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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[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
COMMISSION FILE NUMBER 1-4298
COHU, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-1934119
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5755 KEARNY VILLA ROAD, SAN DIEGO, CALIFORNIA 92123
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
858-277-6700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of June 30, 1999, the Registrant had 9,901,762 shares of its $1.00 par value
common stock outstanding.
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COHU, INC.
INDEX
FORM 10-Q
JUNE 30, 1999
PART I FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1999 (Unaudited) and December 31, 1998...............................................3
Condensed Consolidated Statements of Income (Unaudited)
Three and Six Months Ended June 30, 1999 and 1998.............................................4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998.......................................................5
Notes to Unaudited Condensed Consolidated Financial Statements................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................................15
Item 5. Other Information..............................................................................15
Item 6. Exhibits and Reports on Form 8-K...............................................................15
Signatures ...............................................................................................16
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COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 55,350 $ 74,446
Short-term investments 26,872 12,257
Accounts receivable, less allowance for doubtful
accounts of $1,275 in 1999 and $1,338 in 1998 32,049 18,800
Inventories:
Raw materials and purchased parts 14,839 12,977
Work in process 16,410 5,927
Finished goods 7,718 6,973
-------- --------
38,967 25,877
Deferred income taxes 10,477 10,477
Prepaid expenses 1,777 1,541
-------- --------
Total current assets 165,492 143,398
Property, plant and equipment, at cost:
Land and land improvements 2,501 2,501
Buildings and building improvements 12,162 12,102
Machinery and equipment 18,402 17,801
-------- --------
33,065 32,404
Less accumulated depreciation and amortization 15,928 14,791
-------- --------
Net property, plant and equipment 17,137 17,613
Goodwill, net of accumulated amortization
of $2,116 in 1999 and $1,972 in 1998 1,011 1,155
Other assets 65 65
-------- --------
$183,705 $162,231
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,929 $ 3,016
Income taxes payable 5,106 3,070
Other accrued liabilities 21,100 17,169
-------- --------
Total current liabilities 39,135 23,255
Accrued retiree medical benefits 992 993
Deferred income taxes 520 520
Stockholders' equity:
Preferred stock - -
Common stock 9,902 9,779
Paid in excess of par 12,153 11,169
Retained earnings 121,003 116,515
-------- --------
Total stockholders' equity 143,058 137,463
-------- --------
$183,705 $162,231
======== ========
See accompanying notes
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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $ 43,471 $ 55,202 $ 72,997 $111,893
Cost and expenses:
Cost of sales 25,750 35,625 44,914 68,992
Research and development 5,050 5,905 9,347 11,306
Selling, general and administrative 6,154 6,239 11,241 12,415
-------- -------- -------- --------
36,954 47,769 65,502 92,713
-------- -------- -------- --------
Income from operations 6,517 7,433 7,495 19,180
Interest income 1,053 780 2,166 1,549
-------- -------- -------- --------
Income before income taxes 7,570 8,213 9,661 20,729
Provision for income taxes 2,700 2,900 3,400 7,200
-------- -------- -------- --------
Net income $ 4,870 $ 5,313 $ 6,261 $ 13,529
======== ======== ======== ========
Earnings per share:
Basic $ .49 $ .55 $ .64 $ 1.39
======== ======== ======== ========
Diluted $ .48 $ .53 $ .62 $ 1.35
======== ======== ======== ========
Weighted average shares used in
computing earnings per share:
Basic 9,863 9,726 9,835 9,706
======== ======== ======== ========
Diluted 10,173 10,012 10,116 10,040
======== ======== ======== ========
See accompanying notes.
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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
SIX MONTHS ENDED
JUNE 30,
1999 1998
-------- --------
Cash flows from operating activities:
Net income $ 6,261 $ 13,529
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 1,365 1,207
Purchase consideration to be paid with stock - 361
Increase (decrease) in accrued retiree medical benefits (1) 44
Changes in assets and liabilities:
Accounts receivable (13,249) (6,637)
Inventories (13,090) 1,151
Prepaid expenses (236) 64
Accounts payable 9,913 (5,643)
Income taxes payable 2,036 1,423
Other accrued liabilities 3,931 (526)
-------- --------
Net cash provided by (used for) operating activities (3,070) 4,973
Cash flows from investing activities:
Purchases of short-term investments (20,915) (8,084)
Maturities of short-term investments 6,300 13,214
Purchases of property, plant, equipment and other assets (745) (1,295)
-------- --------
Net cash provided by (used for) investing activities (15,360) 3,835
Cash flows from financing activities:
Issuance of stock, net 1,107 1,873
Cash dividends (1,773) (1,555)
-------- --------
Net cash provided by (used for) financing activities (666) 318
-------- --------
Net increase (decrease) in cash and cash equivalents (19,096) 9,126
Cash and cash equivalents at beginning of period 74,446 39,736
-------- --------
Cash and cash equivalents at end of period $ 55,350 $ 48,862
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 1,364 $ 5,777
See accompanying notes.
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COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited but include all
adjustments (consisting of normal recurring adjustments) which Cohu, Inc.
(the "Company") considers necessary for a fair statement of the results for
the period. The operating results for the three and six months ended June
30, 1999 are not necessarily indicative of the operating results for the
entire year or any future period. These financial statements should be read
in conjunction with the consolidated financial statements incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and management's discussion and analysis of financial
condition and results of operations included elsewhere herein. Certain
amounts in the December 31, 1998 consolidated balance sheet have been
reclassified to conform to the June 30, 1999 presentation.
2. EARNINGS PER SHARE
Earnings per share are computed in accordance with Financial Accounting
Standards Board ("FASB") Statement No. 128, Earnings per Share. Basic
earnings per share are computed using the weighted average number of common
shares outstanding during each period. Diluted earnings per share include
the dilutive effect of common shares potentially issuable upon the exercise
of stock options. For purposes of computing diluted earnings per share,
weighted average common share equivalents do not include stock options with
an exercise price that exceeds the average fair market value of the
Company's common stock for the period. For the three and six months ended
June 30, 1999, options to purchase approximately 53,000 and 82,000 shares
of common stock at average prices of $40.66 and $36.10, respectively, were
excluded from the computation, and for the three and six months ended June
30, 1998, options to purchase approximately 216,000 and 120,000 shares of
common stock at average prices of $37.23 and $37.86, respectively, were
excluded from the computation. The following table reconciles the
denominators used in computing basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------ ------ ------ ------
(in thousands) (in thousands)
Weighted average common shares outstanding 9,863 9,726 9,835 9,706
Effect of dilutive stock options 310 286 281 334
------ ------ ------ ------
10,173 10,012 10,116 10,040
====== ====== ====== ======
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COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
3. SEGMENT AND RELATED INFORMATION
The following information is presented pursuant to FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information.
Intersegment sales were not significant in any period.
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- --------
(in thousands) (in thousands)
Net sales:
Semiconductor equipment $35,382 $45,905 $57,756 $ 93,518
Television cameras 4,944 5,316 9,173 10,712
------- ------- ------- --------
Net sales for reportable segments 40,326 51,221 66,929 104,230
All other operating segments 3,145 3,981 6,068 7,663
------- ------- ------- --------
Total consolidated net sales $43,471 $55,202 $72,997 $111,893
======= ======= ======= ========
Operating profit (loss):
Semiconductor equipment $ 7,229 $ 7,412 $ 8,687 $ 18,617
Television cameras 337 599 511 1,208
------- ------- ------- --------
Operating profit for reportable segments 7,566 8,011 9,198 19,825
All other operating segments (538) (62) (800) 170
------- ------- ------- --------
Total consolidated operating profit 7,028 7,949 8,398 19,995
Other unallocated amounts:
Corporate expenses (439) (477) (759) (736)
Interest income 1,053 780 2,166 1,549
Goodwill amortization (72) (39) (144) (79)
------- ------- ------- --------
Income before income taxes $ 7,570 $ 8,213 $ 9,661 $ 20,729
======= ======= ======= ========
June 30, 1999 December 31, 1998
------------- -----------------
(in thousands)
Total assets by segment:
Semiconductor equipment $ 74,739 $ 50,754
Television cameras 9,493 8,728
-------- --------
Total assets for reportable segments 84,232 59,482
All other operating segments 6,076 7,537
Corporate 93,397 95,212
-------- --------
Total consolidated assets $183,705 $162,231
======== ========
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1999
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the Safe Harbor provisions created by that statute. The words "anticipate",
"expect", "believe", and similar expressions are intended to identify such
statements. Such statements are subject to various risks and uncertainties,
including but not limited to those discussed herein and, in particular, under
the caption "Business and Market Risks" that could cause actual results to
differ materially from those projected.
RESULTS OF OPERATIONS
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998
Net sales decreased 21% to $43.5 million in 1999 compared to net sales of $55.2
million in 1998. The second quarter of 1998 included a significant amount of
revenue from sales of the Company's Enterprise test-in-tray handler. There were
no Enterprise handler sales in the 1999 period. Sales of semiconductor test
handling equipment in 1999 decreased 23% from the 1998 period and accounted for
81% of consolidated net sales in 1999 versus 83% in 1998. Sales of television
cameras and other equipment decreased 7% while the combined sales of metal
detection and microwave equipment decreased 21%. Export sales accounted for 67%
of net sales in the second quarter of 1999 compared to 44% for the year ended
December 31, 1998.
Gross margin as a percentage of net sales increased to 40.8% in 1999 from 35.5%
in 1998 as a result of higher margins in the semiconductor equipment business.
Within the semiconductor equipment segment, margins increased in 1999 primarily
as a result of changes in product mix. During the second quarter of 1998 the
Company shipped a significant number of its Enterprise semiconductor test
handlers. The gross margins realized on these sales were lower than the
Company's established semiconductor handler products due to manufacturing
inefficiencies incurred in the early stages of producing new equipment and
higher estimated warranty costs. Research and development expense as a
percentage of net sales was 11.6% in 1999, compared to 10.7% in 1998, decreasing
in absolute dollars from $5.9 million to $5.1 million. Selling, general and
administrative expense as a percentage of net sales increased to 14.2% in 1999
from 11.3% in 1998 primarily as a result of the decrease in business volume.
Interest income increased to $1.1 million in 1999 from $.8 million in 1998 as a
result of the increase in average cash and investments. The provision for income
taxes expressed as a percentage of pre-tax income was 35.7% in the second
quarter of 1999 and 35.3% for the second quarter of 1998. As a result of the
factors set forth above, net income decreased from $5.3 million in 1998 to $4.9
million in 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net sales decreased 35% to $73.0 million in 1999 compared to net sales of $111.9
million in 1998. Net sales during the first half of 1999 were negatively
impacted by the semiconductor industry downturn that began in mid 1998. In
addition, the second quarter of 1998 included a significant amount of revenue
from sales of the Company's Enterprise handler with none in the 1999 period.
Sales of semiconductor test handling equipment in 1999 decreased 38% from the
1998 period and accounted for 79% of consolidated net sales in 1999 versus 84%
in 1998. Sales of television cameras and other equipment decreased 14% while the
combined sales of metal detection and microwave equipment decreased 21%. Export
sales accounted for 62% of net sales in the first six months of 1999 compared to
44% for the year ended December 31, 1998.
Gross margin as a percentage of net sales was 38.5% in 1999 versus 38.3% in
1998. The gross margin in 1999 was negatively impacted by lower business volume
while the 1998 gross margin was adversely impacted by lower margins on sales of
the Company's Enterprise test handlers. Research and
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1999
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
(CONT.)
development expense as a percentage of net sales was 12.8% in 1999, compared to
10.1% in 1998, decreasing in absolute dollars from $11.3 million to $9.3
million. Selling, general and administrative expense as a percentage of net
sales increased to 15.4% in 1999 from 11.1% in 1998 primarily as a result of the
decrease in business volume. Interest income increased to $2.2 million in 1999
from $1.5 million 1998 as a result of the increase in average cash and
investments. The provision for income taxes expressed as a percentage of pre-tax
income was 35.2% in the first six months of 1999 compared to 34.7% for the first
six months of 1998. As a result of the factors set forth above, net income
decreased from $13.5 million in 1998 to $6.3 million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows used for operating activities in the first six
months of 1999 totaled $3.1 million. The major components of cash flows used for
operating activities were net income of $6.3 million and an increase in accounts
payable of $9.9 million offset by increases in inventories and accounts
receivable of $13.1 million and of $13.2 million, respectively. Net cash used
for investing activities included $14.6 million for the purchase of short-term
investments, less maturities, and purchases of property, plant and equipment and
other assets of $.7 million. Net cash used for financing activities was $.7
million. Cash used for financing activities included $1.8 million for the
payment of dividends, offset by $1.1 million received from the issuance of stock
upon the exercise of stock options. The Company had $10 million available under
its bank line of credit and working capital of $126.4 million at June 30, 1999.
It is anticipated that present working capital and available borrowings under
the line of credit will be sufficient to meet the Company's operating
requirements for the next twelve months.
BUSINESS AND MARKET RISKS
INDUSTRY CYCLES
The Company's operating results are substantially dependent on its semiconductor
equipment business. This capital equipment business is in turn highly dependent
on the overall strength of the semiconductor industry. Historically, the
semiconductor industry has been highly cyclical with recurring periods of
oversupply and excess capacity, which often have had a significant effect on the
semiconductor industry's demand for capital equipment, including equipment of
the type manufactured and marketed by the Company. The Company believes that the
markets for newer generations of semiconductors may also be subject to similar
cycles and severe downturns, such as those experienced in 1996 and 1998.
Reductions in capital equipment investment by semiconductor manufacturers will
adversely affect the Company's financial position and results of operations.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
Semiconductor equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend in part on its ability
to enhance existing products and develop new products with improved performance
capabilities. The Company expects to continue to invest heavily in research and
development and must manage product transitions successfully, as introductions
of new products could adversely impact sales or margins of existing products. In
addition, the introduction of new products increases the risk that existing
products will become obsolete resulting in greater excess and obsolete inventory
exposure. This increased exposure may result in increased inventory reserve
requirements similar to or in excess of those recorded in 1998 that could have a
material adverse impact on the Company's financial condition and results of
operations.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1999
BUSINESS AND MARKET RISKS (CONT.)
The design, development, commercial introduction and manufacture of new
semiconductor test handling equipment is an inherently complex process that
involves a number of risks and uncertainties. These risks include potential
problems in meeting customer performance requirements, integration of the test
handler with other suppliers' equipment and the customers' manufacturing
processes, transitioning from product development to volume manufacturing and
the ability of the equipment to satisfy the semiconductor industry's constantly
evolving needs and achieve commercial acceptance at prices that produce
satisfactory profit margins. The design and development of new test handling
equipment is heavily influenced by changes in integrated circuit (IC) back-end
manufacturing processes and IC package design changes. The Company believes that
the rate of change in such processes and IC packages is accelerating. As a
result of these changes and other factors, assessing the market potential and
commercial viability of new test handling products is extremely difficult and
subject to a great deal of risk. In addition, not all IC manufacturers employ
the same manufacturing processes. Differences in such processes make it
difficult to design standard semiconductor test handler products that are
capable of achieving broad market acceptance. No assurance can be made that the
Company will accurately assess the semiconductor industry's future test handler
requirements and design and develop products that meet such requirements and
achieve market acceptance. Failure to accurately assess customer requirements
and market trends for new semiconductor test handler products may have a
materially adverse impact on the Company's operations, financial condition and
results of operations.
The transition from product development to the manufacture of new semiconductor
equipment is a difficult process and delays in product introductions and
problems in manufacturing such equipment are common. During 1998 and 1999 the
Company experienced difficulties in manufacturing and volume production of its
new Enterprise and Castle test handlers. These difficulties, which have been
exacerbated by a significant increase in orders for the Castle and the Company's
other pick and place handler products, are expected to continue at least through
the third quarter of 1999. In addition, after sale support and warranty costs
are typically greater with new test handlers than with established products.
There can be no assurance that future technologies, processes and product
developments will not render the Company's current or future product offerings
obsolete or that the Company will be able to develop, introduce and successfully
manufacture new products or make enhancements to its existing products in a
timely manner to satisfy customer requirements or achieve market acceptance.
Furthermore, there is no assurance that the Company will realize acceptable
profit margins on such products.
BACKLOG
The Company's order backlog has risen dramatically from December 31, 1998
primarily as a result of the improved business conditions in the semiconductor
equipment industry and strong demand for the Company's new pick and place test
handler products. A significant portion of the semiconductor test handling
equipment backlog at June 30, 1999 was for new products, including the Castle
and Summit test handlers. Due to the possibility of customer changes in delivery
schedules, cancellation of orders, potential delays in product shipments and
failure to satisfy customer acceptance requirements, the Company's backlog as of
any point in time may not be representative of actual sales in any future
period.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1999
BUSINESS AND MARKET RISKS (CONT.)
No assurance can be given that the Company will successfully resolve these or
other issues. All orders are subject to cancellation or rescheduling by the
customer with limited penalty.
DEMANDS ON INFRASTRUCTURE
The semiconductor equipment industry is characterized by dramatic and sometimes
volatile changes in demand for its products. Changes in product demand result
from a number of factors including the semiconductor industry's ever changing
and unpredictable capacity requirements and changes in IC design and packaging.
Sudden changes in demand for semiconductor equipment have a significant impact
on the operations of the Company and other semiconductor equipment
manufacturers. In response to a severe industry downturn in 1998, the Company
reduced its total workforce by approximately 40%. During the first six months of
1999, the Company increased its workforce by more than 30% as business
conditions in the semiconductor equipment industry and the Company's order
backlog improved dramatically. Such radical changes in workforce levels place
enormous demands on the Company's operations and infrastructure since newly
hired personnel rarely possess the expertise and level of experience of people
they replace. The Company has recently experienced difficulties, particularly in
manufacturing, in training the large number of additions to its workforce. In
addition, competition for the employment services of certain personnel,
particularly those with technical skills, is intense. No assurance can be given
that the Company will successfully adjust its production capacity to meet
customers' changing requirements. The inability to meet such requirements will
have an adverse impact on the Company's financial position and results of
operations.
DECLINE IN GRAVITY-FEED IC TEST HANDLER SALES
Sales of gravity-feed IC test handlers used in DRAM testing have represented a
significant percentage of the Company's total semiconductor equipment related
revenue during the last five years. Due to changes in IC package technology,
gravity-feed handlers are no longer suitable for handling many types of DRAMs.
As a result, the Company has seen a significant decline in sales of its
gravity-feed test handler products. The Company introduced its Enterprise
handler in 1998 that employs a handling technique, known as test- in-tray, that
is particularly suited for parallel test applications like DRAMs. While the
benefits of test-in-tray may be significant and the Company sold a significant
number of these handlers in 1998, market acceptance of this product has been
very limited and the future use of this technology is uncertain. If the Company
is unable to successfully develop and market new products or enhancements to
existing products for DRAM applications the Company's results of operations will
be adversely impacted.
HIGHLY COMPETITIVE INDUSTRY
The semiconductor equipment industry is intensely competitive and the Company
faces substantial competition from numerous companies throughout the world. Some
of these competitors have substantially greater financial, engineering,
manufacturing and customer support capabilities and offer more extensive product
offerings than the Company. In addition, there are smaller, emerging
semiconductor equipment companies that provide or may provide innovative
technology incorporated in products that may compete favorably against those of
the Company. The Company expects its competitors to continue to improve the
design and performance of their current products and to introduce new products
with improved
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1999
BUSINESS AND MARKET RISKS (CONT.)
performance capabilities. Failure to introduce new products in a timely manner,
the introduction by competitors of products with perceived or actual advantages
or disputes over rights of the Company or its competitors to use certain
intellectual property or technology could result in a loss of the Company's
competitive position and reduced sales of or margins on existing products.
CUSTOMER CONCENTRATION
As is common in the semiconductor equipment industry, the Company relies on a
limited number of customers for a substantial percentage of its net sales. In
1998, three customers of the semiconductor equipment segment accounted for 51%
of the Company's net sales. The loss of or a significant reduction in orders by
these or other significant customers would adversely impact the Company's
financial condition and results of operations. Furthermore, the concentration of
the Company's revenues in a limited number of large customers may cause
significant fluctuations in the Company's future annual and quarterly operating
results.
NON SEMICONDUCTOR EQUIPMENT BUSINESSES
The Company develops, manufactures and sells products used in closed circuit
television, metal detection and microwave radio applications. These products are
sold in highly competitive markets and many competitors are segments of large,
diversified companies with substantially greater financial, engineering,
marketing, manufacturing and customer support capabilities than the Company. In
addition, there are smaller companies that provide or may provide innovative
technology incorporated in products that may compete favorably against those of
the Company. The Company has seen a significant decline in the operating results
of these businesses over the last several years and the future prospects for
certain of these businesses remain uncertain. No assurance can be given that the
Company will continue to compete successfully in any of these businesses.
FOREIGN SALES
During the first six months of 1999, 62% of the Company's total net sales were
exported to foreign countries, including more than 70% of the sales in the
semiconductor equipment segment. The majority of the Company's export sales are
made to destinations in Asia. Instability in global economic markets,
particularly in Asia, may adversely impact the demand for capital equipment,
including equipment of the type manufactured and marketed by the Company. In
addition, changes in the amount or price of semiconductors produced in Asia
could impact the profitability or capital equipment spending programs of the
Company's foreign and domestic customers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 1999 the Company's investment portfolio includes fixed-income
securities of $77 million. These securities are subject to interest rate risk
and will decline in value if interest rates increase. Due to the relatively
short duration of the Company's investment portfolio, an immediate 10 percent
increase in interest rates would have no material impact on the Company's
financial condition or results of operations.
The Company generally conducts business, including sales to foreign customers,
in U. S. dollars and as a result has limited foreign currency exchange rate
risk. Monetary assets and liabilities of the Company's
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1999
BUSINESS AND MARKET RISKS (CONT.)
Singapore and Taiwan operations are not significant. The effect of an immediate
10 percent change in foreign exchange rates would not have a material impact on
the Company's financial condition or results of operations.
YEAR 2000 RISKS
The Company has a Year 2000 ("Y2K") Task Force focusing on four key readiness
areas: 1) Internal Infrastructure Readiness, addressing internal hardware and
software, including both information technology and non-information technology
systems; 2) Product Readiness, addressing product functionality; 3) Supplier
Readiness, addressing the preparedness of key suppliers to the Company and 4)
Customer Readiness, addressing customer support. For each readiness area, the
Company is performing a risk assessment, conducting testing and remediation,
developing contingency plans to mitigate unknown risks and communicating with
employees, suppliers, customers and other third parties to raise awareness of
the Y2K problem.
Internal Infrastructure Readiness: The Company, assisted by third parties, has
completed an assessment of internal applications and computer hardware. Some
software applications have been made Y2K compliant and resources have been
assigned to address other applications based on their importance and the time
required to make them Y2K compliant. All software remediation is expected to be
completed no later than September 1999. The Y2K compliance evaluation of
hardware, including hubs, routers, telecommunication equipment, workstations and
other items is also expected to be completed by September 1999.
In addition to applications and information technology hardware, the Company is
in the process of assessing, testing and remediating its non-information
technology systems including embedded systems, facilities and other operations.
The Company expects to have this work completed by September 1999.
Product Readiness: This program focuses on identifying and resolving Y2K issues
existing in the Company's products. The program encompasses a number of
activities including testing, evaluation, engineering and manufacturing
implementation. Customers are being notified of known risk areas and proposed
remediation plans. The Company has made Y2K retrofits available to certain
customers and expects to have retrofits available for all customers by July
1999. A contingency team will be available after July 1999 to assist those
customers experiencing difficulties with the Company's products.
Supplier Readiness: This program focuses on minimizing the risks associated with
key suppliers. The Company has identified and contacted key suppliers to solicit
information on their Y2K readiness. To date, the Company has received responses
from the majority of its key suppliers most of whom indicate that they believe
products provided to the Company are either Y2K compliant or will be made Y2K
complaint on a timely basis. Based on the Company's assessment of each
supplier's progress to adequately address the Y2K issue, the Company is
developing a supplier action list and contingency plans. Supplier readiness
issues that potentially affect the Company's products are expected to be
addressed by September 1999.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1999
BUSINESS AND MARKET RISKS (CONT.)
Customer Readiness: This program focuses on customer support, including the
coordination of retrofit activity and developing contingency plans where
appropriate. The Company is currently working with its customers to develop and
implement potential retrofit or upgrade programs and offering assistance in
making its products Y2K compliant.
The Company estimates that total Y2K costs will be approximately $500,000, the
great majority of which will be incurred by January 2000. Y2K costs incurred
through June 30, 1999 have been charged to operations and have not been
material. The Company is continuing its assessments and developing alternatives
that will necessitate refinement of this estimate over time. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, the programs described in this section.
Since the efforts described above are ongoing, all potential Y2K complications
have not yet been identified. Therefore, the potential impact of these
complications on the Company's financial condition and results of operations
cannot be determined at this time. If computer systems used by the Company or
its suppliers, the performance of products provided to the Company by suppliers,
or the software applications used in products manufactured and sold by the
Company, fail or experience significant difficulties related to Y2K, the
Company's results of operations and financial condition could be materially
adversely affected.
Due to all the above and other factors, historical results may not be indicative
of results of operations for any future period. In addition, certain matters
discussed above are forward-looking statements that are subject to the risks and
uncertainties noted herein and the other risks and uncertainties listed from
time to time in the Company's filings with the Securities and Exchange
Commission, including but not limited to the 1998 Annual Report on Form 10-K,
that could cause actual results to differ materially from those projected or
forecasted. The Company undertakes no obligation to update the information,
including the forward-looking statements, in this Form 10-Q.
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Part II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 11, 1999. At the
meeting the following directors were elected:
DIRECTOR Number of Common Shares Voted
-------- ------------------------------
For Withhold Authority
--------- ------------------
Charles A. Schwan 9,167,254 42,068
Gene E. Leary 9,056,531 152,791
The directors continuing in office until 2000 or 2001 are James
W. Barnes, Harry L. Casari, Frank W. Davis and Harold Harrigian.
ITEM 5. OTHER INFORMATION
On July 13, 1999 William S. Ivans, the Chairman of the Board of
Directors, was killed in a glider plane accident. On July 15,
1999 the Company's Board of Directors elected Charles A. Schwan
as Chairman of the Board succeeding Mr. Ivans.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1(a) - Amended and Restated Certificate of
Incorporation of Cohu, Inc.
10.1 - Amendment No. 1 to Business Loan Agreement
dated May 19, 1999 between Cohu, Inc. and Bank
of America National Trust and Savings Association
10.2 - Lease Assignment Agreement dated June 25, 1999 by
and between Cohu, Inc., Cubic Defense Systems,
Inc. and Thomas G. Plein and Diane L. Plein
27.1 - Financial Data Schedule
(b) Reports on Form 8-K: The Company did not file any reports
on Form 8-K during the quarter ended June 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COHU, INC.
------------------------------------
(Registrant)
Date: July 19, 1999 /s/ Charles A. Schwan
-------------------------- ------------------------------------
Charles A. Schwan
President & Chief Executive Officer
Date: July 19, 1999 /s/ John H. Allen
-------------------------- ------------------------------------
John H. Allen
Vice President, Finance & Chief
Financial Officer
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1
Exhibit 3.1(a)
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF COHU, INC.
We, the undersigned, CHARLES A. SCHWAN, the President, and
JOHN H. ALLEN, the Secretary, of COHU, INC., a corporation of the State of
Delaware (hereinafter called the "Corporation"), do hereby certify as follows:
FIRST: COHU, INC., a corporation of the State of Delaware, was
originally incorporated under the name Cohu Electronics, Inc., and its original
certificate of incorporation was filed with the Secretary of State on January 2,
1957.
SECOND: That at a meeting of the Board of Directors, duly
held and convened, the following Restated Certificate of Incorporation of COHU,
INC. ("Restated Certificate") was duly adopted by the directors in accordance
with Section 245 and 242 of the General Corporation Law of the State of
Delaware. Said Restated Certificate only restates and integrates and does not
further amend the provisions of the Corporation's certificate of incorporation
as heretofore amended or supplemented, and there is no discrepancy between those
provisions and the provisions of the Restated Certificate. The duly adopted
Restated Certificate is as follows:
FIRST: The name of the corporation is COHU, INC.
SECOND: The name and address of its registered agent is The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware, 19801,
located in New Castle County.
THIRD: The nature of the business, or objects or purposes to
be transacted, promoted or carried on are:
To manufacture, sell and deal in electronic instruments and
devices.
To manufacture, purchase or otherwise acquire, invest in,
own, mortgage, pledge, sell, assign and transfer or otherwise
dispose of, trade, deal in and deal with goods, wares and
merchandise and personal property of every class and description.
To acquire, and pay for in cash, stock or bonds of this
corporation or otherwise, the good will, rights, assets and
property, and to undertake or assume the whole or any part of the
obligations or liabilities of any person, firm, association or
corporation.
To acquire, hold, use, sell, assign, lease, grant licenses
in respect of mortgage or otherwise dispose of letters patent of
the United States or any foreign country, patent rights, licenses
and privileges, inventions, improvements and processes,
copyrights, trademarks and trade names, relating to or useful in
connection with any business of this corporation.
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To acquire by purchase, subscription or otherwise, and to
receive, hold, own guarantee, sell, assign, exchange, transfer,
mortgage, pledge or otherwise dispose of or deal in and with any
of the shares of the capital stock, or any voting trust
certificates in respect of the shares of capital stock, scrip,
warrants, rights, bonds, debentures, notes, trust receipts, and
other securities, obligations, chooses in action and evidences of
indebtedness or interest issued or created by any corporations,
joint stock companies, syndicates, associations, firms, trusts or
persons, public or private, or by the government of the United
States of America, or by any foreign government, or by any state,
territory, province, municipality or other political subdivision
or by any governmental agency, and as owner thereof to possess
and exercise all the rights, powers and privileges of ownership,
including the right to execute consents and vote thereon, and to
do any and all acts and things necessary or advisable for the
preservation, protection, improvement and enhancement in value
thereof.
To enter into, make and perform contracts of every kind and
description with any person, firm, association, corporation,
municipality, county, state, body politic or government or colony
or dependency thereof.
To borrow or raise moneys for any of the purposes of the
corporation and, from time to time without limit as to amount, to
draw, make, accept, endorse, execute and issue promissory notes,
drafts, bills of exchange, warrants, bonds, debentures and other
negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the
interest thereon by mortgage upon or pledge, conveyance or
assignment in trust of the whole or any part of the property of
the corporation, whether at the time owned or thereafter
acquired, and to sell, pledge or otherwise dispose of such bonds
or other obligations of the corporation for its corporate
purposes.
To loan to any person, firm or corporation any of its
surplus funds, either with or without security.
To purchase, hold, sell and transfer the shares of its own
capital stock; provided it shall not use its funds or property
for the purchase of its own shares of capital stock when such use
would cause any impairment of its capital except as otherwise
permitted by law, and provided further that shares of its own
capital stock belonging to it shall not be voted upon directly or
indirectly.
To have one or more offices, to carry on all or any of its
operations and business and without restriction or limit as to
amount, to purchase or otherwise acquire, hold, own, mortgage,
sell, convey or otherwise dispose of, real and personal property
of every class and description in any of the states, districts,
territories or colonies of the United States, and in any and all
foreign countries, subject to the laws of such state, district,
territory, colony or country.
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In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the
laws of Delaware upon corporations formed under the General
Corporation Law of the State of Delaware, and to do any or all of the
things hereinbefore set forth to the same extent as natural persons
might or could do.
The objects and purposes specified in the foregoing clauses
shall, except where otherwise expressed, be in no way limited or
restricted by reference to, or inference from the terms of any other
clause in this certificate of incorporation, but the objects and
purposes specified in each of the foregoing clauses of this article
shall be regarded as independent objects and purposes.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 41,000,000 shares, of which
1,000,000 shares shall constitute Preferred Stock having a par value of $1.00
per share and 40,000,000 shares shall constitute Common Stock having a par value
of $1.00 per share.
1. Any of the shares of Preferred Stock may be issued from time
to time in one or more series. The Board of Directors, by resolution
or resolutions, is authorized to create or provide for any such
series, and to fix the designations, preferences and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including, without limitation,
the authority to fix or alter the dividend rights, dividend rates,
conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking and purchase fund provisions), the
redemption price or prices, the dissolution preferences, and the
rights in respect to any distribution of assets, of any wholly
unissued series of Preferred Stock and the number of shares
constituting any such series, and the designation thereof, or any of
them and to increase or decrease the number of shares of any series so
created subsequent to the issue of any such series but not below the
number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of
such series.
2. Subject to all of the rights of the Preferred Stock, dividends
may be paid upon the Common Stock as and when declared by the Board of
Directors out of funds legally available for payment of dividends.
3. In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, and after the
holders of the Preferred Stock shall have been paid in full amounts to
which they respectively shall be entitled, or an amount sufficient to
pay the aggregate amount to which such holders shall be entitled shall
have been deposited in trust with a bank or trust company having its
principal office in the Borough of Manhattan, City, County and State
of New York, or the City of Los
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Angeles, State of California, having a capital, undivided profits and
surplus aggregating at least $5,000,000 for the benefit of the holders
of the Preferred Stock, the remaining net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock.
4. The entire voting power and all voting rights, except as
otherwise required by law, or fixed by resolution or resolutions of
the Board of Directors with respect to one or more series of Preferred
Stock, shall be vested exclusively in the Common Stock. The amount of
either the authorized Preferred Stock or Common Stock, or the amount
of both such classes of stock, may be increased or decreased by the
affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote.
FIFTH: The shareholders of this corporation shall have no
pre-emptive rights.
SIXTH: The minimum amount of capital with which the corporation
will commence business is ONE THOUSAND DOLLARS ($1,000).
SEVENTH: The names and places of residence of the incorporators
are as follows:
NAMES RESIDENCES
----- ----------
H. K. Webb Wilmington, Delaware
H. C. Broadt Wilmington, Delaware
A. D. Atwell Wilmington, Delaware
EIGHTH: The corporation is to have perpetual existence.
NINTH: The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatever.
TENTH: In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens
upon the real and personal property of the corporation.
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it
was created.
By resolution passed by a majority of the whole board, to
designate one or more committees, each committee to consist of
two or more of the directors of the corporation, which, to the
extent provided in the resolution or in the by-laws of the
corporation, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of
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the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be stated in the
by-laws of the corporation or as may be determined from time to
time by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of the
holders of a majority of the stock issued and outstanding having
voting power given at a stockholders' meeting duly called for
that purpose, or when authorized by the written consent of the
holders of a majority of the voting stock issued and outstanding,
to sell, lease or exchange all of the property and assets of the
corporation, including its good will and its corporate
franchises, upon such terms and conditions and for such
consideration, which may be in whole or in part shares of stock
in, and/or other securities of any other corporation or
corporations, as its board of directors shall deem expedient and
for the best interests of the corporation.
ELEVENTH: Meetings of stockholders may be held outside the State
of Delaware, if the by-laws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation. Elections of directors
need not be by ballot unless the by-laws of the corporation shall so provide.
TWELFTH: The corporation reserves the right to amend, alter,
change or repeal any provision contained in this certificate of incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
THIRTEENTH: Every shareholder entitled to vote at any election of
directors of this company may cumulate his votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which his shares are entitled, or distribute his votes on the same
principle among as many candidates as he thinks fit. The candidates receiving
the highest number of votes up to the number of directors to be elected are
elected.
FOURTEENTH: The Board of Directors of this Corporation is divided
into three classes, Class 1, Class 2 and Class 3. The number of Directors in
each class shall be the whole number contained in the quotient arrived at by
dividing the authorized number of Directors by three, and if a fraction is also
contained in such quotient, then if such fraction is one-third, the extra
Director shall be a member of Class 3, and if the fraction is two-thirds, one of
the Directors shall be a member of Class 3 and the other shall be a member of
Class 2. Each Director shall serve for a term ending on the date of the third
annual meeting following that at which such Director is elected, and Directors
of only one class shall be elected at any annual meeting, except as hereinafter
provided. The Directors elected at the meeting of stockholders at which the
Amendment to the Certificate of Incorporation of this Corporation to include
this Article is approved shall determine which of them shall belong to Class 1,
which to Class 2, and which to Class 3 by resolution of the
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Board, which resolution when adopted may not be amended or rescinded. Those so
determined as belonging to Class 1 shall serve for a term ending on the annual
meeting date next following, those so determined as belonging to Class 2 shall
serve for a term ending on the second annual meeting date next following, and
those so determined as belonging to Class 3 shall serve a full term as
hereinabove provided. The foregoing notwithstanding, each Director shall serve
until a successor shall have been duly elected and qualified unless he shall
resign, become disqualified, die or shall be removed as provided in this
Certificate of Incorporation.
No Director of the Corporation shall be removed from office as a
Director by vote or other action of stockholders or otherwise, unless the
Director to be removed has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal, or
unless the Director to be removed has been adjudged to be liable for negligence
or misconduct in the performance of his duty to the Corporation by a court of
competent jurisdiction and such adjudication is no longer subject to direct
appeal.
FIFTEENTH: In the event that it is proposed that this Corporation
enter into a "business combination" (as hereinafter defined) with any other
corporation and such corporation or its affiliates singly or in the aggregate
own or control directly or indirectly five (5%) percent or more of the
outstanding shares of the common stock of this Corporation (such corporation and
its affiliates being referred to herein as a "related party"), the affirmative
vote of the holders of not less than 80% of the total voting power of all
outstanding shares of stock of this Corporation shall be required for the
approval of such proposal; provided, however, that the foregoing shall not apply
to any business combination which was approved by resolution of the Board of
Directors of this Corporation prior to the acquisition of the ownership or
control of ten (10%) percent of the outstanding shares of this Corporation by
such related party, nor shall it apply to any business combination between this
Corporation and another Corporation, fifty (50%) percent or more of the voting
stock of which is owned by this Corporation, and none of which is owned or
controlled by a related party, provided that each stockholder of this
Corporation receives the same type of consideration in such transaction in
proportion to his stockholding. For the purposes hereof, an "affiliate" is any
person (including a corporation, partnership, trust, estate or individual) who
directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with the person specified, and
"control" means the possession directly or indirectly of the power to direct or
cause the direction of management and policies of a person, whether through the
ownership of voting securities, by contract, or otherwise.
For the purposes hereof, the term "business combination" shall
mean (a) any merger or consolidation of or with this Corporation, (b) any sale,
lease, exchange, transfer or other disposition, including without limitation a
mortgage or other security device, of all or any substantial part of the assets
of this Corporation or any subsidiary of this Corporation, (c) the acquisition
by this Corporation or subsidiary of this Corporation of any securities of a
related person, (d) the issuance of any shares of this Corporation or any
subsidiary to a related person, or (e) any agreement, contract or other
arrangement providing for any of the transactions described in this definition
of business combination.
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SIXTEENTH: Action shall be taken by stockholders only at an
annual or special meeting of stockholders, and stockholders may not act by
written consent.
SEVENTEENTH: The by-laws of this Corporation may be adopted,
altered, amended or repealed at any time by affirmative vote of a majority of
the authorized number of Directors of this Corporation, and may also be altered,
amended or repealed at any annual meeting, or at any special meeting of
stockholders duly called for the purpose, by the affirmative vote of the holders
of not less than 80% of the issued and outstanding shares of the stock of this
Corporation, in any manner not prohibited by this Certificate of Incorporation
or by the Delaware Corporation Law as then in effect.
EIGHTEENTH: The provisions set forth in Articles Fourteenth,
Fifteenth, Sixteenth, and Seventeenth and in this Article Eighteenth may not be
repealed or amended in any respect unless such repeal or amendment is approved
by the affirmative vote of the holders of not less than 80% of the total voting
power of all outstanding shares of stock of this Corporation.
NINETEENTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article NINETEEN shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
IN WITNESS WHEREOF, we, said CHARLES A. SCHWAN and JOHN H. ALLEN,
have executed this Amended and Restated Certificate of Incorporation on this 12
day of May, 1999.
/s/ Charles A. Schwan
-----------------------------------------
CHARLES A. SCHWAN, President
/s/ John H. Allen
-----------------------------------------
JOHN H. ALLEN, Secretary
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Exhibit 10.1
AMENDMENT TO DOCUMENTS
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of May 19, 1999, is between
Bank of America National Trust and Savings Association (the "Bank") and Cohu,
Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of June 15, 1998 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1 DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2 AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 1.2 of the Agreement, the date "MAY 1, 2000" is
substituted for the date "MAY 1, 1999".
2.2 In Paragraph 6.3 of the Agreement, the ratio "2.25:1.0" is
substituted for the ratio "1.5:1.0".
2.3 In Paragraph 6.4 of the Agreement, the amount "ONE HUNDRED THIRTY
MILLION DOLLARS ($130,000,000)" is substituted for the amount
"ONE HUNDRED TWENTY MILLION DOLLARS ($120,000,000)".
2.4 A new Paragraph 6.19 is added to the Agreement, which reads in
its entirety as follows:
"6.19 BANK AS PRINCIPAL DEPOSITORY. To maintain the Bank as its
principal depository bank, including for the maintenance of business, cash
management, operating and administrative deposit accounts."
3 REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) there is
no event which is, or with notice or lapse of time or both would be, a default
under the Agreement except those events, if any, that have been disclosed in
writing to the Bank or waived in writing by the Bank, (b) the representations
and warranties in the Agreement are true as of the date of this Amendment as if
made on the date of this Amendment, (c) this Amendment is within the Borrower's
powers, has been duly authorized, and does not conflict with any of the
Borrower's organizational papers, and (d) this Amendment does not conflict with
any law, agreement, or obligation by which the Borrower is bound.
4 EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA Cohu, Inc.
NATIONAL TRUST AND SAVINGS ASSOCIATION
X /s/ Paul M. Tuomanien, Jr. X /s/ John H. Allen
- ------------------------------------------- ----------------------------
By: Paul M. Tuomainen, Jr., Vice President By: John H. Allen,
Vice President Finance & CFO
1
Exhibit 10.2
LEASE ASSIGNMENT AGREEMENT
This Lease Assignment Agreement ("Lease Assignment") is entered into on
this 25th day of June, 1999 by and between Cohu, Inc., a Delaware corporation
("Assignee"), Cubic Defense Systems, Inc. ("Assignor"), and Thomas G. Plein and
Diane L. Plein (collectively "Lessor").
WHEREAS, subject to the terms and conditions herein, Assignor desires to
assign, and Assignee desires to accept that certain American Industrial Real
Estate Association Standard Industrial/Commercial Single-Tenant Lease-Gross
("Lease Agreement"), attached hereto as Exhibit A, dated June 26, 1995, by and
between Assignor, as Lessee and Lessor; and
WHEREAS, Lessor consents to such assignment;
NOW THEREFORE, Assignee, Assignor and Lessor agree as follows:
1. Assignment. Subject to the terms and conditions herein, Assignor
hereby assigns and Assignee hereby accepts the assignment of the Lease
Agreement, including, without limitation, the right to exercise the Option.
2. Lease Provisions Incorporated.
2.1. Except as expressly set forth herein, Assignee shall assume all
of the obligations, liabilities, and covenants as of the Effective
Date.
2.2. "Effective Date" shall mean July 1, 1999.
2.3. Assignee's obligation to pay Basic Rent under the Lease Agreement
shall commence effective November 15, 1999 (pro-rated for the month of
November, 1999). Basic Rent, and all other payment obligations of
Assignee pursuant to the Lease Agreement shall be paid to Lessor as
set forth in the Lease Agreement.
3. Indemnity. Assignee shall defend, indemnify and/or hold harmless
Assignor from and against all liabilities, claims, suits, proceedings, appeals,
damages, demands, and allegations (collectively "Claims") pertaining to:
Assignee's use and/or occupancy of the Premises; Lessor's Claims, and breaches
of the Lease Agreement attributable to Assignee; and all conduct, malfeasance,
omissions and commissions of Assignee and its agents, employees, contractors,
and invitees.
4. Security Deposit. Assignee shall reimburse to Assignor Assignor's
security deposit of Thirty-Seven Thousand Nine Hundred and Eighty-Five Dollars
($37,985). Lessor, in turn, shall transfer Assignor's security deposit of
Thirty-Seven Thousand Nine Hundred and Eighty-Five Dollars ($37,985) to
Assignee's account. Landlord hereby confirms that there are no outstanding
liabilities applicable to the Security Deposit.
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5. Conditions Precedent. The following are conditions precedent to this
Lease Assignment:
5.1. This Lease Assignment is conditioned upon the written consent of
Lessor pursuant to the Lease Agreement.
5.2. This Lease Assignment is conditioned upon Assignee's physical
inspection of the Premises solely to verify that the building systems
are in good working order.
5.3. This Lease Assignment is conditioned upon receipt of and approval
by Assignor of Assignee's written intended use and planned
modifications, if any, of and to the Premises. Assignee covenants to
Assignor to abide by such written intended use and planned
modifications, if any.
6. Limited Release of Lessor. Lessor shall not, by reason of this Lease
Assignment, nor by reason of collection of the rents from Assignee, be deemed
liable to Assignee for any failure of Assignor to perform and comply with any of
Assignor's obligations to Assignee under this Lease Assignment.
7. Lessor Consent/Limited Waiver/Release by Lessor.
7.1. Lessor hereby consents to this Lease Assignment.
7.2. Lessor hereby waives their right, pursuant to Article 12.2(g) of
the Lease Agreement, to require that the Security Deposit be increased
to an amount equal to six (6) times the monthly Base Rent.
7.3. Lessor hereby waives their right, pursuant to Article 12.2(h) of
the Lease Agreement, to require the amount and adjustment structure of
the rent be adjusted.
7.4. Should Assignee and Lessor agree to a lease term beyond the
Original Term (which would include, without limitation, exercise of
the Option), then Lessor hereby releases Assignor, effective at such
time, from all Claims pertaining to the Premises, known and unknown,
including without limitation, Assignor's and Assignee's use and
occupancy of the Premises, and in that regard, Lessor hereby waives
all of their rights afforded to them under California Civil Code
Section 1542, which provides:
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Section 1542. CERTAIN CLAIMS NOT AFFECTED BY GENERAL RELEASE. A
general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
8. Assignor's Warranties and Covenants. In addition to other warranties and
covenants which may be set forth herein, Assignor warrants and covenants as
follows:
8.1. Assignor warrants that it is the Lessee under the Lease
Agreement, that it is in compliance with all of its obligations under
the Lease Agreement, and that it is not in default with respect to the
Lease Agreement.
8.2. Assignor covenants that, provided that Assignee discharges all of
its obligations hereunder and pursuant to the Lease Agreement, that
Assignor will take no action which would interfere with or terminate
Assignee's rights under the Lease Agreement.
9. Third-Party Beneficiary. Lessor shall be a third-party beneficiary under
this Lease Assignment. There shall be no other third-party beneficiaries under
this Lease Assignment.
10. Construction. Unless otherwise expressly defined in this Lease
Assignment, all terms herein shall have the same meaning as the terms have in
the Lease Agreement. This Lease Assignment shall not be construed as if it had
been prepared by one of the parties, but rather as if all parties had prepared
the same. All recitals are incorporated into this Lease Assignment by reference.
The parties hereby waive California Civil Code Section 1654 which states "In
cases of uncertainty not removed by the preceding rules, the language of a
contract should be interpreted most strongly against the party who causes the
uncertainty to exist."
11. Brokers. The parties warrant to each other that CB Richard Ellis is the
sole broker in this Lease Assignment, representing both parties. Both parties
warrant that no other broker has been engaged on their behalf with respect to
this Lease Assignment.
12. General Provisions.
12.1. Time is of the Essence. Time is of the essence of this Lease
Assignment and each and every part hereof.
12.2. Notices. Notices, requests, demands and other communications
required or permitted to be given under this Lease Assignment shall be
in writing and shall be served personally or shall be delivered to the
party to whom notice is to be
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given, by reputable overnight mail equivalent carrier or by first
class mail, properly posted and addressed as follows:
To Assignor:
Cubic Defense Systems, Inc.
Attention: John D. Thomas
9333 Balboa Avenue
San Diego, CA 92123
Fax: 619-505-1508
With a copy to:
Legal Department
Cubic
9333 Balboa Avenue
San Diego, CA 92123
Fax: 619-505-1559
To Assignee:
Cohu, Inc.
5755 Kearny Villa Road
San Diego, CA 92123-1111
Attention: John Allen
12.3. Attorneys' Fees. In the event of any action at law or in equity
between the parties hereto to enforce any of the provisions hereof,
the unsuccessful party or parties to such litigation including any
appeals, shall pay to the successful party or parties all costs and
expenses, including reasonable attorneys' fees, incurred therein by
such successful party or parties; and if such successful party or
parties shall recover judgment in any such action or proceeding, such
costs, expenses and attorneys' fees may be included in and as part of
such judgment. The successful party shall be the party who is entitled
to recover its costs of suit, whether or not the suit proceeds to
final judgment.
12.4. Governing Law and Venue. This Lease Assignment shall be
construed in accordance with the laws of the State of California. Any
action brought at law or in equity relating to or in connection with
this Lease Assignment must be maintained in San Diego, California.
12.5. Integration, Amendment. This Lease Assignment constitutes the
full and complete assignment and understanding between the parties
hereto and shall
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supersede any and all prior and contemporaneous written and oral
agreements concerning the subject matter contained herein. This Lease
Assignment and any portions thereof may be modified, amended or waived
only by a written instrument executed by the party against whom such
amendment, modification or waiver shall be enforced.
12.6. Headings. The titles or headings of the various paragraphs
hereof are intended solely for convenience or reference and are not
intended and shall not be deemed to modify or explain any of the
provisions of this Lease Assignment.
12.7. Severability. If any material condition or provision herein
contained is held to be invalid, void or unenforceable by a final
judgment of any court of competent jurisdiction, then the remaining
provisions of this Lease Assignment remain in full force and effect.
12.8. Waiver. No waiver by any party hereto of any breach or default
shall be considered to be a waiver of any other breach or default. The
waiver of any condition shall not constitute a waiver of any breach of
default. The waiver of any condition shall not constitute a waiver of
any breach or default with respect to any other condition,
representation or warranty.
12.9. Relationship Between the Parties. The parties agree that the
relationship between them shall not be construed as a partner, agency,
joint venture, alter ego, employee or employer.
12.10. Further Instruments and Action. The parties agree to execute
all instruments and documents and to take all actions as may be
required in order to consummate the transaction contemplated by this
Lease Assignment.
12.11. Assignment. Assignor may assign its rights and obligations
under the Lease Assignment to its parent company and/or subsidiaries
thereof, and/or to any entity which acquires more than fifty per cent
of Assignor. Other than the foregoing, no party may assign any portion
of this Lease Assignment without the express written consent of the
other party.
12.12. Authorization, Execution. Assignee is a Corporation duly
organized, existing, and in good standing under the laws of the State
of Delaware. The execution and delivery of this Lease Assignment and
consummation of this transaction by Assignee have been duly
authorized, and no further corporate authorization is necessary on the
part of Assignee. This Lease Assignment was executed in San Diego,
California, U.S.A. The persons signing this Lease Assignment represent
that they are authorized to sign this Lease Assignment.
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12.13. Execution in Counterparts, by Facsimile. This Lease Assignment
may be executed in counterparts (i.e. the signatures may be on
separate pages) and by facsimile transmission.
13. Certificate of Incumbency. The parties shall provide a Certificate of
Incumbency showing the title of signers of this Lease Assignment.
14. Hazardous Substance. In addition to the obligations of the Lessor set
forth in Paragraph 6.2 of the Addendum to the Lease Agreement, Assignor shall
indemnify, defend and hold harmless Assignee, its directors, officers, agents
and employees and the Premises harmless from and against any and all loss,
damages, liabilities, judgment, costs, claims, liens, expenses, penalties and
attorney's and consultants' fees arising out of or involving and Hazardous
Substance or contamination of soil, groundwater or any other material present on
the premises caused by Assignor during the period from June 26, 1995 through
July 1, 1999, which is the period the Premises have been under the control of
Assignor.
15. Phase I Environmental Report. Assignee shall have the right at its own
expense to obtain a Phase I Environmental Report on the Premises by August 1,
1999. In the event that Assignee shall obtain such a Report and the Report
should specify any environmental issues which cannot be remedied to the
satisfaction of Assignee, this Assignment shall be terminated immediately upon
notice to Assignor and of no further force or effect. This Paragraph shall be
void if Assignee to provide such notice to Assignor on or before August 1, 1999.
ASSIGNOR
Cubic Defense Systems, Inc.
BY: /s/ John D. Thomas
--------------------------------------
John D. Thomas
Vice President & Treasurer
DATE: June 24, 1999
------------------------------------
ASSIGNEE
COHU, INC.
BY: /s/ Charles A. Schwan
--------------------------------------
Charles A. Schwan
[Print Name]
TITLE: Chief Executive Officer
-----------------------------------
DATE: June 24, 1999
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Lessor hereby consents to the within Assignment.
LESSOR
BY: /s/ Thomas G. Plein
--------------------------------------
Thomas G. Plein
DATE: June 24, 1999
------------------------------------
BY: /s/ Diane L. Plein
---------------------------------------
Diane L. Plein
DATE: June 24, 1999
-------------------------------------
7
5
1,000
6-MOS
DEC-31-1998
JAN-01-1999
JUN-30-1999
55,350
26,872
32,049
0
38,967
165,492
33,065
15,928
183,705
39,135
0
0
0
9,902
133,156
143,058
72,997
72,997
44,914
44,914
0
0
0
9,661
3,400
6,261
0
0
0
6,261
.64
.62
