shares therein conforms with and accurately describes the rights set forth in the instruments defining the same. The Shares have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and nonassessable, and the issuance of the Shares is not subject to any preemptive or similar rights. (i) All of the outstanding shares of Common Stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, have been issued in compliance with all applicable federal and state securities laws and were not issued in violation of and are not subject to any preemptive rights or other rights to subscribe for or purchase securities of the Company. The description of the Company's stock option, stock bonus and other stock plans or arrangements and the options or other rights granted or exercised thereunder or otherwise set forth in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. Other than pursuant to this Agreement and the options, 5 warrants and rights to purchase or acquire the Common Stock described in the Prospectus, there are no options, warrants or other rights outstanding to subscribe for or purchase or acquire any shares of the Company's capital stock. There are no preemptive rights applicable to any shares of capital stock of the Company. (j) All of the stock in the Subsidiaries owned by the Company as set forth on Exhibit A is owned by the Company free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest of any type, kind or nature. All of the outstanding stock of each of the Subsidiaries has been duly authorized and validly issued and is fully paid and nonassessable, has been issued in compliance with all applicable laws, including securities laws, and was not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities of such Subsidiary. There are no options, warrants or other rights outstanding to subscribe for or purchase any shares of the capital stock or registered capital of any Subsidiary and no Subsidiary is subject to any obligation, commitment, plan, arrangement or court or administrative order with respect to same. There are no preemptive rights applicable to any shares of capital stock or registered capital of the Subsidiaries. (k) This Agreement has been duly authorized, executed and delivered by, and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable federal or state securities laws. Other than the registration rights set forth in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) there are no rights for or relating to the registration of any capital stock of the Company. The filing of the Registration Statement does not give rise to any rights, other than those which have been waived in writing, for or relating to the registration of any capital stock of the Company. (l) Neither the Company nor any of its Subsidiaries is, or with the giving of notice or lapse of time or both would be, in violation of or in default under, nor will the execution or delivery of this Agreement or the completion of the transactions contemplated by this Agreement result in a violation of or constitute a breach of or a default (including without limitation with the giving of notice, the passage of time or otherwise) under, the articles of incorporation, bylaws or other governing documents of the Company or such Subsidiary or any obligation, agreement, covenant or condition contained in any bond, debenture, note or other evidence of indebtedness or in any contract, indenture, mortgage, deed of trust, loan agreement, lease, license, joint venture or other agreement or instrument to which the Company or any Subsidiary is a party or by which any properties of the Company or any Subsidiary may be bound or affected. The Company has not incurred any liability, direct or indirect, for any finders' or similar fees payable on behalf of the Company or the Underwriters in connection with the transactions contemplated by this Agreement. The performance by the Company of its obligations 6 under this Agreement will not violate any law, ordinance, rule or regulation, or any order, writ, injunction, judgment or decree of any governmental agency or body or of any court having jurisdiction over the Company or any Subsidiary or any properties of the Company or any Subsidiary, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of the Company or any Subsidiary. Except for permits and similar authorizations required under the Securities Act, the Exchange Act or under other securities or Blue Sky laws of certain jurisdictions and for permits, authorizations, consents and approvals that have been obtained, no consent, permit, approval, authorization or order of any court, governmental agency or body, financial institution or any other person is required in connection with the completion by the Company of the transactions contemplated by this Agreement. (m) Each of the Company and its Subsidiaries owns, or has valid rights to use, all items of real and personal property which are material to the business of the Company or such Subsidiary (including, without limitation, all real property on which the Company's facilities are located) and, except as described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), free and clear of all liens, encumbrances and claims that might materially interfere with the business, properties, condition (financial or otherwise), results of operations or prospects of the Company or such Subsidiary . (n) The Company or the appropriate Subsidiary, as the case may be, owns or possesses adequate rights to use all material patents, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names and copyrights (collectively, the "Intellectual Property") described or referred to in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), as owned by or used by the Company or such Subsidiary, or which are necessary for the conduct of the business of the Company or such Subsidiary as described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus); and neither the Company nor any Subsidiary has received any notice of infringement of or conflict with asserted rights of others with respect to any Intellectual Property which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material effect on the business, properties, condition (financial or otherwise), results of operations or prospects of the Company or any Subsidiary. Except as described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), neither the Company nor any Subsidiary is a party to any material options, licenses, or agreements of any kind that grant rights to any other party to manufacture, license, produce, assemble, market or sell the products of the Company, nor is the Company or any Subsidiary bound by or a party to any options, licenses, or agreements of any kind with respect to any Intellectual Property of any other party material to the business of the Company. No employee of the Company or of any Subsidiary is obligated under any 7 contract (including licenses, covenants, or commitments of any nature) or other agreement known to the Company, or subject to any judgment, decree, or order of any court or administrative agency known to the Company, that would interfere with the use of such employee's best efforts to promote the interests of the Company or such Subsidiary or that would conflict with the business of the Company or such Subsidiary as presently conducted or proposed to be conducted. (o) There is no litigation or governmental proceeding to which the Company or any Subsidiary is a party or to which any property of the Company or any Subsidiary is subject which is pending or, to the best knowledge of the Company, is threatened or contemplated against the Company that is required to be disclosed in the Registration Statement or Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) or that might prevent consummation of the transactions contemplated by this Agreement and is not so disclosed. (p) None of the Company or any Subsidiary is in violation of, or has received any notice or claim from any governmental agency or third party that any of them is in violation of, any law, ordinance, rule or regulation, or any order, writ, injunction, judgment or decree of any agency or body or of any court, to which it or its properties (whether owned or leased) may be subject, which violation might have a material effect on the business, properties, condition (financial or otherwise), results of operations or prospects of the Company or any Subsidiary. (q) The Company has not taken and shall not take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to cause or result in, under the Exchange Act, the Exchange Act Rules and Regulations or otherwise, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. No bid or purchase by the Company and, to the best knowledge of the Company, no bid or purchase that could be attributed to the Company (as a result of bids or purchases by an "affiliated purchaser" within the meaning of Regulation M under the Exchange Act) for or of the Shares, the Common Stock, any securities of the same class or series as the Common Stock or any securities convertible into or exchangeable for or that represent any right to acquire the Common Stock is now pending or in progress or will have commenced at any time prior to the completion of the distribution of the Shares that is or will be in violation of Regulation M under the Exchange Act. (r) Coopers & Lybrand, L.L.P., whose reports appear in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), are, and during the periods covered by their reports in the Registration Statement were, independent accountants as required by the Securities Act and the Rules and Regulations. The financial statements and schedules included in the Registration Statement, each Preliminary Prospectus and the Prospectus present fairly (or, 8 if the Prospectus has not been filed with the Commission, as to the Prospectus, will present fairly) the financial condition, results of operations, cash flow and changes in shareholders' equity and the financial statements and schedules included in the Registration Statement present fairly the information required to be stated therein. Such financial statements and schedules have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods presented. The selected and summary financial and statistical data included in the Registration Statement and the Prospectus present fairly (or, if the Prospectus has not been filed with the Commission, as to the Prospectus, will present fairly) the information shown therein and have been compiled on a basis consistent with the audited financial statements presented therein. No other financial statements or schedules are required to be included in the Registration Statement. Except as set forth in such financial statements or as set forth in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), the Company has no material debts, liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature whatsoever, including, without limitation, any tax liabilities or deferred tax liabilities or any other debts, liabilities or obligations. (s) The books, records and accounts of the Company and each Subsidiary accurately and fairly reflect, in reasonable detail, the transactions in and dispositions of the assets of the Company and such Subsidiary. The systems of internal accounting controls maintained by the Company and each Subsidiary are sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary (x) to permit preparation of financial statements in conformity with generally accepted accounting principles and (y) to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (t) For a period of 180 days following the date of the Prospectus, the Company shall not offer, sell, contract to sell or otherwise dispose of, or announce the offer of, any Common Stock, warrants, options or other securities exchangeable for or convertible into Common Stock without the prior written consent of the Representative; except that the Company during this period (i) may issue to employees, officers, directors and consultants of the Company, options to purchase Common Stock; provided, that such options shall not be exercisable during this 180 day period, (ii) may issue shares of Common Stock upon the exercise of previously outstanding options, warrants or rights and (iii) may issue shares of Common Stock on conversion of the preferred stock as described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). 9 (u) No labor disturbance by the employees of the Company or any Subsidiary exists, is imminent or, to the best knowledge of the Company, is contemplated or threatened; and the Company is not aware of an existing, imminent or threatened labor disturbance by the employees of any principal suppliers or contractors that might be expected to result in any material change in the business, properties, condition (financial or otherwise), results of operations or prospects of the Company. Except as disclosed in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), no collective bargaining agreement exists with any employees of the Company or any Subsidiary and, to the best knowledge of the Company, no such agreement is imminent. Except as disclosed in the Registration Statement, no officer, employee or consultant of the Company or any Subsidiary whose continued services are material to the conduct of the business of the Company or any Subsidiary has any plans to terminate employment with the Company or any Subsidiary nor does the Company or any Subsidiary have a present intention to terminate the employment or contract of any such person. (v) Each of the Company and its Subsidiaries has filed all federal, state, local and foreign tax returns that are required to be filed or has requested extension thereof and has paid all taxes, including withholding taxes, penalties and interest, assessments, fees and other charges to the extent that the same have become due and payable. No tax assessment or deficiency has been made or proposed against the Company or any of its Subsidiaries nor has the Company or any Subsidiary received any notice of any proposed tax assessment or deficiency. (w) Except as set forth in the Prospectus (or if the Prospectus is not in existence, the most recent Preliminary Prospectus) there are no outstanding loans, advances or guaranties of indebtedness by the Company to or for the benefit of any of (i) its "affiliates", as such term is defined in the Rules and Regulations, (ii) any of the officers or directors of any of its Subsidiaries or (iii) any of the members of the families of any of them. (x) Neither the Company nor any Subsidiary has, directly or indirectly, at any time: (i) made any contributions to any candidate for political office in violation of law; (ii) made any payment in violation of law to any local, state, federal or foreign governmental officer or official, or other person charged with similar public or quasi-public duties; or (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended. (y) Neither the Company nor any Subsidiary has any material liability, absolute or contingent, relating to: (i) public health or safety; (ii) worker health or safety; (iii) product defect or warranty; or (iv) except as may be disclosed in the Registration Statement and Prospectus (or, if the Prospectus is not in existence, the most recent 10 Preliminary Prospectus) pollution, damage to or protection of the environment, including, without limitation, relating to damage to natural resources, emissions, discharges, releases or threatened releases of hazardous materials into the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or otherwise relating to the manufacture, processing, use, treatment, storage, generation, disposal, transport or handling of any hazardous materials, which could have a material adverse effect on the general affairs, management and financial position of the Company. As used herein, "hazardous material" includes chemical substances, or wastes, pollutants, contaminants, hazardous, radioactive or toxic substances, constituents, materials or wastes, whether solid, gaseous or liquid in nature. (z) The Company has not distributed and will not distribute prior to the Closing Date or prior to any date on which the Option Shares are to be purchased, as the case may be, any prospectus or other offering material in connection with the offering and sale of the Shares other than the Prospectus, the Registration Statement and any other material which may be permitted by the Securities Act and the Rules and Regulations. (aa) The Company has filed and will file in a timely manner all reports and other documents required to be filed with the Commission under the Exchange Act and with the National Association of Securities Dealers, Inc. (the "NASD"), and each such report or other document contained, at the time it was filed, such information as was required to be included in such report or other document and all such information was correct and complete in all material respects; except as disclosed in the Registration Statement, no event has occurred or is likely to occur that required or would require an amendment to any report or document referred to in this section that has not been filed or distributed as required. (bb) The Shares have been designated for inclusion on the Nasdaq National Market, subject only to official notice of issuance. (cc) The Company is not now, and intends to conduct its affairs in the future in such a manner so that it will not become, an investment company within the meaning of the Investment Company Act of 1940, as amended. (dd) Each of the Company and its Subsidiaries is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) for which the Company would have any liability has occurred; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published 11 interpretations thereunder (the "Code"); and each "pension plan" for which the Company or any Subsidiary would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, that would cause the loss of such qualification. (ee) There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any Subsidiary (or, to the best knowledge of the Company, any of their predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company or any Subsidiary in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which would not have, or would not be reasonably likely to have, singularly or in the aggregate with all such violations and remedial actions, a material adverse effect on the general affairs, management, financial position, shareholders' equity or results of operations of the Company or any Subsidiary; there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes, radioactive wastes, mixed wastes or hazardous substances due to or caused by the Company or any Subsidiary or with respect to which the Company has knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have, singularly or in the aggregate with all such spills, discharges, leaks, emissions, injections, escapes, dumpings and releases, a material effect on the general affairs, management, financial position, shareholders' equity or results of operations of the Company or any Subsidiary. The terms "radioactive wastes", "mixed wastes", "hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. (ff) The Company satisfies the requirements for filing a registration statement on Form S-1. (gg) Each certificate signed by any officer of the Company or any Subsidiary and delivered to the Representative's or Underwriter's counsel shall be deemed to be a representation and warranty by the Company or such Subsidiary to each Underwriter as to matters covered thereby. 12 2. Purchase, Sale and Delivery of the Stock. ---------------------------------------- (a) On the basis of the representations, warranties, covenants and agreements of the Company contained in this Agreement and subject to the terms and conditions set forth in this Agreement, the Company agrees to sell to the several Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price of $______ per Share ("Purchase Price"), the respective number of Firm Shares set forth opposite the name of such Underwriter on Schedule I to this Agreement (subject to adjustment as provided in Section 8 of this Agreement). (b) On the basis of the several (and not joint) representations, warranties, covenants and agreements of the Underwriters contained in this Agreement and subject to the terms and conditions set forth in this Agreement, the Company grants an option to the several Underwriters to purchase from the Company all or any portion of the Option Shares at the Purchase Price. This option may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters and may be exercised in whole or in part at any time (but not more than once) on or before the 45th day after the date of the Prospectus upon written, telecopied or telegraphic notice by the Representative to the Company setting forth the aggregate number of Option Shares as to which the several Underwriters are exercising the option and the settlement date. If the option to purchase the Option Shares is exercised, the Option Shares shall be purchased severally, and not jointly, by each Underwriter, in the same proportion that the number of Firm Shares set forth opposite the name of the Underwriter in Schedule I to this Agreement bears to the total number of Firm Shares to be purchased by the Underwriters under Section 2(a) above, subject to such adjustments as the Representative in its absolute discretion shall make to eliminate any fractional Shares. Delivery of Option Shares, and payment therefor, shall be made as provided in Section 2(c), Section 2(d) and Section 2(e) below. (c) Delivery of the Firm Shares and the Option Shares (if the option granted by the Company in Section 2(b) above has been exercised not later than 7:00 a.m., San Francisco time, on the date two business days preceding the Closing Date), and payment therefor, shall be made at the office of Van Kasper & Company, 600 California Street, San Francisco, California at 7:00 a.m., San Francisco time, on the third business day after the effective date of this Agreement, or at such time on such other day, not later than seven full business days after such third business day, as shall be agreed upon in writing by the Company and the Representative, or as provided in Section 8 of this Agreement. The date and hour of delivery and payment for the Firm Shares are referred to in this Agreement as the "Closing Date". As used in this Agreement, "business day" means a day on which the Nasdaq National Market is operating and on which banks in 13 New York and California are open for business and not permitted by law or executive order to be closed. (d) If the option granted by the Company in Section 2(b) above is exercised after 7:00 a.m., San Francisco time, on the date two business days preceding the Closing Date, delivery of the Option Shares and payment therefor shall be made at the office of Van Kasper & Company, 600 California Street, San Francisco, California at 7:00 a.m., San Francisco time, on the date specified by the Representative (which shall be three or four or fewer business days after the exercise of the option, but not in excess of the period specified in the Rules and Regulations). (e) Payment of the Purchase Price for the Shares by the several Underwriters shall be made by certified or official bank check or checks drawn in next-day funds, payable to the order of the Company. Such payment shall be made upon delivery of Shares to the Representative for the respective accounts of the several Underwriters. The Shares to be delivered to the Representative shall be registered in such name or names and shall be in such denominations as the Representative may request at least two business days before the Closing Date, in the case of Firm Shares, and at least one business day prior to the purchase of the Option Shares, in the case of the Option Shares. The Representative, individually and not on behalf of the Underwriters, may (but shall not be obligated to) make payment to the Company for Shares to be purchased by any Underwriter whose check shall not have been received by the Representative on the Closing Date or any later date on which Option Shares are purchased for the account of such Underwriter. Any such payment shall not relieve such Underwriter from any of its obligations hereunder. (f) The several Underwriters propose to offer the Shares for sale to the public as soon as the Representative deems it advisable to do so. The Firm Shares are to be initially offered to the public at the public offering price set forth (or to be set forth) in the Prospectus. The Representative may from time to time thereafter change the public offering price and other selling terms. (g) The information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), the legend respecting stabilization set forth on the inside front cover page and the statements set forth under the caption "Underwriting" in the Registration Statement, any Preliminary Prospectus and in the Prospectus constitute the only information furnished by the Underwriters to the Company for inclusion in any Preliminary Prospectus, the Prospectus or the Registration Statement. (h) In addition to the other compensation payable to the Underwriters pursuant to this Agreement, the Company shall issue on the Closing Date to the 14 Representative a warrant to purchase up to 10% of the number of shares of Common Stock sold to the Underwriters (excluding the Option Shares) at a price per share equal to 120% of the Purchase Price, in the form included as an exhibit to the Registration Statement. 3. Further Agreements of the Company. The Company covenants and agrees --------------------------------- with the several Underwriters as follows : (a) The Company will use its best efforts to cause the Registration Statement, and any amendment thereof, if not effective at the time of execution of this Agreement, to become effective as promptly as possible. If the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectus is otherwise required under Rule 424(b), the Company will file the Prospectus, properly completed (and in form and substance reasonably satisfactory to the Underwriters) pursuant to Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representative of such timely filing. The Company will not file the Prospectus, any amended Prospectus, any amendment (including post-effective amendments) of the Registration Statement or any supplement to the Prospectus without (i) advising the Representative of the proposed filing of such document, amendment or supplement within a reasonable time prior to the proposed filing, and furnishing the Representative with copies thereof and (ii) obtaining the prior consent of the Representative to such filing. The Company will prepare and file with the Commission, promptly upon the request of the Representative, any amendment to the Registration Statement or supplement to the Prospectus that may be necessary or advisable in the reasonable opinion of the Representative in connection with the distribution of the Shares by the Underwriters and shall use its best efforts to cause the same to become effective as promptly as possible. (b) The Company will promptly advise the Representative (i) when the Registration Statement becomes effective, (ii) when any post-effective amendment thereof becomes effective, (iii) of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose, and (v) of the receipt by the Company of any notification with respect to the suspension of the registration, qualification or exemption from registration or qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company will use its best efforts to prevent the issuance of any such stop order or suspension and, if issued, to obtain as soon as possible the withdrawal thereof. 15 (c) The Company will (i) on or before the Closing Date, deliver to the Representative and its counsel a signed copy of the Registration Statement as originally filed and of each amendment thereto filed prior to the time the Registration Statement becomes effective and, promptly upon the filing thereof, a signed copy of each post-effective amendment, if any, to the Registration Statement (together with, in each case, all exhibits thereto unless previously furnished to the Representative) and will also deliver to the Representative, for distribution to the several Underwriters, a sufficient number of additional conformed copies of each of the foregoing (excluding exhibits) so that one copy of each may be distributed to each Underwriter, (ii) as promptly as possible deliver to the Representative and send to the several Underwriters, at such office or offices as the Representative may designate, as many copies of the Prospectus as the Representative may reasonably request and (iii) thereafter from time to time during the period in which a prospectus is required by law to be delivered by an Underwriter or a dealer, likewise to send to the Underwriters as many additional copies of the Prospectus and as many copies of any supplement to the Prospectus and of any amended Prospectus, filed by the Company with the Commission, as the Representative may reasonably request for the purposes contemplated by the Securities Act. (d) If at any time during the period in which a prospectus is required by law to be delivered by an Underwriter or a dealer any event shall occur as a result of which it is necessary to supplement or amend the Prospectus in order to make the Prospectus not misleading or so that the Prospectus will not omit to state a material fact necessary to be stated therein, in each case at the time the Prospectus is delivered to a purchaser of the Shares, or if it shall be necessary to amend or to supplement the Prospectus to comply with the Securities Act or the Rules and Regulations, the Company will forthwith prepare and file with the Commission a supplement to the Prospectus or an amended Prospectus so that the Prospectus as so supplemented or amended will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein not misleading and so that it then will otherwise comply with the Securities Act and the Rules and Regulations. If, after the initial public offering of the Shares by the Underwriters and during such period, the Underwriters propose to vary the terms of offering thereof by reason of changes in general market conditions or otherwise, the Representative will advise the Company in writing of the proposed variation and if, in the opinion either of counsel for the Company or counsel for the Underwriters, such proposed variation requires that the Prospectus be supplemented or amended, the Company will forthwith prepare and file with the Commission a supplement to the Prospectus setting forth such variation. The Company authorizes the Underwriters and all dealers to whom any of the Shares may be sold by the Underwriters to use the Prospectus, as from time to time so amended or supplemented, in connection with the sale of the Shares in accordance with the applicable provisions of the Securities Act and the Rules and Regulations for such period. 16 (e) The Company will cooperate with the Representative and its counsel in the qualification or registration of the Shares for offer and sale under the securities or blue sky laws of such jurisdictions as the Representative may designate and, if applicable, in connection with exemptions from such qualification or registration and, during the period in which a Prospectus is required by law to be delivered by an Underwriter or a dealer, in keeping such qualifications, registrations and exemptions in effect; provided, however, that -------- ------- the Company shall not be obligated to file any general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction in which it is not so qualified. The Company will, from time to time, prepare and file such statements, reports and other documents as are or may be required to continue such qualifications, registrations and exemptions in effect for so long a period as the Representative may reasonably request for the distribution of the Shares. (f) During a period of five years commencing with the date of this Agreement, the Company will promptly furnish to the Representative and to each Underwriter who may so request in writing copies of (i) all periodic and special reports furnished by it to shareholders of the Company, (ii) all information, documents and reports filed by it with the Commission, any securities exchange on which any securities of the Company are then listed, the Nasdaq National Market or the NASD, (iii) all press releases and material news items or articles in respect of the Company or its affairs released or prepared by the Company (other than promotional and marketing materials disseminated solely to customers and potential customers of the Company in the ordinary course of business) and (iv) any additional information concerning the Company or its business which the Representative may reasonably request. (g) Within 90 days of the Closing Date, the Company will furnish the Representative with four bound volumes which shall be standard for an underwriting transaction of the type contemplated by this Agreement. (h) As soon as practicable, but not later than the 45th day following the end of the fiscal quarter first ending after the first anniversary of the Effective Date, the Company will make generally available to its securities holders and furnish to the Representative an earnings statement or statements (which need not be audited) in accordance with Section 11(a) of the Securities Act and Rule 158 of the Rules and Regulations. (i) The Company will apply the net proceeds from the offering of the Shares in the manner set forth under the caption "Use of Proceeds" in the Prospectus. (j) The Company will comply with all provisions of all undertakings contained in the Registration Statement. 17 (k) The Company will, at all times for a period of at least five years after the date of this Agreement, cause the Common Stock (including the Shares) to be included on the Nasdaq National Market to the extent that the Common Stock satisfies the then applicable criteria for inclusion, and the Company will comply with all registration, filing, reporting, listing and other requirements of the Exchange Act and the Nasdaq National Market, which may from time to time be applicable to the Company. (l) The Company will use its best efforts to maintain insurance of the types and in the amounts which it deems adequate for its business consistent with insurance coverage maintained by companies of similar size and engaged in similar businesses in similar geographic locations, including, but not limited to, product liability insurance and general liability insurance covering all real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against. (m) The Company will issue no press release prior to the Closing Date with respect to the offering of the Shares without the Representative's prior written consent. (n) The Company will not effect a change in its accounting firm to any other firm other than a "big six" accounting firm for a period of three years from the date of this Agreement without the written consent of the Representative. (o) The Company has not and will not, without the prior written consent of the Representative, seek any exemption from the requirements for inclusion on the Nasdaq National Market. (p) The Company will take all steps necessary to comply with the requirements of the NASD in connection with the issuance and sale of the Shares. 4. Fees and Expenses. -------------------- (a) The Company agrees with each Underwriter that: (i) The Company will pay and bear all costs and expenses in connection with: the preparation, printing and filing of the Registration Statement (including financial statements, schedules and exhibits), Preliminary Prospectuses and the Prospectus, any drafts of each of them and any amendments or supplements to any of them; the duplication or, if applicable, printing (including all drafts thereof) of this Agreement, the Agreement Among Underwriters, any Selected Dealer Agreements, the Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and the Power of Attorney and the duplication and printing (including of drafts thereof) of any other underwriting documents and underwriting material (including 18 but not limited to marketing memoranda and other marketing material) approved by the Company and used in connection with the offering, purchase, sale and delivery of the Shares; the issuance and delivery of the Shares under this Agreement to the several Underwriters, including all expenses, taxes, duties, fees and commissions on the purchase and sale of the Shares, stock exchange brokerage and transaction levies with respect to the purchase and, if applicable the sale of the Shares; the cost of printing the certificates for the Shares; the Transfer Agents' and Registrars' fees; the fees and disbursements of counsel for the Company; all fees and other charges of the Company's independent public accountants and any other experts named in the Prospectus; the cost of furnishing to the several Underwriters copies of the Registration Statement (including appropriate exhibits), Preliminary Prospectus and the Prospectus, the agreements and other documents and instruments referred to above and any amendments or supplements to any of the foregoing; the NASD filing fees; the cost of qualifying or registering the Shares (or obtaining exemptions from qualification or registration) under the laws of such jurisdictions as the Representative may designate (including filing fees and fees and costs/disbursements of Underwriters' counsel in connection with such NASD filings and state securities or Blue Sky qualifications, registrations and exemptions and in preparing the preliminary and any final Blue Sky Memorandum); all fees and expenses in connection with designating the Shares for inclusion on the Nasdaq National Market; all Company advertising and road show expenses; and all other expenses incurred by the Company in connection with the performance of its obligations hereunder. In addition, the Company will pay the Representative on the Closing Date and, if applicable, on the date on which Option Shares are purchased, a non-accountable expense allowance of one and one-half percent (1 1/2%) of the gross proceeds (prior to deducting underwriting discounts and commissions) of the offering of the Shares. (ii) In addition to its obligations under Section 7(a) of this Agreement, the Company agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any loss, claim, damage or liability described in Section 7(a) of this Agreement, it will reimburse or advance to or for the benefit of the Underwriters, and each of them, on a monthly basis (or more often, if requested) for all legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's obligation to reimburse or advance for the benefit of the Underwriters for such expenses or the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any portion, or all, of any such interim reimbursement payments or advances are so held to have been improper, the Underwriters receiving the same shall promptly return 19 such amounts to the Company together with interest, compounded daily, at the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by Bank of America, NT&SA, San Francisco, California (the "Prime Rate"), but not in excess of the maximum rate permitted by applicable law. Any such interim reimbursement payments or advances that are not made to or for the Underwriters within 30 days of a request for reimbursement or for an advance shall bear interest at the Prime Rate, compounded daily, but not in excess of the maximum rate permitted by applicable law, from the date of such request until the date paid. (b) In addition to their obligations under Section 7(b) of this Agreement, the Underwriters severally and in proportion to their obligation to purchase Firm Shares as set forth on Schedule I hereto, agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any loss, claim, damage or liability described in Section 7(b) of this Agreement, they will reimburse or advance to or for the benefit of the Company on a monthly basis (or more often, if requested) for all legal and other expenses incurred by the Company in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety or enforceability of the Underwriters' obligation to reimburse or advance for the benefit of the Company for such expenses and the possibility that such payments or advances might later be held to have been improper by a court of competent jurisdiction. To the extent that any portion, or all, of any such interim reimbursement payments or advances are so held to have been improper, the Company shall promptly return such amounts to the Underwriters together with interest, compounded daily, at the Prime Rate, but not in excess of the maximum rate permitted by applicable law. Any such interim reimbursement payments or advances that are not made to the Company within 30 days of a request for reimbursement or for an advance shall bear interest at the Prime Rate, compounded daily, but not in excess of the maximum rate permitted by applicable law, from the date of such request until the date paid. (c) Any controversy arising out of the operation of the interim reimbursement and advance arrangements set forth in Sections 4(a)(ii) and 4(b) above, including the amounts of any requested reimbursement payments or advances, the method of determining such amounts and the basis on which such amounts shall be apportioned among the indemnifying parties, shall be settled by arbitration conducted under the provisions of the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or a written notice of intention to arbitrate, therein electing the arbitration tribunal. If the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to the demand or notice is authorized to do so. Any such arbitration will be limited to the interpretation and obligations of the parties under the interim reimbursement and advance provisions contained in Sections 4(a)(ii) and 4(b) 20 above and will not resolve the ultimate propriety or enforceability of the obligation to indemnify for or contribute to expenses that is created by the provisions of Section 7 of this Agreement. (d) If the sale of the Shares provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 5 of this Agreement is not satisfied, or because of any termination pursuant to Section 9(b) of this Agreement, or because of any refusal, inability or failure on the part of the Company to perform any covenant or agreement set forth in this Agreement or to comply with any provision of this Agreement other than by reason of a default by any of the Underwriters, the Company agrees to reimburse the several Underwriters upon demand for all out-of-pocket accountable expenses reasonably incurred (including fees and disbursements of counsel) that shall have been incurred by any or all of them in connection with investigating, preparing to market or marketing the Shares or otherwise in connection with this Agreement. 5. Conditions of Underwriters' Obligations. The several obligations of --------------------------------------- the Underwriters to purchase and pay for the Shares shall be subject, in the reasonable determination of the Representative, to the accuracy as of the date of execution of this Agreement, the Closing Date and the date and time at which the Option Shares are to be purchased, as the case may be, of the representations and warranties of the Company set forth in this Agreement, to the accuracy of the statements of the Company and its officers made in any certificate delivered pursuant to this Agreement, to the performance by the Company of all of its obligations to be performed under this Agreement at or prior to the Closing Date or any later date on which Option Shares are to be purchased, as the case may be, and to the satisfaction of all conditions to be satisfied or performed by the Company at or prior to that date and to the following additional conditions: (a) The Registration Statement shall have become effective (or, if a post-effective amendment is required to be filed pursuant to Rule 430A under the Act, such post-effective amendment shall become effective and the Company shall have provided evidence satisfactory to the Representative of such filing and effectiveness) not later than 5:00 p.m., New York time, on the date of this Agreement or at such later date and time as the Representative may approve in writing and, at the Closing Date or, with respect to the Option Shares, the date on which such Option Shares are to be purchased, no stop order suspending the effectiveness of the Registration Statement or any qualification, registration or exemption from qualification or registration for the sale of the Shares in any jurisdiction shall have been issued and no proceedings for that purpose shall have been instituted or threatened; and any request for additional information on the part of the Commission shall have been complied with to the reasonable satisfaction of the Representative and its counsel. 21 (b) The Representative shall have received from Heller Ehrman White & McAuliffe, counsel for the Underwriters, an opinion, on and dated as of the Closing Date or, if applicable, the date on which Option Shares are to be purchased, with respect to the issuance and sale of the Shares and such other related matters as the Representative may reasonably require, and the Company shall have furnished such counsel with all documents which they may request for the purpose of enabling them to pass upon such matters. (c) The Representative shall have received on the Closing Date or, if applicable, the later date on which Option Shares are purchased, the opinion of Graham & James LLP, counsel for the Company, addressed to the Underwriters and dated the Closing Date or such later date, with reproduced copies or signed counterparts thereof for each of the Underwriters, covering the matters set forth in Exhibit C to this Agreement and in form and substance satisfactory to the Representative. (d) The Representative shall be satisfied that there has not been any material change in the market for securities in general or in political, financial or economic conditions as to render it impracticable, in the Representative's judgment, to make a public offering of the Shares, or a material adverse change in market levels for securities in general (or those of companies in particular) or financial or economic conditions which render it inadvisable to proceed. (e) The Representative shall have received on the Closing Date and on any later date on which Option Shares are purchased a certificate, dated the Closing Date or such later date, as the case may be, and signed by the President and the Chief Financial Officer of the Company confirming certain of the representations and warranties of the Company, as follows: (i) the representations and warranties of the Company set forth in Section 1 of this Agreement are true and correct with the same force and effect as if expressly made at and as of the Closing Date or such later date on which the Option Shares are purchased, and the Company has complied in all material respects with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date or such later date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending or are threatened under the Securities Act; (iii) the Common Stock has been designated for inclusion on the Nasdaq National Market, subject only to notice of issuance; and 22 (iv) (A) the respective signers of such certificate have carefully examined the Registration Statement in the form in which it originally became effective and the Prospectus and any supplements or amendments to any of them and, as of the Effective Date, the statements made in the Registration Statement and the Prospectus were true and correct in all material respects and neither the Registration Statement nor the Prospectus omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, (B) since the Effective Date, no event has occurred that should have been set forth in an amendment to the Registration Statement or a supplement or amendment to the Prospectus that has not been set forth in such an amendment or supplement, (C) since the respective dates as of which information is given in the Registration Statement in the form in which it originally became effective and the Prospectus, there has not been any material change or any development involving a prospective material change in or affecting the business, properties, condition (financial or otherwise), results of operations or prospects of the Company and its Subsidiaries taken as a whole and, since such dates, neither the Company nor any of its Subsidiaries has entered into any material transaction not referred to in the Registration Statement in the form in which it originally became effective and the Prospectus, (D) there are not any pending or threatened legal proceedings to which the Company or any Subsidiary is a party or of which property of the Company or any Subsidiary is the subject which are material and which are not disclosed in the Registration Statement and the Prospectus and (E) there are not any license agreements, contracts, leases or other documents that are required to be filed as exhibits to the Registration Statement that have not been filed as required. (f) The Representative shall have received from Coopers & Lybrand L.L.P., accountants to the Company, a letter or letters, addressed to the Underwriters and dated the Closing Date and any later date on which Option Shares are purchased, confirming that they are independent accountants with respect to the Company within the meaning of the Securities Act and the applicable Rules and Regulations and, based upon the procedures described in their letter delivered to the Representative concurrently with the execution of this Agreement (the "Original Letter"), but carried out to a date not more than five business days prior to the Closing Date or such later date on which Option Shares are purchased, (i) confirming, to the extent true, that the statements and conclusions set forth in the Original Letter are accurate as of the Closing Date or such later date, as the case may be, and (ii) setting forth any revisions and additions to the statements and conclusions set forth in the Original Letter that are necessary to reflect any changes in the facts described in the Original Letter since the date of the Original Letter or to reflect the availability of more recent financial statements, data or information. Such letters reflect that there is not any change, or any development involving a prospective change, in or affecting the business, properties or condition (financial or otherwise), results of operations or prospects of the Company which, in the 23 Representative's sole judgment, makes it impracticable or inadvisable to proceed with the public offering of the Shares or the purchase of the Option Shares as contemplated by the Prospectus. In addition, the Representative shall have received from Coopers & Lybrand L.L.P., on or prior to the Closing Date, a letter addressed to the Company and made available to the Representative for the use of the Underwriters stating that their review of the Company's system of internal controls, to the extent they deemed necessary in establishing the scope of their examination of the Company's consolidated financial statements as of December 31, 1997, or in delivering the Original Letter, did not disclose any weaknesses in internal controls that they considered to be material weaknesses. (g) Prior to the Closing Date, the Common Stock shall have been designated for inclusion on the Nasdaq National Market, subject only to official notice of issuance. (h) The Representative shall have received executed agreements from each of the Company's officers and directors, each person known to the Company to own ________ shares or more of Common Stock and shareholders who in the aggregate own ________ shares of Common Stock to the effect that each such person or entity will not for a period of 180 days following the date of the Prospectus, in each case without prior written consent of the Representative, offer, sell or contract to sell, or otherwise dispose of, or announce the offer of, any Common Stock or options or convertible securities exercisable or exchangeable for, or convertible into, Common Stock. The Company acknowledges that the Representative has provided the Company with the form of agreement described above and that such form of agreement is acceptable for the purposes of this section. (i) The Company shall have furnished to the Representative such further certificates and documents as the Representative shall reasonably request (including certificates of officers of the Company) as to the accuracy of the representations and warranties of the Company or any Subsidiary set forth in this Agreement, the performance by the Company of its obligations under this Agreement and such other matters as the Representative may have then reasonably requested. All the agreements, opinions, certificates and letters mentioned above or elsewhere in this Agreement will be in compliance with the provisions of this Agreement only if they are reasonably satisfactory to the Representative and its counsel. The Company will furnish the Representative with such number of conformed copies of such opinions, certificates, letters and documents as the Representative shall reasonably request. If any of the conditions specified in this Section 5 shall not have been fulfilled in all material respects when and as provided in this Agreement, time being of the essence, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement 24 shall not be in all material respects reasonably satisfactory in form and substance to the Representative and its counsel, this Agreement and all obligations of the Underwriters hereunder may be canceled by the Representative at or at any time prior to, the Closing Date or, with respect to the Option Shares, prior to the date on which the Option Shares are to be purchased, as the case may be. Notice of such cancellation shall be given to the Company in writing or by telephone, telecopy or telegraph confirmed in writing. Any such termination shall be without liability of the Company to the Underwriters (except as provided in Section 4 or Section 7 of this Agreement) and without liability of the Underwriters to the Company (except as provided in Section 7 of this Agreement). 6. Conditions of the Obligation of the Company. The obligations of the ------------------------------------------- Company to sell and deliver the Shares required to be delivered as and when specified in this Agreement shall be subject to the condition that, at the Closing Date or, with respect to the Option Shares, the date and time at which the Option Shares are to be purchased, no stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings therefor shall be pending or threatened by the Commission. 7. Indemnification and Contribution. -------------------------------- (a) The Company agrees to indemnify and hold harmless each Underwriter and each person (including each partner or officer thereof) who controls any Underwriter within the meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified parties or any of them may become subject under the Securities Act, the Exchange Act or any other federal or state statute, law or regulation, at common law or otherwise, specifically including but not limited to losses, claims, damages or liabilities (or action in respect thereof) related to negligence on the part of any Underwriter, and the Company agrees to reimburse each such Underwriter and controlling person for any legal or other expenses (including, except as otherwise provided below, settlement expenses and fees and disbursements of counsel) incurred by the respective indemnified parties in connection with defending against any such losses, claims, damages or liabilities or in connection with any investigation or inquiry of, or other proceeding that may be brought against, the respective indemnified parties, in each case insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon, in whole or in part, (i) any breach of any representation, warranty, covenant or agreement of the Company contained in this Agreement, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement in the form declared effective by the Commission (including the Prospectus as part thereof) or any post-effective amendment thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any 25 amendment thereof or supplement thereto) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (iv) any untrue statement or alleged untrue statement of a material fact contained in any application or other document, or any amendment or supplement thereto, executed by the Company or based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify or register the Shares under the securities or Blue Sky laws thereof or to obtain an exception from such qualification or registration or filed with the Commission, any registered national securities association or the Nasdaq National Market, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that (1) the indemnity agreements -------- ------- of the Company contained in this Section 7(a) shall not apply to such losses, claims, damages, liabilities or expenses if such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representative specifically for use in any Preliminary Prospectus or the Registration Statement or the Prospectus or any such amendment thereof or supplement thereto and (2) the indemnity agreement contained in this Section 7(a) with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages, liabilities or expenses purchased the Shares that is the subject thereof (or to the benefit of any person controlling such Underwriter) if the Company can demonstrate that at or prior to the written confirmation of the sale of such Shares a copy of the Prospectus (or the Prospectus as amended or supplemented) or, for this purpose, if applicable, a copy of the then most recent Preliminary Prospectus, was not sent or delivered to such person and the untrue statement or omission of a material fact contained in such Preliminary Prospectus or, if applicable, prior Preliminary Prospectus, was corrected in the Prospectus (or the Prospectus as amended or supplemented) or, if applicable, the then most recent Preliminary Prospectus, unless the failure is the result of noncompliance by the Company with Section 3 of this Agreement. The indemnity agreements of the Company contained in this Section 7(a) and the representations and warranties of the Company contained in Section 1 of this Agreement shall remain operative and in full force and effect regardless of any investigation made by or behalf of any indemnified party and shall survive the delivery of and payment for the Shares. This indemnity agreement shall be in addition to any liabilities which the Company may otherwise have. (b) Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, each of its officers who signs the Registration Statement, each of its directors, each other Underwriter and each person (including each partner or officer thereof) who controls the Company or any such other Underwriter within the 26 meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified parties or any of them may become subject under the Securities Act, the Exchange Act, or other federal or state statute, law or regulation or at common law or otherwise and to reimburse each of them for any legal or other expenses (including, except as otherwise hereinafter provided, settlement expenses and fees and disbursements of counsel) incurred by the respective indemnified parties in connection with defending against any such losses, claims, damages or liabilities or in connection with any investigation or inquiry of, or other proceeding that may be brought against, the respective indemnified parties, in each case arising out of or based upon (i) any breach of any covenant or agreement of the indemnifying Underwriter contained in this Agreement, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement in the form declared effective by the Commission (including the Prospectus included as part thereof) or any post-effective amendment thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or (iii) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment thereof or supplement thereto) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case under clauses (ii) and (iii) above, as the case may be, only if such statement or omission was made in reliance upon and in connection with information furnished in writing to the Company by or on behalf of such indemnifying Underwriter through the Representative specifically for use in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment thereof or supplement thereto. The Company acknowledges and agrees that the matters described in Section 2(g) of this Agreement constitute the only information furnished in writing by or on behalf of any of the several Underwriters for inclusion in the Registration Statement or the Prospectus or in any Preliminary Prospectus. The several indemnity agreement of each Underwriter contained in this Section 7(b) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the delivery of and payment for the Shares. This indemnity agreement shall be in addition to any liabilities which each Underwriter may otherwise have. (c) Each person or entity indemnified under the provisions of Sections 7(a) and 7(b) above agrees that, upon the service of a summons or other initial legal process upon it in any action or suit instituted against it or upon its receipt of written notification of the commencement of any investigation or inquiry of, or proceeding against, it in respect of which indemnity may be sought on account of any indemnity 27 agreement contained in such Sections, it will, if a claim in respect thereunder is to be made against the indemnifying party or parties under this Section 7, promptly give written notice (the "Notice") of such service or notification to the party or parties from whom indemnification may be sought hereunder. No indemnification provided for in Sections 7(a) or 7(b) above shall be available to any person who fails to so give the Notice if the party to whom such Notice was not given was unaware of the action, suit, investigation, inquiry or proceeding to which the Notice would have related, but only to the extent such party was materially prejudiced by the failure to receive the Notice, and the omission to so notify such indemnifying party or parties shall not relieve such indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of Sections 7(a) and 7(b). Any indemnifying party shall be entitled at its own expense to participate in the defense of any action, suit or proceeding against, or investigation or inquiry of, an indemnified party. Any indemnifying party shall be entitled, if it so elects within a reasonable time after receipt of the Notice by giving written notice (the "Notice of Defense") to the indemnified party, to assume (alone or in conjunction with any other indemnifying party or parties) the entire defense of such action, suit, investigation, inquiry or proceeding, in which event such defense shall be conducted, at the expense of the indemnifying party or parties, by counsel chosen by such indemnifying, party or parties and reasonably satisfactory to the indemnified party or parties; provided, however, that (i) if the indemnified party or parties reasonably - -------- ------- determine that there may be a conflict between the positions of the indemnifying party or parties and of the indemnified party or parties in conducting the defense of such action, suit, investigation, inquiry or proceeding or that there may be legal defenses or rights available to such indemnified party or parties different from or in addition to those available to the indemnifying party or parties, then separate counsel for and selected by the indemnified party or parties shall be entitled, at the expense of the indemnifying parties, to conduct the defense of the indemnified parties to the extent determined by counsel to the indemnified parties to be necessary to protect the interests of the indemnified party or parties and (ii) in any event, the indemnified party or parties shall be entitled to have counsel selected by such indemnified party or parties participate in, but not conduct, the defense. If, within a reasonable time after receipt of the Notice, an indemnifying party gives a Notice of Defense and, unless separate counsel is to be chosen by the indemnified party or parties as provided above, the counsel chosen by the indemnifying party or parties is reasonably satisfactory to the indemnified party or parties, the indemnifying party or parties will not be liable under Sections 7(a) through 7(c) for any legal or other expenses subsequently incurred by the indemnified party or parties in connection with the defense of the action, suit, investigation, inquiry or proceeding, except that (A) the indemnifying party or parties shall bear and pay the legal and other expenses incurred in connection with the conduct of the defense as referred to in clause (i) of the "provided, -------- however" clause in the preceding sentence and (B) the indemnifying party or - ------- parties shall bear and pay such other expenses as it or they have authorized to be 28 incurred by the indemnified party or parties. If, within a reasonable time after receipt of the Notice, no Notice of Defense has been given, the indemnifying party or parties shall be responsible for any legal or other expenses incurred by the indemnified party or parties in connection with the defense of the action, suit, investigation, inquiry or proceeding. (d) In order to provide for just and equitable contribution in any action in which a claim for indemnification is made pursuant to this Section 7 but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right to appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 7 provides for indemnification in such case, each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in Section 7(a) or 7(b) above (i) in such proportion as is appropriate to reflect the relative benefits received by each indemnifying party from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each indemnifying party in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, or actions in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same respective proportion as the total proceeds from the offering of the Shares, net of the underwriting discounts, received by the Company and the total underwriting discount retained by the Underwriters bear to the aggregate public offering price of the Shares. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by each indemnifying party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were to be determined by pro rata allocation which does not take into account the equitable considerations referred to in the first sentence of the first paragraph of this Section 7(d) and to the considerations referred to in the third sentence of the first paragraph of this Section 7(d). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities, or actions in respect thereof, referred to in the first sentence of the first paragraph of this Section 7(d) shall be deemed to include any legal or other expenses incurred by such indemnified party in connection with investigating, preparing to defend or defending against any action or claim which is the subject of this Section 7(d). Notwithstanding the provisions of this Section 7(d), no Underwriter shall be required to contribute any amount in excess of the underwriting discount applicable to the Shares purchased by that Underwriter. For purposes of this Section 7(d), each person 29 who controls an Underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such Underwriter, and each person who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company; provided, however, in each case that no person -------- ------- guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute in this Section 7(d) are several in proportion to their respective underwriting obligations and not joint. Each party or other entity entitled to contribution agrees that upon the service of a summons or other initial legal process upon it in any action instituted against it in respect of which contribution may be sought, it will promptly give written notice of such service to the party or parties from whom contribution may be sought, but the omission to so notify such party or parties of any such service shall not relieve the party from whom contribution may be sought from any obligation it may have hereunder or otherwise (except to the extent such party is materially prejudiced by the failure to receive written notice). (e) The Company shall not, without the prior written consent of each Underwriter and any person who controls such Underwriter within the meaning of Section 15 of the Securities Act, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not such Underwriter or any person who controls such Underwriter within the meaning of Section 15 of the Securities Act is a party to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of each such Underwriter and each such controlling person from any and all liability arising out of such claim, action, suit or proceeding. (f) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions of this Agreement, including, without limitation, the provisions of Sections 4(a)(ii), 4(b) and 4(c) and this Section 7 of this Agreement and that they are fully informed regarding all such provisions. They further acknowledge that the provisions of Sections 4(a)(ii), 4(b) and 4(c) and this Section 7 of this Agreement fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement and Prospectus as required by the Securities Act, the Rules and Regulations, the Exchange Act and the Exchange Act Rules and Regulations. The parties are advised that federal or state policy, as interpreted by the courts in certain jurisdictions, may be contrary 30 to certain provisions of Sections 4(a)(ii), 4(b) and 4(c) and this Section 7 of this Agreement and, to the extent permitted by law, the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under Sections 4(a)(ii), 4(b) or 4(c) or this Section 7 of this Agreement and further agree not to assert any such defense. 8. Substitution of Underwriters. If for any reason one or more of the ---------------------------- Underwriters fails or refuses (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 5 or Section 9 of this Agreement) to purchase and pay for the number of Firm Shares agreed to be purchased by such Underwriter or Underwriters, the Representative shall immediately give notice thereof to the Company and the non-defaulting Underwriters, and the non-defaulting Underwriters shall have the right within 24 hours after their receipt of such notice to purchase, or procure one or more other Underwriters to purchase, in such proportions as may be agreed upon among the Representative and such purchasing Underwriter or Underwriters and upon the terms set forth herein, all or any part of the Firm Shares that such defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting Underwriters fail to make such arrangements with respect to all such Shares, the number of Firm Shares that each non-defaulting Underwriter is otherwise obligated to purchase under this Agreement shall be automatically increased on a pro rata basis to absorb the remaining Shares that the defaulting Underwriter or Underwriters agreed to purchase; provided, however, that the non-defaulting -------- ------- Underwriters shall not be obligated to purchase the Shares that the defaulting Underwriter or Underwriters agreed to purchase if the aggregate amount of such Shares exceeds 10% of the aggregate amount of Firm Shares that all Underwriters agreed to purchase under this Agreement. If the total number of Firm Shares that the defaulting Underwriter or Underwriters agreed to purchase shall not be purchased or absorbed in accordance with the two preceding sentences, the Company shall have the right, within 24 hours next succeeding the first 24-hour period above referred to, to make arrangements with other underwriters or purchasers satisfactory to the Representative for purchase of such Shares on the terms set forth in this Agreement. In any such case, either the Representative or the Company shall have the right to postpone the Closing Date determined as provided in Section 2(c) of this Agreement for not more than seven business days after the date originally fixed as the Closing Date pursuant to Section 2(c) in order that any necessary changes in the Registration Statement, the Prospectus or any other documents or arrangements may be made. If neither the non-defaulting Underwriters nor the Company shall make arrangements within the time periods set forth above for the purchase of all the Firm Shares that the defaulting Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall be terminated without further act or deed and without any liability on the part of the Company to any non-defaulting Underwriter (except as provided in Section 4 31 or Section 7 of this Agreement) and without any liability on the part of any nondefaulting Underwriters to the Company (except to the extent provided in Section 4 or Section 7 of this Agreement). Nothing in this Section 8, and no action taken hereunder, shall relieve any defaulting Underwriter from liability, if any, to the Company or any nondefaulting Underwriter for damages occasioned by its default under this Agreement. If this Agreement is terminated pursuant to the provisions of this Section 8, the Company shall not be obligated to reimburse any defaulting Underwriter for expenses pursuant to the provisions of Section 4 hereof or otherwise. The term "Underwriter" in this Agreement shall include any persons substituted for an Underwriter under this Section 8. 9. Effective Date of Agreement and Termination. ------------------------------------------- (a) If the Registration Statement has not been declared effective prior to the date of this Agreement, this Agreement shall become effective at such time, after notification of the effectiveness of the Registration Statement has been released by the Commission, as the Representative and the Company shall agree upon the public offering price and other terms and the purchase price of the Shares. If the public offering price and other terms and the purchase price of the Shares shall not have been determined prior to 5:00 p.m., New York time, on the third full business day after the Registration Statement has become effective, this Agreement shall thereupon terminate without liability on the part of the Company to the Underwriters (except as provided in Section 4 or Section 7 of this Agreement). By giving notice before the time this Agreement becomes effective, the Representative, as representative of the several Underwriters, may prevent this Agreement from becoming effective without liability of any party to the other party, except that the Company shall remain obligated to pay costs and expenses to the extent provided in Section 4 and Section 7 of this Agreement. If the Registration Statement has been declared effective prior to the date of this Agreement, this Agreement shall become effective upon execution and delivery by the Representative and the Company. (b) This Agreement may be terminated by the Representative in its absolute discretion by giving written notice to the Company at any time on or prior to the Closing Date or, with respect to the purchase of the Option Shares, on or prior to any later date on which the Option Shares are to be purchased, as the case may be, if prior to such time any of the following has occurred or, in the Representative's opinion, is likely to occur: (i) after the respective dates as of which information is given in the Registration Statement and the Prospectus, any material change or development involving a prospective adverse change in or affecting the business, properties, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries taken as a whole, which would, in the Representative's sole judgment, make the offering or the delivery of the Shares impracticable or inadvisable; or (ii) trading in securities of the Company has been suspended by the Commission or if trading generally on the New 32 York Stock Exchange, American Stock Exchange, Nasdaq National Market or over-the-counter market has been suspended or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of such exchanges, by the NASD or by the Commission; or (iii) there shall have been the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of, or commencement of any proceeding or investigation by, any court, legislative body, agency or other governmental authority which in the Representative's sole judgment materially affects or may materially affect the business, properties, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries taken as a whole; (iv) there shall have been the declaration of a banking moratorium by federal, New York or California authorities; (v) existing international monetary conditions shall have undergone a material change which, in the Representative's sole judgment, makes the offering or delivery of the Shares impracticable or inadvisable; or (vi) there has occurred any material change in the financial markets in the United States or internationally or any outbreak of hostilities or escalation of existing hostilities or other crisis, the effect of which in the Representative's reasonable judgment makes the offering or delivery of the Shares impracticable or inadvisable. If this Agreement shall be terminated pursuant to this Section 9, there shall be no liability of the Company to the Underwriters (except pursuant to Section 4 and Section 7 of this Agreement) and no liability of the Underwriters to the Company (except pursuant to Section 4 and Section 7 of this Agreement). 10. Notices. Except as otherwise provided herein, all communications ------- hereunder shall be in writing or by either telecopier or telegraph and, if to the Underwriters, shall be mailed, telecopied or telegraphed or delivered to Van Kasper & Company, 600 California Street, Suite 1700, San Francisco, California 94108, Attention: Bruce P. Emmeluth (telecopier: (415) 954-8309); and if to the Company, shall be mailed, telecopied, telegraphed or delivered to it at its office at 47375 Fremont Boulevard, Fremont, California 94538 (telecopier: (510) 651-3731) Attention: Doreen Chiu. All notices given by telecopy or telegraph shall be promptly confirmed by letter. 11. Persons Entitled to the Benefit of This Agreement. This Agreement ------------------------------------------------- shall inure to the benefit of the Company and the several Underwriters and, with respect to the provisions of Section 4 and Section 7 of this Agreement, the several parties (in addition to the Company and the several Underwriters) indemnified under the provisions of Section 4 and Section 7 and their respective personal representatives, successors and assigns (whether such succession or assignment is by sale, assignment, merger, reverse merger, consolidation, operation of law or, without limitation, otherwise). Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation any legal or equitable remedy or claim under or in respect of this Agreement or any provision contained herein. The term "successors and assigns" as herein used shall not include any purchaser, as such, of any of the Shares from the several Underwriters. 33 12. General. Notwithstanding any provision of this Agreement to the ------- contrary, the reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties, covenants and agreements in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof or by or on behalf of the Company, any controlling person thereof or their respective directors or officers and (c) delivery and payment for the Shares under this Agreement; provided, however, that if this Agreement is terminated prior to the Closing - -------- ------- Date, the provisions of Sections 3(f) through 3(p), inclusive, of this Agreement shall be of no further force or effect. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAWS PERTAINING TO CHOICE OR CONFLICT OF LAWS, OF THE STATE OF CALIFORNIA. 13. Jurisdiction. The parties agree that any litigation arising out of or ------------ in any way related to this Agreement will be adjudicated in a state or district court sitting in the City of San Francisco, California, and the parties hereby consent to the jurisdiction of such court. The parties hereby waive any right to object to such jurisdiction, including, without limitation, any objection based on a claim of improper venue or forum non conveniens. 14. Authority of the Representative. In connection with this Agreement, ------------------------------- the Representative will act for and on behalf of the several Underwriters, and any action taken under this Agreement by the Representative, as representative of the several Underwriters, will be binding on all of the Underwriters. If the foregoing correctly sets forth your understanding, please so indicate by signing in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Company and the several Underwriters. Very truly yours, ATG INC. By:_________________________ 34 Doreen Chiu President The foregoing Agreement is hereby confirmed and accepted as of the date first above written. VAN KASPER & COMPANY By:____________________________________ Bruce P. Emmeluth, Managing Director On its behalf and on behalf of each of the several Underwriters named in Schedule I hereto 35 SCHEDULE I UNDERWRITERS Number of Firm Shares Underwriters to be Purchased - ---------------------------- ---------------------------- Van Kasper & Company 36 EXHIBIT A SUBSIDIARIES OF THE COMPANY ATG Richland Corporation, a Washington corporation 37 EXHIBIT B EQUITY INTERESTS OF THE COMPANY AND ITS SUBSIDIARIES 38 EXHIBIT C Matters to be Covered in the Opinion of Graham & James LLP/1/ (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. (ii) The Company has the corporate power to own, lease and operate its properties and to conduct its business as described in the Prospectus. (iii) The Company is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure so to qualify would not have a material adverse effect on the business, properties, condition (financial or otherwise), results of operations or prospects of the Company. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization" as of the dates stated therein; the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and nonassessable and have not been issued in violation of any preemptive right or other rights to subscribe for or purchase securities or, except to the extent any such violations would not be material to the Company (whether because of the magnitude of the violation, because any claims thereof would be barred by the statute of limitations or otherwise), in violation of the registration provisions of the Securities Act of 1933, as amended (the "Securities Act"), or any registration or qualification requirements of all states in which such registration or qualification was necessary; provided, that in rendering their opinion as to non-violation of federal and state securities laws, such counsel may assume, unless counsel has knowledge of facts that may render such assumption unreasonable; that any purchasers had, to the extent relevant and represented by such purchasers in writing, any required investment intent and the Company directly or indirectly owns all of the issued and ______________________ /1/ In rendering this opinion, counsel may rely as to questions of law not involving the laws of the United States or the State of California on opinions of local counsel (provided that such counsel states that they believe they and the Underwriters are justified in relying thereon) and, as to questions of fact, upon representations or certificates of officers of the Company and government officials, in which case their opinion is explicitly to state that they are so relying thereon and that they have no knowledge of any material misstatement or inaccuracy in such opinions, representations or certificate. Copies of any opinion, representation or certificate so relied upon shall be delivered to the Representative and counsel to the Underwriters. outstanding equity securities of each of its subsidiaries and there are no outstanding options, warrants or other rights to acquire any equity securities of any such subsidiary. (v) The authorized capital stock of ATG Richland Corporation consists of _________ shares of ATG Richland Common Stock, ___________ shares of Series A Preferred Stock and ___________ shares of Series B Preferred Stock. All issued and outstanding shares of ATG Richland Corporation's capital stock have been duly and validly authorized and issued, are fully paid and nonassessable and have not been issued in violation of any preemptive right or other rights to subscribe for or purchase securities or, except to the extent any such violation would not be material to the Company (whether because of the magnitude of the violation, because any claims thereof would be barred by the statute of limitations or otherwise), in violation of the registration provisions of the Securities Act, or any registration or qualification requirements of all states in which such registration or qualification was necessary; provided, that in rendering their opinion as to non-violation of federal and state securities laws, such counsel may assume, unless counsel has knowledge of facts that may render such assumption unreasonable, that any purchasers had, to the extent relevant and represented by such purchasers in writing, any required investment intent; and there are no outstanding options, warrants or other rights to acquire any equity securities of ATG Richland Corporation. Immediately prior to the Closing Date, there were ________ shares of ATG Richland Common Stock issued and outstanding. (vi) The Company has the corporate power and authority to enter into the Underwriting Agreement and to issue, sell and deliver the Shares to the Underwriters. (vii) The execution, delivery and performance of this Agreement and the issuance and sale of the Shares do not (A) conflict with, violate, result in a breach of or constitute a default (or an event that with notice or lapse of time, or both, would constitute a default) under the Articles of Incorporation or Bylaws of the Company or any agreement (including, without limitation, an agreement with respect to registration rights) known to such counsel to which the Company is a party or by which it or any of its properties or assets is bound or (B) result in violation of any material federal, California law, rule or regulation or any writ, judgment, order, injunction or decree of any government, governmental body, agency or court or any arbitration tribunal having jurisdiction over the Company or any of its properties, in each case, known to such counsel. (viii) The Shares are duly authorized and, when issued and delivered against payment in full therefor pursuant to the terms of the Underwriting Agreement, will be validly issued, fully paid, nonassessable, and free of preemptive rights. (ix) The Underwriting Agreement has been duly authorized by all necessary corporate action on the part of the Company and has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery of the Underwriting Agreement by the Representative on behalf of the Underwriters, is the valid and binding agreement of the Company, except insofar as the enforceability of the indemnification and contribution provisions of the Underwriting Agreement may be limited as a matter of public policy and except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general equitable principles. (x) Except for the order of the Commission making the Registration Statement effective and similar authorizations required under the securities or "Blue Sky" laws of certain jurisdictions (as to which such counsel need express no opinion), no consent, approval, authorization or other order of any federal or California governmental body or, to the knowledge of such counsel, other person is required which has not been obtained in connection with the authorization, issuance, sale and delivery of the Shares and the execution, delivery and performance by the Company of the Underwriting Agreement. (xi) The Registration Statement has become effective under the Securities Act and, to the actual knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Securities Act. (xii) The Registration Statement and the Prospectus, and each amendment or supplement thereto (other than the financial statements, financial data and supporting schedules included therein, as to which such counsel need express no opinion), as of the effective date of the Registration Statement, complied as to form in all material respects with the requirements of the Securities Act and the applicable Rules and Regulations. (xiii) To the best knowledge of such counsel, the Company satisfies the requirements for filing a registration statement on Form S-1. (xiv) The terms and provisions of the capital stock of the Company conform in all material respects to the description thereof contained in the Registration Statement and Prospectus, and the information in the Prospectus under the caption "Description of Capital Stock", to the extent it constitutes matters of law or legal conclusions, has been reviewed by such counsel and is correct and the form of certificate for the Shares complies with California law. (xv) The description in the Registration Statement and the Prospectus of the Articles of Incorporation and Bylaws of the Company and of statutes and contracts are accurate in all material respects and fairly present in all material respects the information required to be presented by the Securities Act and the Rules and Regulations. (xvi) To the actual knowledge of such counsel, there are no agreements, contracts, licenses, leases or documents of a character required to be described or referred to in the Registration Statement or Prospectus or to be filed as an exhibit to the Registration Statement that are not described or referred to therein and filed as required. (xvii) To the actual knowledge of such counsel, there are no legal or governmental proceedings pending or threatened against the Company of a character which are required to be disclosed in the Registration Statement or the Prospectus by the Securities Act or the applicable Rules and Regulations, other than those described therein. (xviii) To the actual knowledge of such counsel, the Company is not presently in breach of, or in default under, any bond, debenture, note or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan agreement, lease, license or, without limitation, other agreement or instrument to which the Company is a party or by which any of its properties is bound that, individually or in the aggregate, is material to the business, properties, condition (financial or otherwise), prospects or results of operations of the Company. (xix) To the actual knowledge of such counsel, except as set forth in the Registration Statement and Prospectus, no holders of Common Stock or other securities of the Company have registration rights with respect to any securities of the Company. In addition, such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company, the independent public accountants of the Company, the Representative and counsel to the Underwriters, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed and, although they have not independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, nothing has come to the attention of such counsel that caused them to believe that, at the time the Registration Statement became effective, the Registration Statement (except as to financial statements, financial data and supporting schedules contained therein, as to which such counsel need express no opinion) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or at the Closing Date or any later date on which the Option Shares are to be purchased, as the case may be, the Prospectus contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading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that for and in consideration of $.01 per Warrant Share (as defined below) issuable hereunder, VAN KASPER & COMPANY ("Van Kasper"), or registered assigns, is entitled to subscribe for and purchase from ATG Inc., a California corporation (hereinafter called the "Company"), at the price of $_______ per share, an amount equal to 120% of the price per share to the public in the Company's initial public offering of the Common Stock (as defined below) (such price, as from time to time to be adjusted as hereinafter provided, being hereinafter called the "Warrant Price"), at any time and from time to time but not earlier than the Commencement Date (as defined below) or later than the Expiration Date (as defined below), up to 170,000 fully paid, nonassessable shares of no par value Common Stock of the Company ("Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth, including without limitation the provisions of Section 2 hereof. The shares of Common Stock purchasable upon exercise of this Warrant are herein referred to as the "Warrant Shares." "Commencement Date" shall mean ____________, 1999, which is one year from the date hereof. "Expiration Date" shall mean 5:00 p.m., San Francisco time, on ___________, 2003, which is five years from the date hereof, or if not a Business Day, as defined herein, at 5:00 p.m., San Francisco time, on the immediately preceding Business Day. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which banks in the State of California are authorized by law to remain closed. This Warrant may represent a portion of a warrant that was originally issued to Van Kasper on ____________, 1998 to purchase up to 170,000 shares of Common Stock (the "Original Warrant"). To the extent that Van Kasper may have transferred all or a portion of such warrant, the capitalized term "Warrants" as used in this Warrant shall mean all warrants (including this Warrant) that constituted a portion of the Original Warrant. 1. Exercise of Warrant ------------------- (a) Cash Exercise. This Warrant may be exercised, at any time and ------------- from time to time but not earlier than the Commencement Date or later than the Expiration Date, by the holder hereof or its permitted assigns (hereinafter referred to as the "Warrantholder"), in whole or in part (but not as to a fractional share of Common Stock and in no event for less than 100 shares (unless less than an aggregate of 100 shares are then purchasable under all outstanding Warrants held by a Warrantholder)), by the completion of the subscription form attached hereto and by the surrender of this Warrant (properly endorsed) at the Company's offices at 47375 Fremont Boulevard, Fremont, California 94538 (or at such other location in the United States as it may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing on the books of the Company), and by payment to the Company of the Warrant Price, in cash or by certified or official bank check, for each share being purchased. (b) Net Exercise. Notwithstanding anything to the contrary contained ------------ in Subsection 1(a), the Warrantholder may elect to exercise this Warrant and receive shares on a "net exercise" basis in an amount equal to the value of this Warrant by delivery of the subscription form attached hereto and surrender of this Warrant at the principal office of the Company, in which event the Company shall issue to Warrantholder a number of shares computed using the following formula: X = (P)(Y)(A-B) ----------- A Where: X = the number of shares of Common Stock to be issued to Warrantholder. P = the portion of the Warrant, expressed as a percentage, being exercised. 2 Y = the number of shares of Common Stock issuable upon exercise of this Warrant. A = the Current Market Price (as defined in Subsection 1(d)) of one share of Common Stock on the date of exercise. B = Warrant Price. (c) Procedure for Exercise. In the event of any exercise of the share ---------------------- purchase rights represented by this Warrant, a certificate or certificates for the total number of whole shares of Common Stock so purchased, registered in the name of the Warrantholder, shall be delivered to the Warrantholder within a reasonable time, not exceeding five Business Days, after the share purchase rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Warrantholder within such time. With respect to any such exercise, the Warrantholder shall for all purposes be deemed to have become the holder of record of the number of shares of Common Stock evidenced by such certificate or certificates from the date on which this Warrant was surrendered and if exercise is pursuant to Section 1(a), payment of the Warrant Price was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have been the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. No fractional shares shall be issued upon exercise of this Warrant and no payment or adjustment shall be made upon any exercise on account of any cash dividends on the Common Stock issued upon such exercise. If any fractional interest in a share of Common Stock would, except for the provisions of this Section 1, be delivered upon any such exercise, the Company, in lieu of delivering the fractional share thereof, shall pay to the Warrantholder an amount in cash equal to the Current Market Price of such fractional interest, as defined below. (d) Current Market Price. For any computation hereunder, the "Current -------------------- Market Price" per share of Common Stock on any date shall be deemed to be the average of the daily Market Price per share for the 30 consecutive Trading Days commencing 45 Trading Days before the date in question. "Market Price" is defined as the closing sale price (or, if no closing sale price is reported, the closing bid price) of the Common Stock in the over-the-counter market, and reported by the National Association of Securities Dealers Automated Quotation System ("Nasdaq"), or, if the Common Stock is not quoted on Nasdaq, as reported by the National Quotation Bureau Incorporated. In the event that the Common Stock is hereafter listed for trading on one or more United States national or regional securities exchanges, Market Price shall be the closing price on the exchange or 3 system designated by the Board of Directors of the Company as the principal United States market in which the Common Stock is traded. If Market Price cannot be established as described above, Market Price shall be the fair market value of the Common Stock as determined in good faith by the Board of Directors. The term "Trading Day" shall mean a day on which Nasdaq or the principal registered national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business. 2. Adjustment of Warrant Price and Number and Kind of Warrant Shares ----------------------------------------------------------------- The Warrant Price and the number and kind of shares issuable hereunder shall be subject to adjustment from time to time upon the happening of certain events as provided in this Section 2. For purposes hereof, the "Total Warrant Price" shall mean the product of multiplying the total number of Warrant Shares issuable hereunder by the Warrant Price, in each case as in effect from time to time. (a) Adjustments ----------- (1) if at any time prior to the exercise of this Warrant in full, the Company shall (A) declare a dividend or make a distribution on the Common Stock payable in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class); (B) subdivide, reclassify or recapitalize its outstanding Common Stock into a greater number of shares; (C) combine, reclassify or recapitalize its outstanding Common Stock into a smaller number of shares, or (D) issue any shares of its capital stock by reclassification of its Common Stock (excluding any such reclassification in connection with a consolidation or a merger), the Warrant Price, and the number and kind of shares covered by this Warrant, in effect at the time of the record date of such dividend, distribution, subdivision, combination, reclassification or recapitalization shall be proportionately adjusted so that the Warrantholder shall be entitled to receive, against payment of the Total Warrant Price, the aggregate number and kind of shares which, if this Warrant had been exercised in full by payment of the Total Warrant Price immediately prior to such event, it would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination, reclassification or recapitalization. Any adjustment required by this Section 2(a) shall be made immediately after the record date, in the case of a dividend or distribution, or the effective date, in the case of a subdivision, combination, reclassification or recapitalization, to allow the purchase of such aggregate number and kind of shares. (2) If at any time prior to the exercise of this Warrant in full, the Company shall make a distribution to all holders of the Common Stock of stock of a subsidiary or securities convertible into or exercisable for such stock, then in lieu of an adjustment in the Warrant Price or the number of shares of Common Stock purchasable upon the exercise of this Warrant, the Warrantholder, upon the exercise hereof at any time 4 after such distribution, shall be entitled to receive from the Company, such subsidiary or both, as the Company shall determine, the stock or other securities to which the Warrantholder would have been entitled if the Warrantholder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 2, and the Company shall reserve, for the life of the Warrant such securities of such subsidiary; provided, however, that no adjustment in respect of dividends or interest on such stock or other securities shall be made during the term of this Warrant or upon its exercise. (3) If at any time prior to the exercise of this Warrant in full, the Company shall issue rights or warrants to all holders of Common Stock as such entitling them (for a period expiring within sixty days after the record date of the determination of shareholders entitled to receive the same) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share (as defined above) on such record date, then, in each such case the number of Warrant Shares shall be adjusted by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of this Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, plus the number of additional shares of Common Stock offered for subscription or purchase, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares that the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such Current Market Price. For purposes of this Section 2(a)(3), the issuance of rights or warrants to subscribe for or purchase securities convertible into Common Stock shall be deemed to be the issuance of rights or warrants to purchase the Common Stock into which such securities are convertible at an aggregate offering price equal to the aggregate offering price of such securities plus the minimum aggregate amount (if any) payable upon conversion of such securities into Common Stock. (4) If at any time prior to the exercise of this Warrant in full, the Company shall distribute to all holders of its Common Stock evidence of indebtedness of the Company or assets of the Company (excluding cash dividends or distributions out of retained earnings) or rights or warrants to subscribe for securities of the Company (excluding those referred to in Sections 2(a)(2) or (3) above), then in each case the Warrant Price shall be adjusted to a price determined by multiplying the Warrant Price in effect immediately prior to such distribution by a fraction, the numerator of which shall be the then Current Market Price per share of Common Stock (as defined above) on the record date for determination of shareholders entitled to receive such distribution, less the then fair value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights or warrants which are applicable 5 to one share of Common Stock, and the denominator of which shall be the Current Market Price per share of Common Stock; provided, however, that if the then Current Market Price per share of Common Stock on the record date for determination of shareholders entitled to receive such distribution is less than the then fair value of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights or warrants which are applicable to one share of Common Stock, the foregoing adjustment of the Warrant Price shall not be made and in lieu thereof, this Warrant shall be adjusted so that the holder of this Warrant shall be entitled to receive upon exercise of this Warrant only the kind and number of assets, evidences of indebtedness, subscription rights and warrants (or, in the event of the redemption of such evidences of indebtedness, subscription rights or warrants, any cash paid in respect of such redemption) that such Warrantholder would have owned or have been entitled to receive after the happening of such distribution had this Warrant been exercised immediately prior to the record date of such distribution by payment of the Total Warrant Price. (5) No adjustment in the Warrant Price shall be required unless such adjustment would require an increase or decrease of at least five cents ($.05) in such price; provided, however, that any adjustments which by reason of this Section 2(a)(5) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2(a) shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. Notwithstanding anything in this Section 2(a) to the contrary, the Warrant Price shall not be reduced to less than the then existing par value of the Common Stock as a result of any adjustment made hereunder. (6) In the event that at any time, as the result of any adjustment made pursuant to this Section 2(a), the Warrantholder thereafter shall become entitled to receive any securities other than Common Stock, thereafter the number of such other securities so receivable, upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 2(a). (7) Notwithstanding the foregoing, no adjustments shall be made pursuant to Sections 2(a)(2), (3) or (4) hereof unless the Company directly or indirectly shall make substantially similar adjustments to any stock options granted pursuant to any stock option plan or otherwise grant similar benefits in lieu of such adjustments to the holder of such stock options. (b) No Adjustment for Dividends. No adjustment in respect of any cash --------------------------- dividends shall be made during the term of this Warrant or upon the exercise of this Warrant. 6 (c) Termination of Purchase Rights in Certain Transactions. In case ------------------------------------------------------ of any reclassification, capital reorganization or other change of outstanding shares of Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock) or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock) or in the case of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, this Warrant shall become exercisable on the record date for such event if this Warrant was not previously exercisable. If this Warrant is not exercised on or prior to the consummation of any event described in the previous sentence, then this Warrant shall then terminate, if notice of such event was properly given pursuant to Section 7 of this Warrant. (d) Form of Warrant After Adjustments. The form of this Warrant need --------------------------------- not be changed because of any adjustments in the Warrant Price or the number or kind of the shares purchasable pursuant to this Warrant, and Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in this Warrant, as initially issued; provided, however, that the Company may, at any time in its sole discretion (which shall be conclusive), make any change in the form of Warrant certificate that it may deem appropriate and that does not affect the substance thereof. Any Warrant certificate thereafter issued, whether upon registration of transfer of, or in exchange or substitution for, an outstanding Warrant certificate may be in the form so changed. (e) Treatment of Warrantholder. Prior to due presentment for -------------------------- registration of transfer of this Warrant, the Company may deem and treat the Warrantholder as the absolute owner of this Warrant (notwithstanding any notation of ownership or other writing hereon) for all purposes and shall not be affected by any notice to the contrary. (f) Notice of Adjustment. Upon any adjustment of the Warrant Price, -------------------- then and in each such case the Company shall give written notice thereof, by first-class mail, postage prepaid, addressed to each Warrantholder at his, her or its address as shown on the books of the Company, which notice shall state the Warrant Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (g) Stock to Be Reserved. The Company will at all times reserve and -------------------- keep available out of its authorized Common Stock, solely for the purpose of issuance upon the exercise of this Warrant as herein provided, such number of shares of Common Stock as shall then be issuable upon the exercise of this Warrant. The Company 7 covenants that all shares of Common Stock which shall be so issued upon full payment of the Warrant Price therefor or as otherwise set forth herein, shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be required to ensure that the par value per share, if any, of the Common Stock is at all times equal to or less than the effective Warrant Price. The Company will take all such action as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any registered national securities exchange or automated quotation system upon which the Common Stock may be listed. The Company will not take any action which results in any adjustment of the Warrant Price if the total number of shares of Common Stock issued and issuable after such action upon exercise of this Warrant would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation. The Company has not granted and will not grant any right of first refusal with respect to shares issuable upon exercise of this Warrant, and there are no preemptive rights associated with such shares. (h) Issue Tax. The issuance of certificates for shares of Common --------- Stock upon exercise of any Warrant shall be made without a charge to the Warrantholder for any issuance tax in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the Warrantholder. (i) Closing of Books. The Company will at no time close its transfer ---------------- books against the transfer of the shares of Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. (j) Definition of Common Stock. As used herein the term "Common -------------------------- Stock" shall mean and include the no par value Common Stock of the Company, or securities of any class or classes resulting from any recapitalization or reclassification thereof. 3. Registration Rights ------------------- (a) Demand Registration. Beginning as of the Commencement Date and ------------------- ending on ____________, 2003, if at any time the holder or holders of Warrants to purchase not less than 50% of the Warrant Shares or the holder or holders of not less than 50% of all outstanding Warrant Shares (the "Initiating Holders") shall request that the Company register the offer and sale such number of Warrants and/or Warrant Shares to the public under the Securities Act of 1933, as amended (the "Securities Act"), the Company shall file a registration statement with the Securities and Exchange Commission 8 ("SEC") for the purpose of registering such Warrants and/or Warrant Shares under the Securities Act. The request described above shall be made in writing directed to the Company at the address set forth in Section 7 of this Warrant (the "Demand Registration Notice"). Within ten days after receiving a Demand Registration Notice, the Company shall issue a notice ("Company's Notice") informing all holders of Warrants or Warrant Shares who did not issue a Demand Registration Notice ("Other Holders") offering to include the Warrants and/or Warrant Shares of the Other Holders in that registration statement for sale to the public. Each Other Holder must notify the Company by no later than 10 days after the Company's Notice is sent whether that Other Holder wishes to include his, her or its Warrants and/or Warrant Shares in the registration statement. If any Other Holder delivers such a notice to the Company in a timely manner, that Other Holder's Warrants and/or Warrant Shares will be included in the Registration Statement. If any Other Holder does not inform the Company in writing that his, her or its Warrants and/or Warrant Shares are to be included in such registration statement, that Other Holder will be deemed to have waived all rights to include his, her or its Warrants and/or Warrant Shares in the registration statement. For the purposes of this Warrant, all Warrants and/or Warrant Shares for which a request for registration has been made pursuant to this Section 3(a) or Section 3(b) shall be referred to as "Subject Securities." Promptly upon receipt of a Demand Notice and after the expiration of the period by which the Other Holders must submit a notice requesting inclusion of their Warrants and/or Warrant Shares in the registration statement, the Company shall prepare and file with the SEC a registration statement on the applicable form for the registration of the Subject Securities and use its best efforts to cause such registration statement to become effective (including without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the rules and regulations promulgated under the Securities Act (the "Regulations")) as soon as practicable to permit or facilitate the sale and distribution of the Subject Securities. The Company shall be obligated to effect only one (1) such registration pursuant to this Section 3(a). Notwithstanding the provisions of this Section 3(a), if the Company shall furnish to the Warrantholder a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be seriously detrimental to the Company and its shareholders for such a registration statement to be filed and it is therefore appropriate to defer a filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request from the Warrantholder to effect such a registration; provided, however, that the Company may not utilize this right more than once in any twenty-four month period; and provided, further, 9 that the Warrantholder may, at any time in writing, withdraw such request for such registration and therefore preserve the right provided in this Section 3(a) for the Warrantholder to request such registration. If the Initiating Holders intend to distribute the Subject Securities by means of an underwriting, they shall so advise the Company in the Demand Registration Notice, and the Company shall so advise the Other Holders in the Company's Notice. The right of any holder of Warrants and/or Warrant Shares pursuant to this Section 3(a) shall be conditioned on such holder's agreement to participate in such underwriting. The Company shall enter into an underwriting agreement with the managing underwriter selected by the holders of a majority of the Subject Securities being registered and agreed to by the Company in its reasonable business judgment. In the event that the managing underwriter determines in its best judgment that market conditions require a limitation on the number of shares to be registered, then (i) if other selling shareholders without contractual registration rights have requested registration of securities in the proposed offering, the Company will reduce or eliminate such securities held by selling shareholders without registration rights before any reduction or elimination of the Subject Securities, (ii) any shares included by the Company in such registration shall be reduced or eliminated before any reduction or elimination of the Subject Securities, (iii) any shares requested to be registered by other selling shareholders with contractual registration rights shall be reduced or eliminated before any reduction or elimination of the Subject Securities and (iv) lastly, the number of Subject Securities may be reduced, provided that any such reduction (after taking into account the effect of clauses (i), (ii) and (iii) shall be pro rata to all selling holders of Subject Securities. (b) Preparation of Documents. Prior to filing a registration ------------------------ statement or any amendments or supplements thereto with the SEC required hereby, the Company will furnish to the counsel selected by the Warrantholder copies of all documents proposed to be filed, which documents will be subject to the timely review of such counsel. In connection therewith, the Company shall prepare and file a registration statement to effect such registration. The Warrantholder agrees to provide all such information and materials and take all such action as may be reasonably required in order to permit the Company to comply with all applicable requirements of the SEC and to obtain any desired acceleration of the effective date of such registration statement. (c) Piggyback Registration. If (but without any obligation to do so) ---------------------- the Company proposes to register, prior to ____________, 2003, with the SEC any of the Common Stock under the Securities Act (other than pursuant to a request under Section 3(a) and other than securities to be issued pursuant to a stock option or other employee benefit or similar plan, or in connection with a merger, acquisition, or a transaction pursuant to Rule 145 under the Securities Act), the Company shall as promptly as practicable, but at least 30 days prior to the filing of the applicable registration statement, give written notice to the Warrantholder of its intention to effect such registration. If, within 20 days after receipt of such notice and after the Commencement Date but before 10 the Expiration Date, the Warrantholder submits a written request to the Company specifying the amount of Warrant Shares that the Warrantholder proposes to sell, the Company shall include the shares (but not this Warrant) specified in such request in such registration statement (and any related qualification under blue sky laws or other compliance) and the Company shall keep each such registration statement in effect and maintain compliance with each federal and state law and regulation as set forth in Section 3(d). Prior to filing a registration statement under the Securities Act under which the Warrant Shares may be included pursuant to this Section 2(c), the Company shall give reasonable notice to the holder(s) of this Warrant or Warrant Shares as provided for above and shall allow such Warrant Shares to be included in such registration statement subject to the following terms and conditions: (i) such shares need not be included in any underwritten offering if and to the extent that the managing underwriter determines in its best judgment that their inclusion would impair the success of the offering provided that (A) if other selling shareholders without contractual registration rights have requested registration of securities in the proposed offering, the Company will reduce or eliminate such securities held by selling shareholders without registration rights before any reduction or elimination of Warrant Shares, and (B) any such reduction or elimination (after taking into account the effect of clause (A)) shall be pro rata to all other selling shareholders with contractual registration rights; and (ii) the Company shall have no obligation pursuant to this Section if at the time the registration statement is proposed to be filed the holders may freely sell the Warrant Shares pursuant to the Regulations. (d) Covenants of the Company. In connection with any offering of ------------------------ Subject Securities registered pursuant to the terms of this Warrant, the Company shall (i) furnish to the Warrantholder such number of copies of any registration statement (including any preliminary prospectus) as it may reasonably request in order to effect the offering and sale of the Subject Securities to be offered and sold, but only while the Company shall be required under the provisions hereof to cause the registration statement to remain current; (ii) take such action as shall be desirable or necessary to qualify the Subject Securities covered by such registration statement under such blue sky or other state securities laws for offer and sale as the Warrantholder shall request, and (iii) keep the Warrantholder advised in writing as to the initiation of each registration and as to the completion thereof. Upon any registration becoming effective pursuant to this Section 3, the Company shall use its best efforts to: (A) keep such registration statement current for a period of 120 days; (B) prepare and file with the SEC such amendments and supplements to such registration statement as may be necessary to comply with the provisions of the Regulations with respect to the disposition of all securities covered by such registration statement; (C) cause all such Subject Securities registered pursuant to such registration statement to be listed on each securities exchange or automated 11 quotation system on which the Common Stock is then listed; (D) provide a transfer agent and registrar for all Subject Securities registered pursuant to such registration statement and CUSIP number for all such Subject Securities in each case not later than the effective date of such registration; and (E) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC. (e) Sales by the Company. In connection with any offering of Subject -------------------- Securities pursuant to Section 3(a), the Company agrees not to effect any public sale or distribution of Common Stock for the seven-day period preceding, and the 90-day period following, the effective date of any such registration; provided that during this period the Company may issue (i) to employees, officers and directors of the Company options, to purchase Common Stock (provided that such options may not be exercisable within the 90-day period) and (ii) shares of Common Stock upon the exercise of previously outstanding options, warrants or rights. (f) Expenses. With respect to the registration of Subject Securities -------- pursuant to Section 3(a), together with any inclusion of the Subject Securities in a so-called piggyback registration pursuant to Section 3(c), the Company will pay all expenses incident to its performance of or compliance with this Section 3 including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger, telephone and delivery expenses, and fees and disbursements of its counsel and independent certified public accountants; provided that, if a registration of Subject Securities pursuant to Section 3(a) is withdrawn at the request of the Warrantholder, the Warrantholder shall reimburse the Company for all expenses the Company has reasonably incurred in connection with such registration. Notwithstanding the foregoing, the Company shall not bear the underwriting discounts or commissions relating to the offering of Subject Securities pursuant to Section 3(a) or 3(c), and the fees and expense (if any) of legal counsel to the holders of the Subject Securities being registered. The Warrantholder will also be responsible for any stock transfer taxes, broker's fees or other direct marketing expenses, all internal management and personnel and administrative costs of the Warrantholder, if any, incurred by it in connection with effecting any such transactions. (g) Indemnification. The Company will indemnify, to the maximum --------------- extent permitted by law, the Warrantholder, its officers and directors and each person who controls the Warrantholder (within the meaning of Section 15 the Securities Act) against all losses, claims, damages, liabilities and expenses (or actions, proceedings or settlements in respect thereof) caused by, arising out of or based on any untrue or alleged untrue statement of a material fact contained in any registration statement (or any amendment or supplement thereto) of the Company relating to the sale of Subject Securities registered pursuant to this Section 3, or any exhibits or materials incorporated by reference therein, filed with the SEC, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements 12 therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by the Warrantholder expressly for use therein. The Warrantholder will indemnify, to the maximum extent permitted by law, the Company, its officers and directors and each person who controls the Company (within the meaning of the Section 15 of the Securities Act) against all losses, claims, damages, liabilities and expenses (or actions, proceedings or settlements in respect thereof) caused by, arising out of or based on any untrue or alleged untrue statement of a material fact contained in any registration statement (or any amendment or supplement thereto) of the Company relating to the sale of Subject Securities registered pursuant to this Section 3, or any exhibits or materials incorporated by reference therein, filed with the SEC, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only insofar as the same are caused by or contained in any information furnished in writing to the Company by the Warrantholder expressly for use therein. Any person entitled to indemnification under this Section 3(g) will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim in which case, the indemnifying party shall be obligated to pay the fees and expenses of up to two counsel for all parties indemnified by such indemnifying party with respect to such claim. The indemnifications set forth in this Section 3(g) shall survive the termination or expiration of this Warrant. 4. Notices of Record Dates ----------------------- In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive 13 any dividend or other distribution (other than cash dividends out of retained earnings), or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any right to sell shares of stock of any class or any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other corporation or entity, or (c) any voluntary or involuntary dissolution, liquidation or winding- up of the Company, then and in each such event the Company will give notice to the Warrantholder specifying (1) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and stating the amount and character of such dividend, distribution or right, and (2) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock will be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be given at least 10 days and not more than 90 days prior to the date therein specified, and such notice shall state that the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act, or to a favorable vote of shareholders, if either is required. Failure to mail or receive such notice or any defect therein shall not affect the validity of any such action. 5. No Shareholder Rights or Liabilities ------------------------------------ This Warrant shall not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Warrantholder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Warrantholder, shall give rise to any liability of such Warrantholder for the Warrant Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 6. Lost, Stolen, Mutilated or Destroyed Warrant -------------------------------------------- In case the certificate or certificates evidencing the Warrant shall be mutilated, lost, stolen or destroyed, the Company shall, at the request of the Warrantholder, issue and deliver in exchange and substitution for and upon cancellation 14 of the mutilated certificate or certificates, or in lieu of and substitution for the certificate or certificates lost, stolen or destroyed, a new Warrant certificate or certificates of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and a bond of indemnity, if requested, also satisfactory in form and amount at the applicant's cost. Applicants for such substitute Warrant certificate or certificates shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. 7. Notices ------- All notices, requests and other communications required or permitted to be given or delivered hereunder shall be in writing, and shall be delivered or shall be sent by certified or registered mail or overnight courier, postage prepaid and addressed, or by facsimile, and if to the Warrantholder to such Warrantholder at such address or facsimile number as shall have been furnished to the Company by notice from such Warrantholder and if to the Company, at 47375 Fremont Boulevard, Fremont, California 94538, Attention: President, facsimile number (510) 651-3731, or at such other address or facsimile number as shall have been furnished to the Warrantholder by notice from the Company. 8. Restrictions on Transfer ------------------------ This Warrant may not be sold, transferred, hypothecated or assigned to any other person or entity for a period of one year from the date of this Warrant, except to officers of Van Kasper in accordance with all applicable laws. This Warrant shall bear a legend setting forth the foregoing restriction. 9. Compliance with Securities Act ------------------------------ This Warrant and the Warrant Shares may not be offered or sold except in compliance with the Securities Act of 1933, as amended, and then only against receipt of an agreement of such person to whom such offer or sale is made to comply with the provisions of this Section 9 with respect to any resale or other disposition of the Warrant or Warrant Shares. The Company may cause the following legend to be set forth on this Warrant and each certificate representing the Warrant Shares to the extent that the offer and sale of the Warrant Shares has not been registered under the Securities Act pursuant to Section 3 hereof, unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary; THIS WARRANT [THESE SHARES] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT 15 PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. 10. Amendments and Waivers ---------------------- This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 11. Severability ------------ If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provisions shall be excluded from this Warrant, and the balance of this Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 12. Governing Law ------------- This Warrant shall be governed by and construed under the laws of the State of California without regard to conflict of law principles. 13. Headings -------- The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect any of the terms hereof. IN WITNESS WHEREOF, the Company has executed this Warrant on and as of the day and year first above written. ATG INC., a California corporation ________________________________________ Doreen M. Chiu Chief Executive Officer 16 SUBSCRIPTION FORM (To be executed upon exercise of this Warrant) ___________________ : The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant for, and to purchase thereunder, ___________ shares of Common Stock, as provided for therein, and either tenders herewith payment of the purchase price in full in the form of cash or a certified or official bank check in the amount of $__________ or, if the undersigned elects pursuant to Section 1(b) of the within Warrant to convert such Warrant into Common Stock on a net exercise basis, the undersigned exercises the within Warrant by exchange under the terms of said Section 1(b). Please issue a certificate or certificates for such Common Stock in the name of and pay any cash for any fractional share to: Name:___________________________________ Address:________________________________ Social Security No:_____________________ If said number of shares shall not be all the shares purchasable under the within Warrant, a new Warrant is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder rounded up to the next higher number of shares. Dated:_____________ Signature: _____________________________ Note: The above signature must correspond exactly with the name of the original Warrantholder on the first page of this Warrant or with the name of the assignee appearing in the assignment form below. Dated:_____________ Signature Guaranteed: __________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered national securities exchange or the National Association of Securities Dealers, Inc.) 17 ASSIGNMENT (To be executed only upon assignment of Warrant) For value received, ___________________________ hereby sells, assigns, and transfers unto ______________________ the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________________ as his attorney to transfer said Warrant on the books of the within-named Company with respect to the number of shares of Common Stock set forth below, with full power of substitution in the premises: Names of Assignee(s)/Address No. of Shares ---------------------------- ------------- And if said number of shares shall not be all the shares covered by the Warrant, a new Warrant is to be issued in the name of said undersigned for the balance remaining of the shares covered by said Warrant. Dated:_____________ Signature:______________________________ Note: The above signature must correspond with the name of the original Warrantholder on the face of this Warrant Dated:_____________ Signature Guaranteed:_______________________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered national securities exchange or the National Association of Securities Dealers, Inc.) EX-3.1 4 ARTICLES OF INCORPORATION OF THE COMPANY EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF ATG INC. Doreen Chiu and Frank Chiu certify that: 1. They are the President and Secretary, respectively, of ATG Inc., a California corporation. 2. The Articles of Incorporation of this Corporation are amended and restated in their entirety to read as follows: I The name of this Corporation is ATG Inc. II The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III (a) This Corporation is authorized to issue two classes of shares, designated "Preferred Stock" and "Common Stock." The total number of shares which this Corporation shall have authority to issue is 21,000,000 of which 20,000,000 shares shall be Common Stock and 1,000,000 shares shall be Preferred Stock, all of which shall be designated "Series A Preferred Stock." (b) A statement of the rights, preferences, privileges and restrictions granted to or imposed on the Series A Preferred Stock and the holders thereof is as follows: (1) Dividends. Any dividends declared by the Board of Directors shall be distributed among all holders of Series A Preferred Stock and all holders of Common Stock in proportion to the number of shares of Common Stock which would be held by each such holder if all shares of Series A Preferred Stock were converted into Common Stock at the then effective Conversion Price (as defined in paragraph 3(a) below). In the event that the Corporation shall have declared but unpaid dividends outstanding immediately prior to, and in the event of, a conversion of Series A Preferred Stock (as provided in paragraph 3 hereof), the Corporation shall, at the option of each holder, pay in cash to each holder of Series A Preferred Stock subject to conversion the full amount of any such dividends or allow such dividends to be converted into Common Stock in accordance with, and pursuant to the terms specified in, paragraph 3 hereof. (2) Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, for each share of Series A Preferred Stock then held by them an amount equal to (i) $5.00 plus (ii) a premium equal to an annual rate of ten percent (10%) of such amount, compounded annually from the date a share of Series A Preferred is first issued plus (iii) all declared but unpaid dividends on the Series A Preferred Stock (the "Liquidation Preference"). If, upon occurrence of such event the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock held by each such holder. After payment has been made to the holders of the Series A Preferred Stock of the Liquidation Preference the holders of the Common Stock shall be entitled to receive the remaining assets of the Corporation. (b) For purposes of this paragraph 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, and to include, (i) the Corporation's sale of all or substantially all of its assets or (ii) any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) which will result in the holders of the outstanding voting equity securities of the Corporation immediately prior to such transaction holding less than fifty percent (50%) of the voting equity securities of the surviving entity immediately following such transaction. (c) For purposes of this paragraph 2, the amount of assets and surplus funds of this Corporation available for distribution upon a liquidation, dissolution or winding up of this Corporation shall be determined as follows: (i) insofar as it consists of cash, be computed at the aggregate amount of cash held by this Corporation at the time of the liquidation, dissolution or winding up, excluding amounts paid or payable for accrued interest or accrued dividends: and -2- (ii) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of the liquidation, dissolution or winding up, as determined in good faith by the Board. (3) Conversion. The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof at any time prior to 5:00 p.m., Pacific Time, on the day preceding the Redemption Date for any such share as to which a Redemption Call has been delivered to the Corporation pursuant to Section 9 below, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $5.00 (the "Original Purchase Price") by the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon conversion (the "Conversion Price") shall initially be $5.00 per share of Common Stock. Such initial Conversion Price shall be subject to adjustment as hereinafter provided. Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price (i) in the event of the effectiveness of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public at a price per share of at least $10.00 (as adjusted for stock splits, reverse stock splits and the like effected after the date on which the first share of Series A Preferred Stock is issued (the "Original Issue Date")) and an aggregate offering price to the public of not less than $15,000,000 or (ii) at the election of the holders of a majority of the outstanding shares of Series A Preferred Stock. In the event of such an offering, the person(s) entitled to receive the Common Stock issuable upon such conversion of Series A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to the closing of such underwritten public offering. (b) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional share to which a holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of the Common Stock as determined by the Board of Directors. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock, and shall give written notice to the Corporation at such office that he elects to convert the same. Such notice shall also state whether the holder elects, pursuant to paragraph 1 hereof, to receive declared but unpaid dividends on the Series A Preferred Stock proposed to be converted in cash, or to convert such dividends into shares of Common Stock at their fair market value as determined by the Board of Directors. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid -3- and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into a fractional share of Common Stock, and any declared but unpaid dividends on the converted Series A Preferred Stock which the holder elected to receive in cash. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. If the conversion is in connection with an underwritten public offering of securities registered pursuant to the Securities Act of 1933, the conversion shall be conditioned upon the closing of such public offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Series A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to such closing. (c) Adjustments to Conversion Price for Diluting Issues. (i) Special Definitions. For purposes of this paragraph 3, the following definitions shall apply: (1) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than the Series A Preferred Stock) or other securities convertible into or exchangeable for Common Stock. (3) "Series A Original Issue Date" shall mean the date on which a share of Series A Preferred was first issued. (4) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to paragraph 3(c)(iii), deemed to be issued) by the Corporation after the Series A Original Issue Date, other than shares of Common Stock issued or issuable: (A) upon conversion of shares of Series A Preferred Stock; (B) to directors, officers or employees of, or consultants to, the Corporation pursuant to a stock grant, option plan or purchase plan or other stock incentive program or issuance (collectively, the "Plans") unanimously approved by the Board of Directors; (C) upon exercise or conversion of warrants to purchase shares of the capital stock of the Corporation issued to First Taiwan Investment & Development Inc. ("First Taiwan") (or entities designated by First Taiwan) pursuant to Section -4- 8.3 of the Stock Purchase Agreement for Series A Preferred Stock among the Corporation, First Interstate and other certain other parties, or warrants to purchase shares of the capital stock of the Corporation issued in connection with equipment lease financing transactions or bank financing transactions unanimously approved by the Board of Directors, where the issuance of such warrants is not principally for the purpose of raising additional equity capital for the Corporation; (D) pursuant to the acquisition of another corporation by the Corporation or any subsidiary of the Corporation by merger, purchase of substantially all of the assets, or other reorganization unanimously approved by the Board of Directors whereby the Corporation owns more than fifty percent (50%) of the voting power of such other corporation following such acquisition; (E) as a dividend or distribution on the Series A Preferred Stock; and (F) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A), (B), (C), (D) or (E) or on shares of Common Stock so excluded. (ii) No Adjustment of Conversion Price. No adjustment in the Conversion Price of Series A Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such share of Series A Preferred Stock. (iii) Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the Series A Original Issue Date, as the case may be, shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to paragraph 3(c)(v) hereof) of such Additional Shares of Common Stock would be less than the Series A Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: -5- (1) no further adjustment in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; and (3) no readjustment pursuant to clause (2) above shall have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. (1) In the event this Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to paragraph 3(c)(iii)) without consideration or for a consideration per share less than the Series A Conversion Price in effect on the date of and immediately prior to such issuance, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued. (v) Determination of Consideration. For purposes of this paragraph 3(c), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property: Such consideration shall: -6- (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined by the Board of Directors in the good faith exercise of its reasonable business judgment; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to paragraph 3(c)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustments for Stock Dividends, Subdivisions, Combinations or Consolidations. In the event the Corporation shall pay a stock dividend on the Common Stock, or the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by reclassification or otherwise, into a greater or lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision or combination shall, concurrently with the effectiveness of such subdivision, combination or consolidation, be proportionately adjusted. (d) Special Adjustment Upon Initial Public Offering. Upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offering and sale of Common Stock of the Company, then the Conversion Price of the Series A Preferred Stock shall be the lower of (i) the -7- then current Conversion Price or (ii) the price determined by multiplying the Price To The Public in such underwritten public offering by the discount factor appropriate for the year in which such closing occurs applicable to the date of such closing. Calendar Year in which Closing of Underwritten Public Offering Occurs Discount Factor June 30, 1995 or earlier .5 July 1, 1995 through .333333 June 30, 1996 July 1, 1996 or later .25 For purposes of this paragraph (d), the "Price To The Public" shall mean the aggregate price per share paid by the purchasers, without reduction for any underwriting discounts or commissions or expenses of the offering. (e) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this paragraph 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock against impairment. (f) Notices of Record Date. In the event that this Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge with or into any other corporation (other than a merger in which the holders of the outstanding voting equity securities of the Corporation immediately prior to such merger hold more than fifty percent (50%) of the voting power of the surviving entity immediately following such merger), or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, this Corporation shall send to the holders of the Series A Preferred Stock: -8- (1) at least twenty (20) days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be given by first class mail, postage prepaid, addressed to the holders of Series A Preferred Stock shares at the address for each such holder as shown on the books of this Corporation. (g) Recapitalization. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this paragraph 3 or paragraph 2) provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion of each share of such series would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this paragraph 3 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this paragraph 3 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (4) Voting Rights. Except as otherwise required by law and as set forth in Section 5 below, the Series A Preferred Stock shall be non-voting. The holders of Common Stock shall be entitled to notice of any shareholders' meeting and to vote upon any matter submitted to the shareholders for a vote. (5) Protective Provisions. In addition to any other rights provided by law, so long as any Series A Preferred Stock shall be outstanding, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of not less than a majority of such outstanding shares of Series A Preferred Stock: (a) amend or repeal any provision of or add any provision to, this Corporation's Articles of Incorporation or Bylaws if such action would alter or change adversely the preferences, rights, privileges or powers of or the restrictions provided for the benefit of, the Series A Preferred Stock; -9- (b) authorize or issue shares of any class of stock having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Series A Preferred Stock, or authorize or issue shares of stock of any class or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock of this Corporation having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Series A Preferred Stock; (c) reclassify any Common Stock into shares having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Series A Preferred Stock. (d) pay any cash dividends; (e) redeem or purchase any of the Common Stock, provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation upon the termination of the employment, consulting or other relationship between the Corporation and such persons; (f) consummate a sale of all or substantially all of the Corporation's assets or any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) which would result in the holders of the outstanding voting equity securities of the Corporation immediately prior to such transaction holding less than fifty percent (50%) of the voting power of the surviving entity immediately following such transaction; (g) increase the total number of authorized shares of Series A Preferred Stock; or (h) incur any indebtedness or grant any security interest in or otherwise pledge or mortgage any of the Corporation's assets, other than in connection with equipment leases entered into the ordinary course of business, a revolving credit line from a commercial bank that does not exceed 80% of eligible accounts receivable, or the refinancing of mortgages existing as of the Series A Original Issue Date. (6) Status of Converted Stock. In the event any shares of Series A Preferred Stock shall be converted pursuant to paragraph 3 hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation, and the Articles of Incorporation of this Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. -10- (7) Residual Rights. All rights accruing to the outstanding shares of this Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. (8) Consent for Certain Repurchases of Common Stock Deemed to be Distributions. Each holder of Series A Preferred Stock shall be deemed to have consented, for purposes of Section 502, 503 and 506 of the California Corporations Code, to distributions made by the Corporation in connection with the repurchase of shares of Common Stock issued to or held by employees or consultants upon termination of their employment or services pursuant to agreements providing for such right of repurchase between the Corporation and such persons. (9) Redemption. (a) Commencing on the later of (i) the third anniversary of the Series A Original Issue Date and (ii) the date on which the Corporation sends written notice to all holders of Series A Preferred Stock of their redemption rights (the later of such dates shall be called the "Redemption Start Date"), and continuing for 30 days from the Redemption Start Date, the holders of the outstanding Series A Preferred Stock shall have the right to demand that the Corporation redeem all or any part of the Series A Preferred Stock held by them as set forth in this Section. The Corporation shall pay for each share it is requested to redeem a sum per share (the "Redemption Price") equal to (i) $6.67 plus (ii) any declared but unpaid dividends as of the date fixed by the Corporation for redemption of such share (the "Redemption Date"), all as adjusted for any combinations, consolidations, stock distributions or stock dividends with respect to any such shares. The Corporation shall be obligated to send a written notice notifying the holders of Series A Preferred Stock of the redemption right set forth in this Section. Such notice may not be sent, however, more than 30 days in advance of the third anniversary of the Series A Original Issue Date. Any demand for redemption of Series A Preferred Stock shall be made in writing delivered to the Corporation on or before 5:00 p.m., Pacific time, on the 30th day following the Redemption Start Date. Such demand (the "Redemption Call") shall specify the number of shares to be redeemed. (b) Upon receipt of the written demand for redemption from any holder of outstanding Series A Preferred Stock in accordance with paragraph (a) (a "Redemption Call"), the Corporation shall send written notice mailed first class, postage prepaid to each holder of Series A Preferred Stock (other than the holder delivering the Redemption Call) at the close of business on the business day next preceding the day on which the Corporation sends such notice. Such notice shall be sent to the address last shown on the records of the Corporation for such holder or given by the holder to the Corporation for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located. Such notice shall state that a holder of Series A Preferred Stock has delivered to the Corporation a Redemption Call, the date on which the right to require the Corporation to redeem shares of Series A Preferred Stock shall terminate as set forth in paragraph (a) and the date on which the Corporation will effect such redemption (the "Redemption Date"). The Redemption -11- Date shall be no later than 120 days following the date the first Redemption Call is delivered to the Corporation. (c) Immediately following the expiration of the time period within which a holder of Series A Preferred Stock shall have the right to deliver a Redemption Call to the Corporation, as set forth in paragraph (a), the Corporation shall send written notice to all holders of Series A Preferred Stock who have delivered to the Corporation a Redemption Call (the "Redemption Notice"). The Redemption Notice shall notify each such holder of the Redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the date on which such holders' rights to convert such shares into Common Stock terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, the certificate(s) representing the shares to be redeemed. Except as provided in paragraph 9(d), on or after such Redemption Date, each holder of Series A Preferred Stock to be redeemed shall surrender to this Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price in respect of each such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed on the Redemption Date, a new certificate shall be issued to the holder representing the unredeemed shares. (d) From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series A Preferred Stock designated for redemption on such Redemption Date as holders of Series A Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of this Corporation legally available on the Redemption Date for redemption of shares of Series A Preferred Stock are insufficient to redeem the total number of shares of Series A Preferred Stock as to which a Redemption Call has been delivered by the holder thereof to the Corporation, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of Series A Preferred Stock. The shares of Series A Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of this Corporation are legally available for the redemption of shares of Series A Preferred Stock, such funds will immediately be used to redeem the balance of the shares which this Corporation has become obligated to redeem on the Redemption Date but which it has not redeemed. (e) Three (3) days prior to the Redemption Date, this Corporation shall deposit the Redemption Price of all outstanding shares of Series A Preferred Stock designated for redemption on such Redemption Date, and not yet converted, with a bank or trust company having aggregate capital and surplus in excess of $200,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed. -12- Simultaneously, this Corporation shall deposit irrevocable instruction and authority to such bank or trust company to publish the notice of redemption thereof (or to complete such publication if theretofore commenced) and to pay, on and after the date fixed for redemption or prior thereto, the Redemption Price of the Series A Preferred Stock to be redeemed to the holders thereof upon surrender of their certificates. Any moneys deposited by this Corporation pursuant to this paragraph for the redemption of shares which are thereafter converted into shares of Common Stock no later than the close of business on the Redemption Date shall be returned to this Corporation forthwith upon such conversion. The balance of any moneys deposited by this Corporation pursuant to this paragraph remaining unclaimed at the expiration of three (3) months following the Redemption Date shall thereafter be returned to this Corporation, provided that the shareholder to which such moneys would be payable hereunder shall be entitled, upon proof of its ownership of the shares of Series A Preferred Stock and payment of any bond requested by this Corporation, to receive such moneys but without interest from the Redemption Date. IV (a) Limitation of Directors' Liability. The liability of the directors of this Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) Indemnification of Corporate Agents. This Corporation is authorized to indemnify the directors and officers of the Corporation to the fullest extent permissible under California law. (c) Repeal or Modification. Any repeal or modification of the foregoing provisions of this Article IV by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. 3. The foregoing Amended and Restated Articles of Incorporation have been duly approved by the Board of Directors. 4. The foregoing Amended and Restated Articles of Incorporation have been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the Corporations Code. The total number of outstanding shares of the Corporation is 4,948,786 shares of Common Stock and the Corporation has no other class of securities outstanding. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than fifty percent (50%) of the Common Stock. The undersigned declares under penalty of perjury that the matters set forth in the foregoing certificate are true of her or his own knowledge. -13- IN WITNESS WHEREOF, the undersigned have executed this certificate in Palo Alto, California, this 23 day of February, 1994. ___________________________________ Doreen Chiu, President ___________________________________ Frank Chiu, Secretary -14- EX-3.2 5 BYLAWS OF THE COMPANY EXHIBIT 3.2 BY-LAWS of NEW ANI, INC. ARTICLE I Principal Office Section 1. The principal executive office for the transaction of the business of the corporation is hereby fixed and located at 39187 Liberty Street, Fremont, California. The board of directors may change said principal executive office from one location to another. ARTICLE II Meetings of Shareholders Section 1. All meetings of the shareholders shall be held at any place within or without the State of California which may be designated either by the board of directors or by the written consent of all shareholders entitled to vote thereat and not present at the meeting given either before or after the meeting and filed with the secretary of the corporation. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. Section 2. The annual meeting of the shareholders of the corporation shall be held on the second Tuesday of March of each year, at 10 A.M. of said day; provided, however, that should said day fall upon a Saturday, Sunday or legal -1- holiday, then any such annual meeting of the shareholders shall be held at the same time and place on the next business day thereafter ensuing which is not a legal holiday. At such meeting, directors shall be elected and any other proper business may be transacted which is within the powers of the shareholders. Written notice of each annual meeting shall be given to each shareholder entitled to vote either personally or by first-class mail or other means of written communication (which includes, without limitation and wherever used in these by-laws, telegraphic and facsimile communication), charges prepaid, addressed to each shareholder at the address appearing on the books of the corporation, or given by the shareholder to the corporation for the purpose of notice. If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice or report to all other shareholders. If no address -2- of a shareholder appears on the books of the corporation or is given by the shareholder to the corporation, notice is duly given to him if sent by mail or other means of written communication addressed to the place where the principal executive office of the corporation is located or if published at least once in a newspaper of general circulation in the county in which said principal executive office is located. All such notices shall be given to each shareholder entitled thereto not less than ten (10) days nor more than sixty (60) days before each annual meeting. Any such notice shall be deemed to have been given at the time when delivered personally or deposited in the United States mail or delivered to a common carrier for transmission to the recipient or actually transmitted by the person giving the notice by electronic means to the recipient or sent by other means of written communication. Such notices shall state: (a) the place, date and hour of the meeting; (b) those matters which the board, at the time of the mailing of the notice, intends to present for action by the shareholders; (c) if directors are to be elected, the names of nominees intended at the time of the notice to be presented by management for election; -3- (d) such other matters, if any, as may be expressly required by statute. Section 3. Special meetings of the shareholders for the purpose of taking any action permitted to be taken by the shareholders under the General Corporation Law and the articles of incorporation of this corporation, may be called by the chairman of the board or the president, or by any vice president, or by the board of directors, or by the holders of shares entitled to cast not less than ten per cent (10%) of the votes at the meeting. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner and contain the same statements as required for annual meetings of shareholders. Notice of any special meeting shall also specify the general nature of the business to be transacted, and no other business may be transacted at such meeting. Section 4. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal -4- of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted except as provided in the preceding sentence. ARTICLE III Board of Directors Section 1. Subject to the provisions of the California General Corporation Law and any limitations in the articles of incorporation and these by-laws as to action to be authorized or approved by the shareholders, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the board of directors shall have the following powers, to wit: First: To conduct, manage and control the affairs and business of the corporation and to make such rules and regulations therefor, not -5- inconsistent with law or with the articles of incorporation or with the by-laws, as they may deem best; Second: To elect and remove at pleasure the officers, agents and employees of the corporation, prescribe their duties and fix their compensation; Third: To authorize the issue of shares of stock of the corporation from time to time upon such terms as may be lawful; Fourth: To borrow money and incur indebtedness for the purposes of the corporation and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor; and Fifth: To alter, repeal or amend, from time to timer, and at any time, these by-laws and any and all amendments of the same, and from time to time, and at any time, to make and adopt such new and additional by-laws as may be necessary and proper, subject to the power of the shareholders to adopt, amend or repeal such by-laws, or to revoke the delegation of authority of the directors, as provided by law or by Article VI of these by- laws. -6- Section 2. The authorized number of directors shall be one (1). Section 3. The directors shall be elected at each annual meeting of shareholders, but if any such annual meeting is not held or the directors are not elected thereat, the directors nay be elected at any special meeting of shareholders held for that purpose. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected, except as otherwise provided by statute. Section 4. Vacancies in the board of directors, except for a vacancy created by the removal of a director, may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. ARTICLE IV Meetings of Directors Section 1. Regular meetings of the board of directors shall be held at any place within or without the State of California that has been designated from time to time by the board of directors. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation, except as provided in -7- Section 2. Special meetings of the board of directors may be held at any place within or without the State of California which has been designated in the notice of the meeting, or, if not designated in the notice or if there is no notice, at the principal executive office of the corporation. Section 2. Immediately following each annual meeting of the shareholders there shall be a regular meeting of the board of directors of the corporation at the place of said annual meeting or at such other place as shall have been designated by the board of directors for the purpose of organization, election of officers and the transaction of other business. Other regular meetings of the board of directors shall be held without call on such date and time as may be fixed by the board of directors; provided, however, that should any such day fall on a legal holiday, then said meeting shall be held at the sane time on the next business day thereafter ensuing which is not a legal holiday. Notice of regular meetings of the directors is hereby dispensed with and no notice whatever of any such meeting need be given, provided that notice of any change in the time or place of regular meetings shall be given to all of the directors in the same manner as notice for special meetings of the board of directors. -8- Section 3. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or president or, if both the chairman of the board and the president are absent or are unable or refuse to act, by any vice president or by any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director, or sent by first-class mail or telegram or facsimile transmission, charges prepaid, addressed to him at his address as it appears upon the records of the corporation or, if it is not so shown on the records and is not readily ascertainable, at the place at which the meetings of the directors are regularly held. In case such notice is mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting. In case such notice is telegraphed or sent by facsimile transmission, it shall be delivered to a common carrier for transmission to the director or actually transmitted by the person giving the notice by electronic means to the director at least forty-eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered personally or by telephone as above provided, it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Any notice given personally or by telephone may be communicated to either the director or to a person at the -9- office of the director whom the person giving the notice has reason to believe will promptly communicate it to the director. Such deposit in the mail, delivery to a common carrier, transmission by electronic means or delivery, personally or by telephone, as above provided, shall be due, legal and personal notice to such directors. The notice need not specify the place of the meeting if the meeting is to be held at the principal executive office of the corporation, and need not specify the purpose of the meeting. Section 4. Presence of a majority of the authorized number of directors at a meeting of the board of directors constitutes a quorum for the transaction of business, except as hereinafter provided. Members of the board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action taken is approved by at least a majority of the required quorum for such meeting. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four (24) hours, notice of any -10- adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 5. Notice of a meeting need not be given to any director who signs a waiver of notice or consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 6. Any action required or permitted to be taken by the board of directors may be taken without a meeting if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 7. The provisions of this Article IV shall also apply, with necessary changes in points of detail, to committees of the board of directors, if any, and to actions by such committees (except for the first sentence of Section 2 of Article IV, which shall not apply, and -11- except that special meetings of a committee may also be called at any time by any two members of the committee), unless otherwise provided by these by-laws or by the resolution of the board of directors designating such committees. For such purpose, references to "the board" or "the board of directors" shall be deemed to refer to each such committee and references to "directors", or "members of the board" shall be deemed to refer to members of the committee. Committees of the board of directors may be designated, and shall be subject to the limitations on their authority, as provided in Section 311 of the General Corporation Law. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. ARTICLE V Officers Section 1. The officers of the corporation shall be a chairman of the board or a president, or both, a secretary, and a treasurer, who shall also be the chief financial officer of the corporation. The corporation may also have, at the discretion of the board of directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be designated from time to time by the board of directors. Any number of offices may be held by the same person. -12- The officers shall be elected by the board of directors and shall hold office at the pleasure of such board. Chairman of the Board Section 2. The chairman of the board, if there be such officer, shall, if present, preside at all meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the by-laws. If there is not a president, the chairman of the board shall, in addition, be the general manager and chief executive officer of the corporation and shall have the powers and duties prescribed in Section 3 of Article V of these by-laws. President Section 3. Subject to such powers and duties, if any, as may be prescribed by these by-laws or the board of directors for the chairman of the board, if there be such officer, the president shall be the general manager and chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He shall have all of the powers and -13- shall perform all of the duties which are ordinarily inherent in the office of the president, and he shall have such further powers and shall perform such further duties as may be prescribed for him by the board of directors. Vice Presidents Section 4. In the absence or disability or refusal to act of the president, the vice presidents in order of their rank as fixed by the board of directors, or, if not ranked, the vice president designated by the president or the board of directors, shall perform all of the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them, respectively, by the board of directors or the by-laws. Secretary Section 5. The secretary shall keep or cause to be kept at the principal executive office of the corporation or such other place as the board of directors way order, a book of minutes of all proceedings of the shareholders, the board of directors and committees of the board, with the time arid place of holding, whether regular or special, and if special how authorized, the notice thereof given, the names of those present at directors' and committee meetings, -14- and the number of shares present or represented at shareholders' meetings. The secretary shall keep or cause to be kept at the principal executive office or at the office of the corporation's transfer agent a record of shareholders or a duplicate record of shareholders showing the names of the shareholders and their addresses, the number of shares and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. The secretary or an assistant secretary, or, if they are absent or unable or refuse to act, any other officer of the corporation, shall give or cause to be given notice of all the meetings of the shareholders, the board of directors and committees of the board required by the by-laws or by law to be given, and he shall keep the seal of the corporation, if any, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the by-laws Section 6. It shall be the duty of the assistant secretaries to assist the secretary in the performance of his duties and generally to perform such other duties as may be delegated to them by the board of directors. Treasurer Section 7. The treasurer shall be the chief financial officer of the corporation and shall keep and -15- maintain, or cause to be kept and maintained, adequate and correct books and records of account of the corporation. He shall receive and deposit all moneys and other valuables belonging to the corporation in the name and to the credit of the corporation and shall disburse the same only in such manner as the board of directors or the appropriate officers of the corporation may from time to time determine, shall render to the president and the board of directors, whenever they request it, an account of all his transactions as treasurer and of the financial condition of the corporation, and shall perform such further duties as the board of directors may require. Section 8. It shall be the duty of the assistant treasurers to assist the treasurer in the performance of his duties and generally to perform such other duties as may be delegated to them by the board of directors. ARTICLE VI Amendments Section 1. New by-laws nay be adopted or these by-laws may be amended or repealed by the affirmative vote or written consent of a majority of the outstanding sharers entitled to vote, except as otherwise provided by law or by the articles of incorporation or these by-laws. -16- Section 2. Subject to the right of shareholders as provided in Section 1 of this Article to adopt, amend or repeal by-laws, and except as otherwise provided by law or by the articles of incorporation, by-laws, other than a bylaw or amendment thereof changing the authorized number of directors, may be adopted, amended or repealed by the board of directors. ARTICLE VII Annual Report Section 1. So long as the corporation shall have fewer than one hundred (100) shareholders of record (determined as provided in Section 605 of the General Corporation Law of the State of California), the requirement of Section 1501 of said law that an annual report be sent to the shareholders is expressly waived. Section 2. Notwithstanding Section 1 of this Article VII, the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of a fiscal year, deliver or mail to such shareholder the financial statements required by Section 1501(a) of the General Corporation Law. -17- CERTIFICATE OF SECRETARY I, the undersigned, hereby certify: 1. That I am the duly elected, acting and qualified Secretary of New ANI, Inc., a California corporation; and 2. That the foregoing by-laws, comprising 17 pages, constitute the by-laws of such corporation as duly adopted by action of the Incorporator of the corporation duly taken on March 19, 1980. Date: April 2, 1980. _______________________________ Secretary -18- EX-9.1 6 VOTING TRUST AGREEMENT EXHIBIT 9.1 VOTING TRUST AGREEMENT This Agreement is made on January 1, 1993, at Fremont, California by and between the undersigned parties for the purpose of creating a Voting Trust of the stock of ATG, Inc., a California corporation (hereinafter referred to as "Company"). 1. Exchange of Shares for Voting Trust Certificates. Simultaneously with the execution of this Agreement, the undersigned parties, hereafter called Certificate Holders, will exchange, assign and deliver the number of shares of stock in the Company, authorized to be issued to them and listed opposite their names, to the Trustee, who will issue and delivery to each of the parties voting Trust Certificates for the number of shares of the Company transferred to the Trustee. 2. Form of Certificates. Voting Trust Certificates shall be in substantially the following form: No. 5 530,083 Shares ---------- ------------ ATG, INC. a California corporation VOTING TRUST CERTIFICATE This is to certify that the following shareholders has transferred -------------------------- to the undersigned Trustee the above stated number of shares of the common stock of ATG, Inc., a California corporation, pursuant to the provisions of California Corporations Code Section 706(b), to be held by the Trustee pursuant to the terms of a Voting Trust Agreement dated January 1, 1993, or any extension thereof (hereafter called "Voting Trust Agreement"), a copy of which have been delivered to the above-named Certificate Holder, and filed in the office of the Secretary of the Company at 47375 Fremont Boulevard, Fremont, California. The Certificate Holder, or his or her successor or successors in interest, will be entitled to receive payments equal to all cash dividends collected by the 1 Trustee upon the above-stated number of shares, and to the delivery of a certificate or certificates for shares of stock upon the termination of the Voting Trust Agreement, in accordance with its provisions. The Certificate Holder, by the acceptance of this Certificate, agrees to be bound by all of the provisions of the Voting Trust Agreement as fully as if the terms of the same were set forth in this Certificate. Executed as of January 1, 1993 _________________________ ________________________ HOLDER TRUSTEE 3. Transfer of Voting Trust Certificate. The Voting Trust Certificates shall be transferable only as provided in the Certificates and this Agreement and upon payment of any charges in effect at the time of transfer. All transfers shall be recorded in the certificate book and any transfer made of any Voting Trust Agreement shall vest in the transferee the same limitations as those imposed on the transferor by the terms of the Voting Trust Certificate so transferred, by this Agreement and upon such transfer the Trustee shall deliver a Voting Trust Certificate or Certificates to the transferee for the number of shares represented by the Voting Trust Certificate so transferred. 4. Non-Withdrawal of Shares. No party to this Agreement may withdraw his shares from this Voting Trust without the prior written consent of all parties hereto. 5. Voting by Trustee. During the period of this Voting Trust, the Trustee shall have the exclusive right to vote the shares or give written consent, in person or by proxy, at all meetings of the shareholders of the Company, and in all proceedings 2 in which the vote or written consent of shareholders may be required or authorized by law. 6. Voting at Direction of Certificate Holders. If, before any Certificate Holders' meeting or before the taking of any corporate action requiring an affirmative vote or consent of the parties, a majority of the Certificate Holders of the Company direct the Trustee to vote all the shares in a certain way, the Trustee must comply with such direction, except as provided below. In this regard, unless modified in writing by all parties hereto, the parties hereto in all their respective capacities (whether as an officer, director, employee or shareholder of the Company) hereby irrevocably agree and direct the Trustee that, at no time, will said Trustee do any act or omission to bind the Company without the prior written consent of the Certificate Holders representing a majority of the outstanding shares of the Company held by the Certificate Holder with respect to the following: a. Amending the articles of incorporation or bylaws of the Company; or b. Authorizing, granting, or issuing additional shares or securities of the Company. The parties hereto acknowledge and agree that any violation of the foregoing provision will constitute an ultra vires act on behalf of the Company, and that any ultra vires act will constitute and impose personal liability on behalf of the violating party with respect to any such prohibited act and omission. Each party hereto hereby agrees to hold harmless, defend and indemnify 3 each other and the Company, from any and all loss arising from a violation or breach of the terms and provisions hereof. 7. Dividends. In the event that the Company issues dividends the Trustee shall accept and receive such dividends. Upon receipt of dividends, the same shall be prorated among the Certificate Holders and the amount of the dividends shall be distributed to such Holders. In the event that the dividends are in the form of share certificates having voting rights, the share dividends shall be held by the Trustee and new Voting Trust Certificates representing the share dividends shall be issued to the Certificate Holders. 6. Termination of Trust. This Voting Trust shall terminate on whichever of the following conditions occurs first: a. December 31, 2002 b. Vote for termination by Certificate Holders representing one hundred percent of shares currently on deposit with Trustee. In no event shall the term of this Agreement extend longer than 10 years from the date of execution provided that, at any time within two (2) years prior to the time expiration of this Agreement as originally fixed or last extended hereunder, one or more Certificate Holders may, by written agreement and with the written consent of the Trustee, extend the duration of this Agreement with respect to their shares for an additional term not exceeding ten (10) years from the expiration date of this Voting Trust as originally fixed or as last extending hereunder. 4 Upon termination of this agreement the Certificate Holders shall surrender their Voting Trust Certificates to the Trustee, and the Trustee shall deliver to the Certificate Holders shares of the Company, properly endorsed for transfer, equivalent to the amount of shares represented by the Voting Trust Certificates surrendered. 9. Number and Replacement of Trustee. The number of Trustee shall be one (1) and shall be as follows: Doreen Chiu. No Trustee may be removed from his or her office except by the affirmative vote of the Certificate Holders representing a eighty percent (80%) of the outstanding shares of the Company held by the Certificate Holders. In the event of the death, resignation, or removal of the Trustee, a successor Trustee shall be appointed by the Certificate Holders then representing a majority of the shares deposited in this Voting Trust. 10. Trustee as Shareholders and Employees. The Trustee, and the Trustee's successor, may be parties to this Agreement as Certificate Holders, and to the extent of the shares deposited by them, the Trustee and the Trustee's successor shall be entitled in all respects to the same rights and benefits as other Certificate Holders. The Trustee may serve the Company or any of its subsidiaries as a director or officer or in any other capacity, and in any such capacity receive compensation from the Company. 11. Trustee's Compensation. The Trustee shall serve without compensation of any kind except that the Trustee's expenses lawfully incurred in the administration of his or her duties as 5 Trustee shall be reimbursed to the Trustee by the Certificate Holders. 12. Regular Meetings A regular meeting of the Certificate Holders shall be held at Fremont, California on the last day of October in each year during the term of this trust. At each such meeting the Certificate Holders shall be entitled to one vote for each share transferred to the Trustee by them. All matters pertaining to this trust and the actions of the Trustee may be brought before the Certificate Holders at any such meeting. 13. Special Meetings. Special meetings of the Certificate Holders may be called by Certificate Holders representing fifty (50) percent of the shares deposited. Notice of such special meetings shall be given at least fifteen (15) days prior to the date of such meeting and the specific matters to be brought before the meeting shall be included in such notice. 14. Notices from Company. All notices, reports, statements, and other communications directed to the Trustee from the Company shall be forwarded forthwith to each Certificate Holder, with the postmarked dated and the date of receipt endorsed on the communication. 15. Copies of Agreement. This Agreement may be executed in multiple counterparts but shall not otherwise be separable or divisible. Upon the execution of this Agreement and the establishment of this Trust, the Trustee shall cause a duplicate of this Agreement and any extension thereof to be filed with the secretary of the Company, which duplicates shall be open to the inspection by a shareholder, a Certificate Holder or an agent or 6 either, on the same terms as the record of shareholders of the Company is open to inspection, and in any other manner provided for inspection under the law of California. Dated: January 1, 1993 ______________________________ DOREEN CHIU, TRUSTEE
CERTIFICATE HOLDERS Signature Name No. Of Shares ______________________ Maureen Chan 125,499 ______________________ Janet Pau Collier 83,666 ______________________ Sophia Wu 20,918 ______________________ Lai Ying Kwok Lee 150,000 ______________________ Park Keong Lee 150,000
7 EX-10.1 7 ASSUMPTION AGREEMENT EXHIBIT 10.1 ASSUMPTION AGREEMENT -------------------- THIS ASSUMPTION AGREEMENT ("Agreement") is made as of this 2nd day of September, 1992, by and between TIPPET-RICHARDSON, INC., a California corporation ("Transferor"), ATG INC., a California corporation ("Transferee"), and CONFEDERATION LIFE INSURANCE COMPANY, a corporation ("Lender"). RECITALS -------- A. Transferor is the maker of that certain Promissory Note dated November 18, 1986, as modified by that certain Modification of Note and Mortgage dated April 23, 1992, each executed by Transferor in favor of Lender, in the original principal amount of ONE MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($1,600,000.00) (collectively, the "Note"), on which there is owing an unpaid principal balance of One Million Five Hundred Sixty-Eight Thousand Two Hundred Sixty-Eight and 43/100 Dollars ($1,566,266.43) as of the date hereof, together with interest thereon. Lender is the present holder of the Note. B. The Note is secured by (1) that certain Deed of Trust, Financing statement, Security Agreement and Fixture filing (with Assignment of Rents and Leases) dated November 16, 1966 and recorded November 21, 1986 as Instrument No. 86-293089 in the Official Records of Alameda County, California, as modified by the Modification of Note and Mortgage, encumbering the real property described therein (the "Property") and presently owned by Transferor (collectively, the "Deed of Trust"); (2) that certain Assignment of Lessor's Interest in Lease dated November 16, 1986 and recorded November 21, 1966 as Instrument No. 86- 293090 in the Official Records of Alameda County, California; and (3) a UCC-1 Financing Statement. C. Transferor desires to transfer and convey the property to Transferee upon Transferee's assumption of the obligations of Transferor under the Note and Deed of Trust. D. Transferor and Transferee desire to obtain from Lender its written consent to the sale of the property to Transferee and to Transferee's assumption of the obligations of Transferor under the terms of the Note and Deed of Trust, which consent is required by the Deed of Trust. NOW, THEREFORE; in consideration of the mutual covenants and undertakings of the parties set forth below, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The foregoing recitals of facts and understandings of the parties are true and correct and are incorporated herein as the agreement of the parties. 2. The installments of principal and interest payable under the terms of the Note are paid to August 1, 1992. Transferee agrees from and after the date hereof to make all payments on the Note punctually and at the times, in the manner, and in all other respects as therein stated; to perform all of the obligations of Transferor provided in the Note, the Deed of Trust and any other document executed by Transferor evidencing or securing the Note (collectively, the "Loan Documents"), at the time, in the manner, and in all other respects as therein stated; and to be bound by all of the terms of the Note, the Deed of Trust and any other Loan Document. 3. Lender hereby consents to the conveyance and sale of the Property by Transferor to Transferee. The right of Lender to accelerate payment of the Note upon transfer of the Property from Transferor to Transferee is hereby waived by Lender solely as to said transfer. Lender reserves, and Transferee affirms, the right of Lender to exercise such right of acceleration with respect to any subsequent transfer of the Property or any part thereof or interest therein or upon the occurrence of any other event of default under the Note, the Deed of Trust or any other Loan Document. 4. The Property shall remain subject to the lien, charge, or encumbrance of the Deed of Trust and nothing contained herein or any action taken pursuant to this Agreement shall affect or be construed to affect the lien, charge, or encumbrance of the Deed of Trust or the priority thereof over other liens, charges, or encumbrances upon the Property. 5. In consideration of Lender's consent to the transfer of the Property to Transferee, Transferee shall pay (1) the sum of $15,708.78 to Lender as an assumption fee; (2) the sum of $2,500.00 to Mason-McDuffie Financial Corporation as a processing fee; (3) all attorneys' fees and costs incurred by Lender in connection with the transfer and assumption contemplated hereunder; and (4) all fees and costs for title and escrow services. 6. Notwithstanding the assumption by Transferee of Transferor's obligations under the Note, the Deed of Trust and the other Loan Documents, Transferor shall not be released from any duties, obligations and liabilities under the Note, the Deed of Trust or any other Loan Document, including, without limitation, any liability to Lender for damages sustained by Lender prior to or after the date hereof by reason of the occurrence of any act or omission of Transferor or any person or entity under the control of Transferor. In consideration of -2- Lender's consent to the transfer of the Property from Transferor to Transferee, Transferor hereby waives any and all claims, causes of action or offsets it may now be entitled to assert against Lender arising from or related in any way to the Note, the Deed of Trust or the other Loan Documents, or the transaction therein described, whether known or unknown. 7. Transferor and Transferee each represent and warrant that, to the best of their knowledge, they are not aware of any defaults under the Note, the Deed of Trust or any other Loan Document. Transferee further represents and warrants that it presently has no defense, nor does it have present knowledge of any facts that would give rise to any defense, to the obligations of Transferor that Transferee is agreeing hereunder to assume under the Note, the Deed of Trust and the other Loan Documents. 8. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 9. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. 10. This Agreement may be executed in counterparts and all documents so executed shall constitute one Agreement binding all parties, notwithstanding that all of the parties are not signatories to the same counterpart. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. TRANSFEROR TRANSFEREE TIPPET-RICHARDSON, INC., ATG INC., A California corporation a California corporation By: _________________________ By: __________________________ Its: ___________________ Its: __________________ LENDER ------ CONFEDERATION LIFE INSURANCE COMPANY, a corporation APPROVED FOR EXECUTION ___________ U.S. Mtge. Inv. By: _________________________ Its: ___________________ By: _________________________ Its: ___________________ -3- CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT (Not Scanned) STATE OF GEORGIA ) ) SS: COUNTY OF COBB ) BEFORE ME, a Notary Public in and for the said County and State, personally appeared the above named Richard C. Warner, known to me to be the Mortgage and Real Estate Vice President, and Kevin Ellis, known to me to be the Manager, Mortgage Investments of Confederation Life Insurance Company, and acknowledged the signing of the foregoing instrument to be their voluntary act and deed, and the voluntary act and deed of the said Confederation Life Insurance Company. IN TESTIMONY WHEREOF I have hereunto subscribed my name and affixed my notarial seal on the 21st day of September, 1992. ________________________________ NOTARY PUBLIC IN AND FOR Said County and State My Commission Expires: Notary Public. Cobb County, Georgia My Commission Expires September 21, 1993 BEFORE ME, a Notary Public in and for the Province of Ontario, personally appeared the above named Roger Miller, known to me to be the Secretary-Treasurer of Tippet-Richardson, Inc. and acknowledged the signing of the foregoing Instrument to be their voluntary act and deed, and the voluntary act and deed of the said Tippet-Richardson, Inc. IN TESTIMONY WHEREOF I have hereunto subscribed my name and affixed my notarial seal on the 9th day of November, 1992. ____________________________________ NOTARY PUBLIC IN AND FOR Province of Ontario My Commission does not expire THE MANAGEMENT BOARD OF CABINET I HEREBY CERTIFY AS FOLLOWS: JOSEPH PATRICK ANTHONY ANDERSON of the Province of Ontario, whose name is subscribed to the attached Instrument, was, at the time of subscribing thereto, a NOTARY PUBLIC in and for the Province of Ontario, Canada, duly commissioned and duly authorized by the laws thereof to administer oaths, to take affidavits and to certify the proof of deeds and other instruments in writing to be recorded within the said Province; I FURTHER CERTIFY THAT I have compared the signature of the said NOTARY PUBLIC subscribed to the attached Instrument with the specimen signature of the said NOTARY PUBLIC filed in this office and verily believe the said signature to be genuine; and THAT I have compared the impression of the Seal of the said NOTARY PUBLIC appearing on the attached Instrument with the specimen of the seal filed in this office and verily believe the impression of the Seal to be genuine. IN TESTIMONY WHEREOF I have hereunto set my Hand and affixed the Seal of the Management Board of cabinet of the Province of Ontario at the City of Toronto in the said Province this thirtieth day of March, A.D. 1993. FOR SECRETARY OF THE MANAGEMENT BOARD OF CABINET Canada ) Province of Ontario ) City of Toronto ) SS: CERTIFICATE OF AUTHENTICATION Consulate General of the ) (Other Official) United states of America ) I, the undersigned, ________ Consul of the united states of America at Toronto, Canada, duly commissioned and qualified, do hereby certify that IDA FIGLIANI _______________________________________________________________ whose (true) signature and seal are, respectively, subscribed and affixed to the annexed document was, at the time of (subscribing) the same FOR SECRETARY OF THE MANAGEMENT BOARD OF CABINET PROVINCE OF ONTARIO, CANADA _______________________________________________________________ to whose official acts faith and credit are due. For the contents of the annexed document, I assume no responsibility. IN WITNESS WHEREOF I have hereunto set my hand and affixed the seal of the Consulate General of the United States of America at Toronto, Canada, this 15th day of APRIL 1993. (SEAL) _______________________________ Consul of the United States of America LOIS A. GOCHNAUER EX-10.2 8 DEED OF TRUST (NON-CONSTRUCTION) EXHIBIT 10.2 RECORDING REQUESTED BY, AND WHEN RECORDED, MAIL TO: SANWA BANK CALIFORNIA OAKLAND MAIN OFFICE 2127 BROADWAY OAKLAND, CA 94612 ATTN: CRAIG C. FENDEL, VP/MGR. DEED OF TRUST (NON-CONSTRUCTION) & ASSIGNMENT OF RENTS THIS DEED OF TRUST (the "Deed of Trust") is made this 18th day of September, 1997, by and between ATG INC, (the "TRUSTOR") whose address is 4737 Fremont Boulevard, Fremont, CA 94538, FIRST BANCORP, a California corporation (the "TRUSTEE") and SANWA BANK CALIFORNIA, a California corporation (the "BENEFICIARY"). WTNESSETH THAT THE TRUSTOR IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS TO THE TRUSTEE, its successors and assigns, IN TRUST, WITH POWER OF SALE: All that property now or hereafter acquired in Alameda County, State of California, described in the attached Exhibit "A" (herein referred to as the "Property"): TOGETHER WITH, and including, without limitation: all of the buildings and improvements now or hereafter erected on the Property; all of the easements, rights, rights-of-way, privileges, franchises and appurtenances now or hereafter belonging to, or in any way appertaining, or in any way being a means of access,to said Property; all rents, issues, profits, royalties, revenue, income and other benefits of or arising from the use or enjoyment of all or any portion of the Property or buildings and improvements now or hereafter erected thereon (subject however to the right, reserved to the TRUSTOR, to collect, receive and retain such rents issues, profits, royalties, revenue, income and other benefits prior to any default hereunder or under the note referenced below or other evidence of debt secured hereby); all gas, oil, water and mineral rights, profits and stock now or hereafter derived from, appurtenant to, or pertaining to the Property (and any and all shares of stock evidencing the same); all crops now or hereafter grown on the Property; and all equipment, machinery, appliances and fixtures (including replacements and additions thereto) now or hereafter erected thereon; and All of the foregoing shall be deemed to be and shall remain a part of the Property encumbered by this Deed of Trust, and all of the foregoing, together with the Property, are hereinafter referred to as the "Premises"; FOR THE PURPOSE OF SECURING, in such order of priority as the BENEFICIARY, in its absolute discretion, may determine: 1. Payment of all obligations and indebtedness pursuant to the following: The Term Loan facility in the amount of $400,000.00 contained in that certain Term Loan Agreement dated September 18, 1997 between the TRUSTOR and the BENEFICIARY (herein referred to as the "Obligation"), and any and all amendments modifications, extensions or renewals of the Obligation (whether evidenced by the Obligation or otherwise); together with the payment of interest on such indebtedness and the payment of all other sums (with interest as therein provided) according to the terms of the Obligation (and any and all amendments modifications, extensions, or renewals thereof); 2. Payment of all other sums, with interest as herein provided, becoming due or payable, under the provisions of this Deed of Trust, to the TRUSTEE or the BENEFICIARY; 3. Due, prompt and complete observance, performance and discharge of each and every condition, obligation, covenant and agreement contained in this Deed of Trust, the Obligation and any document or instrument modifying or amending this Deed of Trust or the Obligation or otherwise evidencing, securing or pertaining to the indebtedness evidenced by the Obligation; 4. Payment of such additional sums (with interest thereon) as may hereafter be borrowed from the BENEFICIARY, or its successors or assigns, by the TRUSTOR or the then record owner of the Premises and evidenced by one or more instruments (other than the Obligation) which are by their terms secured by this Deed of Trust. TO PROTECT AND MAINTAIN THE SECURITY OF THIS DEED OF TRUST, THE TRUSTOR AGREES: 1. Payment or Obligations When Due. The TRUSTOR shall promptly pay, when due and in lawful money of the United States of America which shall be legal tender for public and private debts at the time of payment, each and every indebtedness and obligation for which this Deed of Trust has been given as security a provided hereinabove; and the TRUSTOR shall promptly perform, observe and discharge each and every condition, obligation, covenant and agreement for which this Deed of Trust has been given as security as provided herein. 2. Maintenance of Premises. The TRUSTOR shall maintain and keep the Premises in good condition and repair and shall not commit or permit waste of the whole or part of any item consisting of a part of the Premises. The TRUSTOR shall not alter, remove or demolish any buildings, improvements, machinery, equipment appliances or fixtures now or hereafter on the Property without the prior written consent of the BENEFICIARY. The TRUSTOR shall promptly repair, replace or restore (in good, workmanlike manner and in compliance with all laws, ordinances, governmental rules and regulations, easements, agreements, covenants, conditions and restrictions affecting the Premises) all buildings, improvements, machinery, equipment, appliances and fixtures now or hereafter on the Property, in the event of damage to or destruction of such buildings, improvements, machinery, equipment, appliances and fixtures. The TRUSTOR shall not commit, suffer or permit any act upon the Premises in violation of law, ordinance, governmental rules and regulations, easements, agreements, covenants, conditions and restrictions affecting the Premises or use of the Premises. The TRUSTOR shall cultivate, irrigate, fertilize, fumigate, spray, prune and do any other acts which from the character or use of the Property may be reasonably necessary. In the performance of all acts required of the TRUSTOR under the above paragraphs describing maintenance of the Premises, the TRUSTOR shall promptly pay when due all expenses incurred therefor and shall promptly pay, discharge or otherwise release all claims for labor performed and materials furnished therefor, 3. Environmental Compliance. A. Definitions. For purposes of this section, the following terms are defined as follows: (i) "Environmental Claims" shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (i) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Materials at, in or from the Property, or (ii) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. (ii) "Environmental Laws" shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety- Code. (iii) "Hazardous Materials" shall mean all those substances which are regulated by, or which may form the basis of liability under any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. B. Environmental Representations and Warranties. The TRUSTOR hereby represents and warrants that the operations and activities of the TRUSTOR on or at the Premises comply, and during the term of this Deed of Trust will at all times comply, in all respects with all Environmental Laws; the TRUSTOR has obtained licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for its ordinary operations on or at the Premises, all such Environmental Permits are in good standing, and the TRUSTOR is in compliance with all material terms and conditions of such Environmental Permits: neither the TRUSTOR nor the Property or operations are subject to any outstanding written order from or agreement with any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law. Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances existing, or arising from operations prior to the date of this Deed of Trust, with respect to the Property that would reasonably be expected to give rise to Environmental Claims. In addition, (i) the TRUSTOR does not have or maintain on the Premises any underground storage tanks which are not properly registered or permitted under applicable Environmental Laws or which are leaking or disposing of Hazardous Materials off-site, and (ii) the TRUSTOR has notified all of its employees of the existence, if any, of any health hazard arising from the conditions of their employment on or at the Premises and has met all notification requirements under Title III of CERCLA and all other Environmental Laws. C. Environmental Compliance. The TRUSTOR shall. (i) Conduct its operations on or at the Premises and keep and maintain the Property in compliance with all Environmental Laws. (ii) Give prompt written notice to the BENEFICIARY, but in no event later than 10 days after becoming aware, of the following; (a) any enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the TRUSTOR or any of its affiliates or the Property pursuant to any applicable Environmental Laws, (b) all other Environmental Claims in connection with the Property, and (c) any environmental or similar condition on any real property adjoining or in the vicinity of the Property that could reasonably be anticipated to cause such the Property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Environmental Laws. (iii) Upon the written request of the BENEFICIARY, the TRUSTOR shall submit to the BENEFICIARY, at the TRUSTOR'S sole cost and expense, at reasonable intervals, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice required pursuant to this Section. (iv) At all times indemnify and hold harmless the BENEFICIARY from and against any and all liability arising out of any Environmental Claims. 4. Insurance. The TRUSTOR shall provide, maintain and keep policies of insurance (with companies and in form, content, policy limits and terms satisfactory to the BENEFICIARY, with loss payable to the BENEFICIARY) insuring the Premises against fire (with an extended coverage endorsement), public liability, loss of rents or business interruption, flood damage (if the Property is located in a flood hazard area and if such insurance is available) and such other hazards and coverages, including earthquake, as the BENEFICIARY from time to time may reasonably require. The TRUSTOR shall promptly pay when due all premiums for such insurance, shall deliver copies of all such insurance policies, renewals of such policies and premium receipts therefor to the BENEFICIARY, and shall do all things necessary to obtain prompt settlement or disposition of any claim or loss covered under such policies. All such policies shall name the BENEFICIARY as an additional insured and shall include such endorsements as the BENEFICIARY shall deem necessary to protect its interest in the Premises. All such policies shall not be cancelable nor subject to substantial change without at least thirty (30) days' prior written notice to, and approval by, the BENEFICIARY, and the BENEFICIARY shall receive at least thirty (30) days' prior written notice of the termination of any such policy. Without waiving or curing any default in the performance of any obligation under this Deed of Trust and/or without waiving notice of any such default, the BENEFICIARY may in its absolute discretion apply the proceeds of such insurance upon any indebtedness or obligation secured under this Deed of Trust; and/or, in such order, in such manner and according to such terms and conditions as the BENEFICIARY may determine, release all or portions of such proceeds to the TRUSTOR for the repair replacement, or restoration of the Premises. 5. Payment of Taxes and Assessments. The TRUSTOR shall pay and discharge, at least ten (10) days prior to delinquency; all taxes, assessments and charges every kind and nature (including real personal property taxes); all general and special assessments, including common area maintenance assessments and assessments on appurtenant water stock; all levies and all permit, inspection and license fees; all water and sewer rents, connection fees and charges and all other public and private charges whether of a like or different nature) imposed upon or assessed against the TRUSTOR or the Premises, or any plan thereof or upon the revenues, rents, issues, income, or profits thereof or upon the inventory of goods maintained or stored thereon or therein. The TRUSTOR shall, within ten (10) days following such payment or discharge and upon the request of the BENEFICIARY, provide the BENEFICIARY with receipts therefor. Notwithstanding the foregoing, the TRUSTOR shall have the right to contest the validity or amount of any such tax, assessment or charge; provided that the validity or amount thereof is contested diligently and in good faith and provided further that the TRUSTOR shall protect the Premises against any lien arising out of any such tax, assessment or charge, or out of any such contest thereof by obtaining a bond, in form, substance, amount, and issued by a surety, satisfactory to the BENEFICIARY. 6. Litigation. The TRUSTOR shall appear in and defend any action or proceeding purporting to affect the security of this Deed of Trust and/or the rights and powers of the BENEFICIARY and/or the TRUSTEE hereunder, and the TRUSTOR shall pay all costs and expenses (including costs of evidence of title and attorneys' fees) in any action or proceeding in which the BENEFICIARY or the TRUSTEE may so appear and/or in any suit brought by the BENEFICIARY foreclose this Deed of Trust, to enforce any obligation secured by this Deed of Trust and/or prevent the breach thereof. 7. Performance of Obligations by Beneficiary or Trustee. Should the TRUSTOR fail to make any payment, perform any obligation or do any act set forth in secured by this Deed of Trust, the BENEFICIARY or the TRUSTEE (at the request of the BENEFICIARY), without obligation to do so, without notice to demand upon the TRUSTOR and without releasing the TRUSTOR from making such future payments, performing such future obligations or doing such future acts may make such payment, perform such obligation or do such act in such manner and to such extent as the BENEFICIARY or the TRUSTEE may deem necessary to protect the security of this Deed of Trust. For any and all such purposes, the BENEFICIARY and/or the TRUSTEE are authorized to enter upon the Premises, and if the Premises consists of agricultural property, the BENEFICIARY and/or the TRUSTEE are authorized to prepare for harvest, harvest, remove, and sell all crops that may be growing upon the Premises and apply the proceeds thereof to the indebtedness secured by this Deed of Trust. Without limiting the foregoing, the BENEFICIARY or the TRUSTEE may pay, purchase, contest or compromise any encumbrance, charge or lien which, in the sole judgment of the BENEFICIARY or the TRUSTEE, appears to be prior or superior to this Deed of Trust. In exercising any such power, the BENEFICIARY the TRUSTEE may pay all necessary expenses incurred therefor and employ legal counsel and pay its fees. The TRUSTOR agrees to and shall pay, immediately without demand, all sums so expended by the BENEFICIARY or the TRUSTEE, with interest, from the date of expenditure, at a rate which is three percent (3%) per annum in excess of the rate otherwise payable on such date according to the terms of the Obligation. 8. Condemnation. Any award of damages or other form of compensation awarded in connection with any condemnation for public use of, or injury to the Property and/or the buildings and improvements now or hereafter erected thereon (or any plan thereof) are hereby assigned and shall be paid directly to the BENEFICIARY, to be used, held, paid, applied or released in the absolute discretion of the BENEFICIARY and without regard to the adequacy of its security, in the same manner and with the same effect as provided herein for the disposition of insurance proceeds. In this regard, the TRUSTOR hereby waives the benefit any statute, rule or law which may be contrary thereto, and the TRUSTOR hereby agrees to execute such further assignments therefor as the BENEFICIARY require. 9. Acceptance of Late and Partial Payments. The acceptance by the BENEFICIARY of the payment of any sum secured by this Deed of Trust after its due date shall not constitute a waiver of the right to require prompt payment when due of all other and future sums so secured, or to declare a default as herein provided if any failure to so pay, or to proceed with foreclosure or sale for any other default then existing. The acceptance by the BENEFICIARY of the payment of a portion of any sum secured by this Deed of Trust at such time that such sum in its entirety is due and payable shall neither cure nor excuse the default caused by failure pay the whole of such installment or affect any notice of default recorded prior to such acceptance, unless such notice of default is expressly revoked in writing by the BENEFICIARY. Such acceptance shall not constitute a waiver of the BENEFICIARY's rights to require full payment when due of all other and future sums secured. 10). General Rights of the Beneficiary and the Trustee. At any time or from time to time, without liability therefor, without notice and without affecting the liability of any person (including the TRUSTOR) for the payment of any indebtedness, or the performance of any obligation secured by this Deed of Trust or the lien of this Deed of Trust on the Premises or any portion thereof: A. The BENEFICIARY may; (i) release any person liable for the payment of any such indebtedness or for the performance of any such obligation; (ii) extend the time or otherwise alter the terms of payment of any such indebtedness; (iii) accept additional security therefor of any kind, including deeds of trust and mortgages; and/or (iv) alter, substitute and/or release any portion of the Premises securing such indebtedness; B. The TRUSTEE may: (i) upon the written consent of the BENEFICIARY, consent to the making of any map or plot of the Property; (ii) join in granting any easements or creating any restrictions on the Property and/or (iii) join in any extension agreement or any agreement subordinating the lien or charge on this Deed of Trust. 11. Reconveyance of this Deed of Trust. Upon written request of the BENEFICIARY stating that all indebtedness secured by this Deed of Trust has been paid upon surrender of this Deed of Trust and all instruments or documents evidencing such indebtedness to the TRUSTEE for cancellation and retention and upon payment to the TRUSTEE of its fees, costs and expenses, incurred or to be incurred thereby, the TRUSTEE shall reconvey, without warranty, the Premises then he hereunder The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as the person or persons legally entitled thereto". 12. Assignment of Rents. The TRUSTOR absolutely and unconditionally hereby assigns, transfers, conveys, and sets over to the BENEFICIARY all of the rents, royalties, issues, profits, revenue, income, and other benefits of the Premises arising from the use or enjoyment of all or any portion thereof or from any lease agreement pertaining thereto (hereinafter collectively referred to as the "Rents"); reserving to the TRUSTOR only the right, prior to any default by the TRUSTOR hereunder, to collect, receive and retain the Rents as they become due and payable but not otherwise. The TRUSTOR shall, at the request of the BENEFICIARY, execute such further assignments to the BENEFICIARY of any or all such leases, agreements and Rents as the BENEFICIARY may require. Upon any such default by the TRUSTOR hereunder, the BENEFICIARY may, at any time and without notice (either in person, by agent or representative, or by receiver appointed by a court) and without regard to the adequacy of any security for the indebtedness and/or obligations secured by this Deed of Trust: enter upon and take possession of the Premises or any part thereof, in its own name or in the name of the TRUSTOR; sue for or otherwise collect the Rents (including past due and unpaid) and apply such Rents (less costs and expenses of operation and collection, including attorneys' fees and expenses) to the payment of such indebtedness secured under this Deed of Trust in such order and proportions as the BENEFICIARY in its absolute discretion may determine. The entering upon and taking possession of the Premises and the collection and application of the Rents shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. 13. Sale by Trustee of the Premises. Upon a default in the payment of any indebtedness, or the performance of any obligation, secured by this Deed of Trust, or in the event that any representation, covenant or warranty contained in this Deed of Trust or in any other document evidencing or securing the loan for which any such indebtedness is evidenced shall be or become untrue, the BENEFICIARY may (without notice to or demand upon the TRUSTOR): declare all indebtedness secured by this Deed of Trust immediately due and payable; and/or execute and record (or cause the TRUSTEE to execute and record) a notice of default and election to cause the Premises to be sold to satisfy the indebtedness and obligations secured hereby; and/or commence an action to foreclose this Deed of Trust and/or take any other action permitted by law to enforce its rights and remedies hereunder as it may deem to be appropriate. Upon the recordation of such notice of default, the BENEFICIARY shall deposit this Deed of Trust and all notes and documents evidencing such indebtedness and/or such obligations with the TRUSTEE. After the lapse of such time as may then be required by law following the recordation of the notice of default, and after the notice of the sale of the Premises have been given by the TRUSTEE as then required by law, the TRUSTEE (without demand on the TRUSTOR) shall sell the Premises at the time and place fixed in such notice of sale, either as a whole or in separate parcels, and in such order as the TRUSTEE may determine, at public auction to the highest bidder for cash in lawful money of the United States of America, payable at the time of sale. The TRUSTEE may postpone the sale of all or any portion of the Premises by public announcement at such time and place of sale and from time to time thereafter may postpone such sale by public announcement at the time and place fixed by the preceding postponement. The TRUSTEE shall deliver to the purchaser a deed conveying the Premises (or such portion thereof) so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including the TRUSTOR, the TRUSTEE, or the BENEFICIARY, may purchase at such sale. Upon such sale by the TRUSTEE, and after deducting all costs, expenses, and fees of the TRUSTEE and of this Trust (including the cost of evidence of title in connection with the sale), the TRUSTEE shall apply the proceeds from the sale to the payment of the indebtedness and obligations secured by this Deed of Trust whether evidenced by the Obligation or otherwise; sums representing advances made or expenditures made and incurred by, and not then repaid to, the BENEFICIARY or the TRUSTEE under this Deed of Trust or under any document evidencing or securing any indebtedness secured hereby, together with accrued interest thereon at the rate specified in the section of this Deed of Trust entitled "Performance of Obligations by Beneficiary or Trustee"; all other sums then secured by this Deed of Trust, together with interest as provided in any document pertaining thereto; and the remainder, if any, to the person or persons legally entitled thereto. If this Deed of Trust or the Obligation secured hereby provides for any charge for prepayment of any indebtedness secured hereby, the TRUSTOR agrees to pay said charge if any of such indebtedness shall be paid prior to the normal due date thereof stated in such Obligation or in this Deed of Trust this result shall obtain even if and notwithstanding the TRUSTOR shall have defaulted in the payment thereof or in the performance of any obligation hereunder, and the BENEFICIARY by reason of such default, shall have declared all indebtedness secured hereby immediately due and payable. 14. Acceleration of Indebtedness Upon Sale of the Premises. In the event the TRUSTOR, or any successor in interest to the TRUSTOR in the Premises secured by this Deed of Trust, sells, conveys, alienates, assigns, transfers, or disposes of the Premises, or any part thereof or any interest therein, or becomes divested of its title or any interest therein in any manner or way, or enters into a master lease covering all or any portion thereof or an undivided interest therein, whether voluntary, involuntary, or otherwise, or enters into an agreement to do so, without the prior written consent of the BENEFICIARY, then the BENEFICIARY may at its election, declare the Obligation and such other indebtedness and obligations secured by this Deed of Trust, irrespective of the maturity date specified in the Obligation or in any written agreement pertaining to the Obligation and/or such other indebtedness and obligations, immediately due and payable without notice. No Waiver of this right shall be effective unless in writing. Consent by the BENEFICIARY to one such transaction shall not constitute or be deemed to be a waiver of the rights of the BENEFICIARY provided herein, or a waiver of the requirement of the prior written consent of the BENEFICIARY, as to future or succeeding transactions. 15. Acceleration of Indebtedness Upon Change in Ownership, Control, or Membership of the Trustor. If the TRUSTOR is a corporation, trust, limited or general partnership, or joint venture, and there shall occur a sale, conveyance, transfer, disposition or encumbrance (whether voluntary or involuntary, or otherwise), or should an agreement be entered into to do so, with respect to more than ten percent (10%) of the issued and outstanding capital stock of the TRUSTOR (if a corporation), of the beneficial interest of the TRUSTOR (if a trust), or of any general or limited partnership or joint venture interest (if the TRUSTOR is a general or limited partnership or joint venture), or if there shall occur a change in any general partner or any joint venturer, or a change affecting the ownership, control, or membership of the TRUSTOR (if the TRUSTOR is a general or limited partnership or a joint venture), then the BENEFICIARY may, at it, election, declare the Obligation and such other indebtedness and obligations secured by this Deed of Trust, irrespective of the maturity date specified in the Obligation or in any written agreement pertaining to the Obligation and/or such other indebtedness and obligations, immediately due and payable, without notice, unless the BENEFICIARY shall have given its prior written consent thereto. Consent to one such transaction shall not constitute or be deemed to be a waiver of the right to require such consent as to future or succeeding transactions. 16. Acceleration of Indebtedness Upon an Event of Bankruptcy or Insolvency. The TRUSTOR agrees that the BENEFICIARY may, at its election, declare the Obligation and such other indebtedness and obligations secured by this Deed of Trust, irrespective of the maturity date specified in the Obligation or in any written agreement pertaining to the Obligation and/or such other indebtedness and obligations, immediately due and payable, without notice: if any proceeding under the Bankruptcy Code, or under any present or future federal, state or other statute, law or regulation pertaining to bankruptcy, insolvency or other relief for debtors shall be instituted by or against the TRUSTOR or any other person who may be liable (by way of guaranty, assumption, endorsement or otherwise) upon the Obligation and/or such other indebtedness and obligations secured hereby; and/or if a receiver, trustee or custodian shall be appointed for the TRUSTOR or such other person shall make an assignment for the benefit of creditors and if such proceeding or receiver, trustee or custodian shall not be dismissed, or such assignment shall not be voided, within sixty (60) days of such institution, appointment or making. 17. Successor Trustees. The BENEFICIARY, acting alone, may, from time to time, by instrument in writing, substitute a successor or successors to any Trustee named herein or acting hereunder, Such instrument, executed, acknowledged and recorded in the manner required by law, shall be conclusive proof of proper substitution of such successor Trustee or Trustees, who shall (without conveyance from the preceding Trustee) succeed to all of the tide, estate, rights, powers and duties of such preceding Trustee, Such instrument must contain the name of the original Trustor, Trustee and Beneficiary hereunder, the book and page where this Deed of Trust is recorded and the name and address of the new Trustee. If a notice of default has been recorded, this power of substitution cannot be exercised until after the costs, fees, and expenses of the then acting Trustee have been paid to such Trustee, who shall endorse receipt thereof upon such instrument of substitution. 18. Cumulative Remedies; Additional Security. No remedy herein conferred upon or reserved to the parties to this Deed of Trust is intended to be exclusive of any other remedy provided herein or by law. Each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission of the TRUSTEE or the BENEFICIARY in the exercising of any right or power accruing upon any event of default hereunder shall impair such right or power or any other right or power, nor shall such delay or omission be construed or deemed to be a waiver of any default or any acquiescence therein. If there exists additional security for the indebtedness and obligations secured by this Deed of Trust, the BENEFICIARY, at its election and without limiting or affecting any of its rights or remedies hereunder, may exercise any of the rights and remedies to which the BENEFICIARY may be entitled hereunder--either BENEFICIARY may deem fit without waiving any rights or remedies with respect to any other security. 19. Partial Invalidity of this Deed of Trust. In the event any one or more of the provisions of this Deed of Trust, the Obligation, or any other document evidencing the indebtedness and obligations secured hereby shall for any reason be held to be invalid, illegal and/or unenforceable in any respect, such invalidity, illegality and/or unenforceability shall not affect any other provision of this Deed of Trust, the Obligation, or any such other document, and such other provisions shall remain binding and enforceable and shall continue in effect. 20. Application of California Law. This Deed of Trust has been executed and delivered in the State of California and is to be construed, enforced and governed according to and by the laws of California. 21. Miscellaneous Provisions. A. This Deed of Trust applies to, inures to the benefit of and binds all parties hereto and their respective heirs, legatees, devisees, administrators, executors, successors and assigns. The term Beneficiary as used herein shall mean the owner and holder, including pledgees, of the Obligation or any other indebtedness secured hereby, whether or not named as the Beneficiary herein. B. The headings and captions of the paragraphs of this Deed of Trust are for reference purposes only and shall not be construed or deemed to define or limit any of the terms and provisions contained thereunder. Whenever in this Deed of Trust the context so requires, the gender used includes the masculine feminine, and/or neuter and the number so used includes the singular and/or the plural. C. Any Trustor who is married hereby expressly agrees that recourse may be had against such person's separate property, but without thereby creating any lien or charge thereon for any deficiency after sale of the Premises as herein provided. D. The pleading of any statute of limitations as a defense to any and all indebtedness and/or obligations secured by this Deed of Trust is hereby waived to the fullest extent permissible by law. E. In the event of the passage, after the date of this Deed of Trust, of any law deducting from the value of real property, for tax purposes, any lien or charge thereon, or changing in any way the laws now existing for the taxation of deeds of trust or indebtedness secured by deeds of trust for federal, state or local purposes, or changing the manner of collection of any such taxes as to affect this Deed of Trust or the indebtedness secured hereby, the TRUSTOR agrees to pay such tax arising from such new law; and if the TRUSTOR fails to do so or if it would be illegal for the TRUSTOR to do so, the BENEFICIARY may, a its election and without demand or notice, declare the entire indebtedness secured by this Deed of Trust (together with accrued interest thereon) immediately, due and payable. F. The TRUSTEE accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made a public record as provided by law. The TRUSTEE is not obligated to notify any party to this Deed of Trust of a pending sale under any other deed of trust or of any action or proceeding in which the TRUSTOR, the BENEFICIARY and/or the TRUSTEE is a party, unless brought by the TRUSTEE hereunder. G. The TRUSTOR requests that a copy of any notice of default or any notice of sale thereunder be mailed to the TRUSTOR at the address first reference and set forth herein, or at such other address as the TRUSTOR may, from time to time, notify the TRUSTEE by certified United States mail. IN WITNESS WHEREOF, this Deed of Trust is executed as of the date first hereinabove written, TRUSTOR: ATG INC. By: __________________________________ Doreen Chiu, President ATTACH NOTARY ACKNOWLEDGEMENTS CERTIFICATE OF ACKNOWLEDGMENT STATE OF CALIFORNIA ) ) ss COUNTY OF _____________________) On __________________________, 19___ before me, _______________________________ personally appeared Doreen Chin, personally known to me (or proved to me on the basis of satisfactory evidence) (0 be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature _____________________________________ (Seal) EXHIBIT "A" DESCRIPTION OF REAL PROPERTY DEED OF TRUST All that real property located in the County of Alameda, State of California, legally described as follows: Parcel 1, Parcel Map 4703, filed November 22, 1985, Map Book 157, Pages 57-58, Alameda County Records. Excepting therefrom: Reserving to the Grantor and its successors and assigns all oil, gas, mineral, geothermal, and hydrocarbon substances in and under or that may be produced below a depth of 500 feet below the surface of said property without any right of entry upon the surface of said land for the purposes of mining, drilling, exploring or extracting such oil, gas, mineral, geothermal, or hydrocarbon substances and without any right to the use of or rights in or to any portion of the surface of said land to a depth of 500 feet below the surface thereof reserved by King and Lyons, a California general partnership, recorded November 22, 1985, Series No, 85-251319. A,P, No, 519-1693-021 EX-10.3 9 DEED OF TRUST EXHIBIT 10.3 DEED OF TRUST (PARTICIPATION) THIS DEED OF TRUST, made this 5TH day of AUGUST 1993, by and between ATG INC., A CALIFORNIA CORPORATION, WHO ACQUIRED TITLE AS ALLIED NUCLEAR INC., AS TO PARCEL A; AND ALLIED TECHNOLOGY GROUP, INC. ALSO KNOWN AS ATG INC., A CALIFORNIA CORPORATION, AS TO PARCELS B AND C. hereinafter referred to as "Grantor," whose address is 2025 BATTELE BLVD., RICHLAND, WA 99352... CHICAGO TITLE INSURANCE COMPANY hereinafter referred to as "Trustee," whose address is PO BOX 6740, KENNEWICK, WA 99336 WEST ONE BANK, EASTERN WA/FORMERLY: BEN FRANKLIN NATIONAL BANK hereinafter referred to as "Beneficiary," who maintains an office and place of business at PO BOX 2487, PASCO, WA 99302 (3525 W COURT) in participation with the Small Business Administration, an agency of the United States. WITNESSETH, that for and in consideration of $1.00 and other good and valuable consideration, receipt or which is hereby acknowledged, the Grantor does hereby bargain, sell, grant, assign, and convey unto the Trustee, his successors and assigns, all of the following described property situated and being in the County of BENTON State of WASHINGTON: **SEE ATTACHED LEGAL DESCRIPTION** THE REAL PROPERTY DESCRIBED HEREIN IS NOT PRINCIPALLY USED FOR AGRICULTURAL OR FARMING PURPOSES Together with and including all buildings, all fixtures, including but not limited to all plumbing, heating, lighting, ventilating, refrigerating, incinerating, air conditioning apparatus and elevators (the Trustor hereby declaring that it is intended that the Items herein enumerated shall be deemed to have been permanently installed as part of the realty), and all improvements now or hereafter existing thereon; the hereditaments and appurtenances and all other rights thereunto belonging, or in anywise appertaining, and the reversion and reversions, remainder and remainders, and the tents, issues, and profits of the above described property to have and to hold the same unto the Trustee, and the successors in interest of the Trustee, forever, in fee simple or such other estate, if any, as is stated herein trust, to secure the payment of a promissory note of this date, in the principal sum of $ SEVEN HUNDRED FIFTY THOUSAND DOLLARS AND NO/100* ($750,000.00) signed by ATG, INC., d.b.a. ALLIED TECHNOLOGY GROUP, INC. AND ATG RICHLAND INC., ALLIED ECOLOGY SERVICES, INC., NATURAL SAFETY CONSULTANTS INC. ____________________________________ DOREEN CHIU-PRESIDENT ____________________________________ FRANK CHIU-VICE PRESIDENT/SEC & TREAS. 1 1. This conveyance is made subject to the further trust that the said Grantor shall remain in quiet and peaceable possession of the above granted and described premises and take the profits thereof to his own use until default be made in any payment of an installment due on said note or in the performance of any or the covenants or conditions contained therein or in this Deed of Trust; and, also to secure the reimbursement of the Beneficiary or any other holder of said note, the Trustee or any substitute trustee of any and all costs and expenses incurred, including reasonable attorney's fees, on account of any litigation which may arise with respect to this Trust or with respect to the indebtedness evidenced by said note, the protection and maintenance of the property hereinabove described or in obtaining possession of said property after any sale which may be made as hereinafter provided. 2. Upon the full payment of the indebtedness evidenced by said note and the interest thereon, the payment of all other sums herein provided for, the repayment of all monies advanced or expended pursuant to said note or this instrument, and upon the payment of all other proper costs, charges, commissions, and expenses, the above described property shall be released and reconvened to and at the cost of the Grantor. 3. Upon default in any of the convenants or conditions of this instrument or of the note or loan agreement secured hereby, the Beneficiary or his assigns may without notice and without regard to the adequacy of security for the indebtedness secured, either personally or by attorney or agent without bringing any action or proceeding, or by a receiver to be appointed by the court, enter upon and take possession of said property or any part thereof, and do any acts which Beneficiary deems proper to protect the security hereof, and either with or without taking possession of said property, collect and receive the rents, royalties, issues, and profits thereof, including rents accrued and unpaid, and apply the same, less costs of operation and collection, upon the indebtedness secured by this Deed of Trust, said rents, royalties, issues, and profits, being hereby assigned to the beneficiary as further security for time payment of such indebtedness. Exercise of rights under this paragraph shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice but shall be cumulative to any right and remedy to declare a default and to cause notice of default to be recorded as hereinafter provided, and cumulative to any other right and/or remedy hereunder, or provided by law, and may be exercised concurrently or independently. Expenses incurred by Beneficiary hereunder including reasonable attorney's fees shall be secured hereby. 4. The Grantor covenants and agrees that if he shall fail to pay said indebtedness, or any part thereof, when due, or shall fail to perform any covenant or agreement of this instrument or of the promissory note secured hereby, the entire indebtedness hereby secured shall immediately become due, payable, and collectible without notice, at the option of the Beneficiary or assigns, regardless of maturity, and the Beneficiary or assigns may enter upon said property and collect the rents and profits thereof. Upon such default in payment or performance, and before or after such entry, the Trustee, acting in the execution of this Trust, shall have the power to sell said property, and it shall be the Trustee's duty to sell said property (and in case of any default of any purchaser, to resell) at public auction, to the highest bidder, first giving four weeks' notice of the time, terms, and place of such sale, by advertisement not less than once during each of said four weeks in a newspaper published or distributed in the county or political subdivision in which said property is situated, all other notice being hereby waived by the Grantor (and the Beneficiary or any person on behalf of the Beneficiary may bid and purchase at such sale). Such sale will be held at a suitable place to be selected by the Beneficiary within said county or political subdivision. The Trustee is hereby authorized to execute and deliver to the purchaser at such sale a sufficient conveyance of said property, which conveyance shall contain recitals as to the happening of default upon which the execution of the power of sale herein granted depends; and the said Grantor hereby constitutes and appoints the Trustee as his agent and attorney in fact to make such recitals and to execute said conveyance and hereby covenants and agrees that the recitals so made shall be binding and conclusive upon the Grantor, and said conveyance shall be effectual to bar all equity or right of redemption, homestead dower, right of appraisement, and all other rights and exemptions, of the Grantor, all of which are hereby expressly waived and conveyed to the Trustee. In the event of a sale as hereinabove provided, the Grantor, or any person in possession under the Grantor, shall then become and be tenants holding over and shall forthwith deliver possession to the Purchaser at such sale or be summarily dispossessed, in accordance with the provisions of law applicable to tenants holding over. The power and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, and are granted as cumulative to all other remedies for the collection of said indebtedness. The Beneficiary or Assigns may take any other appropriate action pursuant to state or Federal statute either in state or Federal court or otherwise for the disposition of the property. 5. In the event of a sale as provided in paragraph 4, the Trustee shall be paid a fee by the Beneficiary in an amount not in excess of percent of the gross amount of said sale or sales, provided, however, that the amount of such fee shall be reasonable and shall be approved by the Beneficiary as to reasonableness. Said fee shall be in addition to the costs and expenses incurred by the Trustee in conducting such sale. The amount of such costs and expenses shall be deducted and paid from the sale's proceeds. It is further agreed that if said property shall be advertised for sale as herein provided and not sold, the Trustee shall be entitled to a reasonable fee, in an amount acceptable to the Beneficiary for the services rendered. The Trustee shall also be reimbursed by the Beneficiary for all costs and expenses incurred in connection with the advertising of said property for sale if the sale is not consummated. 6. The proceeds of any sale of said property in accordance with paragraph 4 shall be applied first to payments of fees, costs, and expenses of said sale, the expenses incurred by the Beneficiary for the purpose of protecting or maintaining said property and reasonable attorneys' fees; secondly, to payment of the indebtedness secured hereby; and thirdly, to pay any surplus or excess to the person or persons legally entitled thereto. 7. In the event said property is sold pursuant to the authorization contained in this instrument or at a judicial foreclosure sale and the proceeds are not sufficient to pay the total indebtedness secured by this instrument and evidenced by said promissory note, the Beneficiary will be entitled to a deficiency judgement for the amount of the deficiency without regard to appraisement, the Grantor having waived and assigned all rights of appraisement to the Trustee. 8. The Grantor covenants and agrees as follows: a. He will promptly pay the indebtedness evidenced by said promissory note at the times and in the manner therein provided. b. He will pay all taxes, assessments, water rates, and other governmental or municipal charges, fines or impositions, for which provision has not been made hereinbefore, and will promptly deliver the official receipts therefor to the Beneficiary. c. He will pay such expenses and fees as may be incurred in the protection and maintenance of said property, including the fees of any attorney employed by the Beneficiary for the collection of any or all of the indebtedness hereby secured, of such expenses and fees as may be incurred in any foreclosure sale by the Trustee, or court proceedings or in any other litigation or proceeding affecting said property, and attorney's fees reasonably incurred in any other way. d. The rights created by this conveyance shall remain in full force and effect during any postponement or extension of the time of the payment of the indebtedness evidenced by said note or any part thereof secured hereby. e. He will continuously maintain hazard insurance of such type or types and in such amounts as the Beneficiary may from time to time require, on the improvements now or hereafter on said property, and will pay promptly when due any premiums therefor. All insurance shall be carried in companies acceptable to Beneficiary and the policies and renewals thereof shall be held by Beneficiary and have attached thereto loss payable clauses in favor of and in form acceptable to the Beneficiary. In the event of loss, Grantor will give immediate notice in writing to Beneficiary and Beneficiary may make proof of loss if not made promptly by Grantor, and each insurance company concerned is hereby authorized and directed to make payment for such loss directly to Beneficiary instead of to Grantor and Beneficiary jointly, and the insurance proceeds, or any part thereof, may be applied by Beneficiary at its option either to the reduction of the indebtedness hereby secured or to the restoration or repair of the property damaged. In the event of a Trustee's sale or other transfer or title to said property in extinguishment of the indebtedness secured hereby, all right, title, and interest of the Grantor in and to any insurance policies than in force shall pass at the option of the Beneficiary to the purchaser or Beneficiary. f. He will keep the said premises in as good order and condition as they are now and will not commit or permit any waste thereof, reasonable wear and tear excepted, and in the event of the failure of the Grantor to keep the buildings on said premises and those to be erected on said premises, or improvements thereon, in good repair, the Beneficiary may make such repairs as in the Beneficiary's discretion it may deem necessary for the proper preservation thereof, and any sums paid for such repairs shall bear interest from the date of payment at the rate specified in the note, shall he due and payable on demand and shall be fully secured by this Deed of Trust. g. He will not without the prior written consent of the Beneficiary voluntarily create or permit to be created against the property subject to this Deed of Trust any liens inferior or superior to the lien of this Deed of Trust and further that he will keep and maintain the same free from the claim of all persons supplying labor or materials which will enter into the construction of any and all buildings now being erected or to be erected on said premises. h. He will not rent or assign any part of the rent of said property or demolish, remove, or substantially alter any building without the written consent of the Beneficiary. 9. In the event the Grantor fails to pay any Federal, state, or local tax assessment, income tax or other fails tax lien charge, fee, or other expense charged to the property hereinabove described, the Beneficiary is hereby authorized to pay the same and any sum so paid by the Beneficiary shall be added to and become a part of the principal amount of the indebtedness evidenced by said promissory note. If the Grantor shall pay and discharge the indebtedness evidenced by said promissory note, and shall pay such sums and shall discharge all taxes and liens and the costs, fees, and expenses of making, enforcing and executing this Deed of Trust, then this Deed of Trust shall be canceled and surrendered. 10. The Grantor covenants that he is lawfully seized and possessed of and has the right to sell and convey said property; that the same is free from all encumbrances except as hereinabove recited; and that he hereby binds himself and his successors in interest to warrant and defend tile title aforesaid thereto and every part thereof against the lawful claims of all persons whomsoever. 11. For better security of the indebtedness hereby secured the Grantor, upon the request of the Beneficiary, its successors or assigns, shall execute and deliver a supplemental mortgage or mortgages covering any additions, improvements, or betterments made to the property hereinabove described and all property acquired after the date hereof (all in form satisfactory to Grantee). Furthermore, should Grantor fail to cure any default in the payment of a prior or inferior encumbrance on the property described by this instrument, Grantor hereby agrees to permit Beneficiary to cure such default, but Beneficiary is not obligated to do so; and such advances shall become part of the indebtedness secured by this instrument, subject to the same terms and conditions. 12. That all awards of damages in connection with any condemnation for public use of or injury to any of said property are hereby assigned and shall be paid to Beneficiary, who may apply the same to payment of the installments last due under said note, and the Beneficiary is hereby authorized, in the name of the Grantor, to execute and deliver valid acquittances thereof and to appeal from any such award. 13. The irrevocable right to appoint a substitute trustee or trustees is hereby expressly granted to the Beneficiary, his successors or assigns, to be exercised at any time hereafter without notice and without specifying any reason therefor, by filing for record in the office where this instrument is recorded an instrument of appointment. The Grantor and the Trustee herein named or that allay hereinafter be substituted hereunder expressly waive notice of the exercise of this right as well as any requirement or application to any court for the removal, appointment or substitution of any trustee hereunder. 14. Notice of the exercise of any option granted herein to the Beneficiary or to the holder of the note secured hereby is not required to be given the Grantor, the Grantor having hereby waived such notice. 15. If more than one person joins in the execution of this instrument as Grantor or if anyone so joined be of the feminine sex, the pronouns and relative words used herein shall be read as if written in the plural or feminine, respectively, and the term "Beneficiary" shall include any payee of the indebtedness hereby secured or any assignee or transferee thereof whether by operation of law or otherwise. The covenants herein contained shall bind and the rights herein granted or conveyed shall inure to the respective heirs, executors, administrators, successors, and assigns of the parties hereto. 16. In compliance with section 101.1(d) of the Rules and Regulations of the Small Business Administration [13 C.F.R. 101.(d)], this instrument is to be construed and enforced in accordance with applicable Federal law. 17. A judicial decree, order, or judgment holding any provision or portion of this Instrument invalid or unenforceable shall not in any way impair or preclude the enforcement of the remaining provisions or portions of this instrument. IN WITNESS WHEREOF, the Grantor has executed this instrument and the Trustee and Beneficiary have accepted the delivery of this instrument as of the day and year aforesaid. ATG INC., A CALIFORNIA CORPORATION, WHO ACQUIRED TITLE AS ALLIED NUCLEAR, INC. AS TO PARCEL A; AND ALLIED TECHNOLOGY GROUP, INC., ALSO KNOWN AS ATG INC., A CALIFORNIA CORPORATION, AS TO PARCELS B AND C. ______________________________________ DOREEN CHIU-PRESIDENT ______________________________________ VICE PRESIDENT/SEC & TREAS. FRANK CHIU- Executed and delivered in the presence of tile following witnesses: _______________________________________ _______________________________________ (Add Appropriate Acknowledgment) STATE OF WASHINGTON COUNTY OF FRANKLIN On this day before me, the undersigned Notary Public, personally appeared Doreen Chiu-President and Frank Chiu-Vice President/Sec & Treas. for ATG, INC., known to me to the individuals described in and who executed the within and foregoing instrument and acknowledged that they signed the agreement as their voluntary act and deed, for the uses and purposes therein mentioned. Given under my hand and official seal this 5th day of August, 1993. By: Residing in: Notary Public in and for the State of Washington. My commission expires: Order No.: 40816-SW "EXHIBIT I" PARCEL A: - -------- That portion of the Northwest quarter of section 22, Township 10 North Range 28 East, W.M., described as follows: Beginning at the North quarter corner of said Section 22, thence along the North line of said Section 22, South 89 degrees 41'20" West, 370.00 feet; thence South 00 degrees 27'46" East, parallel to the East line of said Northwest quarter, 40.00 feet to the True point of beginning; thence continuing South 00 degrees 27'46" East, 417.42 feet, thence South 89"41'20~' West, 417.42 feet; thence North 00 degrees 27'46" West, 417.42 feet, to a point 40.00 feet South of the North line of said Section 22; thence North 89 degrees 41'20" East, 417.42 feet to the True Point of Beginning. PARCEL B: - -------- That portion of the Northwest quarter of Section 22, Township 10 North, flange 28 East, W.M., Benton county, Washington, described as follows: Beginning at the North quarter corner of said Section 22; thence South 89 degrees 41'20" West 787.42 feet along the North line of said Section 22; thence South 00 degrees 27'51" East 40.00 feet, parallel to the East line of said Northwest quarter and the True Point of Beginning. Thence continuing South 00 degrees 27'51" East, 417.42 feet; thence South 89 degrees 41'20" West, 417.42 feet; thence North 00 degrees 27'51" West 471.42 feet, to a point 40.00 feet South of tile North line of said Section 22; thence North 89 degrees 41'20" East, 417.42 feet to the True Point of Beginning. PARCEL C: - -------- That portion of the Northwest quarter of Section 22, Township 10 North, flange 28 East, W.M., Benton county, Washington, described as follows: Beginning at the North quarter corner of said Section 22; thence South 89 degrees 41'20" West, 1,539.71 feet along the North line of said Section 22; thence South 00 degrees 30'26" East, 40.00 feet to the True Point of Beginning; thence continuing South 00 degrees 30'26" East, 745.00 feet; thence North 89 degrees 41'20" East, 1169.12 feet; thence North 00 degrees 27'51" West, 327.58 feet to the Southeast corner of a record of survey, recorded in Volume 1 of Surveys, page 1192, records of Benton county, Washington; thence South 89 degrees 41'20" West, 834.84 feet; along the South line of said record of Survey No. 1192 to the southwest corner of record of a survey, recorded in Volume 1 of Surveys, page 1277, records of Benton county, Washington; thence North 00 degrees 27'5l" Nest along the West line of said record of Survey No. 1277; 417.42 feet to the Northwest corner of said record of Survey No. 1277; thence South 8904112019 West, 334.84 feet to the Point of Beginning. ATG, INC. d.b.a. ALLIED TECHNOLOGY GROUP, INC. AND ATG RICHLAND, INC., ALLIED ECOLOGY SERVICES, INC., NATURAL SAFETY CONSULTANTS, INC. _________________________ _________________________________________ DOREEN CHIU-PRESIDENT FRANK CHIU-VICE PRESIDENT/SEC & TREAS. EX-10.4 10 ACCOUNTS RECEIVABLE CREDIT AGREEMENT EXHIBIT 10.4 Sanwa Bank California ACCOUNTS RECEIVABLE CREDIT AGREEMENT This Accounts Receivable Credit Agreement ("Agreement") is made and entered into this 19th day of April 1996 by and between SANWA BANK CALIFORNIA (the "Bank") and ATG INC. (the "Borrower"). SECTION I DEFINITIONS 1.01. Certain Defined Terms. Unless elsewhere defined in this Agreement the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined): A. "Account Debtor" shall mean the person or entity obligated to the Borrower upon an account. B. "Advance" shall mean an advance to the Borrower under any line of credit facility or similar facility provided for in Section II of this Agreement which provides for draws by the Borrower against an established credit line. C. "Borrowing Base" shall mean, as determined by the Bank from time to time, the lesser of: (i) 90% of the aggregate amount of Eligible Accounts of the Borrower; or (ii) $4,000,000.00. D. "Business Day" shall mean a day, other than a Saturday or Sunday, on which commercial banks are open for business in California. E. "Collateral" shall mean the property in which the Bank is granted a security interest pursuant to provisions of the section herein entitled "Collateral", together with any other personal or real property in which the Bank may be granted a lien or security interest to secure payment of the Obligations. F. "Debt" shall mean all liabilities of the Borrower less Subordinated Debt. G. "Effective Tangible Net Worth" shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense and similar intangible items). H. "Eligible Account" shall mean, at any time, the gross amount, less returns, discounts, credits or offsets of any nature, of the trade accounts owing to the Borrower by Account Debtors containing selling terms not exceeding 30 days but excluding the following: (i) Accounts with respect to which the Account Debtor is an officer, employee or agent of the Borrower. (ii) Accounts with respect to which goods are placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor may be conditional. (iii) Accounts with respect to which the Account Debtor is not a resident of the United States except to the extent such accounts are supported by adequate Eximbank insurance or other insurance acceptable to the Bank or by irrevocable letters of credit issued by banks satisfactory to the Bank. (iv) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with, the Borrower or its shareholders, officers or directors. (v) Accounts with respect to which the Borrower is or may become liable to the Account Debtor for goods bold or services rendered by the Account Debtor to the Borrower. (vi) That portion of the accounts of any single Account Debtor that exceeds 15% of all of the Borrower's accounts. (vii) Accounts which have not been paid in full within 60 days from the date payment was due or 90 days from the original date of invoice, whichever is less. (viii) All accounts of any single Account Debtor if 25% or more of the dollar amount of all such accounts are represented by accounts which have not been paid in full within 60 days from the date payment was due or 90 days from the original date of invoice, whichever is less. (ix) Accounts which are subject to dispute, counterclaim or setoff. (x) Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor. (xi) Accounts with respect to which the Bank, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory. (xii) Accounts of any Account Debtor who has filed or had filed against it a petition in bankruptcy, or an application for relief under any provision of any state or federal bankruptcy, insolvency or debtor-in-relief acts; or who has had appointed a trustee, custodian or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due. (xiii) Accounts for which recoverable costs and accrued profit on progress completed have not been billed to the Account Debtor. (xiv) Accounts with respect to which the Account Debtor is the United States or any department or agency thereof, except any such accounts which have been properly assigned to the Bank pursuant to the Assignment of Claims Act and for which the Bank is receiving payments under such accounts directly from the Account Debtor. I. "Environmental Claims" shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (i) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Materials at, in, or front property owned, operated or controlled by the Borrower, or (ii) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. J. "Environmental Claim" shall mean all federal, state or local law, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right- to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code. K. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the content otherwise requires) any rules or regulations promulgated thereunder. L. "Event of Default" shall have the meaning set fort in the section herein entitled "Events of Default". M. "Hazardous Materials" shall mean, all those substances which are regulated by, or which may form the basis of liability under any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum, or petroleum derived substance or waste. N. "Indebtedness" shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which the Borrower is liable, continently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss and (ii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, continently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss. O. "Obligations" shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement. P. "Permitted Liens" shall mean: (i) liens and security interests security indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges either not yet due or being contested in good faith, provided proper reserves are maintained therefor in accordance with generally accepted accounting procedure; (iii) liens of materialmen, mechanics, warehousemen, or carrier: or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the ordinary course of business to secure Indebtedness outstanding on the date hereof or permitted to be incurred pursuant to this Agreement: (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bulk in writing; and (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Borrower's assets. Q. "Reference Rate" shall mean an index for a variable interest rate which is quoted, published or announced from time to time by the Bank as its reference rate and as to which loans may be made by the Bank at, below or above such reference rate. R. "Subordinated Debt" shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank. 1.02. Accounting Terms. All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 1.03. Other Terms. Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code. SECTION II CREDIT FACILITIES 2.01. Commitment to Lend. Subject to the terms and conditions of this Agreement and so long as no Event of Default occurs, the Bank agrees to extend to the Borrower the credit accommodations that follow. 2.02. Accounts Receivable Line of Credit Facility. The Bank agrees to make loans and Advances to the Borrower, upon the Borrower's request therefor made prior to the Expiration Date (as defined below in this Section 2.02), against the Eligible Accounts of the Borrower, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, the Borrower may borrow, partially or wholly prepay, and reborrow under this Accounts Receivable line of Credit facility. A. Purpose. Advances made under this Accounts Receivable Line of Credit shall be used for working capital. B. Interest Rate. Interest shall accrue on the outstanding principal balance of Advances under this Accounts Receivable Line of Credit at a variable rate equal to the Bank's Reference Rate, as it may change from time to time, plus 1.000% per annum. (Such rate is refereed to in this Section 2.02 as the "Variable Rate".) The Variable Rate shall be adjusted concurrently with any change in the Reference Rate. Interest shall be calculated on the basis of 360 days per year but charged on the actual number of days elapsed. C. Payment of Interest. The Borrower hereby promises and agrees to pay interest monthly on the last day of each month, commencing on April 30, 1996. D. Repayment of Principal. Unless sooner due in accordance with the terms of this Agreement, on April 30, 1997 the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal balance of all Advances then outstanding, together with all accrued and unpaid interest thereon. In addition to the above payments, if at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, the Borrower hereby promises and agrees, immediately upon written or telephonic notice from the Bank, to pay to the Bank an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. Any payment received by the Bank shall, at the Bank's option, first be applied to pay any late fees or other fees then due and unpaid, and then to interest then due and unpaid and the remainder thereof (if any) shall be applied to reduce principal. E. Late Fee. If any regularly scheduled payment of principal and/or interest (exclusive of the final payment upon maturity), or any portion thereof, under this Accounts Receivable Line of Credit is not paid within ten (10) calendar days after it is due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable. F. Making Line Advances/Notice or Borrowing. Each Advance made hereunder shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of the Borrower maintained with the Bank or (ii) when paid in accordance with the Borrower's written instructions. Subject to any other requirements set forth in this Agreement, Advances shall be made by the Bank upon telephonic or written notice received from the Borrower in form acceptable to the Bank, which notice shall be received not later than 2:00 p.m. (California Tune) on the date specified for such Advance, which date shall be a Business Day. Requests for Advances received after such time may, at the Bank's option, be deemed to be a request for an Advance to be made on the next succeeding Business Day. G. Facility Fees. The following fees for this facility shall be paid in cash upon execution of this Agreement or prior to funding of this facility: Loan Fees in the amount of 56,250.00. H. Expiration of the Accounts Receivable line of Credit Facility. Unless earlier terminated in accordance with the terms of this Agreement, the Bank's commitment to make Advances to the Borrower hereunder shall automatically expire on April 30, 1997 (the Expiration Date"), and the Bank shall be under no further obligation to advance any monies thereafter. I. Line Account. The Bank shall maintain on its books a record of account in which the Bank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the Accounts Receivable Line of Credit facility (the "Line Account"). The Bank shall provide the Borrower with a monthly statement of the Borrower's Line Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Bank is notified by the Borrower to the contrary within thirty (30) days after the Borrower's receipt of any such statement which is deemed to be incorrect. J. Amounts Payable on Demand. If the Borrower fails to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and without waiving any default occasioned by the Borrower's failure to pay such amount, create an Advance in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided under this Accounts Receivable Line of Credit facility. In addition, the Borrower hereby authorizes the Bank if and to the extent payment owed to the Bank under this Accounts Receivable Line of Credit facility is not made when due, to charge, from time to time, against any or all of the deposit accounts maintained by the Borrower with the Bank any amount so due. SECTION III COLLATERAL 3.01. Grant or Security Interest. To secure payment and performance of all of the Borrower's Obligations under this Agreement and the performance of all the terms, covenants and agreements contained in this Agreement (and any and all modifications, extensions and renewals of the Agreement) and in any other document, instrument or agreement evidencing or related to the Obligations or the Collateral, and also to secure all other liabilities, loans, guarantees, covenants and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created, the Borrower hereby grants to the Bank a security interest in and to all of the following property: A. Equipment. All goods and equipment ("Equipment") now owned or hereafter acquired by the Borrower or in which the Borrower now has or may hereafter acquire any interest including, but not limited to all machinery, furniture furnishings, fixtures, tools, supplies and motor vehicles of every kind and description and all additions, accessions, improvements, replacements and substitutions thereto and thereof. B. Inventory. All inventory ("Inventory") now owned or hereafter acquired by the Borrower including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Borrower's custody or possession, together with all returns on accounts. C. Accounts and Contract Rights. All accounts and contract rights now owned or hereafter created or acquired by the Borrower, including but not Limited to, all receivables and all rights and benefits due to the Borrower under any contract or agreement. D. General Intangibles. All general intangibles now owned or hereafter created or acquired by the Borrower, including but not limited to, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records. E. Chattel Paper and Documents. All documents, instruments and chattel paper now owned or hereafter acquired by the Borrower. F. Monies and other Property in Possession. All monies, and property of the Borrower now or hereafter in the possession of the Bank or the Bank's agents, or any one of them, including, but not limited to, all deposit accounts, certificates of deposit, stocks, bonds, indentures, warrants, options and other negotiable and non-negotiable securities and instruments, together with all stock rights, rights to subscribe, liquidating dividends, cash dividends, payments, dividends paid in stock, new securities or other property to which the Borrower may become entitled to receive on account of such property. 3.02. Continuing Lien & Proceeds. The Bank's security interest in the Collateral shall be a continuing lien and shall include all proceeds and products of the Collateral including, but not Limited to, the proceeds of any insurance thereon as well as all accounts, contract rights, documents, instruments and chattel paper resulting from the sale or disposition of any Equipment. 3.03. Exclusion of Consumer Debt. The Obligations and performance secured hereby shall not include any indebtedness of the Borrower incurred for personal, family or household purposes except to the extent any disclosure required under any consumer protection law (including but not limited to the Truth in Lending Act) or any regulation thereto, as now existing or hereafter amended, is or has been given. SECTION IV CONDITIONS PRECEDENT 4.01. Conditions Precedent to the Initial Extension of Credit and/or First Advance. The obligation of the Bank to make the initial extension of credit and/or the first Advance hereunder is subject to the conditions precedent that the Bank shall have received before the date of such extension of credit and/or the first Advance all of the following, in form and substance satisfactory to the Bank: A. Authority to Borrow. Evidence relating to the duly given approval and authorization of the execution, delivery and performance of this Agreement, all other documents, instruments and agreements required under this Agreement and all other actions to be taken by the Borrower hereunder or thereunder. B. Guarantors. Continuing guaranties in favor of the Bank, in form and substance satisfactory to the Bank, executed by Doreen Chiu, Frank Chiu, ATG Richland Corporation and Allied Ecology Services, Inc. (each a "Guarantor"), together with evidence that the execution, delivery and performance of the Guaranties by each Guarantor has been duly authorized. C. Subordinations. The subordination to all indebtedness from time to time owed by the Borrower to the Bank of certain indebtedness now or hereafter owing by the Borrower to the following creditors, each such subordination to be in form and substance satisfactory to the Bank: Doreen Chiu, Richard Eng, Jack Cheng and Sophia Wu (each a "Creditor"). Each Creditor shall also provide evidence that the execution, delivery and performance of the subordination by such Creditor has been duly authorized. D. Loan Fees. Evidence that any required loan fees and expenses as set forth above with respect to each credit facility have been paid or provided for by the Borrower. E. Audit. The opportunity to conduct an audit of the Borrower's books, records and operations and the Bank shall be satisfied as to the condition thereof. F. Miscellaneous Documents. Such other documents, instruments, agreements and opinions as are necessary, or as the Bank may reasonably require, to consummate the transactions contemplated under this Agreement, all fully executed. 4.02. Conditions Precedent to All Extensions of Credit and/or Advances. The obligation of the Bank to make any extensions of credit and/or each Advance to or on account of the Borrower (including the initial extension of credit and/or the first Advance) shall be subject to the further conditions precedent that, as of the date of each extension of credit or Advance and after the making of such extension of credit or Advance: A. Representations and Warranties. The representations and warranties set forth in the Section entitled "Representations and Warranties" herein and in any other document, instrument, agreement or certificate delivered to the Bank hereunder are true and correct. E. Collateral. The security interest in the Collateral has been duly authorized, created and perfected with first priority and is in full force and effect and the Bank has been provided with satisfactory evidence of all filings necessary to establish such perfection and priority. C. Event of Default. No event has occurred and is continuing which constitutes, or, with the lapse of time or giving of notice or both, would constitute an Event of Default. D. Reporting Requirements. The Bank shall have received all documents required to be delivered under the "Reporting Requirements" provisions of the "Covenants" section of this Agreement. E. Subsequent Approvals, Etc. The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request. 4.03. Reaffirmation of statements. For the purposes hereof, the Borrower's acceptance of the proceeds of any extension of credit and the Borrower's execution of any document or instrument evidencing or creating any Obligation hereunder shall each be deemed to constitute the Borrower's representation and warranty that the statements set forth above in this Section are true and correct. SECTION V REPRESENTATIONS AND WARRANTIES The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing: 5.01. Status. The Borrower is a corporation duly organized and validly existing under the laws of the State of California and is properly licensed, qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business. 5.02. Authority. The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, writ, judgment or injunction presently in effect affecting the Borrower; (ii) require any consent or approval of the stockholders of the Borrower or violate any provision on of the articles of incorporation or bylaws of the Borrower; or (iii) result in a breach of or constitute a default under any material agreement to which the Borrower is a party or by which it or its properties may be bound or affected. 5.03. Legal Effect. This Agreement constitutes, and any document, instrument or agreement required hereunder when delivered will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. 5.04. Fictitious Trade Styles. The Borrower currently uses no fictitious trade styles in connection with its business operations. The Borrower shall notify the Bank within thirty (30) days of the use of any fictitious trade style at any future date, indicating the trade style and state(s) of its use. 5.05. Financial Statements. All financial statements, information and other data which may have been and which may hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been and will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the Borrower's financial condition and, as applicable, the other information disclosed therein. Since the most recent submission of any such financial statement, information or other data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operations has occurred which has not been fully disclosed to the Bank in writing. 5.06. Litigation. Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrower's properties before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrower's financial condition, operations or the Collateral. 5.07. Title to Assets. The Borrower has good and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject to any security interest encumbrance, lien or claim of any third person except for Permitted Liens. 5.08. ERISA. If the Borrower has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA. 5.09. Taxes. The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 5.10. Environmental Compliance. The operations of the Borrower comply, and during the term of this Agreement will stall times comply, in all respects with all Environmental Laws; the Borrower has obtained licenses, permits, authorizations and registrations red under any Environmental Law ("Environmental Permits") and necessary for its ordinary operations, all such Environmental Permits are in good standing, and the Borrower is in compliance with all material terms and conditions of such Environmental Permits; neither the Borrower nor any of its present properties or operations are subject to any outstanding written order from or agreement with any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances existing, or arising from operations prior to the date of this Agreement, with respect to any property of the Borrower that would reasonably be expected to give rise to Environmental Claims; provided however, that with respect to property Leased from an unrelated third party, the foregoing representation is made to the best knowledge of the Borrower. In addition, (i) the Borrower does not have or maintain any underground storage tanks which are not property registered or permitted under applicable Environmental Laws or which are leaking or disposing of Hazardous Materials off-site, and (ii) the Borrower has notified all of its employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA and all other Environmental Laws. 5.11. Accounts. Each Eligible Account represent a bona fide sale conforming to the requirements set forth for "Eligible Accounts" in the Definitions section hereof. SECTION VI COVENANTS The Borrower covenants and agrees that during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement, the Borrower shall, unless the Bank otherwise consents in writing: 6.01. Preservation of Existence; Compliance with Applicable Laws. Maintain and preserve its existence and all rights and privileges now enjoyed; not to liquidate or dissolve, merge or consolidate with or into, or acquire any other business organization; and conduct its business in accordance with all applicable laws, rules and regulations. 6.02. Maintenance of Insurance. Maintain insurance in such amount and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank. With respect to insurance covering properties in which the Bank maintains a security interest or lien, such insurance shall be in an amount not less than the full replacement value thereof, at the Bank's request, shall name the Bank as loss payee pursuant to a loss payable endorsement satisfactory to the Bank and shall not be altered or canceled except upon ten (10) days' prior written notice to the Bank. Upon the Bank's request, the Borrower shall furnish the Bank with the original policy or binder of all such insurance. 6.03. Maintenance of Collateral and Other Properties. Except for Permitted Liens, the Borrower shall keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including, but not limited to, any lien of attachment, judgement or execution) and defend the Collateral against any such levy, lien, encumbrance or security interest; comply wit all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file and record such statements, notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue the Bank's security interest in the Collateral and the priority thereof; maintain accurate and complete records of the Collateral which show all sales, claims and allowances; and properly care for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Borrower shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted. 6.04. Location and Maintenance of Equipment. A. Location. The Equipment shall at all times be in the Borrower's physical possession, shall not be held for sale or lease and shall be kept only at the following location(s): 47375 Fremont Boulevard, Fremont, CA 94538. The Borrower shall not secrete, abandon or remove, or permit the removal of, the Equipment, or any part thereof, from the location(s) shown above or remove or permit to be removed any accessories now or hereafter placed upon the Equipment. B. Equipment Schedules. Upon the Bank's demand, the Borrower shall immediately provide the Bank with a complete and accurate description of the Equipment including, as applicable, the make, model, identification number and serial number of each item of Equipment. In addition, the Borrower shall immediately notify the Bank of the acquisition of any new or additional Equipment or the replacement of any existing Equipment and shall supply the Bank with a complete description of any such additional or replacement Equipment. C. Maintenance of Equipment. The Borrower shall, at the Borrower's sole cost and expense, keep and maintain the Equipment in a good state of repair and shall not destroy, misuse, abuse, illegally use or be negligent in the care of the Equipment or any part thereof. The Borrower shall not remove, destroy, obliterate, change, cover, paint, deface or alter the name plates, serial numbers, labels or other distinguishing numbers or identification marks placed upon the Equipment or any part thereof by or on behalf of the manufacturer, any dealer or rebuilder thereof, or the Bank. The Borrower shall not be released from any liability to the Bank hereunder because of any injury to or loss or destruction of the Equipment. The Borrower shall allow the Bank and its representatives free access to and the right to inspect the Equipment at all times and shall comply with the terms and conditions of any leases covering the real property on which the Equipment is located and any orders, ordinances, laws, regulations or rules of any federal, state or municipal agency or authority having jurisdiction of such real property or the conduct of business of the persons having control or possession of the Equipment. D. Fixtures. The Equipment is not now and shall not at any time hereafter be so affixed to the real property on which it is located as to become a fixture or a part thereof. The Equipment is now and shall at all times hereafter be and remain personal property of the Borrower. 6.05. Location and Quality of Inventory. The Inventory (i) is now and shall at all times hereafter be of good and merchantable quality and free from defects; (ii) is not now and shall not at any time hereafter be stored with a bailee, warehouseman or similar party without the Bank's prior written consent and, in such event, the Borrower will concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to the Bank, in form acceptable to the Bank, warehouse receipts in the Bank's name evidencing the storage of inventory; (iii) shall all times be in the Borrower's physical possession; (iv) shall not be held by others on consignment, sale on approval, or sale or return; and (v) shall be kept only at the following locations(s): 47375 Fremont Boulevard, Fremont, CA 94538. 6.06. Payment of Obligations and Taxes. Make timely payment of all assessments and taxes and all of its liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency. For purposes hereof, the Borrower's issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment. 6.07. Inspection Rights. At any reasonable time and from time to time permit the Bank or any representative thereof to examine and flake copies of the records and visit the properties of the Borrower and to discuss the business and operations of the Borrower with any employee or representative thereof. If the Borrower now or at any time hereafter maintains any records (including, but not limited to, computer generated records and computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records it may request, all at the Borrower's expense, the amount of which shall be payable immediately upon demand. In addition, the Bank may, at any reasonable time and from time to time, conduct inspections and audits of the Collateral and the Borrower's accounts payable, the cost and expenses of which shall be paid by the Borrower to the Bank upon demand. 6.08. Reporting Requirements. Deliver or cause to be delivered to the bank in form and detail satisfactory to the Bank: A. Annual Statements. Not later than 120 days after the end of each of the Borrower's fiscal years, a copy of the annual financial report of the Borrower for such year, which report shall be a CPA audited report. B. Interim Statements. Not later than 30 days after the end of each fiscal quarter, the Borrower's financial statement as of the end of such fiscal quarter. C. Receivables and Payables Agings. Not later than 30 days after the end of each month, an aging of accounts receivable and an aging of accounts payable indicating separately (i) the amount of Eligible Accounts; (ii) the amount of total accounts receivable which are current, 1 to 30 days past the date of invoice, 31 to 60 days past the date of invoice, and over 60 days past the date of invoice; and an aging of accounts payable indicating the amount of such payables which are current, 1 to 30 days past the date of invoice, 31 to 60 days past the date of invoice, and over 60 days past the date of invoice. D. Borrowing Base Certificate. Not later than 30th day of each month, the Borrower shall deliver to the Bank a certificate (each a "Borrowing Base Certificate") in form and substance satisfactory to the Bank with proper insertions, duly executed by the Borrower, certifying the value of Eligible Accounts as of the last day of the preceding month. Such Borrowing Base Certificate shall establish the Borrowing Base for purposes hereof from the date of receipt by the Bank until the earlier of the date the next Borrowing Base Certificate is received or the date such Borrowing Base Certificate is due. Notwithstanding anything to the contrary in this Agreement, the Bank may, at its option, at any time and from time to time require that each request for an Advance under the Accounts Receivable Line of Credit facility described in Section II of this Agreement be accompanied by a Borrowing Base Certificate based upon which the Bank shall calculate the Borrowing Base for the purpose of determining the maximum dollar amount which may, from time to time, be outstanding under such Accounts Receivable Line of Credit. E. Other Information. Promptly upon the Bank's request, such other information pertaining to the Borrower, the Collateral, or any Guarantor as the Bank may reasonably request. 6.09. Payment of Dividends. The Borrower shall not declare or pay any dividends on any claim of its stock now or hereafter outstanding except dividends payable solely in the corporation's capital stock. 6.10. Redemption or Repurchase of Stock. The Borrower shall not redeem or repurchase any claim of its corporate stock now or hereafter outstanding. 6.11. Additional Indebtedness. Not, after the date hereof, create, incur or assume, directly or indirectly, any liability or indebtedness other than (i) indebtedness owed or to be owed to the Bank, (ii) indebtedness to trade creditors incurred in the ordinary course of the Borrower's business, or (iii) additional indebtedness incurred in equipment leasing up to an aggregate amount not exceeding $2,000,000.00 in any one fiscal year. 6.12. Loans. Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, partners, employees, affiliated entities or subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted. 6.13. Liens and Encumbrances. Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any such properties, except for Permitted Liens or as otherwise provided in this Agreement and except for liens or encumbrances up to an aggregate amount not exceeding $2,000,000.00 for equipment leasing in any one fiscal year. 6.14. Transfer Assets. Not sell, contract for sale, transfer, convey, assign, lease or sublet any assets of the Borrower, including, but not limited to, the Collateral, except in the ordinary course of business as presently conducted by the Borrower, and then, only for full, fair and reasonable consideration. 6.15. Change in the Nature of Business. Not make any material change in the Borrower's financial structure or in the nature of the Borrower's business as existing or conducted as of the date of this Agreement. 6.16. Financial Condition. Maintain at all times: A. Net Worth. A minimum Effective Tangible Net Worth of not less than $10,600,000.00. E. Debt to Net Worth Ratio. A Debt to Effective Tangible Net Worth ratio of not more than 1.15 to 1.00. C. Quick Ratio. A Quick ratio of not less than 120 to 1.00. For purposes of foregoing, the term "Quick Ratio" is defined as cash plus billed receivables divided by current liabilities. D. Debt Service Coverage Ratio, A minimum Debt Service Coverage Ratio of not less than 1.05 to 1.00. For purposes of the foregoing, the term "Debt Service Coverage Ratio" is defined as the sum of net income plus depreciation plus interest expense divided by current portion long term debt plus interest expense. E. Profitability. A minimum net profit on a quarterly basis of at least $1.00 beginning June 30, 1996 and thereafter. 6.17. Compensation of Employees. Compensate the employees of the Borrower for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation. 6.18. Capital Expenses. Not make any fixed capital expenditure or any commitment therefor, including, but not limited to, incurring liability for uses which would be, in accordance with generally accepted accounting principles, reported as capital leases, or purchase any real or personal property except for expenditures in an aggregate amount not exceeding $4,000,000.00 in any one fiscal year. 6.19. Environmental Compliance, The Borrower shall: A. Conduct the Borrower's operations and keep and maintain all of its properties in compliance with all Environmental Laws. B. Give prompt written notice to the Bank, but in no event later than 10 days after becoming aware, of the following: (i) any enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Borrower or any of its affiliates or any of its respective properties pursuant to any applicable Environmental Laws, (ii) all other Environmental Claims, and (iii) any environmental or similar condition on any real property adjoining or in the vicinity of the property of the Borrower or its affiliates that could reasonably be anticipated to cause such property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such property under any Environmental Laws. C. Upon the written request of the Bank, the Borrower shall submit to the Bank at its sole cost and expense, at reasonable intervals, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice required pursuant to this Section. D. At all times indemnify and hold harmless the Bank from and against any and all liability arising out of any Environmental Claims. 6.20. Notice. Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $100,000.00 or which affects the Collateral; (iii) any change in the place of business of the Borrower or the acquisition of more than one place of business by the Borrower; (iv) any proposed or actual change in the name, identity or business nature of the Borrower; (v) any change in the location of the Equipment or Inventory; and (vi) other matters which have resulted in, or might result in a material adverse change in the Collateral or the financial condition or business operations of the Borrower. SECTION VII EVENTS OF DEFAULT Any one or more of the following described events shall constitute an event of default under this Agreement: 7.01. Non-Payment. The Borrower shall fail to pay any Obligations within 10 days of when due. 7.02. Performance Under This and Other Agreements. The Borrower shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement evidencing or relating to any indebtedness of the Borrower (whether owed to the Bank or third persons), and any such failure (exclusive of the payment of money to the Bank under this Agreement or under any other document, instrument or agreement, which failure shall constitute and be an immediate Event of Default if not paid when due or when demanded to be due) shall continue for more than 30 days after written notice from the Bank to the Borrower of the existence and character of such Event of Default. 7.03. Representations and Warranties; Financial Statements. Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any Guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given. 7.04. Insolvency. The Borrower or any Guarantor shall: (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties or assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee for itself or any of its properties, assets or businesses; or (vii) any receiver, custodian or trustee shall have been appointed for all or a substantial part of its properties, assets or businesses and shall not be discharged within 30 days after the date of such appointment. 7.05. Execution. Any writ of execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 30 days after the issuance or attachment of such writ or lien. 7.06. Revocation or Limitation of Guaranty. Any Guaranty shall be revoked or limited or its enforceability or validity shall be contested by any Guarantor, by operation of law, legal proceeding or otherwise or any Guarantor who is a natural person shall die. 7.07. Suspension. The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrower's business as now conducted. 7.08. Change in Ownership. There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary), or an agreement shall be entered into to do so, with respect to more than 10% of the issued and outstanding capital stock of the Borrower. 7.09. Impairment of Collateral. There shall occur any injury or damage to all or any part of the Collateral or all or any part of the Collateral shall be lost, stolen or destroyed which changes cause the Collateral, in the sole and absolute judgement of the Bank, to become unacceptable as to character and value. SECTION VIII REMEDIES ON DEFAULT Upon the occurrence of any Event of Default, the Bank may, at its sole election, without demand and upon only such notice as may be required by law: 8.01. Acceleration. Declare any or all of the Borrower's indebtedness owing to the Bank, whether under this Agreement or under any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 8.02. Cease Extending Credit. Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank. 8.03. Termination. Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower's obligations to the Bank or the Bank's rights and remedies under this Agreement or under any other document, instrument or agreement. 8.04. Segregate Collections. Require the Borrower to segregate all collections and proceeds of the Collateral so that they are capable of identification and to deliver such collections and proceeds to the Bank, in kind, without commingling, at such times and in such manner as required by the Bank. 8.05. Records of Collateral. Require the Borrower to periodically deliver to the Bank records and schedules showing the status, condition and location of the Collateral and such contracts or other matters which affect the Collateral. In connection herewith, the Bank may conduct such audits or other examination of such records, including, but not limited to, verification of balances owing by any account debtor of the Borrower, as the Bank, in its sole and absolute discretion, deems necessary. 8.06. Notification of Account Debtors. A. Notify any or all of the Borrower's Account Debtors, or any buyers or transferees of the Collateral or other persons of the Bank's interest in the Collateral and the proceeds thereof and instruct such person(s) to thereafter make any payment due the Borrower directly to the Bank. B. The Borrower hereby irrevocably and unconditionally appoints the Bank as its attorney-in-fact to: (i) endorse the Borrower's name on any notes, acceptances, checks, drafts, money orders or other evidence of payment that may come into the Bank's possession; (ii) sign the Borrower's name on any invoice or bill of lading relating to any of the Collateral; (iii) notify post office authorities to change the address for delivery of mail addressed to the Borrower to such address as the Bank may designate and take possession of and open mail addressed to the Borrower and remove therefrom, proceeds of and payments on the Collateral; and (iv) demand, receive and endorse payment and give receipts, releases and satisfactions for and sue for all money payable to the Borrower. All of the preceding may be done either in the name of the Bank or in the name of the Borrower with the same force and effect a the Borrower could have done had this Agreement not been entered into. C. Require the Borrower to indicate on the face of all invoices (or such other documentation as may be specified by the Bank relating to the sale, delivery or shipment of goods giving rise to the account) that the account has been assigned to the Bank and that all payments are to be made directly to the Bank at such address as the Bank may designate. 8.07. Compromise. Grant extensions, compromise claims and scale any account for less than the amount owing thereunder, all without notice to the Borrower or any obligor on or guarantor of the Obligations. 8.08. Protection of Security Interest. Make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the Collateral. The Borrower hereby irrevocably authorizes the Bank to pay, purchase, contest or compromise any encumbrance, flea or claim which the Bank. in its sole judgment, deems to be prior or superior toils security interest. Further, the Borrower hereby agrees to pay to the Rant, upon demand there for, all expenses and expenditures (including attorneys' fees) incurred in connection with the foregoing. 8.09. Foreclosure. Enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document relating to the Collateral, in such manner and such order, as to all or any part of the Collateral, as the Bank, in its said judgment, deems to be necessary or appropriate and the Borrower hereby waives any and all right:, obligations or defenses now or hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises where any Collateral is located and take possession of the Collateral or any part thereof, together with the Borrower's records pertaining thereto, or the Bank may require the Borrower to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the Bank. The Bank may sell the Collateral or any portions thereof, together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures are required by law, at either a public or private sale, or both, with or without having the Collateral present at the time of sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. Any deficiency which exists after the disposition or liquidation of the Collateral shall be a continuing liability of any obligor on or any guarantor of the Obligations and shall be immediately paid to the Rant 8.10. Application of Proceeds. All amounts received by the Bank as proceeds from the disposition or liquidation of the Collateral shall be applied to the Borrower's indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank's lien in the Collateral, including court costs and reasonable attorneys' fees, whether or not suit is commenced by the Bank; next, to these costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, selling or disposing of the Collateral; next, to the payment of accrued and unpaid interest on all of the Obligations; next, to the payment of the outstanding principal balance of the Obligations; and last, to the payment of any other indebtedness owed by the Borrower to the Bank. Any excess Collateral or excess proceeds existing after the disposition or liquidation of the Collateral will be returned or paid by the Bank to the Borrower. 8.11. Non-Exclusivity of Remedies. Exercise one or more of the Bank's rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise. SECTION IX MISCELLANEOUS PROVISIONS 9.01. Default Interest Rate. If an Event of Default has occurred and is continuing, the Bank, at its option, may require the Borrower to pay to the Bank interest on any Indebtedness or amount payable under this Agreement at a rate which is 3% in excess of the rate or rates otherwise then in effect under' this Agreement. 9.02. Disposal of Invoices. All documents, schedules, invoices or other paper received by the Bank from the Borrower may be destroyed or disposed of six (6) months after receipt by the Bank, unless the Borrower requests in writing the return thereof, which shall be done at the Borrower's expense. 9.03. Rights of the Bank With or Without Default. The Borrower agrees that the Bank may at any time and at its option, whether or not the Borrower is in default: A. Require the Borrower to provide daily, or at such other time as required by the Bank: (i) a transaction report and schedule of accounts receivable which indicates all sales made and all collections received for each such day; (ii) all remittances and collections of accounts in kind, and without commingling, to be applied to the payment of the Borrower's Obligations on the next Business Day following receipt thereof; provided however, that if such amounts are received in a form other than cash or bank wire, the Bank may withhold application of such amounts for such time to the extent permitted by law as the Bank, in its sole discretion. deems reasonable to allow for collection and provided further that any remittances and collections received by the Bank later than 2:00 p.m. (California time) on any day shall be deemed received on the next succeeding Business Day; and (iii) clear and legible copies of all invoices or sales receipt: evidencing the sale of goods or services by the Borrower. The Borrower hereby understands and agrees that, in the event the Bank directs the Borrower to comply with the provisions of the above paragraph, the proceeds of accounts ("Collections") shall not be immediately applied to reduce the Borrower's Obligations but shall he applied only when final settlement for such Collections is effected. B. Require the Borrower to direct all Account Debtors to forward all remittances, payments and proceeds of the Collateral directly to the Bank at such address as the Bank may designate. In connection therewith, the Borrower hereby irrevocably constitutes and appoints the Bank as its attorney-in-fact to endorse the Borrower's name on any notes, acceptances, checks, drafts, money orders or other evidence of payment that may come into the Bank's possession. C. Require the Borrower to deliver to the Bank, at such times designated by the Bank, records and schedules which show the status and condition of the Collateral, where it is located and such contracts or other matters which affect the Collateral. D. Send verification requests to any Account Debtor. E. Make inquiries of the Borrower's trade vendors. 9.04. Indemnification. The Borrower agrees to hold the Bank harmless from and to indemnify and defend the Bank from any liability, claim, loss or expense (including, but not limited to, attorneys' fees) arising from any transaction between the Borrower and any Account Debtor including, but not limited to, any loss, claim or liability arising from: A. Any violation of any federal or state consumer protection law (including, but not limited to, the federal Truth-In-Lending Act) and regulations promulgated thereunder. E. Improper collection practices or procedures of the Borrower. C. Any unlawful acts taken by the Borrower in connection with the collection of any account(s). D. Any suit by any person against the Bank resulting or arising from such person's dealings with the Borrower. 9.05. Reliance. Each warranty, reprepresentation, covenant and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants or agreements which the Borrower shall now or hereafter give, or cause to be given, to the Bank. 9.06. Dispute Resolution. A. Disputes. It is understood and agreed that, upon the request or any party to this Agreement, any dispute, claim or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable, now existing or hereinafter arising between the parties in any way arising out of, pertaining to or in connection with: (i) this Agreement, or any related agreements, documents or instruments, (ii) all past and present loans, credits, accounts, deposit accounts (whether demand deposits or time deposits), safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods or service, or other transactions, contracts or agreements of any kind, (iii) any incidents, omissions, acts, practices, or occurrences causing injury to any party whereby another party or its agents, employees or representatives may be liable, in whole or in part, or (iv) any aspect of the past or present relationships of the parties, shall be resolved through a two-step dispute resolution process administered by the Judicial Arbitration & Mediation Services, Inc. ("JAMS") as follows: B. Step I - Mediation. At the request of any party to the dispute, claim, or controversy, the matter shall be referred to the nearest office of JAMS for mediation, which is an informal, non-binding conference or conferences between the parties in which a retired judge or justice from the JAMS panel will seek to guide the parties to a resolution of the case. C. Step II - Arbitration (Contracts Not Secured By Real Property). Should any dispute, claim or controversy remain unresolved at the conclusion of the Step I Mediation Phase, then (subject to the restriction at the end of this subparagraph) all such remaining matters shall be resolved by final and binding arbitration before a different judicial panelist, unless the parties shall agree to have the mediator panelist act as arbitrator. The hearing shall be conducted at a location determined by the arbitrator in Los Angeles, California (or such other city as may be agreed upon by the parties) and shall be administered by and in accordance with the then existing Rules of Practice and Procedure of JAMS and judgement upon any award rendered by the arbitrator may be entered by any State or Federal Court having jurisdiction thereof. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorneys' fees and costs. This subparagraph shall apply only if, at the time of the submission of the matter to JAMS, the dispute or issues involved do not arise out of any transaction which is secured by real property collateral or, if so secured, all parties consent to such submission. As soon as practicable after selection of the arbitrator, the arbitrator, or the arbitrator's designated representative, shall determine a reasonable estimate of anticipated fees and costs of the arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter, each party shall, within 10 days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make such a deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, but shall not otherwise serve to abate, stay or suspend the arbitration proceedings. D. Step II - Trial by Court Reference (Contracts Secured By Real Property). If the dispute, claim or controversy is not one required or agreed to be submitted to arbitration, as provided in the above subparagraph, and has not been resolved by Step I mediation, then any remaining dispute, claim or controversy shall be submitted for determination by a trial on Order of Reference conducted by a retired judge or justice from the panel of JAMS appointed pursuant to the provisions of Section 638(1) of the California Code of Civil Procedure, or any amendment, addition or successor section thereto, to hear the case and report a statement of decision thereon. The parties intend this general reference agreement to be specifically enforceable in accordance with said section. If the parties are unable to agree upon a member of the JAMS panel to act as referee, then one shall be appointed by the Presiding Judge of the county wherein the hearing is to be held. The parties shall pay in advance, to the referee, the estimated reasonable fees and costs of the reference, as may be specified in advance by the referee. The parties shall initially share equally, by paying their proportionate amount of the estimated fees and costs of the reference. Failure of any party to make such a fee deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend any cause of action which is the subject of the reference, but shall not otherwise serve to abate, stay or suspend the reference proceeding. E. Provisional Remedies, Self Help and Foreclosure. No provision of, or the exercise of any rights under any portion of this Dispute Resolution provision, shall limit the right of any party to exercise self-help remedies such as set off, foreclosure against any real or personal property collateral, or the obtaining of provisional or ancillary remedies, such is injunctive relief or the appointment of a receiver, from any court having jurisdiction before, during or after the pendency of any arbitration. At the Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for provisional remedies, pursuit of provisional or ancillary remedies or exercise of self-help remedies shall not constitute a waiver of the right of any party to submit the controversy or claim to arbitration. 9.07. Waiver of Jury. The Borrower and the Bank hereby expressly and voluntarily waive any and all rights, whether arising under the California constitution, any rules of the California Code of Civil Procedure, common law or otherwise, to demand a trial by jury in any action, matter, claim or cause of action whatsoever arising out of or in any way related to this Agreement or any other agreement, document or transaction contemplated hereby. 9.08. Restructuring Expenses. In the event the Bank and the Borrower negotiate for, or enter into, any restructuring, modification or refinancing of the Indebtedness under this Agreement for the purposes of remedying an Event of Default, The Bank, may require the Borrower to reimburse all of the Bank's costs and expenses incurred in connection therewith, including, but not limited to reasonable attorneys' fees and the costs of any audit or appraisals required by the Bank to be performed in connection with such restructuring, modification or refinancing. 9.09. Attorneys' Fees. In the event of any suit, mediation, arbitration or other action in relation to this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder, the prevailing party, in addition to all other sums to which it may be entitled, shall be entitled to reasonable attorneys' fees. 9.10. Notices. All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by Western Union telegraph addressed to the address set forth below such party's signature to this Agreement or to such other address a may be specified from time to time in writing by either pay to the other. 9.11. Waiver. Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right; nor shall any waiver of any right or default hereunder or under any other document, instrument or agreement mentioned herein constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision. 9.12. Conflicting Provisions. To the extent that any of the terms or provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative. 9.13. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the Bank's prior written consent. The Bank may sell, assign or grant participations in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor. 9.14. Jurisdiction. This Agreement, any notes issued hereunder, the rights of the parties hereunder to and concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California, to the jurisdiction of whose courts the parties hereby submit. 9.15. Headings. The headings set forth herein are solely for the purpose of identification and have no legal significance. 9.16. Entire Agreement This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties or pertaining to the transactions contemplated hereunder that are not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER By:___________________________________ By:_____________________________ Jo-Jo Kochaphum, Authorized Officer Doreen Chiu, President Address: Address: Oakland Office 47375 Fremont Boulevard 2127 Broadway Fremont, CA 94538 Oakland, CA 94612 EX-10.5 11 AMENDMENT OF COMMERCIAL CREDIT AGMT (APRIL) EXHIBIT 10.5 SANWA BANK CALIFORNIA AMENDMENT OF COMMERCIAL CREDIT AGREEMENT This Amendment of Commercial Credit Agreement ("Amendment") is made and entered into this 30th day of April, 1997 by and between SANWA BANK CALIFORNIA (the "Bank") and ATG INC (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain commercial credit agreement between the parties hereto and dated as of April 19, 1996, as it may have been or be amended from time to time, and any and all addenda, riders, exhibits and schedules thereto (collectively, the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend, amend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. Revised Repayment of Principal. The date contained in section 2.02 D of the Agreement, which is currently April 30, 1997, shall be modified and amended to be May 30, 1997. 2. Revised Expiration of the Accounts Receivable Line of Credit Facility. The date contained in section 2.02 H of the Agreement, which is currently April 30, 1997, shall be modified and amended to be May 30, 1997. 3. Incorporation Into Agreement. On and after the effective date of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", hereof, "herein" or words of like import referring to the Agreement shall mean and be referenced to the Agreement as amended by this Amendment. 4. No Waiver. The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Bank under, the Agreement. 5. Confirmation of Other Terms and Conditions. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement which are unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER SANWA BANK CALIFORNIA ATG INC. By:___________________________________ By:________________________________ Jo-Jo Kochaphum, Authorized Officer Doreen Chiu, President EX-10.6 12 AMENDMENT OF COMMERCIAL CREDIT AGMT (JUNE) EXHIBIT 10.6 [LOGO OF SANWA BANK APPEARS HERE] AMENDMENT OF COMMERCIAL CREDIT AGREEMENT This Amendment of Commercial Credit Agreement ("Amendment") is made and entered into this 26th day of June, 1997 by and between SANWA BANK CALIFORNIA (the "Bank") and ATG INC. (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain commercial credit agreement between the parties hereto and dated as of April 19, 1996, as it may have been or be amended from time to time, and any and all addenda, riders, exhibits and schedules thereto (collectively, the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in this Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend, amend and/or modify the Agreement. NOW THEREFORE, the value required and hereby acknowledged, the Borrower and the Bank agrees as follows: 1. Revised Repayment of Principal. The date contained in section 2.02 D of the Agreement, which is currently May 30, 1997, shall be modified and amended to be August 31, 1997. 2. Revised Expiration of the Accounts Receivable Line of Credit Facility. The date contained in section 2.02 H of the Agreement, which is currently May 30, 1997, shall be modified and amended to be August 31, 1997. 3. Incorporation Into Agreement. On and after the effective date of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof, "herein" or words of like import referring to the Agreement shall mean and be referenced to the Agreement as amended by this Amendment. 4. No Waiver. The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Bank, under the Agreement. 5. Confirmation of Other Terms and Conditions. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement which are unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK OF CALIFORNIA ATG INC By: [SIGNATURE ILLEGIBLE] By: /s/ Doreen Chiu --------------------------- -------------------------- Authorized Officer Doreen Chiu, President Craig C. Fendel V.P. & Mgr. /s/ Craig C. Fendel EX-10.7 13 THIRD AMENDMENT TO ACCOUNTS RECEIVABLE AGMT EXHIBIT 10.7 THIRD AMENDMENT TO ACCOUNTS RECEIVABLE CREDIT AGREEMENT This Third Amendment to Accounts Receivable Credit Agreement (the "Amendment") is made and entered into this 1st day of August, 1997, by and between SANWA BANK CALIFORNIA (the "Bank") and ATG, Inc. the "Borrower") with respect to the following. This Third Amendment shall be deemed to be part of and subject to that certain Accounts Receivable Credit Agreement dated as of April 19, 1996, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms and used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: Check and complete as applicable: 1. Revised Repayment of Principal. The date contained in Section 202D of the Agreement, which is currently August 31, 1997 under the Second Amendment, shall be modified and amended to June 30, 1998. 2. Modification of Interest Rate. Commencing on August 31, 1997, the rate of interest provided for in Section 2.02B of the Agreement shall be modified to be the Reference Rate plus 0.50% per annum. 3. Extension of Expiration Date. The Expiration Date provided for in Section 202H of the Agreement shall be extended to June 30, 1998. 4. Release of Guarantor. Bank hereby releases Allied Ecology Services, Inc. from its guaranty. 5. Loan Fee. Borrower will pay a loan extension and facility fee in the amount of $6,000.00. 6. Financial Covenant. Borrower will maintain a minimum effective tangible net worth of $12,250,000.00. 7. Loans to Third Parties. Borrower will not make any loans to third parties in excess of $500,000 plus accrued interest. 8. Confirmation of Other Terms and Conditions of the Agreement. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement and the Security Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER SANWA BANK CALIFORNIA ATG INC. By:_________________________________ By:____________________________________ Craig Fendel, VP and Manager Doreen Chiu, President (Name/Title) (Name/Title) EX-10.8 14 TERM LOAN AGREEMENT EXHIBIT 10.8 TERM LOAN AGREEMENT This Term Loan Agreement ("Agreement") is made and entered into this 18th day of September, 1997 by and between SANWA BANK CALIFORNIA (the "Bank" and ATG INC. (the "Borrower"). SECTION 1 DEFINITIONS 1.01 Certain Defined Terms. Unless elsewhere defined in this Agreement the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined): A. "Business Day" shall mean a day, other than a Saturday or Sunday, on which commercial banks are open for business in California. B. "Collateral" shall mean the property in which the Bank is granted a security interest pursuant to provisions of the section herein entitled "Collateral" together with any other personal or real property in which the Bank may be granted a lien or security interest to secure payment of the Obligations. C. "Debt" shall mean all liabilities of the Borrower less Subordinated Debt. D. "Effective Tangible Net Worth" shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e, goodwill, trademarks, patents, copyrights, organization expense and similar intangible items). E. "Environmental Claims" shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise) cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (i) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Materials at, in, or from property owned, operated or controlled by the Borrower, or (ii) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. F. "Environmental Laws" shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right- to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code. G. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. H. "Event of Default" shall have the meaning set forth in the section herein entitled "Events of Default". I. "Hazardous Materials" shall mean all those substances which are regulated by, or which may form the basis of liability under any Environmental Law including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. J. "Indebtedness" shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which the Borrower is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss and (ii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, contingently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss. K. "Obligations" shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement. L. "Permitted Liens" shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessment, or similar charges either not yet due or being contested in good faith, provided proper reserves are maintained therefor in accordance with generally accepted accounting procedure; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the ordinary course of business to secure Indebtedness outstanding on the date hereof or permitted to be incurred pursuant to this Agreement; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; and (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Borrower's assets. M. "Reference Rate" shall mean an index for a variable interest rate which is quoted, published or announced from time to time by the Bank as its reference rate and as to which loans may be made by the Bank at, below or above such reference rate. N. "Subordinated Debt" shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank. 1.02. Accounting Terms. All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 1.03. Other Terms. Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code. SECTION II CREDIT FACILITIES 2.01. Commitment to Lend, Subject to the terms and conditions of this Agreement and so long as no Event of Default occurs, the Bank agrees to extend to the Borrower the credit accommodations that fallow. 2.02. Term Loan, The Bank agrees to lend to the Borrower up to the maximum amount of $400,000.00 (the "Term Loan"). A. Purpose. The Term Loan shall be used to pay off an existing term loan with the Bank and to provide additional funds to purchase 30 acres of unimproved land to build a new facility. B. Interest Rate. Interest shall accrue on the outstanding principal balance under this Term Loan at a variable rate equal to the Bank's Reference Rate, as it may change from time to time, plus 1,750% per annum. (Such rate is referred to in this Section 2,02 as the "Variable Rate.") The Variable Rate shall be adjusted concurrently with any change in the Reference Rate. Interest shall be calculated on the basis of 360 days per year but charged on the actual number of days elapsed. C. Payment of Interest. The Borrower hereby promises and agrees to pay interest monthly on the last day of each month, commencing an October 31, 1997. If interest is not paid as it becomes due, without waiving any Event of Default occasioned by such non-payment, the Bank may, at its option but without any obligation to do so, add such unpaid interest to principal and it shall thereafter become and be treated as part of the principal and shall thereafter bear like interest. D. Repayment of Principal. Unless sooner due in accordance with the terms of this Agreement, the Borrower hereby promises and agrees to pay principal in 60 monthly installments of S6,667.00 per installment, commencing on October 31, 1997 and continuing on the last day of each month thereafter. On September 30, 2002 the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal balance then outstanding, together with all accrued and unpaid interest thereon. Any payment received by the Bank shall, at the Bank's option, first be applied to pay any late fees or other fees then due and unpaid, and then to interest then due and unpaid and the remainder thereof (if any) shall be applied to reduce principal. E. Late Fee. If any regularly scheduled payment of principal and/or interest (exclusive of the final payment upon maturity), or any portion thereof, under this Term Loan is not paid within ten (10) calendar days after it is due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable. F. Term Loan Account. The Bank shall maintain on its books a record of account in which the Bank shall make entries setting forth all payments made, the application of such payments to interest and principal, accrued and unpaid interest (if any) and the outstanding principal balance under the Term Loan (the "Term Loan Account. The Bank shall provide the Borrower with a monthly statement of the Borrower's Term Loan Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Bank is notified by the Borrower to the contrary within thirty (30) days after the Borrower's receipt of any such statement which is deemed to be incorrect. SECTION III COLLATERAL 3.01. Grant of Security Interest. To secure payment and performance of all of the Borrower's Obligations under this Agreement and the performance of all the terms, covenants and agreements contained in this Agreement (and any and all modifications, extensions and renewals of the Agreement) and in any other document, instrument or agreement evidencing or related to the Obligations or the Collateral, and also to secure all other liabilities, loans, guarantees, covenants and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to became due, now existing or hereafter and howsoever created, the Borrower hereby grants to the Bank a security interest in and to all of the following property: A. Equipment. All goods and equipment ("Equipment") now owned or hereafter acquired by the Borrower or in which the Borrower now has or may hereafter acquire any interest including, but not limited to, all machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description and all additions, accessions, improvements, replacements and substitutions thereto and thereof. B. Inventory. All inventory ("Inventory") now owned or hereafter acquired by the Borrower including, but not limited to, all raw materials, work in process, finished goods, merchandise, pants and supplies of every kind and description, including inventory temporarily out of the Borrower's custody or possession, together with all returns an accounts. C. Accounts and Contract Rights. All accounts and contract rights now owned or hereafter created or acquired by the Borrower, including but not limited to, all receivables and all rights and benefits due to the Borrower under any contract or agreement. D. General Intangibles. All general intangibles now owned or hereafter created or acquired by the Borrower, including but not limited to, goodwill trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records. E. Chattel Paper and Documents. All documents, instruments and chattel paper now owned or hereafter acquired by the Borrower. F. Monies and Other Property in Possession. All monies, and property of the Borrower now or hereafter in the possession of the Bank or the Bank's agents, or any one of them, including, but not limited to, all deposit accounts, certificates of deposit, stocks, bonds, indentures, warrants, options and other negotiable and non-negotiable securities and instruments, together with all stock rights, rights to subscribe, liquidating dividends, cash dividends, payments, dividends paid in stock, new securities or other property to which the Borrower may become entitled to receive on account of such property. 3.02. Real Property Security. The Borrower hereby agrees that all of the Obligations referenced in this Agreement and the Borrower's performance of each and all of the terms, covenants and agreements contained in this Agreement shall be secured by a deed of trust, in farm and substance satisfactory to the Bank (the "Deed of Trust"), encumbering as a lien of second encumbrance certain real property described in the attached "Real Property Schedule" (the "Real Property") located in the County of Alameda, State of California, subject only to current taxes and assessments not yet due and payable. 3.03. Continuing Lien & Proceeds. The Bank's security interest in the Collateral shall be a continuing lien and shall include all proceeds and products of the Collateral including, but not limited to, the proceeds of any insurance thereon as well as all accounts, contract rights, documents, instruments and chattel paper resulting from the sale or disposition of any Equipment. 3.04. Exclusion of Consumer Debt. The Obligations and performance secured hereby shall not include any indebtedness of the Borrower incurred for personal, family or household purposes except to the extent any disclosure required under any consumer protection law (including but not limited to the Truth in Lending Act) or any regulation thereto, as now existing or hereafter amended, is or has been given. SECTION IV CONDITIONS PRECEDENT 4.01. Conditions Precedent to the Initial Extension of Credit. The obligation of the Bank to make the initial extension of credit hereunder is subject to the conditions precedent that the Bank shall have received before the date of such extension of credit all of the following, in form and substance satisfactory to the Bank: A. Authority to Borrow. Evidence relating to the duly given approval and authorization of the execution, delivery and performance of this Agreement, all other documents, instruments and agreements required under this Agreement and all other actions to be taken by the Borrower hereunder or thereunder. B. Guarantors. Continuing guaranties in favor of the Bank, in form and substance satisfactory to the Bank, executed by Doreen Chiu, Frank Chiu and ATG Richland Corporation (each a "Guarantor"), together with evidence that the execution, delivery and performance of the Guaranties by each Guarantor has been duly authorized. C. Loan Fees. Evidence that any required loan fees and expenses as set forth above with respect to each credit facility have been paid or provided for by the Borrower. D. Audit. The opportunity to conduct an audit of the Borrower's books, records and operations and the Bank shall be satisfied as to the condition thereof. E. Real Property Documents. The following documents relating to the real property security provided for in this Agreement: (i) An appraisal of the Real Property. (ii) A title insurance policy or binder in the amount of $400,000.00 issued by a title insurance company satisfactory to the Bank and in such form and substance and with such endorsements as are satisfactory to the Bank. Such title insurance policy or binder shall indicate to the Bank's satisfaction that the Deed of Trust shall constitute a lien of second encumbrance on the Real Property subject only to Permitted Title Exceptions. (iii) Evidence that the Deed of Trust has been recorded and constitutes a lien on the Real Property subject only to the Permitted Title Exceptions. (iv) Reimbursement to the Bank in the amount of all escrow, recordation and appraisal fees, title guaranty or insurance premiums, closing costs and all other out-of-pocket expenses incurred by the Bank with respect to the Real Property. F. Miscellaneous Documents. Such other documents, instruments, agreements and opinions as are necessary, or as the Bank may reasonably require, to consummate the transactions contemplated under this Agreement, all fully executed. 4.02 Conditions Precedent to All Extensions of Credit. The obligation of the Bank to make any extensions of credit to or on account of the Borrower (including the initial extension of credit) shall be subject to the further conditions precedent that, as of the date of each extension of credit and after the making of such extension of credit: A. Representations and Warranties. The representations and warranties set forth in the Section entitled "Representations and Warranties" herein and in any other document, instrument, agreement or certificate delivered to the Bank hereunder are true and correct. B. Collateral. The security interest in the Collateral has been duly authorized, created and perfected with first priority and is in full force and effect and the Bank has been provided with satisfactory evidence of all filings necessary to establish such perfection and priority. C. Event of Default. No event has occurred and is continuing which constitutes, or, with the lapse of time or giving of notice or both, would constitute an Event of Default. D. Subsequent Approvals, Etc. The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request. 4.03. Reaffirmation of Statements. For the purposes hereof the Borrower's acceptance of the proceeds of any extension of credit and the Borrower's execution of any document or instrument evidencing or creating any Obligation hereunder shall each be deemed to constitute the Borrower's representation and warranty that the statements set forth above in this Section are true and correct. SECTION V REPRESENTATIONS AND WARRANTIES The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing: 5.01. Status. The Borrower is a corporation duly organized and validly existing under the laws of the State of California and is properly licensed, qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business. 5.02. Authority. The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, writ, judgment or injunction presently in effect affecting the Borrower: (ii) require any consent or approval of the stockholders of the Borrower or violate any provision of the articles of incorporation or bylaws of the Borrower: or (iii) result in a breach of or constitute a default under any material agreement to which the Borrower is a party or by which it or its properties may be bound or affected. 5.03. Legal Effect. This Agreement constitutes, and any document, instrument or agreement required hereunder when delivered will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. 5.04. Fictitious Trade Styles. The Borrower currently uses no fictitious trade styles in connection with its business operations. The Borrower shall notify the Bank within thirty (30) days of the use of any fictitious trade style at any future date, indicating the trade style and state(s) of its use. 5.05. Financial Statements. All financial statements, information and other data which may have been and which may hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been and will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the Borrower's financial condition and, as applicable, the other information disclosed therein. Since the most recent submission of any such financial statement, information or other data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operations has occurred which has not been fully disclosed to the Bank in writing. 5.06. Litigation. Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrower's properties before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrower's financial condition, operations or the Collateral. 5.07. Title to Assets. The Borrower has good and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject encumbrance, lien or claim of any third person except for Permitted Liens. 5.08. ERISA. If the Borrower has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA. 5.09. Taxes. The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 5,10. Environmental Compliance. The operations of the Borrower comply, and during the term of this Agreement will at all times comply, in all respects with all Environmental Laws; the Borrower has obtained licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for its ordinary operations, all such Environmental Permits are in good standing, and the Borrower is in compliance with all material terms and conditions of such Environmental Permits; neither the Borrower nor any of its present properties or operations are subject to any outstanding written order from or agreement with any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances existing, or arising from operations prior to the date of this Agreement, with respect to any property of the Borrower that would reasonably be expected to give rise to Environmental Claims; provided however, that with respect to property leased from an unrelated third party, the foregoing representation is made to the best knowledge of the Borrower. In addition, (i) the Borrower does not have or maintain any underground storage tanks which are not properly registered or permitted under applicable Environmental Laws or which are leaking, or disposing of Hazardous Materials off-site, and (ii) the Borrower has notified all of its employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Tide III of CERCLA and all other Environmental Laws. SECTION VI COVENANTS The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement the Borrower shall, unless the Bank otherwise consents in writing: 6.01. Preservation of Existence; Compliance with Applicable Laws, Maintain and preserve its existence and all rights and privileges now enjoyed; not liquidate or dissolve; merge or consolidate with or into, or acquire any other business organization; and conduct its business in accordance with all applicable laws, rules an regulations. 6.02. Maintenance of Insurance. Maintain insurance in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank. With respect to insurance covering properties in which the Bank maintains a security interest or lien, such insurance shall be in an amount not less than the full replacement value thereof, at the Bank's request, shall name the Bank as loss payee pursuant to a loss payable endorsement satisfactory to the Bank and shall not be altered or canceled except upon ten (10) days' prior written notice to the Bank. Upon the Bank's request, the Borrower shall furnish the Bank with the original policy or binder of all such insurance. 6.03. Maintenance of Collateral and Other Properties. Except for Permitted Liens, the Borrower shall keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including but not limited to, any lien of attachment, judgement or execution) and defend the Collateral against any such levy, lien, encumbrance or security interest; comply with all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file, and record such statements, notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue the Bank's security interest in the Collateral and the priority thereof; maintain accurate and complete records of the Collateral which show all sales, claim and allowances; and properly claim for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Borrower shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of the businesses of similar character and size, ordinary wear and tear excepted. 6.04. Location and Maintenance of Equipment. A. Location. The Equipment shall at all times be in the Borrower's physical possession, shall not be held for sale or lease and shall be kept only at the following location(s): 47375 Fremont Boulevard, Fremont, CA 94538. The Borrower shall not secrete, abandon or remove, or permit the removal of the Equipment, or any part thereof, from the location(s) shown above of remove or permit to be removed any accessories now or hereafter placed upon the Equipment. B. Equipment Schedules. Upon the Bank's demand, the Borrower shall immediately provide the Bank with a complete and accurate description of the Equipment including, as applicable, the make, model, identification number and serial number of each item of Equipment. In addition, the Borrower shall immediately notify the Bank of the acquisition of any new or additional Equipment or the replacement of any existing Equipment and shall supply the Bank with a complete description of any such additional or replacement Equipment. C. Maintenance of Equipment. The Borrower shall, at the Borrower's sole cost and expense, keep and maintain the Equipment in a good state of repair an shall not destroy, misuse, abuse, illegally use or be negligent in the care of the Equipment or any part thereof. The Borrower shall not remove, destroy obliterate, change, cover, paint, deface or alter the name plates, serial numbers, labels or other distinguishing numbers or identification marks placed upon the Equipment or any part thereof by or on behalf of the manufacturer, any dealer or rebuilder thereof, or the Bank. The Borrower shall not be released from an liability to the Bank hereunder because of any injury to or loss or destruction of the Equipment. The Borrower shall allow the Bank and its representative free access to and the right to inspect the Equipment at all times and shall comply with the terms and conditions of any leases covering the real property on which the Equipment is located and any orders, ordinances, laws, regulations or rules of any federal, state or municipal agency or authority having jurisdiction of such real property or the conduct of business of the persons having control or possession of the Equipment. D. Fixtures. The Equipment is not now and shall not at any time hereafter be so affixed to the real property on which it is located as to become a fixture or part thereof. The Equipment is now and shall at all times hereafter be and remain personal property of the Borrower. 6.05. Location and Quality of Inventory. The Inventory (i) is now and shall at all times hereafter be of good and merchantable quality and free from defects: (ii) is not now and shall not at any time hereafter be stored with a bailee, warehouseman or similar party without the Bank's prior written consent and, in such event, the Borrower will concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to the Bank, in form acceptable to the Bank warehouse receipts in the Bank's name evidencing the storage of inventory; (iii) shall at all times (except as otherwise permitted by this section) be in the Borrower's physical possession; (iv) shall not be held by others on consignment, sale on approval, or sale or return; and (v) shall be kept only at the following locations: 47375 Fremont Boulevard, Fremont, CA 94538. 6.06 Payment of Obligations and Taxes. Make timely payment of all assessments and taxes and all of its liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency. For the purposes hereof, the Borrower's issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment. 6.07. Inspection Rights. At any reasonable time and from time to time permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and to discuss the business and operations of the Borrower with any employee or representative thereof. If the Borrower now or at any time hereafter maintains any records (including, but not limited to, computer generated records and computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records it may request, all at the Borrower's expense, the amount of which shall be payable immediately upon demand. In addition, the Bank may, at any reasonable time and from time to time, conduct inspections and audits of the Collateral and the Borrower's account payable, the cost and expenses of which shall be paid by the Borrower to the Bank upon demand. 6.08. Repenting Requirements. Deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank: A. Annual Statements. Not later than 120 days after the end of each of the Borrower's fiscal years, a copy of the annual financial report of the Borrower for such year, which report shall be a CPA audited report. B. Interim Statements. Not later than 30 days after the end of each fiscal quarter, the Borrower's financial statement as of the end of such fiscal quarter. C. Other Information. Promptly upon the Bank's request, such other information pertaining to the Borrower, the Collateral, or any Guarantor as the Bank may reasonably request. 6.09. Payment of Dividends. The Borrower shall not declare or pay any dividends on any class of its stock now or hereafter outstanding except dividends payable solely in the corporation's capital stock. 6.10. Redemption or Repurchase of Stock. The Borrower shall not redeem or repurchase any class of its corporate stock now or hereafter outstanding. 6.11. Additional Indebtedness. Not, after the date hereof, create, incur or assume, directly or indirectly, any liability or indebtedness other than (i) indebtedness owed or to be owed to the Bank, (ii) indebtedness to trade creditors incurred in the ordinary course of the Borrower's business, or (iii) (iii) indebtedness incurred equipment leasing up to an aggregate amount not exceeding $2,000,000.00 in any one fiscal year. 6.12. Liens and Encumbrances. Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any such properties, except for Permitted Liens or as otherwise provided in this Agreement and except for liens or encumbrances up to an aggregate amount not exceeding $2,000,000.00 for equipment leasing in any one fiscal year. 6.13. Transfer Assets. Not sell, contract for sale, transfer, convey, assign, lease or sublet any assets of the Borrower, including, but not limited to, the Collateral except in the ordinary course of business as presently conducted by the Borrower, and then, only for full, fair and reasonable consideration. 6.14. Change in the Nature or Business. Not make any material change in the Borrower's financial structure or in the nature of the Borrower's business as existing or conducted as of the date of this Agreement. 6.15. Financial Condition, Maintain at all times: A. Net Worth, A minimum Effective Tangible Net Worth of not less than 512,250,000.00. B. Debt to Net Worth Ratio, A Debt to Effective Tangible Net Worth ratio of not more than 1.15 to 1.00. C. Quick Ratio, A ratio of cash, cash equivalents, and accounts receivable to current liabilities of not less than 1,30 to 1.00. D. Debt Service Coverage Ratio, A Debt Service Coverage Ratio (defined herein as the sum of net profit after tax plus depreciation, amortization and interest expense less dividends, distributions and withdrawals divided by the current portion of long term debt plus interest expense) of not less than 1.05 to 1.00. E. Profitability, The Borrower shall not show a loss in any two consecutive fiscal quarters. 6.16. Compensation of Employees. Compensate the employees of the Borrower for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation. 6.17. Capital Expenses. Not make any fixed capital expenditure or any commitment therefor, including, but not limited to, incurring liability for uses which would be, in accordance with generally accepted accounting principles, reported as capital leases, or purchase any real or personal property except for expenditures in an aggregate amount not exceeding 54,000,000,00 in any one fiscal year. 6.18. Loans. Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, partners employees, affiliated entities or subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted and except loans up to an aggregate amount not exceeding $500,000.00 plus accrued interest in any one fiscal year. 6.19. Environmental Compliance. The Borrower shall: A. Conduct the Borrower's operations and keep and maintain all of its properties in compliance with all Environmental Laws. B. Give prompt written notice to the Bank, but in no event later than 10 days after becoming aware, of the following: (i) any enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Borrower or any of its affiliates or any of its respective properties pursuant to any applicable Environmental Laws, (ii) all other Environmental Claims, and (iii) any environmental or similar condition on any real property adjoining or in the vicinity of the property of the Borrower or its affiliates that could reasonably be anticipated to cause such property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such property under any Environmental Laws. C. Upon the written request of the Bank, the Borrower shall submit to the Bank, at its sole cost and expense, at reasonable intervals, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice required pursuant to this Section. D. At all times indemnify and hold harmless the Bank from and against any and all liability arising out of any Environmental Claims. 6,20. Notice. Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $100,000.00 or which affects the Collateral; (iii) any change in the place of business of the Borrower or the acquisition of more than one place of business by the Borrower; (iv) any proposed or actual change in the name, identity or business nature of the Borrower; (v) any change in the location of the Equipment or Inventory; and (vi) other matters which have resulted in, or might result in a material adverse change in the Collateral or the financial condition or business operations of the Borrower. SECTION VII EVENTS OF DEFAULT Any one or more of the following described events shall constitute an event of default under this Agreement: 7.01. Non-Payment. The Borrower shall fail to pay any Obligations within 10 days of when due. 7.02. Performance Under This and Other Agreements. The Borrower shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement evidencing or relating to any indebtedness of the Borrower (whether owed to the Bank or third persons), and any such failure (exclusive of the payment of money to the Bank under this Agreement or under any other document, instrument or agreement, which failure shall constitute and be an immediate Event of Default if not paid when due or when demanded to be due) shall continue for more than 30 days after written notice from the Bank to the Borrower of the existence and character of such Event of Default. 7.03. Representations and Warranties; Financial Statements. Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any Guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given. 7.04. Insolvency. The Borrower or any Guarantor shall: (i) become insolvent or be unable to pay its debts as they mature: (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties or assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee for itself or any of its properties, assets or businesses; or (vii) any receiver, custodian or trustee shall have been appointed for all or a substantial part of its properties, assets or businesses and shall not be discharged within 30 days after the date of such appointment. 7.05. Execution. Any writ of execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 30 days after the issuance or attachment of such writ or lien. 7.06. Revocation or Limitation of Guaranty. Any Guaranty shall be revoked or limited or its enforceability or validity shall be contested by any Guarantor, by operation of law, legal proceeding or otherwise or any Guarantor who is a natural person shall die. 7.07. Suspension. The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrower's business as now conducted. 7.08. Change in Ownership. There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary), or an agreement shall be entered into to do so, with respect to more than 10% of the issued and outstanding capital stock of the Borrower. 7.09. Impairment of Collateral. There shall occur any injury or damage to all or any part of the Collateral or all or any part of the Collateral shall be lost, stolen or destroyed, which changes cause the Collateral, in the sole and absolute judgement of the Bank, to become unacceptable as to character and value. SECTION VIII REMEDIES ON DEFAULT Upon the occurrence of any Event of Default, the Bank may, at its sole election, without demand and upon only such notice as may be required by law: 8.01. Acceleration. Declare any or all of the Borrower's indebtedness owing to the Bank, whether under this Agreement or under any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 8.02. Cease Extending Credit. Cease extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank. 8.03. Termination. Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower's obligations to the Bank or the Bank's rights and remedies under this Agreement or under any other document, instrument or agreement. 8.04. Segregate Collections. Require the Borrower to segregate all collections and proceeds of the Collateral so that they are capable of identification and to deliver such collections and proceeds to the Bank, in kind, without commingling, at such times and in such manner as required by the Bank. 8.05. Records of Collateral. Require the Borrower to periodically deliver to the Bank records and schedules showing the status, condition and location of the Collateral and such contracts or other matters which affect the Collateral, In connection herewith, the Bank may conduct such audits or other examination of such records, including, but not limited to, verification of balances owing by any account debtor of the Borrower, as the Bank, in its sole and absolute discretion, deems necessary. 8.06. Notification of Account Debtors. A. Notify any or all of the Borrower's Account Debtors, or any buyers or transferees of the Collateral or other persons of the Bank's interest in the Collateral and the proceeds thereof and instruct such person(s) to thereafter make any payment due the Borrower directly to the Bank. B. The Borrower hereby irrevocably and unconditionally appoints the Bank as its attorney-in-fact to: (i) endorse the Borrower's name on any notes, acceptances, checks, drafts, money orders or other evidence of payment that may come into the Bank's possession; (ii) sign the Borrower's name on any invoice or bill of lading relating to any of the Collateral; (iii) notify post office authorities to change the address for delivery of mail addressed to the Borrower to such address as the Bank may designate and take possession of and open mail addressed to the Borrower and remove therefrom, proceeds of and payments on the Collateral; and (iv) demand, receive and endorse payment and give receipts, releases and satisfactions for and sue for all money payable to the Borrower. All of the preceding may be done either in the name of the Bank or in the name of the Borrower with the same force and effect as the Borrower could have done had this Agreement not been entered into. C. Require the Borrower to indicate on the face of all invoices (or such other documentation as may be specified by the Bank relating to the sale, delivery or shipment of goods giving rise to the account) that the account has been assigned to the Bank and that all payments are to be made directly to the Bank at such address as the Bank may designate. 8.07. Compromise. Grant extensions, compromise claims and settle any account for less than the amount owing thereunder, all without notice to the Borrower or any obligor on or guarantor of the Obligations. 8.08. Protection of Security Interest. Make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the Collateral. The Borrower hereby irrevocably authorizes the Bank to pay, purchase, contest or compromise any encumbrance, lien claim which the Bank, in its sole judgment, deems to be prior or superior to its security interest. Further, the Borrower hereby agrees to pay to the Bank, upon demand therefor, all expenses and expenditures (including attorneys' fees) incurred in connection with the foregoing. 8.09. Foreclosure. Enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document relating to the Collateral, in such manner and such order, as to all or any part of the Collateral, as the Bank, in its sole judgment, deems to be necessary or appropriate and the Borrower hereby waives any and all rights, obligations or defenses now or hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises when any Collateral is located and take possession of the Collateral or any part thereof, together with the Borrower's records pertaining thereto, or the Bank may require the Borrower to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the Bank. The Bank may sell the Collateral or any portions thereof together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures as are required by law, at either a public or private sale, or both, with or without having the Collateral present at the time of sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. Any deficiency which exists after the disposition or liquidation of the Collateral shall be a continuing liability of any obligor on or any guarantor of the Obligations and shall be immediately paid to the Bank. 8.10. Application of Proceeds. All amounts received by the Bank as proceeds from the disposition or liquidation of the Collateral shall be applied to the Borrower's indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank's lien in the Collateral, including court costs and reasonable attorneys' fees, whether or not suit is commenced by the Bank; next, to those costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, selling or disposing of the Collateral; next, to the payment of accrued and unpaid interest on all of the Obligations; next, to the payment of the outstanding principal balance of the Obligations; and last, to the payment of any other indebtedness owed by the Borrower to the Bank. Any excess Collateral or excess proceeds existing after the disposition or liquidation of the Collateral will be returned or paid by the Bank to the Borrower. 8.11. Non-Exclusivity of Remedies. Exercise one or more of the Bank's rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise. SECTION IX MISCELLANEOUS PROVISIONS 9,01. Default Interest Rate. If an Event of Default has occurred and is continuing, the Bank, at its option, may require the Borrower to pay to the Bank interest of any Indebtedness or amount payable under this Agreement at a rate which is 3% in excess of the rate or rates otherwise then in effect under this Agreement. 9,02. Reliance. Each warranty, representation, covenant and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations covenants or agreements which the Borrower shall now or hereafter give, or cause to be given, to the Bank. 9,03. Dispute Resolution. A. Disputes. It is understood and agreed that, upon the request of any party to this Agreement, any dispute, claim or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable, now existing or hereinafter arising between the parties in any way arising out of, pertaining to or in connection with: (i) this Agreement, or any related agreements, documents or instruments, (ii) all past and present loans, credits, accounts, deposit accounts (whether demand deposits or time deposits), safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods or services, or other transactions, contracts or agreements of any kind, (iii) any incidents, omissions, acts, practices, or occurrences causing injury to any party whereby another party or its agents, employees or representatives may be liable, in whole or in pan, or (iv) any aspect of the past or present relationships of the parties, shall be resolved through a two-step dispute resolution process administered by the Judicial Arbitration & Mediation Services, Inc, ("JAMS") as follows: B. Step I - Mediation. At the request of any party to the dispute, claim or controversy, the matter shall be referred to the nearest office of JAMS for mediation, which is an informal, nonbinding conference or conferences between the parties in which a retired judge or justice from the JAMS panel will seek to guide the panics to a resolution of the case. C. Step II - Arbitration (Contracts Not Secured By Real Property). Should any dispute, claim or controversy remain unresolved at the conclusion of the Step I Mediation Phase, then (subject to the restriction at the end of this subparagraph) all such remaining matters shall be resolved by final and binding arbitration before a different judicial panelist, unless the parties shall agree to have the mediator panelist act as arbitrator. The hearing shall be conducted at a location determined by the arbitrator in Los Angeles, California (or such other city as may be agreed upon by the parties) and shall be administered by and in accordance with the then existing Rules of Practice and Procedure of JAMS and judgement upon any award rendered by the arbitrator may be entered by any State or Federal Court having jurisdiction thereof. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorneys' fees and costs. This subparagraph shall apply only if, at the time of the submission of the matter to JAMS, the dispute or issues involved do not arise out of any transaction which is secured by real property collateral or, if so secured, all parties consent to such submission. As soon as practicable after selection of the arbitrator, the arbitrator, or the arbitrator's designated representative, shall determine a reasonable estimate of anticipated fees and costs of the arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter, each party shall, within 10 days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make such a deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, but shall not otherwise serve to abate, stay or suspend the arbitration proceedings. D. Step II - Trial By Court Reference (Contracts Secured By Real Property). If the dispute, claim or controversy is not one required or agreed to be submitted to arbitration, as provided in the above subparagraph, and has not been resolved by Step I mediation, then any remaining dispute, claim or controversy shall be submitted for determination by a trial on Order of Reference conducted by a retired judge or justice from the panel of JAMS appointed pursuant to the provisions of Section 638(1) of the California Code of Civil Procedure, or any amendment, addition or successor section thereto, to hear the case and report a statement of decision thereon. The parties intend this general reference agreement to be specifically enforceable in accordance with said section. If the parties are unable to agree upon a member of the JAMS panel to act as referee, then one shall be appointed by the Presiding Judge of the county wherein the hearing is to be held. The panics shall pay in advance, to the referee, the estimated reasonable fees and costs of the reference, as may be specified in advance by the referee. The parties shall initially share equally, by paying their proportionate amount of the estimated fees and costs of the reference. Failure of any party to make such a fee deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend any cause of action which is the subject of the reference, but shall not otherwise serve to abate, stay or suspend the reference proceeding. E. Provisional Remedies, Self Help and Foreclosure. No provision of, or the exercise of any rights under any portion of this Dispute Resolution provision, shall limit the right of any party to exercise self help remedies such as setoff, foreclosure against any real or personal property collateral, or the obtaining of provisional or ancillary remedies, such as injunctive relief of the appointment of a receiver, from any court having jurisdiction before, during or after the pendency of any arbitration. At the Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for provisional remedies, pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party, to submit the controversy or claim to arbitration. 9.04. Waiver of Jury. The Borrower and the Bank hereby expressly and voluntarily waive any and all rights, whether arising under the California constitution, any rules of the California Code of Civil Procedure, common law or otherwise, to demand a trial by Jury in any action, matter, claim or cause of action whatsoever arising out of or in any way related to this Agreement or any other agreement, document or transaction contemplated hereby. 9.05. Restructuring Expenses. In the event the Bank and the Borrower negotiate for, or enter into, any restructuring, modification or refinancing of the Indebtedness under this Agreement for the purposes of remedying an Event of Default, The Bank, may require the Borrower to reimburse all of the Bank's costs and expenses incurred in connection therewith, including, but not limited to reasonable attorneys' fees and the costs of any audit or appraisals requited by the Bank to be performed in connection with such restructuring, modification or refinancing. 9.06. Attorneys' Fees. In the event of any suit, mediation, arbitration or other action in relation to this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder, the prevailing party, in addition to all other sums to which it may be entitled, shall be entitled to reasonable attorneys' fees. 9.07. Notices. All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by Western Union telegram, addressed to the address set forth below such party's signature to this Agreement or to such other address as may be specified from time to time in writing by either party to the other. 9.08. Waiver. Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right nor shall any waiver of any right or default hereunder or under any other document, instrument or agreement mentioned herein constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision. 9.09. Conflicting Provisions. To the extent that any of the terms or provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative. 9.10. Binding Effect: Assignment. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the Bank's prior written consent. The Bank may sell, assign or grant participations in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor. 9.11. Jurisdiction. This Agreement, any notes issued hereunder, the rights of the parties hereunder to and concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California, to the jurisdiction of whose courts the parties hereby submit. 9.12. Headings. The headings set forth herein are solely for the purpose of identification and have no legal significance. 9.13. Entire Agreement. This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the panics or pertaining to the transactions contemplated hereunder that are not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA ATG INC. By:_______________________________________ By:_________________________ Craig Fendel, Authorized Officer Doreen Chiu, President Address: Address: Oakland Main Office 47375 Fremont Boulevard 2127 Broadway Fremont, CA 94538 Oakland, CA 94612 REAL PROPERTY SCHEDULE The following is the Real Property described in the Collateral section of this Term Loan Agreement dated September 18, 1997 to which this Schedule is attached. Item 1: 47375 Fremont Boulevard, Fremont, CA 94538. All that real property located in the County of Alameda, State of California, legally described as follows: Parcel 1, Parcel Map 4703, filed November 22, 1985, Map Book 157, Pages 57- 58, Alameda County Records. Excepting therefrom: Reserving to the Grantor and its successors and assigns all oil, gas, mineral, geothermal, and hydrocarbon substances in and under or that may be produced below a depth of 500 feet below the surface of said property without any right of entry upon the surface of said land for the purposes of mining, drilling, exploring or extracting such oil, gas, mineral, geothermal, or hydrocarbon substances and without any right to the use of or rights in or to any portion of the surface of said land to a depth of 500 feet below the surface thereof reserved by King and Lyons, a California general partnership, recorded November 22, 1985, Series No, 85-251319. A,P, No, 519-1693-021 EX-10.9 15 LETTER FROM COMPANY TO STEVE GUERRETTAZ EXHIBIT 10.9 ATG INC. ALLIED TECHNOLOGY GROUP December 2, 1997 Subject: Employment Package Dear Mr. Steve Guerrettaz: We would like to propose the following as our employment offer: 1. Position: Chief Financial Officer. You will report directly to the Chief Executive Officer of the company. You will be responsible for all financial and administrative matters, with emphases in budgeting, cost control, and profitability of the company. 2. Wages: $150,000 per year 3. Stock Option: 30,000 shares at an option price of $5.00 per share, to be earned over a period of three years, and may be exercised over a period of 10 years. Such options are not exercisable until ATG stocks become tradable at the stock exchange. Should ATG be sold or merged, the options vested will be exercisable at the closing of the transaction. 4. You will receive an additional 10,000 shares of options, exercisable at the option price of $5.00 per share at the completion of the ATG's IPO. You will receive another 20,000 shares of options, exercisable at the option price of $5.00 per share at the completion of the secondary offering. Such options can be exercised over a period of 10 years. 5. If we decide to separate for reasons other than cause, the options earned will be vested at separation. However, such vested options will be only exercisable after ATG stock is tradable at the stock exchange. 6. You will be eligible to participate at the ATG stock option incentive program for executive officers and senior executives as determined by the Board following the IPO. 7. You will immediately be eligible to the 401-K plan, and standard full time employees benefits that ATG offers. 8. Bonus based on overall company profit and your performance and milestones, up to 20% of your annual base salary. Measurements of bonus will be finalized in the first quarter of 1998. 9. There will be a salary review after twelve month services. Such review will be based on performance and profitability of company. 10. Your employment at ATG will be at least one year provided that there is no gross negligence. 11. ATG will pay for your dues and fees for your continued memberships in: (a) Financial Executives Institute, (b) Association for Corporate Growth and (c) AICPA and Cal Society of CPA's. 12. You will be entitled to three weeks vacation per year. 13. We will reimburse you upto the standard net amount we pay or other ATG employees if you choose not to take the ATG health insurance benefits. We will provide you a life insurance policy in the amount of $100,000. 14. The above offer will expire at 5 p.m., December 3, 1997. Please feel free to contact my office should you have any question. Sincerely, Doreen Chiu President I hereby agree and accept the above described employment terms and conditions. ___________________________ Steve Guerrettaz EX-10.10 16 LETTER FROM COMPANY TO FRED FEIZOLLAHI EXHIBIT 10.10 ATG INC. ALLIED TECHNOLOGY GROUP Mr. Fred Feizollahi 4089 Terra Alta Drive San Ramon CA, 94583 February 20, 1995 Dear Fred, Allied Technology Group, Inc., (ATG) is pleased to extend to you an employment offer with the following responsibilities, position, salary, benefits, incentives and conditions. 1. Responsibilities. Your responsibilities will be management of our Western operations which includes execution of projects handled by our Fremont office and waste treatment services contracts handled by our Richland Facility. Although your home office will be Fremont, frequent travel to the Richland plant may be needed. 2. Position. Initially you will have two positions, Manager of Richland Facility, and Manager of Western Projects. After six months when you've become thoroughly familiar with the company projects and financial operations, you will be promoted to the position of a vice president responsible for our Western operations. 3. Salary. As your starting salary with ATG, we will match your current salary at Morrison Knudsen Corporation. Upon acceptance of this offer, please submit a paycheck stub that shows your current MK salary. Furthermore, your salary will be subject to review within six months and annually thereafter. 4. Benefits. Standard company benefits. ATG 401K contribution is discretionary and any such contribution will depend on the company profitability. 5. Incentives. The following incentives are offered to you. a. Stock bonus. 5000 shares for each year of employment with ATG and for the next five years. The stock bonus options will be terminated at the end of the five years and a new arrangement will be negotiated with you. b. Stock incentive. The annual base stock bonus of 5000 will be increased depending on the ATG annual sales. The additional stock incentive provided to you will be 1000 shares for each $1,000,000 ATG annual sale increase over and above the sales in the base year which is designated to be 12/30/1995. For example, if the ATG annual sale in 1996 is twenty five million as compared to twenty million is 1995, an additional 5000 stocks will be given to you. The stock incentive option is subject to minimum company after tax profit of 10%, or proportional reduction on the stock incentive will occur. For example, if the company profit is zero, no stock incentives will be given to you. If profit is 5%, only half of the stock incentives will be issued to you. ATG INC. Fred Feizollahi Page 2 of 2 2/20/95 ALLIED TECHNOLOGY GROUP c. Stock purchase option. We will give you the option to purchase ATG shares at $7.5 per share after ATG is taken public. Beginning with the initial public offering (IPO) you will have an option of purchasing 100,000 shares during a five period (20,000 shares at IPO and 20,000 shares per year thereafter). d. Cash bonus. A standard bonus program will be established for all ATG employees. You will be subject to this cash bonus program. 6. Conditions. The following conditions will apply to your employment. a. Issuance date. All bonus and incentive stocks will be issued to you before January 31 of the following year except as noted below. a. Initial Public Offering (IPO). ATG currently plans to take the company public in the 1996-97 time frame. Immediately upon IPO, you will receive a minimum of three years of bonus stock (see 5a above) and all of the incentive stocks (see 5b) issued to you as of the date of IPO. b. Severance. If at any time before the next three years ATG decides to termite your employment, ATG will immediately issue to you a minimum of three years of the bonus stocks (see 5a above) and all of the incentive stocks (see 5b) that have been issued to you as of the date of your termination. Furthermore, if ATG offers to purchase back all of your share you must agree to sell them it $7.50 per share. If ATG does not offer to purchase back your share, ATG will pay you $5,000 (five thousand dollars) per month for a period of 12 (twelve) months after your termination. We look forward to see you on board as an ATG employee. Please indicate your acceptance of this offer by returning a signed copy of this offer letter. Sincerely, Frank Chiu Executive Vice President ________________________________________ Offer accepted, Fred Faramarz Feizollahi EX-10.11 17 CONSULTANT AGREEMENT EXHIBIT 10.11 CONSULTANT AGREEMENT THIS CONSULTANT AGREEMENT is entered effective as of July 1, 1992 by and between ED L. VINECOUR (hereinafter referred to as "Consultant") and ATG, INC., a California corporation (hereinafter referred to as "the Company"). WITNESSETH: WHEREAS, effective as of July 1, 1992, Consultant entered into a STOCK PURCHASE AGREEMENT with the Company (hereinafter referred to as "the Agreement") pursuant to which Seller agreed to sell to the Company 669,375 shares of the outstanding common stock of the Company which constitutes all of Consultant's right, title and interest in and to shares of and any and all interest in the Company except as issued pursuant to the Agreement; and WHEREAS, for a substantial period of time Consultant has been a valued employee, officer, director and principal of the Company and, effective as of June 30, 1992, is no longer an employee or officer of the Company and is resigning as a director thereof; and WHEREAS, the Company desires to retain, effective upon the resignation of Consultant, the services of Consultant, whose experience, knowledge and abilities are valuable to the Company; 1 NOW, THEREFORE, in consideration of the mutual covenants herein contained the parties hereto agree as follows: 1. DUTIES. The Company hereby engages and retains Consultant as an independent contractor to consult for the Company from July 1, 1992 until June 30, 2002. Consultant shall be available to the Company during the term hereof for such time as is reasonably required by the Company to assist in the determination of the basic direction and strategies of the Company and for such other duties as may reasonably be assigned to him from time to time by the board of directors of the Company. In this regard, Consultant shall make himself available, should the Company request his services, for up to five hundred (500) hours during any one year period hereof (commencing July 1st of each year, beginning July 1, 1992). 2. INDEPENDENT CONTRACTOR. Consultant will be considered, for all purposes, an independent contractor, and he will not, either directly or indirectly, act as an agent, servant or employee of the Company. Consultant shall not make any commitments or incur any liabilities on behalf of the Company without the prior written consent of an authorized representative of the Company. Consultant will pay all expenses of, and all federal and state taxes, social security, federal and state unemployment taxes, and any other payroll or withholding taxes relating to him. Consultant shall not benefit 2 from nor participate in any pension plan of the Company, nor in any health or welfare plan of the Company; provided, however, that Consultant shall retain all of his COBA rights with respect to the Company for the initial 18 months of this Agreement and, thereafter, the Company agrees to reimburse Consultant, on a monthly basis for the differential, if any, for the then cost of health insurance provided to the Company's employees and the cost of Consultant's procurement of similar policies of health insurance for Consultant and Consultant's immediate family. 3. COMPENSATION. For and in consideration of Consultant's entering into this Agreement, the Company agrees to pay to Consultant the sum of Six Hundred Thousand Dollars ($600,000.00) payable in one hundred twenty (120) consecutive monthly installments of Five Thousand Dollars ($5,000.00) due on the first day of each month commencing August 1, 1992. 4. EXONERATION. In the event that Consultant defaults under obligations on his part to be performed under this Agreement, the Company shall not bring any action or proceeding, or otherwise assert any claim for consequential or other damages against Consultant nor withhold any payments which are due hereunder on account of any loss, cost, damage or expanse which the Company may suffer or incur because of any act or omission of Consultant in the performance of his 3 obligations hereunder, and the Company hereby expressly waives all such claims. 5. NOTICES. Any notice or request required or permitted to be given shall be given in writing and shall be deemed to have been given when deposited in the United States of America mail, first class, postage prepaid, duly addressed, registered or certified, return receipt requested, at the following addresses, or at such other address or addresses as is directed by either party by written notice delivered to the other as in this paragraph provided: CONSULTANT COMPANY Ed L. Vinecour ATG, Inc. Route 1, Box AA 280 44075 Fremont Boulevard Oakley, CA 94561 Fremont, CA 94538 6. INUREMENT. This Agreement shall inure to the benefit of and shall be binding upon the assigns, successors in interest, personal representatives, estates, heirs and legatees of each of the parties hereto. 7. ATTORNEY'S FEES. In the event of any controversy, claim or dispute between the parties hereto arising out of or relating to this Agreement or the breach thereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys fees 4 and costs. 8. ENTIRE AGREEMENT. This Agreement contains the entire agreement of e parties hereto and supersedes any prior written or oral agreements between then concerning the subject matter contained herein. There are no express or implied representations, warranties, arrangements or understandings, oral or written, between and among the parties hereto, relating to the subject matter contained in this Agreement which are not fully expressed herein. 9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the provisions of the laws of the state of California. Executed on the day and year first above written at Fremont, California. "COVENANTOR" _______________________________ Ed L. Vinecour "COMPANY" ATG, INC. a California corporation By ____________________________ Authorized Representative 5 EX-10.12 18 NON-COMPETITION AGREEMENT EXHIBIT 10.12 NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is entered effective as of July 1, 1992 by and between Ed L. Vinecour (hereinafter referred to as "Covenantor") and ATG, Inc., a California corporation (hereinafter referred to as "the Company"). WITNESSETH: WHEREAS, effective as of July 1, 1992, Covenantor entered into a STOCK PURCHASE AGREEMENT with the Company (hereinafter referred to as "the Agreement") pursuant to which Seller agreed to sell to the Company, in complete redemption, 669,375 shares of the outstanding common stock of the Company which constitutes all of Covenantor's right, title and interest in and to shares of any and all interests in the Company except as issued pursuant to the Agreement; and WHEREAS, a condition to the purchase and sale contemplated in the Agreement is that Covenantor agree to forego his right to compete with the Company in accordance with the terms and conditions herein contained; NOW, THEREFORE, in consideration of the mutual covenants herein contained the parties hereto agree as follows: 1 1. COVENANT NOT TO COMPETE. Covenantor agrees that he will not at any time within the ten (10) year period immediately following the consummation of the purchase and sale described in the Agreement, either directly or indirectly, engage in the low level nuclear waste collection, processing, recycling and/or disposal business within the United States of America or have any interest in any person, firm, corporation or business (whether as an employee, officer, director, agent, security holder, creditor, consultant or otherwise) that engages in the low level nuclear waste collection, processing, recycling and/ or disposal business in said territory for so long as the Company or any person deriving title to the goodwill of the Company, shall engage in this activity in such territory. The foregoing notwithstanding, the ownership of less than five percent (5%) of any one class of the publicly traded securities of a corporation which has total assets exceeding One Million Dollars ($1,000,000.00) shall not be prohibited by the provisions of this paragraph. 2. CONSIDERATION. For and in consideration of Covenantor's covenant not to compete herein above contained, the Company agrees to pay to Covenantor the sum of Two Hundred Ninety Thousand Dollars ($290,000.00) payable in annual installments on each July 1st, commencing on July 1, 1993 in accordance with the following schedule: 2
PAYMENT DATE PAYMENT AMOUNT July 1, 1993 $20,000.00 July 1, 1994 $90,000.00 July 1, 1995 $90,000.00 July 1, 1996 $90,000.00
At the written election(s) of Covenantor given to the Company at least thirty (30) days prior to any payment date set forth above, in lieu of the payments otherwise due hereunder Company shall purchase for Covenantor such annuity policy or policies as may be designated by Covenantor provided that the acquisition cost of same shall not exceed the payment amount otherwise then due hereunder. This option may be exercised in whole or in part with respect to any payment due by the company to Covenantor hereunder. 3. DEFAULT BY COVENANTOR. In the event that Covenantor defaults under this Agreement and fails to cure such default within thirty (30) days of the date of written notice from the Company given in the manner herein provided, then and in that event the Company shall be entitled to injunctive relief, and such other relief as may be provided by law or in equity. Covenantor hereby acknowledges and agrees that any breach by him of the covenant not to compete contained herein is likely to result in injury of a nature which would justify the entry of an injunction and temporary restraining order against Covenantor to restrain any such breach. In the event of any such breach by 3 Covenantor, the Company shall be also entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain consequential damages and to enforce the specific performance of Covenantor's covenant herein contained. 4. JUDICIAL MODIFICATION. If any part of this Agreement is found to be unenforceable, the remainder of this Agreement shall be preserved in full force and effect and the covenant not to compete herein contained shall be modified to the minimum extent necessary to rake it enforceable under the laws of the State of California. 5. NOTICES. Any notice or request required or permitted to be given shall be given in writing and shall be deemed to have been given when deposited in the United States of America mail, first class, postage prepaid, duly addressed, registered or certified, return receipt requested, at the following addresses, or at such other address or addresses as is directed by either party by written notice delivered to the other as in this paragraph provided: COVENANTOR COMPANY Ed L. Vinecour ATG, Inc. Route 1, Box AA 280 Fremont Boulevard Oakley, CA 94562 Fremont, CA 94538 4 6. INUREMENT. This Agreement shall inure to the benefit of and shall be binding upon the assigns, successors in interest, personal representatives, estates, heirs and legatees of each of the parties hereto. 7. ATTORNEY'S FEES. In the event of any controversy, claim or dispute between the parties hereto arising out of or relating to this Agreement or the breach thereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys fees and costs. 8. AGREEMENT This Agreement contains the entire agreement of the parties hereto and supersedes any prior written or oral agreements between them concerning the subject matter contained herein. There are no express or implied representations, warranties, arrangements or understandings, oral or written, between and among the parties hereto, relating to the subject matter contained in this Agreement which are not fully expressed herein. 9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the provisions of the laws of the State of California. 5 Executed on the day and year first above written at Fermont, California. "COVENANTOR" _______________________________ Ed L. Vinecour "COMPANY" ATG, INC. a California corporation By ____________________________ Authorized Representative 6 EX-10.13 19 COLLECTIVE BARGAINING AGREEMENT EXHIBIT 10.13 COLLECTIVE BARGAINING AGREEMENT between ALLIED TECHNOLOGY GROUP, INC. and INTERNATIONAL UNION OF OPERATING ENGINEERS #280 1 TABLE OF CONTENTS
PAGE Article 1 - Preamble 4 Article 2 - Union Recognition 4 Article 3 - Union Security 4 Article 4 - Payroll Deduction 5 Article 5 - Business Representative Access 5 Article 6 - Bulletin Board 5 Article 7 - Non-Discrimination 6 Article 8 - Management Rights 6 Article 9 - Due Process in Discipline 6 Article 10 - Seniority/Reduction in Work Force 7 Article 11 - Jury Duty 8 Article 12 - Funeral Leave 8 Article 13 - Hours of Work and Overtime 8 Article 14 - Vacation 10 Article 15 - Holidays 11 Article 16 - Compensation for Travel Time 12 Article 17 - Tuition Assistance/Commercial Driver's License (CDL) Miscellaneous Facilities 12 Article 18 - Sick Leave 13 Article 19 - Health and Welfare Programs 14 Article 20 - Pensions 14 Article 21 - Performance of Duty, Strikes and lockouts 14
2 Article 22 - Grievance Procedure 15 Article 23 - Savings Clause 16 Article 24 - Entire Agreement 16 Article 25 - Probation 17 Article 26 - Substance Abuse 17 Article 27 - Health and Safety 17 Article 28 - Appendices Incorporated into Agreement 18 Article 29 - Term of Agreement 18 Article 30 - Subcontracting 18 Signature Page 19 Appendix A 20
3 Article 1 Preamble This mutual Agreement is entered into by the International Union of Operating Engineers Local #280 (hereinafter referred to as the Union) and Allied Technology Group, Inc., Richland, WA (hereinafter referred to as the Employer). The purpose of this Agreement is the promotion of harmonious relations between the Company and the Union; the establishment of equitable and peaceful procedures for the resolution of differences; and the establishment of rates of pay, hours of work, and other terms and conditions of employment. Article 2 Union Recognition The Employer recognizes the Union as the sole and exclusive bargaining agent for all employees employed at its Richland, Washington facility in the job classifications set forth in Appendix A of this Agreement. Excluded are all Office Clerical Employees, Managerial Employees, Confidential Employees, Guards, and Supervisors as defined by the National Labor Relations Act. Unit certification is granted to the Union per National Labor Relations Board certification case 19-CR-l3183. If the Company establishes a new operation in Richland, Washington, the Company and the Union agree to discuss whether or not the employees in the operation should be included in the bargaining unit. Absent agreement on this subject; either party may petition the NRLB to determine whether or not the employees should be included in the bargaining unit. Article 3 Union Security Section 1. All regular full-time employees hired after the effective date of this Agreement shall become members of the Union within thirty (30) days following the signing of this Agreement and shall remain members in good standing during the life of this Agreement as a condition of continued employment. Section 2. The Employer shall discharge non-complying employees upon receipt of a written request to the Plant Manager from the Union. Section 3. The Union agrees to defend at its own expense and hold the Employer harmless in the administration of Article 3 and Article 4. Section 4. The Employer shall notify the Union of any changes to the bargaining unit. 4 Article 4 Payroll Deduction The Employer agrees to deduct from the paycheck of each employee covered by this Agreement, who has so authorized it by signed notice submitted to the Employer, the initiation fee and regular monthly dues. The Employer shall transmit such fees to the Union once each month on behalf of the employees involved. The Union shall provide at least thirty (30) calendar days written notice in advance of a change in either initiation fees or dues. Employees who authorize deduction of dues may cancel this authorization once annually on the anniversary date of contract or at the expiration of the Agreement upon thirty (30) days written notice to the Employer and the Union. Article 5 Business Representative Access The Employer agrees to allow reasonable access to Company facilities for business representatives who have been properly authorized by the Union. The Union shall notify the Plant Manager in writing of the name(s) of such representatives. Such access shall be permitted in a manner as not to in any way interfere with the work of employees of the functions of the Company. This Article shall apply within the constraints of federal or state regulations and statutes. Such business representatives shall in each case obtain prior permission from the Plant Manager or his designated representative of their presence on the property prior to contacting employees. Such access shall not be unreasonably denied. Nothing in this Article shall be construed as entitling the business representative to talk to the employees during their work hours. Lunch and break periods are not considered work time. Article 6 Bulletin Board A bulletin board found to be acceptable and in compliance with the needs or limited use by the Union shall be provided by the Employer. This bulletin board shall be used, maintained, and controlled exclusively by the Union members. It is understood and agreed to that no material shall be posted which is obscene, defamatory, or libelous. The location of this bulletin board shall be out of public view and in the lunch room. 5 Article 7 Non-Discrimination It is mutually agreed between the Employer and the Union that there shall be no discrimination against any employee because of race, color, creed, national origin, sex, age, disability or Vietnam-era status. Military leaves shall be administered in conformance with Title 38 of the Revised Codes of Washington. Normally, discrimination issues that arise in the work place will be handled by the proper agency. However, with an appropriate waiver, an employee may elect to use the grievance and arbitration procedure to finally resolve the issue. Article 8 Management Rights Except as otherwise specifically stated elsewhere in this Agreement, the Employer has the sole right and discretion to operate and run its business as it sees fit. By way of example, and not limitation, the Employer shall have the exclusive right and power to set work schedules; determine the products to be manufactured; determine production levels, quality and quantity standards, sales methods, prices, types of equipment, tools and machinery to be used; determine when employees should be promoted or demoted; determine when layoffs tire necessary; subcontract part or all of its operations or work; determine the number of employees to be employed, including the number of employees to be assigned to any particular machine or shift; fill openings; establish work rules; direct and supervise all of its employees; evaluate the performance and capabilities of its employees; assign employees to various machines, jobs, and shifts; determine when overtime must be worked (nothing in this Agreement shall be read to preclude supervisors or management employees from performing bargaining unit work when reasonably necessary and when such work does not permanently displace regular full-time employees); determine when temporary employees must be utilized, providing that temporary employees will not be utilized at a time that regular employees are on layoff (aside from layoffs due to medical, disability, or voluntary absences from work); determine the skills, abilities, and competency of its employees; and determine whether or not to terminate or shut down its operations in Richland, Washington. Article 9 Due Process in Discipline The Employer may discipline employees for just cause. In any meeting between representatives of the Employer and an employee in which disciplinary action is to be taken, the employee shall be entitled to have present, the Union's business representative or steward. Any disciplinary action involving a written reprimand, suspension, demotion, or discharge shall be subject to the grievance and arbitration procedure set forth in this Agreement. Copies of all documented disciplinary action taken against an employee shall be provided to the Union upon employee request. 6 Article 10 Seniority / Reduction in Force Section 1. The decision to reduce the work force shall be the exclusive authority of the Employer. Section 2. Layoffs will occur according to seniority within the applicable job classification to which individuals are assigned only if skills, performance, and abilities are equal. The Employer will have sole discretion to determine skills, performance, and abilities of its employees so long as such determinations are not arbitrary or capricious. Section 3. Employees laid off in accordance with the provisions of this Article will be eligible for rehire in the inverse order or layoff for a period of eighteen (18) months following layoff. Section 4. Except in cases or emergencies, power failure, or Acts of God, written notice shall be provided to each employee scheduled for layoff at least ten (10) work days prior to layoff. Section 5. In the event an employee is eligible for recall as in Section 3, above, the Employer will notify the employee by certified mail, return receipt requested, at the last address provided in writing by the employee. The employee must accept the recall within two weeks of notification. Failure either to respond or to accept the recall releases the Employer from all further obligation to the employee. The Employer may use temporary employee(s) until such time as the employee accepts or rejects the recall. Section 6. A seniority roster will be provided annually to the Union. Section 7. The parties recognize the necessity for the Company to employ temporary employees to augment the regular full-time work force during periods of increased production. Temporary employees are not covered by this Agreement. Temporary employees may be employed for up to (180) days in a twelve (12) month period. If a temporary employee is employed for more than 180 days in a 12 month period without mutual agreement by the parties, such employee shall become a regular full-time employee of the Company. Section 8. As regular full-time vacancies occur, regular full-time employees shall be given first consideration to fill vacancies that constitute a promotion within the bargaining unit. Following first consideration of regular full-time personnel, should a vacancy remain, next consideration to fill such a vacancy will be given to temporary employees. Upon acceptance to full-time positions and following successful completion of the ninety (90) day probationary period, temporary employees shall be credited seniority from the first day of their most recent continuous employment as a temporary employee. 7 Article 11 Jury Duty The Employer will giant employees time off for mandatory jury duty. Employees who have successfully completed their probationary period will receive full pay less witness fees received for up to 40 hours. Employer compensation for service as a subpoenaed witness (not Employer related) or on jury duty only applies to absence from regularly scheduled work hours. For service required by the Employer as a witness, Employer compensation outside of regularly scheduled work hours is payable at the overtime rate if such service is in excess of the normal daily or normal weekly working hours' schedules. Employees who are involved in suits against the Employer as plaintiffs or complaints shall do so without compensation and on their own time (off-shift hours, vacations, etc.). Employees called for jury/witness duty to report to the Court and are released early will contact their Supervisor and return to Employer duties if so instructed. Article 12 Funeral Leave The Employer shall allow up to three (3) working days per bereavement with pay to employees who have been employed for thirty (30) or more days of uninterrupted service and who have suffered the loss by death of a member of the employee's immediate family. In the event either extended travel or estate administration duties are required by the employee, the Plant Manager, in his discretion, may grant up to five (5) days of funeral leave. The two (2) additional days shall be deducted from the employee's accumulated sick leave or accrued vacation. For the purpose of the above "immediate family" is defined as spouse, parent, daughter son, brother, sister, mother-in-law, father-in-law, daughter-in-law, son-in-law grandparent, grandchild, a person who is legally acting in one of the above capacities, or another relative living in the employee's residence, but not more distant relatives. Article 13 Hours of Work and Overtime Section 1 Hours of Duty - The normal work day for employees shall be 6:30 a.m. to 3:00 p.m. or an optional 4-10 hour shift may be established beginning at 6:30 a.m. and ending at 5:00 p.m. 8 The normal work week shall consist of consecutive days, Monday through Friday. A thirty (30) minute uncompensated mealtime is normally scheduled. The equivalent of two fifteen (15) minute rest periods during a normal work shift shall be provided in a normal work day. The break periods are to be taken in the break room or as otherwise approved by the Supervisor. Compensation for the normal work week will be straight time for the first forty (40) hours of work and time and one half for additional hours as required in the above schedule. Company will initiate a "Letter of Understanding" that assures, that, absent extraordinary situations, employees normal work week will not be shortened or adjusted to avoid the payment of overtime. Section 2. Overtime Pay and Exceptions - Except as provided below, overtime shall be paid for hours worked in excess of 40 hours per week. Exceptions: (a) When an employee is involved in trading days off with another employee which results in work in excess of the normal work week; (b) When, due to a shortage of personnel or extraordinary circumstances, an employee's previously approved vacation must be cancelled and rescheduled. Section 3. Notice of Work Schedule Change - Employees shall be provided twenty- four (24) hours advance notice in the event or work schedule changes, except in extraordinary situations. Extraordinary situations are defined as any situation outside the normal which impacts Company operations and for which the Company has no control. Section 4. Approval for Overtime Work and Compensation - Authority for approval of any overtime work shall be limited to Supervision. Approval shall be in advance where practicable. Overtime shall be paid at one and one-half times the rate of pay for the work performed, there shall be no compounding or "pyramiding" of overtime pay. Also, see holidays. Section 5. Call Time - An employee called back to work, while on personal time, will be paid a minimum of two (2) hours call time. Employees required to report in early for their normal shift and for employees held over after their normal shift will not be eligible for call time minimum. 9 Section 6. Job Transfers - An employee permanently transferred from a job in one classification to a job classified at either a higher or lower rate of pay, will receive the rate of pay for the job to which he is transferred. Section 7. Overtime List - A separate, voluntary overtime list shall be established for each classification represented by the bargaining unit. The overtime list will be purged of all hours at the beginning of each month. Overtime will be offered first to the qualified employee with the least amount of total overtime hours. Overtime will be distributed as equally as practicable. Employees shall be called for overtime work starting with the name at the top of the appropriate list. When an employee has worked four (4) or more hours of overtime, his name shall rotate to the bottom of the list. If an employee refuses to work offered overtime, except for illness or during vacation, his name shall be rotated to the bottom of the list. In the event overtime is refused by all employees in a classification, the qualified employee with the least overtime hours will be required to work. If employees in the needed classifications cannot be contacted, employees on the other classification lists may be called. Article 14 Vacation Annual vacation with pay shall be granted to employees on the following basis: Section 1. Scheduling of Vacation Leave: Regular full-time employees may request and use vacation leave, subject to the approval of the Supervisor. Section 2. Limits on Accumulating Vacation Leave: Accumulated vacation (annual) leave shall not exceed thirty (30) working days as of December 31st of any year. Section 3. Vacation Schedule - Vacation time shall be computed for those on the regular full-time payroll of the Employer on the following basis: (a) 1 to 5 years 5/6 of a day per month 80 hours (b) 5 to 10 years 1.25 days per month (1-1/4) 120 hours (c) 10 to 35 years 1.67 days per month (1-2/3) 160 hours The amount of vacation will be set forth from the schedule. The number of days accrued to his credit will be computed from the schedule. Vacation accrual shall occur only while an employee is on regular full-time employee status. 10 After a new employee has completed six (6) months of regular full-time employment, he will be entitled to vacation subject to the approval of the Supervisor. Section 4. Payment for Vacation Leave at Termination - Should an employee leave the employment of the Employer, prior to his having had the opportunity to take his vacation, the Employer, upon his separation from the employment thereof, will pay any accrued vacation time, at the above rate, provided that the employee has been employed at least 90 days as a regular full-time employee, on the next pay period following separation from the Employer. Section 5. Annual Accrual of Vacation - Employees shall not be entitled to use their annual accrual of vacation in advance of actual accrual except in instances of Plant Manager approval. Section 6. Cancellation and Rescheduling - In the event of an emergency or a personal shortage due to unusual circumstances, vacations may be delayed by the request of the Plant Manager, provided that those vacations will be promptly rescheduled at a mutually agreeable time. Article 15 Holidays Section 1. Except as hereinafter specified, the following days shall be observed as holidays. Employees shall be paid for such day(s) based upon the normal shift schedule being worked in the work week in which the holiday is observed: HOLIDAY (a) New Year's Day (b) President's Day (c) Memorial flay (d) Independence Day (e) Labor Day (f) Thanksgiving Day (g) Day after Thanksgiving (h) Day berate Christmas (i) Christmas Day (j) Day before New Year's Day Section 2. Employees shall normally be scheduled off with pay on each of the identified holidays as observed by the Employer. Section 3. If an employee works any of the holidays lined above, that employee shall be compensated at the rate of two times his regular pay for the hours worked only on the day actually observed by the Employer. 11 Section 4. In order to be paid for a holiday not worked, an employee must have worked the last scheduled day preceding the holiday, and the first scheduled day following the date of which the Employer observes the holiday, or must be on an approved absence. Section 5. When any of the holidays falls on a Saturday, the Friday immediately preceding such a holiday shall be observed as the holiday, when any of the holidays fall on a Sunday, the Monday immediately following shall be observed as a holiday. Article 16 Compensation for Travel Time Section 1. The Employer agrees to reimburse employees required to travel for reasonable out-of-pocket expenses that may be incurred for transportation, meals, and lodging. Expenses covered shall be limited to those incurred only in connection with the assignment and shall cover employee expenses only. Proof of expenditures shall be required for reimbursement. Per diem allowances may be authorized by the Company in lieu of actual expenses. However, per diem allowances will be discussed and agreed by employee and Employer prior to assignment. Section 2. An employee's normal pay on an eight or ten hour work day shall apply in connection with travel assignments. Section 3. When travel by an employee's private vehicle is required and authorized by management, such travel shall be reimbursed in accordance with the mileage reimbursement at the ATG Corporate approved rate. Article 17 Tuition Assistance / Commercial Driver's License (CDL)/ Miscellaneous Facilities The employer agrees to provide the following: A. The Employer will reimburse employees for the cost of job related education and training that has been approved in advance by the Employer. B. The Company shall reimburse employees for the costs incurred by the employee to maintain his/her Employer required CDL and the endorsements required for his/her job duties. Reimbursement shall be limited to license testing fees; license fee, exclusive of regular basic driver's license fee. Employees shall each be responsible to timely obtain and maintain their CDL with the endorsements necessary to perform their job duties. The Company shall arrange for and pay up front for the cost of the required CDL physical exam at a location to be determined by the Company. 12 C. The Employer agrees to furnish adequate microwave ovens and refrigerators to be located in the common lunch room. Article 18 Sick Leave A. Upon successful completion of the 90 days probation period, regular full- time employees shall begin to accumulate sick leave at the rate of 1.54 hours every two weeks for each full month of continuous employment. Employees may accumulate up to forty (40) hours of sick leave per year. Employees may credit against sick leave those absences which are necessary only for reasons of illness or injury defined below. B. Any employee, who must take sick leave, shall as soon as possible notify the Supervisor. The Supervisor will, on a continuous basis, determine that sick leave privileges are not abused. After an illness absence, the Employer may require the employee to obtain a release from his/her physician before returning to work. C. Sick leave may be taken for absences covered by the State and Federal Family Leave Statutes. D. An employee who suffers a compensable on the job injury requiring absence from work will be permitted to apply accumulated sick leave to the first three (3) work days of such absence less any state compensation which may be applicable. During the absence of such employee, said employee will be considered as being "on leave of absence-compensable injury" and as such the Employer will continue to pay the medical, hospital, dental, vision, and hire insurance premium. If the employee qualifies for time loss payments, those payments will he made at a rate established by the State of Washington Department of Labor and Industries and payment will be made directly to the employee. The employee agrees to follow State approved claim procedures and to keep the Employer informed of the claim's processing status. E. Under no circumstances will sick leave be taken in lieu of annual leave (vacation). F. January 1st of each year, regular full-time employees will begin to accrue sick time from a zero balance. Sick time which has not been used will not be carried into the new calendar year. Each employee shall receive an itemized statement of total sick leave earned and accrued quarterly. Any discrepancies or errors must be reported within the next quarter and reconciled with payroll. 13 Article 19 Health and Welfare Programs Section 1. Upon successful completion of the probationary period, all regular full-time employees shall be enrolled in the MSC-PP04 medical insurance and Fortis Group Dental insurance programs. The Company will maintain the full cost of the insurance plan, for employees, for the life of this Agreement. The Company agrees to maintain the benefit(s) and cost of employee (only) life insurance for the term of this Agreement. Section 2. Should it become cost effective to change insurance carriers during the life of this Agreement, the Company may choose to do so provided benefits of the described insurance plans are not diminished. Section 3. Beginning in the second year/anniversary of this Agreement, the Company will apply $50.00 towards the monthly insurance premium for employees optioning for dependent coverage. This contribution applies towards Company sponsored insurance programs only. Article 20 Pensions Section 1. Beginning in the second year/anniversary of this Agreement, the Company agrees to enroll its regular full-time employees in the IUOE Central Pension Plan. Contribution rate to the plan shall be in the amount of twenty- five (5.25) cents per hour worked up to a maximum of 2,080 hours per contract year for each regular full-time employee covered by this Agreement. Employees are not entitled to participate in the Company's 401(k) plan. Section 2. The Company agrees to make a payroll deduction to an annuity plan which the Union may sponsor in lieu of the existing Company 401(k) plan. No Company contributions will be made to said plan. Article 21 Performance of Duty, Strikes, and Lockouts Section 1. The Union agrees that no employee shall engage in a slowdown, work stoppage, or strike including a sympathy strike provided that a reserved gate is established, nor shall any employee refuse to perform assigned duties. Section 2. The Employer agrees that there shall be no lockouts. Section 3. The conditions stated in Sections 1 and 2 of this Article shall remain in effect with or without a signed labor agreement, unless either party serves notice to the other following the expiration date of this contract. 14 Article 22 Grievance Procedure A. Should differences arise between the Company and the Union or employees as to the meaning and application of the provisions of this Agreement, or as to the compliance of either party with any of the obligations under this Agreement, earnest effort will be made to settle such differences immediately under the following procedure: (1) Between the aggrieved employee or employees, with the Union representative or steward, together with the Supervisor of the department involved. All grievances must be submitted within seven (7) days after occurrence. (2) Between the Union representative or representatives, not exceeding two (2), with or without the aggrieved employee or employees, and the Plant Manager or designated representative. All grievances must be reduced to writing, identifying the factual basis of the grievance and the section of the Collective Bargaining Agreement that has been violated and presented in this step within teal (10) days after the previous step. (3) If a settlement agreement is not reached in the preceding manner, then either party may submit the case to arbitration. Within five (5) days after notice of intent to arbitrate, designated representatives of the Company and of the Union will meet for the purpose of selecting an arbitrator, who shall be selected either by the agreement of the parties or by alternately striking arbitrators from a list provided by the FMCS. B. The respective parties shall bear the expenses they incur in preparing the arbitration and expenses of the arbitrator shall be equally shared by the parties hereto. C. The arbitrator shall not decide any grievance or dispute which does not specifically arise out of the express terms of this Agreement. D. The arbitrator shall not decide on the merits of wisdom or any action or failure to act, but only on the contractual obligations inherent in this Agreement. E. it is the intent of this Agreement that the arbitrator submit his decision with the least practicable delay. F. When a settlement is agreed upon at any step set forth in this Article, such settlement agreements shall be final and binding upon both parties. 15 G. Nothing in this Agreement shall be deemed to limit the right of the Company to discharge an employee for cause. Any case involving the discharge of any employee may become a grievance and be honored immediately in accordance with the procedures act forth in this Agreement. The complaint must be filed in writing with the Company within seven (7) days of such layoff or discharge. Failure to file automatically precludes any claim. The parties hereto agree that the arbitrator may award either partial or all backpay as justified in instances where reinstatement is ordered, but may not award emotional distress, punitive, liquidated, or consequential damages. Backpay awards shall not exceed sixty (60) days. H. Unless the parties otherwise agree, each grievance and arbitration shall be separately grieved and arbitrated.. I. Any of the time limitations specified in this procedure may be extended by mutual agreement between the parties. Article 23 Savings Clause If any Article of this Agreement or any Appendix hereto should be held invalid by operation of law or by any tribunal of competent jurisdiction, or if compliance with or enforcement of any Article or Appendix should be restrained by such tribunal the remainder of this Agreement and Appendices shall not be affected thereby, and the parties shall enter into collective bargaining negotiations if deemed necessary by either one, for the purpose of arriving at a mutually satisfactory replacement of such Article. Article 24 Entire Agreement Section 1. This Agreement expressed herein in writing constitutes the entire agreement between the parties and no oral statement shall add to or supersede any of its provisions. Section 2. The parties acknowledge that each has had the unlimited right and opportunity to make demands and proposals with respect to any matter deemed a proper subject for collective bargaining. The results of the exercise of that right are set forth in this Agreement. Therefore, except as otherwise provided in this Agreement, the Employer and the Union for the duration of this Agreement, each voluntarily and unqualifiedly, agree to waive the right to oblige the other party to bargain with respect to any subject or matter whether or not specifically referred to or covered in this Agreement. 16 Article 25 Probation Regular full-time employees shall serve a probation period of ninety (90) calendar days from date of being accepted in that capacity. Within this period, the Employer shall have the right to terminate any probationary employee without a showing of cause and the employee shall not be entitled to use the grievance and arbitration provisions of this Agreement. Article 26 Substance Abuse The Employer and Union mutually agree that the we of drugs, alcohol, and other substances which impairs the ability of an employee to safely and effectively perform his duties is not in the best interest of the Employer, Union, or the public safety. Therefore, the Employer and Union agree to the development, implementation, and administering of a reasonable testing program. Article 27 Health and Safety The Employer will provide safety inspections, first aid service, and radiation protection equipment to minimize accidents and health hazards to the Employees at the plant during the hours of their employment. The union agrees to cooperate with the Employer to the end that employees will use any required safety equipment when so provided and observe such safety and health regulations as prescribed by the Employer. The Employer will set up a Safety Committee for the employees and employees will be asked to serve on the committee for a fixed period of time. The Union shall designate, to serve on the committee in an advisory capacity, a number of employees equal to the number of Employer designees. The committee will meet at least once monthly the Employer will, upon request, provide the Union minutes of reports of the Safety Committee meetings as prepared for distribution. The Employer will provide for periodic medical examinations of all employees. Employees may discuss their examinations with the examining doctor. All employees covered by this Agreement will comply with safety rules and regulations established by the Employer covering work performed under this Agreement. When an employee is involved in an industrial accident that combines personal injury and/or radioactive contamination, the employee's pay is continued up to the time of his release from the area in which the employee undergoes prescribed decontamination procedure. If the employee is released from his area prior to the end of his/her regular shift, he/she is continued in a pay status until the end of such regular shift, unless overtime premiums are involved. When in such situations, the employee is directed to report to a 17 medical facility, or the Whole Body Counter, he/she will be continued in a pay status until the end of his/her regular shift if he/she is released from the facilities mentioned above prior to the end of his/her regular shift or if he/she is working hours other than his/her regular shift, he/she will be paid at the applicable rate until such time as hue/she is released from the facilities mentioned above. The parties hereto recognize the principle that radiation exposure should be held to the lowest practical level consistent with the requirements of the job and the interests of the affected employees. Article 28 Appendices Incorporated into Agreement Pay Rates, Appendix A or other appendices are conditions agreed to and are hereby incorporated into this Agreement by this Article. Article 29 Term of Agreement This Agreement shall extend from the date of ratification by the parties and expire twenty-four (24) calendar months later unless extended by mutual agreement. Article 30 Subcontracting The Employer shall advise the Union of any decision to subcontract work normally performed by bargaining unit employees. If the subcontracting of bargaining work results in a loss of bargaining unit jobs, the Employer will negotiate about the effect of the subcontracting upon the affected employees. If the decision to subcontract work is based upon labor costs, the Employer agrees to negotiate with the Union about the decision to subcontract. The Union and Employer agree that they will promptly meet to negotiate about this subject. 18 SIGNATURE PAGE ALLIED TECHNOLOGY GROUP, INC. and INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL 280 IUOE LOCAL 280 ALLIED TECHNOLOGY GROUP, INC. _____________________________ _____________________________ Business Manager Plant Manager _____________________________ President _____________________________ Recording Secretary _____________________________ Business Representative _____________________________ ATTEST: Steward _________________________________ Title: __________________________ 19 WAGES & QUALIFICATIONS APPENDIX A 1. Effective upon the ratification date of this Agreement, the Company agrees to increase the hourly rate of employees pay by thirty-five (0.35) cents per hour. 2. Effective upon due sixth, twelfth, and fifteenth month anniversary dates of this Agreement, the Company agrees to increase the hourly rate of employees pay by an additional twenty-five (0.25) cents per hour. 3. Parties agree that a minimum of one (1) Board Qualified bargaining unit employee shall sit on the Board Qualification interview committee. 4. An employee who achieves his or her first Board Qualification shall receive a one (1.00) dollar per hour wage increase. 5. After achieving the initial Board Qualification, subsequent salary adjustments will be provided upon promotion(s) of employees into vacancies where different Board Qualifications am required and achieved by the employee. Other than specified herein, the Employer may determine, at its discretion, when employees may seek a second or any additional Board Qualifications. 6. Aside from not being able to participate in the Employer's 401(k) Plan, no bargaining unit employee shall suffer a pay or benefit reduction as a result of the signing of this Agreement. WAGE SCHEDULE Upon Ratification
DOUBLE BQ ENTRY LEVEL SINGLE BQ (As Authorized) LEAD 10.357 11.35 12.35 13.35 6 Month Contract Anniversary 10.60 11.60 12.60 13.60 12 Month Contract Anniversary 10.85 11.85 12.85 13.85 15 Month Contract Anniversary 11.10 12.10 13.10 14.10
20 EX-10.14 20 FORM OF STOCK PURCHASE AGREEMENT EXHIBIT 10.14 ATG INC. -------- STOCK PURCHASE AGREEMENT ------------------------ This Agreement is made and dated as of, _________ ___, 19 between ATG, INC., a California Corporation with its principal office located at 47375 Fremont Boulevard, Fremont, California 94538 (the "Company"), and __________________ (the "Purchaser"). 1. Purchase and Sale of Shares. ---------------------------- 1.1 Sale and Issuance of Shares. Subject to the terms and conditions --------------------------- hereof, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, shares (the "Shares") of Common Stock for a cash purchase price of $_________. Such purchase of stock is for investment purpose only. 1.2 Closing. The closing of the purchase and sale of the Shares -------- hereunder (the "Closing") shall be held at the ATG Inc. office at 47375 Fremont Blvd. on ______________________ or at such other time and place as is agreed by the parties. (The date of the Closing is hereinafter referred to as the "Closing Date"). At the Closing, the Company will deliver to the Purchaser a certificate representing the Shares, which Shares shall be registered in the Purchaser's name, upon the Purchaser's delivery to the Company of the purchase price therefor by cashier's or certified check, in the amount of $__________ payable to the order of the Company. 2. Definitions. ------------ For purposes of this Agreement: (a) The "Business" of the Company shall mean the business, properties, prospects, assets, liabilities or condition (financial or otherwise) of the Company or any Subsidiary, taken as a whole; (b) "Material Adverse Event" shall mean an occurrence or occurrences having a consequence that, individually or in the aggregate, either (i) adversely affects ten percent (10%) or more of the Business of the Company, or (ii) is reasonably foreseeable, has a reasonable likelihood of occurring, and if it were to occur might adversely affect ten 1 percent (10%) or more of the Business of the Company; and (c) "the Subsidiaries" of the Company shall mean the companies listed on the Disclosure Schedule as Subsidiaries of the Company including, without limitation, National Safety Consultants, Inc., Allied Ecology Services, Inc. and ATG Richland Corporation. 3. Representations and Warranties of the Company. ---------------------------------------------- The Company represents and warrants to the Purchaser that, as of the date of this Agreement, except as set forth on the attached Disclosure Schedule, or set forth in the Financial Statements: 3.1 Organization and Standing. The Company and each of its Subsidiaries ------------------------- is a corporation duly organized and validly existing and is in good standing in the jurisdiction of its incorporation, and is authorized in the jurisdiction of its incorporation to exercise its corporate powers, rights and privileges. The Company and each Subsidiary has all requisite corporate power and authority to own and lease its property and conduct its business as presently conducted. 3.2 Authorization. All corporate action on the part of the Company and -------------- its officers, directors and shareholders that is necessary for the authorization, execution and delivery of this Agreement, the Shareholders' Agreement date as of the date hereof, among the Company and the signatories thereto (the "Shareholders' Agreement"), the form of which is attached as Exhibit A hereto, and any other agreements entered into by the Company in order to fulfill the transactions contemplated by this Agreement (the Shareholders' Agreement and such other agreements referred to collectively as the "Other Agreements"), for the performance of the Company's obligations hereunder and thereunder and for the issuance and delivery of the Shares, has been taken or will be taken prior to the Closing. This Agreement and the Other Agreements, when executed and delivered, shall constitute legal, valid and binding obligations of the Company. 3.3 Capitalization. --------------- 3.3.1. Authorized. The authorized capital stock of the Company ----------- consists of 5,000,000 shares of common stock, no par value ("Common Stock"). The Common Stock has the rights and privileges set forth in the Articles. 2 3.3.2. Issued. There are issued and outstanding __________ shares ------- of Common Stock. A list of all the shareholders of the Company with the number of shares owned by each shareholder as of the date hereof is set forth in the Disclosure Schedule. All such issued and outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable and were issued in compliance with all applicable state and federal laws concerning the issuance of securities. 3.4 Subsidiaries. The Company owns the percentage of the capital stock ------------- specified opposite the name of each Subsidiary in the Disclosure Schedule. The Company does not presently own or control, directly or indirectly, any equity interest in any corporation, association or business entity other than its Subsidiaries. Except as set forth in the Disclosure Schedule, the Company is not, directly or indirectly, a participant in any joint venture or partnership. 3.5 Validity of Securities; Compliance with Security Laws. The Shares, ------------------------------------------------------ when issued, sold and delivered in accordance with the terms of this Agreement and the Articles, will be duly and validly issued, fully paid and nonassessable, will be free and clear of any liens or encumbrances and will be issued in compliance with applicable federal and state securities laws; provided, however, that the Shares may be subject to restrictions on transfer under state and federal securities laws and under the Shareholders' Agreement. 3.6 Governmental Consents. No consent, approval, order or authorization ---------------------- of, or registration, qualification, designation, declaration or filing with, any governmental authority on the part of the Company is required in connection with the valid execution, delivery and performance of the Agreement and the Other Agreements, except for the notification of change in ownership to be filed with the Small Business Administration and filings required by applicable state securities laws, all of which shall be properly and timely filed by the Company. 3.7 Compliance with Other Instruments. The execution, delivery and ---------------------------------- performance of this Agreement and the Other Agreements will not result in any violation, be in conflict with or constitute, with or without the passage of time or giving of notice, a default under, or require any consent or waiver (which has not been obtained) under, any Contract (as such term is defined in Section 3.12 below). The execution, delivery and performance of this Agreement and the Other Agreements and the issuance and sale of the Shares will not result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any Subsidiary. 3 3.8 Compliance With Laws; Permits. To the knowledge of the Company: (a) ------------------------------ the Company and each of the Subsidiaries is in substantive compliance with all governmental statutes, laws, ordinances, rules and regulations known to the Company to be applicable to it or to any Subsidiary; (b) the execution, delivery and performance of this Agreement and the issuance and sale of the Shares will not result in any violation of any governmental statute, rule or regulation applicable to the Company or any Subsidiary; (c) the Company and each Subsidiary has all permits, licenses, orders and approvals of any federal, state, local or foreign governmental or regulatory body (collectively, the "Permits") that are material to or necessary in the conduct of its business; (d) all Permits are in full force and effect, no violations have been recorded in respect of any such Permits, and no proceedings are pending or threatened to revoke or limit any such Permits. 3.9 Litigation. To the Company's knowledge, there is no action, suit, ----------- proceeding, or investigation (collectively, "Actions") pending or currently threatened against the Company or any Subsidiary which questions the validity of this Agreement or the Other Agreements or the right of the Company to enter into such agreements or to consummate the transactions contemplated hereby and thereby, or which might result, either individually or in the aggregate, in a Material Adverse Event or any change in the current equity ownership of the Company or any Subsidiary, nor is the Company aware that there is any reasonable basis for the foregoing. The Disclosure Schedule lists all of the Actions to which the Company or any Subsidiary is a party or to its knowledge is threatened to be made a party or which to its knowledge are otherwise pending. To the Company's knowledge, neither the Company nor any Subsidiary is a party or subject to, and none of their assets are bound by, the provisions of any order, writ, injunction, judgement or decree of any court or government agency or instrumentality. The Disclosure Schedule lists all material Actions which the Company or any Subsidiary intends to initiate. 3.10 Financial Statements. --------------------- (a) The Company has delivered to the Purchaser its audited consolidated balance sheet at December 31, _________, December 31, __________ and December 31, __________, a copy of which is attached as Exhibits B-1 and B-2 respectively, and its audited consolidated statements of income, of changes in shareholder's equity and of changes in financial position for the years then-ended (collectively, the "Financial Statements"). The Financial Statements are complete and correct in all material respects and 4 have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated. The Financial Statements fairly present the consolidated financial condition of the Company and its subsidiaries as of the respective dates of the balance sheets contained therein, and the statements of operations contained therein accurately present the consolidated operating results of the Company and its subsidiaries during the periods respectively indicated therein. (b) All accounts receivable, if any, of the Company (including those reflected on the unaudited balance sheet included in the Financial Statements or acquired on or prior to the Closing Date) arose in the ordinary and usual course of business of the Company, as the case may be, represent valid obligations due to the Company and have been collected or are, to the Company's knowledge, collectible in the ordinary and usual course of business in the aggregate recorded amounts hereof in accordance with their terms. 3.11 Absence of Changes. Since the date of the most recent balance sheet ------------------- included in the Financial Statements: (a) Neither the Company nor its subsidiaries entered into any transaction involving amounts in excess of $100,000 that was not in the ordinary course of its business; (b) There have been no events or conditions that, either individually or in the aggregate, might constitute a Material Adverse Event; (c) There has not been any change in the assets, liabilities or financial condition or operations of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business which, individually or in the aggregate, would not constitute a Material Adverse Event; (d) Neither the Company nor its subsidiaries has declared or paid any dividend or made any distribution on its capital stock, or redeemed, purchased or otherwise acquired any of its capital stock; (e) There have not been any loans made by the Company to its employees, officers or directors other than advances of expenses made in the ordinary course of business; (f) There has not been any waiver by the Company of a right or of a debt owed to it where the value of such right or debt is in excess of $100,000; and 5 3.12 Material Contracts and Commitments. The Disclosure Schedule lists ----------------------------------- (i) all of the Company's and each Subsidiary's contracts, pursuant to which either the Company, a Subsidiary or another party thereto is obligated to pay in excess of $300,000 or which require the Company's performance or payment beyond 1996, (ii) all licenses and pending applications for licenses from governmental authorities (other than local business licenses) required by the Company in the conduct of its business. 3.13 No Defaults. Neither the Company nor, to the Company's knowledge, ------------ any Subsidiary, is in violation of its Articles or Certificate of Incorporation, bylaws or other charter document or, to the Company's knowledge, in material default under any of the Contracts. To the Company's knowledge, no other party to any of the Contracts is in material default thereunder. 3.14 Voting or Other Stock Agreements. There are no agreements or --------------------------------- arrangements between the Company or any Subsidiary and any of the Company's shareholders, or to the knowledge of the Company, between or among any of the Company's shareholders, which grant special rights with respect to any shares of the Company's capital stock or which in any way affect any shareholder's ability or right freely to alienate or vote such shares. 3.15 Title to Property and Assets. The Company and each of its ----------------------------- Subsidiaries has good and marketable title to its properties and assets, both real and personal, and to all its leasehold interests, in each case free and clear of all mortgages, liens, security interests and encumbrances, except (a) as stated in the Financial Statements or in the notes thereto, (b) for liens for current taxes not yet delinquent, (c) for liens imposed by law and incurred in the ordinary course of business for obligations not yet due to carriers, warehousemen, laborers, materialment and the like, (d) for liens in respect of pledges or deposits under workers' compensation laws or similar legislation and (e) for minor defects in title, none of which, either individually or in the aggregate, materially interferes with the use of such property. The properties and assets of the Company and each Subsidiary are in good condition and repair in all material respects. 3.16 Employee Compensation Plans. Neither the Company nor any Subsidiary ---------------------------- is a party to or bound by any currently effective deferred compensation agreement, bonus plan, incentive plan or arrangement, profit sharing plan, retirement agreement or other employee compensation agreement. 6 3.17 Disclosure. No representation, warranty or statement by the Company ----------- in this Agreement or in any written statement or certificate furnished or to be furnished to the Purchaser pursuant to this Agreement contains or will contain any untrue statement of a material fact or, when taken together, any material omission. 3.18 Transaction with Affiliates. Except for (i) transactions relating ---------------------------- to purchases of shares of the Company's Common Stock, (ii) regular salary payments and fringe benefits under the Company's standard compensation arrangements, (iii) the transactions listed in the Disclosure Schedule and (iv) the issuance and sale of the Shares pursuant to the terms and conditions of this Agreement, none of the officers, employees or directors of the Company or any Subsidiary or any member of their immediate families, or any other Affiliate of the Company or, to the Company's knowledge, of any Subsidiary or any such persons, are a party to any arrangement, transaction or business relationship with the Company or any Subsidiary. There have been no assumptions or guarantees by the Company or any Subsidiary of any obligations of such persons or Affiliates. For purposes of this Agreement, the term "Affiliate" shall mean any person or entity directly or indirectly controlling, controlled by, or under common control with the Company or any Subsidiary, and for the purposes of this definition, "control" (including with corrective meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person or entity, whether through the ownership of voting securities or by contract or otherwise. 3.19 Tax Returns and Audits. The Company and each of its Subsidiaries ----------------------- has duly prepared and timely filed all governmental tax returns required to be filed by it and has paid or established adequate reserves in the Financial Statements for the payment of all taxes, assessments, fees and charges shown on such returns or on assessments received by the Company or any Subsidiary. No deficiency assessment or proposed adjustment of the Company's or of any Subsidiary's income taxes is pending. 3.20 Insurance. The Company and its Subsidiaries have, or will have, as ---------- of the Closing Date, fire, casualty and liability insurance policies, with extended coverage, in such amounts and with such policy limits as are normal for companies of similar size 7 and engaged in a similar business. The Disclosure Schedule sets forth an accurate and complete list of all policies of insurance maintained by the Company, in effect of the Closing Date, indicating in each case, the category of risks covered, the names of the underwriters and the policy limits. 3.21 Offering. Subject to the accuracy of the Purchaser's --------- representations in Section 4 hereof, the sale and issuance of the Shares to be issued in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of section 5 of the Securities Act of 1933 (the "Act"). 3.22 Minute Books. The minute books of the Company contain a complete ------------- summary of all meetings of directors and stockholders since the time of incorporation of the Company and reflect all transactions referred to in such minutes accurately in all material respects. 3.23 Special Status. The Company is a "small business concern owned and --------------- controlled by socially and economically disadvantaged individuals" within the terms of Section 8 (a) of the Small Business Act [15 U.S.C.A. 637 (a)]. To the knowledge of the Company, the execution, delivery and performance of this Agreement and the issuance and sale of the Shares will not result in any change in the Company's status for purposes of Section 8 (a) of the Small Business Act [15 U.S.C.A. 637(a)]. 4. Representations, Warranties of the Purchaser and Restrictions on Transfer ------------------------------------------------------------------------- Imposed by the Act. - ------------------- 4.1 Representations and Warranties. The Purchaser hereby represents and ------------------------------- warrants to the Company as follows: 4.1.1. Authorization. Assuming due execution and delivery by the -------------- Company, this Agreement and any of the Other Agreements to which the Purchaser is a party constitute legal, valid and binding obligations of the Purchaser. 4.1.2. Investment. ----------- (a) The Purchaser is aware that the Shares have not been registered under the Act nor qualified under the California Securities Law on the ground that no distribution or public offering of the Shares is to be effected, and that in this connection the Company is relying in part on the representations of the Purchaser set forth in this Section 4; 8 (b) The Purchaser has been further advised that no public market now exists for any of the securities issued by the Company and that a public market may never exist for the Shares; (c) The Purchaser is purchasing the Shares for his own account and not with a view to, or for sale in connection with, any distribution thereof; (d) By reason of his business or financial experience, the Purchaser has the capacity to protect his own interest inconnection with the transactions contemplated hereunder; (e) The Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares; and (f) The Purchaser is an Accredited Investor, as defined in Rule 501 of Regulation D. 4.2 Transfer of Securities. None of the Shares shall be transferable ----------------------- except subject to the Shareholders' Agreement and upon the conditions specified in this Section 4.2, which conditions are intended to insure compliance with the provisions of the Act in respect to the transfer of such Shares. 4.2.1. Legend. Unless and until otherwise permitted by this ------- Section 4.2, each certificate or other document evidencing any of the Shares shall be endorsed with a legend substantially in the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT"). SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS IN ACCORDANCE WITH THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES AND UNLESS PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT, OR IN THE OPINION OF COUNSEL FOR THE COMPANY SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT." 4.2.2. Restrictions of Transfer. The Company shall not be required ------------------------- to register any transfer of Shares unless and until one of the following events shall have occurred: 9 (a) The Company shall have received a statement of the circumstances surrounding the transfer and, if reasonably requested by the Company, an opinion of counsel for the Purchaser, in form and substance reasonably requested by the Company, an opinion of counsel for the Purchaser, in form and substance reasonably acceptable to the Company and its counsel, stating that the transfer is (i) exempt from registration under the Act as then in effect, and the Rules and Regulations of the Securities and Exchange Commission (the "Commission") thereunder, and (ii) with the California Commissioner of Corporations; or (b) The Shares are transferred pursuant to a registration statement which has been filed with the Commission and has become effective. Within five business days after delivery to the Company and its counsel of the statement or the opinion described in clause (a) above, the Company either shall deliver to the proposed transferor a statement to the effect that such statement or opinion is not satisfactory in the reasonable opinion of its counsel or shall authorize the Company's transfer agent to make the requested transfer. 4.2.3 Termination of Registration and Removal of Legend. The -------------------------------------------------- restrictions on transfer imposed by this Section 4.2 shall cease and terminate as to the Shares, when (i) such securities shall have been effectively registered under the Act and sold by the holder thereof in accordance with such registration, or (ii) an acceptable opinion as described in Section 4.2.2. (a) states that all future transfers of such securities by the transferor or the contemplated transferee would be exempt for registration under the Act. When the restrictions on transfer contained in this Section 4.2 have terminated as provided above, the holder of the securities as to which such restrictions shall have terminated or the transferee of such holder shall be entitled to receive promptly from the Company, without expense to him, new certificates not bearing the legends set forth in Section 4.2.1. 4.3 Brokers or Finders. Other than the one described in the Disclosure ------------------- Schedule, the Purchaser has not incurred and will not incur, directly, or indirectly, any other liability for brokers' or finders' fees, agents' commissions or other similar charges in connection with this Agreement or any of the transactions contemplated hereby. 4.4 Financial Condition. The Purchaser has the financial capability to -------------------- perform his obligations under this Agreement. 10 5. Conditions to Obligations of Purchaser. --------------------------------------- The obligation of the Purchaser to purchase the Shares at the Closing is subject to each of the following conditions having been fulfilled on or prior to the Closing Date or waived by the Purchaser in accordance with the provisions of Section 8.1 hereof; 5.1 Representations and Warranties Correct; Performance of Obligations. ------------------------------------------------------------------- The representations and warranties made by the Company in Section 3 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of said date; no Material Adverse Event shall have occurred prior to the Closing Date. 5.2 Consents and Waivers. The Company shall have obtained any and all --------------------- consents, permits and waivers and made all filings necessary or appropriate for consummation of the transactions contemplated by this Agreement. 5.3 Shareholders' Agreement. The Shareholders' Agreement and its ------------------------ Amendment shall not have been executed and delivered by each party thereto in substantially the form of Exhibit A hereto. 5.4 Legal Investment. At the time of the Closing, the purchase of the ----------------- Shares by the Purchaser hereunder shall be legally permitted by all laws and regulations to which the Purchaser and the Company are subject. 5.5 Satisfactory Proceedings. All corporate and legal proceedings taken ------------------------- by the Company in connection with the transactions contemplated by this Agreement and all documents relating to such transactions shall be satisfactory to the Purchaser. 6. Conditions to Obligation of the Company. ---------------------------------------- The Company's obligation to issue, sell and deliver the Shares to the Purchaser at the Closing is subject to the following conditions having been fulfilled on or prior to the Closing Date or waived by the Company in accordance with the provisions of Section 8.1 hereof: 6.1 Representations and Warranties. The representations and warranties ------------------------------- made by the Purchaser in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of said date. 11 6.2 Payment of Purchase Price. The Company shall have received from the -------------------------- Purchaser on or prior to the Closing Date, a cashier's or certified check, in the amount of $_________, payable to the order of the Company. 7. Covenants of the Company. ------------------------- The Company hereby covenants and agrees as follows: 7.1 Information. The Company shall, subject to appropriate limitations ------------ to protect the confidentiality of such information, (i) furnish to the Purchaser such information concerning the Company as the Purchaser may from time to time reasonably request, including, without limitation, information as to the state of development of the Company's products and services, (ii) offer the Purchaser the right to visit the properties of the Company at reasonable times, to interview key employees of the Company at their places of employment at reasonable times and to examine the books of account of the Company. 7.2 Cooperation. The Company shall cooperate in supplying such ------------ information as may be reasonably requested by the Purchaser to complete and file any information reporting forms presently or subsequently required by any governmental agency in connection with the sale of the Shares. 7.3 Confidentiality. The Company agrees that, except as may be required ---------------- by applicable law, neither it nor its directors, officers or employees will disclose to any third party the names of the Purchaser, or any persons affiliated with the Purchaser. 7.4 Transaction with Affiliates. The Company shall not enter into any ---------------------------- arrangement transaction or business relationship with (i) any Subsidiary, (ii) any officer, employee or director of the Company or any Subsidiary, or any member of their immediate families, or (iii) any other Affiliates of the Company, any Subsidiary or any such persons, unless such arrangement, transaction or business relationship is at arms-length and for full and fair consideration. 7.5 Use of Proceeds. The proceeds from the sale of the Shares shall be ---------------- used by the Company only for the purposes stated in the Disclosure Schedule. 12 7.6 Termination of Covenants. The covenants of the Company set forth in ------------------------- Section 7.1 shall be terminated and be of no further force or effect upon the date when a registration statement filed by the Company under the Act, in connection with the first underwritten public offering of its securities on Form S-1, became effective. 7.7 Rule 144. The Company covenants that (i) at all times after the --------- Company first becomes subject to the reporting requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Company will use its best efforts to comply with the current public information requirements of Rule 144 (c) (1); (ii) if prior to becoming subject to such reporting requirements an over-the-counter market develops for the Common Stock, the Company will use its best efforts to make publicly available the information required by Rule 144 (c) (2); and (iii) at all such times as Rule 144 is available for use by the Purchaser, the Company promptly will furnish the Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144, and (iv) file with the Commission in a timely manner all reports and other documents required of the Company under the Act and the Securities Exchange Act of 1934, as amended. 7.8 Piggy-Back Registration Rights. ------------------------------- 7.8.1 Notice of Piggyback Registration and Inclusion of the ----------------------------------------------------- Shares. In the event the Company decides to register any share of the Common - ------- Stock in compliance with the Act, the Company will on each occasion: (i) promptly give the Purchaser written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Shares as specified in a written request delivered to the Company by the Purchaser within 15 days after delivery of such written notice from the Company. 7.8.2 Underwriting in Piggyback Registration. If the registration --------------------------------------- of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Purchaser as a part of the written notice given pursuant to Section 7.8.1. In such event the right of 13 the Purchaser to registration shall be conditioned upon such underwriting and the inclusion of the Shares in such underwriting to the extent provided in this Section 7.8. All shareholders proposing to distribute their shares of Common Stock through such underwriting shall (together with the Company and the other shareholders distributing their shares through such underwriting) enter into an underwriting agreement with the underwriter's representative for such offering. The Purchaser shall have the right to participate in the selection of the underwriters for an offering pursuant to this Section 7.8. 7.9 No Dilution. From and after the Closing Date, the Company shall not ------------ issue any shares of its capital stock or any other securities, or grant any rights, options, warrants, preemptive rights, conversion rights or other rights or agreements for the purchase or acquisition from the Company of any shares of its capital stock or any other securities, to any person or entity (collectively, and "Event"), without (a) first granting to the Purchaser the right to purchase or acquire such share or other securities, on the same terms and conditions as those governing the rights granted to or agreements with such other person or entity, so that the Purchaser may continue to hold, on a fully diluted basis, the same percentage of equity interest in the Company, after accounting for such Event as prior to accounting for such Event, or (b) otherwise taking any and all steps necessary to ensure that, after accounting for such Event, the Purchaser would continue to hold, on a fully diluted basis, the same percentage of equity interest in the Company as prior to accounting for such Event. 8. Miscellaneous. -------------- 8.1 Waivers and Amendments. Any term of this Agreement may be amended, ----------------------- and the observance of any terms of this Agreement may be waived in any respect, only with the written consent of the Purchaser and the Company. The Purchaser shall have the absolute right to exercise or refrain from exercising any right or rights that the Purchaser may have by reason of this Agreement, including, without limitation, the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an agreement with the Company to amend or modify this Agreement. 14 8.2 Governing Law. This Agreement shall be governed in all respects by -------------- the laws of the State of California applicable to agreements between California residents entered into and to be performed entirely within California. 8.3 Survival. The representations, warranties, covenants and agreements --------- made herein shall survive the execution of this Agreement and the Closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate, exhibit or other instrument delivered by or on behalf of the Company pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be the representations and warranties of the Company hereunder as of the date of such certificate or instrument. 8.4 Successors and Assigns. The provisions hereof shall inure to the ----------------------- benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 8.5 Entire Agreement. This Agreement, the Other Agreements and the ----------------- other documents delivered pursuant hereto and thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 8.6 Notices, Etc. All notices and other communications required or ------------- permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or upon the seventh day following mailing by registered air mail, postage prepaid, addressed (a) if to the Purchaser, at his address set forth on the first page of this Agreement, or at such other address as he shall have furnished to the Company in writing, and (b) if to the Company, to its address set forth on the first page of this Agreement, or at such other address as the Company shall have furnished to the Purchaser. 8.7 Delays or Omissions. No delay or omission to exercise any right, -------------------- power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party or be construed to be a waiver thereof. Waiver by a party of any term or condition of this Agreement hereto shall not be construed as a waiver of a subsequent breach or failure of the same term or condition or a waiver of any other term or condition contained in this Agreement. 15 8.8 Severability. If any provision of this Agreement is held to be ------------- invalid or unenforceable, it shall, to the extent possible, be modified so as to carry out the intent of the parties to the extent possible, and the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 8.9 Counterparts. This Agreement may be executed in any number of ------------- counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed themselves or by their respective representatives thereunto duly authorized as of the day and year first above written. COMPANY: PURCHASER: ATG INC., a California ____________________________ Corporation By___________________________ Title________________________ 16 EX-10.15 21 CONTINUING GUARANTY PROVIDED BY DOREEN CHIU EXHIBIT 10.15 Sanwa Bank California CONTINUING GUARANTY For value received and in consideration of the extension of credit by SANWA BANK CALIFORNIA (the Bank") to ATG INC. (the "Debtor") or the benefits to the undersigned derived therefrom, the undersigned (the "Guarantor"), guarantees and promises to pay to the Bank any and all Indebtedness (as defined below) and agrees as follows: 1. Indebtedness The term Indebtedness is used herein in its most comprehensive sense and includes any and all advances, debts, obligations, guaranties and liabilities of the Debtor heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether direct or acquired by the Bank by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether the Debtor may be liable individually or jointly with others, or whether recovery upon any Indebtedness may be or hereafter becomes barred by any statute of limitations or whether any Indebtedness may be or hereafter becomes otherwise unenforceable. 2. Guaranty. The Guarantor unconditionally agrees to pay to the Bank or its order, on demand, an amount equal to the amount of the Indebtedness or otherwise perform any obligation of the Debtor undertaken pursuant to any Indebtedness. In addition to any maximum principal liability hereunder, the Guarantor agrees to (i) bear the expenses enumerated hereunder in the paragraph herein entitled "Attorneys' Fees" and (ii) pay interest on the Indebtedness at the rate(s) applicable thereto. Notwithstanding the foregoing, the Bank may allow the Indebtedness to exceed the Guarantor's liability hereunder. Any payment by the Guarantor shall not reduce the maximum principal obligation of the Guarantor hereunder unless written notice to that effect is actually received by the Bank at or prior to the time of such payment. Any payment by the Debtor or any other person shall not reduce the Guarantor's maximum principal liability hereunder. 3. Right to Amend or Modify Indebtedness. The Guarantor authorizes the Bank, at its sole discretion, with or without notice and without affecting the Guarantor's liability hereunder, from time to time to: (i) change the time or manner of payment of any Indebtedness by renewal, extension, modification, acceleration or otherwise; (ii) alter or change any provision of any Indebtedness including, but not limited to, the rate of interest thereon, and any document, instrument or agreement (other than this Guaranty) evidencing, guaranteeing, securing or related to any Indebtedness; (iii) release, discharge, exonerate, substitute or add one or more parties liable on any Indebtedness or one or more endorsers, cosigners or guarantors for any Indebtedness; (iv) obtain collateral for the payment of any Indebtedness or any guaranty thereof; (v) release existing or after-acquired collateral on such terms as the Bank, in its sole discretion, shall determine; (vi) apply any sums received from the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness or from the sale or collection of collateral or its proceeds to any indebtedness whatsoever owed or to be owed to the Bank by the Debtor in any other or amount and regardless of whether or not such indebtedness is guaranteed hereby, is secured by collateral or is due and payable; and (vii) apply to any Indebtedness, in any order or amount, regardless of whether such Indebtedness is secured by collateral or is due and payable, any sums received from the Guarantor or from the sale of collateral in which the Guarantor has granted the Bank a security interest. 4. Waivers. The Guarantor hereby unconditionally and irrevocably acknowledges and agrees to the matters set forth below: A. Deficiency. In the event that any Indebtedness is now or hereafter secured by a deed of trust, the Guarantor waives any defense and all rights and benefits of those laws purporting to state that no deficiency judgment may be recovered on certain real property purchase money obligations (as presently contained in Section 580b of the California Code of Civil Procedure and as it may be amended or superceded in the future) and those laws purporting to state that no deficiency judgment may be recovered after a trustee's sale under a deed of trust (as presently contained in Section 580d of the California Code of Civil Procedure and as it may be amended or superseded in the future). THE GUARANTOR ACKNOWLEDGES THAT A FORECLOSURE BY A TRUSTEE'S SALE UNDER A DEED OF TRUST MAY RESULT IN THE DESTRUCTION OF THE GUARANTOR'S SUBROGATION RIGHTS THAT MAY OTHERWISE EXIST AND THAT A DESTRUCTION OF THOSE RIGHTS MAY CREATE A DEFENSE TO A DEFICIENCY JUDGEMENT. THE GUARANTOR HEREBY SPECIFICALLY WAIVES ANY SUCH DEFENSE. B. Election of Remedies. The Guarantor waives any defense based upon the Guarantor's loss of a right against the Debtor arising from the Bank's election of a remedy on any Indebtedness under bankruptcy or other debtor relief laws or under any other laws, including, but not limited to, those purporting to reduce the Bank's right against the Guarantor in proportion to the principal obligation of any Indebtedness (as presently contained in Section 2809 of the California Civil Code and as it may be amended or superseded in the future). Without limiting the generality of the foregoing, the Guarantor waives all rights and defenses arising out of an election of remedies by the Bank even tough that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the Guarantor's rights of subrogation and reimbursement against the Debtor by operation of Section 580d of the California Code of Civil Procedure or otherwise. C. Statute of limitations. The Guarantor waives the benefit of the statute of limitations affecting the Guarantor's liability hereunder or the enforcement hereof. D. Action Against the Debtor and Collateral (and Other Remedies). The Guarantor waives all right to require the Bank to: (i) proceed against the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness; (ii) join the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness in any action or actions that may be brought and prosecuted by the Bank solely and separately against the Guarantor on any Indebtedness; (iii) proceed against any item or items of collateral securing any Indebtedness or any guaranty thereof; or (iv) pursue or refrain from pursuing any other remedy whatsoever in the Bank's power. E. Debtor's Defenses. The Guarantor waives any defense arising by reason of any disability or other defense of the Debtor, the Debtor's successor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness. Until all Indebtedness has been paid in full, even though it may be in excess of the liability incurred hereby, the Guarantor shall not have any right of subrogation and the Guarantor waives any benefit of and right to participate in any collateral now or hereafter held by the Bank. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of sale of any collateral securing any Indebtedness or any guaranty thereof, and notice of the existence, creation or incurring of new or additional indebtedness, F. Debtor's Financial Condition. The Guarantor hereby recognizes, acknowledges and agrees that advances may be made in the future from time to time with respect to any Indebtedness without authorization from or notice to the Guarantor even though the financial condition of the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness may have deteriorated since the date of this Guaranty. The Guarantor waives all right to require the Bank to disclose any information with respect to: (i) any Indebtedness now existing or hereafter incurred; (ii) the present or future financial condition, credit or character of the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness; (iii) any present or future collateral securing any Indebtedness or any guaranty thereof; 1 or (iv) any present or future action or inaction on the part of the Bank, the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness. The Guarantor hereby assumes the responsibility for being informed of the financial condition, credit and character of the Debtor and of all circumstances bearing upon the risk of nonpayment of any Indebtedness which diligent inquiry would reveal. 5. Right of Set-off, Grant of Security Interest. In addition to all liens upon and rights of set-off against any monies, securities or other property of the Guarantor given to the Bank by law, the Bank shall have a security interest in and a right to set off against all monies, securities and other property of the Guarantor now or hereinafter in the possession of or on deposit with the Bank, the Bank's agents or any one or more of them, whether held in general or special account or deposit or for safekeeping or otherwise; and each such security interest and right of set-off may be exercised without demand upon or notice to the Guarantor. No action or inaction by the Bank with respect to any security interest or right of set-off shall be deemed a waiver thereof arid every right of set-off and security interest shall continue in full force and effect until specifically released by the Bank in writing. The security interest created hereby shall secure all of the Guarantor's obligations under this Guaranty. 6. Right of Foreclosure. The Bank may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing any Indebtedness even though such foreclosure may destroy or diminish the Guarantor's rights against the Debtor. The Guarantor shall be liable to the Bank for any part of any Indebtedness remaining unpaid after any such foreclosure whether or not such foreclosure was for fair market value. 7. Subordination. Any indebtedness of the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness now or hereafter owed to the Guarantor is hereby subordinated to the Indebtedness. Such indebtedness owed to the Guarantor shall, if the Bank so requests, be collected, enforced and received by the Guarantor as trustee for the Bank and be paid over to the Bank on account of the Indebtedness but without reducing or affecting in any manner the liability of the Guarantor set forth herein. Should the Guarantor fail to collect the proceeds of any such indebtedness owed to it and pay the proceeds to the Bank, the Bank, as the Guarantor's attorney-in-fact, may do such acts and sign such documents in the Guarantor's name as the Bank considers necessary to effect such collection. 8. Invalid, Fraudulent or Preferential Payments. The Guarantor agrees that, to the extent the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness makes a payment or payments to, or is credited for any payment or payments made for or on behalf of the Debtor to the Bank, which payment or payments, or any part thereof, is subsequently invalidated, determined to be fraudulent or preferential, set aside or required to be repaid to any trustee, receiver, assignee or any other party whether under any bankruptcy, state or federal law or under any common law or equitable cause or otherwise, then, to the extent thereof, the obligation or part thereof intended to be satisfied thereby shall be revived, reinstated and continued in full force and effect as if such payment or payments had not originally been made or credited. 9. Joint and Several Obligations, Independent Obligations. If more than one Guarantor signs this Guaranty, the obligations hereunder are joint and several. The Guarantor's obligations hereunder are independent of the obligations of the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness and a separate action or actions may be brought and prosecuted against the Guarantor on any Indebtedness. 10. Financial Information. The Guarantor hereby agrees to deliver or cause to be delivered to the Bank: A. Other Information. Guarantor to provide: (i) Not later than April 1st of each year, a copy of the personal financial statement of the Guarantor for such year, which statement shall be prepared by the Guarantor; and (ii) within 10 days of filing but not later than October 31st of each year, a copy of the Guarantor's federal income tax return filed for such year. 11. Acknowledgement of Receipt, Receipt of a true copy of this Guaranty is hereby acknowledged by the Guarantor. The Guarantor understands and agrees that this Guaranty shall not constitute a commitment of any nature whatsoever by the Bank to renew or hereafter extend credit to the Debtor. The Guarantor agrees that this Guaranty shall be effective with or without notice from the Bank of the Bank's acceptance hereof. 12. Continuing Guaranty. This Guaranty is a continuing guaranty. Revocation shall be effective only upon written notice personally received by an officer of the Bank at the originating office indicated below or actually received at the originating office by United States mail postage prepaid. Notice shall be effective at any office of the Bank should the originating office no longer be in existence. Revocation shall be effective at the close of the Bank's business day when such notice is actually received. Any revocation shall be effective only as to the revoking party and shall not affect that party's obligation with respect to any Indebtedness existing before such revocation is effective. 13. Non-Reliance. In executing this Guaranty, the undersigned is not relying, and has not relied, upon any statement or representation made by the Bank, or any employee, agent or representative of the Bank, with respect to the status, financial condition or other matters related to the Debtor or the relationship between the Debtor and the Bank. 14. Multiple Guaranties. If the Guarantor has executed or does execute more than one guaranty of any indebtedness of the Debtor to the Bank, the limits of liability thereunder and hereunder shall be cumulative. 15. Severability. Should any one or more previsions of this Guaranty be determined to be illegal or unenforceable, all other provisions shall remain effective. 16. Corporate or Partnership Authority. If the Debtor is a corporation or partnership, the Bank need not inquire into the power of the Debtor or the authority of its officers, directors, partners or agents acting or purporting to act in its behalf and any credit granted in reliance upon the purported exercise of such power or authority is guarantied hereunder. 17. Separate Property. Any married person who sign this Guaranty expressly agrees that recourse may be had against such person's separate property for all obligations hereunder. 18. Assignment. The Bank may, with or without notice, assign this Guaranty in whole or in part. This Guaranty shall inure to the benefit of the Bank, its successors and assigns, and shall bind the Guarantor and the Guarantor's heirs, executors, administrators, successors and assigns. 19. Waiver of Jury. The Guarantor and the Bank hereby expressly arid voluntarily waive any and all rights, whether arising under the California constitution, any rules of the California Code of Civil Procedure, common law or otherwise, to demand a trial by jury in any action, matter, claim or cause of action whatsoever arising out of or in any way related to this Guaranty or any other agreement, document or transaction contemplated hereby. 20. Dispute Resolution. A. Disputes. It is understood and agreed that, upon the request of any party to this Guaranty, any dispute, claim or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable, now existing or hereinafter arising between the parties in any way arising out of, pertaining to or in connection with: (i) this Guaranty, or any related agreements, documents or instruments, (ii) all past and present loans, credits, accounts, deposit accounts (whether demand deposits or time deposits), safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods or services, or other transactions, contracts or agreements of any kind, (iii) any incidents, omissions, acts, practices, or occurrences causing injury to any party whereby another party or its agents, employees or representatives may be liable, in whole or in part, or (iv) any aspect of the past or present relationships of the parties, shall be resolved through a two-step dispute resolution process administered by the Judicial Arbitration & Mediation Services, Inc. ("JAMS") as follows: 2 B. Step I - Mediation. At the request of any party to the dispute, claim or controversy, the matter shall be referred to the nearest office of JAMS for mediation, which is an informal, nonbinding conference or conferences between the parties in which a retired judge or justice from the JAMS panel will seek to guide the parties to a resolution of the case. C. Step II - Arbitration (Contracts Not Secured By Real Property). Should any dispute, claim or controversy remain unresolved at the conclusion of the Step I Mediation Phase, then (subject to the restriction at the end of this subparagraph) all such remaining matters shall be resolved by find and binding arbitration before a different judicial panelist, unless the parties shall agree to have the mediator panelist act as arbitrator. The hearing shall be conducted at a location determined by the arbitrator in Los Angeles, California (or such other city as may be agreed upon by the parties) and shall be administered by and in accordance with the then existing Rules of Practice and Procedure of JAMS and judgement upon any award rendered by the arbitrator may be entered by any State or Federal Court having jurisdiction thereof. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorneys' fees and costs. This subparagraph shall apply only if, at the time of the submission of the matter to JAMS, the dispute or issues involved do not arise out of any transaction which is secured by real property collateral or, if so secured, all parties consent to such submission. As soon as practicable after selection of the arbitrator, the arbitrator, or the arbitrator's designated representative, shall determine a reasonable estimate of anticipated fees and costs of the arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter, each party shall, within 10 days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make such a deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, but shall not otherwise serve to abate, stay or suspend the arbitration proceedings. D. Step II - Trial By Court Reference (Contracts Secured By Real Property). If the dispute, claim or controversy is not one required or agreed to be submitted to arbitration, as provided in the shove subparagraph, and has not been resolved by Step I mediation, then any remaining dispute, claim or controversy shall be submitted for determination by a trial on Order of Reference conducted by a retired judge or justice from the panel of JAMS appointed pursuant to the provisions of Section 638(1) or the California Code of Civil Procedure, or any amendment, addition or successor section thereto, to hear the case and report a statement of decision thereon. The parties intend this general reference agreement to be specifically enforceable in accordance with said section. If the parties are unable to agree upon a member of the JAMS panel to act as referee, then one shall be appointed by the Presiding Judge of the county wherein the hearing is to be held. The parties shall pay in advance, to the referee, the estimated reasonable fees and costs of the reference, as may be specified in advance by the referee. The parties shall initially share equally, by paying their proportionate amount of the estimated fees and costs of the reference. Failure of any party to make such a fee deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend any cause of action which is the subject of the reference, but shall not otherwise serve to abate, stay or suspend the reference proceeding. E. Provisional Remedies, Self Help and Foreclosure. No provision of, or the exercise of any rights under any portion of this Dispute Resolution provision, shall limit the right of any party to exercise self help remedies such as set off, foreclosure against any real or personal property collateral, or the obtaining of provisional or ancillary remedies, such as injunctive relief or the appointment of a receiver, from any court having jurisdiction before, during or after the pendency of any arbitration. At the Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for provisional remedies, pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party to submit the controversy or claim to arbitration. 21. Attorneys' Fees. Whether or not any suit, action, arbitration or other dispute resolution proceeding is instituted, the Guarantor agrees to pay reasonable attorneys' fees and all other costs and expenses which may be incurred in the collection of any Indebtedness, in the protection or preservation of, or realization on, any collateral securing any Indebtedness and in the enforcement by the Bank of this Guaranty. 22. Governing Law. This Guaranty shall be governed by and construed according to the laws of the State of California and the Guarantor hereby submits to the jurisdiction of the courts of the State of California. 23. Entire Agreement. This Guaranty and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the panics with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Guaranty or in such documents, instruments and agreements are superseded hereby. 24. Headings. The headings used herein are solely for the purpose of identification and have no legal significance. 25. Address of the Bank. The Bank's originating office under this Guaranty is: Oakland Office. 2127 Broadway, Oakland, CA 94612. 26. Maximum Principal Liability. THE MAXIMUM PRINCIPAL LIABILITY UNDER THIS GUARANTY is the amount of $5,000,000.00, plus interest at the rate(s) applicable to any Indebtedness as set forth in the paragraph herein entitled "Guaranty" and the expenses enumerated in the paragraph herein entitled "Attorneys' Fees". This Guaranty is made as of 4-19-96 ,which shall be the date of this Guaranty. Executed by the undersigned Guarantor as of the date set forth above. GUARANTOR: Doreen Chiu Address: 46970 Ocotillo Court Fremont, CA 94539 3 EX-10.16 22 CONTINUING GUARANTY PROVIDED BY FRANK CHIU EXHIBIT 10.16 Sanwa Bank California CONTINUING GUARANTY For value received and in consideration of the extension of credit by SANWA BANK CALIFORNIA (the "Bank") to ATG INC. (the "Debtor") or the benefits to the undersigned derived therefrom, the undersigned (the "Guarantor"), guarantees and promises to pay to the Bank any and all Indebtedness (as defined below) and agrees as follows: 1. Indebtedness. The term Indebtedness is used herein in its most comprehensive sense and includes any and all advances, debts, obligations, guaranties and liabilities of the Debtor heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether direct or acquired by the Bank by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether the Debtor may be liable individually or jointly with others, or whether recovery upon any Indebtedness may be or hereafter becomes barred by any statute of limitations or whether any Indebtedness may be or hereafter becomes otherwise unenforceable. 2. Guaranty. The Guarantor unconditionally agrees to pay to the Bank or its order, on demand, an amount equal to the amount of the Indebtedness or otherwise perform any obligation of the Debtor undertaken pursuant to any Indebtedness. In addition to any maximum principal liability hereunder, the Guarantor agrees to (i) bear the expenses enumerated hereunder in the paragraph herein entitled "Attorneys' Fees" and (ii) pay interest on the Indebtedness at the rate(s) applicable thereto. Notwithstanding the foregoing, the Bank may allow the Indebtedness to exceed the Guarantor's liability hereunder. Any payment by the Guarantor shall not reduce the maximum principal obligation of the Guarantor hereunder unless written notice to that effect is actually received by the Bank at or prior to the time of such payment. Any payment by the Debtor or any other person shall not reduce the Guarantor's maximum principal liability hereunder. 3. Right to Amend or Modify Indebtedness. The Guarantor authorizes the Bank, at its sole discretion, with or without notice and without affecting the Guarantor's liability hereunder, from time to time to: (i) change the time or manner of payment of any Indebtedness by renewal, extension, modification, acceleration or otherwise; (ii) alter or change any provision of any Indebtedness including, but not limited to, the rate of interest thereon, and any document, instrument or agreement (other than this Guaranty) evidencing, guaranteeing, securing or related to any Indebtedness; (iii) release, discharge, exonerate, substitute or add one or more parties liable on any Indebtedness or one or more endorsers, cosigners or guarantors for any Indebtedness; (iv) obtain collateral for the payment of any Indebtedness or any guaranty thereof; (v) release existing or after-acquired collateral on such terms as the Bank, in its sole discretion, shall determine; (vi) apply any sums received from the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness or from the sale or collection of collateral or its proceeds to any indebtedness whatsoever owed or to be owed to the Bank by the Debtor in any other or amount and regardless of whether or not such indebtedness is guaranteed hereby, is secured by collateral or is due and payable; and (vii) apply to any Indebtedness, in any order or amount, regardless of whether such Indebtedness is secured by collateral or is due and payable, any sums received from the Guarantor or from the sale of collateral in which the Guarantor has granted the Bank a security interest. 4. Waivers. The Guarantor hereby unconditionally and irrevocably acknowledges and agrees to the matters set forth below: A. Deficiency. In the event that any Indebtedness is now or hereafter secured by a deed of trust, the Guarantor waives any defense and all rights and benefits of those laws purporting to state that no deficiency judgment may be recovered on certain real property purchase money obligations (as presently contained in Section 580b of the California Code of Civil Procedure and as it may be amended or superceded in the future) and those laws purporting to state that no deficiency judgment may be recovered after a trustee's sale under a deed of trust (as presently contained in Section 580d of the California Code of Civil Procedure and as it may be amended or superseded in the future). THE GUARANTOR ACKNOWLEDGES THAT A FORECLOSURE BY A TRUSTEE'S SALE UNDER A DEED OF TRUST MAY RESULT IN THE DESTRUCTION OF THE GUARANTOR'S SUBROGATION RIGHTS THAT MAY OTHERWISE EXIST AND THAT A DESTRUCTION OF THOSE RIGHTS MAY CREATE A DEFENSE TO A DEFICIENCY JUDGEMENT. THE GUARANTOR HEREBY SPECIFICALLY WAIVES ANY SUCH DEFENSE. B. Election of Remedies. The Guarantor waives any defense based upon the Guarantor's loss of a right against the Debtor arising from the Bank's election of a remedy on any Indebtedness under bankruptcy or other debtor relief laws or under any other laws, including, but not limited to, those purporting to reduce the Bank's right against the Guarantor in proportion to the principal obligation of any Indebtedness (as presently contained in Section 2809 of the California Civil Code and as it may be amended or superseded in the future). Without limiting the generality of the foregoing, the Guarantor waives all rights and defenses arising out of an election of remedies by the Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the Guarantor's rights of subrogation and reimbursement against the Debtor by operation of Section 580d of the California Code of Civil Procedure or otherwise. C. Statute of limitations. The Guarantor waives the benefit of the statute of limitations affecting the Guarantor's liability hereunder or the enforcement hereof. D. Action Against the Debtor and Collateral (and Other Remedies). The Guarantor waives all right to require the Bank to: (i) proceed against the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness; (ii) join the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness in any action or actions that may be brought and prosecuted by the Bank solely and separately against the Guarantor on any Indebtedness; (iii) proceed against any item or items of collateral securing any Indebtedness or any guaranty thereof; or (iv) pursue or refrain from pursuing any other remedy whatsoever in the Bank's power. E. Debtor's Defenses. The Guarantor waives any defense arising by reason of any disability or other defense of the Debtor, the Debtor's successor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness. Until all Indebtedness has been paid in full, even though it may be in excess of the liability incurred hereby, the Guarantor shall not have any right of subrogation and the Guarantor waives any benefit of and right to participate in any collateral now or hereafter held by the Bank. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of sale of any collateral securing any Indebtedness or any guaranty thereof, and notice of the existence, creation or incurring of new or additional indebtedness, F. Debtor's Financial Condition. The Guarantor hereby recognizes, acknowledges and agrees that advances may be made in the future from time to time with respect to any Indebtedness without authorization from or notice to the Guarantor even though the financial condition of the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness may have deteriorated since the date of this Guaranty. The Guarantor waives all right to require the Bank to disclose any information with respect to: (i) any Indebtedness now existing or hereafter incurred; (ii) the present or future financial condition, credit or character of the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness; (iii) any present or future collateral securing any Indebtedness or any guaranty thereof; 1 or (iv) any present or future action or inaction on the part of the Bank, the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness. The Guarantor hereby assumes the responsibility for being informed of the financial condition, credit and character of the Debtor and of all circumstances bearing upon the risk of nonpayment of any Indebtedness which diligent inquiry would reveal. 5. Right of Set-off, Grant of Security Interest. In addition to all liens upon and rights of set-off against any monies, securities or other property of the Guarantor given to the Bank by law, the Bank shall have a security interest in and a right to set off against all monies, securities and other property of the Guarantor now or hereinafter in the possession of or on deposit with the Bank, the Bank's agents or any one or more of them, whether held in general or special account or deposit or for safekeeping or otherwise; and each such security interest and right of set-off may be exercised without demand upon or notice to the Guarantor. No action or inaction by the Bank with respect to any security interest or right of set-off shall be deemed a waiver thereof arid every right of set-off and security interest shall continue in full force and effect until specifically released by the Bank in writing. The security interest created hereby shall secure all of the Guarantor's obligations under this Guaranty. 6. Right of Foreclosure. The Bank may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing any Indebtedness even though such foreclosure may destroy or diminish the Guarantor's rights against the Debtor. The Guarantor shall be liable to the Bank for any part of any Indebtedness remaining unpaid after any such foreclosure whether or not such foreclosure was for fair market value. 7. Subordination. Any indebtedness of the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness now or hereafter owed to the Guarantor is hereby subordinated to the Indebtedness. Such indebtedness owed to the Guarantor shall, if the Bank so requests, be collected, enforced and received by the Guarantor as trustee for the Bank and be paid over to the Bank on account of the Indebtedness but without reducing or affecting in any manner the liability of the Guarantor set forth herein. Should the Guarantor fail to collect the proceeds of any such indebtedness owed to it and pay the proceeds to the Bank, the Bank, as the Guarantor's attorney-in-fact, may do such acts and sign such documents in the Guarantor's name as the Bank considers necessary to effect such collection. 8. Invalid, Fraudulent or Preferential Payments. The Guarantor agrees that, to the extent the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness makes a payment or payments to, or is credited for any payment or payments made for or on behalf of the Debtor to the Bank, which payment or payments, or any plan thereof, is subsequently invalidated, determined to be fraudulent or preferential, set aside or required to be repaid to any trustee, receiver, assignee or any other party whether under any bankruptcy, state or federal law or under any common law or equitable cause or otherwise, then, to the extent thereof, the obligation or part thereof intended to be satisfied thereby shall be revived, reinstated and continued in full force and effect as if such payment or payments had not originally been made or credited. 9. Joint and Several Obligations; Independent Obligations. If more than one Guarantor signs this Guaranty, the obligations hereunder are joint and several. The Guarantor's obligations hereunder are independent of the obligations of the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness and a separate action or actions may be brought and prosecuted against the Guarantor on any Indebtedness. 10. Financial Information. The Guarantor hereby agrees to deliver or cause to be delivered to the Bank: A. Other Information. Guarantor to provide: (i) Not later than April 1st of each year, a copy of the personal financial statement of the Guarantor for such year, which statement shall be prepared by the Guarantor; and (ii) within 10 days of filing but not later than October 31st of each year, a copy of the Guarantor's federal income tax return filed for such year. 11. Acknowledgement of Receipt. Receipt of a true copy of this Guaranty is hereby acknowledged by the Guarantor. The Guarantor understands and agrees that this Guaranty shall not constitute a commitment of any nature whatsoever by the Bank to renew or hereafter extend credit to the Debtor. The Guarantor agrees that this Guaranty shall be effective with or without notice from the Bank of the Bank's acceptance hereof. 12. Continuing Guaranty. This Guaranty is a continuing guaranty. Revocation shall be effective only upon written notice personally received by an officer of the Bank at the originating office indicated below or actually received at the originating office by United States mail postage prepaid. Notice shall be effective at any office of the Bank should the originating office no longer be in existence. Revocation shall be effective at the close of the Bank's business day when such notice is actually received. Any revocation shall be effective only as to the revoking party and shall not affect that party's obligation with respect to any Indebtedness existing before such revocation is effective. 13. Non-Reliance. In executing this Guaranty, the undersigned is not relying, and has not relied, upon any statement or representation made by the Bank, or any employee, agent or representative of the Bank, with respect to the status, financial condition or other matters related to the Debtor or the relationship between the Debtor and the Bank. 14. Multiple Guaranties. If the Guarantor has executed or does execute more than one guaranty of any indebtedness of the Debtor to the Bank, the limits of liability thereunder and hereunder shall be cumulative. 15. Severability. Should any one or more previsions of this Guaranty be determined to be illegal or unenforceable, all other provisions shall remain effective. 16. Corporate or Partnership Authority. If the Debtor is a corporation or partnership, the Bank need not inquire into the power of the Debtor or the authority of its officers, directors, partners or agents acting or purporting to act in its behalf and any credit granted in reliance upon the purported exercise of such power or authority is guarantied hereunder. 17. Separate Property. Any married person who sign" this Guaranty expressly agrees that recourse may be had against such person's separate property for all obligations hereunder. 18. Assignment. The Bank may, with or without notice, assign this Guaranty in whole or in part This Guaranty shall inure to the benefit of the Bank, its successors and assigns, and shall bind the Guarantor and the Guarantor's heirs, executors, administrators, successors and assigns. 19. Waiver of Jury. The Guarantor and the Bank hereby expressly arid voluntarily waive any and all rights, whether arising under the California constitution, any rules of the California Code of Civil Procedure, common law or otherwise, to demand a trial by jury in any action, matter, claim or cause of action whatsoever arising out of or in any way related to this Guaranty or any other agreement, document or transaction contemplated hereby. 20. Dispute Resolution. A. Disputes. It is understood and agreed that, upon the request of any party to this Guaranty, any dispute, claim or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable, now existing or hereinafter arising between the parties in any way arising out of, pertaining to or in connection with: (i) this Guaranty, or any related agreements, documents or instruments, (ii) all past and present loans, credits, accounts, deposit accounts (whether demand deposits or time deposits), safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods or services, or other transactions, contracts or agreements of any kind, (iii) any incidents, omissions, acts, practices, or occurrences causing injury to any party whereby another party or its agents, employees or representatives may be liable, in whole or in part, or (iv) any aspect of the past or present relationships of the parties, shall be resolved through a two-step dispute resolution process administered by the Judicial Arbitration & Mediation Services, Inc. ("JAMS") as follows: 2 B. Step I - Mediation. At the request of any party to the dispute, claim or controversy, the matter shall be referred to the nearest office of JAMS for mediation, which is an informal, nonbinding conference or conferences between the parties in which a retired judge or justice from the JAMS panel will seek to guide the parties to a resolution of the case. C. Step II - Arbitration (Contracts Not Secured By Real Property). Should any dispute, claim or controversy remain unresolved at the conclusion of the Step I Mediation Phase, then (subject to the restriction at the end of this subparagraph) all such remaining matters shall be resolved by find and binding arbitration before a different judicial panelist, unless the parties shall agree to have the mediator panelist act as arbitrator. The hearing shall be conducted at a location determined by the arbitrator in Los Angeles, California (or such other city as may be agreed upon by the parties) and shall be administered by and in accordance with the then existing Rules of Practice and Procedure of JAMS and judgement upon any award rendered by the arbitrator may be entered by any State or Federal Court having jurisdiction thereof. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorneys' fees and costs. This subparagraph shall apply only if, at the time of the submission of the matter to JAMS, the dispute or issues involved do not arise out of any transaction which is secured by real property collateral or, if so secured, all parties consent to such submission. As soon as practicable after selection of the arbitrator, the arbitrator, or the arbitrator's designated representative, shall determine a reasonable estimate of anticipated fees and costs of the arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter, each party shall, within 10 days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to matte such a deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, but shall not otherwise serve to abate, stay or suspend the arbitration proceedings. D. Step II - Trial By Court Reference (Contracts Secured By Real Property), if the dispute, claim or controversy is not one required or agreed to be submitted to arbitration, as provided in the shove subparagraph, and has not been resolved by Step I mediation, then any remaining dispute, claim or controversy shall be submitted for determination by a trial on Order of Reference conducted by a retired judge or justice from the panel of JAMS appointed pursuant to the provisions of Section 638(1) or the California Code of Civil Procedure, or any amendment, addition or successor section thereto, to hear the case and report a statement of decision thereon. The parties intend this general reference agreement to be specifically enforceable in accordance with said section, if the parties are unable to agree upon a member of the JAMS panel to act as referee, then one shall be appointed by the Presiding Judge of the county wherein the hearing is to be held. The parties shall pay in advance, to the referee, the estimated reasonable fees and costs of the reference, as may be specified in advance by the referee. The parties shall initially share equally, by paying their proportionate amount of the estimated fees and costs of the reference. Failure of any party to make such a fee deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend any cause of action which is the subject of the reference. but shall not otherwise serve to abate, stay or suspend the reference proceeding. E. Provisional Remedies, Self Help and Foreclosure. No provision of, or the exercise of any rights under any portion of this Dispute Resolution provision, shall limit the right of any party to exercise self help remedies such as set off, foreclosure against any real or personal property collateral, or the obtaining of provisional or ancillary remedies, such as injunctive relief or the appointment of a receiver, from any court having jurisdiction before, during or after the pendency of any arbitration. At the Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for provisional remedies, pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party to submit the controversy or claim to arbitration. 21. Attorneys' Fees. Whether or not any suit, action, arbitration or other dispute resolution proceeding is instituted, the Guarantor agrees to pay reasonable attorneys' fees and all other costs and expenses which may be incurred in the collection of any Indebtedness, in the protection or preservation of, or realization on, any collateral securing any Indebtedness and in the enforcement by the Bank of this Guaranty. 22. Governing Law. This Guaranty shall be governed by and construed according to the laws of the State of California and the Guarantor hereby submits to the jurisdiction of the courts of the State of California. 23. Entire Agreement. This Guaranty and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the panics with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Guaranty or in such documents, instruments and agreements are superseded hereby. 24. Headings. The headings used herein are solely for the purpose of identification and have no legal significance. 25. Address of the Bank. The Bank's originating office under this Guaranty is: Oakland Office, 2127 Broadway, Oakland, CA 94612. 26. Maximum Principal Liability. THE MAXIMUM PRINCIPAL LIABILITY UNDER THIS GUARANTY is the amount of $5,000,000.00, plus interest at the rate(s) applicable to any Indebtedness as set forth in the paragraph herein entitled "Guaranty" and the expenses enumerated in the paragraph herein entitled "Attorneys' Fees". This Guaranty is made as of 4-19-96, which shall be the date of this Guaranty. Executed by the undersigned Guarantor as of the date set forth above. GUARANTOR: Frank Chiu Address: 46970 Ocotillo Court Fremont, CA 94539 3 EX-10.17 23 CONTINUING GUARANTY IN FAVOR OF SAFECO EXHIBIT 10.17 CONTINUING GUARANTY (Individual Guarantor) SAFECO Name and Address of Guarantor: Name and Address of Creditor: Doreen M. Chiu SAFECO Credit Company, Inc. 46970 Ocotillo Ct. Northwest Division Fremont, California 94538 4909 156th Ave NE Redmond, WA 98052-6664 The undersigned ("Guarantor") requests that SAFECO Credit Company, Inc. ("Creditor") extend credit or other financial accommodations to ATG Inc. dba Allied Technology Group ("Debtor") In consideration of this extension of credit or financial accommodation, and other good and valuable consideration, receipt and sufficiency of which is acknowledged, Guarantor, as primary obligor and not endorser, absolutely and unconditionally guarantees the full and prompt payment when due of all present and future obligations of Debtor to Creditor, howsoever created, direct or indirect, absolute or contingent, now existing or hereafter arising, due or to become due, whether the obligations represent principal, interest, rent, late charges, indemnities, an accelerated balance, liquidated damages, a deficiency after sale or other disposition of leased equipment or collateral, or other sums owing to Creditor (all such obligations being hereafter referred to as the "Indebtedness"). Guarantor further agrees to pay all costs and expenses of every kind and nature, including without limitation, attorney fees (incurred with or without litigation and in bankruptcy proceedings), out-of-pocket expenses and court costs, paid or incurred by Creditor in attempting to collect the indebtedness and in enforcing, preserving or interpreting this "Guaranty". This is a continuing guaranty. Creditor may from time to time grant credit or other financial accommodations to Debtor without further notice to Guarantor. The Guaranty shall remain in full force and effect until Guarantor delivers to Creditor written notice revoking the Guaranty as to Indebtedness incurred after receipt of the written notice, but the revocation shall not affect any Indebtedness incurred prior to receipt of the notice. The execution of this Continuing Guaranty shall not extinguish, release or waive any obligations, promises or guarantees contained in any guaranty previously executed by Guarantor. Guarantor represents and warrants to Creditor that: (a) Guarantor has the legal capacity and power to enter into this Guaranty and perform its obligations hereunder, and (b) this Guaranty constitutes the valid, binding and enforceable obligation of Guarantor in accordance with its terms. Guarantor waives notice of acceptance of this Guaranty by Creditor and all notices and demands of any kind to which Guarantor may be entitled, including without limitation, all demands for payment and notices of nonpayment, presentment, protest, notice of protest, and dishonor and notice of disposition of collateral under UCC 9-504. Guarantor further waives any defense arising by reason of the disability of Debtor, any tack of authority of Debtor with respect to the Indebtedness, the invalidity, illegality or lack of enforceability of the indebtedness, the failure of Creditor to acquire tide to any leased equipment or a security interest in any collateral or to perfect or maintain any interest therein or the loss or impairment of the liability of Debtor. Payment of any sums now or hereafter owing to Guarantor by Debtor is hereby subordinated in right of payment to the payment of the Indebtedness. Without notice to or consent of Guarantor, and without affecting the obligations of Guarantor under this Guaranty, Creditor may from time to time (a) change the terms of the Indebtedness with the concurrence of Debtor, including but not limited to, renewal, extension, refinancing, modification of the interest rate or change in the manner or place of payment; (b) accelerate the maturity of, or release or compromise, any Indebtedness, or release any guarantor or release or impair any security for this Guaranty or the Indebtedness; (c) proceed against the Guarantor for payment of any Indebtedness without first proceeding against the Debtor or any other guarantor or any security for the indebtedness; (d) abstain from taking any action or exercising any right against Debtor, the security or any other guarantor. The rights of Creditor are cumulative and shall not be exhausted by exercise of any rights against Guarantor or Debtor until all Indebtedness has been paid. The obligations of each Guarantor shall be joint and several, binding upon their respective heirs, personal nonrepresentatives, successors and assigns and inure to the benefit of the successors and assigns of Creditor. If legal action is taken to enforce this Guaranty, such action may be maintained separately or joined with an action against Debtor or any other Guarantor of Debtors obligations. If a claim is made upon Creditor at any time for repayment of any amounts received by Creditor from any source on account of any Indebtedness and Creditor repays or becomes liable to repay such claim by reason of any judgment or order of any court or administrative body, or any settlement or compromise thereof, Guarantor shall be liable to Creditor hereunder for such amounts to the same extent as Guarantor would have been liable to Creditor if such amounts had never been received by Creditor, notwithstanding the termination of this Guaranty or the cancellation of any note or other instrument evidencing any indebtedness of Debtor. This writing is intended by the parties to be an integrated and final expression of this Guaranty agreement and also is intended to be a complete and exclusive statement of the terms of that agreement. No course of prior dealing between the parties, no usage of trade and no parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms of this Guaranty. If any provision of this Guaranty is in conflict with any applicable statute, rule or law, such provision shall be deemed to be null and void to the extent it is in conflict, but without invalidating any other provision of this Guaranty. There are no conditions to the full effectiveness of this Guaranty. Any notice or demand required or permitted to be given by Creditor to Guarantor may be given by first class mail postage prepaid or overnight delivery to Guarantor at the address shown above until Guarantor advises Creditor of a different address in writing. GUARANTOR UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY, THE INDEBTEDNESS, OR ANY DEALINGS BETWEEN GUARANTOR AND CREDITOR RELATING TO THIS GUARANTY. This Guaranty shall be governed by and construed in accordance with the internal laws (without applying the conflicts of law rules) of the State of California. May 20, 1997 - ------------------------------------------------ Date Guarantor: ____________________________ Doreen M. Chiu Witness: _____________________________ EX-10.18 24 CONT. GUARANTY IN FAVOR OF SAFECO--FRANK CHIU EXHIBIT 10.18 CONTINUING GUARANTY (INDIVIDUAL GUARANTOR) SAFECO Name and Address of Guarantor: Name and Address of Creditor: Doreen M. Chiu SAFECO Credit Company, Inc. 46970 Ocotillo Ct. Northwest Division Fremont, California 94538 4909 156th Ave NE Redmond, WA 98052-6664 The undersigned ("Guarantor") requests that SAFECO Credit Company, Inc. ("Creditor") extend credit or other financial accommodations to ATG Inc. dba Allied Technology Group ("Debtor") In consideration of this extension of credit or financial accommodation, and other good and valuable consideration, receipt and sufficiency of which is acknowledged, Guarantor, as primary obligor and not endorser, absolutely and unconditionally guarantees the full and prompt payment when due of all present and future obligations of Debtor to Creditor, howsoever created, direct or indirect, absolute or contingent, now existing or hereafter arising, due or to become due, whether the obligations represent principal, interest, rent, late charges, indemnities, an accelerated balance, liquidated damages, a deficiency after sale or other disposition of leased equipment or collateral, or other sums owing to Creditor (all such obligations being hereafter referred to as the "Indebtedness"). Guarantor further agrees to pay all costs and expenses of every kind and nature, including without limitation, attorney fees (incurred with or without litigation and in bankruptcy proceedings), out-of-pocket expenses and court costs, paid or incurred by Creditor in attempting to collect the indebtedness and in enforcing, preserving or interpreting this "Guaranty". This is a continuing guaranty. Creditor may from time to time grant credit or other financial accommodations to Debtor without further notice to Guarantor. The Guaranty shall remain in full force and effect until Guarantor delivers to Creditor written notice revoking the Guaranty as to Indebtedness incurred after receipt of the written notice, but the revocation shall not affect any Indebtedness incurred prior to receipt of the notice. The execution of this Continuing Guaranty shall not extinguish, release or waive any obligations, promises or guarantees contained in any guaranty previously executed by Guarantor. Guarantor represents and warrants to Creditor that: (a) Guarantor has the legal capacity and power to enter into this Guaranty and perform its obligations hereunder, and (b) this Guaranty constitutes the valid, binding and enforceable obligation of Guarantor in accordance with its terms. Guarantor waives notice of acceptance of this Guaranty by Creditor and all notices and demands of any kind to which Guarantor may be entitled, including without limitation, all demands for payment and notices of nonpayment, presentment, protest, notice of protest, and dishonor and notice of disposition of collateral under UCC 9-504. Guarantor further waives any defense arising by reason of the disability of Debtor, any lack of authority of Debtor with respect to the Indebtedness, the invalidity, illegality or lack of enforceability of the indebtedness, the failure of Creditor to acquire tide to any leased equipment or a security interest in any collateral or to perfect or maintain any interest therein or the loss or impairment of the liability of Debtor. Payment of any sums now or hereafter owing to Guarantor by Debtor is hereby subordinated in right of payment to the payment of the Indebtedness. Without notice to or consent of Guarantor, and without affecting the obligations of Guarantor under this Guaranty, Creditor may from time to time (a) change the terms of the Indebtedness with the concurrence of Debtor, including but not limited to, renewal, extension, refinancing, modification of the interest rate or change in the manner or place of payment; (b) accelerate the maturity of, or release or compromise, any Indebtedness, or release any guarantor or release or impair any security for this Guaranty or the Indebtedness; (c) proceed against the Guarantor for payment of any Indebtedness without first proceeding against the Debtor or any other guarantor or any security for the indebtedness; (d) abstain from taking any action or exercising any right against Debtor, the security or any other guarantor. The rights of Creditor are cumulative and shall not be exhausted by exercise of any rights against Guarantor or Debtor until all Indebtedness has been paid. The obligations of each Guarantor shall be joint and several, binding upon their respective heirs, personal nonrepresentatives, successors and assigns and inure to the benefit of the successors and assigns of Creditor. If legal action is taken to enforce this Guaranty, such action may be maintained separately or joined with an action against Debtor or any other Guarantor of Debtors obligations. If a claim is made upon Creditor at any time for repayment of any amounts received by Creditor from any source on account of any Indebtedness and Creditor repays or becomes liable to repay such claim by reason of any judgment or order of any court or administrative body, or any settlement or compromise thereof, Guarantor shall be liable to Creditor hereunder for such amounts to the same extent as Guarantor would have been liable to Creditor if such amounts had never been received by Creditor, notwithstanding the termination of this Guaranty or the cancellation of any note or other instrument evidencing any indebtedness of Debtor. This writing is intended by the parties to be an integrated and final expression of this Guaranty agreement and also is intended to be a complete and exclusive statement of the terms of that agreement. No course of prior dealing between the parties, no usage of trade and no parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms of this Guaranty. If any provision of this Guaranty is in conflict with any applicable statute, rule or law, such provision shall be deemed to be null and void to the extent it is in conflict, but without invalidating any other provision of this Guaranty. There are no conditions to the full effectiveness of this Guaranty. Any notice or demand required or permitted to be given by Creditor to Guarantor may be given by first class mail postage prepaid or overnight delivery to Guarantor at the address shown above until Guarantor advises Creditor of a different address in writing. GUARANTOR UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY, THE INDEBTEDNESS, OR ANY DEALINGS BETWEEN GUARANTOR AND CREDITOR RELATING TO THIS GUARANTY. This Guaranty shall be governed by and construed in accordance with the internal laws (without applying the conflicts of law rules) of the State of California. May 20th, 1997 - ----------------------------------------------- Date Guarantor: _________________________________ Frank Y. K. Chiu Witness: __________________________________ EX-10.19 25 SMALL BUSINESS ADMINISTRATION GUARANTY EXHIBIT 10.19 -------------------------- Expiration Date 11-30-90 SBA LOAN NO. GP-549, 190 30 05-SPO -------------------------- SMALL BUSINESS ADMINISTRATION (SBA) GUARANTY AUGUST 6 , 1993 In order to induce WEST ONE BANK, EASTERN WA, (hereinafter called "Lender") to make a loan or FORMERLY BEN FRANKLIN NATIONAL BANK loans, or renewal or extension thereof, to ATG, INC., d.b.a. ALLIED TECHNOLOGY GROUP, INC. AND ATG RICHLAND, INC. ALLIED ECOLOGY SERVICES, Inc., NATURAL SAFETY CONSULTANTS, INC. (hereinafter called "Debtor"), the Undersigned hereby unconditionally guarantees to Lender its successors and assigns, the due and punctual payment when due, whether by acceleration or otherwise, in accordance with the terms thereof, of the principal of and interest on and all other sums payable, or stated to be payable, with respect to the note of the Debtor, made by the Debtor to Lender, dated AUGUST 6, 1993 _________________________ in the principal amount of $ 750,000.00, with interest at the rate of 8.75% / FIRST 42 MONTHS PRIME+2.75% / LAST 42 MONTHS + CEILING 12% AND FLOOR 5.5% per cent per annum. Such note, and the interest thereon and all other sums payable with respect thereto are hereinafter collectively called "Liabilities." As security for the performance of this guaranty the Undersigned hereby mortgages, pledges, assigns, transfers and delivers to Lender certain collateral (if any), listed in the schedule on the reverse side hereof. The term "collateral" as used herein shall mean any funds, guaranties, agreements or other property or rights or interests of any nature whatsoever, or the proceeds thereof, which may have been, are, or hereafter may be, mortgaged, pledged, assigned, transferred or delivered directly or indirectly by or on behalf of the Debtor or the Undersigned or any other party to Lender or to the holder of the aforesaid note of the Debtor, or WHICH may have been, are, or hereafter may be held by any party as trustee or otherwise, as security, whether immediate or underlying, for the performance of this guaranty or the payment of the Liabilities or any of them or any security therefor. The Undersigned waives any notice of the incurring by the Debtor at any time of any of the Liabilities, and waives any and all presentment, demand, protest or notice of dishonor, nonpayment, or other default with respect to any of the Liabilities and any obligation of any party at any time comprised in the collateral. The Undersigned hereby grants to Lender full power, in its uncontrolled discretion and without notice to the undersigned, but subject to the provisions of any agreement between the Debtor or any other party and Lender at the time in force, to deal in any manner with the Liabilities and the collateral, including, but without limiting the generality of the foregoing, the following powers: (a) To modify or otherwise change any terms of all or any part of the Liabilities or the rate of interest thereon (but not to increase the principal amount of the note of the Debtor to Lender), to grant any extension or renewal thereof and any other indulgence with respect thereto, and to effect any release, compromise or settlement with respect thereto; (b) To enter into any agreement of forbearance with respect to all or any part of the Liabilities, or with respect to all or any part of the collateral, and to change the terms of any such agreement; (c) To forbear from calling for additional collateral to secure any of the Liabilities or to secure any obligation comprised in the collateral; (d) To consent to the substitution, exchange, or release of all or any part of the collateral, whether or not the collateral, if any, 2 received by Lender upon any such substitution, exchange, or release shall be of the same or of a different character or value than the collateral surrendered by Lender; (e) In the event of the nonpayment when due, whether by acceleration or otherwise, of any of the Liabilities, or in the event of default in the performance of any obligation comprised in the collateral, to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interests as Lender may elect, at any public or private sale or sales, for cash or on credit or for future delivery, without demand, advertisement or notice of the time or place of sale or any adjournment thereof (the Undersigned hereby waiving any such demand, advertisement and notice to the extent permitted by law), or by foreclosure or otherwise, or to forbear from realizing thereon, all as Lender in its uncontrolled discretion may deem proper, and to purchase all or any part of the collateral for its own account at any such sale or foreclosure, such powers to be exercised only to the extent permitted by law. The obligations of the Undersigned hereunder shall not be released, discharged or in any way affected, nor shall the Undersigned have any rights or recourse against Lender, by reason of any action Lender may take or omit to take under the foregoing powers. In case the Debtor shall fail to pay all or any part of the Liabilities when due, whether by acceleration or otherwise, according to the terms of said note, the Undersigned, immediately upon the written demand of Lender, will pay to Lender the amount due and unpaid by the Debtor as aforesaid, in like manner as if such amount constituted the direct and primary obligation of the Undersigned. Lender shall not be required, prior to any such demand on, or payment by, the Undersigned, to make any demand upon or pursue or exhaust any of its rights or remedies against the Debtor or others with respect to the payment of any of the Liabilities, or to pursue or exhaust any of its rights or remedies with respect to any part of the collateral. The Undersigned shall have not right of subrogation whatsoever with respect to the Liabilities or the collateral unless and until Lender shall have received full payment of all the Liabilities. The obligations of the Undersigned hereunder, and the rights of Lender in the collateral shall not be released, discharged or in any way affected, nor shall the Undersigned have any rights against Lender, by reason of the fact that any of the collateral may be in default at the time of acceptance thereof by Lender or later; nor by reason of the fact that a valid lien in any of the collateral may not be conveyed to, or created in favor of, Lender, nor by reason of the fact that any of the collateral may be subject to equities or defenses or claims in favor of others or may be invalid or detective in any way; nor by reason of the tact that any of the Liabilities may be invalid for any reason whatsoever; nor by reason of the tact that the value of any of the collateral, or the financial condition of the Debtor or of any obligor under or guarantor of any of the collateral, may not have been correctly estimated or may have changed or may hereafter change; nor by reason of any deterioration, waste, or loss by fire, theft, or otherwise of any of the collateral, unless such deterioration, waste, or loss be caused by the willful act or willful failure to act of Lender. The Undersigned agrees to furnish Lender, or the holder of the aforesaid note of the Debtor, upon demand, but not more often than semiannually, so long as any part of the indebtedness under such note remains unpaid, a financial statement setting forth, in reasonable detail, the assets, liabilities, and net worth of the Undersigned. The Undersigned acknowledges and understands that if the Small Business Administration (SBA) enters into, has entered into, or will enter into, a Guaranty Agreement, with Lender or any other tending institution, guaranteeing a portion of Debtor's Liabilities, the Undersigned agrees that it is not a coguarantor with SBA and shall have no right of contribution against SBA. The Undersigned further agrees that all liability hereunder shall continue notwithstanding payment by SBA under its Guaranty Agreement to the other tending institution. The term "Undersigned" as used in this agreement shall mean the signer or signers of this agreement, and such signers, if more than one, shall be jointly and severally liable hereunder. The Undersigned further agrees that all liability hereunder shall continue notwithstanding the incapacity, lack of authority, death, or disability of any one or more of the Undersigned, and that any failure by Lender or its assigns to file or enforce a claim against the estate of any of the Undersigned shall not operate to release any other of the Undersigned from liability hereunder The failure of any other person to sign this guaranty shall not release or affect the liability of any signer hereof. __________________________________ DOREEN CHIU __________________________________ FRANK CHIU __________________________________ NOTE.-Corporate guarantors must execute guaranty in corporate name, by duly authorized officer, and seal must be affixed and duly attested; partnership guarantors must execute guaranty in firm name, together with signature of a general partner. Formally executed guaranty is to be delivered at the time of disbursement of loan. (LIST COLLATERAL SECURING THE GUARANTY) EX-10.20 26 GUARANTY AGREEMENT GREAT WESTERN LEASING EXHIBIT 10.20 18210 REDMOND WAY REDMOND, WA 98052-5090 GREAT WESTERN LEASING P.O. Box 126 Division of Selland Auto Transport, Inc. REDMOND, WA 98073-0126 (206) 869-6415 GUARANTY AGREEMENT Lease No. K-541 The undersigned, in consideration of the execution by Great Western Leasing Division of Selland Auto Transport, Inc., its successors and assigns ("Lessor" herein), of the foregoing Lease Agreement and every Schedule incorporated therein, jointly and severally guarantee Lessor that the undersigned will duly perform each and every covenant and obligation, and will duly and fully pay each and every lease payment and other sums owing under said Lease Agreement. This guaranty shall be an absolute, direct, continuing, and unlimited guaranty, and Lessor shall not be bound to exhaust its recourse against Lessee before being entitled to payment or performance by the undersigned. Lessor may compound and settle with Lessee, or any one or more guarantor, or surrender or exchange any security without notice to and without affecting the obligation of any guarantor. The undersigned agree to remain bound notwithstanding any extensions of the lease or payment, modification or subleases, and the undersigned hereby consents thereto. The undersigned hereby waives all notices, including notice of acceptance hereof and any demand or notice of nonpayment or nonperformance given by Lessor. The joint and several obligations and liabilities of the undersigned hereunder shall survive the death of any or all of the undersigned, and shall be binding on the estate or successor thereof. The undersigned shall have no right to subrogation or claim as a result of any payment hereunder until all claims of Lessor under the lease have been paid. Address: 46970 Ocotillo Ct. Fremont, CA 94539 Signed: ___________________________ Frank Chiu Signed: ___________________________ Doreen Chiu Dated: September 1, 1994 Witness: __________________________ EX-10.21 27 GUARANTY AGREEMENT -- THE CIT GROUP EXHIBIT 10.21 GUARANTY To: The CIT Group/Equipment Financing, Inc. Each of us severally requests you to extend credit to or to purchase security agreements, leases, notes, accounts and or other obligations (herein generally termed "paper) of or from or otherwise to do business with ATG Inc. Fremont CA - -------------------------------------------------------------------------------- Company City State hereinafter called the "Company," and to induce you so to do and in consideration thereof and of benefits to accrue to each of us therefrom, each of us, as a primary obligor, jointly and severally and unconditionally guarantees to you that the Company will fully and promptly pay and perform all its present and future obligations to you, whether direct or indirect, joint or several, absolute or contingent, secured or unsecured, matured or unmatured and whether originally contracted with you or otherwise acquired by you, irrespective of any invalidity or unenforceability of any such obligation or the insufficiency, invalidity or unenforceability of any security therefor; and agrees, without your first having to proceed against the Company or to liquidate paper or any security therefor, to pay on demand all sums due and to become due to you from the Company and all losses, costs, attorneys' fees or expenses which may be suffered by you by reason of the Company's default or default of any of the undersigned hereunder; and agrees to be bound by and on demand to pay any deficiency established by a sale of paper and or security held, with or without notice to us. This guaranty is an unconditional guarantee of payment and performance. No guarantor shall be released or discharged, either in whole or in part, by your failure or delay to perfect or continue the perfection of any security interest in any property which secures the obligations of the Company or any of us to you, or to protect the property covered by such security interest. No termination hereof shall be effected by the death of any or all of us. No termination shall be effective except by notice sent to you by certified mail return receipt requested naming a termination date effective not less than 90 days after the receipt of such notice by you; or effective as to any of us who has not given such notice; or affect any transaction effected prior to the effective date of termination. Each of us waives: notice of acceptance hereof; presentment, demand, protest and notice of nonpayment or protest as to any note or obligation signed, accepted, endorsed or assigned to you by the Company; any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution or any other claim which any of us may now or hereafter have against the Company or any other person directly or contingently liable for the obligations guaranteed hereunder, or against or with respect to the Company's property (including, without limitation, property collateralizing its obligations to you), arising from the existence or performance of this guaranty; all exemptions and homestead laws and any other demands and notices required by law; all setoffs and counterclaims; and any duty on your part (should such duty exist) to disclose to any of us any matter, fact or thing related to the business operations or condition (financial or otherwise) of the Company or its affiliates or property, whether now or hereafter known by you. You may at any time and from time to time, without our consent, without notice to us and without affecting or impairing the obligation of any of us hereunder, do any of the following: (a) renew, extend (including extensions beyond the original term of the respective item of paper), modify, release or discharge any obligations of the Company, of its customers, of co-guarantors (whether hereunder or under a separate instrument) or of any other party at any time directly or contingently liable for the payment of any of said obligations; (b) accept partial payments of said obligations; (c) accept new or additional documents, instruments or agreements relating to or in substitution of said obligations; (d) settle, release (by operation of law or otherwise), compound, compromise, collect or liquidate any of said obligations and the security therefor in any manner; (e) consent to the transfer or return of the security, take and hold additional security or guaranties for said obligations; (f) amend, exchange, release or waive any security or guaranty; or (g) bid and purchase at any sale of paper or security and apply any proceeds or security, and direct the order and manner of sale. If a claim is made upon you at any time for repayment or recovery of any amount(s) or other value received by you, from any source, in payment of or on account of any of the obligations of the Company guaranteed hereunder and you repay or otherwise become liable for all or any part of such claim by reason of: (a) any judgment, decree or order of any court or administrative body having competent jurisdiction; or (b) any settlement or compromise of any such claim, we shall remain jointly and severally liable to you hereunder for the amount so repaid or for which you are otherwise liable to Page 1 of 2 the same extent as if such amount(s) had never been received by you, notwithstanding any termination hereof or the cancellation of any note or other agreement evidencing any of the obligations of the Company. This guaranty shall bind our respective heirs, administrators, representatives, successors, and assigns, and shall inure to your successors and assigns, including, but not limited to, any party to whom you may assign any item or items of paper, we hereby waiving notice of any such assignment. All of your rights are cumulative and not alternative. By execution of this guaranty each guarantor hereunder agrees to waive all rights to trial by jury in any action, proceeding, or counterclaim on any matter whatsoever arising out of, in connection with, or related to this guaranty. Executed 1/13, 1994. INDIVIDUAL NOTE: Individual guarantors must sign without titles. Sign "John GUARANTORS Smith," not "John Smith, President." Use street addresses, not P.O. Boxes. /s/ Frank Chiu Individually - ----------------------------------------------- Frank Chiu 46970 Ocotillo Ct., Fremont, CA 94539 Home Address - ----------------------------------------------- /s/ Doreen Chiu Individually - ----------------------------------------------- Doreen Chiu 46970 Ocotillo Ct., Fremont CA 94539 Home Address - ----------------------------------------------- _______________________________________________ Individually _______________________________________________ Home Address _______________________________________________ Individually _______________________________________________ Home Address WITNESS _______________________________________ HOME ADDRESS __________________________________ CORPORATE NOTE: Enter exact name of corporation on first blank line, GUARANTORS followed by city and state. __________________________________________ Name of Corporation CORPORATE SEAL __________________________________________ City & State By _____________________ Title ___________ ___________________________________________ Have signed by President, Vice President or Treasurer. Attest Secretary __________________________________________ Name of Corporation CORPORATE SEAL __________________________________________ City & State By _____________________ Title ___________ ___________________________________________ Have signed by President, Vice President or Treasurer. Attest Secretary
Page 2 of 2 EX-10.22 28 GUARANTY OF COMMERCIAL LEASE AGREEMENT Exhibit 10.22 LESSOR: LESSEE: CALIFORNIA THRIFT & LOAN ATG, INC. P.O. BOX 1199 47375 FREMONT BLVD. SANTA BARBARA, CA 93102 FREMONT, CA 94538 COMMERCIAL LEASE AGREEMENT
QTY. DESCRIPTION OF LEASED EQUIPMENT SERIAL NO. - ----------------------------------------------------------------------------------------------------------------------------------- EQUIPMENT AS DESCRIBED ON ADDENDA I ATTACHED HERETO AND MADE A PART HEREOF. [X] If box checked then Addenda incorporated herein. - ----------------------------------------------------------------------------------------------------------------------------------- EQUIPMENT LOCATION: (If other than Billing Address of Lessee) 2025 BATTELLE BLVD. City: RICHLAND County: BENTON State: WA Zip: 99352 - ----------------------------------------------------------------------------------------------------------------------------------- LEASE TERM MONTHLY RENT First Rental Pmt. Due Upon Check in the amount of $5,465.28 must Acceptance [X] accompany completed lease. 48 months $2,620.14 30 Days After Acceptance [ ] This amount includes: Other (Specify) ___________ $__________Security Deposit $225.00 Documentation Fee $5,240.28 First & Last 1 mos. rental $___________Other_____________ - -----------------------------------------------------------------------------------------------------------------------------------
THIS LEASE IS A NON-CANCELLABLE FINANCE LEASE 1. AGREEMENT TO LEASE. Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, subject to the terms of this Lease Agreement and any schedules or addenda attached hereto, the personal property identified above or in the attached schedules or addenda. Lessor may insert in this Lease the serial numbers, and other identification data, of the leased equipment when determined by Lessor. The equipment shall be installed at, and shall not be removed from the equipment location identified above without Lessor's written consent. Equipment required to be registered under applicable state vehicle laws shall not be removed from the state of registration without Lessor's written consent. The lease term shall commence upon the date accepted by the authorized signature of Lessor, as evidenced below. This Lease shall have no effect prior to such acceptance. This Lease is not subject to cancellation for any reason other than Lessor's failure or inability to acquire the leased equipment. In that event both parties shall be released herefrom, and Lessor shall return any advance payments received from Lessee, less actual expenses paid to third parties such as appraisers and title companies, and neither party shall have any liability for consequential or other damages. 2. STATUS OF PARTIES, WARRANTIES AND DEFENSES. This is a finance lease-- U.C.C. Section 2A103(1)(g). Lessee has selected the leased equipment manufacturer and supplier. Lessor has not manufactured or supplied the leased equipment but is acquiring the same or the right to possession and use of the same solely in connection with this Lease, and at the request of Lessee. Lessee has been provided with a copy of the contract evidencing Lessor's purchase of the leased equipment, or a list of the suppliers with notice that Lessee may have rights thereunder and advice to contact such suppliers for a description of such rights. LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED EQUIPMENT. LESSOR MAKES NO WARRANTY THAT THE LEASED EQUIPMENT WILL BE FIT FOR A PARTICULAR PURPOSE. LESSOR MAKES NO WARRANTY OF MERCHANTABILITY. Lessor assigns to Lessee, so long as Lessee is not in default hereunder, all warranties made by any manufacturer or supplier of the leased equipment. Lessee's sole remedy in the event of a claimed breach of warranty or other defect in or failure of the leased equipment, shall be in accordance with such manufacturer's or supplier's warranty, and Lessee may not withhold or fail to pay any installments due hereunder to Lessor. 3. PAYMENT. Lessor acknowledges receipt of the advance payment described above. Such sum shall be held by Lessor as security for the performance of the terms of this Lease. If Lessee requests cancellation of this Lease prior to Lessor's acquisition of the leased equipment, and Lessor grants such request, Lessor shall retain this sum as liquidated damages for such anticipatory breach. Lessee promises and agrees to pay all rental installments on the date designated by Lessor and to pay such other charges as are herein provided. Payments shall be payable at the office of Lessor, or to such other person and/or at such other place as Lessor may from time to time designate in writing. Lessor may apply remittances received to unpaid rental installments and/or charges on a due date basis, remittance received being applied to the oldest unpaid rental installment or charge. 4. FINANCIAL AND EQUIPMENT CONDITION. Lessor may inspect the equipment at any time, and Lessee agrees to keep it in good condition and repair at Lessee's expense and house the same in suitable shelter, and not to sell or otherwise dispose of the equipment or any accessories attached hereto. Lessee shall cause the equipment to be maintained and serviced in accordance with the recommendations of the manufacturer. Lessee agrees to furnish Lessor upon request current financial statements reflecting the Lessee's financial status during the term of the Lease. All lease Guarantors hereby agree to furnish Lessor upon request current personal financial statements reflecting Guarantor's financial status during the term of the Lease. 5. OWNERSHIP. No title or right in said equipment shall pass to Lessee except by the rights herein expressly granted. Plates or other markings may be affixed to or placed on said equipment by Lessor or at Lessor's request, by Lessee at Lessee's expense, indicating the Lessor is the owner thereof, and Lessee will not remove the same. Upon the termination of the initial lease period, Lessee will immediately crate, insure, and ship the equipment and operating manuals to whatever destination Lessor shall direct, all at Lessee's expense, in as good condition as received less normal wear and tear, said destination to be confirmed by Lessee prior to shipment. Lessee agrees to pay Lessor monthly rent at the rate specified for the initial term or any month or part thereof from the end of the initial term until the equipment is received by Lessor. Said equipment shall always remain and be deemed personal property even though attached to realty. Lessee shall maintain each unit of equipment so that it may be removed from the building in which it is placed without damage to the building. All replacements, accessories, or capital improvements made to or placed in or upon said equipment shall become component parts thereof and title thereto shall immediately vest in Lessor and shall be included under the terms hereof. The Lessee agrees that the Lessor is authorized, at its option, to file financing statements or amendments thereto without the signature of the Lessee with respect to any or all of the lease property and, if a signature is required by law, then the Lessee appoints Lessor as Lessee's attorney-in-fact to execute any such financing statements and further agrees to pay the Lessor a documentation fee to cover the expense of making such filing(s). Lessee further agrees to itself execute such documents and take such action, as Lessor may request to protect Lessor and carry out the intent of this agreement. 6. EXPIRATION OF LEASE. At the expiration of the lease term stated herein, this lease shall continue on a month-to-month basis, and Lessee shall continue to pay the monthly rent hereunder, until this lease is terminated by (1) delivery of the leased equipment to Lessor as provided in Paragraph 5 or (2) Lessee's exercise of the purchase option, or purchase agreement, if any, and payment of the purchase price under such option or agreement. 7. ASSIGNMENT. Lessor may assign the lease and its assignee may assign the same. All rights of Lessor hereunder shall be succeeded by any assignee hereof and said assignee's title to this Lease, to the rental herein provided for to be paid, and in and to said equipment shall be free from all defense, set-offs or counterclaims of any kind which Lessee may be entitled to assert against Lessor. Lessee hereby waives the same as against such assignee; it being understood and agreed that any assignee of Lessor does not assume obligations of the Lessor herein named. LESSEE SHALL NOT ASSIGN, MORTGAGE, OR HYPOTHECATE THIS LEASE OR ANY INTEREST HEREIN OR SUBLET SAID EQUIPMENT WITHOUT SUCH CONSENT SHALL BE VOID. TITLE TO THE EQUIPMENT SUBJECT TO THIS LEASE IS RETAINED BY THE LESSOR AND THE LESSEE COVENANTS THAT IT WILL NOT PURPORT TO PLEDGE OR ENCUMBER THE EQUIPMENT IN ANY MANNER WHATSOEVER, NOR PERMIT ANY LIENS, CHARGES OR ENCUMBRANCE TO ATTACH THERETO. 8. INSURANCE. Lessee assumes the entire risk of loss or damages to the equipment whether or not covered by insurance, and no such loss shall relieve Lessee of its obligations hereunder. Lessee agrees to keep the equipment insured and provide proof of insurance to Lessor; to protect all interests of Lessor, at Lessee's expense, against all risks of loss or damage from any cause whatsoever for not less than the unpaid balance of the lease rentals due hereunder or eighty percent (80%) of the then current value of said equipment, whichever is higher; and to purchase insurance in an amount reasonable under the circumstances to cover the liability of Lessor for public liability and property damage. Said insurance policies and the proceeds therefrom shall be the sole property of Lessor and Lessor shall be named as an insured in all said policies and as sole loss payee in the policies insuring the equipment. Each policy shall expressly provide that said insurance as to Lessor and its assigns shall not be invalidated by any act, omission or neglect of Lessee and cannot be cancelled without thirty (30) days prior written notice to Lessor. As to each policy, Lessee shall furnish Lessor a Certificate of Insurance and copy of policy from the insurer reflecting the coverage required by this paragraph on or before Commencement date of Lease. The proceeds by such insurance whether resulting from loss or damage or return of premium or otherwise, shall be applied toward the replacement or repair of said equipment or the payment of obligations of Lessee hereunder at the option of Lessor. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make claim for, receive payment of and execute or endorse all documents, checks or drafts for loss or damage or return premium under any insurance policy issued on said equipment. If Lessee fails to maintain the insurance required by this paragraph, Lessor may, but it's not obligated to, obtain insurance in such forms and amounts as it deems reasonable to protect its interests and Lessee agrees to reimburse Lessor for all such costs, together with interest at the rate provided herein upon demand. 9. INDEMNITY. Lessee shall, at its sole cost and expense, indemnify, hold harmless and defend Lessor and its agents, employees, officers and directors from and against any and all claims, actions, suits, proceedings, costs, expenses, damages and liabilities, including attorney's fees, arising out of, connected with, resulting from or relating to the equipment or the condition, delivery, leasing, location, maintenance, manufacture, operation, ownership, possession, purchase, repair, repossession, return, sale, selection, service or use thereof, including without limitation (a) claims involving latent or other defects (whether or not discoverable by Lessee or Lessor), (b) claims for trademark patent or copyright infringement, and (c) claims for injury or death to persons or damage to property or loss of business or anticipatory profits, whether resulting from acts or omissions of Lessee or Lessor or otherwise. Lessee shall give Lessor prompt written notice of any claims or liability covered by this paragraph. The indemnities under this paragraph shall survive the satisfaction of all other obligations of Lessee herein and the termination of this Lease. 10. TAXES AND FEES. Lessee agrees to use, operate and maintain said equipment in accordance with all laws; to pay all licensing and registration fees for said equipment; to keep the same free of levies, liens and encumbrances; TO SHOW THE EQUIPMENT AS "LEASED EQUIPMENT" ON LESSEE'S PERSONAL PROPERTY TAX RETURNS; TO PAY ALL PERSONAL PROPERTY TAXES ASSESSED AGAINST THE EQUIPMENT, WHICH SUM LESSEE SHALL REMIT TO THE TAXING AUTHORITY; to pay all other taxes, assessments, fees and penalties which may be levied or assessed on or in respect to said equipment or its use or any interest therein, or rental payments thereon including but not limited to all federal, state and local taxes, however designated, levied or assessed upon the Lessee and Lessor or either of them or said equipment, or upon the sale, ownership, use or operation thereof. Lessor may pay such taxes and other amounts and may file such returns on behalf of Lessee if Lessee fails to do so as provided herein. Lessee agrees to reimburse Lessor for reasonable costs incurred in collecting any charges, taxes, assessments or fees for which Lessee is liable hereunder. 11. ADVANCES. All advances made and costs incurred by Lessor to preserve said equipment or to discharge and pay any taxes, assessments, fees, penalties, liens or encumbrances thereon or to insure the equipment shall be added to the unpaid balance of rentals due hereunder and shall be repayable by Lessee to Lessor immediately together with interest thereon at the rate of one and six tenths (1.6%) percent per month until paid. 12. DEFAULT. Lessee shall be in default hereunder upon the occurrence of any of the following events: (a) failure of Lessee to pay any rental payment or other amount required hereunder when due; (b) failure of Lessee to perform any other obligation hereunder or observe any other term or provision hereof; (c) any representation or warranty made to Lessor by Lessee or by any Guarantor proves to have been false in any material respect when made; (d) levy, seizure or attachment or other involuntary transfer of the equipment; (e) assignment for benefit of creditors or bulk transfer of assets by, or insolvency, cessation of business, termination of existence, death or dissolution of, Lessee or any Guarantor. As used herein, the term "Guarantor" shall include any guarantor of this Lease and any owner of any property given as security for Lessee's obligations hereunder. Upon the occurrence of a default hereunder, Lessor may exercise any one or more of the following remedies without demand or notice to Lessee and without terminating or otherwise affecting Lessee's obligations hereunder: (i) declare the entire balance of rent for the remaining term of this Lease to be immediately due and payable; (ii) require Lessee to assemble the equipment and make it available to Lessor at a place designated by Lessor which is reasonably convenient to both parties; (iii) take and hold possession of the equipment and render the equipment unusable, and for this purpose enter and remove the equipment from any premises where the same may be located without liability to Lessee for any damage caused thereby; (iv) sell or lease the equipment or any part thereof at public or private sale for cash, on credit or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to Lessor; (v) use and occupy the premises of Lessee for the purpose of taking, holding, re-conditioning, displaying, selling or leasing the equipment, without cost to Lessor or liability to Lessee; (vi) demand, sue for and recover from Lessee all sums due hereunder. 13. DAMAGES. In the event of any default hereunder, Lessor may elect to accelerate the obligation of Lessee and, in such event, shall be entitled to recover the sum of (a) delinquent lease payments with interest thereon at the legal rate, (b) any unamortized brokerage commission, (c) the anticipated residual value of the equipment, and (d) the lease payments to become due in the future discounted to present value as of the date of entry of judgment at a rate equal to 80% of the New York Prime rate as of that date. Lessee shall be entitled to a credit for net proceeds received by Lessor upon sale or release of the equipment, if any, discounted to present value. Lessee shall also be liable for all costs incurred by Lessor in retaking, protecting and disposing of the equipment, including reasonable legal fees and costs. 14. LATE CHARGE. In the event a rent payment or personal property tax payment is not made when due hereunder the Lessee promises to pay (1) a late charge to the Lessor or his assigns not later than one month thereafter, in an amount calculated at the rate of five cents per one ($1.00) dollar of each such delayed payment. The late charge and/or the interest payments set forth in this contract shall apply only when permitted by law and, if not permitted by law, the late charges and/or interest payments shall be calculated at the maximum rate permissible by law. In the event that a check or other instrument tendered for payment is dishonored, Lessor shall be entitled to a ten dollar ($10.00) fee. 15. OMISSION. The omission by the Lessor at any time to enforce any default or right reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Lessee at any time designated, shall not be a waiver of any such default or right to which the Lessor is entitled, nor shall it in any way affect the right of the Lessor to enforce such provisions thereafter. The Lessor may exercise all remedies simultaneously, pursuant to the terms hereof, and any such action shall not operate to release the Lessee until the full amount of the rentals due and to become due and all other sums to be paid hereunder have been paid. 16. BINDING AGREEMENT. The provisions of this agreement apply to and bind the heirs, executors, administrators, successors, and assigns of the respective parties hereto. 17. GOVERNING LAW, VENUE, JURY WAIVER. This Agreement shall be governed and interpreted in accordance with the laws of the state of Lessor's principal office, and any suit hereon shall be brought in the county of such office. To the extent permitted by law, the parties waive their right to a jury trial. 18. IT IS SPECIFICALLY UNDERSTOOD AND AGREED THAT ALL UNDERSTANDINGS AND AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES HERETO RELATIVE TO THIS LEASE ARE MERGED IN THIS AGREEMENT, WHICH CONTAINS THE ENTIRE AGREEMENT AND UNDERSTANDING OF THE PARTIES HERETO, AND NEITHER PARTY RELIES UPON ANY OTHER STATEMENT OR REPRESENTATION, EXCEPT FOR THE CREDIT APPLICATION AND FINANCIAL STATEMENTS OF LESSEE AND ANY GUARANTOR PROVIDED IN CONNECTION HEREWITH. THIS AGREEMENT MAY NOT BE MODIFIED OR CANCELLED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY THE LESSEE AND A CORPORATE OFFICER OF THE LESSOR. 19. This lease is not effective nor accepted until signed by an officer of lessor, which is the last act necessary for the effectiveness of this lease. Accepted by Lessor CALIFORNIA THRIFT & LOAN ------------------------------------------------- By [SIGNATURE ILLEGIBLE] Date 12/20/94 --------------------- -------------------------------------- SEE REVERSE SIDE FOR TERMS AND CONDITIONS WHICH ARE A PART OF THIS LEASE. ATG, INC. - -------------------------------------------------------------------- LESSEE (Complete Legal Name) By: [SIGNATURE ILLEGIBLE] President 12/?/94 - --------------------------------------------------------------------- Authorized Signature Title Date By: _____________________________________________________________________ Authorized Signature Title Date /s/ SIGNATURE ILLEGIBLE - --------------------------------------------------------------------- Witness _______________________________________________________________________________ GUARANTEE _______________________________________________________________________________ To induce LESSOR to enter into the above lease, and any extensions, renewals, modifications or additions thereto, the undersigned and each of them if there be more than one (hereinafter jointly and severally called "Guarantor") jointly and severally guarantees and promises to pay to Lessor at the address set out above, or at such other place as Lessor shall from time to time advise in writing, on demand, the due and punctual payment and performance of any and all indebtedness of the above-named Lessee ("Lease"). This is a guaranty of payment and performance and not of collection. The Guarantor's obligations hereunder shall be unconditional (and shall not be subject to any defense, setoff, counterclaim or recoupment whatsoever) irrespective of the genuineness, validity, regularity or enforceability of the indebtedness or any conduct of the Lessee and/or Lessor which might constitute a legal or equitable discharge of a surety, guarantor or guaranty. The obligations hereunder are independent of the obligations of Lessee or the obligations of any other person(s) or guarantor(s) who may be liable to Lessor in whole or in part for the indebtedness, and a separate action or actions may be brought and prosecuted against Guarantor or any of them (if there be more than one) whether action is brought against Lessee alone or whether Lessee be joined in any such action or actions. Guarantor authorizes Lessor, without notice or consent and without affecting, impairing or discharging in whole or in part its liability, hereunder, from time to time to (a) renew, modify, amend, compromise, extend, accelerate, discharge or otherwise change the time for payment of, or otherwise change the terms or provisions of the lease or any part thereof, including increase or decrease of the rent; (b) take and hold security for the payment of this guaranty or the indebtedness guaranteed, and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale thereof as Lessor in its discretion may determine; and (d) release or substitute in whole or in part any one or more of the endorsers, Guarantor or anyone else who may be partially or wholly liable for any part of the indebtedness. Lessor may without notice assign this guaranty in whole or in part. Guarantor waives any right to require Lessor to (a) proceed with or exhaust remedies against Lessee; (b) proceed against or exhaust any security held from Lessee or Guarantor; (c) pursue any other remedy in Lessor's power whatsoever, or (d) proceed against any other person(s) or Guarantor(s) who may be liable to Lessor in whole or in part for the indebtedness. Guarantor waives any defense arising by reason of any disability or other defense of Lessee or by reason of the cessation or modification from any cause whatsoever of the liability of Lessee. Until all indebtedness of Lessee to Lessor shall have been paid in full, Guarantor shall have no right to subrogation, and waives any right to enforce any remedy which Lessor now has or may hereafter have against Lessee, and waives any benefit of, and any right to participate in any security now or hereafter held by Lessor. Guarantor waives diligence, all presentiments, demands for performance, notices of non-performance, default, protests, notices of protest, notices of dishonor, notices of acceptance of this guaranty and of the existence, creation, or incurring of new, changed, modified, increased or additional indebtedness, all other notices of every and any kind and trial by jury in any action or proceeding arising out of, under, on or by reason of this guaranty or any other dispute between Guarantor and Lessor. Where any one or more of Lessees are corporations or partnerships it is not necessary for Lessor to inquire into the powers of Lessee or the officers, directors, partners, or agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed and be indebtedness hereunder. Guarantor agrees to pay the attorney's fees and all other costs and expenses which may be incurred by Lessor in the enforcement of this guaranty and agrees that all attorney's fees, costs and expenses incurred in pursuing or enforcing rights and/or any collateral or security shall constitute so much additional indebtedness hereby guaranteed. Any married person who signs this guaranty hereby expressly agrees that recourse may be had against his or her separate property for all obligations under this guaranty. This guaranty cannot be changed, modified or terminated orally; shall be deemed delivered and shall be construed, interpreted and enforced in accordance with and under the law of the State of California. The obligations of Guarantor hereunder shall be binding upon its successors, representatives, estates and assigns and shall inure to the benefit of Lessor's successors and assigns. /s/ Frank Chiu - -------------------------------------------------------------------------------- (Signature) An Individual FRANK CHIU X ________________________________________________________________________________ (Signature) An Individual X ________________________________________________________________________________ (Signature) An Individual /s/ Doreen Chiu - -------------------------------------------------------------------------------- (Signature) An Individual DOREEN CHIU X ________________________________________________________________________________ (Signature) An Individual X ________________________________________________________________________________ (Signature) An Individual Witness [SIGNATURE ILLEGIBLE] Witness___________________ Witness________________ --------------------- EX-10.39 29 PROMISSORY NOTE EXHIBIT 10.39 PROMISSORY NOTE $1,280,180 Fremont, California December 31, 1997 For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned, ATG Inc., a California corporation ("Payor"), hereby promises to pay Doreen M. Chiu ("Payee"), or order, the principal sum of One Million Two Hundred Eighty Thousand One Hundred Eighty Dollars ($1,280,180) with simple interest thereon at a rate of ten percent (10%) per annum from the date hereof. All payments on this Note shall be made at such address as the holder of this Note may advise Payor in writing, in lawful money of the United States of America. All accrued interest and the entire principal amount of this Note shall be payable on the fifteenth day following the date of delivery by Payee to Payor of written demand therefor. This Note may be prepaid in whole or in part at any time without penalty. Payor hereby waives presentment for payment, protest, notice of protest and notice of non-payment of this Note. In the event that any suit or proceeding is instituted by the holder of this Note for collection hereof, the holder of this Note shall be entitled to repayment by the Payor of all costs and expenses incurred therewith, including court costs and attorneys' fees, regardless of whether a lawsuit is instituted. This Note may be extended or renewed by the holder hereof, at the holder's option, but no such extension or renewal shall be effective unless made in writing, and Payor acknowledges that it is not entitled to any extension or renewal and has been given no assurance of any nature with respect thereto. No failure on the part of the holder of this Note to exercise, or delay in exercising, any right, remedy or privilege under this Note shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any further exercise of such right, remedy, or privilege. The waiver by the holder of this Note of any default hereunder shall not be deemed, nor shall the same constitute, waiver of any subsequent default on the part of Payor of a same or different nature. This Note shall be governed by the laws of the State of California. ATG Inc., a California corporation By: /s/ Steven J. Guerrettaz ------------------------ Name: Steven J. Guerrettaz Title: Chief Financial Officer EX-21.1 30 LIST OF SUBSIDIARIES OF REGISTRANT EXHIBIT 21.1 List of Subsidiaries 1. ATG Richland Corporation, a Washington corporation EX-23.2 31 CONSENT OF COOPERS & LYBRAND L.L.P. Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report, dated January 31, 1998, on our audits of the consolidated financial statements of ATG Inc. and subsidiary. We also consent to the references to our firm under the captions "Experts" and "Selected Consolidated Financial Data." Coopers & Lybrand L.L.P. San Jose, California February 11, 1998 EX-27.1 32 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ATG INC. FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 12-MOS DEC-31-1996 DEC-31-1997 JAN-01-1996 JAN-01-1997 DEC-31-1996 DEC-31-1997 2,969 2,586 0 0 6,953 8,554 (46) (119) 0 0 11,430 12,498 18,105 24,944 (3,060) (2,840) 26,976 37,227 7,097 10,846 2,930 6,202 16,319 19,416 0 0 5,948 6,337 (5,318) (5,769) 26,976 37,227 18,235 19,107 18,235 19,107 11,082 11,172 11,082 11,172 6,656 7,020 6 73 129 0 510 973 2 (45) 508 1,018 0 0 0 0 0 0 508 1,018 0 .09 0 .08
EX-99.1 33 CONSENT OF ANDREW C. KADAK EXHIBIT 99.1 CONSENT OF NOMINEE I, Andrew C. Kadak, hereby consent to being named as a nominee for director of ATG Inc., a California corporation (the "Company"), in connection with the Company's Registration Statement on Form S-1 (the "Registration Statement") to be filed with the Securities and Exchange Commission (the "Commission"). I understand that the Registration Statement is being filed with the Commission in connection with the initial public offering of the Company's Common Stock. Dated: February 6, 1998 /s/ Andrew C. Kadak ---------------------------- Andrew C. Kadak EX-99.2 34 CONSENT OF EARL E. GJELDE EXHIBIT 99.2 CONSENT OF NOMINEE I, Earl E. Gjelde, hereby consent to being named as a nominee for director of ATG Inc., a California corporation (the "Company"), in connection with the Company's Registration Statement on Form S-1 (the "Registration Statement") to be filed with the Securities and Exchange Commission (the "Commission"). I understand that the Registration Statement is being filed with the Commission in connection with the initial public offering of the Company's Common Stock. Dated: February 6, 1998 /s/ Earl E. Gjelde ---------------------------- Earl E. Gjelde EX-99.3 35 CONSENT OF WILLIAM M. HEWITT EXHIBIT 99.3 CONSENT OF NOMINEE I, William M. Hewitt, hereby consent to being named as a nominee for director of ATG Inc., a California corporation (the "Company"), in connection with the Company's Registration Statement on Form S-1 (the "Registration Statement") to be filed with the Securities and Exchange Commission (the "Commission"). I understand that the Registration Statement is being filed with the Commission in connection with the initial public offering of the Company's Common Stock. Dated: February 6, 1998 /s/ William M. Hewitt ---------------------------- William M. Hewitt EX-99.4 36 CONSENT OF STEVEN J. GUERRETTAZ EXHIBIT 99.4 CONSENT OF NOMINEE I, Steven J. Guerrettaz, hereby consent to being named as a nominee for director of ATG Inc., a California corporation (the "Company"), in connection with the Company's Registration Statement on Form S-1 (the "Registration Statement") to be filed with the Securities and Exchange Commission (the "Commission"). I understand that the Registration Statement is being filed with the Commission in connection with the initial public offering of the Company's Common Stock. Dated: February 6, 1998 /s/ Steven J. Guerrettaz --------------------------- Steven J. Guerrettaz -----END PRIVACY-ENHANCED MESSAGE-----