-----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, Dd2iJXWgybmbg16lBmul5ah3ARJB0HKRkCEQ2EZRul728KaBRdGKL0yVO7lgTMOS erfQDxnojktSjJ8hPA/mbQ== 0000950147-99-000903.txt : 19990817 0000950147-99-000903.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950147-99-000903 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SITEK INC CENTRAL INDEX KEY: 0000849862 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 954585824 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-28417 FILM NUMBER: 99694019 BUSINESS ADDRESS: STREET 1: 1817 WEST 4TH STREET CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 6029218555 MAIL ADDRESS: STREET 1: 1817 WEST 4TH STREET CITY: TEMPLE STATE: AZ ZIP: 85281 FORMER COMPANY: FORMER CONFORMED NAME: DENTMART GROUP INC DATE OF NAME CHANGE: 19980415 FORMER COMPANY: FORMER CONFORMED NAME: ELGIN CORP DATE OF NAME CHANGE: 19980407 10-Q 1 QUARTERLY REPORT FOR THE QTR ENDED 6/30/99 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q Mark One [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number: 33-28417 SITEK, INCORPORATED (FORMERLY KNOWN AS DENTMART GROUP, INC. AN ELGIN CORPORATION) ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 86-0923886 - ------------------------------- ------------------------------------ (State of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1817 West 4th Street, Tempe, Arizona 85281 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (602) 921-8555 ------------------------------------------------ (Issuer's telephone number, including area code) --------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 12,307,813 shares of common stock outstanding as of August 9, 1999. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1999 and 1998......... 1 Consolidated Statements of Operations Three Months ended June 30, 1999 and 1998..................... 2 Consolidated Statements of Cash Flows Three Months ended June 30, 1999 and 1998..................... 3 Consolidated Statement of Stockholders' Equity Period from June 23, 1998, date of inception, to June 30, 1999............................................ 4 Notes to Consolidated Financial Statements....................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 14 Item 2. Changes in Securities and Use of Proceeds........................ 14 Item 5. Other Information................................................ 14 Item 6. Exhibits and Reports on Form 8-K................................. 14 i PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SITEK, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 30, 1999 and 1998 (Unaudited) June 30, June 30, 1999 1998 ---------- ---------- ASSETS CURRENT ASSETS Cash $1,319,785 $ -- Accounts receivable 1,430,379 -- Related party receivables 244,113 -- Inventory 4,289,109 -- Prepaid financing fees 135,233 -- Prepaid VAT 15,025 -- Prepaid expenses and other assets 75,176 -- Deferred tax asset 33,500 -- ---------- ---------- Total current assets 7,542,320 -- ---------- ---------- PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $29,638 as of June 30, 1999 394,814 -- DEPOSITS 63,476 -- GOODWILL, less accumulated amortization of $13,329 544,469 -- COVENANT NOT TO COMPETE, less accumulated amortization of $2,000 22,000 -- ---------- ---------- $8,567,079 $ -- ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of credit $ 234,700 $ -- Convertible debentures 80,000 -- Advances from related parties 510,323 -- Notes payable 3,336,256 -- Accounts payable 1,058,037 -- Customer deposits 1,302,743 -- Accrued expenses 669,268 -- VAT payable 153,682 -- Deferred revenue, current portion 17,070 -- Income tax payable 462,000 -- ---------- ---------- Total current liabilities 7,824,079 -- ---------- ---------- CAPITAL LEASE OBLIGATION 6,640 -- ---------- ---------- DEFERRED REVENUE, long term portion 36,261 -- ---------- ---------- CONVERTIBLE DEBENTURES 147,500 -- ---------- ---------- DEFERRED RENT PAYABLE 24,695 -- ---------- ---------- LINE OF CREDIT 207,181 -- ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued -- -- Common stock, $.005 par value, 50,000,000 authorized; 1,000,000 shares to be issued as of June 30, 1998, 12,307,813 shares issued and outstanding as of June 30, 1999 61,539 1,000 Additional paid-in-capital 74,115 -- Retained earnings 185,069 -- ---------- ---------- Less stock subscriptions receivable -- (1,000) 320,723 -- ---------- ---------- $8,567,079 $ -- ========== ========== 1 SITEK, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended June 30, 1999 and 1998 (Unaudited) Three Months Three Months Ended Ended June 30, 1999 June 30, 1998 ----------- ----------- Net sales $ 6,423,670 $ -- Cost of goods sold 2,907,300 -- ----------- ----------- Gross profit 3,516,370 -- ----------- ----------- Operating expenses: Selling, general and administrative 978,458 -- Research development & engineering 278,766 -- ----------- ----------- 1,257,224 -- ----------- ----------- Income from operations 2,259,146 -- ----------- ----------- Other income (expense) Interest expense (638,347) -- Other expense (14,760) -- ----------- ----------- (653,107) -- ----------- ----------- Income before income taxes 1,606,039 -- Income tax expense 436,500 -- ----------- ----------- Net income $ 1,169,539 $ -- =========== =========== 2 SITEK, Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended June 30, 1999 and 1998 (Unaudited)
Three Months Three Months Ended Ended June 30, 1999 June 30, 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 1,169,539 $ -- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of prepaid financing fees 15,329 -- Depreciation and amortization 12,908 -- Deferred taxes (5,500) -- Gain recognized on sale leaseback transaction (5,161) -- Deferred rent expense 15,328 -- Stock issuable for services -- Changes in assets anad liabilities: Accounts receivable (1,137,079) -- Inventory 1,312,503 -- Prepaid financing fees 433,300 -- Prepaid VAT 894,975 -- Prepaid expenses and other assets 68,443 -- Advances from related parties 121,905 -- Accounts payable 296,198 -- Customer deposits 933,483 -- Accrued expenses 40,295 -- Income tax payable 442,000 -- VAT payable (756,318) -- Profit sharing liability 1,769 -- ----------- ----------- Net cash provided by (used in) operating activities 3,853,917 -- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Related party advances (185,952) -- Purchase of VSM, net of cash (106,268) -- Proceeds from sale leaseback transaction -- -- Purchase of property and equipment (106,980) -- Payments on deposits (26,010) -- ----------- ----------- Net cash (used in) investing activities (425,210) -- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on lines of credit 809,000 -- Repaymants of lines of credit (728,300) -- Proceeds from Issuance of convertible debentures 147,500 -- Repayments of notes payable (3,409,254) -- Proceeds from notes payable 1,000,000 -- Repayments of capital leases (731) -- Issuance of common stock 72,000 -- ----------- ----------- Net cash (used in) provided by financing activities (2,109,785) -- ----------- ----------- Net increase in cash 1,318,922 -- Cash, Beginning 863 -- ----------- ----------- Cash, Ending $ 1,319,785 $ -- =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payment for interest $ 13,101 $ -- =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of VSM Corporation: Cash purchase price $ 1,000,000 $ -- =========== =========== Working capital acquired, net of cash and cash equivalents $ (678,194) $ -- Fair value of other assets acquired, principally property and equipment 210,035 -- Long-term debt assumed (7,371) -- ----------- ----------- $ (475,530) $ -- =========== =========== Financing Costs $ -- $ -- =========== ===========
3 SITEK, INCORPORATED AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Period from June 23, 1998, date of inception, to June 30, 1999
Equity accumulated Common stock Additional during the -------------------- paid-in development Shares Amount capital stage Total ---------- ------- ------- ---------- ---------- Issuance of stock, June 23, 1998 1,000,000 $ 1,000 $ -- $ -- $ 1,000 Effect of merger/recapitalization 11,230,813 60,154 -- (60,154) -- Stock issuable for services 5,000 25 2,475 -- 2,500 Net (loss) -- -- -- (924,316) (924,316) ---------- ------- ------- ---------- ---------- Balance, March 31, 1999 12,235,813 61,179 2,475 (984,470) (920,816) Net income -- -- -- 1,169,539 1,169,539 Issuance of stock 72,000 360 71,640 -- 72,000 ---------- ------- ------- ---------- ---------- Balance, June 30, 1999 12,307,813 $61,539 $74,115 $ 185,069 $ 320,723 ========== ======= ======= ========== ==========
4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A. Basis of Presentation The accompanying unaudited consolidated financial statements of SITEK, Incorporated and Subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2000. For further information refer to the financial statements and footnotes included in the company's annual report on Form 10-K for the fiscal year ended March 31, 1999. The consolidated financial statements include the accounts of SITEK, Incorporated and its wholly-owned subsidiaries, Advanced Technology Services, Inc. (ATSI), CMP Solutions, Inc. (CMP), and VSM Corporation (VSM). All significant intercompany accounts are eliminated upon consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company recognizes revenue from the sale of products when the risks and rewards of ownership transfer to the customers, which is generally at the time of shipment. No significant obligations remain after the product is shipped. Cost for installation and warranty are accrued when the corresponding sales are recognized. Note B. Basic and Diluted Earnings per Share Basic net income per common share is computed based on weighted average common shares outstanding during the period. Diluted net income per share is computed using the weighted average common and dilutive common equivalent shares outstanding during the period. Convertible debt are considered a common stock equivalent and is included in the weighted average share computation using the treasury stock method. Three Months Ended June 30, 1999 ------------------ Net income $ 1,169,539 =========== Basic weighted average shares outstanding 12,276,165 Convertible debentures 16,000 ----------- Diluted weighted average shares outstanding 12,292,165 =========== Basic earnings per share $ .10 =========== Diluted earnings per share $ .10 =========== 5 Note C. Inventories Inventories are valued at the lower of cost or market. Cost of pre-owned equipment held for resale is determined on the specific identification method. Costs of all other inventories are determined on a first-in, first-out (FIFO) basis. Inventories consisted of the following: June 30, 1999 June 30, 1998 ------------- ------------- Pre-owned equipment held for resale $3,907,987 $ -- Raw materials 72,294 -- Work-in-process 308,828 -- ---------- ---------- Total $4,289,109 $ -- ========== ========== Note D. Accrued Expenses The components of accrued expenses are as follows: June 30, 1999 June 30, 1998 ------------- ------------- Profit sharing $257,265 $ -- Interest expense 146,452 -- Promoter/Shareholder expense 125,000 -- Directors fees 18,000 -- Compensation and benefits 42,707 -- Legal/audit 25,000 -- Warranty 23,837 -- Other 31,007 -- -------- -------- Total $669,268 $ -- ======== ======== Note E. Convertible Debentures At June 30, 1999, the Company issued convertible debentures of $147,500. The debentures are convertible into the Company's common stock at any time after one year from purchase through their maturity date, 24 months subsequent to the date of purchase. Also, the debentures bear interest at 9.5%, payable annually in restricted common stock. If paid in common stock, the debentures are convertible into common stock at 80% of the average of the five day closing bid prices, as reported by Bloomberg, for the five consecutive trading days immediately preceding the date of conversion, but in no event at a price lower than $3.50 per share or higher than $5.00 per share. The debentures are subject to a mandatory 24 month conversion feature at the end of which all debentures outstanding will be converted to shares of common stock. There is no beneficial conversion feature associated with the convertible debentures as the fair market value, as determined by an independent valuation, is lower than the bid price. Note F. Business Combination On April 28, 1999, the Company acquired a company, VSM, engaged in the manufacture and/or refurbishment of semiconductor process equipment and subassemblies, including ultra-pure gas and chemical handling systems. The Company completed this transaction by paying $ 1,000,000 in cash for all the outstanding common stock of VSM. The excess of the total acquisition cost over the fair value of the net assets acquired of $557,798 is being amortized over seven years by the straight-line method. The covenant not to compete of $24,000 is being amortized over two years, the term of the agreement, by the straight-line method. The acquisition has been accounted for as a purchase and results of operations of VSM since the date of acquisition are included in the consolidated financial statements. VSM sales and net loss for the year ended December 31, 1998 totalled $4,374,558 and $(138,345), respectively. 6 In conjunction with this transaction, the Company borrowed $ 1,000,000 from TLD Funding Group. The note bears interest at approximately 24% per year. The note is due on April 28, 2001. Subsequent to quarter end, this note payable was partially paid off through the refinancing with Imperial Bank referred to in Note L. Note G. Contingencies The Company has been named a defendant in a lawsuit from a former employee of a Company with common ownership and from a former consultant of a Company with common ownership, alleging wrongful termination, related to amounts owed for consulting services and misappropriated trade secrets. Management denies these allegations and intends to defend itself vigorously. The defendants have demanded the value of 1,000,000 shares of the Company's stock. No provision has been made to the financial statements as a result of this lawsuit. Note H. Segment Information The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business unit requires different strategies. There are three reportable segments: ATSI, CMP, and VSM. ATSI buys and sells pre-owned semiconductor processing and manufacturing equipment to the worldwide market of semiconductor companies. CMP provides engineering and manufacturing services to the semiconductor electronics industry. CMP also provides foundry services and on-site operations, management services and technical support to semiconductor customers. VSM manufactures and/or refurbishes semiconductor process equipment and subassemblies. The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Interest expense on long-term debt is allocated based upon the specific identification of debt incurred to finance property and equipment. Management evaluates the performance of each segment based on profit or loss from operations before income taxes, exclusive of nonrecurring gains and losses. Financial information with respect to the reportable segments follows for the quarter ended June 30, 1999:
Corporate and VSM ATSI CMP unallocated Totals ---------- --------- ------- ----------- ---------- Revenue from external customers $ 522,102 5,853,198 48,370 -- $6,423,670 Interest expense $ -- 596,822 9,323 32,202 $ 638,347 Depreciation and amortization $ 3,908 506 7,424 1,070 $ 12,908 Segment profit (loss) before income taxes $ 244,641 3,034,942 (235,703) (1,437,841) $1,606,039 Segment assets $1,503,568 5,956,690 236,868 869,953 $8,567,079 Expenditures for segment assets $ 16,548 6,570 43,176 40,686 $ 106,980
7 The following table presents information about the Company's revenue (attributed to countries based on the location of the customer) and long-lived assets by geographic area for the quarter ended June 30, 1999: Revenue Long-Lived Assets ------- ----------------- United Kingdom $2,972,486 $ -- Japan 891,712 -- United States 751,815 394,814 Netherlands 610,000 -- Italy 499,000 -- France 450,000 -- Mexico 90,832 -- Malaysia 84,312 -- Denmark 70,000 -- Other 3,513 -- ---------- -------- Total $6,423,670 $394,814 ========== ======== Note I. Income tax matters Pretax income from continuing operations for the quarter ended June 30, 1999 was taxed all domestically. The income tax provision charged to continuing operations for the quarter ended June 30, 1999 was as follows: Current: U.S. federal $353,000 State and local 89,000 Deferred tax (benefit) (5,500) -------- $436,500 ======== The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the quarter ended June 30, 1999 due to the following: Computed "expected" tax expense $562,000 Increase (decrease) in income taxes resulting from: Nondeductible expenses 11,000 State taxes, net of federal benefit 89,000 Change in valuation allowance (255,000) Other 29,500 -------- $436,500 ======== Net deferred tax assets consist of the following components as of June 30, 1999: Deferred tax assets: Other current liabilities $ 33,500 ======== The components giving rise to the net deferred tax assets described above have been included in the accompanying consolidated balance sheet as a current asset as of June 30, 1999. 8 Note J. Employment Agreements During the quarter ended June 30, 1999, the Company entered into three employment agreements. The employment agreement with the Chief Executive Officer (CEO) is for a term of five years, unless terminated earlier, and shall automatically renew for an additional three-year term unless either the Company or the employee gives written notice of nonrenewal at least one year prior to expiration of the contract. The agreement calls for compensation as follows: annual base salary with potential annual increases; an incentive bonus determined by the Board of Directors based upon the performance of the Company; and a monthly auto allowance. The CEO may terminate this agreement at any time upon delivery of thirty days' written notice. The Company may terminate this agreement at any time without cause, by giving 120 days written notice. Within seventy-two hours of termination without cause, the Company shall pay to the CEO the base salary due him through the date of termination plus the amount remaining under the term of this agreement plus an additional three years' salary. The Company will also be responsible for insurance and other benefits for the CEO and his family for a period of three years after termination without cause. If the CEO is terminated without cause, all non-vested options and shares in the company due the CEO shall vest and these shares and options shall have piggyback registration rights in any subsequent public offering for a period of ten years. In the event of termination due to death of the CEO, the agreement shall terminate immediately and the CEO's beneficiaries shall be entitled to receive the base salary and benefits due the CEO through the term of the agreement. In the event the Company is acquired, merged or taken over by another entity, the CEO's stock and options shall vest immediately and this agreement shall automatically renew for five years. The Company entered into an employment agreement with the Chief Financial Officer (CFO) for a period of three years, unless terminated earlier, which shall automatically renew for additional one-year terms unless either party gives written thirty-day notice. The agreement calls for compensation as follows: annual base salary with potential annual increases; an incentive bonus of up to 40% of the employee's annual base salary based one-half on the employee's individual performance as evaluated by the CEO and one-half on achieving budgeted pre-tax income goals for the company; 150,000 common stock options which vest over three years with an exercise price equal to fair market value; and a monthly auto allowance. The Company may terminate this agreement at any time without cause, by giving written notice to the employee. Within seventy-two hours of termination without cause, the Company shall pay the CFO the base salary due her through the date of termination plus an amount equal to base salary for ninety (90) days or the remaining term of the agreement, whichever is longer. The Company entered into an employment agreement with the Vice President and Chief Legal and Administrative Officer (CLAO) for a period of five years, unless terminated earlier, which shall automatically renew for additional three-year terms unless either party gives written one-year notice. The agreement calls for compensation as follows: annual base salary with potential annual increases; an incentive bonus of up to 40% of the employee's annual base salary based one-half on the employee's individual performance as evaluated by the CEO and one-half on 9 achieving budgeted operating income goals for the company; and a monthly auto allowance. The Company may terminate this agreement at any time without cause, by giving 120 days' written notice to the employee. Within seventy-two hours of termination without cause, the Company shall pay the CLAO the base salary due him through the date of termination plus the amount remaining under the term of this agreement plus an additional three years' salary. The Company will also be responsible for insurance and other benefits for the CLAO and his family for a period of three years after termination without cause. If the CLAO is terminated without cause, all non-vested options and shares in the company due the CLAO shall vest and these shares and options shall have piggyback registration rights in any subsequent public offering for a period of ten years. In the event of death of the CLAO, the agreement shall terminate immediately and the CLAO's beneficiaries shall be entitled to receive the base salary and benefits due the CLAO through the term of the agreement. In the event the company is acquired, merged or taken over by another entity, the CLAO's stock and options shall vest immediately and this agreement shall automatically renew for five years. Note K. Profit Sharing Plan In connection with the acquisition referred to in Note F, VSM had a profit sharing plan for the benefit of its employees. An employee must be twenty-one (21) and work at least 1,000 hours in the plan year to be eligible. The Company did not make a contribution to the plan for the quarter ended June 30, 1999. Note L. Subsequent Events In July, 1999, the Company entered into a six month credit agreement with Imperial Bank in the amount of $ 3,000,000. The loan bears interest at 15% and is secured by substantially all assets associated with the United Kingdom operation. The credit amount is guaranteed by a stockholder and required a non-refundable fee of $ 75,000 which will be amortized over the life of the loan. If the bank does not receive 50% of the proceeds from the sale of the inventory in the United Kingdom within three days of collection, then an additional 5% will be charged. The proceeds of this credit agreement were used to payoff the balance of the short term note payable to TLD Funding Group and a portion of the debt incurred in the acquisition. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SITEK began operations on July 14, 1998 when it acquired all the outstanding stock of CMP Solutions, Inc. (CMP). On July 24, 1998, all of the outstanding stock of Advanced Technology Services, Inc. (ATSI) was contributed to SITEK as a wholly owned subsidiary. ATSI was formed on July 23, 1998. As SITEK began operations on July 14, 1998, the June 30, 1998 financial statements show no activity. Net sales of approximately $6,424,000 in the current fiscal quarter resulted in a gross profit of 54.5% and were principally due to sale of $5,853,000 by ATSI of pre-owned semiconductor capital equipment. Net sales of $522,000 were earned by VSM Corporation subsequent to SITEK's acquisition of all the outstanding shares of common stock. CMP continued to develop its chemical planerization processes and generated net sales of $48,000 during the quarter. Research, development, and engineering expenses of $279,000 or 4.3% were incurred primarily to develop a new CMP wafer carrier, which is expected to improve product yields. The carrier head is anticipated to be available for initial beta site sales in the second quarter of fiscal 2000 with production versions available in the third quarter of fiscal 2000. CMP incurred engineering expenses associated with development of planarization processes related to its foundry operation. SITEK incurred $978,000 or 15.2% of net sales in selling, general and administrative expense primarily relating to general business activities, including selling and general wages, travel, consulting, legal and accounting, facility rent, and equipment rentals. Interest expense of $638,000 or 9.9% of net sales relate to borrowings mainly from TLD Funding Group (TLD). SITEK entered into a short-term note payable agreement with TLD on March 15, 1999 for funds used to acquire substantially all of the pre-owned semiconductor production equipment from a semiconductor plant in Durham County, United Kingdom. The note includes $656,000 of financing fees, which are amortized over the life of the loan. Payment is due on July 13, 1999. The balance due on the note at June 30, 1999 is $2,336,000. This note was refinanced subsequent to quarter end with a financial institution as referred to in Note L. Income taxes as a percentage of income before income taxes were 27.2% in the quarter ended June 30, 1999 while the federal tax rate was 35%. The redued tax rate was caused by utilization of net operating losses partially offset by the impact of state income taxes and non-deductible expenses. In February 1999, SITEK borrowed $207,000 from TLD under a line of credit, which will expire on February 4, 2001. Interest is due monthly on the unpaid balance at 1.5%. The line is personally guaranteed by two of SITEK's shareholders and two related companies. SITEK also has available a line of credit with TLD for amounts up to $1,000,000 to be utilized to purchase equipment for resale. The line bears interest on each advance at 1% of the advance amount for the initial 30 days and 2% per month thereafter. The Company also must pay a financing fee of 7% at the time of each advance under the line. At June 30, 1999, the Company owed $235,000 under this line of credit. The loan is secured by equipment purchased using the proceeds of the line. In April 1999, SITEK entered into a loan agreement with TLD to borrow $1,000,000 to be used to purchase all the outstanding shares of VSM Corporation ("VSM"). Payment is due on April 28, 2001. Interest is charged at 1% per month for the initial 90 days and 2% per month thereafter. The note includes financing fees of $70,000, which are amortized over the life of the loan. The loan is unsecured. A portion of this loan was refinanced subsequent to June 30, 1999 with a financial institution as referred to in Note L. SITEK sold convertible debentures totaling $147,500 during the quarter. The debentures earn interest at the rate of 9.5% and may be converted into the Company's common stock after one year from the date of purchase through 24 months at which time they mature. The debentures are subject to mandatory conversion to common stock after 24 months. The conversion price is based upon a formula, but in no case at a price lower than $3.50 or higher than $5.00. 11 Advances from a shareholder and a related company have been received by the Company of which $510,000 is outstanding on June 30, 1999. PLAN OF OPERATIONS In March 1999, ATSI purchased substantially all of the pre-owned semiconductor production equipment from a semiconductor plant in the United Kingdom. As a result, ATSI net revenues from equipment resale operations during the fiscal quarter ending June 30, 1999 significantly exceeded revenues earned in the previous fiscal period ending March 31, 1999. During the fiscal quarter, CMP continued in the development phase and made efforts in initial marketing activities. CMP had revenues of $48,000 during the current fiscal quarter due to start-up activities. The Company expects continued development and facilitization expenses for CMP during the next 12 months and anticipates CMP revenues to commence in the second half of its fiscal year ending March 31, 2000. On April 28, 1999, SITEK purchased all the outstanding shares of VSM Corporation for $1,000,000. VSM is located in Tempe, Arizona and is engaged in the manufacture and/or refurbishment of semiconductor process equipment and subassemblies. The VSM ultra-pure gas and chemical handling systems have wide applications in wafer manufacturing operations and plant facilities. VSM has recently introduced a proprietary furnace system that is utilized in the fabrication of nonvolatile semiconductor memory circuits and other devices. SITEK has hired advanced development engineers and is developing a new chemical mechanical planarization wafer carrier, which is expected to improve customer device yields. The carrier head is anticipated to be available for initial beta site sales in the second quarter of fiscal 2000 with production versions in the second half of fiscal 2000. During the next 12 months, SITEK expects to engage in funding efforts and acquisitions, increase CMP's revenues, introduce the new carrier head product, and develop VSM's business. SITEK also expects to acquire all of the capital stock of Global Semiconductor Technologies, Inc., an Arizona corporation ("GST") and Advanced Control Technologies, Inc., an Arizona corporation ("ACT"), both located in Tempe, Arizona and under common ownership. At the present time, SITEK shares office space and staff with GST and ACT. All expenditures to date between the companies have been treated as loans to or from these entities. SITEK plans to raise additional capital with a private placement of up to $3 million in convertible debentures which earn interest at 9.5% and are convertible into the Company's common stock based upon a formula, but in no case at a price per share lower than $3.50 or higher than $5.00. SITEK also expects a possible private placement of an undetermined number of shares of SITEK common and/or preferred stock. SITEK plans to apply any such additional capital to product development, equipment, and corporate acquisitions in addition to working capital requirements above those funded from operations. LIQUIDITY AND SOURCES OF CAPITAL SITEK believes it will need additional capital to meet its funding needs, including repayment of debt obligations when due, future acquisitions, product development, and the continued costs of compliance with reporting requirements of the Securities Exchange Act of 1934. CMP will need additional funding before it is able to generate material revenues. There is no assurance that SITEK will be able to attract additional capital or that the funds, if acquired, will be sufficient to complete and integrate the acquisitions of GST or ACT, or to meet SITEK's product development or operating capital requirements. Subsequent to June 30, 1999, SITEK entered into a six month credit agreement with Imperial Bank. Proceeds were used to repay TLD Funding Group for debt which matured July 13, 1999 as well as a portion of debt incurred relating to the VSM acquisition. ATSI collected deposits from customers of $1,303,000. Upon shipment of the pre-owned equipment, ATSI will recognize these deposits as revenue. Neither management nor other of SITEK's shareholders has made commitments to provide additional funds to SITEK. Accordingly, there can be no assurance that any additional funds will be available to SITEK to allow it to cover its capital needs. Management has a contingency plan to allow SITEK to sustain itself without additional funding. However, the success of this plan depends upon: (i) 12 ATSI retaining its market position and substantially increasing its sales revenues in fiscal 2000; (ii) CMP reaching production status and attracting customers with minimal funding; (iii) VSM generating sufficient revenues to fund its operations; and (iv) ACT and GST generating approximately $1.0 million in revenues during fiscal 2000, assuming SITEK acquires ACT and GST. Irrespective of whether SITEK's cash assets meet SITEK's operational capital needs during the next 12 months, SITEK might compensate providers of services by issuances of SITEK's common stock in lieu of cash. EXPECTED PURCHASES OF SIGNIFICANT EQUIPMENT Depending on market conditions, demand, and the availability of funding, SITEK expects to purchase certain silicon wafer processing and metrology equipment during fiscal year 2000. SITEK believes this equipment will materially increase the likelihood of SITEK's efforts to produce ultra-flat, ultra-uniform silicon wafers for future electronic circuit production as well as expand capacity at its CMP foundry and engineering/manufacturing services operation. During the next 12 months, SITEK expects to update business and manufacturing systems for all aspects of SITEK. To conserve cash, SITEK may elect to lease rather than purchase these systems. YEAR 2000 The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two-digit year is commonly referred to as the Year 2000 Compliance issue. As the Year 2000 approaches, such systems may be unable to accurately process certain data-based information. Most of SITEK's currently installed computer systems and software products have been updated and made Year 2000 compliant. SITEK relies exclusively on personal computer ("PC") based systems and does not use mainframe or medium sized computer systems that employ older software programs written in "COBAL." In recent months, numerous software packages have become available at nominal cost that will evaluate PC systems for Year 2000 compliance, and in many cases apply corrections to the PC system or its software. SITEK has evaluated all PC systems under its control for Year 2000 compliance, including all PC equipment of VSM. All accounting programs and the PC system hardware have been upgraded and made Year 2000 compliant. Approximately 20 percent of the Company's spreadsheet software applications continue to use the two-digit date code and are not Year 2000 compliant. Software upgrades for these programs are available at a cost of approximately $2,000. The Company intends on purchasing the upgrades and plans to have all its software Year 2000 compliant well before the end of calendar year 1999. However, there can be no assurance that such upgrades or adjustments to hardware and software will be sufficient to make SITEK's computers or equipment Year 2000 compliant in a timely manner or that allocated resources will be sufficient. A failure to become Year 2000 compliant on its computers or equipment could disrupt materially SITEK's operating results and financial condition. Because there are a large number of potential vendors and customers for pre-owned semiconductor equipment and because the Year 2000 compliance of these potential vendors and customers is unknown and is unreasonably burdensome to ascertain, SITEK is unable to determine the impact, if any, of Year 2000 compliance issues on its pre-owned semiconductor equipment sales. If SITEK is unable to address its Year 2000 compliance successfully or in a timely fashion, the Company may need to devote more resources to the process and additional costs may be incurred. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk generally represents the risk that losses may occur in the values of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices. Interest Rate Risk - The company's primary market risk exposure for changes in interest rates relates to the company's long-term debt obligations. The company currently has short-term debt with an effective interest rate of 38% which is due July 13, 1999. In the event the note is not repaid at the due date, a 5% penalty will be assessed on the outstanding balance every 30 days. Assuming a $2 million outstanding balance at July 13, 1999 the company would owe $100,000 in penalty payments. This assessment would continue on the 13th day of each month thereafter until the note is paid off. The company evaluated the potential effect that near term changes in interest rates would have had on the fair value of its interest rate risk sensitive financial instruments at year-end. Since the company's current debt has high interest rates, any near term changes in interest rates would not have a material adverse affect. Foreign Exchange Rate Risk - The company conducts business in various parts of the world and in various foreign currencies. As of June 30, 1999, the company did not have any material foreign currency transactions. The company expects to have foreign currency exchange rate risk in the future. 13 PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS. SITEK was named as a defendant in a lawsuit that was filed on April 1, 1999. The lawsuit involves two separate claims by two plaintiffs; Edmond L. Lonergan and Robert F. Russo, Jr. v. SITEK, Incorporated, et al., Superior Court for the State of Arizona, County of Maricopa, Case No. CV 99- 05785. The first plaintiff, Edmond Lonergan, alleges that he was not paid for consulting services by Global Semiconductor Technologies, Inc., a company controlled by certain shareholders of SITEK. Mr. Lonergan also claims that Global Semiconductor Technologies, Inc. and/or the other defendants misappropriated trade secrets in conducting the reverse merger of Dentmart into SITEK. The second plaintiff, Robert Russo, Jr., was a former employee of Global Semiconductor Technologies, Inc. Mr. Russo claims that he was wrongfully terminated. SITEK filed its answer denying these allegations and intends to defend itself vigorously. Mr. Lonergan and Mr. Russo have demanded the value of 1,000,000 shares of SITEK's capital stock and other damages to be proven at trial in their complaint. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. During the three month period ending June 30, 1999, in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, the Company issued debentures in the aggregate of $147,500 convertible into shares of the Company's common stock to six individual investors. Each of the investors is an accredited investor. The debentures bear an interest rate of 9.5 percent per year and are payable in the form of the Company's common stock at the market price, defined as 80 percent of the average of the five-day closing bid price as reported by Bloomberg, LP for the five consecutive trading days prior to conversion, but in no event at a price less than $3.50 per share or more than $5.00 per share. The Company agrees to furnish the Securities and Exchange Commission a copy of the debenture agreement upon request. See Note E to the Consolidated Financial Statements. ITEM 5. OTHER INFORMATION. (a) On April 28, 1999, the Company entered into a Finance Agreement with TLD Funding Group pursuant to which TLD Funding Group agreed to provide a $1,000,000 line of credit to the Company for the use of purchasing equipment. A copy of the Financing Agreement is filed herewith. (b) On April 5, 1999, the Company entered into a three-year employment agreement with its Chief Financial Officer, Gloria Zemla. A copy of the employment agreement is filed herewith. See Note J to the Consolidated Financial Statements. (c) On June 7, 1999, the Company entered into a five-year employement agreement with its Chief Executive Officer, Chairman of the Board and President, Dr. Don M. Jackson, Jr. A copy of the employment agreement is filed herewith. See Note J to the Consolidated Financial Statements. (d) On June 14, 1999, the Company entered into a five-year employment agreement with its Vice President and Chief Legal and Administrative Officer, Kevin B. Jackson. A copy of the employment agreement is filed herewith. See Note J to the Consolidated Financial Statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index following the signature page which is incorporated herein by reference. (b) Reports on Form 8-K: On May 13, 1999, the Company filed a Form 8-K to report in Item 2, an acquisition of all the outstanding shares of VSM Corporation for $1,000,000 pursuant to a Stock Purchase Agreement dated April 28, 1999. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SITEK, INCORPORATED (Registrant) Date: August 16, 1999 By:/s/ Dr. Don M. Jackson ------------------------------------- Dr. Don M. Jackson President and Chief Executive Officer Date: August 16, 1999 By:/s/Gloria Zemla ------------------------------------- Gloria Zemla Chief Financial Officer 15 SITEK, INCORPORATED EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 Exhibit No. Incorporated by Filed Herewith Description Reference to: - -------------- ----------- ------------- 2.1 Stock Purchase Agreement Form 8-K filed with the dated April 28, 1999 SEC on May 13, 1999 3.1 Articles of Incorporation of Form 8-K filed with the Registrant SEC on August 17, 1998 3.2 Bylaws of Registrant Form 10-K filed with the SEC on April 17, 1998 10.1 Financing Agreement with Filed Herewith TLD Funding Group dated April 28, 1999 10.2* Employment Agreement Filed Herewith with Gloria Zemla dated April 5, 1999 10.3* Employment Agreement Filed Herewith with Dr. Don M. Jackson, Jr. dated June 7, 1999 10.4* Employment Agreement Filed Herewith with Kevin B. Jackson dated June 14, 1999 27 Financial Data Schedule Filed Herewith * Management contract or compensatory plan. EX-10.1 2 FINANCING AGREEMENT TLD FUNDING GROUP 8900 N CENTRAL AVE, SUITE 214 PHOENIX, ARIZONA 85020 (602) 678-4079 (602) 906-9549 FAX FINANCE AGREEMENT This agreement entered into on APRIL 28, 1999 by "SITEK, Incorporated and Advanced Technology Services, Inc." as "company" and TLD Funding Group as "funder". WITNESSETH The funder agrees to provide the company financing for the purchases of equipment for resale. The funder will advance directly to the seller of equipment, the net invoice amount upon presentation of the invoice. The invoice must be signed by the supplier of the product and a pre-approved representative of the company. The company will invoice the purchaser of the equipment in a timely manner and designate the remittance of the funds to the funder. The funder upon receipt of payment from the purchaser will withhold the equipment cost, appropriate fees, and remit the remainder to the company in a timely manner. TERMS AND CONDITIONS 1. Maximum Credit Available: $1,000,000.00 2. Advance Rate: One hundred percent (100%) of equipment requirements, as submitted by company to funder. 3. Term: 24 Months 4. Fees: RISK FEE of five percent (5%) per advance will be charged at time of payment of invoice by purchaser of product. INTEREST FEE'S will be charged at the following rate: 1-90 DAYS one percent (1%) of advanced amount GREATER THAN 91 DAYS two percent (2%) of advanced Amount. MANAGEMENT FEE of two percent (2%) will be charged at signing of these documents. Company: SITEK, INCORPORATED AND ADVANCED TECHNOLOGY SERVICES, INC. Funder: TLD FUNDING GROUP /S/ DON M JACKSON, JR. - -------------------------- /S/ JOHN R. BALDING Don M Jackson, Jr. -------------------------- John R. Balding EX-10.2 3 EMPLOYMENT AGREEMENT WITH GLORIA ZEMLA SITEK AND SUBSIDIARIES EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of April 5, 1999 by and between SITEK, Inc., a Delaware corporation ("Employer"), and Gloria Zemla, an individual ( "Executive Employee"). A position may be occupied by Executive Employee in SITEK or any of its wholly owned subsidiaries ("Subsidiary"). This agreement is also binding for any Subsidiary to which Executive Employee is assigned by the CEO of SITEK. Executive Employee is to be employed by Employer pursuant to the terms of this Agreement and the parties wish to define the nature and terms and conditions of their relationship. Therefore, in consideration of the mutual promises, acknowledgments and representations herein, the parties agree as follows: 1. EMPLOYMENT AND DUTIES. Executive Employee will work exclusively and on a full-time basis for Employer and shall devote his/her best efforts to accomplishing the goals and objectives established by SITEK's Chief Executive Officer ("CEO") and reviewed by the SITEK Board of Directors (the "Board"). Unless excused by the CEO, failure to accomplish the goals, objectives and appropriate business standards established by the CEO shall be deemed a breach of this Agreement by Executive Employee. Executive Employee's title shall be CHIEF FINANCIAL OFFICER (CFO") AND VICE PRESIDENT, in which capacity Executive Employee shall have general responsibility for this position subject to the direction and control of the CEO. On certain matters, commensurate with accepted standard business practice, the CFO shall report from time to time to the Board after consultation with the CEO. Executive Employee's title and duties may be changed from time to time in the CEO's discretion and with Board approval. 2. TERM. Employment under this Agreement shall commence on the effective date and shall continue for a period of three years, unless earlier terminated as set forth in Section 5 below. Thereafter, this Agreement shall automatically renew for additional one-year terms unless either party gives the other written notice of non-renewal at least 30 days prior to the expiration of the initial term or any renewal term. 3. COMPENSATION. (a) BASE SALARY. Employer agrees to pay Executive Employee a base salary, before deducting all applicable withholdings, at the rate of $125,000 per year, which shall be payable in accordance with Employer's standard payroll policies as they may be revised from time to time. Employer shall consider increases in the annual rate of pay to be effective on Executive Employee's anniversary date of each year, commencing on the anniversary date in the year 2000. 1 (b) INCENTIVE BONUS. Executive Employee shall be entitled to participate in a bonus plan for Employer executives. By meeting specific objectives established by the CEO, Executive Employee may be able to earn, in addition to his/her base salary, an incentive bonus of up to 40% of Executive Employee's base salary per year based one-half on Executive Employee's individual performance, (as evaluated by the CEO) and one half on achieving budgeted pre-tax income goals for the company. This incentive bonus will be paid on an annual basis not later than March 31 of each following year. (c) STOCK OPTIONS. Executive Employee may also be entitled to receive options to acquire 150,000 shares of the Common Stock of Employer at the fair market value of such Common Stock at the time of grant as established by the Board. This entitlement shall be tied to and based upon the market performance of the Employer's stock or by the Board. The options will be granted from an option plan maintained by Employer and will be subject to Employer's standard terms of grant. The options will vest over a period of three years from the date of grant of the options. (d) AUTO ALLOWANCE. Executive Employee is entitled to an automobile allowance of $650 per month (after withholding), paid on the last day of the month as a payroll item. Payment of the Auto Allowance shall begin on condition of cash availability. 4. BENEFITS. In addition to the compensation described above, while Executive Employee is employed, Employer shall provide Executive Employee the benefits described in this section. All benefits shall terminate upon expiration or termination of this Agreement and unused benefits shall have no cash value and shall not be compensated to the Executive Employee upon termination or expiration of this agreement. (a) HEALTH AND MEDICAL INSURANCE. Employer shall pay for and provide Executive Employee with the same type of health, medical, dental and vision insurance as is provided from time to time to all of the Employer's Executive Employees. (b) LIFE AND DISABILITY INSURANCE. Employer will purchase a term life insurance policy for Executive Employee in an amount equal to three times Executive Employee's annual income provided Executive Employee meets all the usual and customary qualifying criteria established by Executive Employee's life insurance provider. In addition to any disability income available from the Arizona Worker's Compensation Fund, Employer shall also purchase a long-term disability insurance policy for Executive Employee that will provide a disability benefit to Executive Employee equal to one-half of Executive Employee's annual income. Executive Employee shall be subject to all exclusions, limitations and restrictions contained in the life and disability policies provided and Employer shall not be a guarantor of any benefits available under these policies. (c) PAID TIME OFF. Executive Employee shall have a reasonable amount of paid time off provided that Executive Employee's absence does not, in the CEO's sole discretion, interfere with Executive Employee's ability to accomplish the duties of Executive Employee's position or the goals and objectives established by the CEO. Should this occur, the CEO has the authority to limit Executive Employee's paid time off. 2 (d) EXPENSE REIMBURSEMENT. Employer shall, upon receipt of appropriate documentation, reimburse Executive Employee for his/her reasonable travel, lodging and other ordinary and necessary business expenses consistent with Employer's policies as in effect from time to time. Transportation reimbursement shall be limited to coach fairs and standard room rates with any travel bonus miles accruing to Executive Employee. (e) 401K PROGRAM. When such plan becomes available, Executive Employee will be eligible to participate in Employer's 401K retirement program under the same terms as those applicable to Employer's other Executive Employees. (f) SABBATICAL LEAVE. Following five years of continuous employment, Executive Employee may be eligible to take up to six months of paid time off to pursue charitable, educational, or community service opportunities or worthy activities. Sabbatical leaves are not to be considered an extended vacation. All requests for sabbatical leave must be approved six months in advance by the CEO. Sabbatical leave is expressly conditioned upon the Executive Employee's ability to demonstrate that his/her absence will not have an unreasonably negative effect upon Executive Employee's position, company or division. 5. TERMINATION. Employer may terminate this Agreement at any time in the manner provided herein. Executive Employee may terminate this Agreement at any time upon delivery of thirty days written notice. Termination of this Agreement shall terminate completely Executive Employee's employment with Employer. (a) NOTICE OF NON-RENEWAL. Notice of non-renewal shall be given in writing at least 30 days prior to expiration of the then current term, in which case, this Agreement shall not be automatically renewed and shall terminate upon expiration of the then current term. (b) FOR CAUSE. Employer may terminate this Agreement for cause upon written notice to the Executive Employee stating the facts constituting such cause. If Executive Employee is terminated for cause, Employer shall be obligated to pay the Executive Employee base salary at the current rate due him/her through the date of termination. For purposes of this section, "cause" shall include: (1) neglect of duties; (2) failure to abide by the instructions or policies established by the CEO or the Board; (3) Executive Employee's breach of this Agreement, including failure (without excuse) to accomplish the reasonable goals and objectives of the CEO; (4) the filing of bankruptcy proceedings by or against Executive Employee; (5) breach by Executive Employee of any other material obligation to Employer; (6) the appropriation (or attempted appropriation) of a material business opportunity of Employer, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of Employer; (7) the misappropriation (or attempted misappropriation) of any of Employer's funds or property; (8) the conviction of, the indictment for (or its procedural equivalent), or the entering of a guilty plea or plea of no contest with respect to, a felony, or any other crime with respect to which imprisonment is a possible punishment; or (9) refusal to take or failure to pass a drug or alcohol test as required by Employer's policies. 3 (c) WITHOUT CAUSE. Employer may terminate this Agreement at any time immediately, without cause, by giving written notice to Executive Employee. Within seventy-two hours of termination without cause, Employer shall pay to Executive Employee the base salary due him/her through the date of termination plus an amount equal to base salary for ninety (90) days or the remaining term of the Agreement, whichever is longer, less applicable withholdings. At his/her discretion, subject to Board approval, the CEO may provide additional compensation or benefits upon termination without cause. (d) DISABILITY. If during the term of this Agreement, Executive Employee fails to perform his/her duties hereunder because of illness or other incapacity for a period of 30 consecutive days or for 60 days within any 180-day period, Employer shall have the right to terminate this Agreement without further obligation hereunder except for any amounts payable pursuant to disability plans generally applicable to Employer's Executive Employees. (e) DEATH. If the Executive Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and the Executive Employee's legal representatives shall be entitled to receive the base salary due the Executive Employee through the end of the month in which death occurs, and any other death benefits generally applicable to Executive Employees. 6. NONDISCLOSURE OF PROPRIETARY INFORMATION. The Employer invents, develops, manufactures and markets processes and products that involve experimental or inventive work. The Employer's success depends upon the protection of these processes and products by patent or by secrecy. The Executive Employee may have, access to the Employer's "Proprietary Information." Access to this Proprietary Information is given to the Executive Employee only if the Executive Employee agrees to keep that information secret as follows: (a) "Proprietary Information" shall mean: (1.) any and all methods, inventions, improvements, information, data or discoveries, whether or not patentable, that are secret, proprietary, confidential or generally undisclosed, (including information originated or provided by the Executive Employee) in any area of knowledge, including information concerning trade secrets, processes, software, products, patents, inventions, formulae, apparatus, techniques, technical data, improvements, specifications, servicing, attributes and relative attributes relating to any of the Employer's equipment, devices, processes or products; and (2.) the identities of the Employer's customers and potential customers ("Customers") including Customers the Executive Employee successfully cultivates or maintains during his/her Engagement using the Employer's products, name or infrastructure; the identities of contact persons at Customers; the preferences, likes, dislikes and technical and other requirements of Customers and contact persons with respect to product types, pricing, sales calls, timing, sales terms, rental terms, lease, terms, service plans, and other marketing terms and techniques; the Employer's business methods, practices, strategies, forecasts, know-how, pricing, and marketing plans and techniques; the identity 4 of key accounts; the identity of potential key accounts; and the identities of the Employer's key customer representatives and Executive Employees. Proprietary Information shall not be deemed to include (1.) information that was known to the Executive Employee on a non-confidential basis prior to the Engagement with the Employer of this Agreement or (2.) information that is or hereafter becomes known to the general public without a breach or fault on the part of the Executive Employee. (b) The Executive Employee acknowledges that the Employer has exclusive property rights to all Proprietary Information and the Executive Employee hereby assigns all rights he/she might otherwise possess in any Proprietary Information to the Employer. Except as required in the performance of the duties of his/her employment with the Employer, the Executive Employee will not at any time during or after the term of his/her Engagement, without the prior written consent of the Employer, directly or indirectly use, communicate, disclose, disseminate, lecture upon, publish articles or otherwise put in the public domain, any Proprietary Information or any other information of a secret, proprietary, confidential or general undisclosed nature relating to the Employer, its products, Customers, processes or services, including information relating to testing, research, development, manufacturing, marketing or selling. (c) All documents, records, notebooks, notes, memoranda, data bases, and similar repositories containing Proprietary Information made or compiled by the Executive Employee at any time, including any and all copies thereof, are and shall be the property of the Employer, shall be held by him/her in trust solely for the benefit of the Employer, and shall be delivered to the Employer by him/her on the termination of his/her employment or at any other time upon the request of the Employer. (d) The Executive Employee agrees to certify in writing at or before final termination of the employment that the Executive Employee no longer has in the Executive Employee's possession, custody or control any copies of any business documents generated at or relating to the Employer nor any Proprietary Information, whether in hard copy, on a computer's hard drive, on disks or in any other form or media. (e) All information regarding the Employer's business disclosed to, learned by or developed by the Executive Employee during the course of the employment shall be presumed to be Proprietary Information. (f) The Executive Employee agrees to provide notification, at the start of any new engagement or employment, to all subsequent employers or contracting parties who are involved in any way in the semiconductor industry or are otherwise Employer's competitors, of the terms and conditions of this Agreement, along with a copy of this Agreement. 7. INVENTIONS. (a) For purposes of this, the term "Inventions" shall mean discoveries, concepts, and ideas, whether patentable or not, including improvements, know-how, data, processes, methods, formulae, and techniques, concerning any 5 past, present or prospective Employer activities that the Executive Employee makes, discovers or conceives (whether or not during the hours of his/her Engagement or with the use of the Employer's facilities, materials or personnel), either solely or jointly with others during employment by the Employer and, if based on or related to Proprietary Information, at any time after termination of such employment. All Inventions shall be solely the property of the Employer and the Executive Employee agrees to perform the requirements of this Section with respect thereto without the payment by the Employer of any royalty or any consideration other than as provided in this Agreement. (b) The Executive Employee shall maintain written notebooks in which he shall set forth on a current basis information as to all Inventions describing in detail the procedures employed and the results achieved as well as information as to any studies or research projects undertaken on the Employer's behalf, whether or not in the Executive Employee's opinion a given project has resulted in an Invention. The written notebooks shall at all times be the property of the Employer and shall be surrendered to the Employer upon termination of employment or upon request of the Employer. (c) The Executive Employee shall apply, at the Employer's request and expense, for United States and foreign letters patent either in the Executive Employee's name or otherwise as the Employer shall desire. (d) The Executive Employee hereby assigns to the Employer all rights to Inventions, and to applications for United States and/or foreign letters patent and to United States and/or foreign letters patent granted upon Inventions. (e) The Executive Employee shall acknowledge and deliver promptly to the Employer without charge to the Employer but at its expense such written instruments (including applications and assignments) and do such other acts, such as giving testimony in support of the Executive Employee's inventorship, as may be necessary in the opinion of the Employer to obtain, maintain, extend, reissue and enforce United States and/or foreign letters patent relating to the Inventions and to vest the entire right and title thereto in the Employer or its nominee. (f) The Executive Employee's obligation to assist the Employer in obtaining and enforcing patents for Inventions in any and all countries shall continue beyond employment but the Employer shall compensate Executive Employee at a reasonable rate for time actually spent at the Employer's request on such assistance. If the Employer is unable for any reason whatsoever to secure the Executive Employee's signature to any lawful and necessary document required to apply for or execute any patent application with respect to any Inventions, including renewals, extensions, continuations, division or continuations in part thereof, the Executive Employee hereby irrevocably designates and appoints the Employer and its duly authorized officers and agents, as his/her agents and attorneys-in-fact to act for and in his/her behalf and instead of the Executive Employee, to execute and file any application and to do all other lawful permitted acts to further the prosecution and issuance of patents with the same legal force and effect as if executed by the Executive Employee. 6 (g) As a matter of record the Executive Employee has identified on Exhibit A attached hereto all inventions or improvements relevant to the activity of the Employer which have been made or conceived or first reduced to practice by the Executive Employee alone or jointly with others prior to his/her Engagement by the Employer, that he desires to remove from the operation of this and the Executive Employee covenants that such list is complete. If there is no such list or if no Exhibit A is attached, the Executive Employee represents that he has made no such inventions and improvements at the time of signing this Agreement. (h) The Executive Employee will not assert any rights under any inventions, discoveries, concepts or ideas, or improvements thereof, or know-how related thereto, as having been made or acquired by him/her prior to his/her being engaged by the Employer or during the term of his/her Engagement if based on or otherwise related to Proprietary Information. 8. SHOP RIGHTS. The Employer shall also have the royalty-free right to use in its business, and to make, use and sell products, processes and/or services derived from any inventions, discoveries, concepts and ideas, whether or not patentable, including processes, methods, formulas and techniques, as well as improvements thereof or know-how related thereto, which are not within the scope of Inventions as defined in Section 7 but which are conceived or made by the Executive Employee during the period he is engaged by the Employer or with the use or assistance of the Employer's facilities, materials or personnel. 9. NON-SOLICITATION OF CUSTOMERS OR EMPLOYEES OF EMPLOYER. (a) For a period of one year after termination of this Agreement, the Executive Employee agrees not to solicit or call on any third party or entity, any customer or potential customer of the Employer whom the Executive Employee solicited or called on during the one year period immediately prior to the termination of his/her employment, or such customers or potential customers with which he/she became acquainted or of which he/she learned during his/her last year of employment unless the products or service represented do not compete with any of the products or services manufactured, assembled, distributed, offered or sold by the Employer. (b) During the term of this Agreement and for a period of one year after termination this Agreement, Executive Employee will not solicit any of the Employer's Employees for a competing business or otherwise induce or attempt to induce such Employees to terminate their employment with the Employer. 10. EXCLUSIVE ENGAGEMENT. During the period of this Agreement, Executive Employee shall not, without the CEO's express written consent, engage in any employment, consulting activity or business other than for the Employer. Activity as a passive investor in or outside director for another business 7 enterprise shall not be considered a violation of this section for so long as such business enterprise is not competing or conducting business with the Employer and so long as such activities do not adversely impact the performance of Executive Employee's duties to the Employer. 11. NON-COMPETE. The parties acknowledge that the Executive Employee has acquired or will acquire much knowledge and information concerning the Employer's business and Customers as the result of the Executive Employee's employment. The parties further acknowledge that the scope of business in which the Employer is engaged is worldwide and very competitive, that such business is one in which few companies can compete successfully, and that competition by the Executive Employee in that business would injure the Employer severely. Accordingly, Executive Employee agrees that during his/her employment and for a period of one year following the end of the employment, Executive Employee will not take any of the following actions within 1,500 miles of the Executive Employee's principal office location, or, in the event Executive Employee had an assigned territory, in the territory or territories Executive Employee worked in on behalf of Employer: (a) Directly or indirectly, sell or attempt to sell products or services for or on behalf of any business that manufactures, assembles, distributes, offers or sells any products or services that compete with any services or products then manufactured, assembled, distributed, offered or sold by the Employer; (b) Persuade or attempt to persuade any potential customer or client to which the Employer has made a proposal or sale, or with which the Employer has been having discussions, not to transact business with the Employer, or instead to transact business with Executive Employee, another person or organization; (c) Solicit the business of any company that has been a customer or client of the Employer at any time during the Executive Employee's employment, provided, however, if the Executive Employee becomes employed by or represents a business that exclusively sells products or services that do not compete with products or services then marketed or intended to be marketed by the Employer, such contact shall be permissible. 12. COMPLIANCE WITH LAW AND AMENDMENT BY COURT: If there is any conflict between any provision of this Agreement and any statue, law, regulation or judicial precedent, the latter shall prevail, but the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. If any part of this Agreement shall be held by a court of proper jurisdiction to be indefinite, invalid or otherwise unenforceable, the entire Agreement shall not fail on account thereof, but: (i) the balance of the Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intention of the parties or would result in an unconscionable injustice; and (ii) the court shall amend the Agreement to the extent necessary to make the Agreement valid and enforceable. 8 13. FREEDOM FROM ENGAGEMENT RESTRICTIONS. Executive Employee represents and warrants that Executive Employee has not entered into any agreement, whether express, implied, oral, or written, that poses an impediment to the Executive Employee's employment by the Employer including the Executive Employee's compliance with the terms of this Agreement. In particular, the Executive Employee is not subject to a preexisting non-competition agreement, and no restrictions or limitations exist respecting the Executive Employee's ability to perform fully the Executive Employee's obligations to the Employer. 14. THIRD PARTY TRADE SECRETS. During Executive Employee's employment, Executive Employee agrees not to copy, refer to, or in any way use information that is proprietary to any third party (including any previous employer). The Executive Employee represents and warrants that the Executive Employee has not improperly taken any documents, listings, hardware, software, discs, or any other tangible medium that embodies Proprietary Information from any third party, and that the Executive Employee does not intend to copy, refer to, or in any way use information that is proprietary to any third party in performing the Executive Employee's duties for the Employer. 15. INJUNCTIVE RELIEF. Executive Employee acknowledges that a breach of this Agreement is likely to result in irreparable and unreasonable harm to Employer, that damages caused by a breach would be extremely difficult to calculate, and that injunctive relief, as well as damages, would be appropriate. 16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Executive Employee, his/her heirs, executors, assigns, and administrators and shall inure to the benefit of the Employer, its successors, and assigns. 17. WAIVER. No waiver of any of the provisions of this Agreement shall be deemed to, or shall constitute a waiver of, any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 18. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and enforcement of this Agreement and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona, and each of the parties consents to the exclusive jurisdiction of such courts and waives any objection to jurisdiction or venue of such courts. 19. CONSTRUCTION. The language in all parts of this Agreement shall in all cases be construed as a whole according to its fair meaning and not strictly for nor against any party. The Section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. All terms used in one number or gender shall be construed to include any other number or gender as the context may require. The parties agree that each party has reviewed this Agreement and has had the opportunity to have counsel review the same and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement or any amendment or any exhibits thereof. 9 20. NONDELEGABILITY OF EXECUTIVE EMPLOYEE'S RIGHTS AND EMPLOYER ASSIGNMENT RIGHTS. The obligations, rights and benefits of Executive Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon reasonable notice to Executive Employee, Employer may transfer Executive Employee to an affiliate of Employer, which affiliate shall assume the obligations of Employer under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring Employer or its business. 21. SEVERABILITY. In the event any term or provision of this Agreement is declared by a court of competent jurisdiction to be invalid or unenforceable for any reason, this Agreement shall remain in full force and effect, and either (a) the invalid or unenforceable provision shall be modified to the minimum extent necessary to make it valid and enforceable or (b) if such a modification is not possible, this Agreement shall be interpreted as if such invalid or unenforceable provision were not a part hereof. 22. ATTORNEYS' FEES. Except as otherwise provided herein, in the event any party hereto institutes an action or other proceeding to enforce any rights arising out of this Agreement, the party prevailing in such action or other proceeding shall be paid all reasonable costs and attorneys' fees by the non-prevailing party, such fees to be set by the court and not by a jury and to be included in any judgment entered in such proceeding. 23. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed duly given upon receipt if either personally delivered, sent by certified mail, return receipt requested, or sent by a nationally-recognized overnight courier service, addressed to the parties as follows: If to Employer: SITEK, Inc. Attention: President/Chief Executive Officer 1817 West 4th Street Tempe, Arizona 85281 With a copy to: Quarles & Brady Attention: David T. Barton One East Camelback Road, Suite 400 Phoenix, Arizona 85012 If to Executive Employee: ________________________ or to such other address as any party may provide to the other in accordance with this Section. 10 24. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof (I.E., Executive Employee's employment by Employer) and supersedes all prior or contemporaneous understandings or agreements in regard thereto. No modification or addition to this Agreement shall be valid unless in writing, specifically referring to this Agreement and signed by all parties. IN WITNESS WHEREOF, the parties have executed this Agreement. EMPLOYER: EXECUTIVE EMPLOYEE: SITEK, Inc., an Arizona Corporation /s/ Gloria Zemla -------------------------- Gloria Zemla Date:April 5, 1999 By: /s/ Don Jackson, Jr. Date: February 17, 1999 ------------------------------ Don Jackson Jr. Its President/Chief Executive Officer 11 EX-10.3 4 EMPLOYMENT AGREEMENT WITH DON JACKSON SITEK, INCORPORATED FOUNDER, CEO EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of June 7, 1999 by and between SITEK, Inc., a Delaware corporation ("SITEK"), and Don M. Jackson, Jr. an individual and SITEK founder ("Jackson"). Jackson's position with SITEK shall be Director, Chairman of the Board and Chief Executive Officer (CEO). He shall also retain the title of President until such time as he and the Board of Directors choose to nominate and elect a President who shall report to the Chairman and CEO. Jackson and SITEK wish to provide mutual promises and assurances that will define the nature and terms and conditions of their relationship. Therefore, in consideration of the mutual promises, acknowledgments and representations herein, the parties agree as follows: 1. EMPLOYMENT AND DUTIES. Jackson will work exclusively and on a full-time basis for SITEK and shall devote his best efforts to accomplishing the goals and objectives mutually established with SITEK's Board of Directors (Board). Jackson's primary title shall be Chairman of the Board, Chief Executive Officer and President. 2. TERM. Employment under this Agreement shall commence on the effective date and shall continue for a period of five (5) years, unless earlier terminated as set forth in Section 5 below. Thereafter, this Agreement shall automatically renew for additional three (3)-year terms unless either party gives the other written notice of non-renewal at least one (1) year prior to the expiration of the initial term or any renewal term. 3. COMPENSATION. (a) BASE SALARY. SITEK agrees to pay Jackson a base salary, before deducting all applicable withholdings, at the rate of $225,000 per year, which shall be payable in accordance with SITEK's standard payroll policies as they may be revised from time to time. SITEK shall consider increases in the annual rate of pay to be effective on Jackson's June 7, of each year. (b) INCENTIVE BONUS. Jackson shall be entitled to participate in a bonus plan for SITEK Executives. By meeting specific objectives established with the CEO, Jackson may earn, in addition to his base salary, an incentive bonus at the discretion of the Board based on the performance of SITEK. (c) AUTO ALLOWANCE. Jackson is entitled to an automobile allowance of $650 per month (after withholding), paid on the last day of the month as a payroll item. Payment of Auto Allowance shall begin on condition of cash availability. 1 4. BENEFITS. In addition to the compensation described above, while Jackson is employed, SITEK shall provide Jackson the benefits described in this section. All benefits shall terminate upon expiration or termination of this Agreement and unused benefits shall have no cash value and shall not be compensated to Jackson upon termination or expiration of this agreement. (a) HEALTH AND MEDICAL INSURANCE. SITEK shall pay for and provide Jackson and his family with the same type of health, medical, dental and vision insurance as is provided from time to time to all of SITEK's Founder Executives. (b) LIFE AND DISABILITY INSURANCE. SITEK will reimburse Jackson for life insurance now in effect for Jackson in at a premium of approximately $2,000 per quarter. In addition to any disability income available from the Arizona Worker's Compensation Fund, SITEK shall also reimburse Jackson for his long-term disability insurance policy for Jackson at a rate of approximately $900 per quarter. Jackson shall be subject to all exclusions, limitations and restrictions contained in the life and disability policies provided and SITEK shall not be a guarantor of any benefits available under these policies. (c) PAID TIME OFF. Jackson shall have three weeks annual vacation. If Jackson is unable, due to the demands of his position, take vacation, the vacation shall accrue into the next year. Jackson may accrue unused vacation up to 27 weeks. Additional time off for illness or personal business may be taken up to two weeks without the approval of the Board. (d) EXPENSE REIMBURSEMENT. SITEK shall, upon receipt of appropriate documentation, reimburse Jackson for his reasonable travel, lodging and other ordinary and necessary business expenses consistent with SITEK's policies as in effect from time to time. (e) RETIREMENT. Jackson will be eligible to participate in SITEK's 401K retirement program. 5. TERMINATION. SITEK may terminate this Agreement at any time in the manner provided herein. Jackson may terminate this Agreement at any time upon delivery of thirty days' written notice. Termination of this Agreement shall terminate completely Jackson's employment with SITEK. 6. NOTICE OF NON-RENEWAL. (a) Notice of non-renewal shall be given in writing at least one-year prior to expiration of the then current term, in which case, this Agreement shall not be automatically renewed and shall terminate upon expiration of the then current term. Upon termination under this term, Jackson shall receive one year's severance pay and other benefits upon termination. (b) FOR CAUSE. SITEK may terminate this Agreement for cause upon written notice to Jackson stating the facts constituting such cause. If Jackson is terminated for cause, SITEK shall be obligated to pay Jackson's base salary at the current rate due him through the date of termination. For purposes of 2 this section, "cause" shall include: (1) neglect of duties as established by mutual consent (2) the appropriation or attempted appropriation of a material business opportunity of SITEK, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of SITEK; (3) the misappropriation or attempted misappropriation of any of SITEK's funds or property; (4) the conviction of, the indictment for (or its procedural equivalent), or the entering of a guilty plea or plea of no contest with respect to, a felony, or any other crime with respect to which imprisonment is a possible punishment. (c) WITHOUT CAUSE. SITEK may terminate this Agreement at any time without cause, by giving 120 days' written notice to Jackson. Within seventy-two hours of termination without cause, SITEK shall pay to Jackson the base salary due him through the date of termination plus the amount remaining under the term of this agreement plus an additional three years' salary. SITEK shall provide paid medical insurance for Jackson and his family and the other benefits for a period of three (3) years after termination without cause. If Jackson is terminated without cause, SITEK will also vest all non-vested options and shares in the company due Jackson and Jackson's shares and options shall have "piggyback" registration rights in any subsequent public offering for a period of ten (10) years (d) DISABILITY. If during the term of this Agreement, Jackson fails to perform his duties hereunder because of illness or other incapacity for a period of 90 consecutive days, the SITEK board of directors shall have the right to elect a replacement CEO and release Jackson to full benefits to which he is due. (e) DEATH. If Jackson dies during the term of this Agreement, this Agreement shall terminate immediately, and Jackson's beneficiaries shall be entitled to receive the base salary and benefits due Jackson through the term of the agreement, and any other death benefits generally applicable to Executives. (f) ACQUISITION, MERGER OR TAKEOVER. In the event that SITEK is acquired, merged or taken over by another entity, Jackson's stock and options shall immediately vest and this agreement shall automatically renew for five years. 7. NONDISCLOSURE OF PROPRIETARY INFORMATION. SITEK, including in part Jackson's direction and leadership, invents, develops, manufactures and markets processes and products that involve experimental or inventive work. SITEK's success depends upon the protection of these processes and products by patent or by secrecy. Jackson will substantially contribute to and have access to much of SITEK's "Proprietary Information." It is mutually agreed that SITEK and Jackson will keep such information secret: (a) "PROPRIETARY INFORMATION" SHALL MEAN: (i) any and all methods, inventions, improvements, information, data or discoveries, whether or not patentable, that are secret, proprietary, confidential or generally undisclosed, (including information originated or provided by Jackson) in any area of knowledge, including information concerning trade secrets, processes, software, products, patents, inventions, formulae, apparatus, techniques, technical data, 3 improvements, specifications, servicing, attributes and relative attributes relating to any of SITEK's equipment, devices, processes or products; and (ii) the identities of SITEK's customers and potential customers ("Customers") including Customers Jackson successfully cultivates or maintains during his Engagement using SITEK's products, name or infrastructure; the identities of contact persons at Customers; the preferences, likes, dislikes and technical and other requirements of Customers and contact persons with respect to product types, pricing, sales calls, timing, sales terms, rental terms, lease, terms, service plans, and other marketing terms and techniques; SITEK's business methods, practices, strategies, forecasts, know-how, pricing, and marketing plans and techniques; the identity of key accounts; the identity of potential key accounts; and the identities of SITEK's key customer representatives and Executives. Proprietary Information shall not be deemed to include (i) information that was known to Jackson on a non-confidential basis prior to the Engagement with SITEK of this Agreement or (ii) information that is or hereafter becomes known to the general public without a breach or fault on the part of Jackson. (b) Jackson acknowledges that SITEK has exclusive property rights to certain Proprietary Information and Jackson hereby assigns all rights he might possess in certain Proprietary Information to SITEK. Except as required in the performance of the duties of his employment with SITEK, Jackson will not at any time during or after the term of his Engagement, without the prior written consent of SITEK, directly or indirectly use, communicate, disclose, disseminate, lecture upon, publish articles or otherwise put in the public domain, any Proprietary Information or any other information of a secret, proprietary, confidential or general undisclosed nature relating to SITEK, its products, Customers, processes or services, including information relating to testing, research, development, manufacturing, marketing or selling. (c) All documents, records, notebooks, notes, memoranda, data bases, and similar repositories containing Proprietary Information made or compiled by Jackson at any time during his term of employment, including any and all copies thereof, are and shall be the property of SITEK, shall be held by him in trust solely for the benefit of SITEK, and shall be delivered to SITEK by him on the termination of his employment or at any other time upon the request of SITEK. (d) Jackson agrees to certify in writing at or before final termination of the employment that Jackson no longer has in Jackson's possession, custody or control any copies of any business documents generated at or relating to SITEK nor SITEK's Proprietary Information, whether in hard copy, on a computer's hard drive, on disks or in any other form or media. (e) All pertinent information regarding SITEK's business disclosed to, learned by or developed by Jackson during the course of the employment shall be presumed to be Proprietary Information. (f) Jackson agrees to provide notification, at the start of any new engagement or employment, to all subsequent Employers or contracting parties who are involved in any way in the semiconductor industry or are otherwise SITEK's competitors, of the terms and conditions of this Agreement, along with a copy of this Agreement. 4 8. INVENTIONS. For purposes of this section, the term "Inventions" shall mean discoveries, concepts, and ideas, whether patentable or not, including improvements, know-how, data, processes, methods, formulae, and techniques, concerning SITEK activities, business and products that Jackson makes, discovers or conceives either solely or jointly with others during employment by SITEK and, if based on or related to Proprietary Information, at any time after termination of such employment. All Inventions shall be solely the property of SITEK and Jackson agrees to perform the requirements of this Section with respect thereto without the payment by SITEK of any royalty or any consideration other than as provided in this Agreement. Jackson shall apply, at SITEK's request, support and expense, for United States and foreign letters patent in Jackson's name (or jointly if the patent has several authors). Jackson hereby assigns to SITEK all rights to Inventions, and to applications for United States and/or foreign letters patent and to United States and/or foreign letters patent granted upon Inventions generated under this agreement and during the term of Jackson's employment. Jackson shall acknowledge and deliver promptly to SITEK without charge to SITEK but at its expense such written instruments (including applications and assignments) and do such other acts, such as giving testimony in support of Jackson's inventorship, as may be necessary in the opinion of SITEK to obtain, maintain, extend, reissue and enforce United States and/or foreign letters patent relating to the Inventions and to vest the entire right and title thereto in SITEK or its nominee. Jackson's obligation to assist SITEK in obtaining and enforcing patents for Inventions in any and all countries shall continue beyond employment but SITEK shall compensate Jackson at a reasonable rate for time actually spent at SITEK's request on such assistance. If SITEK is unable for any reason whatsoever to secure Jackson's signature to any lawful and necessary document required to apply for or execute any patent application with respect to any Inventions, including renewals, extensions, continuations, division or continuations in part thereof, Jackson hereby irrevocably designates and appoints SITEK and its duly authorized officers and agents, as his agents and attorneys-in-fact to act for and in his behalf and instead of Jackson, to execute and file any application and to do all other lawful permitted acts to further the prosecution and issuance of patents with the same legal force and effect as if executed by Jackson. As a matter of record Jackson has identified on Exhibit A attached hereto all inventions or improvements relevant to the activity of SITEK which have been made or conceived or first reduced to practice by Jackson alone or jointly with others prior to his Engagement by SITEK, that he desires to remove from the operation of this and Jackson covenants that such list is complete. If there is no such list or if no Exhibit A is attached, Jackson represents that he has made no such inventions and improvements at the time of signing this Agreement. 5 9. NON-SOLICITATION OF CUSTOMERS OR EMPLOYEES OF SITEK. For a period of one year after termination of this Agreement, Jackson agrees not to solicit or call on any third party or entity, any customer or potential customer of SITEK whom Jackson solicited or called on during the one year period immediately prior to the termination of his employment, or such customers or potential customers with which he became acquainted or of which he learned during his last year of employment unless the products or service represented do not compete with any of the products or services manufactured, assembled, distributed, offered or sold by SITEK. During the term of this Agreement and for a period of one year after termination this Agreement, Jackson will not solicit any of SITEK's Employees for a competing business or otherwise induce or attempt to induce such Employees to terminate their employment with SITEK. 10. EXCLUSIVE ENGAGEMENT. During the period of this Agreement, Jackson shall not, without the Board's express written consent, engage in any employment, consulting activity or business other than for SITEK. Activity as a passive investor in or outside director for another business enterprise shall not be considered a violation of this section for so long as such business enterprise is not competing or conducting business with SITEK and so long as such activities do not adversely impact the performance of Jackson's duties to SITEK. 11. NON-COMPETE. The parties acknowledge that Jackson has acquired or will acquire much knowledge and information concerning SITEK's business and Customers as the result of Jackson's status as founder and Executive employee. The parties further acknowledge that the scope of business in which SITEK is engaged is worldwide and very competitive, that such business is one in which few companies can compete successfully, and that competition by Jackson in that business would injure SITEK severely. Accordingly, Jackson agrees that during his employment and for a period of one year following the end of the employment, Jackson will not take any of the following actions within 1,500 miles of Jackson's principal office location, or, in the event Jackson had an assigned territory, in the territory or territories Jackson worked in on behalf of SITEK: (a) Directly or indirectly, sell or attempt to sell products or services for or on behalf of any business that manufactures, assembles, distributes, offers or sells any products or services that compete with any services or products then manufactured, assembled, distributed, offered or sold by SITEK; (b) Persuade or attempt to persuade any potential customer or client to which SITEK has made a proposal or sale, or with which SITEK has been having discussions, not to transact business with SITEK, or instead to transact business with Jackson, another person or organization; (c) Solicit the business of any company that has been a customer or client of SITEK at any time during Jackson's employment, provided, however, if Jackson becomes employed by or represents a business that exclusively sells products or services that do not compete with products or services then marketed or intended to be marketed by SITEK, such contact shall be permissible. 6 12. COMPLIANCE WITH LAW AND AMENDMENT BY COURT: If there is any conflict between any provision of this Agreement and any statue, law, regulation or judicial precedent, the latter shall prevail, but the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. If any part of this Agreement shall be held by a court of proper jurisdiction to be indefinite, invalid or otherwise unenforceable, the entire Agreement shall not fail on account thereof, but: (i) the balance of the Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intention of the parties or would result in an unconscionable injustice; and (ii) the court shall amend the Agreement to the extent necessary to make the Agreement valid and enforceable. 13. FREEDOM FROM ENGAGEMENT RESTRICTIONS. Jackson represents and warrants that Jackson has not entered into any agreement, whether express, implied, oral, or written, that poses an impediment to Jackson's employment by SITEK including Jackson's compliance with the terms of this Agreement. In particular, Jackson is not subject to a preexisting non-competition agreement, and no restrictions or limitations exist respecting Jackson's ability to perform fully Jackson's obligations to SITEK. 14. THIRD PARTY TRADE SECRETS. During Jackson's employment, Jackson agrees not to copy, refer to, or in any way use information that is proprietary to any third party (including any previous Employers). Jackson represents and warrants that he has not improperly taken any documents, listings, hardware, software, discs, or any other tangible medium that embodies Proprietary Information from any third party, and that Jackson does not intend to copy, refer to, or in any way use information that is proprietary to any third party in performing Jackson's duties for SITEK. 15. INJUNCTIVE RELIEF. Jackson acknowledges that a breach of this Agreement is likely to result in irreparable and unreasonable harm to SITEK, that damages caused by a breach would be extremely difficult to calculate, and that injunctive relief, as well as damages, would be appropriate. 16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Jackson, his heirs, executors, assigns, and administrators and shall inure to the benefit of SITEK, its successors, and assigns. 17. WAIVER. No waiver of any of the provisions of this Agreement shall be deemed to, or shall constitute a waiver of, any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 18. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and enforcement of this Agreement and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona, and each of the parties consents to the exclusive jurisdiction of such courts and waives any objection to jurisdiction or venue of such courts. 7 19. CONSTRUCTION. The language in all parts of this Agreement shall in all cases be construed as a whole according to its fair meaning and not strictly for nor against any party. The Section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. All terms used in one number or gender shall be construed to include any other number or gender as the context may require. The parties agree that each party has reviewed this Agreement and has had the opportunity to have counsel review the same and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement or any amendment or any exhibits thereof. 20. NONDELEGABILITY OF JACKSON'S RIGHTS AND SITEK ASSIGNMENT RIGHTS. The obligations, rights and benefits of Jackson hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon reasonable notice to Jackson, SITEK may transfer Jackson to an affiliate of SITEK, which affiliate shall assume the obligations of SITEK under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring SITEK or its business. 21. SEVERABILITY. In the event any term or provision of this Agreement is declared by a court of competent jurisdiction to be invalid or unenforceable for any reason, this Agreement shall remain in full force and effect, and either (a) the invalid or unenforceable provision shall be modified to the minimum extent necessary to make it valid and enforceable or (b) if such a modification is not possible, this Agreement shall be interpreted as if such invalid or unenforceable provision were not a part hereof. 22. ATTORNEYS' FEES. Except as otherwise provided herein, in the event any party hereto institutes an action or other proceeding to enforce any rights arising out of this Agreement, the party prevailing in such action or other proceeding shall be paid all reasonable costs and attorneys' fees by the non-prevailing party, such fees to be set by the court and not by a jury and to be included in any judgment entered in such proceeding. 23. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed duly given upon receipt if either personally delivered, sent by certified mail, return receipt requested, or sent by a nationally-recognized overnight courier service, addressed to the parties as follows: If to SITEK: SITEK, Inc. Attention: President/Chief Executive Officer 1817 West 4th Street Tempe, Arizona 85281 With a copy to: Quarles & Brady Attention: David T. Barton One East Camelback Road, Suite 400 Phoenix, Arizona 85012 If to Jackson: Don M. Jackson, Jr. 4453 East Mockingbird Lane Paradise Valley, Arizona 85253 or to such other address as any party may provide to the other in accordance with this Section. 8 24. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof (I.E., Jackson's employment by SITEK) and supersedes all prior or contemporaneous understandings or agreements in regard thereto. No modification or addition to this Agreement shall be valid unless in writing, specifically referring to this Agreement and signed by all parties. IN WITNESS WHEREOF, the parties have executed this Agreement. EMPLOYER: Chief Executive Officer SITEK, Inc., /s/ Don M. Jackson, Jr. A Delaware Corporation --------------------------- Don M. Jackson, Jr. /s/ Maurice Mcgill --------------------------- Maurice McGill /s/ L. Richard Myersl --------------------------- L. Richard Myers /s/ Dan L. Shunk, PhD --------------------------- Dan L. Shunk, PhD 9 Exhibit A None 10 EX-10.4 5 EMPLOYMENT AGREEMENT WITH KEVIN JACKSON SITEK INCORPORATED FOUNDER-EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of June 14, 1999 by and between SITEK, Inc., a Delaware corporation ("SITEK"), and Kevin B. Jackson, an individual and SITEK founder ("Jackson"). An executive position may be occupied by Jackson in SITEK, one or more of its divisions or any of its wholly owned subsidiaries ("Subsidiary"). This agreement is also binding for any Subsidiary to which Jackson is assigned. Because of the familial relationship between Jackson and the current CEO, certain critical factors regarding Jackson's performance, performance reviews and remuneration will be ratified by the Board of Directors of SITEK ("Board"). Jackson and SITEK wish to provide mutual promises and assurances that will define the nature and terms and conditions of their relationship. Therefore, in consideration of the mutual promises, acknowledgments and representations herein, the parties agree as follows: 1. EMPLOYMENT AND DUTIES. Jackson will work exclusively and on a full-time basis for SITEK and shall devote his best efforts to accomplishing the goals and objectives mutually established with SITEK's Chief Executive Officer ("CEO"). Jackson's primary title shall be Vice President and Chief Legal and Administrative Officer. Jackson may also have titles and executive responsibilities for one or more SITEK divisions or subsidiaries. Initially, he will also serve as President of the SITEK subsidiary, VSM Corporation in Tempe, Arizona. 2. TERM. Employment under this Agreement shall commence on the effective date and shall continue for a period of five (5) years, unless earlier terminated as set forth in Section 5 below. Thereafter, this Agreement shall automatically renew for additional three (3)-year terms unless either party gives the other written notice of non-renewal at least one (1) year prior to the expiration of the initial term or any renewal term. 3. COMPENSATION. (a) BASE SALARY. SITEK agrees to pay Jackson a base salary, before deducting all applicable withholdings, at the rate of $135,000 per year, which shall be payable in accordance with SITEK's standard payroll policies as they may be revised from time to time. SITEK shall consider increases in the annual rate of pay to be effective on Jackson's anniversary date of each year. (b) INCENTIVE BONUS. Jackson shall be entitled to participate in a bonus plan for SITEK Executives. By meeting specific objectives established with the CEO, Jackson may earn, in addition to his base salary, an incentive bonus of up to 40% of Jackson's base salary per year based one-half on Jackson's 1 individual performance (as mutually agreed upon with the CEO) and one half on the Executive staff's achieving its planned and budgeted operating income goals for the company. This incentive bonus will be paid on an annual basis not later than the end of the third fiscal month of each following fiscal year. (c) AUTO ALLOWANCE. Jackson is entitled to an automobile allowance of $650 per month (after withholding), paid on the last day of the month as a payroll item. Payment of Auto Allowance shall begin on condition of cash availability. 4. BENEFITS. In addition to the compensation described above, while Jackson is employed, SITEK shall provide Jackson the benefits described in this section. All benefits shall terminate upon expiration or termination of this Agreement and unused benefits shall have no cash value and shall not be compensated to Jackson upon termination or expiration of this agreement. (a) HEALTH AND MEDICAL INSURANCE. SITEK shall pay for and provide Jackson and his family with the same type of health, medical, dental and vision insurance as is provided from time to time to all of SITEK's Founder Executives. (b) LIFE AND DISABILITY INSURANCE. SITEK will purchase a term life insurance policy (with aviation riders) for Jackson in an amount equal to three (3) times Jackson's annual income provided Jackson meets all the usual and customary qualifying criteria established by Jackson's life insurance provider. In addition to any disability income available from the Arizona Worker's Compensation Fund, SITEK shall also purchase a long-term disability insurance policy for Jackson that will provide a disability benefit to Jackson equal to one-half of Jackson's annual income. Jackson shall be subject to all exclusions, limitations and restrictions contained in the life and disability policies provided and SITEK shall not be a guarantor of any benefits available under these policies. (c) PAID TIME OFF. Jackson shall have three weeks annual vacation. If Jackson is unable, due to the demands of his position, take vacation, the vacation shall accrue into the next year. Jackson may accrue unused vacation up to 27 weeks. Additional time off for illness or personal business may be taken up to two weeks without the approval of the CEO. Personal business and illness time off shall not accrue from year to year. (d) EXPENSE REIMBURSEMENT. SITEK shall, upon receipt of appropriate documentation, reimburse Jackson for his reasonable travel, lodging and other ordinary and necessary business expenses consistent with SITEK's policies as in effect from time to time. (e) 401k PROGRAM. Jackson will be eligible to participate in SITEK's 401K retirement program under the same terms as those applicable to all SITEK Executives. 5. TERMINATION. SITEK may terminate this Agreement at any time in the manner provided herein. Jackson may terminate this Agreement at any time upon delivery of thirty days' written notice. Termination of this Agreement shall terminate completely Jackson's employment with SITEK. 2 (a) NOTICE OF NON-RENEWAL. Notice of non-renewal shall be given in writing at least one-year prior to expiration of the then current term, in which case, this Agreement shall not be automatically renewed and shall terminate upon expiration of the then current term. Upon termination under this term, Jackson shall receive one year's severance pay and other benefits upon termination. (b) FOR CAUSE. SITEK may terminate this Agreement for cause upon written notice to Jackson stating the facts constituting such cause. If Jackson is terminated for cause, SITEK shall be obligated to pay Jackson's base salary at the current rate due him through the date of termination. For purposes of this section, "cause" shall include: (1) neglect of duties as established by mutual consent (2) the appropriation or attempted appropriation of a material business opportunity of SITEK, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of SITEK; (3) the misappropriation or attempted misappropriation of any of SITEK's funds or property; (4) the conviction of, the indictment for (or its procedural equivalent), or the entering of a guilty plea or plea of no contest with respect to, a felony, or any other crime with respect to which imprisonment is a possible punishment. (c) WITHOUT CAUSE. SITEK may terminate this Agreement at any time without cause, by giving 120 days' written notice to Jackson. Within seventy-two hours of termination without cause, SITEK shall pay to Jackson the base salary due him through the date of termination plus the amount remaining under the term of this agreement plus an additional three years' salary. SITEK shall provide paid medical insurance for Jackson and his family and other benefits for a period of three (3) years after termination without cause. If Jackson is terminated without cause, SITEK will also vest all non-vested options and shares in the company due Jackson and Jackson's shares and options shall have "piggyback" registration rights in any subsequent public offering for a period of ten (10) years (d) DISABILITY. If during the term of this Agreement, Jackson fails to perform his duties hereunder because of illness or other incapacity for a period of 300 consecutive days, SITEK shall have the right to terminate this Agreement without further obligation hereunder except for any amounts payable pursuant to disability plans generally applicable to SITEK's Executives. (e) DEATH. If Jackson dies during the term of this Agreement, this Agreement shall terminate immediately, and Jackson's beneficiaries shall be entitled to receive the base salary and benefits due Jackson through the term of the agreement, and any other death benefits generally applicable to Executives. 3 (f) ACQUISITION, MERGER OR TAKEOVER. In the event that SITEK is acquired, merged or taken over by another company, Jackson's stock and options shall immediately vest and this agreement shall automatically renew for five years. 6. NONDISCLOSURE OF PROPRIETARY INFORMATION. SITEK, including in part Jackson's direction and leadership, invents, develops, manufactures and markets processes and products that involve experimental or inventive work. SITEK's success depends upon the protection of these processes and products by patent or by secrecy. Jackson will substantially contribute to and have access to much of SITEK's "Proprietary Information." It is mutually agreed that SITEK and Jackson will keep such information secret: (a) "PROPRIETARY INFORMATION" SHALL MEAN: (i) any and all methods, inventions, improvements, information, data or discoveries, whether or not patentable, that are secret, proprietary, confidential or generally undisclosed, (including information originated or provided by Jackson) in any area of knowledge, including information concerning trade secrets, processes, software, products, patents, inventions, formulae, apparatus, techniques, technical data, improvements, specifications, servicing, attributes and relative attributes relating to any of SITEK's equipment, devices, processes or products; and (ii) the identities of SITEK's customers and potential customers ("Customers") including Customers Jackson successfully cultivates or maintains during his Engagement using SITEK's products, name or infrastructure; the identities of contact persons at Customers; the preferences, likes, dislikes and technical and other requirements of Customers and contact persons with respect to product types, pricing, sales calls, timing, sales terms, rental terms, lease, terms, service plans, and other marketing terms and techniques; SITEK's business methods, practices, strategies, forecasts, know-how, pricing, and marketing plans and techniques; the identity of key accounts; the identity of potential key accounts; and the identities of SITEK's key customer representatives and Executives. Proprietary Information shall not be deemed to include (i) information that was known to Jackson on a non-confidential basis prior to the Engagement with SITEK of this Agreement or (ii) information that is or hereafter becomes known to the general public without a breach or fault on the part of Jackson. (b) Jackson acknowledges that SITEK has exclusive property rights to certain Proprietary Information and Jackson hereby assigns all rights he might possess in certain Proprietary Information to SITEK. Except as required in the performance of the duties of his employment with SITEK, Jackson will not at any time during or after the term of his Engagement, without the prior written consent of SITEK, directly or indirectly use, communicate, disclose, disseminate, lecture upon, publish articles or otherwise put in the public domain, any Proprietary Information or any other information of a secret, proprietary, confidential or general undisclosed nature relating to SITEK, its products, Customers, processes or services, including information relating to testing, research, development, manufacturing, marketing or selling. 4 (c) All documents, records, notebooks, notes, memoranda, data bases, and similar repositories containing Proprietary Information made or compiled by Jackson at any time during his term of employment, including any and all copies thereof, are and shall be the property of SITEK, shall be held by him in trust solely for the benefit of SITEK, and shall be delivered to SITEK by him on the termination of his employment or at any other time upon the request of SITEK. (d) Jackson agrees to certify in writing at or before final termination of the employment that Jackson no longer has in Jackson's possession, custody or control any copies of any business documents generated at or relating to SITEK nor SITEK's Proprietary Information, whether in hard copy, on a computer's hard drive, on disks or in any other form or media. (e) All pertinent information regarding SITEK's business disclosed to, learned by or developed by Jackson during the course of the employment shall be presumed to be Proprietary Information. (f) Jackson agrees to provide notification, at the start of any new engagement or employment, to all subsequent Employers or contracting parties who are involved in any way in the semiconductor industry or are otherwise SITEK's competitors, of the terms and conditions of this Agreement, along with a copy of this Agreement. 7. INVENTIONS. (a) For purposes of this section, the term "Inventions" shall mean discoveries, concepts, and ideas, whether patentable or not, including improvements, know-how, data, processes, methods, formulae, and techniques, concerning SITEK activities, business and products that Jackson makes, discovers or conceives either solely or jointly with others during employment by SITEK and, if based on or related to Proprietary Information, at any time after termination of such employment. All Inventions shall be solely the property of SITEK and Jackson agrees to perform the requirements of this Section with respect thereto without the payment by SITEK of any royalty or any consideration other than as provided in this Agreement. (b) Jackson shall apply, at SITEK's request, support and expense, for United States and foreign letters patent in Jackson's name (or jointly if the patent has several authors). (c) Jackson hereby assigns to SITEK all rights to Inventions, and to applications for United States and/or foreign letters patent and to United States and/or foreign letters patent granted upon Inventions generated under this agreement and during the term of Jackson's employment. (d) Jackson shall acknowledge and deliver promptly to SITEK without charge to SITEK but at its expense such written instruments (including applications and assignments) and do such other acts, such as giving testimony 5 in support of Jackson's inventorship, as may be necessary in the opinion of SITEK to obtain, maintain, extend, reissue and enforce United States and/or foreign letters patent relating to the Inventions and to vest the entire right and title thereto in SITEK or its nominee. (e) Jackson's obligation to assist SITEK in obtaining and enforcing patents for Inventions in any and all countries shall continue beyond employment but SITEK shall compensate Jackson at a reasonable rate for time actually spent at SITEK's request on such assistance. If SITEK is unable for any reason whatsoever to secure Jackson's signature to any lawful and necessary document required to apply for or execute any patent application with respect to any Inventions, including renewals, extensions, continuations, division or continuations in part thereof, Jackson hereby irrevocably designates and appoints SITEK and its duly authorized officers and agents, as his agents and attorneys-in-fact to act for and in his behalf and instead of Jackson, to execute and file any application and to do all other lawful permitted acts to further the prosecution and issuance of patents with the same legal force and effect as if executed by Jackson. (f) As a matter of record Jackson has identified on Exhibit A attached hereto all inventions or improvements relevant to the activity of SITEK which have been made or conceived or first reduced to practice by Jackson alone or jointly with others prior to his Engagement by SITEK, that he desires to remove from the operation of this and Jackson covenants that such list is complete. If there is no such list or if no Exhibit A is attached, Jackson represents that he has made no such inventions and improvements at the time of signing this Agreement. 8. NON-SOLICITATION OF CUSTOMERS OR EMPLOYEES OF SITEK. (a) For a period of one year after termination of this Agreement, Jackson agrees not to solicit or call on any third party or entity, any customer or potential customer of SITEK whom Jackson solicited or called on during the one year period immediately prior to the termination of his employment, or such customers or potential customers with which he became acquainted or of which he learned during his last year of employment unless the products or service represented do not compete with any of the products or services manufactured, assembled, distributed, offered or sold by SITEK. (b) During the term of this Agreement and for a period of one year after termination this Agreement, Jackson will not solicit any of SITEK's Employees for a competing business or otherwise induce or attempt to induce such Employees to terminate their employment with SITEK. 9. EXCLUSIVE ENGAGEMENT. During the period of this Agreement, Jackson shall not, without the Board's express written consent, engage in any employment, consulting activity or business other than for SITEK. Activity as a passive investor in or outside director for another business enterprise shall not be considered a violation of this section for so long as such business enterprise is not competing or conducting business with SITEK and so long as such activities do not adversely impact the performance of Jackson's duties to SITEK. 6 10. NON-COMPETE. The parties acknowledge that Jackson has acquired or will acquire much knowledge and information concerning SITEK's business and Customers as the result of Jackson's status as founder and Executive employee. The parties further acknowledge that the scope of business in which SITEK is engaged is worldwide and very competitive, that such business is one in which few companies can compete successfully, and that competition by Jackson in that business would injure SITEK severely. Accordingly, Jackson agrees that during his employment and for a period of one year following the end of the employment, Jackson will not take any of the following actions within 1,500 miles of Jackson's principal office location, or, in the event Jackson had an assigned territory, in the territory or territories Jackson worked in on behalf of SITEK: (a) Directly or indirectly, sell or attempt to sell products or services for or on behalf of any business that manufactures, assembles, distributes, offers or sells any products or services that compete with any services or products then manufactured, assembled, distributed, offered or sold by SITEK; (b) Persuade or attempt to persuade any potential customer or client to which SITEK has made a proposal or sale, or with which SITEK has been having discussions, not to transact business with SITEK, or instead to transact business with Jackson, another person or organization; (c) Solicit the business of any company that has been a customer or client of SITEK at any time during Jackson's employment, provided, however, if Jackson becomes employed by or represents a business that exclusively sells products or services that do not compete with products or services then marketed or intended to be marketed by SITEK, such contact shall be permissible. 11. COMPLIANCE WITH LAW AND AMENDMENT BY COURT: If there is any conflict between any provision of this Agreement and any statue, law, regulation or judicial precedent, the latter shall prevail, but the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. If any part of this Agreement shall be held by a court of proper jurisdiction to be indefinite, invalid or otherwise unenforceable, the entire Agreement shall not fail on account thereof, but: (i) the balance of the Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intention of the parties or would result in an unconscionable injustice; and (ii) the court shall amend the Agreement to the extent necessary to make the Agreement valid and enforceable. 12. FREEDOM FROM ENGAGEMENT RESTRICTIONS. Jackson represents and warrants that Jackson has not entered into any agreement, whether express, implied, oral, or written, that poses an impediment to Jackson's employment by SITEK including Jackson's compliance with the terms of this Agreement. In particular, Jackson is not subject to a preexisting non-competition agreement, and no restrictions or limitations exist respecting Jackson's ability to perform fully Jackson's obligations to SITEK. 7 13. THIRD PARTY TRADE SECRETS. During Jackson's employment, Jackson agrees not to copy, refer to, or in any way use information that is proprietary to any third party (including any previous Employers). Jackson represents and warrants that he has not improperly taken any documents, listings, hardware, software, discs, or any other tangible medium that embodies Proprietary Information from any third party, and that Jackson does not intend to copy, refer to, or in any way use information that is proprietary to any third party in performing Jackson's duties for SITEK. 14. INJUNCTIVE RELIEF. Jackson acknowledges that a breach of this Agreement is likely to result in irreparable and unreasonable harm to SITEK, that damages caused by a breach would be extremely difficult to calculate, and that injunctive relief, as well as damages, would be appropriate. 15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Jackson, his heirs, executors, assigns, and administrators and shall inure to the benefit of SITEK, its successors, and assigns. 16. WAIVER. No waiver of any of the provisions of this Agreement shall be deemed to, or shall constitute a waiver of, any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 17. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and enforcement of this Agreement and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona, and each of the parties consents to the exclusive jurisdiction of such courts and waives any objection to jurisdiction or venue of such courts. 18. CONSTRUCTION. The language in all parts of this Agreement shall in all cases be construed as a whole according to its fair meaning and not strictly for nor against any party. The Section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. All terms used in one number or gender shall be construed to include any other number or gender as the context may require. The parties agree that each party has reviewed this Agreement and has had the opportunity to have counsel review the same and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement or any amendment or any exhibits thereof. 8 19. NONDELEGABILITY OF JACKSON'S RIGHTS AND SITEK ASSIGNMENT RIGHTS. The obligations, rights and benefits of Jackson hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon reasonable notice to Jackson, SITEK may transfer Jackson to an affiliate of SITEK, which affiliate shall assume the obligations of SITEK under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring SITEK or its business. 20. SEVERABILITY. In the event any term or provision of this Agreement is declared by a court of competent jurisdiction to be invalid or unenforceable for any reason, this Agreement shall remain in full force and effect, and either (a) the invalid or unenforceable provision shall be modified to the minimum extent necessary to make it valid and enforceable or (b) if such a modification is not possible, this Agreement shall be interpreted as if such invalid or unenforceable provision were not a part hereof. 21. ATTORNEYS' FEES. Except as otherwise provided herein, in the event any party hereto institutes an action or other proceeding to enforce any rights arising out of this Agreement, the party prevailing in such action or other proceeding shall be paid all reasonable costs and attorneys' fees by the non-prevailing party, such fees to be set by the court and not by a jury and to be included in any judgment entered in such proceeding. 22. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed duly given upon receipt if either personally delivered, sent by certified mail, return receipt requested, or sent by a nationally-recognized overnight courier service, addressed to the parties as follows: If to SITEK: SITEK, Inc. Attention: President/Chief Executive Officer 1817 West 4th Street Tempe, Arizona 85281 With a copy to: Quarles & Brady Attention: David T. Barton One East Camelback Road, Suite 400 Phoenix, Arizona 85012 If to Jackson: Kevin B. Jackson 8220 North Charles Street Paradise Valley, Arizona 85253 or to such other address as any party may provide to the other in accordance with this Section. 9 23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof (I.E., Jackson's employment by SITEK) and supersedes all prior or contemporaneous understandings or agreements in regard thereto. No modification or addition to this Agreement shall be valid unless in writing, specifically referring to this Agreement and signed by all parties. IN WITNESS WHEREOF, the parties have executed this Agreement. EMPLOYER: EXECUTIVE: SITEK, Inc., Kevin B. Jackson A Delaware Corporation /s/ Don Jackson, Jr. /s/ Kevin B. Jackson - ------------------------------------- ------------------------------- Don Jackson Jr. Kevin B. Jackson Its President/Chief Executive Officer Date: 14 June 99 10 Exhibit A Jackson Personal Intellectual Property List 11 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 1 1,319,785 0 1,674,492 0 4,289,109 7,542,320 424,452 29,638 8,567,079 7,824,079 0 0 0 61,539 259,184 8,567,079 6,423,670 6,423,670 2,907,300 2,907,300 1,271,984 0 638,347 1,606,039 436,500 1,169,539 0 0 0 1,169,539 .10 .10
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