<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1996
REGISTRATION NO. 333-3386
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DUPONT PHOTOMASKS, INC.
(Exact name of registrant, specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3559 74-2238819
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Number) Identification
incorporation or organization) No.)
</TABLE>
100 TEXAS AVENUE
ROUND ROCK, TEXAS 78664
(512) 244-0024
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
J. MICHAEL HARDINGER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
DUPONT PHOTOMASKS, INC.
100 TEXAS AVENUE
ROUND ROCK, TEXAS 78664
(512) 244-0024
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
VAN H. LEICHLITER, ESQ. JOHN W. WARD, ESQ. FRANCIS J. MORISON, ESQ.
DUPONT PHOTOMASKS, INC. E. I. DU PONT DE NEMOURS AND COMPANY DAVIS POLK & WARDWELL
100 TEXAS AVENUE 1007 MARKET STREET 450 LEXINGTON AVENUE
ROUND ROCK, TX 78664 WILMINGTON, DE 19898 NEW YORK, NY 10017
(512) 244-0024 (302) 774-1000 (212) 450-4000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
/ / _____________________
--------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________________
--------------------------
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE PRICE (2) FEE (3)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share 4,600,000 shares $16.00 $73,600,000 $25,380
</TABLE>
(1) Includes 600,000 shares issuable upon exercise of option to be granted to
underwriters solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933.
(3) $22,207 of such registration fee has been previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DUPONT PHOTOMASKS, INC.
CROSS-REFERENCE SHEET
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION
REQUIRED BY THE ITEMS OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND CAPTION LOCATION IN PROSPECTUS
- ------------------------------------------------------------------------ --------------------------------------------------
<C> <S> <C> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus..................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................ Prospectus Summary; Risk Factors; Selected
Combined Financial Data
4. Use of Proceeds.............................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.............................. Outside Front Cover Page; Underwriters
6. Dilution..................................................... Dilution
7. Selling Security Holders..................................... *
8. Plan of Distribution......................................... Outside Front Cover Page; Underwriters
9. Description of Securities to be Registered................... Outside Front Cover Page; Prospectus Summary;
Description of Capital Stock; Underwriters
10. Interests of Named Experts and Counsel....................... *
11. Information With Respect to the Registrant:
(a) Description of Business........................... Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business
(b) Description of Property........................... Business
(c) Legal Proceedings................................. Business
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.............................. Outside Front Cover Page; Dividend Policy;
Principal Stockholder and Stock Ownership; Shares
Eligible for Future Sale; Underwriters
(e) Financial Statements.............................. Pro Forma Combined Financial Statements; Combined
Financial Statements
(f) Selected Financial Data........................... Selected Combined Financial Data
(g) Supplementary Financial Information............... *
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure....................................... *
(j) Directors and Executive Officers.................. Management
(k) Executive Compensation............................ Management
(l) Security Ownership of Certain Beneficial
Owners and Management............................ Management; Principal Stockholder and Stock
Ownership
(m) Certain Relationships and Related
Transactions..................................... Management; Transactions and Relationship Between
the Company and DuPont; Shares Eligible for
Future Sale
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................... *
</TABLE>
- --------------------------
* Item is omitted because response is negative or item is inapplicable.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY 17, 1996
4,000,000 SHARES
DUPONT PHOTOMASKS, INC.
COMMON STOCK
-----------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE WILL BE BETWEEN $14.00 AND $16.00 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
PRIOR TO THE OFFERING, E.I. DU PONT DE NEMOURS AND COMPANY ("DUPONT") INDIRECTLY
OWNED 100% OF THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK, AND UPON
COMPLETION OF THE OFFERING, DUPONT WILL INDIRECTLY OWN 72% OF THE
OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK (OR 70% IF THE
UNDERWRITERS' OVERALLOTMENT OPTION IS EXERCISED IN FULL) AND WILL
CONTINUE TO CONTROL THE COMPANY. SEE "PRINCIPAL STOCKHOLDER
AND STOCK OWNERSHIP" AND "TRANSACTIONS AND
RELATIONSHIP BETWEEN THE COMPANY AND DUPONT."
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "DPMI."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS COMMENCING ON
PAGE 7 HEREOF.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC COMMISSIONS (1) COMPANY (2)
--------- --------------- ---------------
<S> <C> <C> <C>
Per Share......................................................... $ $ $
Total (3)......................................................... $ $ $
</TABLE>
- ------------
(1) THE COMPANY AND DUPONT HAVE AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST
CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF
1933.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $660,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 600,000
ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVERALLOTMENTS, IF
ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO
PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE COMPANY
WILL BE $ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY DAVIS POLK & WARDWELL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996, AT THE
OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT
THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY & CO.
INCORPORATED
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
, 1996
<PAGE>
[Graphic description of photomask process and uses]
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
THE COMPANY INTENDS TO FURNISH TO ITS STOCKHOLDERS ANNUAL REPORTS CONTAINING
AUDITED CONSOLIDATED FINANCIAL STATEMENTS CERTIFIED BY INDEPENDENT PUBLIC
ACCOUNTANTS AND QUARTERLY REPORTS CONTAINING UNAUDITED CONSOLIDATED FINANCIAL
DATA FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR FOLLOWING THE END OF EACH
SUCH QUARTER.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 11
Dividend Policy............................................................................................ 12
Dilution................................................................................................... 12
Capitalization............................................................................................. 13
Selected Combined Financial Data........................................................................... 14
Pro Forma Combined Financial Statements.................................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22
Business................................................................................................... 32
Management................................................................................................. 47
Transactions and Relationship Between the Company and DuPont............................................... 55
Principal Stockholder and Stock Ownership.................................................................. 59
Description of Capital Stock............................................................................... 61
Shares Eligible for Future Sale............................................................................ 63
Underwriters............................................................................................... 65
Legal Matters.............................................................................................. 66
Experts.................................................................................................... 66
Additional Information..................................................................................... 66
Index to Combined Financial Statements..................................................................... F-1
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES HEREIN, UNLESS THE CONTEXT
OTHERWISE REQUIRES, TO (I) THE "COMPANY" OR "DPI" MEAN DUPONT PHOTOMASKS, INC.
AND ASSUME THE COMPLETION OF THE COMPANY'S ACQUISITION OF THE PHOTOMASK
BUSINESSES AS DESCRIBED HEREIN UNDER "TRANSACTIONS AND RELATIONSHIP BETWEEN THE
COMPANY AND DUPONT -- REALIGNMENT OF PHOTOMASK BUSINESS;" (II) "DUPONT" MEAN
E.I. DU PONT DE NEMOURS AND COMPANY; AND (III) "DCEO" MEAN DUPONT CHEMICAL AND
ENERGY OPERATIONS, INC., A WHOLLY OWNED SUBSIDIARY OF DUPONT. UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS DO NOT EXERCISE THEIR OVERALLOTMENT OPTION. SEE "UNDERWRITERS." THE
COMPANY'S FISCAL YEAR ENDS JUNE 30.
THE COMPANY
Based on worldwide sales, DuPont Photomasks, Inc. is the largest U.S.
photomask manufacturer and one of the two largest photomask manufacturers in the
world. Photomasks are high-purity quartz or glass plates containing precision
images of integrated circuits and are used as masters by semiconductor
manufacturers to optically transfer these images onto semiconductor wafers. The
Company develops and uses advanced technology to manufacture a broad range of
photomasks based on customer-supplied design data, including photomasks that
meet the tightest design specifications required by semiconductor manufacturers
today. Since 1991, DPI has operated globally with established manufacturing
facilities in North America, Europe and Asia. The Company is the only photomask
manufacturer in the world that also manufactures and markets both photoblanks
and pellicles, the principal components of photomasks, facilitating the
Company's ability to ensure an adequate supply of quality components. The
Company sells its products to approximately 200 customers in 20 different
countries. The Company believes that it is the principal merchant photomask
supplier for many of its customers, including AMD, Delco/General Motors,
Digital, Hyundai, LG Semicon, Lucent Technologies Inc. (formerly AT&T), Micron
Technology, Motorola, National Semiconductor, Philips, Samsung, Seagate and
SGS-Thomson. The Company serves its global customer base from eight ISO
9002-qualified manufacturing facilities and numerous customer service centers.
The market for photomasks consists primarily of semiconductor manufacturers
in North America, Europe and Asia. Growth in the photomask market has not always
correlated with increases in semiconductor sales. During the mid-1980's through
the early 1990's, the photomask industry experienced an extended period of slow
growth, primarily as a result of several advances in semiconductor and photomask
design and production methods that significantly reduced the number of masks as
well as the precision requirements of masks required to produce a semiconductor
device. The Company believes that the efficiencies gained from these advances in
semiconductor and photomask design and production methods have been largely
realized. In the last two years, growth in demand for photomasks has resumed.
The Company expects that growth in semiconductor design activity, which has been
driven by accelerating trends in the semiconductor industry toward customization
of semiconductor designs and the proliferation of semiconductor applications,
will substantially increase the demand for photomasks. Furthermore, increasing
device complexity and decreasing feature size of semiconductor designs are
changing the nature of the photomask industry and its role in the semiconductor
manufacturing process. The Company believes that photomasks are reemerging as a
critical and enabling technology in the semiconductor manufacturing process.
According to industry sources, the total worldwide market for photomasks was
approximately $1.3 billion in 1995. The photomask market in North America,
Europe and non-Japan Asia is estimated to have been approximately 50% of the
worldwide market over the last five years, and merchant photomask sales in these
regions are estimated to have been in excess of $375 million in 1995.
DuPont entered the photomask market in 1986. Its strategy focused on
establishing a global presence that would enable it to respond to the needs of
multinational semiconductor manufacturers. As part of this strategy, DuPont (i)
purchased assets of numerous captive photomask operations, (ii) acquired
merchant photomask companies and (iii) constructed its own "greenfield"
manufacturing sites in Round Rock, Texas
3
<PAGE>
and Ichon, Republic of Korea ("Korea"). DPI is also the majority owner of a
joint venture that is constructing a new photomask manufacturing facility in
Shanghai, China, which will expand the Company's capacity to serve the growing
needs of semiconductor manufacturers in Asia. In addition, the Company is
planning to construct a photomask manufacturing facility on a "greenfield" site
near Glasgow, Scotland primarily to meet the growing needs of semiconductor
manufacturers in the United Kingdom and the Republic of Ireland. The Company
believes that it is one of the two largest merchant suppliers in North America
and the largest merchant supplier in Europe and non-Japan Asia. The Company has
consistently been an industry leader in developing the most advanced photomasks
and believes it is the principal merchant supplier, outside Japan, of leading
edge photomasks. The Company intends to strengthen its position as a leading
supplier of photomasks by providing the finest service and most advanced
technology. To achieve this objective, the Company intends to capitalize on its
global manufacturing presence, advance its technological leadership, expand
strategic relationships with its customers, leverage its integrated position and
pursue strategic relationships with key suppliers.
RELATIONSHIP WITH DUPONT
DuPont, through its wholly owned subsidiary DCEO, currently owns 100% of the
Company's outstanding Common Stock. Upon completion of the Offering, DuPont will
continue to own indirectly approximately 72% (or 70% if the Underwriters'
overallotment option is exercised in full), of the Company's outstanding Common
Stock. See "Principal Stockholder and Stock Ownership." As a result of its
ownership interest, DuPont will be able to control the vote on most matters
submitted to stockholders, including the election of directors and the approval
of extraordinary corporate transactions. See "Risk Factors -- Control by and
Relationship with DuPont." DuPont has advised the Company that it expects to
reduce its ownership interest in the Company over time, subject to prevailing
market and other conditions. See "Risk Factors -- Effect of Sales of Substantial
Amounts of Common Stock" and "Shares Eligible for Future Sale." Historically,
the Company has derived certain tangible and intangible benefits from being a
subsidiary of DuPont. The Company and DuPont have entered into a number of
agreements for the purpose of defining their ongoing relationship. While these
agreements will continue to provide the Company with certain benefits, the
Company is only entitled to the ongoing assistance of DuPont for a limited time
and it may not enjoy benefits from its relationship with DuPont beyond the term
of the agreements. See "Risk Factors -- No Independent Operating History Prior
to the Offering" and "Transactions and Relationship Between the Company and
DuPont."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................ 4,000,000 shares
Common Stock to be outstanding after
the Offering....................... 14,500,000 shares (1)
Use of Proceeds..................... The Company will retain an amount, currently
estimated at $9.1 million, of the estimated net
proceeds of the Offering; such that, upon the
consummation of the Offering, it will have
approximately $18 million in cash and cash
equivalents, which will be available for general
corporate purposes, including working capital and
capital expenditures. The Company will use the
remaining $46.0 million as well as the net proceeds
from any exercise of the Underwriters' overallotment
option to repay indebtedness owed to DCEO. See "Use
of Proceeds."
Nasdaq Symbol....................... DPMI
</TABLE>
- ------------------------
(1) Excludes shares of Common Stock granted under the Company's employee benefit
plans.
4
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA, AS
PRO FORMA, AS ADJUSTED, FOR
NINE MONTHS ENDED ADJUSTED, FOR THE NINE
YEAR ENDED JUNE 30 MARCH 31 THE YEAR MONTHS ENDED
------------------------------- -------------------- ENDED JUNE MARCH 31,
1993 1994 1995 1995 1996 30, 1995 (1) 1996 (1)
--------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Total Sales..................... $ 118,896 $ 134,548 $ 161,514 $ 116,670 $ 152,192 $ 161,514 $ 152,192
Cost of Goods Sold.............. 112,224 107,456 117,022 85,745 98,717 115,368 97,724
Selling, General and
Administrative Expense......... 18,630 20,750 21,803 16,017 18,164 22,585 19,214
Research and Development Expense
-- Net......................... 8,337 8,131 8,777 6,385 6,955 7,260 6,113
Other Operating (Income) Expense
-- Net......................... 8,497 2,940 3,490 2,317 3,219 3,156 2,941
--------- --------- --------- --------- --------- ------------- -------------
Operating Profit (Loss)......... (28,792) (4,729) 10,422 6,206 25,137 13,145 26,200
Interest Expense................ 9,196 5,814 6,957 5,054 5,091 59 102
Exchange (Gain) Loss............ (430) 322 (493) (476) 228 (665) (68)
--------- --------- --------- --------- --------- ------------- -------------
Income (Loss) Before Income
Taxes and Minority Interest.... (37,558) (10,865) 3,958 1,628 19,818 13,751 26,166
Provision for Income Taxes...... -- -- -- -- 1,899 3,712 9,158
--------- --------- --------- --------- --------- ------------- -------------
Income (Loss) Before Minority
Interest....................... (37,558) (10,865) 3,958 1,628 17,919 10,039 17,008
Minority Interest in Income
(Loss) of Majority Owned Joint
Venture........................ -- -- (161) (82) (483) (161) (483)
--------- --------- --------- --------- --------- ------------- -------------
Net Income (Loss)............... $ (37,558) $ (10,865) $ 4,119 $ 1,710 $ 18,402 $ 10,200 $ 17,491
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Pro Forma Net Income Per Share.. $ 0.70 $ 1.20
Pro Forma Weighted Average
Shares Outstanding............. 14,620 14,620
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------
PRO FORMA, AS
ACTUAL PRO FORMA (1) ADJUSTED (1)
--------- ------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF FINANCIAL POSITION DATA:
Cash and Cash Equivalents............................................... $ 8,891 $ 8,891 $ 18,000
Working Capital......................................................... 13,250 25,818 34,927
Net Property, Plant and Equipment....................................... 114,231 114,231 114,231
Total Assets............................................................ 190,347 194,849 203,958
Long Term Borrowings.................................................... 8,987 8,987 8,987
DuPont Master Notes..................................................... 162,320 46,031 --
Owner's Net Investment/Shareholders' Equity............................. (36,472) 86,517 141,657
Unrealized Holding Gains................................................ 9,350 9,350 9,350
</TABLE>
- ------------------------------
(1) The Summary Combined Pro Forma Financial Data are derived from the
Company's Pro Forma Combined Financial Statements appearing elsewhere in
this Prospectus. The Pro Forma Combined Financial Statements were prepared
by the Company to illustrate the estimated effects of the Offering and
related transactions described in the Notes to the Pro Forma Combined
Financial Statements as if they had occurred as of July 1, 1994 for
purposes of the pro forma combined statements of operations and as of March
31, 1996 for purposes of the pro forma combined statement of financial
position. See "Pro Forma Combined Financial Statements."
5
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS.
RAPID TECHNOLOGICAL CHANGE; CAPITAL INTENSIVE INDUSTRY
The photomask industry is characterized by rapid technological change and
new product introduction and enhancements that have required photomask
manufacturers to make significant and ongoing capital investments. In
particular, as semiconductor pattern sizes continue to decrease, the demand for
more technologically advanced photomasks is likely to increase, including
photomasks using optical proximity correction and phase-shift technologies. As a
result, the Company must continue to enhance its existing products and to
develop and manufacture new products and upgrades with improved capabilities.
The Company's inability to anticipate, respond to or utilize changing
technologies could have a material adverse effect on the Company's business and
results of operations.
The development and manufacture of future generations of photomasks is
expected to require additional research and development expenditures
significantly greater than those required in the past. If the Company is unable
to generate sufficient funds from its operations, borrowings or outside sources,
the Company may be forced to reduce the amount of its investments in research
and development of new technologies, which could hinder the Company's ability to
maintain its technological leadership and could eventually lead to a material
adverse effect on the Company's business or results of operations. In addition,
technological changes leading to the commercial availability of alternate
methods of transferring circuit designs onto semiconductor wafers without the
use of photomasks, including direct write lithography, would have an adverse
effect on the Company's business or results of operations. See "Business --
Industry Background" and "-- Products and Technology."
RELATIONSHIP WITH AND DEPENDENCE ON SEMICONDUCTOR INDUSTRY
Substantially all the Company's sales are derived from semiconductor and
electronic component manufacturers that correspondingly depend on the demand for
end-products or systems that use such semiconductors and components. Growth in
the demand for semiconductors, however, may not necessarily lead to an increase
in the demand for photomasks. Changes in semiconductor designs or applications,
such as a reduction in customization, increased standardization or other
technological and manufacturing advances, could reduce demand for photomasks
even if the demand for semiconductors increases. Throughout the mid-1980's and
the early 1990's, the photomask industry experienced an extended period of slow
growth despite overall growth in the semiconductor market, primarily as a result
of several advances in semiconductor and photomask design and production methods
that significantly reduced the number of masks as well as the precision
requirements of masks required to produce a semiconductor device. There can be
no assurance that technological and manufacturing advances in the semiconductor
industry will not have a material adverse effect on the demand for photomasks.
See "Business -- Industry Background."
In addition, contractions or downturns in the semiconductor industry will
likely lead to a decrease in the demand for photomasks. The semiconductor
industry is highly cyclical and has been subject to significant economic
downturns at various times, characterized by reduced product demand and excess
production capacity. Prior semiconductor downturns have adversely affected the
Company's operating results. There can be no assurance that any future downturns
will not be severe or that any such downturn would not have a material adverse
effect on the Company's business or results of operations. See "-- Recent
Losses" and "Business -- Industry Background."
CONCENTRATION OF CUSTOMERS
In fiscal 1995, the Company's four largest customers, in the aggregate,
accounted for approximately 41% of the Company's sales and the Company's 10
largest customers, in the aggregate, accounted for approximately 66% of sales.
The loss of, or a significant reduction of orders from, any of the Company's
major customers could have a material adverse effect on the Company's business
or results of operations. See "Business -- Customers" and Note 4 to the Combined
Financial Statements.
6
<PAGE>
CONCENTRATION OF AND DEPENDENCE ON SUPPLIERS
The Company relies on a limited number of photomask equipment manufacturers
to develop and supply the equipment used in the photomask manufacturing process.
There are currently lead times of approximately nine to 18 months between the
order and the delivery of certain photomask imaging and inspection equipment,
including electron beam and laser beam photomask imaging systems. There can be
no assurance that equipment manufacturers will successfully develop or deliver
on a timely basis such imaging and inspection equipment. Failure to develop on a
timely basis such equipment could have a material adverse effect on the
Company's business or results of operations. In addition, the Company does not
have long term supply agreements with any of its raw materials suppliers, and it
has historically relied primarily on one supplier for the quartz plates used in
the manufacture of photoblanks, which are a key component in the manufacture of
photomasks. Any disruption in the Company's supply relationships or any delays
in the shipment of supplies or equipment, particularly the supply of quartz
plates, could result in delays or reductions in product shipments by the Company
or increases in product costs that could have a material adverse effect on the
Company's operating results in any given period. In the event of such
disruption, there can be no assurance that the Company could develop alternative
sources within reasonable time frames or, if developed, that such sources would
provide such supplies or equipment at prices comparable with those charged by
the Company's suppliers prior to such disruption. See "Business -- Products and
Technology -- Photoblanks and Pellicles" and "-- Global Manufacturing and
Operations."
COMPETITION; REVERSAL OF CONSOLIDATION TREND
The photomask industry is highly competitive. The Company's ability to
compete in this market is primarily based on product quality, delivery to
schedule performance, pricing, technical capabilities, the location and capacity
of its manufacturing facilities and technical service. Significant competitors
include other independent manufacturers of photomasks, including Photronics,
Inc. ("Photronics"), Compugraphics International Limited ("Compugraphics") in
Europe and Dai Nippon Printing Co. Ltd. ("DNP"), Hoya Corp., Taiwan Mask
Corporation and Toppan Printing Company, Ltd. ("Toppan") in Asia. The Company's
competitors can be expected to continue to develop and introduce new and
enhanced products, any of which could cause a decline in market acceptance of
the Company's products or a reduction in the Company's prices as a result of
intensified price competition. The Company and its competitors have in the past
had excess production capacity resulting from a number of factors, including
improved semiconductor and photomask design and manufacturing efficiencies, that
led to depressed prices. Although the demand for photomasks has recently
increased, there can be no assurance that demand will not decline or that
pressure to reduce prices will not resume, each of which could have a material
adverse effect on the Company's business or results of operations. See "Business
- -- Industry Background."
In addition, Photronics has indicated in its filings with the Securities and
Exchange Commission that it intends to increase its international presence. To
that end, it has made, among other undertakings, certain acquisitions in Europe
and is constructing a manufacturing facility in Singapore. There can be no
assurance that increased competition on an international level from Photronics
or any other photomask manufacturer will not have a material adverse effect on
the Company's business or results of operations. See "Business -- Global
Manufacturing and Operations" and "-- Competition."
The Company also competes with a limited number of captive photomask
operations when such operations have excess capacity. Beginning in the
mid-1980's, a trend developed toward the divestiture or closing of captive
photomask operations by semiconductor manufacturers. There can be no assurance
that this trend will continue or that it will not reverse, thereby increasing
competition and reducing the demand for photomasks produced by independent
photomask suppliers like the Company. In particular, as photomasks continue to
reemerge as a critical and enabling technology in the semiconductor
manufacturing process, there can be no assurance that semiconductor
manufacturers will not form new captive operations to ensure that their
photomask needs are met, particularly for advanced and leading edge photomasks.
See "Business -- Competition."
7
<PAGE>
GROWTH BY ACQUISITION
The Company's growth has been achieved, in large part, by means of
acquisitions. The Company from time to time evaluates and enters into
negotiations with respect to potential acquisitions, and the Company may make
additional acquisitions in the future. There can be no assurance that the
Company will be able to locate suitable acquisition opportunities, that it will
be able to obtain the necessary financing for any future acquisitions, that it
will be able to effectively and profitably integrate into the Company any
operations that are acquired in the future or that any future acquisitions will
not have a material adverse effect on the Company's operating results or on the
market price of the Company's Common Stock, particularly during the periods
immediately following such acquisitions. In addition, to the extent that the
Company is unable to locate suitable acquisition opportunities, future revenues
will depend upon the Company's existing business. See "-- Recent Losses,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- DuPont Photomasks."
MANUFACTURING RISKS
The Company's manufacturing processes are highly complex, require the use of
expensive and technologically sophisticated equipment and materials and are
continuously subject to modification in an effort to improve manufacturing
yields and product quality. Minute impurities or other difficulties in the
manufacturing process can lower manufacturing yields and make products
unmarketable. Moreover, manufacturing leading edge photomasks is relatively more
complex and time-consuming than manufacturing high-volume, less advanced
photomasks, which may lead to general delays in the manufacturing of all levels
of photomasks. The Company has, on occasion, experienced manufacturing
difficulties and capacity limitations that have delayed the Company's ability to
deliver products within the time frames contracted for by some or all of its
customers. There can be no assurance that the Company will not experience these
or other manufacturing difficulties, increased costs or production capacity
constraints in the future, any of which could result in a loss of customers or
could otherwise have a material adverse effect on the Company's business or
results of operations. See "Business -- Global Manufacturing and Operations."
DEPENDENCE ON MANAGEMENT AND TECHNICAL PERSONNEL
The Company's continued success depends upon, in part, key managerial,
engineering and technical personnel, as well as the Company's ability to
continue to attract and retain additional personnel. The loss of certain key
personnel could have a material adverse effect on the Company's business or
results of operations. There can be no assurance that the Company can retain its
key managerial, engineering and technical employees. The Company's growth may be
dependent on its ability to attract new highly skilled and qualified personnel.
There can be no assurance that its recruiting efforts to attract and retain such
personnel will be successful. In addition, there can be no assurance that
modification of employee compensation plans from those previously provided by
DuPont to those currently provided by the Company will not cause certain
employees to terminate their employment with the Company. See "Business --
Employees" and "Management -- Compensation of Company Employees."
SIGNIFICANT INTERNATIONAL OPERATIONS
Approximately 44% of the Company's sales in fiscal 1995 and approximately
42% of the Company's sales for the nine months ended March 31, 1996 were derived
from sales in foreign markets. The Company expects sales from foreign markets to
continue to represent a significant portion of total sales. The Company operates
three manufacturing facilities as well as sales and technical support service
centers in Europe and Asia. In addition, DPI is currently participating in the
construction of a manufacturing facility in Shanghai, China as part of a joint
venture arrangement with the Shanghai Institute of Metallurgy and intends to
construct a photomask manufacturing facility on a "greenfield" site near
Glasgow, Scotland. Certain risks are inherent in international operations,
including exposure to currency exchange rate fluctuations, political and
economic conditions, unexpected changes in regulatory requirements, exposure to
different legal standards, particularly with respect to intellectual property,
future import and export restrictions, difficulties in staffing and managing
operations, difficulties in collecting receivables and potentially adverse tax
consequences. There can be no assurance that the above factors will not have a
material adverse effect on the Company's business or results of operations. See
"Business -- Global Manufacturing and Operations."
8
<PAGE>
Prior to the Offering, DuPont managed the Company's exposure to fluctuations
in foreign currency exchange rates as part of DuPont's overall management of
exchange rate exposure for DuPont and its subsidiaries, as a whole, and no
separate hedging of the Company's foreign currency exchange exposure was
undertaken. However, following the Offering, the Company plans to independently
monitor its foreign currency exchange rate exposure and may attempt to reduce
such exposure in the future by hedging. There can be no assurance that the
Company will establish foreign currency exchange rate exposure controls, or if
established, that such controls will be adequate to eliminate, or even mitigate,
the impact of foreign currency exchange rate fluctuations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Other Matters."
NO INDEPENDENT OPERATING HISTORY PRIOR TO THE OFFERING
Prior to the Offering, the Company has been a wholly owned subsidiary of
DuPont, through DCEO, and has had no independent operating history. As a result,
following the Offering, the Company will be required to develop financial,
management, administrative, research and other resources previously provided by
DuPont, which are necessary to operate successfully as an independent public
company. In addition, the Company will have to develop its own system of
internal controls to ensure the reliability of its financial reporting. Although
the Company and DuPont have entered into several agreements that are, in part,
intended to ease the Company's transition to an independent public company,
there can be no assurance that the Company will be able to develop these
resources and controls. In particular, as a wholly owned subsidiary of DuPont,
the Company has benefited from its ability to finance its operations and growth,
in part, through funding provided by DuPont at favorable rates. Although the
Company will have access, subject to certain conditions, to a $30 million credit
facility provided by DuPont, there can be no assurance that alternative sources
of financing will be available upon the expiration of such facility in January
1998 or that alternative sources of funding will be available if DPI's borrowing
requirements exceed the amount of the facility. In addition, there can be no
assurance that even if funding is available, that the terms thereof will be
attractive to the Company. If such financing is not available, the Company may
be materially limited in its ability to fund capital expenditures and other
investments. See "-- Rapid Technological Change; Capital Intensive Industry,"
"-- Control by and Relationship with DuPont" and "Transactions and Relationship
Between the Company and DuPont -- Credit Facility."
Following the Offering, the Company will need to manage the risks associated
with the operation of its business, including general liability, property,
workers' compensation, catastrophic medical and business interruption. To manage
these risks, the Company intends to obtain insurance prior to the consummation
of the Offering. However, there can be no assurance that the Company will be
able to obtain insurance adequate to cover its risks and failure to secure such
insurance could have a material adverse effect on the Company should an
uninsured event occur.
FLUCTUATIONS IN QUARTERLY AND ANNUAL EARNINGS
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could adversely affect sales or profitability or lead to
significant variability of operating results, which in turn could result in
volatility in the market price of the Company's Common Stock. These factors
include the volume and timing of orders shipped. Since the Company's business is
characterized by short term orders and shipment schedules without a significant
backlog for products, substantially all of the Company's sales in any quarter
are dependent upon orders received during that quarter, which limits the
Company's ability to respond to a changing business environment. In addition,
changes in the mix of products sold, market acceptance of the Company's and its
customers' products, competitive pricing pressures, the Company's ability to
meet increasing demand and delivery schedules, fluctuations in manufacturing
yields, fluctuations in currency exchange rates, cyclical semiconductor industry
conditions, the Company's access to advanced process technologies and the timing
and extent of product and process development costs could also affect operating
results. Moreover, the Company is limited in its ability to reduce costs quickly
in response to any revenue shortfalls due to the need to make ongoing and
significant capital investments. As a result of the foregoing and other factors,
there can be no assurance that the Company will not experience material adverse
fluctuations in future operating results on a quarterly or annual basis. Results
of operations in any period therefore should not be considered indicative of the
results to be expected for any future period, and
9
<PAGE>
fluctuations in operating results may also result in fluctuations in the market
price of the Company's Common Stock. See "-- Rapid Technological Change; Capital
Intensive Industry" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results of Operations."
RECENT LOSSES
Although the Company had net income of $4.1 million for the year ended June
30, 1995, and net income of $18.4 million for the nine months ended March 31,
1996, the Company reported losses before income taxes of $10.9 million and $37.6
million for fiscal 1994 and 1993, respectively. An important reason for these
losses was that fixed costs increased faster than sales as the Company added
capacity in the early 1990's. The Company anticipates adding capacity in the
near future. There can be no assurance that sales will increase correspondingly
as fixed costs increase or that the Company will be able to sustain
profitability in the future. See "-- Rapid Technological Change; Capital
Intensive Industry" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CONTROL BY AND RELATIONSHIP WITH DUPONT
Upon the completion of the Offering, DuPont, through DCEO, will own
approximately 72% of the outstanding Common Stock (or 70% if the Underwriters'
overallotment option is exercised in full). As a result, DuPont will have
sufficient voting power to control the direction and policies of the Company,
including mergers, consolidations, the sale of all or substantially all of the
assets of the Company and the election of the Board of Directors of the Company,
and to prevent or cause a change in control of the Company. See "Principal
Stockholder and Stock Ownership."
Historically, the Company has derived certain tangible and intangible
benefits from being a subsidiary of DuPont. Subsequent to the consummation of
this Offering, the relationship between the Company and DuPont will be defined
pursuant to several transitional agreements. While these agreements will
continue to provide the Company with certain benefits, the Company is only
entitled to the ongoing assistance of DuPont for a limited time and it may not
enjoy benefits from its relationship with DuPont beyond the term of the
agreements, including benefits derived from DuPont's reputation, research and
development, supply of raw materials, trade names and trademarks and credit
support. There can be no assurance that the Company upon termination of such
assistance from DuPont will be able to provide adequately such services
internally or obtain favorable arrangements from third parties to replace such
services. See "-- No Independent Operating History Prior to the Offering" and
"Transactions and Relationship Between the Company and DuPont."
EFFECT OF SALES OF SUBSTANTIAL AMOUNTS OF COMMON STOCK
Subject to the restrictions described herein under "Shares Eligible for
Future Sale" and applicable law, DuPont will be free to sell any and all of the
shares of Common Stock of the Company that it indirectly owns. DuPont has
advised the Company that it expects to reduce its ownership interest in the
Company over time, subject to prevailing market and other conditions. No
predictions can be made as to the effect, if any, that market sales of such
shares, or the availability of such shares for future sale, will have on the
market price of the Common Stock. Sales of a significant number of such shares
in the public market could adversely affect prevailing market prices for the
Common Stock and could impair the Company's future ability to raise capital
through an offering of equity securities, which in turn could adversely affect
the Company's business or results of operations. Each of the Company and DCEO
has agreed not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated, subject to certain exceptions. See
"Shares Eligible for Future Sale" and "Underwriters."
ABSENCE OF PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq National
Market, there can be no assurance that an active trading market will develop or
be sustained after the Offering, or that purchasers of Common Stock will be able
to resell their Common Stock at prices equal to or greater than the initial
public offering price.
10
<PAGE>
The initial public offering price will be determined by negotiations among the
Company and the Underwriters and may not be indicative of the prices that may
prevail in the public market. See "Underwriters." Furthermore, the market price
of the Common Stock may be highly volatile. Factors such as announcements of
fluctuations in the Company's or its competitors' operating results and market
conditions for growth stocks or technology stocks in general could have a
significant impact on the future price of the Common Stock. In particular, the
common stock of many technology companies have experienced extreme price and
volume fluctuations, which have at times been unrelated to the operating
performance of such companies whose stock prices were affected.
DILUTION INCURRED BY INVESTORS
The offering price is substantially higher than the net tangible book value
per share of Common Stock. Accordingly, investors participating in the Offering
will incur immediate and substantial dilution in the amount of $4.87 per share,
assuming a public offering price of $15.00 per share. See "Dilution."
NO ANTICIPATED DIVIDENDS
The Company does not anticipate paying dividends in the foreseeable future.
See "Dividend Policy."
PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY
The Company believes that the success of its business depends primarily on
its proprietary technology, information and processes and know-how, rather than
on patents or trademarks. Much of the Company's proprietary information and
technology relating to manufacturing processes is not patented and may not be
patentable. There can be no assurance that the Company will be able to
adequately protect its technology, that competitors will not be able to develop
similar technology independently, that the claims allowed on any patents held by
the Company will be sufficiently broad to protect the Company's technology or
that foreign intellectual property laws will adequately protect the Company's
intellectual property rights. In addition, any litigation in the future to
enforce patents issued to the Company, to protect trade secrets or know-how
possessed by the Company or to defend the Company against claimed infringement
of the rights of others could have a material adverse effect on the Company's
business or operating results. See "Business -- Intellectual Property."
ENVIRONMENTAL MATTERS
Federal, state, local and foreign laws and regulations impose various
environmental controls on, among other things, the discharge of pollutants into
the air and water and the handling, use, storage, disposal and clean-up of solid
and hazardous wastes. As a result, the Company will incur costs, on an ongoing
basis, associated with environmental regulatory compliance. In addition, more
stringent environmental laws and regulations may be enacted in the future, which
may require the Company to expend additional amounts on environmental compliance
or may require modifications in the Company's operations. Any failure by the
Company to adequately comply with such laws and regulations could subject the
Company to significant future liabilities. See "Business -- Environmental
Matters."
USE OF PROCEEDS
The estimated net proceeds from the sale of the Common Stock offered hereby,
assuming an initial offering price of $15.00 per share, after deducting
estimated offering expenses and the underwriting discounts and commissions
payable by the Company, are approximately $55 million. The Company will retain
an amount, currently estimated at $9.1 million, of such proceeds; such that,
upon the consummation of the Offering, it will have approximately $18 million in
cash and cash equivalents, which will be available for general corporate
purposes, including working capital and capital expenditures.
The Company will use the remaining $46.0 million of such proceeds to repay
indebtedness owed to DCEO under a master note agreement, which is payable on
demand and currently bears interest at 5.38% (the "Master Note"). The
indebtedness incurred by the Company from time to time under the Master Note was
used for acquisitions, capital expenditures and working capital. If the
Underwriters' overallotment option is exercised in full, the net proceeds from
the sale of such shares of Common Stock by the Company, estimated to be
approximately $8 million, will also be used to repay indebtedness owed to DCEO
under the
11
<PAGE>
Master Note. The remaining balance owed under the Master Note, upon completion
of the repayment described above, will be contributed as equity capital to the
Company by DCEO. See "Transactions and Relationship Between the Company and
DuPont -- Realignment of Photomask Business."
DIVIDEND POLICY
The Company currently intends to retain its earnings to finance future
growth and therefore does not anticipate paying any cash dividends in the
foreseeable future. The declaration and payment of dividends, if any, will be
subject to the discretion of the Company's Board of Directors and will depend on
the Company's earnings, capital requirements, financial condition, statutory
restrictions and other factors deemed to be relevant by the Board of Directors.
See "Risk Factors -- No Anticipated Dividends."
DILUTION
The net tangible book value of the Company as of March 31, 1996 was $(31.3)
million, or $(2.98) per outstanding share of Common Stock after giving effect to
the issuance of one million shares to DCEO for nominal consideration subsequent
to March 31, 1996. The net tangible book value per share represents the amount
of total tangible assets less total liabilities of the Company, divided by the
number of shares of Common Stock outstanding following the realignment of the
photomask business as described herein but prior to the Offering. After giving
effect to the sale by the Company of 4,000,000 shares of Common Stock in the
Offering at an assumed initial public offering price of $15.00 per share, after
deduction of underwriting discounts and commissions and estimated offering
expenses and following the capital contribution by DCEO described under "Use of
Proceeds," the pro forma net tangible book value of the Company at March 31,
1996, would have been $146.9 million, or $10.13 per outstanding share of Common
Stock. This represents an immediate dilution in net tangible book value of $4.87
per share to the purchasers of shares of Common Stock in the Offering. Dilution
is determined by subtracting net tangible book value per share of Common Stock
after the Offering from the amount of cash paid by a new investor for a share of
Common Stock. The following table illustrates the dilution per share of Common
Stock:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $ 15.00
Net tangible book value per share......................... $ (2.98)
Increase in net tangible book value per share attributable
to capital contributions by DCEO......................... 11.71
Increase in net tangible book value per share attributable
to investors in the Offering............................. 1.40
Pro forma net tangible book value per share after the
Offering................................................. 10.13
---------
Dilution to new investors................................. $ 4.87
---------
---------
</TABLE>
The following table summarizes, on the basis of the assumptions referred to
above, the number of shares to be retained by DuPont and to be purchased by new
investors in the Offering, and the total consideration and the average price per
share paid by DuPont and the new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DuPont........................... 10,500,000 72% $ 95,867,000 63% $ 9.13
New Investors.................... 4,000,000 28 55,140,000 37 $ 13.79
------------ --- -------------- ---
Total (1).................... 14,500,000 100% $ 151,007,000 100%
------------ --- -------------- ---
------------ --- -------------- ---
</TABLE>
- ------------------------
(1) Excludes shares of Common Stock granted under the Company's employee benefit
plans.
12
<PAGE>
CAPITALIZATION
The following table sets forth the combined capitalization of the Company as
of March 31, 1996, pro forma as of March 31, 1996 assuming the capital
contributions by DCEO and as adjusted to reflect the Offering at an assumed
public offering price of $15.00 per share and the application of the estimated
net proceeds as described herein under "Use of Proceeds."
<TABLE>
<CAPTION>
PRO FORMA, AS
ACTUAL PRO FORMA (1) ADJUSTED (1)
---------- ------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short Term Borrowings (2).............................................. $ 4,691 $ 4,691 $ 4,691
---------- ------------- --------------
---------- ------------- --------------
Long Term Borrowings (2)............................................... $ 8,987 $ 8,987 $ 8,987
DuPont Master Notes (3)................................................ 162,320 46,031 --
Owner's Net Investment/Shareholders' Equity:
Owner's Net Investment............................................... (36,472) 86,517 --
Common Stock, $.01 par value; 25,000,000 shares authorized;
14,500,000 shares issued and outstanding for pro forma, as adjusted
(4)................................................................. -- -- 145
Additional Paid-in Capital........................................... -- -- 141,512
Unrealized Holding Gains............................................. 9,350 9,350 9,350
---------- ------------- --------------
Total Capitalization................................................... $ 144,185 $ 150,885 $ 159,994
---------- ------------- --------------
---------- ------------- --------------
</TABLE>
- ------------------------
(1) See "Pro Forma Combined Financial Statements."
(2) For a description of the Company's borrowings, see Note 15 to the Combined
Financial Statements for the nine months ended March 31, 1996.
(3) For a description of the Master Note, see "Use of Proceeds."
(4) Excludes shares of Common Stock granted under the Company's employee benefit
plans.
13
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following tables set forth selected combined historical and pro forma
financial data of the Company. The historical statement of operations data for
the three years ended June 30, 1995 and the nine months ended March 31, 1996 and
the historical statement of financial position data as of June 30, 1995 and 1994
and March 31, 1996 have been derived from the Combined Financial Statements
audited by Price Waterhouse LLP, independent accountants. The results for the
nine months ended March 31, 1995 have been derived from the unaudited combined
financial statements also appearing herein. The unaudited combined financial
statements, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of the
results for the unaudited period. The results for the nine months ended March
31, 1996 are not necessarily indicative of results to be expected for the full
fiscal year. The pro forma financial data have been derived from the Pro Forma
Combined Financial Statements which were prepared by the Company to illustrate
the estimated effects of the Offering and related transactions described in the
Notes to the Pro Forma Combined Financial Statements as if the Offering and
related transactions had occurred as of July 1, 1994 for purposes of the pro
forma combined statements of operations and as of March 31, 1996 for purposes of
the pro forma combined statement of financial position. The Pro Forma Combined
Financial Statements do not purport to represent what the results of operations
or financial position of the Company would actually have been if the Offering
and related transactions had in fact occurred on such dates or to project the
results of operations or financial position of the Company for any future period
or date. The following data should be read in conjunction with, and are
qualified by reference to, the Combined Financial Statements, the Pro Forma
Combined Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA,
PRO FORMA, AS AS ADJUSTED,
NINE MONTHS ENDED ADJUSTED, FOR FOR THE NINE
YEAR ENDED JUNE 30 MARCH 31 THE YEAR MONTHS ENDED
---------------------------------- ---------------------- ENDED JUNE MARCH 31,
1993 1994 1995 1995 1996 30, 1995 (1) 1996 (1)
---------- ---------- ---------- ---------- ---------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Sales....................... $ 118,896 $ 134,548 $ 161,514 $ 116,670 $ 152,192 $ 161,514 $ 152,192
Cost of Goods Sold................ 112,224 107,456 117,022 85,745 98,717 115,368 97,724
Selling, General and
Administrative Expense........... 18,630 20,750 21,803 16,017 18,164 22,585 19,214
Research and Development Expense
-- Net........................... 8,337 8,131 8,777 6,385 6,955 7,260 6,113
Other Operating (Income) Expense
-- Net........................... 8,497 2,940 3,490 2,317 3,219 3,156 2,941
---------- ---------- ---------- ---------- ---------- ------------- ------------
Operating Profit (Loss)........... (28,792) (4,729) 10,422 6,206 25,137 13,145 26,200
Interest Expense.................. 9,196 5,814 6,957 5,054 5,091 59 102
Exchange (Gain) Loss.............. (430) 322 (493) (476) 228 (665) (68)
---------- ---------- ---------- ---------- ---------- ------------- ------------
Income (Loss) Before Income Taxes
and Minority Interest............ (37,558) (10,865) 3,958 1,628 19,818 13,751 26,166
Provision for Income Taxes........ -- -- -- -- 1,899 3,712 9,158
---------- ---------- ---------- ---------- ---------- ------------- ------------
Income (Loss) Before Minority
Interest......................... (37,558) (10,865) 3,958 1,628 17,919 10,039 17,008
Minority Interest in Income (Loss)
of Majority Owned Joint
Venture.......................... -- -- (161) (82) (483) (161) (483)
---------- ---------- ---------- ---------- ---------- ------------- ------------
Net Income (Loss)................. $ (37,558) $ (10,865) $ 4,119 $ 1,710 $ 18,402 $ 10,200 $ 17,491
---------- ---------- ---------- ---------- ---------- ------------- ------------
---------- ---------- ---------- ---------- ---------- ------------- ------------
Pro Forma Net Income Per Share.... $ 0.70 $ 1.20
Pro Forma Weighted Average Shares
Outstanding...................... 14,620 14,620
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996
JUNE 30 -----------------------------------------
---------------------- PRO FORMA, AS
1994 1995 ACTUAL PRO FORMA (1) ADJUSTED (1)
---------- ---------- ---------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL POSITION DATA:
Cash and Cash Equivalents..................... $ 3,924 $ 8,412 $ 8,891 $ 8,891 $ 18,000
Working Capital............................... 22,853 16,405 13,250 25,818 34,927
Net Property, Plant and Equipment............. 112,043 113,124 114,231 114,231 114,231
Total Assets.................................. 160,901 171,701 190,347 194,849 203,958
Long Term Borrowings.......................... 6,704 4,265 8,987 8,987 8,987
DuPont Master Notes........................... 140,846 125,570 162,320 46,031 --
Owner's Net Investment/Shareholders' Equity... (7,229) 5,082 (36,472) 86,517 141,657
Unrealized Holding Gains...................... -- -- 9,350 9,350 9,350
</TABLE>
- ------------------------
(1) The Selected Combined Pro Forma Financial Data are derived from the
Company's Pro Forma Combined Financial Statements appearing elsewhere in
this Prospectus. The Pro Forma Combined Financial Statements were prepared
by the Company to illustrate the estimated effects of the Offering and
related transactions described in the Notes to the Pro Forma Combined
Financial Statements as if they had occurred as of July 1, 1994 for purposes
of the Pro Forma Combined Statements of Operations and as of March 31, 1996
for purposes of the Pro Forma Combined Statement of Financial Position. See
"Pro Forma Combined Financial Statements."
SELECTED FIVE-YEAR DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED JUNE 30
----------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Sales.......................................... $ 105,229 $ 119,522 $ 118,896 $ 134,548 $ 161,514
Net Income (Loss).................................... (33,725) (35,429) (37,558) (10,865) 4,119
Total Assets......................................... 189,935 185,298 176,953 160,901 171,701
Third Party Borrowings............................... 34,621 35,533 3,731 8,090 7,225
DuPont Master Notes.................................. 126,236 136,786 142,841 140,846 125,570
</TABLE>
15
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following tables set forth Pro Forma Combined Financial Statements of
the Company for the year ended June 30, 1995 and as of and for the nine months
ended March 31, 1996. The pro forma financial statements were prepared by the
Company to illustrate the estimated effects of the Offering and related
transactions described in the Notes to Pro Forma Combined Financial Statements
as if they had occurred as of July 1, 1994 for purposes of the pro forma
combined statements of operations and as of March 31, 1996 for purposes of the
pro forma combined statement of financial position. The Pro Forma Combined
Financial Statements do not purport to represent what the results of operations
or financial position of the Company would actually have been if the Offering
and related transactions had in fact occurred on such dates or to project the
results of operations or financial position of the Company for any future period
or date. The Pro Forma Combined Financial Statements should be read together
with the Combined Financial Statements of the Company and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA,
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- ----------------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents............................ $ 8,891 $ $ 8,891 $ 9,109(2) $ 18,000
Accounts Receivable, Trade -- Net.................... 29,580 29,580 29,580
Accounts Receivable, Related Parties................. 2,331 2,331 2,331
Accounts and Notes Receivable, Miscellaneous......... 3,405 3,405 3,405
Inventories.......................................... 8,158 8,158 8,158
Deferred Income Taxes................................ 2,484(3) 2,484 2,484
Prepaid Expenses and Other Current Assets............ 472 472 472
----------- ----------------- ----------- ------------- -----------
Total Current Assets................................. 52,837 2,484 55,321 9,109 64,430
Net Property, Plant and Equipment.................... 114,231 114,231 114,231
Accounts Receivable, Related Parties --
Non-Current......................................... 1,835 1,835 1,835
Deferred Income Taxes................................ 2,156 2,018(3) 4,174 4,174
Other Assets......................................... 19,288 19,288 19,288
----------- ----------------- ----------- ------------- -----------
Total Assets..................................... $ 190,347 $ 4,502 $ 194,849 $ 9,109 $ 203,958
----------- ----------------- ----------- ------------- -----------
----------- ----------------- ----------- ------------- -----------
LIABILITIES, DUPONT MASTER NOTES AND
OWNER'S NET INVESTMENT / SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable, Trade.............................. $ 4,791 $ $ 4,791 $ $ 4,791
Accounts Payable, Related Parties.................... 15,867 (8,129)(4) 7,738 7,738
Accounts Payable, Miscellaneous...................... 1,740 1,740 1,740
Short Term Borrowings................................ 4,691 4,691 4,691
Other Accrued Liabilities............................ 12,498 (1,955)(1) 10,543 10,543
----------- ----------------- ----------- -----------
Total Current Liabilities........................ 39,587 (10,084) 29,503 29,503
Long Term Borrowings................................. 8,987 8,987 8,987
Deferred Income Taxes................................ 7,886(3) 7,886 7,886
Other Liabilities.................................... 5,526 5,526 5,526
Minority Interest in Net Assets of Majority Owned
Joint Venture....................................... 1,049 1,049 1,049
DuPont Master Notes.................................. 162,320 (116,289)(4) 46,031 (46,031)(2) --
Owner's Net Investment / Shareholders' Equity........ (36,472) 122,989 (1)(3)(4 86,517 55,140(2) 141,657
Unrealized Holding Gains............................. 9,350 9,350 9,350
----------- ----------------- ----------- ------------- -----------
Total Liabilities, DuPont Master Notes and
Owner's Net Investment / Shareholders' Equity... $ 190,347 $ 4,502 $ 194,849 $ 9,109 $ 203,958
----------- ----------------- ----------- ------------- -----------
----------- ----------------- ----------- ------------- -----------
</TABLE>
See Notes to Pro Forma Combined Statement of Financial Position
16
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION
1. Adjustment reflects the retention of certain Company related payroll
liabilities by DuPont.
2. Adjustments reflect the Offering and the repayment of a portion of the
Master Note with the net proceeds of the Offering. The Company intends to
retain sufficient proceeds to have approximately $18 million in cash and
cash equivalents after the Offering.
3. Adjustments reflect deferred taxes arising from the fact that, following the
Offering, DPI's tax return will not be consolidated with that of DuPont's.
As a result, net operating losses, which were previously utilized by DuPont
and were assumed to be available solely for determining taxes under the
separate taxpayer approach in SFAS 109, will not be available to offset
deferred tax liabilities. Certain future tax benefits, aggregating $3.6
million, are included in Accounts Payable, Related Parties since such
amounts will be paid to DuPont when utilized pursuant to the terms of the
Tax Indemnification Agreement described herein. See "Transactions and
Relationship Between the Company and DuPont -- Tax Indemnification
Agreement."
4. Adjustments to the Master Note and Accounts Payable, Related Parties reflect
the contribution to capital by DCEO of the balances remaining outstanding
under the Master Note and Accounts Payable, Related Parties that were not
repaid with the proceeds of the Offering.
17
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA,
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ---------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales......................................... $ 155,146 $ $ 155,146 $ $ 155,146
Sales to Related Parties...................... 6,368 6,368 6,368
---------- ---------------- -------------
Total Sales................................... 161,514 161,514 161,514
Cost of Goods Sold............................ 117,022 (1,654)(1) 115,368 115,368
---------- ------------- ---------------- -------------
Gross Profit.................................. 44,492 1,654 46,146 46,146
Selling, General and Administrative Expense... 21,803 782(2) 22,585 22,585
Research and Development Expense -- Net....... 8,777 (1,517)(3) 7,260 7,260
Other Operating (Income) Expense -- Net....... 3,490 (334)(4) 3,156 3,156
---------- ------------- ---------------- -------------
Operating Profit.............................. 10,422 2,723 13,145 13,145
Interest Expense.............................. 6,957 (4,444)(5) 2,513 (2,454)(5) 59
Exchange (Gain) Loss.......................... (493) (172)(6) (665) (665)
---------- ------------- ---------------- ------------ -------------
Income Before Income Taxes and Minority
Interest..................................... 3,958 7,339 11,297 2,454 13,751
Provision for Income Taxes.................... -- 3,050(7) 3,050(7) 662(7) 3,712
---------- ------------- ---------------- ------------ -------------
Income Before Minority Interest............... 3,958 4,289 8,247 1,792 10,039
Minority Interest in Income (Loss) of Majority
Owned Joint Venture.......................... (161) (161) (161)
---------- ------------- ---------------- ------------ -------------
Net Income.................................... $ 4,119 $ 4,289 $ 8,408 $ 1,792 $ 10,200
---------- ------------- ---------------- ------------ -------------
---------- ------------- ---------------- ------------ -------------
Pro Forma Net Income Per
Common Share................................. $ 0.70
Pro Forma Weighted Average Shares
Outstanding.................................. 14,620(8)
</TABLE>
See Notes to Pro Forma Combined Statements of Operations
18
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA,
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales.......................................... $ 145,471 $ $ 145,471 $ $ 145,471
Sales to Related Parties....................... 6,721 6,721 6,721
---------- ------------- --------------
Total Sales.................................... 152,192 152,192 152,192
Cost of Goods Sold............................. 98,717 (993)(1) 97,724 97,724
---------- ------------- ------------- --------------
Gross Profit................................... 53,475 993 54,468 54,468
Selling, General and Administrative Expense.... 18,164 1,050(2) 19,214 19,214
Research and Development Expense -- Net........ 6,955 (842)(3) 6,113 6,113
Other Operating (Income) Expense -- Net........ 3,219 (278)(4) 2,941 2,941
---------- ------------- ------------- --------------
Operating Profit............................... 25,137 1,063 26,200 26,200
Interest Expense............................... 5,091 (3,574)(5) 1,517 (1,415)(5) 102
Exchange (Gain) Loss........................... 228 (296)(6) (68) (68)
---------- ------------- ------------- ------------- --------------
Income Before Income Taxes and Minority
Interest...................................... 19,818 4,933 24,751 1,415 26,166
Provision for Income Taxes..................... 1,899 6,764(7) 8,663(7) 495(7) 9,158
---------- ------------- ------------- ------------- --------------
Income before Minority Interest................ 17,919 (1,831) 16,088 920 17,008
Minority Interest in Income (Loss) of Majority
Owned Joint Venture........................... (483) (483) (483)
---------- ------------- ------------- ------------- --------------
Net Income..................................... $ 18,402 $ (1,831) $ 16,571 $ 920 $ 17,491
---------- ------------- ------------- ------------- --------------
---------- ------------- ------------- ------------- --------------
Pro Forma Net Income Per
Common Share.................................. $ 1.20
Pro Forma Weighted Average Shares
Outstanding................................... 14,620(8)
</TABLE>
See Notes to Pro Forma Combined Statements of Operations
19
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1995 MARCH 31, 1996
------------- ------------------
<C> <S> <C> <C> <C>
1. Adjustments to cost of goods sold reflect the following:
Changes in benefit plans............................................ (a) $ (567) $ (335)
Elimination of DuPont allocated overhead expenses................... (b) (3,086) (1,761)
Additional contracted services and employees........................ (c) 1,999 1,103
------------- -------
$ (1,654) $ (993)
------------- -------
------------- -------
2. Adjustments to selling, general and administrative expense reflect the following:
Changes in benefit plans............................................ (a) $ (111) $ (100)
Elimination of DuPont allocated overhead expenses................... (b) (6,573) (3,572)
Additional contracted services and employees........................ (c) 6,566 4,047
Stock Performance Plan.............................................. (d) 900 675
------------- -------
$ 782 $ 1,050
------------- -------
------------- -------
3. Adjustments to research and development expense reflect the following:
Changes in benefit plans............................................ (a) $ (34) $ (29)
Elimination of DuPont allocated overhead expenses................... (b) (1,966) (1,063)
Additional contracted services and employees........................ (c) 483 250
------------- -------
$ (1,517) $ (842)
------------- -------
------------- -------
4. Adjustments to other operating expense reflect the following:
Elimination of DuPont allocated overhead expenses................... (b) $ (560) $ (396)
Additional contracted services and employees........................ (c) 226 118
------------- -------
$ (334) $ (278)
------------- -------
------------- -------
</TABLE>
5. Adjustment to interest expense, at a weighted average interest rate of 5% and
4% for the year ended June 30, 1995 and the nine months ended March 31, 1996,
respectively, reflects the reductions in the DuPont Master Note from the
contribution to capital by DCEO of the balance of the Master Note not repaid
with proceeds of the Offering and the partial repayment of the Master Note
with estimated net proceeds from the Offering.
6. Adjustment to exchange (gain) loss reflects the payment of dividends to
DuPont de Nemours (Deutschland) GmbH by DuPont Photomasks GmbH & Co. KG and
the refinancing of DuPont Photomasks (France) S.A.'s Master Note to U.S.
Dollars.
7. Federal, state and foreign income taxes have been computed using an estimated
combined effective rate of 27% for the year ended June 30, 1995 and 35% for
the nine months ended March 31, 1996. For the year ended June 30, 1995, the
estimated combined effective rate differs from the U.S. statutory rate
primarily due to the Company's tax exemption in Korea. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
8. The number of shares have been computed based on the Offering and the
realignment of the photomask business as described under "Transactions and
Relationship Between the Company and DuPont -- Realignment of Photomask
Business" in this Prospectus. The number of shares includes the estimated
number of shares of restricted stock to be issued under DPI's Stock
Performance Plan.
- ------------------------
Footnotes:
a. CHANGES IN BENEFIT PLANS. The Company will not continue to provide DuPont's
postretirement or postemployment benefits to employees and will replace
DuPont's defined benefit pension plan with a
20
<PAGE>
defined contribution retirement plan. The impact of these changes in
benefits will be the elimination of benefits expense related to discontinued
DuPont plans of $1,491 for the year ended June 30, 1995 and $1,145 for the
nine months ended March 31, 1996, and the addition of expense related to the
Company's defined contribution retirement plan of $779 for the year ended
June 30, 1995 and $681 for the nine months ended March 31, 1996. See
"Management -- Compensation of Company Employees."
b. ELIMINATION OF DUPONT ALLOCATED OVERHEAD EXPENSES. Represents the
elimination of DuPont allocated overhead expenses that are not expected to
be incurred by the Company following the Offering.
c. ADDITIONAL CONTRACTED SERVICES AND EMPLOYEES. Represents the addition of
services to be provided by third parties or DuPont pursuant to transitional
administrative services agreements with DuPont and its subsidiaries and
additional employees assumed to be hired by the Company to replace those
services previously provided by DuPont. See "Transactions and Relationship
Between the Company and DuPont -- Administrative Services Agreements."
d. STOCK PERFORMANCE PLAN. Represents the compensation expense the Company
will recognize related to restricted stock granted under its Stock
Performance Plan. The Company estimates that it will recognize approximately
$1,800 of expense related to the Plan during the two years following the
Offering. See "Management -- Compensation of Company Employees --
Compensation of DPI Employees in 1996 -- Stock Performance Plan."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Combined
Financial Statements of the Company appearing elsewhere in this Prospectus.
Prior to the Offering, DPI was reincorporated in Delaware, and DuPont's foreign
photomask operations were realigned so that these operations would be conducted
by wholly owned subsidiaries of DPI. See "Transactions and Relationship Between
the Company and DuPont -- Realignment of Photomask Business." The pro forma
information, which is presented herein to facilitate additional analysis, should
be read in conjunction with the Pro Forma Combined Financial Statements
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
references to years with respect to the Company's financial condition and
results of operations in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are to fiscal years.
OVERVIEW
Based on worldwide sales, DuPont Photomasks, Inc. is the largest U.S.
photomask manufacturer and one of the two largest photomask manufacturers in the
world. Photomasks are high-purity quartz or glass plates containing precision
microscopic images of integrated circuits and are used as masters by
semiconductor manufacturers to optically transfer these images onto
semiconductor wafers. The Company develops and uses advanced technology to
manufacture a broad range of photomasks based on customer-supplied design data,
including photomasks that meet the tightest design specifications by
semiconductor manufacturers today. The Company serves its global customer base
from eight ISO 9002-qualified manufacturing facilities and numerous customer
service centers.
DuPont, which currently owns, through DCEO, 100% of the outstanding Common
Stock of DPI, entered the photomask market in 1986 with the acquisition of Tau
Laboratories, a merchant photomask supplier whose principal customers were
Delco/General Motors and Motorola. From this base, DuPont embarked on a strategy
to establish a global presence that would enable it to respond to the needs of
multi-national semiconductor manufacturers. As part of this strategy, DuPont (i)
purchased assets of numerous captive photomask operations, (ii) acquired
merchant photomask companies and (iii) constructed "greenfield" sites in Round
Rock, Texas (1987) and Ichon, Korea (1991). In addition, the Company is
currently participating in the construction of a manufacturing facility in
Shanghai, China as part of a joint venture arrangement and is planning to
construct a "greenfield" site near Glasgow, Scotland. See "Business -- DuPont
Photomasks."
During the late 1980's and early 1990's, the photomask market was relatively
flat. While growth in semiconductor manufacturing and new semiconductor designs
generated demand for new photomasks throughout this period, the Company believes
that this underlying growth was offset by advances in semiconductor and
photomask design and production methods that significantly reduced the number of
photomasks required to manufacture a semiconductor device, thereby slowing the
growth of photomask unit sales. See "Business -- Industry Background." The
Company believes that the weak market conditions during this period, in part,
led to the poor financial performance of several merchant photomask
manufacturers, including the Company, which had net losses of $10.9 million and
$37.6 million in 1994 and 1993, respectively. See "Risk Factors -- Recent
Losses."
Since 1993, growth in the photomask market has resumed. The Company's total
sales grew from $118.9 million in 1993 to $161.5 million in 1995. This increase
of approximately 36% was primarily the result of an accelerating trend in the
semiconductor industry toward semiconductor device customization, which
generates demand for new photomasks, and semiconductor device complexity, which
increases the value and number of photomask layers needed to produce a
semiconductor device. In addition, the proliferation of semiconductor devices
into new products and markets contributed to the increase in total sales. See
"Business -- Industry Background." The Company's sales also became more
diversified internationally. North American sales amounted to approximately 65%
of the Company's total sales in 1993 compared to 56% in 1995, while sales in
Europe and Asia accounted for approximately 20% and 15% of sales, respectively,
in 1993 compared to 26% and 18% in 1995. Sales in Europe grew approximately 73%
from 1993 to
22
<PAGE>
1995 from $24.2 million to $42.0 million. The increase in European sales was
primarily attributable to increased growth from certain of the Company's major
customers and the impact of a full year of sales to an affiliate of Philips
Electronics N.V. ("Philips") following the acquisition of selected photomask
manufacturing assets from Philips in mid-1993. Sales in Asia grew approximately
69% from 1993 to 1995 from $17.4 million in 1993 to $29.5 million in 1995, as a
result of the growth experienced by semiconductor manufacturers in Korea. The
Company expects net sales from foreign markets to continue to represent a
significant portion of total sales. Certain risks are inherent in international
operations, including exposure to currency exchange rate fluctuations. See "Risk
Factors -- Significant International Operations" and "-- Other Matters."
Due to the capital intensive nature of photomask manufacturing operations,
at a given level of manufacturing capacity, a high proportion of the Company's
operating costs remains relatively constant as sales volumes increase or
decrease. To the extent that the Company has underutilized production capacity,
profit margins increase or decrease significantly, as sales volumes increase or
decrease. In the early 1990's, the Company had excess capacity; therefore, as
total sales increased from 1993 to 1995, fixed costs associated with
manufacturing remained relatively unchanged, and the Company's gross margins
over the period benefited from this operating leverage. In addition, fixed costs
were reduced by the closure of two of the Company's photomask facilities and the
subsequent consolidation of production into other facilities. The Company has,
for the most part, fully utilized its existing capacity, and anticipates that
fixed operating costs will increase as it adds capacity to position itself for
future growth. See "Risk Factors -- Rapid Technological Change; Capital
Intensive Industry," "Risk Factors -- Recent Losses" and "Business -- Industry
Background."
RESULTS OF OPERATIONS
The following table sets forth the Company's combined statement of
operations data as a percentage of sales for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
FISCAL YEARS ENDED JUNE 30 31
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold.......................................... 94.4 79.9 72.5 73.5 64.9
----- ----- ----- ----- -----
Gross Profit................................................ 5.6 20.1 27.5 26.5 35.1
Selling, General and Administrative Expense................. 15.7 15.4 13.5 13.7 11.9
Research and Development Expense -- Net..................... 7.0 6.0 5.4 5.5 4.6
Other Operating (Income) Expense -- Net..................... 7.1 2.2 2.2 2.0 2.1
----- ----- ----- ----- -----
Operating Profit (Loss)..................................... (24.2) (3.5) 6.4 5.3 16.5
Interest Expense............................................ 7.7 4.3 4.2 4.3 3.3
Exchange (Gain) Loss........................................ (0.4) 0.2 (0.3) (0.4) 0.2
----- ----- ----- ----- -----
Income (Loss) Before Income Taxes and Minority Interest..... (31.5) (8.0) 2.5 1.4 13.0
Provision for Income Taxes.................................. -- -- -- -- 1.2
----- ----- ----- ----- -----
Income (Loss) Before Minority Interest...................... (31.5) (8.0) 2.5 1.4 11.8
Minority Interest in Income (Loss) of Majority Owned Joint
Venture.................................................... -- -- -- (0.1) (0.3)
----- ----- ----- ----- -----
Net Income (Loss)........................................... (31.5)% (8.0)% 2.5% 1.5% 12.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
TOTAL SALES. Total sales is comprised primarily of photomask sales to
semiconductor manufacturers and, to a lesser extent, photoblank and pellicle
sales to other photomask manufacturers. Total sales also includes sales to
related parties, including sales to DuPont operations acting as distributors and
a partnership with DNP. These related party sales have historically accounted
for less than 5% of total sales. Total
23
<PAGE>
sales increased 20.0% from $134.5 million in 1994 to $161.5 million in 1995. Of
the total sales in 1995, less than 10% represents sales of photoblanks and
pellicles to other photomask suppliers. Overall, sales in North America
increased from $81.7 million in 1994 to $90.1 million in 1995; sales in Europe
increased from $31.1 million in 1994 to $42.0 million in 1995; and sales in Asia
increased from $21.7 million in 1994 to $29.5 million in 1995. In addition to a
general increase in demand for most types of photomasks, the increase in total
sales reflects a shift in demand toward the Company's more advanced photomasks,
which tend to have higher average selling prices. This shift in demand reflects
the trend toward greater utilization of more complex semiconductor devices with
finer line-widths. See "Business -- Industry Background."
COST OF GOODS SOLD. Cost of goods sold consists of material, labor,
depreciation and manufacturing and service overhead. Cost of goods sold
increased from $107.5 million in 1994 to $117.0 million in 1995. However, as a
percentage of total sales, cost of goods sold decreased from 79.9% in 1994 to
72.5% in 1995. As a result, gross profit as a percentage of total sales
increased from 20.1% in 1994 to 27.5% in 1995. The improvement primarily
reflects the Company's improved capacity utilization. In addition, the Company
increased the proportion of internally-sourced photoblanks and pellicles used in
its photomask manufacturing, which improved capacity utilization in the
manufacture of these materials. As a result, photoblank and pellicle costs as a
percentage of sales were reduced and margins on photomasks improved. Gross
profit was also improved by lower depreciation and amortization costs of $1.3
million and $1.2 million, respectively, as equipment and intangibles associated
with acquisitions in the late 1980's became fully depreciated and amortized. The
Company does not anticipate that benefits from decreased depreciation and
amortization costs will recur in the near future, as the Company invests in new
capacity to meet anticipated growth in photomask demand. See "Risk Factors --
Rapid Technological Change; Capital Intensive Industry" and "-- Recent Losses."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense includes salaries of sales personnel, marketing expense,
general and administrative expense and finished product distribution expense.
Selling, general and administrative expense increased from $20.8 million in 1994
to $21.8 million in 1995. However, selling, general and administrative expense
decreased as a percentage of sales from 15.4% in 1994 to 13.5% in 1995. The
percentage decrease resulted primarily from greater efficiencies associated with
sales volume increases. General and administrative expense principally include
allocated costs for services provided by centralized DuPont organizations. These
allocated costs are not necessarily indicative of the costs that would have been
incurred by the Company if the Company had been an independent company. See Note
2 to the Pro Forma Combined Statements of Operations and Note 3 to the Combined
Financial Statements appearing elsewhere in this Prospectus.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense consists
primarily of employee cost, cost of material consumed, depreciation of
equipment, engineering related costs and the Company's allocated share of
DuPont's central research and development costs. Research and development
expense for 1995 was $8.8 million compared to $8.1 million in 1994, reflecting
the Company's continuing focus on developing advanced photomasks. However, as a
percentage of sales, research and development expense declined slightly compared
to the prior year, reflecting increased sales. Research and development expense
is net of funds the Company received from customers, industry groups such as
SEMATECH Inc. ("SEMATECH") and the Joint European Submicron Strategic Initiative
("JESSI") and governmental sources in the amount of $1.6 million and $0.5
million for 1994 and 1995, respectively. The Company's allocated share of
DuPont's central research and development costs was $2.4 million and $2.0
million in 1994 and 1995, respectively. The Company anticipates that research
and development expense will continue to increase in absolute terms in the
future, reflecting the Company's strategy of advancing its technological
leadership. See "Risk Factors -- Rapid Technological Change; Capital Intensive
Industry" and "Business -- Research and Development."
OTHER OPERATING (INCOME) EXPENSE. Other operating (income) expense consists
primarily of miscellaneous costs not directly related to the manufacture of the
Company's products. Historically, a significant portion of this item has been
the expense associated with the early retirement of equipment resulting from
24
<PAGE>
technological obsolescence. The timing and amount of these retirements are
uncertain and difficult to predict. Other operating expense for 1994 was $2.9
million compared to $3.5 million in 1995. This increase reflects additional
pre-production costs associated with the Company's joint venture in Shanghai,
China.
INTEREST EXPENSE. The Company's interest expense increased from $5.8
million in 1994 to $7.0 million in 1995, reflecting higher interest rates. The
primary source of interest expense is the Company's Master Notes arrangement
with DuPont. As part of the Realignment of DuPont's photomask business, the
DuPont Master Notes were consolidated into a single Master Note. See
"Transactions and Relationship Between the Company and DuPont -- Realignment of
Photomask Business." A portion of the net proceeds from the Offering will be
used to repay indebtedness under the Master Note. Any remaining balance under
the Master Note will be contributed as equity capital to the Company by DCEO.
See "Use of Proceeds," "-- Liquidity and Capital Resources" and "Transactions
and Relationship Between the Company and DuPont -- Credit Facility." Interest
expense also includes amounts paid pursuant to other long-term borrowings and
capital leases. See Notes 8, 15 and 16 to the Combined Financial Statements.
EXCHANGE (GAIN) LOSS. Exchange (Gain) Loss consists of gains and losses
resulting from the remeasurement of the Company's monetary assets and
liabilities denominated in foreign currencies into U.S. Dollars, which is the
Company's functional currency. The Company incurred a $0.3 million exchange loss
in 1994 compared to a $0.5 million exchange gain in 1995 primarily due to
fluctuations of the U.S. Dollar compared to the German Mark and French Franc.
The Company does not currently hedge against foreign exchange risks. See "Risk
Factors -- Significant International Operations" and "-- Other Matters."
PROVISION FOR INCOME TAXES. Tax expense has been allocated by applying the
asset and liability method set forth in SFAS 109 to each of the Company's
operations as if it were a separate taxpayer. Under this approach the Company's
effective tax rate was 0% in 1994 and 1995, as a result of net operating loss
carryforwards in the U.S. and Europe and a Korean tax exemption, pursuant to
which the Company is exempt from paying taxes on earnings arising from current
investments in Korea. In actuality, the Company's results were included in the
consolidated tax returns filed by DuPont and the tax benefits of prior years
losses were realized by DuPont. See Note 10 to the Combined Financial
Statements. The Company will continue to enjoy the full benefits of the tax
exemption in Korea until 2001 and a partial benefit thereafter until the tax
exemption terminates in 2003.
YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993
TOTAL SALES. Total sales increased 13.2% from $118.9 million in 1993 to
$134.5 million in 1994, reflecting generally stronger demand for most types of
photomasks. Overall, sales in North America increased from $77.3 million in 1993
to $81.7 million in 1994; sales in Europe increased from $24.2 million in 1993
to $31.1 million in 1994; and sales in Asia increased from $17.4 million in 1993
to $21.7 million in 1994. An increase in the sales of more advanced photomasks,
which have higher average selling prices, also contributed to the total sales
increase in this period. This shift in demand for more advanced photomasks
reflects the trend toward greater utilization of more complex semiconductor
devices with finer line-widths. See "Business -- Industry Background." In
addition, total sales increased approximately $5 million from the full year
impact of sales to Philips pursuant to a supply agreement executed in mid-1993
in connection with the purchase of selected photomask manufacturing equipment
from Philips.
COST OF GOODS SOLD. Cost of goods sold decreased from $112.2 million in
1993 to $107.5 million in 1994. The principal reasons for this decrease were the
retirement of assets and staff reductions associated with the Company's shutdown
of its Danbury, Connecticut and Nijmegen, The Netherlands photomask
manufacturing facilities in 1993. In addition, lower amortization charges of
$1.3 million relating to intangibles associated with acquisitions in the late
1980's that became fully amortized contributed to the decrease. As a result of
the foregoing and the benefits of improved capacity utilization described above,
cost of goods sold, as a percentage of total sales, decreased from 94.4% in 1993
to 79.9% in 1994, and gross profits as a percentage of net sales increased from
5.6% in 1993 to 20.1% in 1994. See "-- Overview."
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased from $18.6 million in 1993 to $20.8 million in
1994. However, as a percentage of total sales, selling, general and
administrative expense decreased from 15.7% in 1993 to 15.4% in 1994, reflecting
greater efficiencies associated with sales volume increases.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
decreased slightly from $8.3 million in 1993 to $8.1 million in 1994. As a
percentage of sales, research and development expense declined from 7.0% in 1993
to 6.0% in 1994, reflecting increased sales. Research and development expense is
net of funds the Company received from customers, industry groups and
governmental sources in the amount of $1.9 million and $1.6 million for 1993 and
1994, respectively. The Company's allocated share of DuPont's central research
and development costs was $2.3 million and $2.4 million in 1993 and 1994,
respectively.
OTHER OPERATING (INCOME) EXPENSE. Other operating expense decreased from
$8.5 million in 1993 to $2.9 million in 1994. The decrease was primarily due to
a $5.2 million expense in 1993 related to the shutdown of photomask
manufacturing facilities in Danbury, Connecticut and Nijmegen, The Netherlands.
INTEREST EXPENSE. Interest expense decreased from $9.2 million in 1993 to
$5.8 million in 1994 primarily due to a decrease in external borrowings by the
Company's Korean operations.
EXCHANGE (GAIN) LOSS. The Company incurred a $0.3 million exchange loss in
1994 compared to a $0.4 million exchange gain in 1993. The major component of
the loss in 1993 was a weakening of the U.S. Dollar against the German Mark.
PROVISION FOR INCOME TAXES. Tax expense has been allocated by applying the
asset and liability method set forth in SFAS 109 to each of the Company's
operations as if it were a separate taxpayer. Under this approach the Company's
effective tax rate was 0% in 1993 and 1994, as a result of net operating loss
carryforwards in the U.S. and Europe and the Korean tax exemption described
above. In actuality, the Company's results were included in the consolidated tax
returns filed by DuPont and the tax benefits of prior years' losses were
realized by DuPont. See Note 10 to the Combined Financial Statements.
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31, 1995
TOTAL SALES. Total sales increased 30.4% from $116.7 million in the nine
months ended March 31, 1995 to $152.2 million in the nine months ended March 31,
1996. Overall, sales in North America, Europe and Asia increased from $65.5
million, $30.3 million and $20.9 million, respectively, in the nine months ended
March 31, 1995 to $88.8 million, $37.5 million and $25.9 million, respectively,
in the nine months ended March 31, 1996. A continued increase in the demand for
more advanced photomasks, which have higher average selling prices, was the
primary contributor to the increase in total sales during this period. This
shift in demand for more advanced photomasks reflects the trend toward greater
utilization of more complex semiconductor devices with finer line-widths. See
"Business -- Industry Background." The increase in total sales during this
period also reflects the overall increase in demand for photomasks. In addition,
approximately $7 million of photomask sales to Lucent Technologies (formerly
AT&T) were generated during the nine months ended March 31, 1996 as a result of
a supply agreement executed in connection with the purchase of selected
photomask manufacturing equipment from an affiliate of AT&T (the "AT&T
Acquisition").
COST OF GOODS SOLD. Cost of goods sold increased 15.2% from $85.7 million
in the nine months ended March 31, 1995 to $98.7 million in the nine months
ended March 31, 1996, resulting primarily from increased sales. As a percentage
of sales, cost of goods sold decreased from 73.5% in the nine months ended March
31, 1995 to 64.9% in the nine months ended March 31, 1996. The decrease was
primarily due to continued improvements in capacity utilization and increased
use of internally sourced photoblanks and pellicles. As a result, gross profit
as a percentage of total sales increased from 26.5% in the nine months ended
March 31, 1995 to 35.1% in the nine months ended March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 13.8% from $16.0 million in the nine months
ended March 31, 1995 to $18.2 million in the nine months
26
<PAGE>
ended March 31, 1996. The increase was due largely to increases in selling
expenses corresponding to increased sales. Selling, general and administrative
expense as a percentage of total sales was 11.9% for the nine months ended March
31, 1996 compared with 13.7% for the corresponding period of the prior year.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense for the
nine months ended March 31, 1996 increased to $7.0 million compared to $6.4
million in the same period in the prior year. As a percentage of sales, research
and development expense declined from 5.5% in the nine months ended March 31,
1995 to 4.6% in the nine months ended March 31, 1996, reflecting increased
sales. Research and development expense is net of funds the Company received
from customers, industry groups and government sources in the amount of $0.4
million and $0.1 million for the nine months ended March 31, 1995 and the nine
months ended March 31, 1996, respectively. The Company's allocated or charged
share of DuPont's central research and development was $1.4 million and $1.1
million for the nine months ended March 31, 1995 and 1996, respectively. Such
allocations terminated on December 31, 1995, and the Company will thereafter
only incur such charges pursuant to the Research, Development and Consulting
Agreement with DuPont. See "Transactions and Relationship Between the Company
and DuPont -- Research, Development and Consulting Agreement."
OTHER OPERATING (INCOME) EXPENSE. Other operating expense increased from
$2.3 million in the nine months ended March 31, 1995 to $3.2 million in the nine
months ended March 31, 1996. The increase was due largely to pre-production
costs associated with the Company's joint venture in Shanghai, China.
INTEREST EXPENSE. Interest expense was essentially flat at $5.1 million for
both the nine months ended March 31, 1995 and the nine months ended March 31,
1996.
EXCHANGE (GAIN) LOSS. Exchange loss was $0.2 million for the nine months
ended March 31, 1996 compared to a $0.5 million exchange gain for the same
period in the prior year. The loss in the current year was primarily
attributable to the fluctuation of the U.S. Dollar against the German Mark.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes was
$1.9 million for the nine months ended March 31, 1996. The Company had no
provision for income taxes for the nine months ended March 31, 1995.
MINORITY INTEREST IN INCOME (LOSS) OF MAJORITY OWNED JOINT VENTURE. The
Minority Interest impact of the Company's joint venture with the Shanghai
Institute of Metallurgy was ($0.5 million) for the nine months ended March 31,
1996 compared to ($0.1 million) for the same period in the prior year,
reflecting increased pre-operating losses from, and partner funding of, the
joint venture.
QUARTERLY RESULTS OF OPERATION
The following table sets forth certain unaudited quarterly financial data
for each of the last eight fiscal quarters ended March 31, 1996, and such data
as a percentage of the Company's total sales. Such information is derived from
the unaudited combined financial statements of the Company that include, in the
27
<PAGE>
opinion of management, all normal recurring adjustments necessary for a fair
presentation of the information set forth therein. Operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total Sales.............. $35,537 $ 38,715 $ 37,617 $ 40,338 $44,844 $ 46,039 $ 50,279 $ 55,874
Cost of Goods Sold....... 27,152 28,132 28,185 29,428 31,277 32,192 31,151 35,374
Selling, General and
Administrative
Expense................. 5,144 5,136 5,058 5,823 5,786 5,869 6,316 5,979
Research and Development
Expense -- Net.......... 1,747 2,018 2,026 2,341 2,392 2,458 2,450 2,047
Other Operating (Income)
Expense -- Net.......... 732 507 1,107 703 1,173 633 1,614 972
-------- --------- -------- --------- -------- --------- -------- ---------
Operating Profit......... 762 2,922 1,241 2,043 4,216 4,887 8,748 11,502
Interest Expense......... 1,438 1,597 1,660 1,797 1,903 1,832 1,634 1,625
Exchange (Gain) Loss..... 314 49 (137) (388) (17) 230 78 (80)
-------- --------- -------- --------- -------- --------- -------- ---------
Income (Loss) Before
Income Taxes and
Minority Interest....... (990) 1,276 (282) 634 2,330 2,825 7,036 9,957
Provision for Income
Taxes................... -- -- -- -- -- 454 472 973
-------- --------- -------- --------- -------- --------- -------- ---------
Income (Loss) Before
Minority Interest....... (990) 1,276 (282) 634 2,330 2,371 6,564 8,984
Minority Interest in
Income (Loss) of
Majority Owned Joint
Venture................. -- -- (6) (76) (79) (55) -- (428)
-------- --------- -------- --------- -------- --------- -------- ---------
Net Income (Loss)........ $ (990) $ 1,276 $ (276) $ 710 $ 2,409 $ 2,426 $ 6,564 $ 9,412
-------- --------- -------- --------- -------- --------- -------- ---------
-------- --------- -------- --------- -------- --------- -------- ---------
AS A PERCENTAGE OF TOTAL
SALES:
Total Sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold....... 76.4 72.7 74.9 73.0 69.8 69.9 61.9 63.3
Selling, General and
Administrative
Expense................. 14.5 13.3 13.5 14.4 12.9 12.8 12.6 10.7
Research and Development
Expense -- Net.......... 4.9 5.2 5.4 5.8 5.3 5.3 4.9 3.7
Other Operating (Income)
Expense -- Net.......... 2.1 1.3 2.9 1.7 2.6 1.4 3.2 1.7
-------- --------- -------- --------- -------- --------- -------- ---------
Operating Profit......... 2.1 7.5 3.3 5.1 9.4 10.6 17.4 20.6
Interest Expense......... 4.0 4.1 4.4 4.5 4.2 3.9 3.2 3.0
Exchange (Gain) Loss..... 0.9 0.1 (0.4) (1.0) -- 0.5 0.2 (0.2)
-------- --------- -------- --------- -------- --------- -------- ---------
Income (Loss) Before
Income Taxes and
Minority Interest....... (2.8) 3.3 (0.7) 1.6 5.2 6.2 14.0 17.8
Provision for Income
Taxes................... -- -- -- -- -- 1.0 0.9 1.7
-------- --------- -------- --------- -------- --------- -------- ---------
Income (Loss) Before
Minority Interest....... (2.8) 3.3 (0.7) 1.6 5.2 5.2 13.1 16.1
Minority Interest in
Income (Loss) of
Majority Owned Joint
Venture................. -- -- -- (0.2) (0.2) (0.1) -- (0.7)
-------- --------- -------- --------- -------- --------- -------- ---------
Net Income (Loss)........ (2.8)% 3.3% (0.7)% 1.8% 5.4% 5.3% 13.1% 16.8%
-------- --------- -------- --------- -------- --------- -------- ---------
-------- --------- -------- --------- -------- --------- -------- ---------
</TABLE>
Quarterly sales have increased sequentially in every quarter over the last
five quarters primarily because of stronger demand for photomasks and the shift
in demand toward advanced photomasks as described above. The Company derives a
significant portion of its sales revenues from sales to relatively few
semiconductor manufacturers. The loss of, or a significant reduction of orders
from, any of the Company's major customers could have a material adverse effect
on the Company's business or results of operations, particularly on a quarterly
basis. See "Risk Factors -- Concentration of Customers." In addition, the
Company's quarterly and annual operating results are affected by a wide variety
of factors that affect sales or profitability. These factors include the volume
and timing of orders shipped. Since the Company's business is characterized by
short term orders and shipment schedules without a significant backlog for
products, substantially all of the Company's sales in any quarter are dependent
upon orders received during that quarter. See "Risk Factors -- Fluctuations in
Quarterly and Annual Earnings."
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations was $2.4 million in 1993, and cash provided by
operations was $12.4 million in 1994, $29.0 million in 1995 and $36.3 million
for the nine months ended March 31, 1996. These increases were primarily the
result of higher sales volume, which led to improved net income. The Company
believes that cash provided by operations will be the Company's primary source
of liquidity.
The Company's working capital was $22.9 million at June 30, 1994, $16.4
million at June 30, 1995 and $13.3 million at March 31, 1996. The decrease in
working capital for the nine months ended March 31, 1996
28
<PAGE>
principally reflects higher related party payables for amounts paid by DuPont on
behalf of the Company and billed to the Company on a monthly basis, partially
offset by increases in trade receivables and inventory, all resulting from the
increased level of sales and business activity during the period. The decrease
in 1995 was partially caused by lower prepaid expenses resulting from a change
in the manner in which the Company pays one of its suppliers for its services.
Prior to June 1995, the Company prepaid certain amounts owed to such supplier;
however, since such time, the Company has paid such supplier on a monthly, as
billed, basis. In addition, accounts payable increased by $6.0 million in 1995
as a result of a deferred payment to AT&T pursuant to the AT&T Acquisition.
Cash flows used for investing activities were $22.1 million in 1993, $11.7
million in 1994, $18.6 million in 1995 and $18.8 million for the nine months
ended March 31, 1996. The Company's most significant use of cash for investing
activities was for purchases of property and equipment. Such purchases totalled
$18.1 million in 1993, $5.0 million in 1994, $14.9 million in 1995 and $13.7
million for the nine months ended March 31, 1996. See "Risk Factors -- Rapid
Technological Change; Capital Intensive Industry."
Cash provided by financing activities was $24.5 million in 1993, and cash
used for financing activities was $2.9 million in 1994, $7.0 million in 1995 and
$16.7 million for the nine months ended March 31, 1996. As a participant in
DuPont's central cash management system, the Company has used cash provided by
operations to repay borrowings from DuPont pursuant to the Master Note. As of
March 31, 1996, the Company had borrowings of $162.3 million under the Master
Note. Part of the net proceeds from the Offering will be used to repay
indebtedness under the Master Note, and any remaining balance under the Master
Note will be contributed as equity capital to the Company by DCEO. See "Use of
Proceeds."
Cash and cash equivalents were $3.9 million at June 30, 1994, $8.4 million
at June 30, 1995 and $8.9 million at March 31, 1996. The Company will retain an
amount, currently estimated at $9.1 million, of the net proceeds of the
Offering; such that, at the date the Offering is consummated, the Company will
have cash and cash equivalents totalling approximately $18 million. The Company
intends to use these proceeds for general corporate purposes, including capital
expenditures and working capital. See "Use of Proceeds."
The Company's ongoing cash requirement will be for capital expenditures,
research and product development and working capital. The Company's capital
expenditures for 1995 were $18.9 million. The Company expects capital
expenditures to be approximately $30 million in 1996, $19.7 million of which has
been spent, and it expects that capital expenditures in 1997 will be
approximately $42 million. The capital expenditures for 1996 and 1997 will be
used primarily to expand the Company's manufacturing capacity and advance the
Company's technical capability. The Company expects that cash from operations
and the credit agreement with DCEO will be sufficient to fund capital
expenditures, product development and working capital requirements. See "Risk
Factors -- Rapid Technological Change; Capital Intensive Industry," "Risk
Factors -- No Independent Operating History Prior to the Offering," "Risk
Factors -- Recent Losses" and "-- Overview."
The Company and DCEO have entered into a two-year credit agreement,
effective as of January 1, 1996, pursuant to which DCEO has agreed, subject to
certain conditions, to provide a revolving credit/ working capital facility to
the Company in an aggregate amount of up to $30 million. The credit facility
will serve as a back-up to cash from operations and provide financing for
general capital spending and corporate purposes and ongoing working capital
needs. The credit agreement contains, among other things, covenants restricting
the Company's ability to incur additional debt above a certain threshold. See
"Transactions and Relationship Between the Company and DuPont -- Credit
Facility."
The Company believes that its available funds following the Offering and its
access to the credit facility will be sufficient to meet its cash requirements
through at least fiscal 1997. See "Risk Factors -- Rapid Technological Change;
Capital Intensive Industry."
OTHER MATTERS
The Company is currently negotiating an agreement with three other companies
that, if consummated, would result in the formation of a limited liability
company that would develop advanced photomask fabrication technologies. The
Company believes that through its participation it will be able to help meet the
29
<PAGE>
future technology needs of the semiconductor industry for advanced photomasks.
There can be no assurance that final agreements will be executed or that, if
executed, will yield results that are favorable to the Company. See "Business --
Strategy -- Advance Technological Leadership" and "Business -- Strategy --
Expand Strategic Relationships with Customers."
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, fluctuation in
the relative value of currencies and restrictive governmental actions. Changes
in the relative value of currencies occur from time to time and may, in certain
instances, have a material effect on the Company's results of operations. The
Combined Financial Statements reflect remeasurements of monetary items
denominated in foreign currencies to U.S. Dollars, the Company's functional
currency. Monetary assets and liabilities are remeasured at the exchange rates
in effect at the end of the applicable period. Exchange gains or losses are
included in Exchange (Gain) Loss in income in the period in which they occur.
Non-monetary assets, which are principally inventories and plant, property and
equipment, are remeasured at historical exchange rates, and income and expenses
are remeasured at average exchange rates in effect during the applicable period,
except for expenses related to balance sheet amounts, which are measured using
historical exchange rates.
Prior to the Offering, DuPont managed the Company's exposure to fluctuations
in foreign currency exchange rates as part of its overall management of exchange
rate exposure of DuPont and its subsidiaries, as a whole, and no separate
hedging of the Company's foreign exchange rate exposure was undertaken.
Accordingly, the Combined Financial Statements do not reflect any hedging
activities. However, following the Offering, the Company plans to independently
monitor its foreign exchange rate exposure and may attempt to reduce such
exposure in the future by hedging. The risks associated with foreign operations
have not, to date, had a material adverse impact on the Company's liquidity and
results of operations. There can, however, be no assurance that such risks will
not have a material adverse impact on the Company's liquidity and results of
operations in the future. See Note 17 to the Combined Financial Statements for
the three years ended June 30, 1995 for geographical financial data concerning
the Company's operations. See "Risk Factors -- Significant International
Operations."
The effects of inflation are experienced by the Company through increases in
the cost of labor, services and raw materials. In general, these costs have been
anticipated by periodic increases in the prices of its products.
DISCUSSION OF PRO FORMA
The Pro Forma Combined Statement of Financial Position estimates the effect
that the following transactions would have had on the Company's financial
position had they occurred as of March 31, 1996: (i) the Offering and the use of
net proceeds as described under "Use of Proceeds"; (ii) the contribution by DCEO
of the remaining balance outstanding under the Master Note and certain accounts
payable relating to the Master Note; and (iii) other adjustments described in
the Notes to the Combined Pro Forma Financial Statements. The principal effects
on the Company's financial position would have been (i) a net increase in cash
and cash equivalents of $9.1 million resulting from the payment of certain
dividends to DuPont and the Company's retaining a portion of the net proceeds of
the Offering sufficient to ensure that it has approximately $18 million of cash
and cash equivalents following the Offering; (ii) a decrease in amounts
outstanding under the Master Note resulting from the use of the net proceeds
from the Offering to repay $46.0 million outstanding under the Master Note;
(iii) an increase of $3.4 million in deferred income taxes arising from the fact
that the Company's tax return will not be consolidated with DuPont's following
the Offering; and (iv) an increase in the Owner's Net Investment/Shareholder's
Equity of $123.0 million, which represents the contribution by DCEO of the
remaining balance outstanding under the Master Note and certain accounts payable
described above and retention by DuPont of certain payroll liabilities. See "Use
of Proceeds."
The Pro Forma Combined Statements of Operations estimate the effects that
the following would have had on the Company's results of operations had they
occurred as of July 1, 1994: (i) the discontinuance of DuPont's post-retirement
and post-employment benefits and the replacement of DuPont's defined benefit
pension plan with the Company's defined contribution pension plan; (ii) the
elimination of DuPont allocated
30
<PAGE>
overhead expenses that are not expected to be incurred by the Company following
the Offering; (iii) the cost of services to be provided by third parties or
DuPont pursuant to transitional administrative services agreements with DuPont
and its subsidiaries and additional employees assumed to be hired by the Company
to replace those services previously provided by DuPont; and (iv) recognition of
expenses relating to the Company's Stock Performance Plan. See "Management --
Compensation of DPI Employees in 1996 -- Stock Performance Plan" and
"Transactions and Relationship Between the Company and DuPont -- Administrative
Services Agreements." The principal effect of these adjustments would have been
a decrease in costs of goods sold by, and a corresponding increase in gross
profit of, $1.7 million for 1995 and $1.0 million for the nine months ended
March 31, 1996. In addition, selling, general and administrative expense would
have increased by $0.8 million for 1995 and $1.1 million for the nine months
ended March 31, 1996, and research and development expense would have decreased
by $1.5 million for 1995 and $0.8 million for the nine months ended March 31,
1996. As a result of these adjustments, operating profit would have increased by
$2.7 million for 1995 and $1.1 million for the nine months ended March 31, 1996.
Furthermore, because of the repayment and contribution of the Master Note as
described above, interest expense would have decreased $6.9 million for 1995 and
$5.0 million for the nine months ended March 31, 1996. Consequently, net income
(offset by increases in provision for income taxes) would have been increased by
$6.1 million for 1995 and decreased by $0.9 million for the nine months ended
March 31, 1996.
The Pro Forma Combined Financial Statements do not purport to represent what
the results of operations or financial position of the Company would actually
have been had the events described above in fact occurred on the applicable
dates or to project the results of operations or financial position of the
Company for any future period. See Pro Forma Combined Financial Statements
appearing elsewhere in this Prospectus.
31
<PAGE>
BUSINESS
Based on worldwide sales, DuPont Photomasks, Inc. is the largest U.S.
photomask manufacturer and one of the two largest photomask manufacturers in the
world. Photomasks are high-purity quartz or glass plates containing precision
microscopic images of integrated circuits and are used as masters by
semiconductor manufacturers to optically transfer these images onto
semiconductor wafers. The Company develops and uses advanced technology to
manufacture a broad range of photomasks based on customer-supplied design data,
including photomasks that meet the tightest design specifications required by
semiconductor manufacturers today. Since 1991, DPI has operated globally with
established manufacturing facilities in North America, Europe and Asia. The
Company is the only photomask manufacturer in the world that also manufactures
and markets both photoblanks and pellicles, the principal components of
photomasks, facilitating the Company's ability to ensure an adequate supply of
quality components. The Company sells its products to approximately 200
customers in 20 different countries. The Company believes that it is the
principal merchant photomask supplier for many of its customers, including AMD,
Delco/General Motors, Digital, Hyundai, LG Semicon, Lucent Technologies Inc.
(formerly AT&T), Micron Technology, Motorola, National Semiconductor, Philips,
Samsung, Seagate and SGS-Thomson. The Company serves its global customer base
from eight ISO 9002-qualified manufacturing facilities and numerous customer
service centers.
INDUSTRY BACKGROUND
Semiconductors are the basic building blocks used to create an increasing
variety of electronic products and systems. Continuous improvements in
semiconductor processing and design technologies have led to smaller, more
complex and more reliable devices at a lower cost per function. As performance
has increased and size and cost have decreased, semiconductors have expanded
beyond their original primary applications, such as computer systems, to a wide
array of additional applications such as telecommunications systems, automotive
products, consumer goods and industrial automation and control systems. In
addition, systems users and designers have demanded semiconductors with more
functionality, higher levels of performance, greater reliability and shorter
design cycles, all in smaller packages at lower costs. The demand for
semiconductors has also expanded geographically with the emergence of new
markets, particularly in Asia. As a result, semiconductor sales have increased
substantially over time, though with significant cyclical variations in growth
rates. According to industry sources, worldwide semiconductor sales increased
from approximately $30 billion in 1985 to over $150 billion in 1995. See "Risk
Factors -- Relationship with and Dependence on Semiconductor Industry."
The market for photomasks is primarily comprised of semiconductor
manufacturers in North America, Europe and Asia. Growth in the photomask market
has not always correlated with increases in semiconductor sales, since demand
for photomasks is driven principally by new semiconductor designs rather than
sales. While growth in semiconductor manufacturing and new semiconductor designs
generated demand for new photomasks from the mid-1980's through the early
1990's, the Company believes that this underlying growth was offset by
semiconductor and photomask design and manufacturing efficiencies. First,
cost-effective and powerful workstations and CAD tools enabled integrated
circuit designers to perfect semiconductor designs through computer simulation,
thereby significantly reducing the need to produce numerous iterations of
photomasks. Second, ultra-thin protective covers called pellicles began to be
widely used in the mid-1980's to protect photomask surfaces from contamination,
thereby prolonging the life of photomasks. Third, the need for backup photomask
sets was significantly reduced by improved production cycle time that enabled
lead times for replacement photomasks to fall from several days to 24 hours. See
"Risk Factors -- Relationship with and Dependence on Semiconductor Industry."
Photomask manufacturers increased production capacity significantly in the
mid-1980's, failing to anticipate the offsetting effect of these efficiencies on
the growing underlying demand for new photomasks. The resulting excess capacity
created a competitive environment that led to depressed prices. See "Risk
Factors -- Competition; Reversal of Consolidation Trend." The excess capacity
was further exacerbated by the advent of reduction photolithography in the
mid-1980's. Reduction photolithography, which allowed the
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use of photomasks with features five times larger than the image being etched
onto the semiconductor wafer, resulted in a significant relaxation of photomask
specifications and, consequently, extended the life of existing photomask
technology and manufacturing facilities.
Partly as a result of the excess capacity and depressed prices caused by the
factors described above, the merchant photomask market in the United States and
Europe began in 1985 to consolidate as a number of merchant suppliers acquired
other merchant photomask manufacturers. Concurrently with this consolidation
trend, semiconductor manufacturers began to divest their captive photomask
operations by selling such operations to independent photomask merchants.
Consequently, the share of the market served by the remaining independent
merchants has increased significantly. The Company believes that the
consolidation of photomask manufacturers was primarily caused by the significant
capital requirements and competitive pricing pressures of the photomask market
as a whole as well as the poor financial performance of some merchant suppliers.
The number of significant independent manufacturers in North America and Europe
decreased from approximately 14 in the mid-1980's to five in 1994. The Company
believes that, in addition to excess capacity and competitive pricing, the other
cause of the divestiture trend was the emergence of reliable independent
photomask manufacturers, such as the Company, enabling semiconductor
manufacturers to divest or limit new investment in their photomask facilities.
See "Risk Factors -- Rapid Technological Change; Capital Intensive Industry" and
"-- Competition; Reversal of Consolidation Trend."
The Company believes that in the last two years growth in demand for
photomasks has resumed. According to industry sources, the total worldwide
market for photomasks was approximately $1.3 billion in 1995. The photomask
market in North America, Europe and non-Japan Asia is estimated to have been
approximately 50% of the worldwide market over the last five years, and merchant
photomask sales in these regions are estimated to have been in excess of $375
million in 1995.
The Company believes that the impact of CAD efficiencies, mask
pelliclization, reduced cycle time and reduction photolithography technology
that negatively affected photomask industry growth throughout the mid-1980's and
the early 1990's has largely dissipated, and consequently, prices for photomasks
have stabilized. As a result, the Company expects that growth in semiconductor
design activity and demand will drive current photomask industry growth without
the offsetting influences that previously existed. The following factors are
expected to be particularly important:
-CUSTOMIZATION OF SEMICONDUCTOR DESIGNS. Increasing demand for
semiconductors including application specific integrated circuits (ASICs),
application specific standard products (ASSPs), embedded microcontrollers
and a growing variety of memory products has generated demand for
photomasks as each new type of semiconductor device requires additional new
photomasks.
-INCREASING DEVICE COMPLEXITY. As the complexity of semiconductor devices
has increased in response to continued efforts to improve the functionality
of these devices through greater transistor densities and smaller feature
sizes, the number of photomasks used in the manufacture of a single
integrated circuit has also increased. For example, the number of
photomasks typically required for the manufacture of microprocessors in
1991 was 14 as compared to 22 photomasks for the currently most advanced
generation of microprocessors.
-DECREASING SIZE OF SEMICONDUCTOR DESIGNS. The semiconductor industry's
growth is driven by its ability to produce smaller and more powerful
semiconductor chips at lower costs. Development of increasingly small
design features is likely to generate increased demand for high-value,
advanced photomasks that can accurately and reliably replicate intricate
design features.
-NEW WAFER FABRICATION FACILITIES. Semiconductor manufacturers have
announced plans to increase investment significantly in new
state-of-the-art wafer fabrication facilities and upgrades of existing
facilities. New wafer fabrication facilities are likely to utilize improved
lithography equipment which typically increases demand for technologically
advanced photomasks.
-PROLIFERATION OF SEMICONDUCTOR APPLICATIONS. Semiconductor devices of all
types are continuing to proliferate into new products, including cellular
telephones, pagers, automobiles, medical products,
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household appliances and other electronic consumer products. In addition,
the demand for semiconductor devices from traditional markets such as
personal computers is growing significantly as semiconductor content in
electronic systems increases and as personal computers expand into new
market segments such as home use.
The Company believes that certain of these trends are changing the nature of
the photomask industry
and its importance in the semiconductor manufacturing process. Photomasks are
reemerging as a critical and enabling technology in the semiconductor
manufacturing process, and the photomask market is expected to experience
greater growth as a result. Semiconductor design rules have recently advanced so
that even "5X" reduction ratios require photomasks with submicron features.
Future semiconductor devices are expected to require features below the
resolution limit of existing photolithography equipment. Advanced photomask
technologies such as phase shift and optical proximity correction masks can
extend the optical resolution of existing photolithography equipment, thereby
delaying the significant investment required for new semiconductor manufacturing
equipment. In addition, as semiconductor line widths become as small as the
wavelength of the illumination sources in optical lithography, the semiconductor
manufacturing process becomes increasingly dependent on high-precision
photomasks with tighter specifications and tolerances. Future generations of
wafer lithography equipment are expected to increase the need for high precision
photomasks, thereby further increasing demand for advanced photomasks that have
tighter specifications. All of these changes in the semiconductor industry are
increasing the already important role of photomasks and driving the need for the
continuing development of advanced photomasks.
DUPONT PHOTOMASKS
DuPont entered the photomask market in 1986 with the acquisition of Tau
Laboratories, a merchant photomask supplier whose principal customers were
Delco/General Motors and Motorola. From this base, DuPont embarked on a strategy
to establish a global presence that would enable it to respond to the needs of
multi-national semiconductor manufacturers. As part of this strategy, DuPont
purchased assets of numerous captive photomask operations and acquired several
merchant photomask companies. Such acquisitions include Gould AMI (1987), Master
Images (1987), Motorola (1987), Symbios Logic (1988), Nanomask (1988),
SGS-Thomson/Texas (1989), National Semiconductor (1990), Philips/Nijmegen
(1990), Rexotech (1990), Perkin Elmer ALO (1990), Tektronix (1991),
Philips/Hamburg (1993) and AT&T (1995). In addition, DPI constructed its own
"greenfield" sites in Round Rock, Texas (1987) and Ichon, Korea (1991). The
Company is currently participating in the construction of a manufacturing
facility in Shanghai, China as part of a joint venture and is planning to
construct a photomask manufacturing facility on a "greenfield" site near
Glasgow, Scotland. The Company has established a large, worldwide manufacturing
structure that can supply the needs of the leading global semiconductor
manufacturers. Based on sales in North America, the Company believes that it is
one of the two largest photomask suppliers in North America, and the Company
believes that it is the largest photomask supplier in Europe and non-Japan Asia
based on sales in such regions. See "Risk Factors -- Competition; Reversal of
Consolidation Trend" and "-- Growth by Acquisition."
DPI's photomask technology spans the full array of semiconductor
requirements, including dynamic and static memory, microprocessors,
microcontrollers, application specific integrated circuits (ASICs), application
specific standard products (ASSPs) and analog and discrete devices. The Company
also manufactures photomasks for thin film heads used in disk drives, multichip
modules and flat panel displays. Customers for these products include
Micromodule, Philips, Seagate and Xerox. In addition, the Company has
consistently been an industry leader in developing the most advanced photomasks.
In order to maintain and enhance its technological leadership, the Company has
strategic relationships with key customers in developing leading edge photomasks
and with leading equipment suppliers such as Etec Systems Inc. ("Etec") and KLA
Instruments Corporation ("KLA") in developing equipment capable of producing
such leading edge photomasks. Outside Japan, the Company believes that it is
currently the principal independent supplier of leading edge photomasks,
including phase shift, optical proximity correction and advanced specification
photomasks. See "Risk Factors -- Rapid Technological Change; Capital Intensive
Industry."
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The Company believes that it is the principal photomask supplier of many of
the leading, global semiconductor manufacturers. The Company sells its products
to approximately 200 customers in 20 different countries, and its customers are
among the largest worldwide semiconductor and electronics manufacturers,
including AMD, Delco/General Motors, Digital, Fujitsu, Hyundai, LG Semicon,
Lucent Technologies (formerly AT&T), Micron Technology, Motorola, National
Semiconductor, Philips, Samsung, Seagate, SGS-Thomson and Texas Instruments. The
Company believes that its customers have come to rely on DPI to meet their
photomask needs on a timely basis and to make mask production process
improvements necessary to keep pace with their own technological advances. As a
result, the Company believes that most of its primary customers view DPI as a
strategic partner in the semiconductor manufacturing process. See "Risk Factors
- -- Concentration of Customers."
The Company is the only photomask manufacturer in the world that also
manufactures and markets the principal components of photomasks: photoblanks and
pellicles. The Company produces and supplies between 70% and 80% of the
photoblanks and the pellicles it uses to manufacture photomasks. As a result,
the Company believes it has a competitive advantage because of its ability to
manage the supply, quality and costs of these component materials. See "Risk
Factors -- Concentration of and Dependence on Suppliers."
STRATEGY
The Company's objective is to be the world's premier supplier of photomasks,
providing superior service and advanced technology, by implementing the
following strategies.
CAPITALIZE ON GLOBAL MANUFACTURING PRESENCE. The Company's global
manufacturing presence enables it to respond to the needs of its customers, many
of which have facilities located throughout the world. The Company believes that
delivery of photomasks on a timely basis is important to its customers because
it reduces their cycle times. Photomask suppliers that have global operations
should have a competitive advantage because proximity to their customers'
worldwide facilities makes rapid delivery more feasible. Since 1991, DPI has
operated globally with established manufacturing facilities in North America,
Europe and Asia. The Company intends to capitalize on this global strategic
position by continuing to invest in each of these regions in order to expand its
existing manufacturing base and participate in regional market growth.
ADVANCE TECHNOLOGICAL LEADERSHIP. To meet the demands of leading global
semiconductor manufacturers, the Company has continually invested in research
and development and the advanced equipment necessary to produce leading edge
photomasks. The Company intends to continue to develop leading edge photomasks
and advance its technological leadership by beta testing new manufacturing
equipment and developing manufacturing processes to produce the next generation
of photomasks. For example, the Company's facility in Round Rock, Texas is
specifically designed to pioneer the most advanced technologies at the earliest
stage of development. As a result, this facility operates both as a
manufacturing and research and development facility. The Company cascades
technological advancements from Round Rock to its other facilities as the
customers served by these facilities begin to demand these advancements. The
Company's other facilities often enhance the processes that were initially
developed in Round Rock and subsequently share these enhancements with all the
Company's facilities, thereby enabling the Company to reduce redundancies and
inconsistencies in manufacturing development. The Company also is currently
negotiating an agreement with three other companies that, if consummated, would
result in the formation of a limited liability company that would develop
advanced photomask fabrication technologies. See "Management's Discussion and
Analysis of Results of Operations -- Other Matters." DPI also intends to
continue to participate in research and development projects supported by
SEMATECH, JESSI and other organizations focused on advancing semiconductor
technology. DPI believes that by advancing its technological leadership it will
strengthen its position as a strategic partner to its primary customers. In
addition, DPI believes that by manufacturing and selling advanced products, it
should be able to increase sales of other types of photomasks. Typically, a set
of photomasks for each semiconductor device contains one or two advanced levels,
which are considered critical by the customer. The photomasks that comprise the
rest of the set are
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<PAGE>
typically less critical. In order to obtain proper alignment of the photomasks,
however, the entire set is typically manufactured by a single supplier. As a
result, DPI believes that the ability to manufacture critical levels should
generate additional photomask sales.
EXPAND STRATEGIC RELATIONSHIPS WITH CUSTOMERS. The Company has developed
strategic relationships with certain of its customers, and it intends to expand
these relationships by increasing its shared activities with some of the world's
leading semiconductor manufacturers, including joint investment in the research
and development of advanced photomasks. DPI believes that the expansion of these
relationships will enable it to share the risks and benefits of developing the
next generation of photomasks. In addition, relationships with customers provide
the Company with valuable know-how and position it as the key supplier to these
customers.
LEVERAGE INTEGRATED POSITION. The Company is the only photomask
manufacturer in the world that also manufactures photoblanks and pellicles, the
principal components of photomasks. As a result, the Company believes it has a
competitive advantage because of its ability to manage the supply, quality and
costs of these component materials. In addition, DPI intends to use this
capability to develop the advanced photoblanks and pellicles necessary for the
production of the next generation of photomasks. For example, the Company is
currently developing numerous component material enhancements, including
embedded attenuated photoblanks and improved deep ultraviolet (DUV) pellicles,
as part of an integrated effort to develop more advanced photomasks.
PURSUE STRATEGIC RELATIONSHIPS WITH KEY SUPPLIERS. The Company believes
that its strategic relationships with leading equipment suppliers help ensure
that it can provide its customers with early access to the most advanced
photomasks. As a result, delays between any advances in semiconductor devices
and advances in photomasks can be minimized. DPI works closely with equipment
suppliers, including Etec and KLA, and with materials suppliers, in some cases
under the auspices of Sematech. For example, the Company regularly beta tests
new pattern generation and inspection equipment, providing it with
"time-to-market" advantages.
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<PAGE>
PRODUCTS AND TECHNOLOGY
PHOTOMASKS. Photomasks are high-purity quartz or glass plates containing
precision, microscopic images of integrated circuits that are used as masters
(equivalent to "negatives" in a photographic process) to optically transfer such
microscopic images of circuit patterns onto semiconductor wafers during the
fabrication of semiconductor integrated circuits and discrete devices. In
producing a semiconductor, a photomask is usually placed in a photolithography
tool, called a stepper, to make numerous reproductions of the pattern image on
semiconductor wafers. This reproduction is typically accomplished by
transferring light through the photomask onto a photoresist that was spin-coated
onto the surface of the semiconductor wafer. The areas of the photoresist that
have been exposed to light are then dissolved by chemical developers and
subjected to further processing, such as etching, ion implantation and metal
deposition. Successive steps of lithography, deposition and processing gradually
create the multiple layers of conducting, semiconducting and insulating patterns
that make up the millions of transistors found in a modern semiconductor device.
[Diagram of use of photomask in semiconductor lithography]
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Photomasks are manufactured by the Company in accordance with semiconductor
design data provided on a confidential basis by its customers. The final design
of each integrated circuit results in a set of precise individual circuit
patterns to be imaged onto a series of typically 10 to 22 separate photomask
levels. The complete set of patterned photomasks is required to manufacture the
customer's integrated circuit design. Upon receipt of a customer's circuit
design, the Company converts the design to pattern data, which are used to
control an electron or laser beam that exposes the circuit pattern onto a thin
layer of photosensitive polymer, called a photoresist, covering the opaque
chrome layer of the photoblank. The exposed areas are dissolved by chemical
developers, and the thin chrome layer of the photoblank is etched to replicate
the customer design pattern on the photomask. Subsequently, the photomask is
inspected for defects, its critical dimensions are confirmed and any defects are
repaired. Pellicles are then mounted onto the masks, and the masks are delivered
to the customer.
[Flow chart of typical photomask manufacturing process]
The Company manufactures a broad range of photomasks for varying customer
applications, including applications requiring the use of leading edge
photomasks. The Company produces 4" by 4" through 7" by 7" photomasks at
reduction ratios ranging from 1:1 to 10:1, which can be used on 1:1 projection
aligners and steppers, 5:1 reduction steppers and 4:1 step and scan systems. The
Company's products are compatible with nearly all semiconductor lithography
technologies, ranging from G-Line and I-Line to DUV lithography, which is
expected by the Company to become the principal advanced lithography technology
during the next decade. The Company manufactures these products using multiple
production techniques, including electron beam and laser exposure as well as
lower cost optical exposure techniques.
The Company has developed advanced photomask products for customers using
leading edge lithography technologies in three categories: (i) masks with
extremely tight specifications, (ii) phase shift masks and (iii) masks with
optical proximity correction. Advanced specification photomasks permit the
customer to use
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a variety of lithography technologies since the high quality and tight
tolerances of the photomask permit greater flexibility in the semiconductor
manufacturing process. Phase shift mask and masks with optical proximity
correction typically require extremely tight specifications coupled with
additional unique characteristics. Phase shift masks are photomasks that alter
the phase of the light passing through the photomask permitting improved depth
of focus and resolution on the wafer. Optical proximity correction masks are
photomasks with submicron features that help minimize optical distortions on the
wafer and therefore permit improved image fidelity. The demand for these
products has grown during the past two years as customers search for cost
effective, less capital intensive methods for improving current semiconductor
fabrication yields and shrinking feature sizes. All three of these product
categories provide opportunities for semiconductor manufacturers to produce more
advanced products with existing lithography equipment. Therefore, these advanced
photomasks are expected by the Company to enable semiconductor manufacturers to
delay significant capital investment in new generation steppers. The Company
estimates that sales of these three product categories was less than 15% of the
Company's total sales for fiscal 1995, but the Company expects that sales of
these products will increase. The Company's current product offerings are as
follows:
[Chart showing the Company's photomask products]
PHOTOBLANKS AND PELLICLES. Photomasks are manufactured from photoblanks,
which are highly polished quartz or glass plates coated with ultra-thin layers
of chrome and photoresist. The photomask is protected from particle
contamination by an ultra-thin, frame-mounted transparent film, called a
pellicle. The pellicle when mounted on the photomask creates a sealed
contamination-free environment for the photomask pattern. Because the Company is
the only photomask manufacturer that also manufactures and markets both
photoblanks and pellicles, it believes that it has a competitive advantage in
managing the supply, quality and cost of its principal component materials.
Photoblanks and pellicles constitute approximately 80% of the materials costs
associated with photomask production. Between 70% and 80% of the Company's
demand for these critical components is internally supplied. Photoblanks and
pellicles are also sold to customers that include Fujitsu, Intel, Motorola and
Siemens AG. The Company is currently one of the major quartz photoblank
suppliers worldwide, and it believes that it is the only commercial supplier of
quartz photoblanks outside Japan. The Company believes that it is also one of
the three largest pellicle suppliers worldwide. In 1992, DPI transferred
pellicle production from its Poughkeepsie, New York facility, where photoblanks
are manufactured, to a new manufacturing facility in Danbury, Connecticut in
order to better meet the quality requirements for future product generations.
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The production of photoblanks requires ultra pure chrome deposition on
highly polished and extremely flat quartz or glass substrates. The Company
purchases virgin quartz substrates primarily from Shin Etsu Handotai Co., which
is the world's largest producer of these substrates. In addition, the Company
recycles quartz substrates which have been repolished in order to reduce cost
and dependence on external suppliers. The Company acquires between 20% and 30%
of the photoblanks it uses to manufacture photomasks from Hoya Corp. and others
that serve as a backup to the Company's own production. The quality and
properties of photoblanks strongly affect the yield and quality of photomasks.
The Company's research and development of photoblanks is focused on the optimum
balance of properties among the quartz substrate, the chrome layer and the
resist layer and on contamination-free manufacturing techniques in order to
achieve the characteristics that are needed for the manufacture of advanced
photomasks. This work has resulted in two patents, including one for an
attenuated embedded shifter blank, and a third patent is pending. See "Risk
Factors -- Concentration of and Dependence on Suppliers."
Pellicles are produced from nitrocellulose or other polymer solutions that
the Company prepares or purchases. The ultra thin film is typically precision
coated with an anti-reflective layer to improve optical performance
characteristics. Material properties and manufacturing conditions are carefully
tuned to match the pellicle's light transmission properties with the
requirements of the specific semiconductor lithography application. The Company
has introduced proprietary pellicle films that are specifically designed to
withstand the powerful DUV radiation found in the emerging generation of
advanced steppers. In addition, the Company is developing contamination
resistant features for the pellicle frame assembly. The Company holds five
patents covering various aspects of pellicle technology, with two patents
pending. To assure a backup supply, the Company purchases approximately 20% to
30% of the pellicles it uses to manufacture photomasks from several other
suppliers.
GLOBAL MANUFACTURING AND OPERATIONS
In order to meet the increasing global demand for their products, original
equipment manufacturers (OEMs) are constructing new factories throughout the
world. Semiconductor manufacturers are similarly building wafer fabrication
facilities located near their OEM customers. Semiconductors produced at these
facilities are designed either locally or at separate design centers, which are
sometimes located on different continents. The Company believes that global
semiconductor manufacturers prefer photomask suppliers that can accept orders
and manufacture photomasks in close proximity to their facilities in order to
ensure a more stable and dependable photomask supply. This preference creates a
competitive advantage for photomask companies that have global manufacturing
facilities as well as a telecommunications network capable of rapidly and
securely transmitting semiconductor design data. See "Risk Factors --
Competition; Reversal of Consolidation Trend."
Since 1991, DPI has operated globally with established manufacturing
facilities in North America, Europe and Asia. In North America, the Company
operates photomask manufacturing facilities in Round Rock, Texas; Santa Clara,
California; and Kokomo, Indiana. In Europe, the Company's manufacturing
facilities are located in Rousset, France and Hamburg, Germany, and it is
planning to construct a third photomask manufacturing facility on a "greenfield"
site near Glasgow, Scotland. In Asia, the Company currently operates a
manufacturing facility in Ichon, Korea and is participating in the construction
of a facility with its joint venture partner in Shanghai, China. The Company
believes that its global presence is important for meeting the supply needs of
multi-national customers as it facilitates the Company's ability to supply
quality products to its customers' worldwide locations on a timely basis. Close
proximity to customers is important because of rapid delivery requirements and
the need for frequent personal interactions. As a result, each manufacturing
facility primarily supplies local semiconductor manufacturers. Moreover, each of
the Company's manufacturing facilities is connected by a data transmission
network, which allows these facilities to transfer confidential customer design
data and manufacturing instructions rapidly and coordinate manufacturing
responsibility with the Company's other facilities. By being able to transfer
information throughout the world with this network, the Company is able to
optimize capacity utilization, thereby lowering production costs while providing
effective customer service on a local level. In addition, a trend is developing
whereby semiconductor manufacturers in certain regions are beginning to
specialize in certain technologies. For example, semiconductor manufacturers in
Korea are rapidly assuming global leadership in
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DRAMS. Because of its global network, the Company believes that it is well
positioned to flexibly manage its capacity, enabling it to use all its
manufacturing facilities in order to take advantage of regional opportunities.
See "Risk Factors -- Significant International Operations."
Approximately 26% of the Company's sales in fiscal 1995 were in Europe where
the Company believes that it is the largest photomask supplier. Through its
manufacturing facilities in Germany and France, the Company supplies photomasks
to the major European semiconductor manufacturers, including Alcatel-Mietec,
Atmel/ES(2), Austria Mikrosysteme International AG, Motorola, National
Semiconductor, Philips, SGS-Thomson, TEMIC and Texas Instruments. In addition,
through its planned facility in Glasgow, Scotland, the Company will be able to
serve numerous semiconductor customers of DPI that have established, or are
planning to establish, manufacturing operations in the United Kingdom and the
Republic of Ireland. In addition, this facility will also serve customers in
other European countries.
The Company's photomask sales in Asia have grown significantly. Sales in
Asia grew approximately 69% from fiscal 1993 to fiscal 1995. The Company
supplies photomasks to semiconductor manufacturers principally in Korea,
including Daewoo, Hyundai, LG Semicon and Samsung through its facility in Ichon,
Korea. This facility also serves customers located in Japan, Hong Kong, Taiwan
and Singapore. In addition, the Company is expanding its Asian operations to
China. As part of a joint venture, the Company is participating in the
construction of a manufacturing facility, which it expects will begin producing
photomasks in fiscal 1997. The Company is a majority owner of this joint
venture, and upon completion, this facility will be the first local facility
capable of meeting the high-end photomask needs of semiconductor manufacturers
in China.
The photomask market in Japan is estimated to have been approximately 50% of
the worldwide market over the last five years. The Japanese market is
predominantly served by captive Japanese suppliers and three significant local
independent suppliers. The Company is beginning to serve semiconductor
manufacturers in Japan through its facility in Ichon, Korea.
In 1988, the Company formed a partnership, DuPont Dai Nippon Engineering
("DDE"), with DNP, Japan's largest photomask manufacturer. DDE supplies certain
Japanese semiconductor manufacturers' facilities in the United States, including
Matsushita Ltd., NEC Corp., Sony and Toshiba with photomasks produced at the
Company's facilities in the United States.
The Company's management is committed to the highest quality standards for
its products, a standard maintained in part by continuous improvements to its
production processes and upgrades to its manufacturing equipment. Each of the
Company's manufacturing sites is ISO-9002 qualified. The Company manufactures
photomasks in clean rooms designed to provide a contamination-free, temperature
and humidity controlled environment. These clean rooms are similar to those used
in the manufacture of semiconductors. The Company's historical emphasis on
product research and development has carried over to process technology and has
resulted in the development of world class production facilities equipped with
state-of-the-art manufacturing equipment. The Company believes that it has the
world's largest installed base of photomask equipment. It operates some of the
most advanced types of equipment currently available, including an
ALTA-Registered Trademark- laser pattern generator from Etec as well as 301/331
Series and Starlight-Registered Trademark- inspection equipment from KLA. See
"Risk Factors -- Manufacturing Risks."
CUSTOMERS
The Company is the principal photomask supplier of many of the leading,
global semiconductor manufacturers. The Company believes that its customers have
come to rely on DPI to meet their photomask needs on a timely basis and to make
mask production process improvements necessary to keep pace with
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their own technological advances. As a result, the Company believes that most of
its primary customers view DPI as a strategic partner in the semiconductor
manufacturing process. The following table lists the Company's current primary
customers.
<TABLE>
<S> <C>
Alcatel-Mietec Maxim
AMD* Micron Technology*
AMI* Motorola*
Atmel/ES(2) National Semiconductor*
Delco/General Motors* Philips*
Digital* Samsung*
Hexfet/IRC* Seagate*
Hyundai* SGS-Thomson*
Intel Symbios Logic
LG Semicon* Texas Instruments
LSI Logic VLSI Technology
Lucent Technologies (formerly AT&T)*
</TABLE>
- ------------------------
*The Company believes it is the principal merchant photomask supplier for these
customers.
In fiscal 1995, the Company's four largest customers, in the aggregate,
accounted for approximately 41% of the Company's sales, and the Company's
largest 10 customers, in the aggregate, accounted for approximately 66% of
sales. The customers listed in the table above accounted for, in the aggregate,
approximately 80% of sales in fiscal 1995. See "Risk Factors -- Concentration of
Customers" and Note 4 to the Combined Financial Statements.
The Company has entered into multi-year, non-exclusive supply agreements
with some of its customers, including Lucent Technologies (formerly AT&T),
Motorola, Philips and SGS-Thomson. Each agreement is separately negotiated and
therefore specific terms vary.
WORLDWIDE SALES AND SUPPORT
Because each photomask is unique, the Company works closely with each
customer to define and communicate precisely the specifications required by the
customer. The Company sells and services its products in North America, Europe
and non-Japan Asia principally through its own employees based at its eight
manufacturing sites throughout the world and the facility in Shanghai, China,
which is currently under construction. The Company has sales and service
employees located in Agrate, Italy; Austin, Texas; Beaverton, Oregon; Dallas,
Texas; Edinburgh, Scotland; Fort Collins, Colorado; Lille, France; Munich,
Germany; Orange, California; and Phoenix, Arizona. In addition, the Company uses
DuPont distributors in Taipei, Taiwan and Tokyo, Japan.
DPI has established customer service centers inside several of its
customers' design centers and wafer fabrication facilities, including
SGS-Thomson (Agrate, Italy and Dallas, Texas); Maxim (Beaverton, Oregon); and
Texas Instruments (Dallas, Texas). DPI employees located at these centers
routinely interact with customer engineers to improve the accuracy of the
customers' design data and documentation and ensure that the customers' order
receives the appropriate priority at the manufacturing facility and that routine
problems are resolved promptly. The Company believes that these centers located
in customers' facilities reduce errors and returns and improve on time delivery,
each of which improves customer satisfaction.
COMPETITION
The photomask industry is highly competitive, and most of the Company's
customers utilize more than one photomask supplier. Because of its global
presence, the Company competes with different independent manufacturers in each
local geographic region in which it operates. The Company believes that it is
one of the two largest photomask suppliers in North America and that it is the
largest photomask supplier in Europe and non-Japan Asia. In North America, the
Company competes primarily with Photronics and, to a lesser extent, with other
smaller independent photomask suppliers. In Europe, the Company competes
primarily with Compugraphics and Photronics, and in Asia, the Company primarily
competes with DNP, Hoya Corp., Taiwan Mask Corporation and Toppan. The Company
expects that some of its competitors will
42
<PAGE>
expand operations to international markets in order to better meet the needs of
international customers and take advantage of new growth opportunities. For
example, Photronics has, among other undertakings, made certain acquisitions in
Europe and has announced that it plans to construct a manufacturing facility in
Singapore. The Company expects to face continued competition from these and
other suppliers in the future, including P.K. Ltd. (formerly Anam S&T Co. Ltd.)
in Korea. See "Risk Factors -- Competition; Reversal of Consolidation Trend."
Captive operations served approximately 45% of the total worldwide photomask
market during 1995. The Company competes with a limited number of captive
operations when such operations sell excess capacity on the open market.
Beginning in the mid-1980s, a trend developed toward the divestiture or closing
of captive photomask operations by semiconductor manufacturers. As photomasks
continue to reemerge as a critical and enabling technology in the semiconductor
manufacturing process, semiconductor manufacturers may form new captive
operations to ensure that their photomask needs are met, particularly for
advanced and leading edge photomasks. The Company believes that its ability to
develop the most advanced photomasks provides a more cost effective alternative
to the formation of captive operations, which require significant capital
investments and operating costs to develop the requisite manufacturing
expertise. See "Risk Factors -- Competition; Reversal of Consolidation Trend."
On time delivery of defect-free photomasks at competitive prices
historically has been the important competitive factor in the industry. The
Company believes that with the increasing importance of leading edge photomask
technology in the semiconductor manufacturing process, the ability to
manufacture these advanced photomasks will also be an important competitive
factor. See "-- Industry Background."
RESEARCH AND DEVELOPMENT
The photomask industry has been and is expected to continue to be
characterized by rapid technological change. In order to remain competitive, the
Company expects that it will be required to continually anticipate, respond to
and utilize changing technologies. The Company has historically made significant
investments in research and development in order to maintain its technological
leadership. See "Risk Factors -- Rapid Technological Change; Capital Intensive
Industry."
The Company intends to continue to invest in research and development in
order to ensure its technological leadership. The Company is focusing its
research and development in three areas: (i) the enhancement of existing
products by improving manufacturing techniques and technologies; (ii) the
development of leading edge photomask products such as phase shift masks, masks
with optical proximity correction and advanced specification masks; and (iii)
the development of advanced materials needed for the manufacture of leading edge
photomasks. In addition, the Company is currently negotiating an agreement with
three other companies that, if consummated, would result in the formation of a
limited liability company that would develop advanced photomask fabrication
technologies. See "Management's Discussion and Analysis of Results of Operations
- -- Other Matters."
The Company is enhancing its existing products through worldwide integrated
engineering, capital investment for improved capability and beta testing of
leading edge equipment. Product enhancements in the past led to the development
of technology currently used to produce photomasks compatible with 0.5 micron
semiconductor lithography. This technology is providing the platform for the
development of manufacturing technologies consistent with 0.35 micron
semiconductor lithography at high yields and rapid cycle time. The Company has
been a leader in the development of leading edge photomask products, such as
phase shift, optical proximity and advanced specification masks. In addition to
its internal development efforts, the Company has participated in several
development programs supported by SEMATECH in the United States and JESSI in
Europe with respect to advanced products. The Company's research and development
of photomask component materials is also responding to the technology demands of
semiconductor manufacturers through the development of improved materials needed
to produce advanced photomasks. Recent examples of such materials developments
include low stress chrome blanks, pellicles with contamination-control features
and attenuated embedded chrome blanks for phase shift masks. See "-- Products
and Technology."
The Company has established a research and development group that consists
of highly trained and experienced personnel who focus on research and
development issues. The capabilities of this group have
43
<PAGE>
been augmented by its access to DuPont's corporate science and engineering
resources. There are certain elements of DuPont's material science expertise and
its analytical capabilities that are relevant to photomask research and
development. Following the Offering, the Company will continue to have access to
DuPont's corporate science and engineering for a period of five years pursuant
to a research, development and consulting agreement between the Company and
DuPont, which will provide the Company with a supplement to its core research
and development program. See "Transactions and Relationship between the Company
and DuPont -- Research, Development and Consulting Agreement."
An alternative to photomask lithography is direct-write lithography, which
writes the circuit pattern directly onto the semiconductor wafer without the use
of a photomask. The direct-write method generates patterns onto a wafer slowly
and therefore is not currently useful for high-volume, commercial device
manufacturing. A significant advance in this technology, however, would have a
material adverse effect on the Company's business and results of operations. See
"Risk Factors -- Rapid Technological Change; Capital Intensive Industry."
INTELLECTUAL PROPERTY
Much of the Company's proprietary information and technology relating to
manufacturing processes is not patented and may not be patentable. Certain
aspects of the Company's photoblanks and pellicles technologies are, however,
protected by ten patents or patent applications. They include product patents
for certain types of attenuated, embedded phase shift blanks and DUV pellicles.
While the Company considers its patents to be valuable assets, it does not
believe that its competitive position is dependent on patent protection or that
its operations are dependent on any individual patent. The Company believes
instead that the success of its business depends primarily on its ability to
maintain lead time in developing its proprietary technology, information and
processes and know-how. Nevertheless, the Company attempts to protect its
intellectual property rights with respect to its products and manufacturing
processes through patents, trademarks and trade secrets when appropriate as part
of its ongoing research, development and manufacturing activities. The Company
also relies on non-disclosure agreements with employees and vendors to protect
its proprietary processes.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar processes. In addition, there can be no assurance
that third parties will not claim that the Company's current or future products
infringe on their proprietary rights. Any such claim, with or without merit,
could result in costly litigation or might require the Company to enter into
licensing agreements. Such agreements, if required, may not be available on
terms acceptable to the Company or at all. See "Risk Factors -- Proprietary
Information and Intellectual Property."
EMPLOYEES
As of March 31, 1996, the Company had approximately 1,100 employees
worldwide, of whom approximately 10% have engineering or technical degrees,
including Ph.D. degrees. The Company had, as of March 31, 1996, approximately
110 sales, marketing and customer support employees. The Company believes that
it has a good relationship with its employees. There can be no assurance that
the Company can retain its key managerial, engineering and technical employees
or that it can attract similar additional employees in the future. See "Risk
Factors -- Dependence on Management and Technical Personnel."
The Company has no employees who are represented by a union. The Company's
German subsidiary, however, is subject to German law, which binds it, as a
member of a selected industry group, to agreements reached by industry
management and employee representatives.
LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ENVIRONMENTAL MATTERS
The operations of the Company and its ownership of real property are subject
to federal, state, local and foreign environmental laws and regulations that
govern, among other things, the discharge of pollutants into the air and water
and the handling, use, storage, disposal and clean-up of solid and hazardous
wastes.
44
<PAGE>
Compliance with such laws and regulations requires the Company to incur capital
expenditures and operating costs in connection with its ongoing operations. In
addition, such laws and regulations may impose liabilities on owners and
operators of businesses and real property without regard to fault and may be
joint and several with other parties. The Company estimates that capital
expenditures relating to environmental matters will be approximately $260,000 in
each of fiscal 1996, 1997 and 1998. In addition, the Company expects to incur
expenses relating to environmental matters of approximately $1 million in each
of fiscal 1996, 1997 and 1998. More stringent environmental laws and regulations
may be enacted in the future, which may require the Company to expend additional
amounts on environmental compliance or may require modifications in the
Company's operations. Although the Company is unable to predict the extent of
its future liability with respect to any environmental matters, the Company
believes, based upon current information, that environmental liabilities will
not be material to its financial condition or results of operations. See "Risk
Factors -- Environmental Matters." With respect to any environmental
contamination present on the Company's manufacturing sites at the time of the
Offering or present at any such site as a result of the Company's manufacturing
operations due to the generation, use, treatment, storage, or disposal of
hazardous waste or hazardous materials prior to the date of the Offering, the
Company will be indemnified by DuPont pursuant to an agreement between DuPont
and the Company effective the date of the Offering. The Company will be solely
responsible for any environmental liabilities resulting from its operations
following the consummation of the Offering. See "Transactions and Relationship
Between the Company and DuPont -- Environmental Indemnification Agreement."
FACILITIES
The Company conducts manufacturing operations throughout the world. Each of
these operations is ISO-9002 qualified. The table below presents certain
information (as of March 31, 1996) relating to the Company's principal
manufacturing and support facilities.
<TABLE>
<CAPTION>
LOCATION FLOOR SPACE SQUARE FEET TYPE OF INTEREST PRODUCTS
- ------------------------------------------------------ ----------------------- ---------------- --------------
<S> <C> <C> <C>
NORTH AMERICA
Round Rock, Texas................................... 54,000 Owned Photomasks
Santa Clara, California............................. 38,000 Leased Photomasks
Kokomo, Indiana..................................... 42,000 Owned Photomasks
Poughkeepsie, New York.............................. 23,000 Owned Photoblanks
Danbury, Connecticut................................ 55,000 Owned Pellicles
EUROPE
Rousset, France..................................... 24,000 Leased Photomasks
Hamburg, Germany.................................... 22,000 Leased Photomasks
ASIA
Ichon, Korea........................................ 102,000 Owned Photomasks
Shanghai, China..................................... (under construction) Jointly Owned Photomasks
</TABLE>
The facility in Round Rock, Texas not only operates as a manufacturing
facility but also is the Company's primary research and development center. The
Company owns most of the manufacturing equipment at its facilities. The
executive offices of the Company are located at 100 Texas Avenue, Round Rock,
Texas 78664, and its telephone number is (512) 244-0024.
The Company is the majority owner of the joint venture that owns the
facility in Shanghai, China, which is currently under construction. The Company
expects that this facility will be completed and operational in fiscal 1997. In
addition, the Company is planning to construct a photomask manufacturing
facility on a "greenfield" site near Glasgow, Scotland.
Facilities and property located in Santa Clara and Hamburg are leased under
leases that expire in March 1997 and October 2022, respectively. The facility at
Rousset is leased under a lease that expires in April 1998 at which point the
Company has an option to take ownership of the facility upon payment of taxes
and expenses relating to the conveyance. The Company's Santa Clara facility is
in a seismically active area. Although the Company plans to obtain business
interruption insurance, a major catastrophe (such as an earthquake or other
natural disaster) at any of its sites could result in a prolonged interruption
of the
45
<PAGE>
Company's North American business. The Company is currently negotiating an
extension of the lease covering the facilities and property located in Santa
Clara and anticipates reaching an agreement with respect to such lease extension
prior to the termination of the present lease. There can be no assurance,
however, that the Company will obtain an extension of the current lease. In the
event that the Company is required to move its equipment from the facilities at
Santa Clara, the costs associated with such a move would likely be significant.
The Company also maintains customer service data centers in leased
facilities in Beaverton, Oregon and Dallas, Texas.
The Company believes that its facilities are adequate and suitable for their
respective uses.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age (as of March 31, 1996) and
position with the Company of each person who is an executive officer or director
of DPI.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH DPI
- -------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
J. Michael Hardinger 49 Chairman of the Board and Chief Executive Officer
Preston M. Adcox 52 President and Chief Operating Officer
Gerard Cognie 51 Executive Vice President -- European Operations
David S. Gino 38 Executive Vice President -- Finance and Chief Financial Officer
Van H. Leichliter 51 Executive Vice President -- General Counsel and Secretary
Kenneth A. Rygler 52 Executive Vice President -- Marketing and Sales
John L. Doyle 64 Director
John C. Hodgson 52 Director
Charles O. Holliday, Jr. 47 Director
Peter G. Kehoe 52 Director
Gary W. Pankonien 45 Director
John C. Sargent 57 Director
Marshall C. Turner 54 Director
Susan A. Vladuchick 48 Director
</TABLE>
J. MICHAEL HARDINGER. Mr. Hardinger is Chairman of the Board of Directors
and Chief Executive Officer of the Company, positions he assumed as a part of
the global realignment of the photomask business. He joined DuPont in 1970 and
has served in a number of management positions with DuPont, including Vice
President and General Manager of DuPont's Acrylics and Consumer Products
Business from 1990 until 1993. He was Vice President -- DuPont Corporate
Sourcing prior to assuming his position with the Company.
PRESTON M. ADCOX. Mr. Adcox is President and Chief Operating Officer of the
Company. He joined DuPont in 1967 and has held a number of manufacturing and
technology management positions including Business Director of DuPont's high
performance films business from 1982 to 1988. He became a Managing Director in
DuPont's Semiconductor Materials Business in 1988 and has had global
responsibility for DuPont's Photomask Business since that time. He was a member
of the Board of Directors of Etec Systems Inc. from 1990 to early 1995. Since
1988, he has served on the Board of Directors of Semi-Sematech, an organization
representing U.S. equipment and material suppliers to the semiconductor
manufacturing industry.
GERARD COGNIE. Mr. Cognie is Executive Vice President -- European
Operations of the Company. He joined DuPont in 1968 and since 1988 has served as
the Director of Photomask Europe and the Chairman of the Board of DuPont
Photomask (France). He has also served as the Director of Electronics for DuPont
France since 1985.
DAVID S. GINO. Mr. Gino is Executive Vice President, Finance and Chief
Financial Officer of the Company. He joined DuPont in 1987 after serving as
Chief Financial Officer and Controller of Master Images, Inc. until it was
acquired by DuPont in 1987. He has held a number of financial and business
management positions with DuPont's semiconductor materials, imaging systems and
printing and publishing businesses. He was the North American Business Manager
- -- Pressroom Systems for DuPont's Printing and Publishing Business immediately
prior to rejoining the Company in August 1995 as a part of the global
realignment of the photomask business.
47
<PAGE>
VAN H. LEICHLITER. Mr. Leichliter is Executive Vice President and General
Counsel of the Company. He also serves as Corporate Secretary. He joined DuPont
in 1970 as a commercial lawyer and served as Vice President and General Counsel
of DuPont's Endo Laboratories subsidiary from 1978 until 1983. Since then he has
held a number of legal advisory positions with DuPont including most recently
serving as Senior Counsel to DuPont's Fibers Business.
KENNETH A. RYGLER. Mr. Rygler is Executive Vice President -- Marketing and
Sales of the Company. He joined DuPont in 1964 and held numerous sales and
management positions in DuPont's Fabrics and Finishes Department. He held a
number of marketing, sales, planning and business development management
positions in DuPont's Electronic Materials Strategic Business Unit from 1985 to
1991, when he became the Company's Vice President for Marketing and Sales. Mr.
Rygler's involvement in the electronics industry began in 1969.
JOHN L. DOYLE. Mr. Doyle is a private consultant, having retired from the
Hewlett-Packard Company in 1991. At the time of his retirement, he was Executive
Vice President, Business Development with responsibility for Hewlett-Packard's
integrated circuit facilities as well as acquisitions, mergers, planning,
corporate purchasing, manufacturing and engineering. He was also a member of the
Executive Committee. Mr. Doyle was Co-Chief Executive Officer of Hexcel Corp.
from July 1993 to December 1993. Hexcel Corp. filed for bankruptcy under Chapter
11 of the United States Bankruptcy Code in December 1993. He is currently a
director of Xilinx, Inc., Analog Devices, Inc. and Silicon Valley Research. He
became a director of the Company in April 1996.
JOHN C. HODGSON. Mr. Hodgson is the Managing Director/General Manager of
the Electronic Materials Strategic Business Unit of DuPont, a position he
assumed in 1994. He has been with DuPont for 29 years and has served in a
variety of management positions in the X-Ray, Electronics and Diagnostic
businesses in the United States and in Geneva, Switzerland. In 1991, Mr. Hodgson
became the Business Director of Microcircuit and Component Materials for North
America, and from 1993 until assuming his current position, he served as
Managing Director of Microcircuit and Component Materials, worldwide, and
Electronic Materials, Americas. He became a director of the Company in April
1996.
CHARLES O. HOLLIDAY, JR. Since October 1995, Mr. Holliday has been a member
of the Office of the Chief Executive of DuPont and an Executive Vice President
with global responsibility for Electronic Materials, White Pigments & Mineral
Products, Nonwovens, Advanced Fibers Systems, Printing and Publishing, Polymers
and Industrial Packaging and Agricultural Products. He is also Chairman of
DuPont Asia Pacific. Since joining DuPont in 1970 as an engineer at the Old
Hickory, Tennessee Fibers plant, he has held a variety of management positions
in a number of DuPont's businesses. He became President -- Asia Pacific in 1990
and was made Senior Vice President -- DuPont Electronics in 1992. He became a
director of the Company in April 1996.
PETER G. KEHOE. Mr. Kehoe is a DuPont Business Director who, since June
1995, has had responsibility for the initial public offering of the photomasks
business. From 1988 until his current assignment, he was a Business Director in
the Advanced Fiber Systems Strategic Business Unit with global responsibility
for, at various times, Kevlar-Registered Trademark-, Nomex-Registered Trademark-
and Teflon-Registered Trademark-. He joined DuPont in 1973 as a Research
Engineer, and since then he has held a wide variety of technology, manufacturing
and business management responsibilities in DuPont's Chemicals and Fibers
businesses. He became a director of the Company in December 1995.
GARY W. PANKONIEN. Mr. Pankonien is the Chairman and Chief Executive
Officer of DarkHorse Systems, Inc. and 1st Tech Corporation. Both companies
engage in computer engineering design and manufacturing activities. Prior to
starting 1st Tech Corporation, he spent seven years at Compaq Computer
Corporation where he served as the Notebook Computer Design and Operations
Manager for three years. He co-developed and currently holds the patent for the
first notebook computer as well as several other patents. Mr. Pankonien has
twenty years of management experience in the electronics industry and has
extensive experience in off-shore operations. He became a director of the
Company in April 1996.
JOHN C. SARGENT. Mr. Sargent is the Vice President and Treasurer of DuPont.
He joined the Treasury Department of Conoco in 1964 and worked in a number of
financial management positions with Conoco
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<PAGE>
both in the United States and Europe. He became Vice President and Treasurer of
Conoco in 1981 and also served as Assistant Treasurer and Director of the
Treasury Division of DuPont after Conoco was acquired by DuPont in 1982. He
assumed his present position at DuPont in 1992. He became a director of the
Company in December 1995.
MARSHALL C. TURNER. Mr. Turner is a venture capital investor and consultant
specializing in technology companies. He is General Partner of Taylor & Turner
Associates, Ltd., Principal of Turner Venture Associates and a director of
Alliance Technology Fund, Inc., Remanco International, Inc., the Public
Broadcasting Service and the George Lucas Educational Foundation. From 1983
until 1995, he was a director of six privately held technology companies, in
which Taylor & Turner was an investor, and from 1987 to 1992, he served as a
director and two years as Chairman of the Corporation For Public Broadcasting.
He has taught entrepreneurial management as an adjunct faculty member at the
Stanford University School of Engineering. Mr. Turner became a director in April
1996.
SUSAN A. VLADUCHICK. Since March 1995, Ms. Vladuchick has been the Director
of Human Development, Staffing and Personnel Relations at DuPont. She joined
DuPont as a chemist in 1969 and has worked in research and development, human
resources and manufacturing during the course of her career. In 1989, she became
Plant Manager of the Cape Fear fibers plant, a position she held until 1992 when
she became the Director of Manufacturing for Specialty Chemicals. From 1993
until 1995 she served as the Director of Operations for Medical Products. She
became a director of the Company in April 1996.
BOARD OF DIRECTORS
The Bylaws of the Company (the "Bylaws") provide for a Board of Directors of
not less than one nor more than fifteen directors, with the current number set
at nine. Each member of the Board of Directors holds office until the expiration
of his or her term and until his or her successor is elected and qualified.
Vacancies on the Board of Directors may be filled by the majority vote of
directors then in office or by a sole remaining director. The members of the
Board of Directors were elected by DCEO.
Directors who are officers of the Company receive no additional compensation
for serving on the Board of Directors. Non-employee Directors who are not
affiliated with DuPont will receive an annual fee of $20,000.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purpose of the Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") is to allow the Company to recruit and retain qualified
outside directors to serve on the Company's Board of Directors. Under the
Directors' Plan, each director who is not an employee of the Company or any of
its subsidiaries (and who is not precluded by his or her employer from receiving
such grant) will receive a one-time grant of options to purchase 10,000 shares
of the Company's Common Stock upon the later of first joining the Board of
Directors or the consummation of the Offering (the "IPO Date"). Thereafter, each
non-employee director will receive, during his or her tenure as a director, an
annual grant of options covering 3,000 shares as of the first day of the month
following the annual meeting of stockholders of the Company. Directors who are
first elected to the Board within the 60 day period immediately preceding an
annual meeting of stockholders and who at the time of their election received
the one-time grant of options to purchase 10,000 shares described above, will
not, under the terms of the Plan, receive an additional grant of 3,000 shares as
of the first of the month following such annual meeting. Upon exercise of an
option, payments of the purchase price for the stock subject to the exercise
will be made in cash. Under the terms of the Directors' Plan, no more than 25%
of the total number of shares of stock granted under option may become
exercisable in any given year following the grant. Currently, 250,000 shares
have been reserved for issuance under the Directors' Plan. Each of John L.
Doyle, Gary W. Pankonien and Marshall C. Turner are expected to be granted
options to purchase 10,000 shares of Common Stock under this Plan effective upon
the IPO Date at an exercise price per share equal to the initial public offering
price of Common Stock sold in the Offering. Stock options granted under the
Directors' Plan following the Offering will be exercisable at a price per share
equal to the average of the high and low sale prices of the Common Stock, as
quoted on the NASDAQ National Market, on the date of the grant.
49
<PAGE>
AUDIT COMMITTEE
The Audit Committee of the Board of Directors will meet with the independent
public accountants to discuss the scope and results of their examination of the
books and records of the Company. It will also meet with the Company's
independent public accountants to review the internal audit department's
activities, if and when established, and to discuss the adequacy of the
Company's accounting and control systems. The committee also will review the
audit schedule and consider any issues raised by its members, the independent
public accountants, the internal audit staff, the legal staff or management.
Each year it will recommend to the full Board of Directors the name of an
accounting firm to audit the financial statements of the Company. No member of
the Audit Committee may be an employee or officer of the Company or any of its
subsidiaries. The Audit Committee consists of John L. Doyle, who serves as
chairman of the committee, Marshall C. Turner and John C. Sargent.
COMPENSATION COMMITTEE
The Compensation Committee will review and approve the corporate
organization structure, review performance of corporate officers, establish
overall employee compensation policies and recommend to the Board of Directors
major compensation programs. The committee also will review and approve
compensation of directors and corporate officers, including salary, bonus awards
and stock option and restricted stock award grants and administer the Company's
employee stock option and incentive plan and bonus plan. No member of the
Compensation Committee may be an employee or officer of the Company or any of
its subsidiaries. The Compensation Committee consists of Charles O. Holliday,
Jr., who serves as chairman of the committee, Gary W. Pankonien, Marshall C.
Turner and Susan A. Vladuchick.
COMPENSATION OF COMPANY EMPLOYEES
The Company's officers and employees have been participants in the various
employee benefit plans maintained by DuPont, including, without limitation,
savings plans, health and welfare plans and pension plans and are expected to
continue such participation until the Company adopts its own benefit plans,
anticipated to be effective July 1, 1996. The Company currently expects to adopt
plans that are substantially similar to the existing DuPont plans, except that
effective July 1, 1996, the Company will replace DuPont's defined benefit
pension plan with a defined contribution retirement plan and will discontinue
DuPont's post-retirement medical benefit plan. Until July 1, 1996, the Company
will continue to be charged by DuPont for all amounts contributed or paid by
DuPont on behalf of DPI's employees with respect to the DuPont plans. It is
expected that, beginning July 1, 1996, although employees of the Company will
continue as participants in the DuPont Savings and Investment Plan, they will
receive contributions from the Company thereunder rather than DuPont. See "Risk
Factors -- Dependence on Management and Technical Personnel."
COMPENSATION OF EXECUTIVE OFFICERS DURING 1995
During fiscal 1995, the executive officers named in the tables included
under this caption were employees of DuPont and participated in DuPont's
executive benefit plans, as indicated in the tables.
50
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid to the
Company's chief executive officer and five other most highly compensated
executive officers (the "Named Officers") by DuPont or its subsidiaries during
fiscal 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME YEAR ($) ($)(1) ($) ($)(2)
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Michael Hardinger............................... 1995 $ 194,000 $ 147,000 -- $ 5,824
Preston M. Adcox................................... 1995 152,920 45,000 -- 4,579
Gerard Cognie (3).................................. 1995 156,573 26,966 -- 13,315
David S. Gino...................................... 1995 106,750 40,300 -- 5,262
Kenneth A. Rygler.................................. 1995 122,750 29,100 -- 3,685
Van H. Leichliter.................................. 1995 106,340 35,200 -- 6,313
</TABLE>
- ------------------------
(1) The bonus paid in 1995 was approved by DuPont's Compensation Committee in
March 1995. On average, approximately 25% of such bonus was paid in DuPont
common stock. Each of the above Named Officers received a bonus pursuant to
DuPont's Variable Compensation Plan in February 1996 for their services
during 1995, as determined by DuPont's Compensation Committee in February
1996. Messrs. Hardinger, Adcox, Cognie, Gino, Rygler and Leichliter received
$167,000, $87,000, $58,900, $41,300, $65,000 and $38,600, respectively.
(2) Includes contributions made by DuPont to each of the Named Officer's Savings
and Investment Plan.
(3) Mr. Cognie is paid in French Francs. The Dollar figures shown were
calculated using the International Monetary Fund average exchange rate for
1995 of 4.9915 Francs to the Dollar.
The compensation of Messrs. Adcox, Cognie and Rygler is included in the
Company's Combined Financial Statements herein. None of Messrs. Hardinger's,
Gino's and Leichliter's 1995 compensation is included in the Company's Combined
Financial Statements. All executive officers became employees of the Company on
January 1, 1996, except Gerard Cognie who became an employee of the Company's
French subsidiary on March 1, 1996.
DUPONT OPTION GRANTS FOR 1995
The following table sets forth information regarding options to purchase
shares of DuPont's common stock granted to the Named Officers during fiscal
1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
------------------------- PRICE APPRECIATION FOR
OPTIONS % OF TOTAL OPTIONS EXERCISE OPTION TERM (5)
GRANTED GRANTED TO DUPONT PRICE EXPIRATION ----------------------
NAME (#)(1)(2) EMPLOYEES FOR 1995 (3) ($/SH) (4) DATE 5% 10%
- ------------------------------------------ ----------- ------------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Hardinger...................... 8,000 -- $ 55.50 3/2/2005 $ 279,270 $ 705,960
Preston M. Adcox.......................... 3,250 -- 55.50 3/2/2005 113,636 286,796
Gerard Cognie............................. 800 -- 55.50 3/2/2005 27,972 70,612
David S. Gino............................. 800 -- 55.50 3/2/2005 27,972 70,612
Kenneth A. Rygler......................... 1,700 -- 55.50 3/2/2005 59,440 150,656
Van H. Leichliter......................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Stock options become exercisable twelve months after their date of grant.
All of these options were granted on March 3, 1995, and have a term of ten
years.
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(2) In January 1995, the DuPont Board of Directors approved the worldwide 1995
DuPont Corporate Sharing Program and awarded to essentially all employees a
grant of options, which is not included in this table, to acquire 100 shares
of DuPont common stock at the fair market value ($57 per share) on the date
of grant.
(3) The options granted to any Named Officer amounted to less than 1% of the
total number of options granted to all DuPont employees in 1995.
(4) The exercise price is the average of the high and low prices of DuPont
common stock as reported on the New York Stock Exchange-Composite
Transactions Tape on the date of grant.
(5) Represents total potential appreciation of approximately 63% and 159% for
assumed annual rates of appreciation of 5% and 10%, respectively, compounded
annually for the ten-year option term.
AGGREGATED OPTION EXERCISES OF DUPONT STOCK IN
1995 AND YEAR-END OPTION VALUES
AS OF JUNE 30, 1995
The following table sets forth information regarding the exercisable and
unexercisable options to acquire DuPont common stock granted to the Named
Officers.
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY
NUMBER OF UNEXERCISED UNEXERCISED OPTIONS AT
OPTIONS AT YEAR-END JUNE 30, 1995 (1)
SHARES ACQUIRED VALUE ---------------------------- --------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---------------------------------------- --------------- ------------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Hardinger.................... 500 $ 16,625 33,950 8,100 $ 931,833 $ 107,175
Preston M. Adcox........................ -- -- 13,750 3,350 340,216 44,238
Gerard Cognie........................... -- -- 100 900 3,050 11,775
David S. Gino........................... -- -- 600 900 11,175 11,775
Kenneth A. Rygler....................... -- -- 3,820 1,800 85,925 23,700
Van H. Leichliter....................... 580 8,736 -- 100 -- 1,175
</TABLE>
- ------------------------
(1) The closing price per share of DuPont common stock on June 30, 1995 was
$68.75.
ESTIMATED DUPONT RETIREMENT BENEFITS
The following table shows estimated annual pension benefits payable to
officers and other key employees of the Company assuming retirement from DuPont
on June 30, 1995 at age 65 under the provisions of the DuPont Pension Plan
currently in effect.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT
SALARY AND BENEFITS BASED ON SERVICE OF:
VARIABLE --------------------------------------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 150,000 $ 18,000 $ 28,000 $ 39,000 $ 50,000 $ 60,000 $ 71,000
200,000 26,000 40,000 54,000 68,000 83,000 98,000
250,000 33,000 51,000 69,000 87,000 105,000 124,000
300,000 41,000 62,000 84,000 106,000 128,000 150,000
350,000 48,000 73,000 99,000 125,000 150,000 176,000
400,000 56,000 85,000 114,000 143,000 173,000 203,000
</TABLE>
As of June 30, 1995, the full years of service credited under the DuPont
Retirement Plan for the following individuals were: Mr. Hardinger, 24; Mr.
Adcox, 28; Mr. Gino, 7; Mr. Rygler, 30; and Mr. Leichliter, 24. These
individuals' participation in the DuPont Retirement Plan will terminate as of
the IPO Date. Upon termination, they will either receive a reduced pension
immediately or receive a full pension at a deferred date. They will also receive
health benefits from DuPont, if eligible. Mr. Cognie has 28 years of service and
is covered by the DuPont France Pension Plan.
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COMPENSATION OF DPI EMPLOYEES IN 1996
The Company has designed an executive compensation program intended to
attract and motivate officers and key employees of the Company. The Company
believes that executive compensation should be tied to the Company's long term
performance and benefit to its stockholders. As such, a significant portion of
executive management's compensation will be tied to the performance of the
Company's long term total shareholder return. See "Risk Factors -- Dependence on
Management and Technical Personnel."
BASE SALARY. At May 1, 1996, the base salaries for Messrs. Hardinger,
Adcox, Cognie, Gino, Rygler and Leichliter were increased to $290,000, $225,000,
910,000 FFr (approximately $180,000), $145,000, $168,000 and $138,000,
respectively.
BONUS PLAN. The Company will adopt, effective January 1, 1996, an annual
incentive plan (the "Bonus Plan") for officers and employees of the Company and
its subsidiaries. Beginning in August 1996, pursuant to the Bonus Plan, cash
bonuses will be awarded for performance following the close of the fiscal year
for which the services were rendered.
Employees are selected by the Company's Compensation Committee to
participate in the Bonus Plan based on the recommendation of the Chairman of the
Board of Directors. Target bonus grants will be established based on the
position of the employee and computed as a percentage of the employee's salary.
A performance goal based primarily on the Company's earnings and cash flow will
be set by the Board of Directors, and the amount of bonus will be calculated
based on the employee's target bonus grant, the performance of the Company
compared with the performance goal and individual contributions by the employee.
Although the Compensation Committee has the discretion to award what it believes
to be appropriate bonus awards, the Committee will primarily use the preceding
factors in determining the award amounts.
STOCK PERFORMANCE PLAN. The Company will adopt, effective upon the IPO
Date, a Stock Performance Plan to provide additional incentive to those officers
and employees of the Company and its subsidiaries primarily responsible for the
success of the Company and to closely identify their interests with those of the
stockholders. Under the Stock Performance Plan, grants of stock options,
restricted stock or combinations of the two may be awarded to employees
(including those who are directors of the Company) and to individuals performing
services for the Company on a consulting basis. The aggregate number of shares
of stock of the Company which may be made subject to option or restriction under
the Stock Performance Plan will not exceed 2,000,000 shares of which only
300,000 shares may be subject to restricted stock grants. Grantees of restricted
stock awards will have the right to dividends (unless otherwise restricted).
The Stock Performance Plan will be administered by the Compensation
Committee of the Company which will determine the timing and size of stock
option or restricted stock grants, the individuals, if any, who will receive
grants and the terms and conditions of such grants. Upon exercise of an option,
payment of the purchase price for the stock subject to the exercise will be made
in cash. In certain circumstances, the Compensation Committee may establish
conditions under which the Company may elect to make a cash payment to an
employee exercising an option equal to the difference between the option price
and the fair market value of the stock in lieu of executing the option. Under
the terms of the Stock Performance Plan, no more than 25% of the total number of
shares of stock granted under option may become exercisable in any given year
following the grant. Restrictions on restricted stock granted under the Stock
Performance Plan may not lapse before the second anniversary of the date of
grant. Grants to individuals who are not members of the Board of Directors will
be made by the Compensation Committee based on the recommendations of the
Chairman of the Board. Grants to eligible members of the Board of Directors will
be based on the recommendation of the Compensation Committee and will be made in
the sole discretion of the Board of Directors whose members taking action on the
grant shall be ineligible for grants under the Plan.
The Compensation Committee is expected to grant, effective as of the IPO
Date, restricted stock worth $1.8 million to approximately 40 employees of the
Company. In addition, the Compensation Committee is expected to grant stock
options, with an aggregate exercise price of $10.6 million, exercisable at a
price equal to the initial public offering price to approximately 120 employees.
Messrs. Hardinger, Adcox, Cognie, Gino,
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<PAGE>
Rygler and Leichliter will receive restricted stock worth $242,000, $150,000,
$60,800, $48,330, $56,000 and $46,000, respectively, and stock options with an
aggregate exercise price of $2,475,000, $1,500,000, $500,000, $600,000, $600,000
and $200,000, respectively. In the case of Messrs. Hardinger, Adcox, Cognie,
Gino and Rygler, these grants represent compensation expected to be paid under
the Stock Performance Plan during the two years following the IPO Date. In the
case of Mr. Leichliter, the grant of stock options represents compensation
expected to be paid under the plan for the year following the IPO Date.
FOUNDERS' STOCK OPTION PLAN. In 1996, the Company's Board of Directors
approved a Founders' Stock Option Plan pursuant to which the Compensation
Committee intends to award to nearly all employees of the Company and its
subsidiaries, worldwide, effective upon the IPO Date, each a one-time grant of
options to acquire 252 shares of Common Stock at an exercise price per share
equal to the initial public offering price of Common Stock in the Offering. Upon
exercise of an option, payments of the purchase price for the stock subject to
the exercise will be made in cash. Each of the Named Officers is expected to
receive a grant under this Plan. Grants under the Founders' Stock Option Plan
will vest over a four-year period at the rate of 25% of the total grant per
year.
EMPLOYMENT AGREEMENT. DuPont entered into an employment agreement with Mr.
Hardinger dated as of September 21, 1995, whereby he agreed to serve as the
chairman and chief executive officer of the Company. The agreement provides Mr.
Hardinger with: (i) an annual base salary of at least $290,000; and (ii), a
restricted stock grant of Common Stock valued at ten months' base salary at the
IPO Date and $2,475,000 of stock options priced to equal the initial public
offering price of Common Stock sold in the Offering, both pursuant to the
Company's Stock Performance Plan described above. These options will vest
immediately in the event of termination without cause.
In the event of termination without cause prior to the second anniversary of
the IPO Date, Mr. Hardinger would receive from DuPont the equivalent of two
years' salary and target bonus and the right to exercise all stock options. In
the event of termination without cause thereafter, Mr. Hardinger will receive
from DuPont a payment equal to one year's base salary and target bonus. In
addition, the other Named Officers and certain other senior management employees
will receive from DuPont in the event of termination without cause within two
years of the IPO Date the equivalent of two years' salary and target bonus. The
Company has no change-in-control arrangements with any of its executive
officers.
DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE
The Certificate and Bylaws provide for indemnification of directors and
officers to the fullest extent permitted by the Delaware General Corporation Law
(the "DGCL") and, to the extent permitted by such law, eliminate or limit the
personal liability of directors and officers to the Company and its stockholders
for monetary damages for certain breaches of fiduciary duty. In addition, the
Company will enter into an indemnification agreement with each of its directors
to the fullest extent permitted by the DGCL, pursuant to which they will be
entitled to advances for the costs of defending actions against them in addition
to that provided by the indemnification provisions in the Certificate and Bylaws
or the Company's directors and officers insurance policy. See "Description of
Capital Stock -- Certain DGCL, Certificate and Bylaws Provisions."
54
<PAGE>
TRANSACTIONS AND RELATIONSHIP BETWEEN THE COMPANY AND DUPONT
The Company and DuPont have entered into a number of agreements for the
purpose of defining the ongoing relationship between them. These agreements were
negotiated in the context of a parent-subsidiary relationship and therefore are
not the result of negotiations between independent parties. It is the intention
of the Company and DuPont that such agreements and the transactions provided for
therein, taken as a whole, should accommodate the parties' interests in a manner
that is fair to both parties, while continuing certain mutually beneficial joint
arrangements. However, because of the complexity of the various relationships
between the Company and DuPont (including their subsidiaries), there can be no
assurance that each of such agreements, or the transactions provided for
therein, will be effected on terms at least as favorable to the Company as could
have been obtained from unaffiliated third parties. The agreements summarized in
this section have been filed as exhibits to the Registration Statement of which
this Prospectus forms a part, and the following summaries are qualified in their
entirety by reference to the agreements as filed. While these agreements will
provide the Company with certain benefits, the Company is only entitled to the
ongoing assistance of DuPont for a limited time and it may not enjoy benefits
from its relationship with DuPont beyond the term of the agreements. There can
be no assurance that the Company upon termination of such assistance from DuPont
will be able to provide adequately such services internally or obtain favorable
arrangements from third parties to replace such services. See "Risk Factors --
No Independent Operating History Prior to the Offering" and "-- Control by and
Relationship with DuPont."
Additional or modified arrangements and transactions may be entered into by
the Company, DuPont and their respective subsidiaries after completion of the
Offering. Any such future arrangements and transactions will be determined
through negotiation between the Company and DuPont or their respective
subsidiaries, as the case may be. There can be no assurance that any such
arrangements or transactions will be the same as that which would be negotiated
between independent parties.
The following is a summary of certain past, present and prospective
arrangements and transactions between the Company and DuPont.
REALIGNMENT OF PHOTOMASK BUSINESS
Prior to the Realignment described below, DuPont's U.S. photomask operations
were conducted by DuPont Photomasks, Inc., a Texas corporation. European
photomask operations were conducted by separate, wholly-owned subsidiaries of
DuPont in their respective countries. Photomask operations in Korea were
conducted by a Korean subsidiary, which was 31% owned by DuPont Photomasks, Inc.
and 69% owned by DuPont and which also conducted DuPont's other non-photomask
business.
In connection with the Offering, DuPont realigned its global photomask
business, pursuant to which certain transactions were undertaken so that
DuPont's foreign photomask operations would reside in subsidiaries wholly owned
by the Company (the "Realignment"). The Company was reincorporated in Delaware
on December 31, 1995. On May 14, 1996, DPI issued one million shares of Common
Stock to DCEO for a nominal amount.
On November 9, 1995, DPI incorporated a new subsidiary in Delaware, DuPont
Photomasks Delaware Inc. ("Photomasks Delaware") and as of March 29, 1996, DPI
had contributed approximately $37 million to Photomasks Delaware. Photomasks
Delaware used such contribution to make loans to Photomasks Korea, Photomasks
Germany and Photomasks France (each, as defined herein) in order to complete the
Realignment. In addition, the amounts owed to DuPont by the Company under
several Master Note agreements were consolidated into a single Master Note on
February 22, 1996. The proceeds from the Offering will, in part, be used to
repay a portion of the amount outstanding under the Master Note. The remaining
balance under the Master Note will be contributed as equity capital to the
Company by DCEO. See "Use of Proceeds."
On August 31, 1995, DPI incorporated a new wholly owned subsidiary in Korea,
DuPont Photomasks Korea Ltd., and on January 30, 1996, DuPont Korea Ltd.
transferred all of its assets (except for cash) relating to the photomask
business to DuPont Photomasks Korea Ltd. ("Photomasks Korea") for approximately
$37 million, which was based upon an appraisal conducted by an independent third
party. In addition to the
55
<PAGE>
transfer of the assets related to the photomask business in Korea, Photomasks
Korea also assumed all of the liabilities relating to the photomask business,
including trade payables, any liabilities relating to photomask product
warranties, and any employee related liabilities or other claims with regard to
employees transferred by DuPont Korea Ltd. to Photomask Korea. While the
manufacturing operations and the title to approximately 75% of the real property
at the Korean manufacturing facility has been transferred to Photomasks Korea,
certain real property at this manufacturing site that is not used for
manufacturing purposes has yet to be transferred pending local government
review. On May 7, 1996, DPI agreed to sell its 31% equity interest in DuPont
Korea Ltd. to DuPont for $26.6 million. The proceeds from the sale will be used
to reduce the balance under the Master Note. In connection with such sale, to
the extent there is a loss, any tax benefit attributable to such loss will,
pursuant to the Tax Indemnification Agreement described below, be for DuPont's
benefit at such time as when DuPont's beneficial ownership of the Company falls
below 50%.
On January 4, 1996, DuPont purchased all the outstanding shares of DuPont
Photomasks (France) S.A. ("Photomasks France") from DuPont de Nemours (France)
S.A. for 81 million FFr (approximately $16.2 million), which was based on an
appraisal by an independent third party. On January 11, 1996, DuPont contributed
such shares to DCEO, and on January 15, 1996, DCEO contributed such shares to
DPI.
In Germany, DuPont's photomask business had been operated through DuPont
Photomasks GmbH & Co. KG ("Photomasks KG") by DuPont de Nemours (Deutschland)
GmbH ("DuPont Germany") and DuPont Photomasks Verwaltungs GmbH ("Photomasks
Germany"). On December 18, 1995, Photomasks KG distributed DM 4.3 million
(approximately $2.95 million) to DuPont Germany. On March 29, 1996, Photomasks
KG distributed DM 6.4 million (approximately $4.3 million) to DuPont Germany,
and Photomasks Delaware and DPI loaned DM 30.2 million (approximately $20.3
million) to Photomasks KG. On April 1, 1996, Photomasks KG redeemed the equity
interest in Photomask KG held by DuPont Germany for DM 30.2 million. Pursuant to
German law, all of the assets and liabilities of Photomasks KG were assumed by
Photomasks Germany. On April 4, 1996, DCEO contributed all of the outstanding
shares of Photomasks Germany to DPI. In April 1996, DM 7.5 million
(approximately $5.2 million) of DPI's loan was converted into equity.
On February 8, 1996, DuPont purchased a 60.5% equity interest in DuPont
Photomasks Company Limited, Shanghai ("Photomasks China") from DuPont China
Holding Company Limited ("DuPont China") for RMB 11.8 million (approximately
$1.4 million). On February 8, 1996, DuPont contributed such equity interest to
DCEO, and DCEO contributed such equity interest to DPI. In connection with this
equity contribution, DPI agreed to guarantee for the benefit of DuPont all
amounts payable in the future by DuPont pursuant to a previous guarantee DuPont
made on behalf of Photomasks China for up to $4.6 million plus interest and
expenses.
On August 28, 1995, DCEO contributed 50,000 shares of Etec preferred stock
to DPI, and such Etec preferred stock by its terms has been converted to
1,025,640 shares of Etec common stock.
ADMINISTRATIVE SERVICES AGREEMENTS
The Company and its subsidiaries, on the one hand, and DuPont and certain
DuPont subsidiaries, on the other hand, will enter into several transitional
administrative services agreements, each effective as of January 1, 1996
(collectively, the "Administrative Services Agreements"), pursuant to which
DuPont will continue to provide various services to the Company, including cash
management, accounting, computer and information systems, telecommunications and
employee benefits administration.
Each service under the Administrative Services Agreements is provided for a
specified time period, ranging from one to two years. However, the Company and
its subsidiaries may terminate any or all services that it receives under an
Administrative Services Agreement at any time upon 45 days' prior written
notice. Each Administrative Services Agreement shall terminate upon the later of
(i) January 1, 1998 or (ii) the date upon which DuPont owns less than 50% of the
outstanding Common Stock of the Company. See "Risk Factors -- Effects of Sales
of Substantial Amounts of Common Stock." As long as DuPont owns at least 50% of
the outstanding Common Stock of the Company, DPI or its subsidiaries, as the
case may be, may unilaterally extend the period during which DuPont provides any
service, other than computer, information
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<PAGE>
systems and telecommunications services, for an additional twelve months by
providing DuPont at least 45 prior days' written notice. The Company and its
subsidiaries are obligated to take all steps necessary to obtain its own
administrative and support services prior to the termination of the
Administrative Services Agreements.
The Company and its subsidiaries will be obligated to pay fees established
in the Administrative Services Agreements based upon the type and amount of
services rendered. It is estimated that DuPont will charge an annual fee of
approximately $10 million for all of the services that it will provide under the
Administrative Services Agreements. In addition, the Company and its
subsidiaries will reimburse DuPont for any out-of-pocket expenses it incurs in
connection with providing the services. With the exception of the administrative
services agreement entered into by the respective subsidiaries of DuPont and DPI
in Korea, in the absence of gross negligence or willful or reckless misconduct,
DuPont's liability for damages to DPI for any breach of DuPont's obligations
under the Administrative Services Agreements is limited to payments made to
DuPont thereunder. With respect to the administrative services agreement
covering the operations in Korea, DuPont's subsidiary is not required to provide
any guarantee or warranty of any nature and cannot be held liable for any
claims, damages or liabilities of any kind resulting from the furnishing of the
services thereunder.
RESEARCH, DEVELOPMENT AND CONSULTING AGREEMENT
The Company and DuPont have entered into a research, development and
consulting agreement (the "Research, Development and Consulting Agreement")
dated as of January 1, 1996, whereby DuPont will provide to the Company
supplemental technical assistance and consulting with respect to: (i)
state-of-the-art analytical support and consulting on an as needed basis
("Analytical Support") and (ii) research projects addressing specific DPI needs
("Research Project Support"). In exchange for the Analytical Support, DPI will
pay DuPont $100,000 per calendar year. In the event the costs of these services
are estimated to exceed $100,000, the Company can either agree to pay additional
projected costs or elect not to have DuPont provide these additional services.
Compensation for Research Project Support will be determined at the time each
specific project relating thereto is undertaken. The term of the Research,
Development and Consulting Agreement is five years and shall continue on a year
to year basis thereafter until terminated by either of DuPont or the Company
pursuant to certain procedures set forth in the Research, Development and
Consulting Agreement. The Company believes that the Research, Development and
Consulting Agreement will provide the Company with a supplement to its core
research and development program. See "Business -- Research and Development."
TAX INDEMNIFICATION AGREEMENT
The Company, DuPont and DCEO have entered into a tax indemnification
agreement effective as of the IPO Date (the "Tax Indemnification Agreement"),
pursuant to which the Company will make a payment to DuPont, or DuPont will make
a payment to the Company, as appropriate, of an amount in respect of taxes shown
as due attributable to the operations of the Company on DuPont's consolidated
federal income tax return for the short period ending on the date on which the
Company ceases to be a member of the DuPont consolidated group. DuPont and DCEO
jointly and severally will indemnify the Company and its subsidiaries from
liability for certain matters, including, net of corresponding tax benefits, (i)
any federal, state or local income or other taxes attributable to any affiliated
or combined group of which the Company was a member at any time prior to the IPO
Date and (ii) any federal, state or local income or other tax for any period up
to and including the IPO Date. The Company will indemnify DuPont and its
subsidiaries from liability for certain matters, including any federal, state or
local income or other taxes attributable to the operations of the Company
following the IPO Date.
In connection with DPI's sale of its 31% equity interest in DuPont Korea
Ltd. to DuPont, to the extent there is a loss, any tax benefit attributable to
such loss will, pursuant to the Tax Indemnification Agreement, be for DuPont's
benefit at such time as when DuPont's beneficial ownership of the Company falls
below 50%.
The Tax Indemnification Agreement will require payments of claims to be made
within 30 days of the date a written demand for the claim is delivered. Interest
accrues on payments that are not made within 10
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days of the final due date at the rate applicable to the underpayments of the
applicable tax. Any disputes concerning the calculation or basis of
determination of any payment provided under the Tax Indemnification Agreement
will be resolved by a law firm or a "big six" accounting firm selected jointly
by the parties.
ENVIRONMENTAL INDEMNIFICATION AGREEMENT
The Company and DuPont have entered into an environmental indemnification
agreement effective as of the IPO Date (the "Environmental Indemnification
Agreement"), pursuant to which DuPont will generally indemnify the Company
against substantially all contingent liabilities relating to any environmental
contamination present on the manufacturing sites of the Company and its
subsidiaries as of the IPO Date or present on any other site as a result of the
manufacturing operations of the Company and its subsidiaries prior to the IPO
Date.
In the event that the parties cannot determine with reasonable certainty
following good faith negotiations whether the contamination was caused by
activities occurring before or after the IPO Date, the Agreement will provide a
mechanism whereby the liability associated with such claim will be allocated
according to the following: DuPont will bear 100 percent of the liability
associated with claims filed by the Company with regard to such contamination
prior to the first anniversary of the IPO Date; DuPont's liability for claims
filed following the first anniversary of the IPO Date will decline at the rate
of 20 percent per year; and DuPont will have no liability for such claims filed
following the fifth anniversary of the IPO Date.
The Environmental Indemnification Agreement will include procedures for
notice and payment of indemnification claims and will generally provide that the
party bearing the majority of the liability will assume the defense of such
claim and will control any negotiation or remediation activities.
CREDIT FACILITY
The Company and DCEO have entered into a credit agreement effective as of
January 1, 1996 (the "Credit Agreement"), pursuant to which DCEO has agreed to
provide a revolving credit/working capital facility (the "Credit Facility") to
the Company in an aggregate amount of up to $30 million. The Credit Facility has
a term of 24 months, and any loans thereunder will bear interest at the
six-month London Interbank Offered Rate (LIBOR) plus 50 basis points, which
shall be adjusted every six months. The amounts loaned under the Credit
Agreement are secured by all the Company's (i) equipment, (ii) accounts
receivable, (iii) instruments, documents and securities owned by DPI and in the
possession of DCEO and (iv) the proceeds of the foregoing. The Credit Facility
will provide financing for general capital spending and corporate purposes and
ongoing working capital needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources."
The Credit Agreement contains various representations, covenants and events
of default typical for financings of a similar size and nature. In addition to
restrictive covenants limiting the ability of the Company and its subsidiaries
to enter into leases and pledge its assets, the Credit Agreement contains the
following restrictive covenants. Without DCEO's prior written consent, DPI will
not incur, create, assume or permit to exist any indebtedness, including
guarantees on indebtedness (in addition to the indebtedness under the Credit
Facility), in excess of $30 million in the aggregate. In addition, without
DCEO's prior written consent, which may not be unreasonably withheld, DPI will
not (a) change its capital structure, (b) merge or consolidate with any
corporation, (c) amend or change its articles of incorporation or bylaws or (d)
sell, transfer or otherwise dispose of all or any substantial part of its
assets, whether now owned or hereafter acquired, except for sales of inventory
in the ordinary course of business. See "Risk Factors -- No Independent
Operating History Prior to the Offering" and "Risk Factors -- Control by and
Relationship with DuPont."
CORPORATE TRADENAME AND TRADEMARK AGREEMENT
The Company and DuPont have entered into a corporate tradename and trademark
agreement dated as of May 16, 1996 (the "Corporate Tradename Agreement"),
whereby DuPont will license to the Company (i) use of the tradename "DuPont" as
part of the Company's name and (ii) use of the trademark DuPont in Oval as part
of the Company's corporate logotype. DuPont may terminate the Corporate
Tradename Agreement upon 90 days written notice in the event that: (i) DuPont
and/or its affiliates cease to hold 51% of
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the total outstanding Common Stock of DPI; (ii) DPI purports to assign or
otherwise transfer the Corporate Tradename Agreement without DuPont's written
consent; or (iii) DPI uses the tradename "DuPont" other than under the terms of
the Corporate Tradename Agreement. In addition, DuPont may terminate the
Corporate Tradename Agreement upon 90 days written notice for any reason after
January 1, 2000. Upon termination of the Corporate Tradename Agreement, DPI will
be obligated to: (i) change its name so that the tradename "DuPont" is omitted
therefrom; (ii) cease to use the tradename "DuPont" or any similar tradename as
part of its corporate name or in any other manner whatsoever; and (iii) cease to
use the DuPont in Oval trademark.
DISTRIBUTOR AGREEMENTS
DPI has entered into separate distributor agreements, each effective as of
January 1, 1996 (the "Distributor Agreements") with DuPont K.K., a Japanese
subsidiary of DuPont, and DuPont Taiwan Limited, a Taiwanese subsidiary of
DuPont (collectively, the "Distributors"). Pursuant to the Distributor
Agreements, DPI has appointed the Distributors to sell DPI's products in their
respective countries. The products will be sold to the Distributors at a
discount, which shall permit the Distributors to earn a pre-tax profit between
2% and 4%. The Distributor Agreements have a term of two years but may be
terminated without cause upon six months' prior written notice. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year Ended June 30, 1994 Compared to Year Ended June 30, 1995 --
Total Sales."
HISTORICAL TRANSACTIONS
The Company borrowed funds for acquisitions, capital expenditures and
working capital from DCEO pursuant to the Master Note. The interest rate charged
has been equal to the rate DuPont pays for its commercial paper borrowings. A
portion of the net proceeds from the Offering will be used to repay indebtedness
owed under the Master Note. Any remaining balance on the Master Note will be
contributed to the Company as equity capital by DCEO. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Prior to the Realignment, DuPont provided significant management functions
and services, including cash management, tax administration, accounting, legal,
data processing, benefit administration and other support services. DPI was
charged and/or allocated expenses for the years ended June 30, 1993, 1994 and
1995 of $12.0 million, $12.5 million and $13.1 million, respectively, and $9.6
million and $8.4 million for the nine months ended March 31, 1995 and 1996,
respectively. The costs of these services have been directly charged and/or
allocated using methods that DuPont management believes are reasonable. Such
charges and allocations are not necessarily indicative of the costs the Company
would have been incurred to obtain these services had it been a separate entity.
Neither DuPont nor the Company has made a study or any attempt to obtain
estimates from third parties to determine what the cost of obtaining such
services from such parties may have been. See Note 3 to Combined Financial
Statements.
PRINCIPAL STOCKHOLDER AND STOCK OWNERSHIP
DuPont, through its wholly owned subsidiary DCEO, currently owns all the
shares of Common Stock of the Company outstanding. Upon completion of the
Offering, DuPont will own approximately 72% of the outstanding Common Stock (or
70%, if the Underwriters' overallotment option is exercised in full). DuPont
will, therefore, be able, acting alone, to elect the entire Board of Directors
of the Company and to control the vote on most matters submitted to a vote of
the Company's stockholders, including extraordinary corporate transactions.
DuPont's address is 1007 Market Street, Wilmington, DE 19898. See "Risk Factors
- -- Control by and Relationship with DuPont."
The following table furnishes information, as of the date hereof and
adjusted to reflect the consummation of the Offering, with respect to shares of
Common Stock beneficially owned by DuPont. In addition, the table sets forth the
number of shares of DPI Common Stock and DuPont common stock beneficially owned
59
<PAGE>
by (i) each executive officer of the Company, (ii) all directors of the Company
as a group and (iii) all directors and executive officers of the Company as a
group. The officers of the Company are expected to have sole voting power and
investment power over the shares to be held by them.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
----------------------------- --------------------------------
DPI SHARES PERCENT OF DPI DPI SHARES PERCENT OF DUPONT SHARES
NAME OF BENEFICIALLY SHARES BENEFICIALLY DPI SHARES BENEFICIALLY
BENEFICIAL OWNER OWNED OUTSTANDING OWNED (1) OUTSTANDING (1) OWNED (2)
- --------------------------------------- ------------ --------------- ------------ ------------------ --------------
<S> <C> <C> <C> <C> <C>
DuPont ................................ 10,500,000 100% 10,500,000 72% --
1007 Market Street
Wilmington, DE 19898
J. Michael Hardinger................... -- -- -- -- --
Preston M. Adcox....................... -- -- -- -- --
Gerard Cognie.......................... -- -- -- -- --
David S. Gino.......................... -- -- -- -- --
Kenneth A. Rygler...................... -- -- -- -- --
Van H. Leichliter...................... -- -- -- -- --
All directors (9 persons) (3).......... -- -- -- -- --
All directors and executives officers -- -- -- -- --
as a group (14 persons) (2)...........
</TABLE>
- ------------------------
(1) Excludes shares of Common Stock granted under the Company's employee benefit
plans.
(2) The directors and executive officers of the Company as a group beneficially
own less than 1% of outstanding shares of DuPont's common stock.
(3) The Company's directors are J. Michael Hardinger; John L. Doyle; John C.
Hodgson; Charles O. Holliday, Jr.; Peter G. Kehoe; Gary W. Pankonien; John
C. Sargent; Marshall C. Turner; and Susan A. Vladuchick.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
In connection with the Realignment, the Company was reincorporated in
Delaware. Pursuant to the Company's Certificate of Incorporation (the
"Certificate"), the Company is authorized to issue 25,000,000 shares of Common
Stock, par value $.01 per share, of which 10,500,000 shares are issued and
outstanding. The Common Stock offered hereby, when issued and sold as
contemplated by this Prospectus, will be validly issued, fully paid and
nonassessable. Upon completion of the Offering, there will be 14,500,000 shares
of Common Stock outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders, and a majority vote is
generally required for all actions to be taken by stockholders. Because holders
of Common Stock do not have cumulative voting rights, holders of a majority of
the shares of Common Stock represented at a meeting in person or by proxy can
elect all of the directors. Accordingly, after the Offering, DuPont will be able
to control the vote on most matters submitted to stockholders, including the
election of directors and approval of extraordinary corporate transactions. See
"Risk Factors -- Control by and Relationship with DuPont." In the event of a
liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets of the Company, if
any, remaining after the payment of all debts and liabilities of the Company and
the liquidation preference of any outstanding preferred stock. The Common Stock
has no preemptive rights and no redemptions, sinking fund or conversion
provisions.
The Common Stock has been approved for quotation on the Nasdaq National
Market. The transfer agent and registrar for the Common Stock will be Chemical
Mellon Shareholder Services, L.L.C.
Holders of Common Stock are entitled to such dividends as may be declared
from time to time by the Board of Directors out of funds legally available
therefor, subject to the dividend and liquidation rights of any preferred stock
that may be issued. See "Dividend Policy."
PREFERRED STOCK
The Certificate authorizes the Board to provide for the issuance, from time
to time, of classes or series of preferred stock, to establish the number of
shares to be included in any such class or series and to fix the designations,
voting powers, preferences and rights of the shares of each such class or series
and any qualifications, limitations or restrictions thereof. Because the Board
has the power to establish the preferences and rights of the shares of any such
class or series of preferred stock, it may afford holders of any preferred stock
preferences, powers and rights (including voting rights), senior to the rights
of holders of Common Stock, which could adversely affect the rights of holders
of Common Stock. There are no shares of preferred stock currently outstanding,
and the Company currently has no intention to issue any shares of preferred
stock.
CERTAIN DGCL, CERTIFICATE AND BYLAWS PROVISIONS
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations now authorized by the DGCL, directors
are accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care. The
DGCL enables corporations to limit available relief to equitable remedies such
as injunction or rescission. The Certificate limits the liability of directors
of the Company to the Company or its stockholders (in their capacity as
directors but not in their capacity as officers) to the fullest extent permitted
by the DGCL. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty other than
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
violations under Section 174 of the DGCL or any transaction from which the
director derived an improper personal benefit. The inclusion of
61
<PAGE>
these provisions in the Certificate may have the effect of reducing the
likelihood of derivative litigation against the Company's directors and may
discourage or deter stockholders or management from bringing a lawsuit against
the Company's directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. Such provisions do not limit or affect a stockholder's ability to
seek and obtain relief under the Federal securities laws.
In addition, Article VII of the Bylaws requires the Company to indemnify any
current or former director or officer to the fullest extent permitted by the
DGCL. In addition, the Company has agreed to indemnify each director to the
fullest extent permitted by the DGCL pursuant to an Indemnification Agreement
from and against any and all expenses, losses, claims, damages and liabilities
incurred by such director for or as a result of actions taken or not taken while
such director or officer was acting in his or her capacity as a director,
officer, employee or agent of the Company. In addition, the Company maintains
directors and officers liability insurance which insures against liabilities
that directors and officers of the Company may incur in such capacities. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers. See "Risk Factors -- Dependence on
Management and Technical Personnel."
The Certificate contains a provision expressly electing not to be governed
by Section 203 of DGCL. In general, Section 203 of the DGCL restricts certain
business combinations involving interested stockholders (defined as any person
or entity that is the beneficial owner of at least 15% of a corporation's voting
stock or is an affiliate or associate of the corporation and was the owner of
15% or more of the outstanding voting stock of the corporation at any time in
the past three years) or their affiliates (as defined). Because of such
election, Section 203 will not apply to the Company.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 14,500,000 shares of
Common Stock outstanding. Of these shares, the 4,000,000 shares sold in the
Offering (4,600,000 shares, if the Underwriters' overallotment option is fully
exercised) will be freely tradeable without restriction under the Securities
Act, unless they are held by an "affiliate" of the Company as that term is
defined in Rule 144 under the Securities Act of 1933 (the "Securities Act").
Shares purchased by affiliates of the Company may generally be sold in
compliance with the volume limitation, availability of public information,
manner of sale and notice of sale requirements of Rule 144.
The 10,500,000 shares of Common Stock that will continue to be owned by DCEO
will be "restricted" securities within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act or unless an exemption from registration is available, including
the exemptions contained in Rule 144 and Rule 144A under the Securities Act.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including any person who may be deemed an "affiliate" of the
Company, who has beneficially owned restricted shares for at least two years
would be entitled to sell within any three-month period a number of restricted
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume in the over-the-counter market
during the four calendar weeks preceding such sale, provided that the seller
files a Form 144 with respect to such sale, and complies with certain
requirements concerning availability of public information and manner of sale.
In addition, under Rule 144(k), a person who is not an affiliate of the Company,
and who has not been an affiliate of the Company at any time during the 90 days
preceding any sale, would be entitled to sell restricted shares without regard
to the limitations described above, provided that the restricted shares have
been beneficially owned for at least three years. The Securities and Exchange
Commission (the "Commission") has proposed reducing the three year and two year
restrictions described above to two and one year restrictions, respectively. It
is not known whether this proposal will be adopted. In addition, DCEO would be
permitted to sell its existing shares of stock to qualified institutional buyers
pursuant to the provisions of Rule 144A.
Each of the Company and DCEO has agreed not to sell or otherwise dispose of
any shares of the Common Stock held by them for 180 days after the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated, subject to certain exceptions. See "Underwriters."
DuPont has advised the Company that it expects to reduce its ownership
interest in the Company over time, subject to prevailing market and other
conditions. The Company is unable to estimate the amount, timing or nature of
future sales of outstanding Common Stock. Prior to the Offering, there has been
no market for the Common Stock, and no precise predictions can be made of the
effect, if any, that market sales of shares or the availability of shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock in the public market may have
an adverse effect on the market price thereof. See "Risk Factors -- Effect of
Sales of Substantial Amounts of Common Stock."
REGISTRATION RIGHTS
Under a Registration Rights Agreement dated as of December 31, 1995 (the
"Registration Rights Agreement") between DCEO and the Company, DCEO and its
assignees ("Holders") will be entitled to certain rights with respect to the
registration of shares they hold under the Securities Act. Subject to certain
limitations (including a minimum registration of over 1,000,000 shares), each
Holder has the right to require the Company to register the sale of all or part
of the shares it holds under the Securities Act (a "demand registration"). The
Holders, in the aggregate, are entitled to request up to five demand
registrations. Each Holder is also entitled to include the shares of Common
Stock it holds in a registered offering of securities by the Company for its own
account, subject to certain conditions and restrictions. The Company will pay
all expenses associated with a registration of shares of Common Stock by a
Holder pursuant to the Registration Rights Agreement, other than underwriting
discounts and commissions, Holders' out-of-pocket expenses or underwriters'
counsel fees and disbursements, if any, relating to such shares. In addition,
the Registration
63
<PAGE>
Rights Agreement contains certain indemnification provisions (i) by the Company
for the benefit of Holders as well as any potential underwriter and (ii) by
Holders for the benefit of the Company and related persons. DCEO and its
assignees may transfer its registration rights under the Registration Rights
Agreement without the prior approval of the Company. The Registration Rights
Agreement also provides that while DCEO owns 50% or more of the Company's Common
Stock, the Company may not grant registration rights to any other person without
DCEO's prior consent. DCEO has no current intention to exercise its registration
rights under the Registration Rights Agreement.
64
<PAGE>
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), each of the
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Cowen &
Company and Needham & Company, Inc. are acting as Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Common Stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Morgan Stanley & Co. Incorporated..........................................................
Cowen & Company............................................................................
Needham & Company, Inc.....................................................................
----------
Total.................................................................................. 4,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby (other than those
covered by the overallotment option described below) if any such shares are
taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers. After
the initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 600,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof, less the underwriting discounts and commissions. The
Underwriters may exercise such option to purchase solely for the purpose of
covering overallotments, if any, made in connection with the Offering. To the
extent that such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares offered hereby.
The Company, DuPont and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Each of the Company and DCEO has agreed in the Underwriting Agreement that
it will not, without the prior written consent of Morgan Stanley & Co.
Incorporated, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, for a period of 180 days after
the date of this Prospectus, except under the Company's existing benefit plans
and certain other circumstances.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
65
<PAGE>
The Representatives of the Underwriters and certain of their affiliates from
time to time provide investment banking and other services to DuPont and to
certain of its affiliates, for which they receive customary fees.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price has been determined by negotiations among the
Company and the Representatives of the Underwriters. Among the factors
considered in determining the initial public offering price were the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. There can, however, be no
assurance that the prices at which the Common Stock will sell in the public
market after the Offering will not be lower than the price at which it is sold
by the Underwriters.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by Van
H. Leichliter, Executive Vice President, General Counsel and Secretary of the
Company. Certain legal matters in connection with the Offering will be passed
upon for the Underwriters by Davis Polk & Wardwell of New York, New York.
EXPERTS
The combined financial statements as of June 30, 1995 and 1994 and March 31,
1996 and for each of the three years in the period ended June 30, 1995 and for
the nine months ended March 31, 1996, included in this Prospectus, have been so
included in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby
(including all amendments and supplements thereto, the "Registration
Statement"). As permitted by the rules and regulations of the Commission, this
Prospectus, which is part of the Registration Statement, does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement and such
exhibits and schedules filed as a part of thereof, which may be inspected,
without charge, at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, New
York, New York 10048, and Room 3190, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, upon payment of prescribed fees or may be examined without charge at
the public reference facility of such office.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are summaries of material terms of such
contract, agreement or other document. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
66
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Combined Statement of Operations -- Fiscal Years Ended June 30, 1993, 1994 and 1995........................ F-3
Combined Statement of Financial Position -- June 30, 1994 and 1995......................................... F-4
Combined Statement of Cash Flows -- Fiscal Years Ended June 30, 1993, 1994 and 1995........................ F-5
Notes to Combined Financial Statements..................................................................... F-6
Report of Independent Accountants.......................................................................... F-20
Combined Statement of Operations -- Nine Months Ended March 31, 1995 (unaudited) and 1996.................. F-21
Combined Statement of Financial Position -- June 30, 1995 and March 31, 1996............................... F-22
Combined Statement of Cash Flows -- Nine Months Ended March 31, 1995 (unaudited) and 1996.................. F-23
Notes to Combined Financial Statements..................................................................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of E.I. du Pont de Nemours and Company
In our opinion, the accompanying combined statement of financial position
and the related combined statements of operations and of cash flows present
fairly, in all material respects, the financial position of DuPont Photomasks
Business, a division of E.I. du Pont de Nemours and Company (the "Company"), at
June 30, 1994 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
April 4, 1996
F-2
<PAGE>
DUPONT PHOTOMASKS BUSINESS
COMBINED STATEMENT OF OPERATIONS (SEE NOTE 1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
----------------------------------
SEE NOTE 1993 1994 1995
----- ---------- ---------- ----------
<C> <S> <C> <C> <C>
Sales................................................................. $ 115,295 $ 130,497 $ 155,146
3 Sales To Related Parties.............................................. 3,601 4,051 6,368
---------- ---------- ----------
Total Sales........................................................... 118,896 134,548 161,514
Cost of Goods Sold.................................................... 112,224 107,456 117,022
---------- ---------- ----------
Gross Profit.......................................................... 6,672 27,092 44,492
3,7 Selling, General and Administrative Expense........................... 18,630 20,750 21,803
2 Research and Development Expense -- Net............................... 8,337 8,131 8,777
8 Other Operating (Income) Expense -- Net............................... 8,497 2,940 3,490
---------- ---------- ----------
Operating Profit (Loss)............................................... (28,792) (4,729) 10,422
9 Interest Expense...................................................... 9,196 5,814 6,957
Exchange (Gain) Loss.................................................. (430) 322 (493)
---------- ---------- ----------
Income (Loss) Before Income Taxes and Minority Interest............... (37,558) (10,865) 3,958
10 Provision for Income Taxes............................................ -- -- --
---------- ---------- ----------
Income (Loss) Before Minority Interest................................ (37,558) (10,865) 3,958
Minority Interest in Income (Loss) of Majority Owned Joint Venture.... -- -- (161)
---------- ---------- ----------
Net Income (Loss)..................................................... $ (37,558) $ (10,865) $ 4,119
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See pages F-6 to F-19 for Notes to Combined Financial Statements.
F-3
<PAGE>
DUPONT PHOTOMASKS BUSINESS
COMBINED STATEMENT OF FINANCIAL POSITION (SEE NOTE 1)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30
------------------------
SEE NOTE 1994 1995
- --------- ----------- -----------
<C> <S> <C> <C>
CURRENT ASSETS
2 Cash and Cash Equivalents...................................................... $ 3,924 $ 8,412
4 Accounts Receivable, Trade -- Net.............................................. 23,273 27,696
3 Accounts Receivable, Related Parties........................................... 3,268 1,846
Accounts and Notes Receivable, Miscellaneous................................... 1,166 1,263
11 Inventories.................................................................... 6,812 6,830
Prepaid Expenses and Other Current Assets...................................... 2,951 695
----------- -----------
Total Current Assets........................................................... 41,394 46,742
----------- -----------
12 Property, Plant and Equipment.................................................. 226,702 251,194
Less: Accumulated Depreciation and Amortization................................ (114,659) (138,070)
----------- -----------
Net Property, Plant and Equipment.............................................. 112,043 113,124
----------- -----------
Accounts Receivable, Related Parties -- Non-Current............................ 910 1,405
----------- -----------
2,3 Other Assets................................................................... 6,554 10,430
----------- -----------
Total Assets................................................................... $ 160,901 $ 171,701
----------- -----------
----------- -----------
<CAPTION>
LIABILITIES, DUPONT MASTER NOTES AND OWNER'S NET INVESTMENT
<C> <S> <C> <C>
CURRENT LIABILITIES
Accounts Payable, Trade........................................................ $ 3,745 $ 2,923
3 Accounts Payable, Related Parties.............................................. 4,735 8,076
13 Accounts Payable, Miscellaneous................................................ 989 7,255
16 Short Term Borrowings.......................................................... 1,386 2,960
13,14 Other Accrued Liabilities...................................................... 7,686 9,123
----------- -----------
Total Current Liabilities...................................................... 18,541 30,337
15,16 Long Term Borrowings........................................................... 6,704 4,265
13 Other Liabilities.............................................................. 2,039 5,958
Minority Interest in Net Assets of Majority Owned Joint Venture................ -- 489
9 DuPont Master Notes............................................................ 140,846 125,570
Owner's Net Investment......................................................... (7,229) 5,082
----------- -----------
Total Liabilities, DuPont Master Notes, and Owner's Net Investment......... $ 160,901 $ 171,701
----------- -----------
----------- -----------
</TABLE>
See pages F-6 to F-19 for Notes to Combined Financial Statements.
F-4
<PAGE>
DUPONT PHOTOMASKS BUSINESS
COMBINED STATEMENT OF CASH FLOWS (SEE NOTE 1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
----------------------------------
SEE NOTE 1993 1994 1995
----- ---------- ---------- ----------
<C> <S> <C> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... $ 6,981 $ 5,867 $ 3,924
---------- ---------- ----------
CASH PROVIDED BY (USED FOR) OPERATIONS
Net Income (Loss)...................................................... (37,558) (10,865) 4,119
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used
for) Operations:
Depreciation........................................................... 23,958 25,504 24,179
Asset Retirements...................................................... 6,813 1,005 603
Amortization........................................................... 3,324 1,988 761
(Increase) Decrease in Operating Assets................................ (354) (5,724) 486
Increase (Decrease) in Operating Liabilities........................... (1,193) 133 (1,159)
Other Noncash Charges and Credits -- Net............................... 2,643 311 42
---------- ---------- ----------
Cash Provided by (Used for) Operations................................. (2,367) 12,352 29,031
---------- ---------- ----------
INVESTMENT ACTIVITIES
Purchases of Property, Plant and Equipment............................. (18,067) (4,953) (14,853)
13 Payments for Acquisitions.............................................. (4,010) (7,109) (4,000)
Miscellaneous -- Net................................................... -- 378 272
---------- ---------- ----------
Cash (Used for) Investment Activities.................................. (22,077) (11,684) (18,581)
---------- ---------- ----------
FINANCING ACTIVITIES
Increase (Decrease) in Borrowings...................................... (31,649) 1,354 (1,591)
Cash Provided by (Paid to) DuPont -- Net............................... 56,150 (4,234) (5,432)
---------- ---------- ----------
Cash Provided by (Used for) Financing Activities....................... 24,501 (2,880) (7,023)
---------- ---------- ----------
Effect of Exchange Rate Changes On Cash................................ (1,171) 269 1,061
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 5,867 $ 3,924 $ 8,412
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... $ (1,114) $ (1,943) $ 4,488
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See pages F-6 to F-19 for Notes to Combined Financial Statements.
F-5
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
On June 8, 1995, E. I. du Pont de Nemours and Company ("DuPont") announced
its intention to (i) realign its worldwide Photomasks operations (the
"Business") into a stand-alone entity and (ii) sell shares of the realigned
Business to the public through an initial public offering (See Note 19). The
Business manufactures photomasks for sale to semiconductor and electronic
component manufacturers and manufactures photoblanks and pellicles for both
internal consumption and sale to other photomask producers.
The Combined Financial Statements include the operations of the Business in
the following countries:
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC
- --------------- ------------------- ------------------------------
<S> <C> <C>
United States France Peoples Republic of China
Germany Republic of Korea
The Netherlands
</TABLE>
Throughout the period covered by the Combined Financial Statements, the
Business's U.S. operations were conducted by DuPont Photomasks, Inc., a wholly
owned subsidiary of DuPont. European operations of the Business were conducted
by separate, wholly owned subsidiaries of DuPont in their respective countries.
During the period June 30, 1992 to April 20, 1993, the Business's Korean
operations were conducted by a wholly owned subsidiary of DuPont Photomasks,
Inc. Subsequent to this period, the Business's operations in the Republic of
Korea ("Korea") were merged with DuPont's non-Photomasks Korean operations to
form a Korean subsidiary owned 31% by DuPont Photomasks, Inc. and 69% by DuPont.
The Business's operations in China are conducted by a Joint Venture formed
September, 1994, which is owned 60.5% by a DuPont wholly owned subsidiary and
39.5% by SIMIC Electronic Company, Ltd., a state-owned enterprise in the Peoples
Republic of China. In this context, no direct ownership relationship existed
among all the various units comprising the Business; accordingly, DuPont and its
subsidiaries' net investment in the Business ("Owner's Net Investment") is shown
in lieu of Stockholder's Equity in the Combined Financial Statements.
Throughout the period covered by the Combined Financial Statements, the
Business was accounted for as a division within DuPont's Electronics Group.
Financial statements have not been previously prepared for the Business. These
Combined Financial Statements have been prepared from DuPont's historical
accounting records.
The assets, liabilities and operating results of DuPont resale operations in
Japan and Taiwan have been excluded from the Combined Financial Statements.
These operations involve distributorships for the Business. Sales to the DuPont
operations in Japan and Taiwan are reported in the Combined Financial Statements
as Sales to Related Parties and are accounted for as if the operations were an
outside distributor for which the Business has guaranteed full recovery of all
costs plus a specified operating margin. Charges of $608, $189 and $76 for the
fiscal years ended June 30, 1993, 1994 and 1995, respectively, were included in
Selling and Distribution Expense with respect to the payments by the Business to
DuPont under the terms of this guarantee.
The Business's manufacturing operations in Korea are conducted at a site
where other DuPont operations not included in the Business are present. At this
shared site, only the assets and liabilities expected to be included in the
Business after completion of the above referenced realignments are included in
the Combined Statement of Financial Position.
The Combined Statement of Operations includes all revenue and costs directly
attributable to the Business, including costs for facilities, functions and
services used by the Business at shared sites and costs for certain functions
and services performed by centralized DuPont organizations outside the defined
scope of the Business and directly charged to the Business based on usage. The
results of operations also include allocations of (i) costs for administrative
functions and services performed on behalf of the Business by
F-6
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION (CONTINUED)
centralized staff groups within DuPont, (ii) DuPont's Electronics Group
management expense, (iii) DuPont's general corporate expenses, (iv) pension and
other retirement benefit costs and (v) interest expense. (See Notes 2, 3, 5, 6,
7 and 9 for a description of the allocation methodologies employed). As more
fully described in Notes 2 and 10, current and deferred income taxes and related
tax expense have been allocated to the Business by applying Statement of
Financial Accounting Standards No. 109 ("SFAS 109") to each Business operation
in each country as if it was a separate taxpayer.
All charges and allocations of cost for facilities, functions and services
performed by DuPont organizations outside the defined scope of the Business have
been deemed to have been paid by the Business to DuPont, in cash, in the period
in which the cost was recorded in the Combined Financial Statements. Allocations
of current income taxes payable to the Business are deemed to have been
remitted, in cash, to DuPont in the period the related tax expense was recorded.
Allocations to the Business of current income taxes receivable are deemed to
have been remitted to the Business, in cash, by DuPont in the period to which
the receivable applies only to the extent that a refund of such taxes could have
been recognized by the Business on a stand-alone basis under the law of the
relevant taxing jurisdiction.
All of the allocations and estimates in the Combined Financial Statements
are based on assumptions that DuPont management believes are reasonable under
the circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses that would have resulted if the Business
had been operated as a separate entity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The Combined Financial Statements include the accounts of the wholly and
majority owned individual members of the Business. The Business's interest in a
50% owned joint venture with Dai Nippon Printing Co., Ltd., located in the
United States, is accounted for under the equity method. All material
transactions and accounts between individual members comprising the Business
have been eliminated in combination.
INCOME RECOGNITION
Sales and related cost of goods sold are included in income when goods are
shipped to the customer except in Korea, where sales and cost of goods sold are
included in income upon customer acceptance in accordance with Korean law.
CASH AND CASH EQUIVALENTS
The Business participated in DuPont's centralized cash management system. In
general, the cash funding requirements of the Business were met by, and all cash
generated by the Business was transferred to, DuPont. In the U.S. and France,
this was accomplished under the terms of interest-bearing loan arrangements
between DuPont's U.S. photomask subsidiary and DuPont and between DuPont's
French photomask subsidiary and DuPont France, S.A. (collectively, the "DuPont
Master Notes"). As part of the realignment of the Business described in Note 1,
the DuPont Master Notes were consolidated into a single master note (See Note
19). Accordingly, the only cash and cash equivalents (cash equivalents are
highly liquid investments with maturities of three months or less at time of
purchase), other than petty cash amounts, included in the Combined Statement of
Financial Position are accounts pertaining to the Business's operations in
Germany, the Netherlands, and, prior to April 20, 1993, Korea that were
conducted through wholly owned DuPont subsidiaries dedicated exclusively to the
Business.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by the average cost method. Elements of cost in inventory include raw
materials, direct labor and manufacturing overhead.
F-7
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT ("PP&E")
PP&E is carried at cost and is depreciated using the straight-line method
over the estimated useful lives of the related assets. Buildings and
improvements are depreciated over 20 years and machinery and equipment over 3 to
10 years. Leasehold improvements are depreciated using the straight-line method
over the term of the lease or the life of the equipment, whichever is less.
Historical cost for a significant portion of PP&E was determined under the
principles set forth in Accounting Principles Board Opinion Number 16.
The gross carrying value of PP&E surrendered, retired, sold or otherwise
disposed of and related accumulated depreciation are eliminated from the
accounts at the date of disposal and any resulting gain or loss is reflected in
income.
Maintenance and repairs are charged to operations; replacements and
betterments are capitalized.
INTANGIBLE ASSETS
Purchased identifiable intangible assets are amortized using the
straight-line method over their estimated useful lives. Goodwill, representing
the excess of cost over fair value of assets acquired and liabilities assumed in
purchase business combinations, is amortized over 5 years using the
straight-line method. The future economic benefit of the carrying value of
intangibles is reviewed periodically through an undiscounted cash flow analysis
and any change in useful life or impairment of value is recorded in the period
such determination is made. Net intangible assets, representing supply
agreements, were $1,250 and $5,193 at June 30, 1994 and 1995, respectively, and
are included in Other Assets (See Note 13).
INCOME TAXES
The taxable income (loss) of each member of the Business was included in
consolidated tax returns of the DuPont entity of which it was a part. As such,
separate income tax returns were not prepared or filed for the Business except
for the Business's operations in Korea prior to April 20, 1993.
For all periods presented, deferred income taxes and related tax expense
have been allocated to the Business by applying the asset and liability approach
set forth in SFAS 109 to each member of the Business as if it were a separate
taxpayer. Under this approach, deferred tax assets and liabilities represent the
expected future tax consequences of carryforwards and temporary differences
between the carrying amounts and the tax bases of assets and liabilities. SFAS
109 generally requires that all expected future events, other than enactment of
changes in tax law or tax rates, be considered in estimating future tax
consequences. Valuation allowances are established to reduce deferred tax assets
by the amount of any tax benefits that, based on available evidence, are not
expected to be realized.
Current tax expense has been determined as if each member of the Business
was a separate taxpayer. Income taxes currently payable are deemed to have been
remitted by the Business to DuPont in the period that the liability arose.
Income taxes currently receivable are deemed to have been received by the
Business from DuPont in the period that a refund could have been recognized by
the Business had the Business been a separate taxpayer.
Under the basis of presentation for these financial statements, no provision
has been made for taxes on cash remittances from the members of the Business to
the DuPont entity of which they are a part. Generally, remittances from a wholly
owned subsidiary to its in-country parent are tax free.
FOREIGN CURRENCY TRANSLATION
DuPont has determined that the U.S. Dollar is the functional currency of its
worldwide operations and that this functional currency determination is
appropriate to the economic environment in which the Business operated during
the period covered by these Combined Financial Statements. Monetary asset and
F-8
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liability amounts denominated in foreign currencies are remeasured into U.S.
Dollars at end-of-period exchange rates; foreign currency nonmonetary assets,
principally inventories and PP&E, are remeasured into U.S. Dollars at historical
exchange rates. Income and expenses are remeasured into U.S. Dollars at average
exchange rates in effect during the period, except for expenses related to
balance sheet amounts that are remeasured using historical exchange rates.
Exchange gains and losses from remeasurement of monetary assets and liabilities
are included in income in the period they occur.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. The Business is
party to certain contracts which provide for partial funding of its research and
development costs. Funding under these contracts of $1,942, $1,625 and $451 in
the fiscal years ended June 30, 1993, 1994, and 1995, respectively, has been
recognized as an offset to Research and Development Expense.
PENSIONS
DuPont has noncontributory defined benefit plans covering substantially all
U.S. employees, including the U.S. employees of the Business. The cost of these
plans for active employees was allocated to the Business (See Note 5) and is
principally included in Cost of Goods Sold. Amounts so allocated are not
necessarily indicative of the pension cost that would have been incurred if the
Business had been operated as a separate company.
Pension coverage for employees of DuPont's non-U.S. subsidiaries is
provided, to the extent deemed appropriate, through separate plans. Obligations
under such plans are systematically provided for by depositing funds with
trustees, under insurance policies or by book reserves. The cost of these
non-U.S. plans has been allocated to the Business using methods that DuPont
believes are appropriate to the nature of the plans.
U.S. Pension cost allocated to the Business is deemed to have resulted in a
cash contribution between the Business and DuPont in the period the pension cost
was incurred and, in return, DuPont is deemed to have assumed all responsibility
for pension payments to retirees. Accordingly, no pension related assets or
liabilities related to U.S. plans are included in the Combined Statement of
Financial Position.
OTHER POSTRETIREMENT BENEFITS
DuPont and certain of its subsidiaries provide medical, dental and life
insurance benefits to pensioners and survivors. These Other Postretirement
Benefits are accounted for under the accrual provisions of SFAS 106. Under the
terms of the benefit plans, DuPont reserves the right to change, modify or
discontinue the plans. The cost of these plans for active employees was
allocated to the Business (See Note 6) and is principally included in Cost of
Goods Sold. These costs are not necessarily indicative of the Other
Postretirement Benefit costs that would have been incurred if the Business had
operated as a separate entity.
Other Postretirement Benefits cost allocated to the Business is deemed to
have resulted in a cash contribution between the Business and DuPont in the
period the cost was incurred and, in return, DuPont is deemed to have assumed
all responsibility for payments to retirees. Accordingly, no other
postretirement benefit related assets or liabilities are included in the
Combined Statement of Financial Position.
INSURANCE
During the period covered by the Combined Financial Statements, DuPont did
not insure for property damage losses. Liability insurance was purchased with
high deductible limits. Costs included in the Combined Statement of Operations
resulting from noninsured losses were not material. Such costs are expensed as
incurred.
F-9
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ENVIRONMENTAL
DuPont accrues for certain environmental remediation activities relating to
past operations, including Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") cleanup and certain Resource Conservation and Recovery
Act ("RCRA") and related compliance activities, for which commitments have been
made, and reasonable estimates are possible. Where feasible, these costs are
assigned to the business unit responsible for the conditions being remediated.
During the period covered by the Combined Financial Statements, no material
environmental remediation costs were assigned to the Business.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make reasonable estimates
and assumptions, based upon all known facts and circumstances, that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Actual results could
differ from those estimates.
NOTE 3 -- RELATED PARTY TRANSACTIONS
The Combined Financial Statements include significant transactions with
other DuPont business units involving functions and services (such as cash
management, tax administration, accounting, legal, and data processing) that
were provided to the Business by centralized DuPont organizations outside the
defined scope of the Business. The costs of these functions and services have
been directly charged and/or allocated to the Business using methods that DuPont
management believes are reasonable. Such charges and allocations are not
necessarily indicative of the costs that would have been incurred if the
Business had been a separate entity. Amounts charged and allocated to the
Business for these functions and services were $12,047, $12,518 and $13,106 for
the fiscal years ended June 30, 1993, 1994 and 1995, respectively, and are
principally included in General and Administrative expenses.
Sales to Related Parties include sales to DuPont distributor operations (see
Note 1) and sales to the Business's joint venture with Dai Nippon Printing Co.,
Ltd. of $1,157, $887 and $815 for the fiscal years ended June 30, 1993, 1994 and
1995, respectively. Purchases of products produced by other DuPont business
units were not material.
Throughout the period covered by the Combined Financial Statements, the
Business held an approximate 8% ownership interest in Etec Systems, Inc.
("Etec"), the principal supplier to the Business of electron beam and laser beam
systems used to produce photomasks. The $5,000 original cost of this investment
is included in Other Assets at the lower of cost or market. Purchases of
equipment and equipment maintenance services from Etec, including equipment and
service contracts, were $14,919, $8,500 and $6,175 for the fiscal years ended
June 30, 1993, 1994 and 1995, respectively (See Note 19).
Accounts Receivable, Related Parties includes receivables from employees of
the Business of $952 (Current $42, Non-Current $910) and $1,445 (Current $40,
Non-Current $1,405) at June 30, 1994 and 1995, respectively, principally related
to housing and automobile loans to non-U.S. employees. The remainder represents
receivables for goods sold to DuPont distributor operations and receivables for
sales to the Business's joint venture with Dai Nippon Printing Co., Ltd.
Accounts Payable, Related Parties represents payables to DuPont for payroll
and benefits and vendor payments paid by DuPont on behalf of the Business and
billed to the business on a one-month-lag basis.
F-10
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4 -- SALES AND ACCOUNTS RECEIVABLE, TRADE
Essentially all of the Business's sales are to customers in the
semiconductor manufacturing industry. The Business assesses the financial
strength of its customers to reduce the risk of loss.
The Business's sales to Motorola, National Semiconductor, Philips and
SGS-Thomson, individually represented more than 10% of combined sales in each of
the years presented. Accounts Receivable from these parties total $9,221 and
$8,422 at June 30, 1994 and 1995, respectively.
NOTE 5 -- PENSION COST
Pension Cost for active employees (See Note 2) was determined by measuring
the Projected Benefit Obligation ("PBO") using a discount rate of 8.5%, 7.9% and
8.1% for the fiscal years ended June 30, 1993, 1994 and 1995, respectively, and
an assumed long term rate of compensation increase of 5%. The PBO for such
employees was determined using a discount rate of 7.2% and 9.0% at June 30, 1994
and 1995, respectively. The PBO so measured was $11,800 and $8,600 at June 30,
1994 and 1995, respectively. The PBO was assumed to be fully funded by plan
assets with an assumed long term rate of return of 9% allocated from the DuPont
plan. The elements of pension cost allocated to the Business using this method
were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service Cost..................................................... $ 1,165 $ 1,405 $ 1,320
Interest on PBO.................................................. 637 742 742
Assumed Return on Assets......................................... (669) (862) (846)
Amortization of Gains............................................ (42) (93) (142)
--------- --------- ---------
$ 1,091 $ 1,192 $ 1,074
--------- --------- ---------
--------- --------- ---------
</TABLE>
Pension coverage for employees of the Business's non-U.S. consolidated
subsidiaries is provided, to the extent deemed appropriate, through separate
plans. Obligations under these plans are provided by book reserves. The PBO and
the pension liability were $1,069 and $1,210 at June 30, 1994 and 1995,
respectively. The elements of pension cost allocated to the Business were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service Cost.......................................................... $ 103 $ 109 $ 111
Interest on PBO....................................................... 77 77 95
--------- --------- ---------
$ 180 $ 186 $ 206
--------- --------- ---------
--------- --------- ---------
</TABLE>
The economic assumptions used for the non-U.S plans are similar to those
used for the U.S. plans.
NOTE 6 -- OTHER POSTRETIREMENT BENEFIT COST
Other Postretirement Benefit Cost for active employees (See Note 2) was
determined by measuring the Accumulated Postretirement Benefit Obligation
("APBO") for such employees using a discount rate of 8.5%, 7.9% and 8.1% for the
fiscal years ended June 30, 1993, 1994 and 1995, respectively, and a health care
escalation rate of 10% decreasing to 5% over 10 years. The APBO for such
employees was determined using
F-11
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- OTHER POSTRETIREMENT BENEFIT COST (CONTINUED)
a discount rate of 7.2% and 9.0% at June 30, 1994 and 1995, respectively. The
APBO so measured was $4,900 and $3,500 at June 30, 1994 and 1995, respectively.
The elements of Other Postretirement Benefit Cost allocated to the Business
using this method were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service Cost......................................................... $ 681 $ 545 $ 489
Interest on APBO..................................................... 360 316 308
Amortization of Prior Service Credit................................. (54) (107) (109)
--------- --------- ---------
$ 987 $ 754 $ 688
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 7 -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, General and Administrative Expense consists of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Selling and Distribution Expense............................. $ 10,405 $ 11,426 $ 11,937
General and Administrative Expense........................... 8,225 9,324 9,866
--------- --------- ---------
$ 18,630 $ 20,750 $ 21,803
--------- --------- ---------
--------- --------- ---------
</TABLE>
As discussed in Note 3, General and Administrative Expense consists
principally of amounts allocated and/or charged by DuPont. Allocations are based
on factors such as head count and/or investment depending on the nature of the
item being allocated. Amounts charged to the Business are generally determined
based on usage. Such charges and/or allocations are not necessarily indicative
of the costs and expenses that would have been incurred if the Business had been
operated as a separate entity.
NOTE 8 -- PLANT SHUTDOWNS
In response to general industry overcapacity, the Business consolidated its
manufacturing operations during the fiscal year ended June 30, 1993, and shut
down mask manufacturing facilities at Danbury, Connecticut and Nijmegen,
Netherlands. A charge of $5,202 is included in Fiscal Year 1993 Other Operating
(Income) Expense -- Net for the retirement of property, plant and equipment and
employee severance costs associated with these shutdowns.
NOTE 9 -- INTEREST EXPENSE
Interest expense includes interest expense under the DuPont Master Notes of
$5,271, $5,134 and $6,898 for the fiscal years ended June 30, 1993, 1994 and
1995, respectively.
The interest rate charged under the DuPont Master Notes is generally
equivalent to the rate DuPont pays for its commercial paper borrowings. Such
amounts are not necessarily indicative of the cost that would have been incurred
if the Business had been operated as a separate entity.
NOTE 10 -- PROVISION FOR INCOME TAXES
Throughout the period covered by the Combined Financial Statements, DuPont
utilized various tax planning strategies and elections to minimize its total
income tax expense. It is not practicable to identify the effects of these
strategies and elections on the results of operations of the Business.
F-12
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10 -- PROVISION FOR INCOME TAXES (CONTINUED)
The results of the Business were included in DuPont consolidated tax returns
and DuPont received tax benefits for operating losses reported by the Business.
The allocation of tax expense to the Business is set forth in Note 2.
The Provision for Income Taxes consists of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
U.S. Federal:
Current........................................................... $ -- $ -- $ --
Deferred.......................................................... -- -- --
U.S. State and Local:
Current........................................................... -- -- --
Deferred.......................................................... -- -- --
Non-U.S.:
Current........................................................... -- -- 1,554
Deferred.......................................................... -- -- (1,554)
--------- --------- ---------
Provision for Income Taxes.......................................... $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes result from temporary differences between financial
carrying value and tax basis of the Business's assets and liabilities. The tax
effects of these temporary differences included in deferred income taxes are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Depreciation.................................................. $ (4,203) $ (3,645) $ 2,807
Inventories................................................... (666) 201 (235)
Accrued Liabilities........................................... (256) 162 (70)
Net Operating Loss Carryforwards.............................. (7,743) (2,076) (4,817)
Other......................................................... (134) 165 187
Change in Valuation Allowance................................. 13,002 5,193 574
--------- --------- ---------
Total Deferred Tax Provision.................................. $ -- $ -- $ (1,554)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10 -- PROVISION FOR INCOME TAXES (CONTINUED)
Deferred Tax Assets (Liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30
----------------------
1994 1995
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS
Inventories........................................................... $ 465 $ 700
Depreciation -- Non-U.S............................................... 1,764 1,964
Accrued Liabilities................................................... 1,829 1,899
Net Operating Loss Carryforwards (1).................................. 59,205 62,468
Other................................................................. 149 197
---------- ----------
Total Deferred Tax Assets............................................. 63,412 67,228
---------- ----------
DEFERRED TAX LIABILITIES
Depreciation -- U.S................................................... (9,320) (12,326)
Other................................................................. (117) (121)
---------- ----------
Total Deferred Tax Liabilities........................................ (9,437) (12,447)
---------- ----------
Valuation Allowance (1)............................................... (53,975) (54,781)
---------- ----------
Total Deferred Taxes.................................................. $ -- $ --
---------- ----------
---------- ----------
</TABLE>
The categorization of these deferred tax assets and liabilities as current
and non-current is presented in the Combined Statement of Financial Position.
An analysis of the U.S. federal provision to the book provision is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
---------------------------------
1993 1994 1995
---------- ---------- ---------
<S> <C> <C> <C>
Income (Loss) Before Income Taxes and Minority Interest..... $ (37,558) $ (10,865) $ 3,958
---------- ---------- ---------
Tax at 35% Statutory U.S. Federal Tax Rate.................. $ (13,145) $ (3,803) $ 1,385
Higher (Lower) Effective Tax Rate on Non-U.S. Operations.... 1,000 (129) 485
Tax Exemption (2)........................................... -- (962) (2,340)
Changes in Valuation Allowance (1).......................... 13,002 5,193 574
State Taxes, Net of Federal................................. (1,021) (347) (161)
Other -- Net................................................ 164 48 57
---------- ---------- ---------
Provision for Income Taxes.................................. $ -- $ -- $ --
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
- ------------------------
(1) Net operating loss carryforwards have been utilized by DuPont, as the
Business was included in consolidated tax returns of the DuPont entity of
which it was a part. It is assumed that the net operating loss carryforwards
are available solely for determining taxes under the separate taxpayer
approach in SFAS 109 (See Note 2). Such amounts will not be available to the
Business, and upon consummation of the Offering described in Note 1, the
Business will record net deferred tax liabilities. Changes in Valuation
Allowance exclude the effects of currency remeasurement.
(2) The Business's operations in Korea operated under a government granted tax
exemption throughout the period covered by the financial statements.
F-14
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- INVENTORIES
<TABLE>
<CAPTION>
JUNE 30
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Raw Materials, Stores and Supplies......................................... $ 5,935 $ 4,598
Semi-Finished Product...................................................... 329 380
Finished Product........................................................... 548 1,852
--------- ---------
$ 6,812 $ 6,830
--------- ---------
--------- ---------
</TABLE>
NOTE 12 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Construction In Progress............................................ $ 3,109 $ 23,644
Land................................................................ 5,341 5,341
Buildings........................................................... 36,674 37,099
Equipment........................................................... 181,578 185,110
----------- -----------
Total........................................................... 226,702 251,194
Less: Accumulated Depreciation...................................... (114,659) (138,070)
----------- -----------
Net Property, Plant and Equipment................................... $ 112,043 $ 113,124
----------- -----------
----------- -----------
</TABLE>
NOTE 13 -- ACQUISITIONS
On February 1, 1993, the Business purchased from an affiliate of Philips
Electronics N.V. ("Philips") selected photomask manufacturing equipment at
Philips' captive photomask manufacturing facility located in Hamburg, Germany
and entered into a five-year supply agreement with Philips Semiconductors
International B.V. Consideration for the equipment was $9,292, and consideration
for the supply agreement was $1,808. Under the terms of the supply agreement,
Philips agreed to purchase certain minimum quantities of photomasks from the
Business each year during the term of the agreement or to refund a portion of
the purchase price if such minimum quantities of photomasks were not purchased
during a given year. The supply agreement also calls for the Business to grant
price discounts to Philips in the event that purchases by Philips during a given
year exceed specified limits. Through June 30, 1995, the Business had received
$644 from Philips due to its failure to purchase specified minimum amounts.
These payments were applied to reduce the carrying amount assigned to the supply
agreement at the date of acquisition.
On April 7, 1995, the Business purchased from an affiliate of AT&T Corp.
("AT&T") selected photomask manufacturing equipment at AT&T's captive photomask
manufacturing facility located in Allentown, Pennsylvania and entered into a
five-year supply agreement with Lucent Technologies Inc. ("Lucent," formerly
AT&T). Consideration for the equipment was $10,000, and consideration for the
supply agreement was $5,000. Of these amounts, $4,000 was paid at closing and as
of June 30, 1995, $6,000 was included in Accounts Payable, Miscellaneous, $1,500
was included in Other Accrued Liabilities, and the remainder was included in
Other Liabilities. Under the terms of the supply agreement, Lucent agreed to
purchase certain minimum quantities of photomasks from the Business each year
during the term of the agreement or to refund a portion of the purchase price if
such minimum quantities were not purchased during a given year. The supply
agreement also calls for the Business to grant price discounts to Lucent in the
event that purchases by Lucent during a given year exceed specified limits.
F-15
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 14 -- OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JUNE 30
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Accrued Vacation Pay....................................................... $ 2,592 $ 2,827
Other Accrued Compensation and Benefits.................................... 2,569 2,417
Lucent Supply Agreement.................................................... -- 1,500
Deferred Revenue........................................................... 1,088 838
Accrued Royalties.......................................................... 263 420
Other...................................................................... 1,174 1,121
--------- ---------
Total.................................................................. $ 7,686 $ 9,123
--------- ---------
--------- ---------
</TABLE>
NOTE 15 -- LEASES
Minimum Lease Payments for Fiscal Years Ending June 30:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1996................................................................... $ 745 $ 891
1997................................................................... 703 285
1998................................................................... 505 61
1999................................................................... 415 29
2000................................................................... 415 5
2001................................................................... 415 --
Remainder................................................................ 1,455 --
--------- -----------
Total Minimum Lease Payments......................................... 4,653 $ 1,271
-----------
-----------
Less: Imputed Interest................................................... (461)
---------
Present Value of Net Minimum Lease Payments.............................. $ 4,192
---------
---------
</TABLE>
NOTE 16 -- BORROWINGS
<TABLE>
<CAPTION>
JUNE 30
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Non-Interest Bearing Notes Payable to Customers Due 1996 - 1997.......... $ 2,500 $ 2,921
Capital Lease Obligations................................................ 5,590 4,192
6% Bank Borrowings Due 1998 - 2001....................................... -- 112
--------- ---------
Total Borrowings....................................................... 8,090 7,225
Less: Current Portion................................................ (1,386) (2,960)
--------- ---------
Long Term Borrowings..................................................... $ 6,704 $ 4,265
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 17 -- GEOGRAPHIC INFORMATION
The Business operates within a single industry segment:
<TABLE>
<CAPTION>
UNITED ASIA
FISCAL YEAR ENDED JUNE 30 STATES EUROPE PACIFIC COMBINED
- -------------------------------------------------------------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
1993
Sales to Unaffiliated Customers (1)................................. $ 73,674 $ 24,225 $ 17,396 $ 115,295
Sales to Related Parties............................................ 3,601 -- -- 3,601
Transfers Between Geographic Areas (2).............................. 3,616 1 -- --
---------- --------- --------- ----------
Total........................................................... $ 80,891 $ 24,226 $ 17,396 $ 118,896
---------- --------- --------- ----------
---------- --------- --------- ----------
Net (Loss).......................................................... $ (29,158) $ (3,986) $ (4,153) $ (37,558)
Identifiable Assets at June 30...................................... $ 93,807 $ 34,223 $ 48,923 $ 176,953
1994
Sales to Unaffiliated Customers (1)................................. $ 77,883 $ 31,135 $ 21,479 $ 130,497
Sales to Related Parties............................................ 3,866 -- 185 4,051
Transfers Between Geographic Areas (2).............................. 7,397 838 -- --
---------- --------- --------- ----------
Total........................................................... $ 89,146 $ 31,973 $ 21,664 $ 134,548
---------- --------- --------- ----------
---------- --------- --------- ----------
Net Income (Loss)................................................... $ (10,631) $ (2,825) $ 2,692 $ (10,865)
Identifiable Assets at June 30...................................... $ 82,948 $ 31,755 $ 46,198 $ 160,901
1995
Sales to Unaffiliated Customers (1)................................. $ 84,503 $ 41,958 $ 28,685 $ 155,146
Sales to Related Parties............................................ 5,592 -- 776 6,368
Transfers Between Geographic Areas (2).............................. 9,710 4,130 187 --
---------- --------- --------- ----------
Total........................................................... $ 99,805 $ 46,088 $ 29,648 $ 161,514
---------- --------- --------- ----------
---------- --------- --------- ----------
Net Income (Loss) (3)............................................... $ (5,518) $ 3,426 $ 6,167 $ 4,119
Identifiable Assets at June 30...................................... $ 84,107 $ 37,685 $ 49,909 $ 171,701
</TABLE>
- ------------------------
(1) Sales outside the United States of products manufactured in and exported
from the United States totaled $191, $483 and $3,396 for the fiscal years
ended June 30, 1993, 1994 and 1995, respectively.
(2) Products are transferred between geographic areas on a basis intended to
approximate the "market value" of such products.
(3) For the fiscal year ended June 30, 1995, Asia Pacific operations include
pre-production costs for the Business's joint venture in China; no
commercial operations were conducted in China during this period.
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
The Business has various purchase commitments for materials, supplies and
items of permanent investment incident to the ordinary conduct of business. In
the aggregate, such commitments are not at prices in excess of current market.
Under the terms of certain equipment purchase contracts, the Business is
required to make periodic, non-refundable deposits during the period between
order placement and final delivery. Cancellation of such
F-17
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 18 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
orders prior to delivery results in forfeiture of the deposit. At June 30, 1995,
such deposits totaled $1,070 and were included in Property, Plant and Equipment
under the caption, Construction in Progress. The aggregate purchase price for
equipment to which these deposits relate was $11,000.
The Business is subject to various lawsuits and claims with respect to such
matters as product liabilities,
governmental regulations and other actions arising in the normal course of
business. In the opinion of the Business's General Counsel, the ultimate
liabilities resulting from such lawsuits and claims will not have a material
adverse effect on the combined financial position or results of operations, cash
flows or liquidity of the Business.
NOTE 19 -- SUBSEQUENT EVENTS (AMOUNTS IN THOUSANDS)
ETEC INVESTMENT In October 1995, Etec completed an initial public offering
of its common stock. At that date, the Business's investment in Etec was
classified as an "available for sale" security.
REALIGNMENT As part of the realignment described in Note 1, DuPont
Photomasks, Inc. ("DPI" or the "Company") was reincorporated in Delaware on
December 31, 1995, pursuant to which certain transactions were undertaken so
that DuPont's foreign photomask operations would reside in subsidiaries wholly
owned by the Company.
On November 9, 1995, DPI incorporated a new subsidiary in Delaware, DuPont
Photomasks Delaware, Inc. ("Photomasks Delaware") and as of March 29, 1996, DPI
had contributed approximately $37,000 to Photomasks Delaware. Photomasks
Delaware used such contribution to make loans to Photomasks Korea, Photomasks
Germany and Photomasks France (each, as defined herein) in order to complete the
realignment. In addition, the amounts owed to DuPont by the Company under the
DuPont Master Notes were consolidated into a single master note (the "Master
Note") on February 22, 1996. The proceeds from the offering will, in part, be
used to repay a portion of the amount outstanding under the Master Note. The
remaining balance under the Master Note will be contributed as equity capital to
the Company by DCEO (as defined herein).
On August 31, 1995, DPI incorporated a new wholly owned subsidiary in Korea,
DuPont Photomasks Korea, Ltd., and on January 30, 1996, DuPont Korea, Ltd.
transferred all of its assets (except for cash) and liabilities relating to the
photomask business to DuPont Photomasks Korea, Ltd. ("DPKL") for approximately
$37,000. Approximately $18,000 was borrowed by DPKL to effectuate this
transaction. The borrowing was repaid with Master Note proceeds.
On January 4, 1996, DuPont purchased all the outstanding shares of DuPont
Photomasks (France) S.A. from DuPont de Nemours (France) S.A. for 81,000 FFr
(approximately $16,200). On January 11, 1996, DuPont contributed such shares to
DuPont Chemical and Energy Operations, Inc., a wholly owned subsidiary of DuPont
("DCEO"), and on January 15, 1996, DCEO contributed such shares to DPI.
In Germany, the photomask business has been operated through DuPont
Photomasks GmbH & Co. KG ("Photomasks KG") by DuPont de Nemours (Deutschland)
GmbH ("DuPont Germany") and DuPont Photomasks Verwaltungs GmbH ("Photomasks
Germany"). On December 18, 1995, Photomasks KG distributed DM 4,300
(approximately $2,950) to DuPont Germany. On March 29, 1996, Photomasks KG
distributed DM 6,362 (approximately $4,309) to DuPont Germany, and Photomasks
Delaware and DPI loaned DM 30,200 (approximately $20,300) to Photomasks KG. On
April 1, 1996, Photomasks KG redeemed the interest held by DuPont Germany for DM
30,200 and pursuant to German law all of the assets and liabilities of
Photomasks KG were assumed by Photomasks Germany. On April 4, 1996, DCEO
contributed all of the outstanding shares of Photomasks Germany to DPI. In April
1996, DM 7,500 (approximately $5,200) of DPI's loan was converted to equity.
F-18
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 19 -- SUBSEQUENT EVENTS (AMOUNTS IN THOUSANDS) (CONTINUED)
On February 8, 1996, DuPont purchased a 60.5% equity interest in DuPont
Photomasks Company Limited, Shanghai (Photomasks China) from DuPont China
Holding Company Limited for RMB 11,830 (approximately $1,400). On February 8,
1996, DuPont contributed such equity interest to DCEO and DCEO contributed such
equity interest to DPI. In connection with this equity contribution, DPI agreed
to guarantee for the benefit of DuPont all amounts payable in the future by
DuPont pursuant to a previous guarantee DuPont made on behalf of Photomasks
China.
CREDIT FACILITY The Company and DCEO have entered into a credit agreement
effective as of January 1, 1996 (the "Credit Agreement"), pursuant to which DCEO
has agreed to provide a revolving/working capital facility (the "Credit
Facility") to the Company in an aggregate amount of up to $30,000. The Credit
Facility has a term of 24 months, and any loans thereunder will bear interest at
the six-month London Interbank Offered Rate (LIBOR) plus 50 basis points, which
shall be adjusted every six months. The amounts loaned under the Credit
Agreement are secured by all the Company's (i) equipment, (ii) accounts
receivable, (iii) instruments, documents and securities owned by DPI and in the
possession of DCEO and (iv) the proceeds of the foregoing. The Credit Facility
will provide financing for general capital spending and corporate purposes and
ongoing working capital needs. The Credit Agreement contains various
representations, covenants and events of default typical for financings of a
similar size and nature. In addition to restrictive covenants limiting the
ability of the Company and its subsidiaries to enter into leases and pledge its
assets, the Credit Agreement contains the following restrictive covenants.
Without DCEO's prior written consent, DPI will not incur, create, assume or
permit to exist any indebtedness, including guarantees of indebtedness (in
addition to the indebtedness under the Credit Facility), in excess of $30,000 in
the aggregate. In addition, without DCEO's prior written consent, which may not
be unreasonably withheld, DPI will not (a) change its capital structure, (b)
merge or consolidate with any corporation, (c) amend or change its articles of
incorporation or bylaws or (d) sell, transfer or otherwise dispose of all or any
substantial part of its assets, whether now owned or hereafter acquired, except
for sales of inventory in the ordinary course of business.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of E. I. du Pont de Nemours and Company
In our opinion, the accompanying combined statement of financial position
and the related combined statements of operations and of cash flows present
fairly, in all material respects, the financial position of DuPont Photomasks
Business, a division of E. I. du Pont de Nemours and Company (the "Company"), at
June 30, 1995 and March 31, 1996, and the results of its operations and its cash
flows for the nine months ended March 31, 1996, in conformity with generally
acccepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
May 10, 1996
F-20
<PAGE>
DUPONT PHOTOMASKS BUSINESS
COMBINED STATEMENT OF OPERATIONS (SEE NOTE 1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
SEE ---------------------------------
NOTE 1996
- -------- -----------
1995
-----------
(UNAUDITED)
Sales............................................. $ 112,569 $ 145,471
<C> <S> <C> <C>
3 Sales To Related Parties.......................... 4,101 6,721
----------- -----------
Total Sales................................... 116,670 152,192
Cost of Goods Sold................................ 85,745 98,717
----------- -----------
Gross Profit...................................... 30,925 53,475
3,7 Selling, General and Administrative Expense....... 16,017 18,164
2 Research and Development Expense -- Net........... 6,385 6,955
Other Operating (Income) Expense -- Net........... 2,317 3,219
----------- -----------
Operating Profit.................................. 6,206 25,137
8 Interest Expense.................................. 5,054 5,091
Exchange (Gain) Loss.............................. (476) 228
----------- -----------
Income Before Income Taxes and Minority
Interest......................................... 1,628 19,818
9 Provision for Income Taxes........................ -- 1,899
----------- -----------
Income Before Minority Interest................... 1,628 17,919
Minority Interest in Income (Loss) of Majority
Owned Joint Venture.............................. (82) (483)
----------- -----------
Net Income........................................ $ 1,710 $ 18,402
----------- -----------
----------- -----------
</TABLE>
See Pages F-24 to F-38 for Notes to Combined Financial Statements
F-21
<PAGE>
DUPONT PHOTOMASKS BUSINESS
COMBINED STATEMENT OF FINANCIAL POSITION (SEE NOTE 1)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEE JUNE 30 MARCH 31
NOTE 1995 1996
- --------- ----------- -----------
<C> <S> <C> <C>
CURRENT ASSETS
2 Cash and Cash Equivalents...................................................... $ 8,412 $ 8,891
4 Accounts Receivable, Trade -- Net.............................................. 27,696 29,580
3 Accounts Receivable, Related Parties........................................... 1,846 2,331
Accounts and Notes Receivable, Miscellaneous................................... 1,263 3,405
10 Inventories.................................................................... 6,830 8,158
Prepaid Expenses and Other Current Assets...................................... 695 472
----------- -----------
Total Current Assets....................................................... 46,742 52,837
----------- -----------
11 Property, Plant and Equipment.................................................. 251,194 270,917
Less: Accumulated Depreciation and Amortization................................ (138,070) (156,686)
----------- -----------
Net Property, Plant and Equipment.............................................. 113,124 114,231
----------- -----------
3 Accounts Receivable, Related Parties -- Non-Current............................ 1,405 1,835
----------- -----------
9 Deferred Income Taxes -- Non-Current........................................... -- 2,156
----------- -----------
2,3 Other Assets................................................................... 10,430 19,288
----------- -----------
Total Assets............................................................... $ 171,701 $ 190,347
----------- -----------
----------- -----------
LIABILITIES, DUPONT MASTER NOTES AND OWNER'S NET INVESTMENT
CURRENT LIABILITIES
Accounts Payable, Trade........................................................ $ 2,923 $ 4,791
3 Accounts Payable, Related Parties.............................................. 8,076 15,867
12 Accounts Payable, Miscellaneous................................................ 7,255 1,740
15 Short Term Borrowings.......................................................... 2,960 4,691
12,13 Other Accrued Liabilities...................................................... 9,123 12,498
----------- -----------
Total Current Liabilities.................................................. 30,337 39,587
14,15 Long Term Borrowings........................................................... 4,265 8,987
12 Other Liabilities.............................................................. 5,958 5,526
Minority Interest in Net Assets of Majority Owned Joint Venture................ 489 1,049
8 DuPont Master Notes............................................................ 125,570 162,320
Owner's Net Investment......................................................... 5,082 (36,472)
3,9 Unrealized Holding Gains....................................................... -- 9,350
----------- -----------
Total Liabilities, DuPont Master Notes, and Owner's Net Investment......... $ 171,701 $ 190,347
----------- -----------
----------- -----------
</TABLE>
See Pages F-24 to F-38 for Notes to Combined Financial Statements
F-22
<PAGE>
DUPONT PHOTOMASKS BUSINESS
COMBINED STATEMENT OF CASH FLOWS (SEE NOTE 1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
SEE ---------------------------------
NOTE 1996
- -------- -----------
1995
-----------
(UNAUDITED)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................... $ 3,924 $ 8,412
<C> <S> <C> <C>
----------- -----------
CASH PROVIDED BY OPERATIONS
Net Income........................................ 1,710 18,402
Adjustments to Reconcile Net Income to Cash
Provided by Operations:
Depreciation.................................... 18,060 18,556
Asset Retirements............................... 409 1,166
Amortization.................................... 466 873
(Increase) Decrease in Operating Assets......... 51 (6,934)
Increase (Decrease) in Operating Liabilities.... (1,047) 4,984
Other Noncash Charges and Credits -- Net........ (340) (771)
----------- -----------
Cash Provided by Operations................... 19,309 36,276
----------- -----------
INVESTMENT ACTIVITIES
Purchases of Property, Plant and Equipment........ (12,611) (13,690)
12 Payments for Acquisitions......................... -- (6,000)
Miscellaneous -- Net.............................. 271 920
----------- -----------
Cash (Used for) Investment Activities......... (12,340) (18,770)
----------- -----------
FINANCING ACTIVITIES
Increase (Decrease) in Borrowings................. (892) 1,799
Cash (Paid to) DuPont -- Net...................... (2,410) (18,520)
----------- -----------
Cash (Used for) Financing Activities.............. (3,302) (16,721)
----------- -----------
Effect of Exchange Rate Changes On Cash........... 1,142 (306)
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 8,733 $ 8,891
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS............. $ 4,809 $ 479
----------- -----------
----------- -----------
</TABLE>
See Pages F-24 to F-38 for Notes to Combined Financial Statements.
F-23
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
On June 8, 1995, E. I. du Pont de Nemours and Company ("DuPont") announced
its intention to (i) realign its worldwide Photomasks operations (the
"Business") into a stand-alone entity and (ii) sell shares of the realigned
Business to the public through an initial public offering. The Business
manufactures photomasks for sale to semiconductor and electronic component
manufacturers and manufactures photoblanks and pellicles for both internal
consumption and sale to other photomask producers.
The Combined Financial Statements include the operations of the Business in
the following countries:
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC
- --------------- ---------- ------------------------------
<S> <C> <C>
United States France Peoples Republic of China
Germany Republic of Korea
</TABLE>
Throughout the period covered by the Combined Financial Statements, the
Business's U.S. operations were conducted by DuPont Photomasks, Inc. ("DPI"), a
wholly owned subsidiary of DuPont. Prior to the realignment transactions set
forth below, European operations of the Business were conducted by separate,
wholly owned subsidiaries of DuPont in their respective countries; the
Business's operations in the Republic of Korea ("Korea") were conducted by
DuPont Korea, Ltd., a DuPont subsidiary owned 31% by DPI, and 69% by DuPont; and
the Business's operations in China were conducted by a Joint Venture formed
September, 1994, owned 60.5% by DuPont China Holding Company Limited, a DuPont
wholly owned subsidiary, and 39.5% by SIMIC Electronic Company, Ltd., a
state-owned enterprise in the Peoples Republic of China. In this context, no
direct ownership relationship existed among all the various units comprising the
Business; accordingly, DuPont and its subsidiaries' net investment in the
Business ("Owner's Net Investment") is shown in lieu of Stockholder's Equity in
the Combined Financial Statements.
As part of the realignment noted above, DPI was reincorporated in Delaware
on December 31, 1995, pursuant to which certain transactions were undertaken so
that DuPont's foreign photomask operations would reside in subsidiaries wholly
owned by DPI.
On November 9, 1995, DPI incorporated a new subsidiary in Delaware, DuPont
Photomasks Delaware, Inc. ("Photomasks Delaware") and as of March 29, 1996, DPI
had contributed approximately $37,000, principally proceeds from Master Note
borrowings, to Photomasks Delaware. Photomasks Delaware used such contribution
to make loans to Photomasks Korea, Photomasks Germany and Photomasks France
(each, as defined herein) in order to complete the realignment. In addition, the
amounts owed to DuPont by the Business under the DuPont Master Notes were
consolidated into a single master note (the "Master Note") on February 22, 1996.
On August 31, 1995, DPI incorporated a new wholly owned subsidiary in Korea,
DuPont Photomasks Korea, Ltd., ("Photomasks Korea") and on January 30, 1996,
DuPont Korea, Ltd. transferred all of its assets (except for cash) and
liabilities relating to the photomask business to Photomasks Korea, Ltd. for
approximately $37,000. Approximately $18,000 was borrowed by Photomasks Korea to
effectuate this transaction. The borrowing was repaid with Master Note proceeds.
On January 4, 1996, DuPont purchased all the outstanding shares of DuPont
Photomasks (France) S.A. ("Photomasks France") from DuPont de Nemours (France)
S.A. for 81,000 FFr (approximately $16,200). On January 11, 1996, DuPont
contributed such shares to DuPont Chemical and Energy Operations, Inc., a wholly
owned subsidiary of DuPont ("DCEO"), and on January 15, 1996, DCEO contributed
such shares to DPI.
In Germany, the photomask business has been operated through DuPont
Photomasks GmbH & Co. KG ("Photomasks KG") by DuPont de Nemours (Deutschland)
GmbH ("DuPont Germany") and DuPont Photomasks Verwaltungs GmbH ("Photomasks
Germany"). On December 18, 1995, Photomasks KG
F-24
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION (CONTINUED)
distributed DM 4,300 (approximately $2,950) to DuPont Germany. On March 29,
1996, Photomasks KG distributed DM 6,362 (approximately $4,309) to Dupont
Germany, and Photomasks Delaware and DPI loaned DM 30,200, (approximately
$20,300) to Photomasks KG. These funds were used by Photomasks KG to redeem the
interest held by DuPont Germany for DM 30,200 and pursuant to German law all of
the assets and liabilities of Photomasks KG will be assumed by Photomasks
Germany. After this redemption, DCEO will contribute all of the outstanding
shares of Photomasks Germany to DPI and DM 7,500 (approximately $5,200) of DPI's
loan will be converted to equity.
On February 8, 1996, DuPont purchased a 60.5% equity interest in DuPont
Photomasks Company Limited, Shanghai (Photomasks China) from DuPont China
Holding Company Limited for RMB 11,830 (approximately $1,400). On February 8,
1996, DuPont contributed such equity interest to DCEO and DCEO contributed such
equity interest to DPI. In connection with this equity contribution, DPI agreed
to guarantee for the benefit of DuPont all amounts payable in the future by
DuPont pursuant to a previous guarantee DuPont made on behalf of Photomasks
China.
Income and expenses arising from the above realignment transactions were not
associated with the operations of the Business and, except for Master Note
interest expense, have been excluded from the Combined Statement of Operations.
Cash and capital transactions arising from the above realignment transactions
are recorded in Owner's Net Investment, except for proceeds obtained from Master
Note borrowings. Cash flows associated with the above realignment transactions
are included in the Combined Statement of Cash Flows under the caption "Cash
(Paid to) DuPont -- Net".
Throughout the period covered by the Combined Financial Statements, the
Business was accounted for as a division within DuPont's Electronics Group.
Financial statements have not been previously prepared for the Business. These
Combined Financial Statements have been prepared from DuPont's historical
accounting records.
The assets, liabilities and operating results of DuPont resale operations in
Japan and Taiwan have been excluded from the Combined Financial Statements.
These operations involve distributorships for the Business. Sales to the DuPont
operations in Japan and Taiwan are reported in the Combined Financial Statements
as Sales to Related Parties and are accounted for as if the operations were an
outside distributor for which the Business has guaranteed full recovery of all
costs plus a specified operating margin. Charges of $58 and $196 for the nine
months ended March 31, 1995 (unaudited) and 1996, respectively, were included in
Selling and Distribution Expense with respect to the payments by the Business to
DuPont under the terms of this guarantee.
Prior to the realignment described above, the Business's manufacturing
operations in Korea were conducted at a site where other DuPont operations not
included in the Business were present. Only the assets and liabilities to be
included in the Business after completion of the realignment were included in
the Combined Statement of Financial Position.
The Combined Statement of Operations includes all revenue and costs directly
attributable to the Business, including costs for facilities, functions and
services used by the Business at shared sites and costs for certain functions
and services performed by centralized DuPont organizations outside the defined
scope of the Business and directly charged to the Business based on usage. The
results of operations also include allocations of (i) costs for administrative
functions and services performed on behalf of the Business by centralized staff
groups within DuPont, (ii) DuPont's Electronics Group management expense, (iii)
DuPont's general corporate expenses, (iv) pension and other retirement benefit
costs and (v) interest expense. (See Notes 2, 3, 5, 6, 7 and 8 for a description
of the allocation methodologies employed). As more
F-25
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION (CONTINUED)
fully described in Notes 2 and 9, current and deferred income taxes and related
tax expense have been allocated to the Business by applying Statement of
Financial Accounting Standards No. 109 ("SFAS 109") to each Business operation
in each country as if it was a separate taxpayer.
All charges and allocations of cost for facilities, functions and services
performed by DuPont organizations outside the defined scope of the Business have
been deemed to have been paid by the Business to DuPont, in cash, in the period
in which the cost was recorded in the Combined Financial Statements. Allocations
of current income taxes payable to the Business are deemed to have been
remitted, in cash, to DuPont in the period the related tax expense was recorded.
Allocations to the Business of current income taxes receivable are deemed to
have been remitted to the Business, in cash, by DuPont in the period to which
the receivable applies only to the extent that a refund of such taxes could have
been recognized by the Business on a stand-alone basis under the law of the
relevant taxing jurisdiction.
All of the allocations and estimates in the Combined Financial Statements
are based on assumptions that DuPont management believes are reasonable under
the circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses that would have resulted if the Business
had been operated as a separate entity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The Combined Financial Statements include the accounts of the wholly and
majority owned individual members of the Business. The Business's interest in a
50% owned joint venture with Dai Nippon Printing Co., Ltd., located in the
United States, is accounted for under the equity method. All material
transactions and accounts between individual members comprising the Business
have been eliminated in combination.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited combined financial statements for the nine months ended March
31, 1995 include all adjustments, consisting only of normal recurring
adjustments, which management considers necessary for the fair presentation of
the results for this period. Results for the interim period are not necessarily
indicative of results for the entire year.
INCOME RECOGNITION
Sales and related cost of goods sold are included in income when goods are
shipped to the customer except in Korea, where sales and cost of goods sold are
included in income upon customer acceptance in accordance with Korean law.
CASH AND CASH EQUIVALENTS
Throughout the period covered by the Combined Financial Statements, the
Business participated in DuPont's centralized cash management system. In
general, the cash funding requirements of the Business were met by, and all cash
generated by the Business was transferred to, DuPont. In the U.S. and France,
this was accomplished under the terms of interest-bearing loan arrangements
between DPI and DuPont and between Photomasks France and DuPont France, S.A.
(collectively, the "DuPont Master Notes"). As a part of the realignment of the
Business described in Note 1, the DuPont Master Notes were consolidated into a
single master note. Prior to the realignment, the only cash and cash equivalents
(cash equivalents are highly liquid investments with maturities of three months
or less at time of purchase), other than petty cash amounts, included in the
Combined Statement of Financial Position are accounts pertaining to the
Business's operations in Germany and China.
F-26
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by the average cost method. Elements of cost in inventory include raw
materials, direct labor and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT ("PP&E")
PP&E is carried at cost and is depreciated using the straight-line method
over the estimated useful lives of the related assets. Buildings and
improvements are depreciated over 20 years and machinery and equipment over 3 to
10 years. Leasehold improvements are depreciated using the straight-line method
over the term of the lease or the life of the equipment, whichever is less.
Historical cost for a significant portion of PP&E was determined under the
principles set forth in Accounting Principles Board Opinion Number 16.
The gross carrying value of PP&E surrendered, retired, sold or otherwise
disposed of and related accumulated depreciation are eliminated from the
accounts at the date of disposal and any resulting gain or loss is reflected in
income.
Maintenance and repairs are charged to operations; replacements and
betterments are capitalized.
INTANGIBLE ASSETS
Purchased identifiable intangible assets are amortized using the
straight-line method over their estimated useful lives. Goodwill, representing
the excess of cost over fair value of assets acquired and liabilities assumed in
purchase business combinations, is amortized over 5 years using the
straight-line method. The future economic benefit of the carrying value of
intangibles is reviewed periodically through an undiscounted cash flow analysis
and any change in useful life or impairment of value is recorded in the period
such determination is made. Net intangible assets, representing supply
agreements, were $5,193 and $4,154 at June 30, 1995 and March 31, 1996,
respectively, and are included in Other Assets (See Note 12).
INCOME TAXES
The taxable income (loss) of each member of the Business was included in
consolidated tax returns of the DuPont entity of which it was a part. As such,
separate income tax returns were not prepared or filed for the Business.
For all periods presented, deferred income taxes and related tax expense
have been allocated to the Business by applying the asset and liability approach
set forth in SFAS 109 to each member of the Business as if it were a separate
taxpayer. Under this approach, deferred tax assets and liabilities represent the
expected future tax consequences of carryforwards and temporary differences
between the carrying amounts and the tax bases of assets and liabilities. SFAS
109 generally requires that all expected future events, other than enactment of
changes in tax law or tax rates, be considered in estimating future tax
consequences. Valuation allowances are established to reduce deferred tax assets
by the amount of any tax benefits that, based on available evidence, are not
expected to be realized.
Current tax expense has been determined as if each member of the Business
was a separate taxpayer. Income taxes currently payable are deemed to have been
remitted by the Business to DuPont in the period that the liability arose.
Income taxes currently receivable are deemed to have been received by the
Business from DuPont in the period that a refund could have been recognized by
the Business had the Business been a separate taxpayer.
Under the basis of presentation for these financial statements, no provision
has been made for taxes on cash remittances from the members of the Business to
the DuPont entity of which they are a part. Generally, remittances from a wholly
owned subsidiary to its in-country parent are tax free.
F-27
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
DuPont has determined that the U.S. Dollar is the functional currency of its
worldwide operations and that this functional currency determination is
appropriate to the economic environment in which the Business operated during
the period covered by these Combined Financial Statements. Monetary asset and
liability amounts denominated in foreign currencies are remeasured into U.S.
Dollars at end-of-period exchange rates; foreign currency nonmonetary assets,
principally inventories and PP&E, are remeasured into U.S. Dollars at historical
exchange rates. Income and expenses are remeasured into U.S. Dollars at average
exchange rates in effect during the period, except for expenses related to
balance sheet amounts that are remeasured using historical exchange rates.
Exchange gains and losses from remeasurement of monetary assets and liabilities
are included in income in the period they occur.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. The Business is
party to certain contracts which provide for partial funding of its research and
development costs. Funding under these contracts of $398 and $98 for the nine
months ended March 31, 1995 (unaudited) and 1996, respectively, has been
recognized as an offset to Research and Development Expense.
PENSIONS
DuPont has noncontributory defined benefit plans covering substantially all
U.S. employees, including the U.S. employees of the Business. The cost of these
plans for active employees was allocated to the Business (See Note 5) and is
principally included in Cost of Goods Sold. Amounts so allocated are not
necessarily indicative of the pension cost that would have been incurred if the
Business had been operated as a separate company.
Pension coverage for employees of DuPont's non-U.S. subsidiaries is
provided, to the extent deemed appropriate, through separate plans. Obligations
under such plans are systematically provided for by depositing funds with
trustees, under insurance policies or by book reserves. The cost of these
non-U.S. plans has been allocated to the Business using methods that DuPont
believes are appropriate to the nature of the plans.
U.S. Pension cost allocated to the Business is deemed to have resulted in a
cash contribution between the Business and DuPont in the period the pension cost
was incurred and, in return, DuPont is deemed to have assumed all responsibility
for pension payments to retirees. Accordingly, no pension related assets or
liabilities related to U.S. plans are included in the Combined Statement of
Financial Position.
OTHER POSTRETIREMENT BENEFITS
DuPont and certain of its subsidiaries provide medical, dental and life
insurance benefits to pensioners and survivors. These Other Postretirement
Benefits are accounted for under the accrual provisions of SFAS 106. Under the
terms of the benefit plans, DuPont reserves the right to change, modify or
discontinue the plans. The cost of these plans for active employees was
allocated to the Business (See Note 6) and is principally included in Cost of
Goods Sold. These costs are not necessarily indicative of the Other
Postretirement Benefit costs that would have been incurred if the Business had
operated as a separate entity.
Other Postretirement Benefits cost allocated to the Business is deemed to
have resulted in a cash contribution between the Business and DuPont in the
period the cost was incurred and, in return, DuPont is deemed to have assumed
all responsibility for payments to retirees. Accordingly, no other
postretirement benefit related assets or liabilities are included in the
Combined Statement of Financial Position.
F-28
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE
During the period covered by the Combined Financial Statements, DuPont did
not insure for property damage losses. Liability insurance was purchased with
high deductible limits. Costs included in the Combined Statement of Operations
resulting from noninsured losses were not material. Such costs are expensed as
incurred.
ENVIRONMENTAL
DuPont accrues for certain environmental remediation activities relating to
past operations, including Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") cleanup and certain Resource Conservation and Recovery
Act ("RCRA") and related compliance activities, for which commitments have been
made, and reasonable estimates are possible. Where feasible, these costs are
assigned to the business unit responsible for the conditions being remediated.
During the period covered by the Combined Financial Statements, no material
environmental remediation costs were assigned to the Business.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make reasonable estimates
and assumptions, based upon all known facts and circumstances, that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Actual results could
differ from those estimates.
NOTE 3 -- RELATED PARTY TRANSACTIONS
The Combined Financial Statements include significant transactions with
other DuPont business units involving functions and services (such as cash
management, tax administration, accounting, legal, and data processing) that
were provided to the Business by centralized DuPont organizations outside the
defined scope of the Business. Prior to January 1, 1996, the costs of these
functions and services have been directly charged and/or allocated to the
Business using methods that DuPont management believes are reasonable. Such
charges and allocations are not necessarily indicative of the costs that would
have been incurred if the Business had been a separate entity. Amounts charged
and allocated to the Business for these functions and services were $9,550 for
the nine months ended March 31, 1995 (unaudited) and $7,251 for the period July
1, 1995 to December 31, 1995, and are principally included in General and
Administrative expenses. Effective January 1, 1996, the Business entered into
several Administrative Services Agreements with DuPont and certain DuPont
subsidiaries which set forth services to be provided to the Business and the
fees to be paid by the Business for such services. Charges to the Business under
these agreements were $1,102 for the period January 1, 1996 to March 31, 1996.
Sales to Related Parties include sales to DuPont distributor operations (see
Note 1) and sales to the Business's joint venture with Dai Nippon Printing Co.,
Ltd. of $495 and $434 for the nine months ended March 31, 1995 (unaudited) and
1996, respectively. Purchases of products produced by other DuPont business
units were not material.
Prior to October 1995, the Business held an approximate 8% ownership
interest in Etec Systems, Inc. ("Etec"), the principal supplier to the Business
of electron beam and laser beam systems used to produce photomasks. The $5,000
original cost of this investment is included in Other Assets at the lower of
cost or market at June 30, 1995. In October, 1995, Etec completed an initial
public offering of its common stock. Upon completion of the offering , the
Business's ownership interest in Etec was converted to 1,025,640 shares of Etec
common stock. At March 31, 1996, the Business's investment in Etec was
classified as an available for sale security. The $14,350 estimated fair value
(based on the March 29, 1996 closing market price of Etec stock) of this
investment was included in Other Assets. The associated unrealized holding gain
F-29
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 3 -- RELATED PARTY TRANSACTIONS (CONTINUED)
is reported as a separate component of Owner's Net Investment. Purchases of
equipment and equipment maintenance services from Etec were $3,864 and $7,419
for the nine months ended March 31, 1995 (unaudited) and 1996, respectively.
Accounts Receivable, Related Parties includes receivables from employees of
the Business of $1,445 (Current $40, Non-Current $1,405) and $2,028 (Current
$193, Non-Current $1,835) at June 30, 1995 and March 31, 1996, respectively,
principally related to housing and automobile loans to non-U.S. employees. The
remainder represents receivables for goods sold to DuPont distributor operations
and receivables for sales to the Business's joint venture with Dai Nippon
Printing Co., Ltd.
Accounts Payable, Related Parties represents payables to DuPont for payroll
and benefits, vendor payments paid by DuPont on behalf of the Business and
billed to the business on a one-month-lag basis, and at March 31, 1996, includes
amounts payable under the Administrative Services Agreements, $1,255 payable by
Photomasks China to DuPont for PP&E, and $2,770 payable to DuPont Korea, Ltd.
for VAT incurred in conjunction with the Korean realignment (See Note 1).
NOTE 4 -- SALES AND ACCOUNTS RECEIVABLE, TRADE
Essentially all of the Business's sales are to customers in the
semiconductor manufacturing industry. The Business assesses the financial
strength of its customers to reduce the risk of loss.
The Business's sales to Motorola, Philips and SGS-Thomson, individually
represented more than 10% of combined sales in each of the periods presented.
Accounts Receivable from these parties total $9,452 at March 31, 1996.
Additionally, the Business's sales to National Semiconductor represented
more than 10% of combined sales for the nine months ended March 31, 1995
(unaudited) and for fiscal year ended June 30, 1995. Accounts Receivable from
Motorola, National Semiconductor, Philips and SGS-Thomson total $8,422 at June
30, 1995.
NOTE 5 -- PENSION COST
Pension Cost for active employees (See Note 2) was determined by measuring
the Projected Benefit Obligation ("PBO") using a discount rate of 7.8% and 8.4%
for the nine months ended March 31, 1995 (unaudited) and 1996, respectively, and
an assumed long term rate of compensation increase of 5%. The PBO for such
employees was determined using a discount rate of 9.0% and 7.2% at June 30, 1995
and March 31, 1996, respectively. The PBO so measured was $8,600 and $14,500 at
June 30, 1995 and March 31, 1996, respectively. The PBO was assumed to be fully
funded by plan assets with an assumed long term rate of return of 9% allocated
from the DuPont plan. The elements of pension cost allocated to the Business
using this method were:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
----------------------
1995 1996
----------- ---------
(UNAUDITED)
<S> <C> <C>
Service Cost............................................................ $ 1,055 $ 967
Interest on PBO......................................................... 573 598
Assumed Return on Assets................................................ (672) (650)
Amortization of Gains................................................... (62) (81)
----------- ---------
$ 894 $ 834
----------- ---------
----------- ---------
</TABLE>
F-30
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 5 -- PENSION COST (CONTINUED)
Pension coverage for employees of the Business's non-U.S. consolidated
subsidiaries is provided, to the extent deemed appropriate, through separate
plans. Obligations under these plans are provided by book reserves. The PBO and
the pension liability were $1,210 and $1,350 at June 30, 1995 and March 31,
1996, respectively. The elements of pension cost allocated to the Business were:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
------------------------
1995 1996
------------- ---------
(UNAUDITED)
Service Cost.............................................. $ 46 $ 61
<S> <C> <C>
Interest on PBO........................................... 69 69
----- ---------
$ 115 $ 130
----- ---------
----- ---------
</TABLE>
The economic assumptions used for the non-U.S plans are similar to those
used for the U.S. plans.
NOTE 6 -- OTHER POSTRETIREMENT BENEFIT COST
Other Postretirement Benefit Cost for active employees (See Note 2) was
determined by measuring the Accumulated Postretirement Benefit Obligation
("APBO") for such employees using a discount rate of 7.8% and 8.4% for the nine
months ended March 31, 1995 (unaudited) and 1996, respectively, and a health
care escalation rate of 10% decreasing to 5% over 10 years. The APBO for such
employees was determined using a discount rate of 9.0%, and 7.2% at June 30,
1995 and March 31, 1996, respectively. The APBO so measured was $3,500 and
$5,000 at June 30, 1995 and March 31, 1996, respectively. The elements of Other
Postretirement Benefit Cost allocated to the Business using this method were:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
------------------------
1995 1996
------------- ---------
(UNAUDITED)
<S> <C> <C>
Service Cost............................................................. $ 392 $ 361
Interest on APBO......................................................... 234 232
Amortization of Prior Service Credit..................................... (80) (81)
----- ---------
$ 546 $ 512
----- ---------
----- ---------
</TABLE>
NOTE 7 -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, General and Administrative Expense consists of:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
----------------------
1995 1996
----------- ---------
(UNAUDITED)
<S> <C> <C>
Selling and Distribution Expense...................................... $ 8,721 $ 10,756
General and Administrative Expense.................................... 7,296 7,408
----------- ---------
$ 16,017 $ 18,164
----------- ---------
----------- ---------
</TABLE>
As discussed in Note 3, General and Administrative Expense consists
principally of amounts allocated and/or charged by DuPont. Allocations are based
on factors such as head count and/or investment depending on the nature of the
item being allocated. Amounts charged to the Business are generally determined
based on usage. Such charges and/or allocations are not necessarily indicative
of the costs and expenses that would have been incurred if the Business had been
operated as a separate entity.
F-31
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(Currency amounts in thousands)
NOTE 8 -- INTEREST EXPENSE
Interest expense includes interest expense under the DuPont Master Notes of
$5,091 and $5,040 for the nine months ended March 31, 1995 (unaudited) and 1996,
respectively.
The interest rate charged under the DuPont Master Notes is generally
equivalent to the rate DuPont pays for its commercial paper borrowings. Such
amounts are not necessarily indicative of the cost that would have been incurred
if the Business had been operated as a separate entity.
NOTE 9 -- PROVISION FOR INCOME TAXES
Throughout the period covered by the Combined Financial Statements, DuPont
utilized various tax planning strategies and elections to minimize its total
income tax expense. It is not practicable to identify the effects of these
strategies and elections on the results of operations of the Business.
The results of the Business were included in DuPont consolidated tax returns
and DuPont received tax benefits for operating losses reported by the Business.
The allocation of tax expense to the Business is set forth in Note 2.
The Provision for Income Taxes consists of:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
----------------------
1996
1995 ---------
-----------
(UNAUDITED)
<S> <C> <C>
U.S. Federal:
Current....................................................................... $ -- $ 9,092
Deferred...................................................................... -- (9,092)
U.S. State and Local:
Current....................................................................... -- 1,476
Deferred...................................................................... -- (1,476)
Non-U.S.:
Current....................................................................... 1,103 3,420
Deferred...................................................................... (1,103) (1,521)
----------- ---------
Provision for Income Taxes...................................................... $ -- $ 1,899
----------- ---------
----------- ---------
</TABLE>
F-32
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 9 -- PROVISION FOR INCOME TAXES (CONTINUED)
Deferred income taxes result from temporary differences between financial
carrying value and tax basis of the Business's assets and liabilities. The tax
effects of these temporary differences included in deferred income taxes are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
-----------------------
1996
1995 ----------
-----------
(UNAUDITED)
<S> <C> <C>
Depreciation................................................................... $ 2,294 $ (5,613)
Inventories.................................................................... (190) 196
Accrued Liabilities............................................................ (57) (210)
Net Operating Loss Carryforwards............................................... (3,902) --
Other.......................................................................... 137 (417)
Change in Valuation Allowance.................................................. 615 (6,045)
----------- ----------
Total Deferred Tax Provision Included in Provision for
Income Taxes.............................................................. (1,103) (12,089)
Deferred Tax Provision Allocated to Owner's Net Investment:
Unrealized Holding Gains..................................................... -- 3,602
Change in Valuation Allowance................................................ -- (3,602)
----------- ----------
Total Deferred Tax Provision............................................... $ (1,103) $ (12,089)
----------- ----------
----------- ----------
</TABLE>
Deferred Tax Assets (Liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1995 1996
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS
Inventories..................................................................... $ 700 $ 504
Depreciation -- Non-U.S......................................................... 1,964 4,253
Accrued Liabilities............................................................. 1,899 2,109
Net Operating Loss Carryforwards (1)............................................ 62,468 50,451
Other........................................................................... 197 493
---------- ----------
Total Deferred Tax Assets................................................... 67,228 57,810
---------- ----------
DEFERRED TAX LIABILITIES
Depreciation -- U.S............................................................. (12,326) (6,846)
Unrealized Holding Gains........................................................ -- (3,602)
Other........................................................................... (121) (123)
---------- ----------
Total Deferred Tax Liabilities.............................................. (12,447) (10,571)
---------- ----------
Valuation Allowance (1)......................................................... (54,781) (45,083)
---------- ----------
Total Deferred Taxes........................................................ $ -- $ 2,156
---------- ----------
---------- ----------
</TABLE>
The categorization of these deferred tax assets and liabilities as current
and non-current is presented in the Combined Statement of Financial Position.
F-33
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 9 -- PROVISION FOR INCOME TAXES (CONTINUED)
An analysis of the U.S. federal provision to the book provision is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
----------------------
1996
1995 ---------
-----------
(UNAUDITED)
<S> <C> <C>
Income Before Income Taxes and Minority Interest................................ $ 1,688 $ 19,818
----------- ---------
Tax at 35% Statutory U.S. Federal Tax Rate...................................... $ 591 $ 6,936
Higher Effective Tax Rate on Non-U.S. Operations................................ 399 2,246
Tax Exemption (2)............................................................... (1,507) (1,821)
Changes in Valuation Allowance (1).............................................. 615 (6,045)
State Taxes, Net of Federal..................................................... (131) 458
Other -- Net.................................................................... 33 125
----------- ---------
Provision for Income Taxes...................................................... $ -- $ 1,899
----------- ---------
----------- ---------
</TABLE>
- ------------------------
(1) Net operating loss carryforwards have been utilized by DuPont, as the
Business was included in consolidated tax returns of the DuPont entity of
which it was a part. It is assumed that the net operating loss carryforwards
are available solely for determining taxes under the separate taxpayer
approach in SFAS 109 (See Note 2). Such amounts will not be available to the
Business, and upon consummation of the Offering described in Note 1, the
Business will record net deferred tax liabilities. Changes in Valuation
Allowance exclude the effects of currency remeasurement.
(2) The Business's operations in Korea operated under a government granted tax
exemption throughout the periods covered by the financial statements.
NOTE 10 -- INVENTORIES
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1995 1996
----------- -----------
<S> <C> <C>
Raw Materials, Stores and Supplies................................................ $ 4,598 $ 5,918
Semi-Finished Product............................................................. 380 600
Finished Product.................................................................. 1,852 1,640
----------- -----------
$ 6,830 $ 8,158
----------- -----------
----------- -----------
</TABLE>
NOTE 11 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1995 1996
----------- -----------
<S> <C> <C>
Construction In Progress...................................................... $ 23,644 $ 9,121
Land.......................................................................... 5,341 5,526
Buildings..................................................................... 37,099 37,099
Equipment..................................................................... 185,110 219,171
----------- -----------
Total..................................................................... 251,194 270,917
Less: Accumulated Depreciation................................................ (138,070) (156,686)
----------- -----------
Net Property, Plant and Equipment............................................. $ 113,124 $ 114,231
----------- -----------
----------- -----------
</TABLE>
F-34
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 12 -- ACQUISITIONS
On February 1, 1993, the Business purchased from an affiliate of Philips
Electronics N.V. ("Philips") selected photomask manufacturing equipment at
Philips' captive photomask manufacturing facility located in Hamburg, Germany
and entered into a five-year supply agreement with Philips Semiconductors
International B.V. Consideration for the equipment was $9,292, and consideration
for the supply agreement was $1,808. Under the terms of the supply agreement,
Philips agreed to purchase certain minimum quantities of photomasks from the
Business each year during the term of the agreement or to refund a portion of
the purchase price if such minimum quantities of photomasks were not purchased
during a given year. The supply agreement also calls for the Business to grant
price discounts to Philips in the event that purchases by Philips during a given
year exceed specified limits. Through March 31, 1996, the Business had received
$810 from Philips due to its failure to purchase specified minimum amounts.
These payments were applied to reduce the carrying amount assigned to the supply
agreement at the date of acquisition.
On April 7, 1995, the Business purchased from an affiliate of AT&T Corp.
("AT&T") selected photomask manufacturing equipment at AT&T's captive photomask
manufacturing facility located in Allentown, Pennsylvania and entered into a
five-year supply agreement with Lucent Technologies Inc. ("Lucent," formerly
AT&T). Consideration for the equipment was $10,000, and consideration for the
supply agreement was $5,000. Of these amounts, $10,868 has been paid, and as of
March 31, 1996, $1,500 was included in Other Accrued Liabilities, and $2,632 was
included in Other Liabilities. Under the terms of the supply agreement, Lucent
agreed to purchase certain minimum quantities of photomasks from the Business
each year during the term of the agreement or to refund a portion of the
purchase price if such minimum quantities were not purchased during a given
year. The supply agreement also calls for the Business to grant price discounts
to Lucent in the event that purchases by Lucent during a given year exceed
specified limits.
NOTE 13 -- OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1995 1996
--------- -----------
<S> <C> <C>
Accrued Vacation Pay............................................................... $ 2,827 $ 3,357
Other Accrued Compensation and Benefits............................................ 2,417 4,210
Lucent Supply Agreement............................................................ 1,500 1,500
Deferred Revenue................................................................... 838 1,851
Accrued Royalties.................................................................. 420 81
Other.............................................................................. 1,121 1,499
--------- -----------
Total.......................................................................... $ 9,123 $ 12,498
--------- -----------
--------- -----------
</TABLE>
F-35
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 14 -- LEASES
Minimum Lease Payments at March 31, 1996 for Fiscal Years Ending June 30:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1996............................................................................. $ 2,639 $ 118
1997............................................................................. 1,097 285
1998............................................................................. 899 61
1999............................................................................. 809 29
2000............................................................................. 809 5
2001............................................................................. 809 --
Remainder.......................................................................... 1,989 --
--------- -----
Total Minimum Lease Payments................................................... 9,051 $ 498
-----
-----
Less: Imputed Interest............................................................. (863)
---------
Present Value of Net Minimum Lease Payments........................................ $ 8,188
---------
---------
</TABLE>
NOTE 15 -- BORROWINGS
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1995 1996
--------- -----------
<S> <C> <C>
Non-Interest Bearing Notes Payable to Customers Due 1996 - 1997.................... $ 2,921 $ 1,161
Capital Lease Obligations.......................................................... 4,192 8,188
6% U.S. Dollar denominated Bank Borrowings Due 1999 - 2001......................... 112 2,500
15% RMB denominated Bank Borrowings Due 1996 - 2001................................ -- 1,829
--------- -----------
Total Borrowings............................................................... 7,225 13,678
Less: Current Portion........................................................ (2,960) (4,691)
--------- -----------
Long Term Borrowings........................................................... $ 4,265 $ 8,987
--------- -----------
--------- -----------
</TABLE>
F-36
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 16 -- GEOGRAPHIC INFORMATION
The Business operates within a single industry segment:
<TABLE>
<CAPTION>
NINE MONTHS ENDED UNITED ASIA
MARCH 31 STATES EUROPE PACIFIC COMBINED
- --------------------------------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
1995
(UNAUDITED)
Sales to Unaffiliated Customers (1).................................. $ 61,754 $ 30,283 $ 20,532 $ 112,569
Sales to Related Parties............................................. 3,738 -- 363 4,101
Transfers Between Geographic Areas (2)............................... 7,198 3,237 95 --
--------- --------- --------- ----------
Total............................................................ $ 72,690 $ 33,520 $ 20,990 $ 116,670
--------- --------- --------- ----------
--------- --------- --------- ----------
Net Income (Loss).................................................... $ (4,464) $ 2,128 $ 4,015 $ 1,710
Identifiable Assets at March 31...................................... $ 75,250 $ 35,461 $ 50,517 $ 161,228
1996
Sales to Unaffiliated Customers (1).................................. $ 84,217 $ 37,457 $ 23,797 $ 145,471
Sales to Related Parties............................................. 4,575 -- 2,146 6,721
Transfers Between Geographic Areas (2)............................... 9,884 1,714 68 --
--------- --------- --------- ----------
Total............................................................ $ 98,676 $ 39,171 $ 26,011 $ 152,192
--------- --------- --------- ----------
--------- --------- --------- ----------
Net Income (3)....................................................... $ 13,155 $ 4,206 $ 905 $ 18,402
Identifiable Assets at March 31...................................... $ 97,065 $ 28,129 $ 65,153 $ 190,347
</TABLE>
- ------------------------
(1) Sales outside the United States of products manufactured in and exported
from the United States totaled $2,337 and $3,016 for the nine months ended
March 31, 1995 (unaudited) and 1996, respectively.
(2) Products are transferred between geographic areas on a basis intended to
approximate the "market value" of such products.
(3) For the nine months ended March 31, 1995 and 1996, Asia Pacific operations
include pre-production costs for the Business's joint venture in China; no
commercial operations were conducted in China during these periods. During
the nine months ended March 31, 1996, the Business's United States
operations charged the China Joint Venture a $2,520 royalty fee which is
included in net income for that period for the United States and Asia
Pacific regions.
NOTE 17 -- COMMITMENTS AND CONTINGENCIES
The Business has various purchase commitments for materials, supplies and
items of permanent investment incident to the ordinary conduct of business. In
the aggregate, such commitments are not at prices in excess of current market.
Under the terms of certain equipment purchase contracts, the Business is
required to make periodic, non-refundable deposits during the period between
order placement and final delivery. Cancellation of such orders prior to
delivery results in forfeiture of the deposit. Such deposits totaled $1,070, and
$4,275 at June 30, 1995 and March 31, 1996, respectively, and were included in
Property, Plant and Equipment under the caption, Construction in Progress. At
March 31, 1996, the Business had entered into contractual arrangements with
certain parties that provide for partial reimbursement of the loss that would be
incurred by the Business in the event the Business cancels specified equipment
purchase orders. The aggregate purchase price for equipment to which
cancellation penalties apply was $29,700 at March 31, 1996.
F-37
<PAGE>
DUPONT PHOTOMASKS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(CURRENCY AMOUNTS IN THOUSANDS)
NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Business is subject to various lawsuits and claims with respect to such
matters as product liabilities, governmental regulations and other actions
arising in the normal course of business. In the opinion of the Business's
General Counsel, the ultimate liabilities resulting from such lawsuits and
claims will not have a material adverse effect on the combined financial
position or results of operations, cash flows or liquidity of the Business.
NOTE 18 -- SUBSEQUENT EVENTS
REALIGNMENT On May 7, 1996, DPI agreed to sell its 31% equity interest in
DuPont Korea, Ltd. for approximately $26,600. Proceeds from the sale will be
used by DPI to repay Master Note borrowings. Also in May 1996, DPI issued one
million shares of its common stock to DCEO for a nominal amount.
CREDIT FACILITY The Company and DCEO have entered into a credit agreement
effective as of January 1, 1996 (the "Credit Agreement"), pursuant to which DCEO
has agreed to provide a revolving/working capital facility (the "Credit
Facility") to the Company in an aggregate amount of up to $30,000. The Credit
Facility has a term of 24 months, and any loans thereunder will bear interest at
the six-month London Interbank Offered Rate (LIBOR) plus 50 basis points, which
shall be adjusted every six months. The amounts loaned under the Credit
Agreement are secured by all the Company's (i) equipment, (ii) accounts
receivable, (iii) instruments, documents and securities owned by DPI and in the
possession of DCEO and (iv) the proceeds of the foregoing. The Credit Facility
will provide financing for general capital spending and corporate purposes and
ongoing working capital needs. The Credit Agreement contains various
representations, covenants and events of default typical for financings of a
similar size and nature. In addition to restrictive covenants limiting the
ability of the Company and its subsidiaries to enter into leases and pledge its
assets, the Credit Agreement contains the following restrictive covenants.
Without DCEO's prior written consent, DPI will not incur, create, assume or
permit to exist any indebtedness, including guarantees on indebtedness (in
addition to the indebtedness under the Credit Facility), in excess of $30,000 in
the aggregate. In addition, without DCEO's prior written consent, which may not
be unreasonably withheld, DPI will not (a) change its capital structure, (b)
merge or consolidate with any corporation, (c) amend or change its articles of
incorporation or bylaws or (d) sell, transfer or otherwise dispose of all or any
substantial part of its assets, whether now owned or hereafter acquired, except
for sales of inventory in the ordinary course of business.
F-38
<PAGE>
[Map of Company's worldwide operations]
<PAGE>
[BLANK BACK PROSPECTUS COVER]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred by the Registrant
in connection with the issuance and distribution of the securities being
registered.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 25,380
National Association of Securities Dealers, Inc. Filing Fee............... 6,940
Printing and Mailing Expenses............................................. 100,000
Accounting Fees and Expenses.............................................. 350,000
Legal Fees and Expenses................................................... 150,000
Blue Sky Fees and Expenses................................................ 7,500
Registrar and Transfer Agent Fees......................................... 2,500
Miscellaneous Expenses.................................................... 17,680
---------
Total................................................................. $ 660,000
---------
---------
</TABLE>
All of the above fees and expenses, except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fee, represent estimates only.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person, including any
officer or director, who is, or is threatened to be made, party to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such officer, director, employee or agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, for criminal proceedings, had no reasonable cause to believe that
his conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director actually and reasonably
incurred.
The Certificate of Incorporation of the Registrant provides that no director
of the Registrant will be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation thereof is not permitted
under the DGCL as currently in effect or as the same may hereafter be amended.
Pursuant to Section 102(b)(7) of the DGCL, the Certificate of Incorporation of
the Registrant eliminates such liability, except for liabilities related to
breach of duty of loyalty, actions not in good faith and certain other
liabilities.
The Registrant intends to purchase a directors' and officers' liability
insurance policy. The Bylaws of the Registrant provide for indemnification of
the officers and directors of the Company to the fullest extent permitted by the
applicable law. In addition, the Company will enter into an indemnification
agreement with each of its directors, pursuant to which they will be entitled to
advances for the costs of defending actions against them in addition to that
provided by the indemnification provisions in the Certificate of Incorporation
or the Company's officers' and directors' insurance policy.
II-1
<PAGE>
The form of Underwriting Agreement attached hereto as Exhibit 1.1, which
provides for, among other things, the Registrant's sale to the Underwriters of
the securities being registered herein, will obligate the Underwriters to
indemnify the Registrant and Registrant's officers and directors against certain
liabilities under the Securities Act of 1933.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
No securities of the Registrant were sold by the Registrant during the past
three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
1.1 Form of Underwriting Agreement among the Company, E.I. du Pont de
Nemours and Company and the Underwriters.*
3.1 Certificate of Incorporation of the Company, as amended and restated
on April 3, 1996.**
3.2 Bylaws of the Company, as amended on December 31, 1995.**
4.1 Specimen Certificate for Common Stock.*
5 Opinion of Van H. Leichliter, Esq. as to the validity of the shares of
Common Stock of the Company being registered.*
10.1 Transitional Administrative Services Agreement between the Company and
E.I. du Pont de Nemours and Company dated as of January 1, 1996.*
10.2 Environmental Indemnification Agreement effective as of the date the
offering of the securities being registered hereunder is consummated
(the "IPO Date") between the Company and E.I. du Pont de Nemours and
Company.*
10.3 Company's Bonus Plan, as adopted by the Company's Board of Directors
on March 26, 1996.*
10.4 Company's Non-employee Directors Stock Option Plan, as adopted by the
Company's Board of Directors on March 26, 1996.*
10.5 Company's Stock Performance Plan, as adopted by the Company's Board of
Directors on March 26, 1996.*
10.6 Company's Founders Stock Option Plan, as adopted by the Company's
Board of Directors on March 26, 1996.*
10.7 Registration Rights Agreement between the Company and DuPont Chemical
and Energy Operations, Inc. dated as of December 31, 1995.*
10.8 Tax Indemnification Agreement effective as of the IPO Date among the
Company, DuPont Chemical and Energy Operations, Inc. and E.I. du Pont
de Nemours and Company.*
10.9 Credit Agreement between the Company and DuPont Chemical and Energy
Operations, Inc. dated as of January 1, 1996.*
10.10 Letter Agreement between J.M. Hardinger and E.I. du Pont de Nemours
and Company dated as of September 21, 1995.*
10.11 Research, Development and Consulting Agreement between the Company and
E.I. du Pont de Nemours and Company dated as of January 1, 1996.*
10.12 Business Transfer Agreement between DuPont Korea Ltd. and DuPont
Photomasks Korea Ltd. dated as of December 22, 1995.*
10.13 Form of Indemnification Agreement between the Company and its
Directors and Officers.*
10.14 Corporate Tradename and Trademark Agreement between the Company and
E.I. du Pont de Nemours and Company dated May 16, 1996.*
21 List of principal subsidiaries of the Company.**
23.1 Consent of Price Waterhouse LLP.*
23.2 Consent of Van H. Leichliter, Esq. (included in the opinion filed
herewith as Exhibit 5).
24 Power of Attorney.**
- ------------------------
*Filed Herewith
**Previously Filed
II-2
<PAGE>
(b)Financial Statements
(1)Financial Statements
Financial Statements filed as part of this Registration
Statement are listed in the Index to Combined Financial
Statements on page F-1.
ITEM 17. UNDERTAKINGS
(a)The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b)Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 14 or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c)The undersigned Registrant hereby undertakes that:
(1) for the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment no. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Round Rock, State of Texas, on May 17, 1996.
DUPONT PHOTOMASKS, INC.
By /s/ J. MICHAEL HARDINGER
------------------------------------
J. Michael Hardinger
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
By /s/ DAVID S. GINO
------------------------------------
David S. Gino
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to the registration statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
SIGNATURE TITLE DATE
- ------------------------------ ------------------------- ------------------
Chairman of the Board and
* Chief Executive Officer
- ------------------------------ and Director (Principal May 17, 1996
J. Michael Hardinger executive officer)
Executive Vice President
-- Finance and Chief
/s/ DAVID S. GINO Financial Officer
- ------------------------------ (Principal financial May 17, 1996
David S. Gino officer and accounting
officer)
*
- ------------------------------ Director May 17, 1996
John L. Doyle
*
- ------------------------------ Director May 17, 1996
John C. Hodgson
*
- ------------------------------ Director May 17, 1996
Charles O. Holliday, Jr.
*
- ------------------------------ Director May 17, 1996
Peter G. Kehoe
*
- ------------------------------ Director May 17, 1996
Gary W. Pankonien
*
- ------------------------------ Director May 17, 1996
John C. Sargent
*
- ------------------------------ Director May 17, 1996
Marshall C. Turner
*
- ------------------------------ Director May 17, 1996
Susan A. Vladuchick
*By /s/ DAVID S. GINO
--------------------------
David S. Gino
Attorney-in-fact pursuant
to a power of attorney
filed herewith as part of
this Registration
Statement
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER NUMBER
- ------ ------
1.1 Form of Underwriting Agreement among the Company E.I. du Pont
de Nemours and Company and the Underwriters*.................
3.1 Certificate of Incorporation of the Company, as amended and
restated on April 3, 1996**..................................
3.2 Bylaws of the Company, as amended on December 31, 1995**......
4.1 Specimen Certificate for Common Stock*........................
5 Opinion of Van H. Leichliter, Esq. as to the validity of the
shares of Common Stock of the Company being registered*......
10.1 Transitional Administrative Services Agreement between the
Company and E.I. du Pont de Nemours and Company dated as of
January 1, 1996*.............................................
10.2 Environmental Indemnification Agreement effective as of the
date the offering of the securities being registered
hereunder is consummated (the "IPO Date") between the Company
and E.I. du Pont de Nemours and Company*.....................
10.3 Company's Bonus Plan, as adopted by the Company's Board of
Directors on March 26, 1996*.................................
10.4 Company's Non-employee Directors Stock Option Plan, as adopted
by the Company's Board of Directors on March 26, 1996*.......
10.5 Company's Stock Performance Plan, as adopted by the Company's
Board of Directors on March 26, 1996*........................
10.6 Company's Founders Stock Option Plan, as adopted by the
Company's Board of Directors on March 26, 1996*..............
10.7 Registration Rights Agreement between the Company and DuPont
Chemical and Energy Operations, Inc. dated as of December 31,
1995*........................................................
10.8 Tax Indemnification Agreement effective as of the IPO Date
among the Company, DuPont Chemical and Energy Operations,
Inc. and E.I. du Pont de Nemours and Company*................
10.9 Credit Agreement between the Company and DuPont Chemical and
Energy Operations, Inc. dated as of January 1, 1996*.........
10.10 Letter Agreement between J. M. Hardinger and E.I. du Pont de
Nemours and Company dated as of September 21, 1995*..........
10.11 Research, Development and Consulting Agreement between the
Company and E.I. du Pont de Nemours and Company dated as of
January 1, 1996*.............................................
10.12 Business Transfer Agreement between DuPont Korea Ltd. and
DuPont Photomask Korea Ltd. dated December 22, 1995*.........
10.13 Form of Indemnification Agreement between the Company and its
Directors and Officers*......................................
10.14 Corporate Tradename and Trademark Agreement between the
Company and E.I. du Pont de Nemours and Company dated May 16,
1996.*
21 List of principal subsidiaries of the Company**...............
23.1 Consent of Price Waterhouse LLP*..............................
23.2 Consent of Van H. Leichliter, Esq. (included in the opinion
filed herewith as Exhibit 5).................................
24 Power of Attorney**...........................................
- ------------------------
*Filed Herewith
**Previously Filed
<PAGE>
_______________ Shares
DUPONT PHOTOMASKS, INC.
Common Stock, $.01 par value
UNDERWRITING AGREEMENT
__________, 1996
<PAGE>
_____________, 1996
Morgan Stanley & Co. Incorporated
Cowen & Company
Needham & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
DuPont Photomasks, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters") an aggregate of _______________ shares of its
Common Stock, $.01 par value per share (the "Firm Shares").
The Company also proposes to issue and sell to the several
Underwriters not more than an additional __________ shares of its Common Stock,
$.01 par value per share (the "Additional Shares") if and to the extent that the
Representatives shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such Additional Shares granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of Common
Stock, $.01 par value per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the Registration Statement; the prospectus in the form first used
to confirm sales of Shares is hereinafter referred to as the "Prospectus." If
the Company has filed an abbreviated registration statement to register
<PAGE>
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
In connection with the offering of the Shares contemplated hereby, the
Company, Du Pont Chemical and Energy Operations, Inc. ("DCEO"), the sole
shareholder of the Company, E.I. du Pont de Nemours and Company ("DuPont"), the
sole shareholder of DCEO, and certain subsidiaries of the foregoing entities
have entered into a series of transactions described in the Prospectus under the
caption "Realignment of Photomask Business." Such transactions are herein
collectively referred to as the "Realignment."
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND DUPONT. The
Company and DuPont, jointly and severally, represent and warrant to and agree
with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph 1(b) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its
2
<PAGE>
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and the
Subsidiaries (as defined below), taken as a whole.
(d) Each Subsidiary has been duly incorporated or organized, is
validly existing as a corporation or partnership in good standing under the
laws of the jurisdiction of its incorporation or organization, as the case
may be, has the power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and the Subsidiaries, taken as a whole. As used herein, "Subsidiary" shall
mean DuPont Photomasks Delaware, Inc., DuPont Photomasks(France)S.A.,
DuPont Photomasks Korea Ltd., DuPont Photomasks Verwaltungs GmbH and DuPont
Photomasks Company Limited Shanghai. The Company does not own or control,
directly or indirectly, any corporation, association, partnership or other
entity, and does not participate in any joint venture, other than the
Subsidiaries.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of
3
<PAGE>
applicable law or the certificate of incorporation or by-laws of the Company or
any agreement or other instrument binding upon the Company or any of the
Subsidiaries that is material to the Company and the Subsidiaries, taken as a
whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any Subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of the
Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and the Subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(k) Each of the Company and the Subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all federal,
state, local, foreign and other governmental authorities, all self-
regulatory organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business in
the manner described in the Prospectus, except to the extent that the
failure to obtain or file would not, singly or in the aggregate, have a
material adverse effect on the Company and the Subsidiaries, taken as a
whole.
(l) There are no legal or governmental proceedings pending or, to the
best of the Company's knowledge, threatened to which the Company or any of
the Subsidiaries is a party or to which any of the properties of the
Company or any of the Subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described in all material respects or any statutes, regulations, contracts
or other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described in all material respects or filed as
required.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the
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Securities Act, complied when so filed in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder.
(n) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds as described in the
Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(o) The Company and the Subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and the
Subsidiaries, taken as a whole.
(p) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and the Subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of the last such review so completed, the Company
has reasonably concluded that such associated costs and liabilities would
not, singly or in the aggregate, have a material adverse effect on the
Company and the Subsidiaries, taken as a whole, except as described in the
Registration Statement or Prospectus.
(q) Each of the Company and the Subsidiaries owns or possesses
adequate licenses or other rights to use all patents, patent rights,
inventions, trade secrets, technology, know-how, trademarks, service marks,
trade names and copyrights which are necessary to conduct its businesses as
described in the Registration Statement and Prospectus,
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and the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the Company and the Subsidiaries, taken as a
whole. The Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of others with
respect to, any patents, patent rights, inventions, trade secrets,
technology, know-how, trademarks, service marks, trade names which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the Company and the
Subsidiaries, taken as a whole.
(r) No labor disturbance by the employees of the Company or any of
the Subsidiaries exists or, to the knowledge of the Company, is imminent;
and the Company is not aware of any existing or imminent labor disturbance
by the employees of any of its principal suppliers, principal customers or
principal distributors that might be expected to have a material adverse
effect on the Company and the Subsidiaries, taken as a whole. Except as
described in the Registration Statement or Prospectus, no collective
bargaining agreement exists with any of the employees of the Company or any
of the Subsidiaries and, to the knowledge of the Company, no such agreement
is imminent.
(s) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specific authorization;
(2) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(t) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement other than the rights of DCEO and its assignees and
with regard to the Company's compensation plans, both as described in the
Prospectus.
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(u) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(v) Except as described in the Registration Statement or Prospectus,
the Realignment has been completed; all applicable consents,
authorizations, approvals, orders, certificates and permits of and from,
and all applicable declarations and filings with, all federal, state,
local, foreign and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals having jurisdiction over
the Company or its Subsidiaries required in connection with the Realignment
have been obtained or filed, except to the extent that the failure to
obtain or file would not, singly or in the aggregate, have a material
adverse effect on the Company and the Subsidiaries, taken as a whole; and
the Realignment does not contravene any provision of applicable law or the
certificate of incorporation, by-laws or other organizational documents of
the Company or any Subsidiary or any agreement or other instrument binding
upon the Company or any of the Subsidiaries that is material to the Company
and the Subsidiaries, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the Company
or any Subsidiary.
(w) Except as described in the Prospectus under the caption
"Realignment of Photomask Business," as a result of the Realignment, all
businesses or operations previously owned by DuPont or any of its
subsidiaries relating to the manufacture, distribution or sale of
pellicles, photoblanks and photomasks are owned, direct or indirectly
through one or more Subsidiaries, by the Company except to the extent that
failure to own such businesses or operations, directly or indirectly, would
not have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company at $______ a share (the "Purchase Price") the respective numbers of Firm
Shares set forth in Schedule I or hereto opposite the name of such Underwriter.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the
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<PAGE>
Additional Shares, and the Underwriters shall have a one-time right to purchase,
severally and not jointly, up to _______________ Additional Shares at the
Purchase Price. If the Representatives, on behalf of the Underwriters, elect to
exercise such option, the Representatives shall so notify the Company in writing
not later than 30 days after the date of this Agreement, which notice shall
specify the number of Additional Shares to be purchased by the Underwriters and
the date on which such shares are to be purchased. Such date may be the same as
the Closing Date (as defined below) but not earlier than the Closing Date nor
later than ten business days after the date of such notice. Additional Shares
may be purchased as provided in Section 4 hereof solely for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each Underwriter agrees,
severally and not jointly, to purchase the number of Additional Shares (subject
to such adjustments to eliminate fractional shares as you may determine) that
bears the same proportion to the total number of Additional Shares to be
purchased as the number of Firm Shares set forth in Schedule I hereto opposite
the name of such Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other agreement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder or (B) the issuance by the Company of any
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof or the lapse of any
restriction with regard to shares issued pursuant to the Company's Stock
Performance Plan of which the Underwriters have been advised in writing.
3. TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised
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<PAGE>
by you that the Shares are to be offered to the public initially at $________ a
share (the "Public Offering Price") and to certain dealers selected by you at a
price that represents a concession not in excess of $______ a share under the
Public Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $_____ a share, to any Underwriter or to
certain other dealers.
4. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made
by certified or official bank check or checks payable to the order of the
Company in New York Clearing House funds at the office of Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York at 10:00 A.M., local time, on
____________, 1996, or at such other time on the same or such other date, not
later than _________, 1996, as shall be designated in writing by you. The time
and date of such payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made by certified or
official bank check or checks payable to the order of the Company in New York
Clearing House funds at the office of Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York at 10:00 A.M., local time, on the date specified in
the notice described in Section 2 or on such other date, in any event not later
than _______, 1996, as shall be designated in writing by you. The time and date
of such payment are hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than ________ (New York time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
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<PAGE>
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) if applicable, there shall not have occurred any
downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does
not indicate the direction of the possible change, in the rating
accorded any of the Company's securities by any "nationally recognized
statistical rating organization," as such term is defined for purposes
of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and the Subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clause (a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Van H. Leichliter, Esq., Executive Vice President and General
Counsel of the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as
10
<PAGE>
described in the Prospectus and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole;
(ii) each Subsidiary of the Company has been duly incorporated or
organized, is validly existing as a corporation or partnership in good
standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, has the power and authority to own
its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
the Subsidiaries, taken as a whole; the Company does not own or
control, directly or indirectly, any corporation, association,
partnership or other entity, and is not a participant in any joint
venture, other than the Subsidiaries;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
(v) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation
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or by-laws of the Company or, to the best of such counsel's knowledge,
any agreement or other instrument binding upon the Company or any of
the Subsidiaries that is material to the Company and the Subsidiaries,
taken as a whole, or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any Subsidiary, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(viii) the statements (A) in the Prospectus under the captions
"Business -- Customers," "Business -- Intellectual Property,"
"Management -- Board of Directors," "Compensation of Company Employees
-- Bonus Plan", "Compensation of Company Employees -- Director's and
Officer's Indemnification and Insurance," "Transactions and
Relationships Between the Company and DuPont," "Description of Capital
Stock," "Shares Eligible for Future Sale," [list others] and
"Underwriters" and (B) in the Registration Statement in Items 14 and
15, in each case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(ix) each of the Company and the Subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits
of and from, and has made all declarations and filings with, all
federal, state, local, foreign and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals, to
own, lease, license and use its properties and assets and to conduct
its business in the manner described in the Prospectus, except to the
extent that the failure to obtain or file would not, singly or in the
aggregate, have a material adverse effect on the Company and the
Subsidiaries, taken as a whole;
(x) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of the
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Subsidiaries is a party or to which any of the properties of the
Company or any of the Subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended;
(xii) the Company and the Subsidiaries (A) are in compliance with
any and all applicable Environmental Laws, (B) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (C) are
in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company;
(xiii) each of the Company and the Subsidiaries owns or possesses
adequate licenses or other rights to use all patents, patent rights,
inventions, trade secrets, technology, know-how, trademarks, service
marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus;
after due inquiry, such counsel does not know of any notice received
by the Company of any infringement of or conflict with asserted rights
of others with respect to, any patents, patent rights, inventions,
trade secrets, technology, know-how, trademarks, service marks, trade
names which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse
effect on the Company and the Subsidiaries, taken as a whole;
(xiv) the Realignment has been completed; all consents,
authorizations, approvals, orders, certificates and permits of and
from, and all
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declarations and filings with, all federal, state, local, foreign and
other governmental authorities, all self-regulatory organizations and
all courts and other tribunals required in connection with the
Realignment have been obtained or filed, except to the extent that the
failure to obtain or file would not, singly or in the aggregate, have
a material adverse effect on the Company and the Subsidiaries, taken
as a whole; and the Realignment does not contravene any provision of
applicable law or the certificate of incorporation, by-laws or other
organizational documents of the Company or any Subsidiary or, to the
best of such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of the Subsidiaries that is material
to the Company and the Subsidiaries, taken as a whole, or, to the best
of such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Company or any Subsidiary;
(xv) except as described in the Prospectus under the caption
"Realignment of Photomask Business," as a result of the Realignment,
all businesses or operations previously owned by DuPont or any of its
subsidiaries relating to the manufacture, distribution or sale of
pellicles, photoblanks and photomasks are owned, direct or indirectly
through one or more Subsidiaries, by the Company; and
(xvi) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules included therein as to which such counsel need not express
any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder, (B) has no reason to believe that (except for
financial statements and schedules as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules as to
which such counsel need not express any belief) the Prospectus
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in
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the light of the circumstances under which they were made, not
misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in subparagraphs (v), (vi),
(viii) (but only as to the statements in the Prospectus under "Description
of Capital Stock" and "Underwriters") and (xvi) of paragraph (c) above.
With respect to subparagraph (xvi) of paragraph (c) above, Van H.
Leichliter, Esq. and Davis Polk & Wardwell may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification, except as specified. With respect to
paragraph (c) above insofar as it relates to the Realignment, Van H.
Leichliter, Esq. may rely upon an opinion or opinions of foreign counsel,
PROVIDED that (A) each such counsel is satisfactory to counsel for the
Underwriters and (B) a copy of each opinion so relied upon is delivered to
the Underwriters and is in form and substance satisfactory to counsel for
the Underwriters.
The opinion of Van H. Leichliter, Esq. described in paragraph (c)
above shall be rendered to the Underwriters at the request of the Company
and shall so state therein.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters
and Price Waterhouse LLP, from Price Waterhouse LLP, independent
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus; PROVIDED that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(f) The "lock-up" agreement, substantially in the form of Exhibit A
hereto, between you and DCEO relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force and
effect on the Closing Date.
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(g) The Shares shall have received approval for inclusion on the
Nasdaq National Market.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
6. COVENANTS OF THE COMPANY AND DUPONT. In further consideration of
the agreements of the Underwriters herein contained, the Company and, with
respect to paragraph (f) below, DuPont, covenants with each Underwriter as
follows:
(a) To furnish to you, without charge, _____ signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 5:00 P.M. local time on the business day following the
date of this Agreement and during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object in writing, subject however, to compliance with
the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder, and to file with
the Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to such
Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law,
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<PAGE>
forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and addresses
you will furnish to the Company) to which Shares may have been sold by you
on behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the
twelve-month period ending ______________, 1996 that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and disbursements of
counsel to the
17
<PAGE>
Underwriters incurred in connection with the review and qualification of
the offering of the Shares by the National Association of Securities
Dealers, Inc., (v) all expenses in connection with the offer and sale of
the Shares in Canada, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with Canadian
offers and sales, (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating
to the Common Stock and all costs and expenses incident to listing the
Shares on the Nasdaq National Market, (vii) the cost of printing
certificates representing the Shares, (viii) the costs and charges of any
transfer agent, registrar or depositary, (ix) the costs and expenses of the
Company relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including,
without limitation, expenses associated with the production of road show
slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of
the Company and any such consultants, and the cost of any aircraft
chartered in connection with the road show, and (x) all other costs and
expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section 7
entitled "Indemnity and Contribution", and the last paragraph of Section 9
below, the Underwriters will pay all of their costs and expenses, including
fees and disbursements of their counsel, stock transfer taxes payable on
resale of any of the Shares by them, and any advertising expenses connected
with any offers they may make.
7. INDEMNITY AND CONTRIBUTION. (a) The Company and DuPont, jointly
and severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
18
<PAGE>
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement, and DuPont, and each person, if
any, who controls the Company or DuPont within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company and DuPont to such Underwriter but only
with reference to information relating to such Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a) or (b) of this Section 7, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for (i) all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) the Company, its
directors, its officers who sign the Registration Statement and each person, if
19
<PAGE>
any, who controls the Company within the meaning of either such Section and that
all such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Underwriters and such control persons of
the Underwriters, such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated. In the case of any such separate firm for the Company or
DuPont, and such directors, officers and control persons of the Company or
DuPont, such firm shall be designated in writing by the Company or DuPont. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a)
or (b) of this Section 7 is unavailable to an indemnified party or insufficient
in respect of any losses, claims, damages or liabilities referred to therein,
then each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with
20
<PAGE>
the statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and DuPont on the one hand and the
Underwriters on the other hand in connection with the offering of the Shares
shall be deemed to be in the same respective proportions as the net proceeds
from the offering of the Shares (before deducting expenses) received by the
Company and the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price of the Shares. The
relative fault of the Company and DuPont on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or DuPont or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.
(e) The Company, DuPont and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 7 were determined
by PRO RATA allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) of this Section 7.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 7 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
21
<PAGE>
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company and DuPont contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Shares.
8. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
9. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall
22
<PAGE>
the number of Shares that any Underwriter has agreed to purchase pursuant to
this Agreement be increased pursuant to this Section 9 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and arrangements satisfactory
to you and the Company for the purchase of such Firm Shares are not made within
36 hours after such default, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter or the Company. In any such case
either you or the Company shall have the right to postpone the Closing Date, but
in no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company or DuPont to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company or DuPont shall be unable to perform its
obligations under this Agreement, the Company will reimburse the Underwriters or
such Underwriters as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such Underwriters in
connection with this Agreement or the offering contemplated hereunder.
10. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
23
<PAGE>
11. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
12. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
24
<PAGE>
Very truly yours,
DUPONT PHOTOMASKS, INC.
By_________________________________
Name:
Title:
E.I. DU PONT DE NEMOURS AND COMPANY
By_________________________________
Name:
Title:
Accepted as of the date hereof.
MORGAN STANLEY & CO. INCORPORATED
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
Acting severally on behalf of themselves
and the several Underwriters named
in Schedule I hereto.
By Morgan Stanley & Co.
Incorporated
By___________________________
Name:
Title:
25
<PAGE>
Schedule I
Underwriters
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated
Cowen & Company
Needham & Company, Inc.
_______________
Total Firm Shares ..............
===============
26
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP CONTRACT]
____________, 1996
Morgan Stanley & Co. Incorporated
Cowen & Company
Needham & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
The undersigned understands that you, as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), propose to
enter into an Underwriting Agreement with DuPont Photomasks, Inc., a Delaware
corporation (the "Company") and E.I. du Pont de Nemours and Company, a Delaware
corporation, providing for the public offering (the "Public Offering") by the
several Underwriters, including yourselves, of shares (the "Shares")
of the Common Stock, par value $.01 per share, of the Company (the "Common
Stock").
In consideration of the Underwriters' agreement to purchase and make
the Public Offering of the Shares, and for other good and valuable consideration
receipt of which is hereby acknowledged, the undersigned hereby agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period commencing on the date
hereof and ending 180 days after the date of the prospectus relating to the
Public Offering of the Shares (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether such shares or any such securities are now owned by the
undersigned or are hereafter acquired), or (2) enter into
<PAGE>
any swap or other agreement that transfers to another, in whole or in part, any
of the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
Very truly yours,
_________________________
(Name)
_________________________
(Address)
<PAGE>
COMMON SHARES
PAR VALUE $.01
-----------------
SHARES
DUPONT PHOTOMASKS, INC.
-----------------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 26613X 10 1
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF
DUPONT PHOTOMASKS, INC.
of the par value of $.01 per share, transferable on the books of the Corporation
by the registered owner hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are subject to all the provisions of the Certificate of
Incorporation and all Amendments and Supplements thereof.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ J. Michael Hardinger
[CORPORATE SEAL]
Chairman of the Board and Countersigned and Registered:
Chief Executive Officer CHEMICAL MELLON SHAREHOLDER
SERVICES, L.L.C.
Transfer Agent and Registrar
By
/s/ Van H. Leichliter
Secretary Authorized Signature
<PAGE>
The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants in common
UNIF GIFT MIN ACT --___________ Custodian ______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received,_________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
- --------------------------------------------------------------------------------
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_______________________________ ________________________________________
NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the
Certificate in every particular, without
alteration or enlargement or any change
whatever.
<PAGE>
EXHIBIT 5
DUPONT PHOTOMASKS, INC.
100 TEXAS AVENUE
ROUND ROCK, TEXAS 78664
May 17, 1996
RE: DUPONT PHOTOMASKS, INC.
REGISTRATION STATEMENT ON FORM S-1
Dear Sirs:
I have acted as counsel for DuPont Photomasks, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-1 under the Securities Act of 1933, as amended
(the "Act"), with respect to the proposed offering of up to 4,000,000 shares of
Common Stock, par value of $.01 per share (the "Common Stock"), and 600,000
shares of Common Stock that are the subject of an over-allotment option granted
to the Underwriters.
I have examined originals or copies, certified or otherwise identified
to our satisfaction, of the Certificate of Incorporation and By-Laws of the
Company, each as amended, and the proposed underwriting agreement among the
Company, and the representatives of the several Underwriters in the form filed
as Exhibit 1 to the Registration Statement (the "Underwriting Agreement") and
such other documents, corporate records, certificates of public officials and
instruments as I have considered necessary or advisable for the purpose of this
opinion. I have assumed the authenticity of all documents submitted to me as
originals and the conformity to original documents of all documents submitted to
me as copies. I have not independently verified such information and
assumptions.
<PAGE>
Subject to the foregoing, and based on such examination and review, I
am of the opinion that:
1. The Company is a corporation organized and existing in good standing
under the laws of the State of Delaware.
2. The 4,000,000 shares of Common Stock proposed to be offered by the
Company, when issued and delivered upon payment therefor in accordance with the
terms and conditions of the Underwriting Agreement, will be duly authorized,
validly issued, fully paid and non-assessable.
I hereby consent (i) to the filing of this opinion as an exhibit to
the Registration Statement and all amendments thereto (including any post-
effective amendments) and any subsequent registration statement filed by the
Company pursuant to Rule 462(b) of the Act, which relates to the registration
statement and (ii) to the reference to me contained under the heading "Legal
Matters" and elsewhere in the Prospectus which forms part of the Registration
Statement.
Very truly yours,
/s/ Van H. Leichliter
Van H. Leichliter
Executive Vice President and
General Counsel
<PAGE>
EXHIBIT 10.1
TRANSITIONAL ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT, entered into and effective as of the 1st day of
January, 1996, (the "Effective Date") by and between E. I. du Pont de Nemours
and Company, a Delaware corporation, with its principal place of business at
1007 Market Street, Wilmington, Delaware 19898, ("DuPont") and DuPont
Photomasks, Inc., a Delaware corporation, with its principal place of business
at 100 Texas Avenue, Round Rock, Texas 78664 ("DPI"), (DPI and DuPont are at
times referred to herein individually as "Party" and collectively as "Parties");
Subject to the terms, conditions, covenants and provisions of this
Agreement, DuPont and DPI mutually covenant and agree as follows:
ARTICLE 1
SERVICES PROVIDED
1.01 TRANSITIONAL SERVICES. During the term of this Agreement upon
the terms and subject to the conditions set forth in this Agreement, DuPont will
provide to DPI each of those administrative and support services listed in
Exhibit A, which is attached to and made part of this Agreement, (hereinafter
referred to individually as a "Transitional Service", and collectively as the
"Transitional Services"), during the time period for each Transitional Service
set forth in Exhibit A, (hereinafter referred to as the "Time Periods" for all
of the Transitional Services, and the "Time Period" for each Transitional
Service); provided, however, that if no Time Period is set forth for a
Transitional Service in Exhibit A, then the Time Period for such Transitional
Service shall be the term of this Agreement.
1.02 PERSONNEL. (a) In providing the Transitional Services, DuPont,
as it deems necessary or appropriate in its discretion, may (i) use such
personnel of DuPont or its affiliates, and (ii) employ the services of third
parties to the extent such third party services
<PAGE>
are routinely utilized to provide similar services to other DuPont businesses or
are reasonably necessary for the efficient performance of any of such
Transitional Services; provided, however, that if DPI is not satisfied with the
quality or level of such Transitional Services, DPI may notify DuPont through
its Primary Coordinator and the Parties shall promptly attempt to resolve DPI's
concerns in good faith.
(b) DPI agrees that it will cooperate with DuPont in the provision of
the Transitional Services.
1.03 REPRESENTATIVES. DuPont and DPI shall each nominate a representative
to act as the primary contact person for the provision of all of the
Transitional Services (collectively, the "Primary Coordinators"). The initial
Primary Coordinators shall be Harold Lehon for DPI and Joe Dunning for DuPont.
The initial coordinators for each specific Transitional Service shall be the
individuals named in the description of such Transitional Service in Exhibit A
(the "Service Coordinators"). If a Service Coordinator is not specified for a
Transitional Service on Exhibit A, then the Primary Coordinator shall serve as
the Service Coordinator. DuPont and DPI shall advise each other in writing of
any change in the Primary Coordinators and any Service Coordinator. DuPont and
DPI agree that all communications relating to the provision of the Transitional
Services shall be directed to the Primary Coordinators.
1.04 LEVEL OF TRANSITIONAL SERVICES. (a) DuPont shall perform the
Transitional Services exercising the same degree of care as it exercises in
performing the same or similar services for its own account, with priority equal
to that provided to its own businesses or those of any of its affiliates,
subsidiaries or divisions. Nothing in this Agreement shall require DuPont to
favor DPI's business over its own businesses or those of any of its affiliates,
subsidiaries or divisions.
(b) Unless otherwise specifically set forth in the Exhibits
attached hereto or by DuPont's prior written consent, it is the intention of the
Parties that DPI's use of any Transitional Service that DPI elects to use shall
not be higher than the level of use
-2-
<PAGE>
required by DPI's business prior to the effective date of this Agreement. In
no event shall DPI be entitled to any new service without the prior written
consent of DuPont, which consent may be withheld by DuPont for any or no reason
in its sole and absolute discretion. In no event shall DPI be entitled to
increase its use of any of the Transitional Services above the level of use
specified in this Agreement without the prior written consent of DuPont (which
consent shall not be unreasonably withheld, taking into consideration the
availability of DuPont personnel and DPI's needs).
(c) DuPont shall not be required to provide DPI Transitional
Services other than those defined and described in this Agreement, special
studies, support for new systems design and implementation, training, or the
like or the advantage of systems, equipment, facilities, training, or
improvements procured, obtained or made after the Effective Date by DuPont,
unless upon request by DPI to DuPont's Primary Coordinator, DuPont elects to
provide such service.
(d) In addition to being subject to the terms and conditions of
this Agreement for the provision of the Transitional Services, DPI agrees that
the Transitional Services provided by third parties shall be subject to the
terms and conditions of any agreements between DuPont and such third parties;
provided, however, that at DPI's request to DuPont's Primary Coordinator, DuPont
will permit DPI's Primary Coordinator an opportunity to review any such third
party agreements to the extent that DuPont is permitted to do so without a
breach of its confidentiality obligations to such third parties.
1.05 LIMITATION OF LIABILITY AND WARRANTY. (a) In the absence of
gross negligence or reckless or willful misconduct on DuPont's part, and whether
or not it is negligent, DuPont shall not be liable for any claims, liabilities,
damages, losses, costs, expenses (including, but not limited to, settlements,
judgments, court costs and reasonable attorneys' fees), fines and penalties,
arising out of any actual or alleged injury, loss or damage of any nature
whatsoever in providing or failing to provide the Transitional Services to DPI.
Notwithstanding anything to the contrary contained herein, in the event DuPont
commits an
-3-
<PAGE>
error with respect to or incorrectly performs or fails to perform any
Transitional Service, at DPI's request, DuPont shall use the same level of
performance as set forth in Section 1.04 hereof, to correct such error, re-
perform or perform such Transitional Service; PROVIDED, that DuPont shall have
no obligation to recreate any lost or destroyed data to the extent the same
cannot be cured by the re-performance of the Transitional Service in question.
(b) Except for gross negligence or reckless or willful
misconduct, DuPont's liability for damages to DPI for any cause whatsoever, and
regardless of the form of action, whether in contract or in tort, including
negligence, shall be limited to the payments made hereunder for the specified
Transitional Service that allegedly caused the damage during the period which
the alleged damage was incurred by DPI. In no event shall DuPont be liable for
any damages caused by DPI's failure to perform DPI's responsibilities hereunder.
Except as set forth in Paragraph 5.01, DuPont will not be liable to DPI for
(i) any act or omission of any other entity (other than due to a default by
DuPont in any agreement between DuPont and such other entity) furnishing any
Transitional Service or (ii) lost, altered or destroyed data in providing any
Transitional Service or for any interruption of any Transitional Services
relating to computer or telecommunications services. If DPI suffers any loss or
damages arising out of this Agreement which was caused by the gross negligence
or reckless or willful misconduct of DuPont, DuPont's sole liability to DPI
shall be to properly perform the Transitional Service(s) in question at no
additional cost to DPI and to pay DPI for any and all direct damages suffered by
DPI.
(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR
AT LAW OR IN EQUITY, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR PUNITIVE,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION OR ANY
OTHER LOSS) ARISING FROM OR RELATING TO ANY CLAIM MADE UNDER THIS AGREEMENT OR
REGARDING THE
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PROVISION OF OR THE FAILURE TO PROVIDE THE TRANSITIONAL SERVICES, EVEN IF THE
OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(d) In addition to the Transitional Services, DuPont agrees
to provide those goods and services described in Exhibit A. If DuPont will be
providing any of its other goods in connection with providing the Transitional
Services, such goods shall be provided in accordance with the conditions of
sale set forth in Exhibit A. EXCEPT AS SET FORTH IN THOSE CONDITIONS, DUPONT
MAKES NO EXPRESS OR IMPLIED WARRANTY (INCLUDING, WITHOUT LIMITATION, THE
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE) REGARDING ANY
GOODS PROVIDED IN CONNECTION WITH THE TRANSITIONAL SERVICES.
1.06 NO OBLIGATION TO CONTINUE TO USE SERVICES. DPI shall have no
obligation to continue to use any of the Transitional Services and may eliminate
any Transitional Service from the Transitional Services that DuPont is providing
to DPI by giving DuPont at least forty-five (45) days advance written notice of
its desire to eliminate any or all Transitional Services; PROVIDED, that the
elimination of any Transitional Service can only be effective on the last day of
a calendar month.
1.07 INFORMATION SYSTEMS. (a) DPI acknowledges and agrees that the terms
and conditions set forth on Exhibit A-1 attached hereto shall apply to those
Transitional Services relating to the information systems as described in
Exhibit A (the "Information System Services").
(b) DPI hereby agrees that neither it nor any of its employees or
agents will access or use any DuPont or third party software on DuPont systems,
other than the software and systems specifically described in Exhibit A-1.
(c) DPI agrees that as a condition precedent to accessing any DuPont
computer or telecommunication systems, it must execute and deliver the DuPont
"Electronic
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Information Security Agreement Form 0004", which is attached hereto as
Schedule B to Exhibit A-1.
(d) DPI agrees that within twenty-two (22) months following the
effective date of this Agreement, it shall provide to DuPont, in form and
substance reasonably acceptable to DuPont, a written migration plan providing a
detailed description, including calendar milestones, of the manner in which DPI
will migrate from the Information Systems Services (including, without
limitation, DuPont's computer and telecommunications software, hardware, and
equipment systems) to DPI or third party systems prior to the expiration of the
Time Period for the provision of the Information Systems Services described in
Exhibit A-1, and a contingency plan setting forth the manner in which DPI will
provide its computer and telecommunications services, if DPI is unable to fully
implement such migration plan.
1.08 DUPONT ACCESS. To the extent reasonably required for DuPont
personnel to perform the Transitional Services, DPI shall provide DuPont
personnel with reasonable access to its equipment, office space, plants,
telecommunications and computer equipment and systems, and any other areas and
equipment.
1.09 SEPARATION AND TRANSITION COSTS. (a) DuPont will reimburse DPI
for certain of DPI's out-of-pocket costs incurred by DPI, prior to December 31,
1997, to separate and transition from DuPont services provided pursuant to this
Agreement and to allow DPI to develop and implement separate administrative
systems from other sources (either internal or external to DPI), including but
not limited to the development and implementation of an information systems
migration plan as described in Paragraph 1.07 (the "Separation Costs"). Such
reimbursement by DuPont of Separation Costs will not exceed $1,200,0000 in the
aggregate. DPI will submit to DuPont's Primary Coordinator a monthly invoice
describing such out-of-pocket costs. DuPont will reimburse DPI either through a
cash payment or through a credit to be applied to the next invoice submitted to
DPI pursuant to Paragraph 2.03 hereof.
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(b) Notwithstanding Exhibit A-3 with regard to Relocation
Administration Services, DuPont shall bear all costs and expenses reimbursable
pursuant to DuPont's Relocation Plan with regard to the relocation of certain
DPI employees (previously employed by DuPont) from the Wilmington, Delaware
vicinity to the Austin/Round Rock vicinity during the time period between June
30, 1995 and December 31, 1997. DPI will submit a notice with regard to any
such relocations to DuPont's Primary Coordinator.
ARTICLE 2
COMPENSATION
2.01 CONSIDERATION. (a) As consideration for the Transitional
Services, DPI shall pay to DuPont the price specified for each Transitional
Service as set forth in Exhibit A. Upon the elimination of any Transitional
Service in accordance with Paragraph 1.06 above, the compensation to be paid
under this Paragraph 2.01 shall be reduced by the amount specified for such
eliminated Transitional Service.
(b) In addition to the payments described in subparagraph (a)
above, DPI shall reimburse to DuPont an amount equal to the sum of (i) all of
the out-of-pocket payments, if any, incurred by DuPont to obtain consents from
such third parties to permit DuPont to provide any Transitional Service to DPI
hereunder (including, without limitation, amounts paid for the right to continue
to use third party software for the benefit of DPI), plus (ii) any out-of-pocket
payments by DuPont on behalf of DPI. Such payments will be billed to DPI in the
monthly invoice(s) described in Paragraph 2.03 below. DuPont will notify DPI in
advance of any such payments in excess of $10,000 not otherwise described in
Exhibit A. In the event that DuPont will be making any such disbursements of
funds on behalf of DPI pursuant to any Transitional Service, before any
disbursement will be made, DPI shall deposit funds equal to an estimated amount
of such disbursements into a bank account designated by DuPont.
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2.02 TAXES. Any taxes (other than income taxes) assessed on the
provision of the Transitional Services shall be paid by DPI.
2.03 INVOICES. Unless otherwise provided in Exhibit A, DuPont will
submit to DPI's Primary Coordinator invoices to DPI describing (a) all
Transitional Services provided to DPI, and (b) those out-of-pocket payments
described in Paragraph 2.01(b) above incurred during such month. Such monthly
invoices will usually be issued by the fifteenth day of the month following the
month in which services are provided. Each invoice shall include a summary list
of the previously agreed upon Transitional Service for which there are fixed
dollar fees, together with documentation supporting each of the invoiced amounts
that are not covered by the fixed fee agreements. The total of this list and
supporting detail will equal the invoice total, and will be provided with the
invoice. All invoices shall be sent to DPI at the following address or to such
other address as DPI shall have specified by notice in writing to DuPont:
DuPont Photomasks, Inc.
100 Texas Avenue
Round Rock, Texas 78664
Attention: Accounts Payable
2.04 PAYMENT OF INVOICES. (a) Payment of all invoices submitted
shall be made by electronic funds transmission in U.S. Dollars, without any
offset or deduction of any nature whatsoever, except if DPI gives notice to
DuPont that it has a reasonable basis for a dispute regarding a fee charged or
service provided hereunder, within thirty (30) days of the invoice date unless
otherwise specified in Exhibit A. All payments shall be made to the account set
forth in written instructions by DuPont from time to time.
(b) Upon receipt of a notice of a dispute as provided in
paragraph 2.04(a), the Parties shall thereupon submit the dispute under the
procedures set forth in paragraph 6.14. So long as both parties are negotiating
the dispute in good faith, this agreement will continue in full force and effect
but either party may terminate the service affected in the event the other party
ceases negotiating the dispute in good faith. Otherwise, if
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any payment is not paid when due, DuPont shall have the right, without any
liability to DPI, or anyone claiming by or through DPI, upon 10 days written
notice to cease providing the Transitional Service(s) for which payment has not
been made, which right may be exercised by DuPont in its sole and absolute
discretion, until it receives such payment; provided, that this right shall not
affect DuPont's ability to terminate this Agreement as set forth in herein.
ARTICLE 3
CONFIDENTIALITY
3.01 OBLIGATION. (a) In addition to any obligations of
confidentiality pursuant to other agreements between the Parties, without the
prior written consent of the other Party, each Party shall hold in confidence
and not disclose to any third party (i) any confidential information received by
it from the other Party during the provision of the Transitional Services,
including, without limitation, information which is not related to the
Transitional Services, provided such information is marked confidential, or if
provided orally, such information is reduced to writing and marked as
confidential within thirty (30) days of disclosure; and (ii) the specific terms,
conditions and information contained in this Agreement and any attachment
hereto.
(b) Each party agrees that it shall ONLY use the confidential
information received by it from the other Party in connection with the provision
or receipt of the Transitional Services, and for no other purpose whatsoever.
(c) For the purposes of this Agreement, confidential information
shall not include information:
(i) which is or becomes part of the public domain other
than through breach of this Agreement or through the fault of the
receiving Party;
(ii) which is or becomes available to the receiving Party
from a source other than the disclosing Party, which source has no
obligation of confidentiality to the disclosing Party in respect
thereof;
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(iii) which is required to be disclosed by law or
governmental order;
(iv) the disclosure of which is mutually agreed to by the
Parties;
(v) which has been independently developed by the other
Party without reference to the confidential information; or
(vi) which was known to the receiving Party prior to receipt
of the confidential information, as shown by its prior written records
(which for DuPont were not records of DPI's business prior to the date
hereof).
3.02 EFFECTIVENESS. The foregoing obligation of confidentiality
shall be in effect during the term of this Agreement and any extensions thereof
and for a period of five (5) years after the termination or expiration of this
Agreement.
3.03 CARE AND INADVERTENT DISCLOSURE. With respect to any
confidential information, each Party agrees as follows:
(a) it shall use the same degree of care in safeguarding said
information as it uses to safeguard its own information which must be held in
confidence; and
(b) upon the discovery of any disclosure or unauthorized use of
said information, or upon obtaining notice of such a disclosure or use from the
other Party, it shall take all necessary actions to prevent any further
disclosure or unauthorized use, and, subject to the provisions of Paragraph 1.05
above, such other Party shall be entitled to pursue any other remedy which may
be available to it.
ARTICLE 4
TERM AND TERMINATION
4.01 TERM. This Agreement shall become effective on the Effective
Date and shall remain in force: (a) for a period of twenty-four (24) months or
(b) until DuPont's equity ownership falls below fifty (50%) (the "Initial
Period"), whichever last occurs unless (x) all of
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the Transitional Services are eliminated by DPI in accordance with Paragraph
1.06 above, at which time this Agreement shall automatically terminate upon the
payment of all amounts then due, or (y) this Agreement is terminated under
Paragraph 4.03 or 6.11 below prior to the end of such period.
4.02 EXTENSION. Subject to the earlier termination of this Agreement
in accordance with Paragraph 4.03 or 6.11 below, DPI may extend each Time Period
for an additional twelve (12) months by giving DuPont at least forty-five (45)
days prior written notice prior to the end of the Time Period in question,
except that DPI may not unilaterally extend this Agreement if DuPont's equity
ownership has fallen below fifty percent (50%).
4.03 TERMINATION. (a) If either Party (hereafter called the
"Defaulting Party") shall fail to perform or default in the performance of any
of its obligations under this Agreement (other than as described in subparagraph
(b) below), the other Party (hereinafter called the "Non-Defaulting Party") may
give written notice to the Defaulting Party specifying the nature of such
failure or default and stating that the Non-Defaulting Party intends to
terminate this Agreement if such failure or default is not cured within
forty-five (45) days of such written notice. If any failure or default so
specified is not cured within such forty-five (45) day period, the Non-
Defaulting Party may elect to immediately terminate this Agreement; PROVIDED,
HOWEVER, that if the failure or default relates to a dispute made in good faith
by the Defaulting Party pursuant to Paragraph 6.14, the Non-Defaulting Party may
not terminate this Agreement pending the resolution of such dispute pursuant to
the completion of the mediation process provided in Paragraph 6.14. Such
termination shall be effective upon giving a written notice of termination from
the Non-Defaulting Party to the Defaulting Party and shall be without prejudice
to any other remedy which may be available to the Non-Defaulting Party against
the Defaulting Party.
(b) Either Party may immediately terminate this Agreement
by a written notice to the other without any prior notice upon the occurrence of
any of the following events:
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(i) the other Party enters into proceedings in
bankruptcy or insolvency;
(ii) the other Party shall make an assignment for
benefit of creditors;
(iii) a petition shall be filed against the other
Party under a bankruptcy law, a corporate reorganization law, or any other
law for relief of debtors (or similar law in purpose or effect); or
(iv) the other Party enters into liquidation or
dissolution proceedings.
4.04 DPI'S ADMINISTRATIVE AND SUPPORT SERVICES. (a) DPI
acknowledges that DuPont is providing the Transitional Services as an
accommodation to DPI to allow DPI a transitional period of time to obtain its
own administrative and support services. During the term of this Agreement, DPI
agrees that, in addition to the migration plan described in Paragraph 1.07(d),
it shall take all steps necessary to obtain its own administrative and support
services prior to the expiration of the Time Period for each Transitional
Service.
(b) DPI specifically agrees and acknowledges that all
obligations of DuPont to provide each Transitional Service shall immediately
cease upon the expiration of the Time Period (and any extension thereof in
accordance with Section 4.02) for such Transitional Service, and DuPont's
obligations to provide all of the Transitional Services shall immediately cease
upon the termination of this Agreement, unless extended by mutual consent. Upon
the cessation of DuPont's obligation to provide any Transitional Service, DPI
shall immediately cease using, directly or indirectly, such Transitional Service
(including, without limitation, any and all DuPont software or third party
software provided through DuPont, telecommunications services or equipment, or
computer systems or equipment).
(c) DUPONT SHALL HAVE NO LIABILITY OF ANY KIND OR NATURE
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, INDIRECT, CONSEQUENTIAL, SPECIAL,
INCIDENTAL OR PUNITIVE DAMAGES) TO DPI, OR
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TO ANYONE CLAIMING BY OR THROUGH DPI, FOR DUPONT'S CEASING TO PROVIDE ANY
TRANSITIONAL SERVICE UPON THE EXPIRATION OF THE TIME PERIOD (AND ANY EXTENSION
THEREOF IN ACCORDANCE WITH SECTION 4.02) FOR SUCH TRANSITIONAL SERVICE OR THE
TERMINATION OF THIS AGREEMENT. DPI SHALL HOLD DUPONT HARMLESS AND WAIVES ANY
AND ALL RIGHTS, AT LAW OR IN EQUITY, THAT IT MAY HAVE TO BRING ANY SUIT,
INCLUDING, BUT NOT LIMITED TO, INJUNCTIVE RELIEF, OR TO ANY CLAIMS, DAMAGES,
LOSS, COSTS (INCLUDING ATTORNEY FEES), ACTIONS, OR LIABILITY AGAINST DUPONT OR
DUPONT'S EMPLOYEES, AGENTS, ASSIGNEES, SUBSIDIARIES OR AFFILIATES ARISING OUT OF
DUPONT'S CEASING TO PROVIDE ANY TRANSITIONAL SERVICE UPON THE EXPIRATION OF THE
TIME PERIOD (AND ANY EXTENSION THEREOF IN ACCORDANCE WITH SECTION 4.02) FOR SUCH
TRANSITIONAL SERVICE OR THE TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS
TERMS.
4.05 SURVIVAL OF CERTAIN OBLIGATIONS. The following obligations
shall survive the termination of this Agreement: (a) for the period set forth
therein, the obligations of each Party under Articles 3, 4 and 5, and (b)
DuPont's right to receive the compensation for the Transitional Services
provided, and reimbursement of the payments described in Paragraph 2.01 above
incurred, prior to the effective date of termination.
ARTICLE 5
INDEMNITIES
5.01 INDEMNITY BY DUPONT. Subject to the limitations set forth in
Paragraph 1.05 above, DuPont shall indemnify, defend and hold DPI harmless
against any and all claims, liabilities, damages, losses, costs, expenses
(including, but not limited to, settlements, judgments, court costs and
reasonable attorney's fees), fines and penalties arising out of any actual
injury, loss or damage of any nature whatsoever (including, without limitation,
loss of
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or damage to property, or damage to the environment) due or relating to the
provision of or failure to provide the Transitional Services, ONLY if such
amounts are a direct result of the gross negligence or reckless or willful
misconduct of the personnel of DuPont and/or any contract personnel or third
parties who DuPont arranged to provide the Transitional Services to DPI.
5.02 INDEMNITY BY DPI. DPI shall indemnify, defend and hold DuPont
harmless against any and all claims, liabilities, damages losses, costs,
expenses (including, but not limited to, settlements, judgments, court costs and
reasonable attorneys' fees), fines and penalties arising out of any actual
injury, loss or damage of any nature whatsoever (including, without limitation,
loss of or damage to property, or damage to the environment) due or relating to
receiving or using the Transitional Services, only if such amounts are the
direct result of the gross negligence or reckless or willful misconduct of the
personnel of DPI and/or any contract personnel or third parties who DPI has
assigned to assist DuPont in providing the Transitional Services to DPI.
5.03 TERM OF INDEMNITY. The indemnities contained in this Article
shall survive for a period of five (5) years after the termination of this
Agreement for any reason.
ARTICLE 6
MISCELLANEOUS
6.01 AMENDMENTS. This Agreement shall not be amended or modified
except in writing signed by the Parties.
6.02 SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective successors
and permitted assigns. No Party shall assign this Agreement or any rights
herein without the prior written consent of the other Party, which consent may
not be unreasonably withheld.
6.03 MERGER. All understandings, representations, warranties and
agreements, if any, heretofore existing between the Parties regarding the
Transitional Services are merged
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into this Agreement, including the Schedules, Exhibits and Appendices attached
hereto, which fully and completely express the agreement of the Parties with
respect to the subject matter hereof. The Parties have entered into this
Agreement after adequate investigation with neither Party relying upon any
statement or representation not contained in this Agreement, or the Schedules,
Exhibits and Appendices attached hereto.
6.04 NOTICES. All notices, consents, requests, approvals, and other
communications provided for or required herein, and all legal process in regard
thereto, must be in writing and shall be deemed validly given, made or served,
(a) when delivered personally or sent by telecopy to the facsimile number
indicated below with a required confirmation copy sent in accordance with
subparagraph (c) below; or (b) on the next business day after delivery to a
nationally-recognized express delivery service with instructions and payment for
overnight delivery; or (c) on the third day after deposited in any depository
regularly maintained by the United States postal service, postage prepaid,
certified or registered mail, return receipt requested, addressed to the
following addresses or to such other address as the Party to be notified shall
have specified to the other Party in accordance with this paragraph:
If to DuPont:
E. I. du Pont de Nemours and Company
1007 Market Street
Wilmington, Delaware 19898, USA
Attention: Associate General Counsel - M&A
Fax Number:
If to DPI:
DuPont Photomasks, Inc.
100 Texas Avenue
Round Rock, Texas
Attention: Van H. Leichliter
Executive Vice President and General Counsel
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6.05 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the United States of America and the
State of Delaware. This Agreement shall not be governed by the United Nations
Convention on Contracts for the International Sale of Goods.
6.06 HEADINGS. The various headings used in this Agreement are for
convenience only and are not to be used in interpreting the text of the Articles
or Paragraphs in which they appear or to which they relate.
6.07 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law. If any portion of this Agreement is declared invalid for
any reason in any jurisdiction, such declaration shall have no effect upon the
remaining portions of this Agreement, which shall continue in full force and
effect as if this Agreement had been executed with the invalid portions thereof
deleted.
6.08 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
6.9 RIGHTS OF THE PARTIES. Nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give any person or
entity, other than the Parties and their respective subsidiaries and affiliates,
any rights or remedies under or by reason of this Agreement or any transaction
contemplated thereby.
6.10 RESERVATION OF RIGHTS. Either Party's waiver of any of its
remedies afforded hereunder or at law is without prejudice and shall not operate
to waive any other remedies which that Party shall have available to it, nor
shall such waiver operate to waive the Party's rights to any remedies due to a
future breach, whether of a similar or different nature.
6.11 FORCE MAJEURE. Any failure or omission by a Party in the
performance of any obligation under this Agreement shall not be deemed a breach
of this Agreement or create any liability, if the same arises from any cause or
causes beyond the control of such Party,
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including, but not limited to, the following, which, for purposes of this
Agreement shall be regarded as beyond the control of each of the Parties hereto:
acts of God, fire, storm, flood, earthquake, governmental regulation or
direction, acts of the public enemy, war, rebellion, insurrection riot,
invasion, strike or lockout; PROVIDED, HOWEVER, that such Party shall resume the
performance whenever such causes are removed. Notwithstanding the foregoing, if
such Party cannot perform under this Agreement for a period of forty-five (45)
days due to such cause or causes, either Party may immediately terminate this
Agreement by providing written notice to the other Party.
6.12 RELATIONSHIP OF THE PARTIES. It is expressly understood
and agreed that in rendering the Transitional Services hereunder, DuPont is
acting as an independent contractor and that this Agreement does not constitute
either Party as an employee, agent or other representative of the other Party
for any purpose whatsoever. Except as set forth herein, neither Party has the
right or authority to enter into any contract, warranty, guarantee or other
undertaking in the name or for the account of the other Party, or to assume or
create any obligation or liability of any kind, express or implied, on behalf of
the other Party, or to bind the other Party in any manner whatsoever, or to hold
itself out as having any right, power or authority to create any such obligation
or liability on behalf of the other or to bind the other Party in any manner
whatsoever (except as to any actions taken by either Party at the express
written request and direction of the other Party).
6.13 CONFLICT. In case of conflict between the terms and
conditions of this Agreement and any Exhibit, the terms and conditions of such
Exhibit shall control and govern as it relates to the Transitional Service to
which those terms and conditions apply.
6.14 DISPUTE. If a dispute develops between the parties over
performance of this agreement or the interpretation of any provision herein,
such dispute shall first be referred to as the Primary Coordinators. If they
are unable to resolve the dispute, it shall be referred progressively through
the management of both parties including, if necessary, the top management of
DuPont and DPI. If, after thorough negotiations, the parties are unable to
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resolve the dispute, it shall be referred to non-binding mediation, the form to
be selected by both parties and the mediation expenses to be split evenly
between the parties. Failing mediation, either party can bring suit in
accordance with this Agreement.
6.15 WAIVER OF JURY TRIAL AND CONSENT TO JURISDICTION. EACH PARTY
HEREBY (a) WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION
WITH ANY MATTER OR RIGHT ARISING UNDER THIS AGREEMENT OR RELATING TO THE
TRANSITIONAL SERVICES, (b) CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE
OR FEDERAL COURT WITHIN THE STATE OF DELAWARE AND IRREVOCABLY AGREES THAT ALL
ACTIONS OR PROCEEDINGS ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE
TRANSITIONAL SERVICES SHALL BE LITIGATED IN ANY SUCH COURT, AND (c) WAIVES ANY
OBJECTION WHICH IT MAY HAVE BASED UPON IMPROPER VENUE OR FORUM NON CONVENIENS TO
THE CONDUCT OF ANY PROCEEDINGS IN ANY SUCH COURT.
6.16 TEXAS DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT.
(a) DuPont and DPI have each assessed their respective rights,
liabilities, and obligations under the Texas Deceptive Trade Practices -
Consumer Protection Act as set out in Texas Business & Commerce Code Annotated
Section 17.41 ET SEQ. (Vernon's) as interpreted by applicable case law (the
"Act"). DuPont and DPI each agree that the Act does not apply to either DuPont
or DPI because neither DuPont nor DPI qualifies as a "Consumer" under Section
17.45(4) of the Act. However, in the event that either DuPont or DPI is found
to be a consumer under the Act, each of them waive their rights under the Act
pursuant to Section 24(b) below. In this regard, DuPont and DPI each represent
to one another that each of them is represented by legal counsel in seeking or
acquiring the goods or services.
(b) WAIVER OF CONSUMER RIGHTS. EACH OF DUPONT AND DPI
WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES -
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CONSUMER PROTECTION ACT, Section 17.41 ET SEQ., BUSINESS & COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. EACH
OF DUPONT AND DPI, AFTER CONSULTATION WITH AN ATTORNEY OF ITS OWN
SELECTION, VOLUNTARILY CONSENTS TO THIS WAIVER.
IN WITNESS WHEREOF, the parties hereto have caused this Transitional
Services Agreement to be executed the day and year first above written.
E. I. DU PONT DE NEMOURS AND COMPANY
By: /S/ JOHN C. SARGENT
---------------------------
Title: VICE PRESIDENT AND TREASURER
----------------------------
DUPONT PHOTOMASKS, INC.
By: /S/ DAVID S. GINO
----------------------------
David S. Gino
Title: EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
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INDEX
EXHIBIT A-1 INFORMATION SYSTEMS AND TELECOMMUNICATIONS SERVICES
EXHIBIT A-2 FINANCE AND ACCOUNTING SERVICES:
- Tax Advisory
- Business Accounting and Reporting
- Accounts Receivable
- Accounts Payable
- Consulting
- Internal Auditing
- Banking and Treasury Support
EXHIBIT A-3 HR SERVICES:
- Reimbursement for participation in DuPont Plans
(1/1/96 - 6/30/96)
- Compensation and Benefit Administrator
- Local Pay Determination
- Relocation Administration
- Employee Travel Expense Reimbursement Administration
- Compensation and Benefit Policy Consulting
- Diversity Education Consulting
- Work/Life Issues Consulting
- Occupational Medicine
- Employee Assistance Program Consulting
- Personnel Relations Consulting
- HRS Timekeeping Systems Support
- Other Systems Support
EXHIBIT A-4 Legal Services
EXHIBIT A-5 Business Consulting
EXHIBIT A-6 CONSULTING SERVICES - ENGINEERING
EXHIBIT A-7 SOURCING AND PURCHASING SERVICES
EXHIBIT A-8 SAFETY SERVICES
EXHIBIT A-9 OTHER CONSULTING SERVICES - CBI
<PAGE>
EXHIBIT A-1
INFORMATION SYSTEMS AND TELECOMMUNICATIONS SERVICES
ENTITY PROVIDING SERVICE:
E. I. du Pont de Nemours & Company, Affiliates, and, or, Third Party
Contractors or Agents
SERVICE TO BE PROVIDED:
Information Systems Services
DESCRIPTION OF SERVICE:
DuPont Information Systems has available a wide range of Information
Systems Services that can be leveraged by DuPont Photomask to meet their
business requirements, including a network of internal consultants as well as
information systems engineers, analysts and programmers with analytical and
technical skills in the areas of deployment of information technology.
DuPont Photomask has chosen to leverage Information Systems Services being
provided by DuPont, that includes Computer Applications Services, Computing and
Telecommunications Services. Services are defined and itemized in accordance
with the Price Schedules attached hereto. Services to be provided by global
regions such as Europe and Asia Pacific will be documented on a region-by-region
basis via separate agreements.
In addition to the terms and conditions set forth in the body of the
Transitional Administrative Services Agreement, the following terms and
conditions will apply to the provision of Information Systems Services.
1. DuPont will provide: (a) Computer Applications Services; Computing and
Telecommunications Services, to DuPont Photomask, to support operations at
existing DuPont Photomask Business locations from the effective date of this
Agreement at the prices provided for in the attachments to this Exhibit, subject
to the terms and conditions of the Transitional Administrative Services
Agreement; (b) Network planning and consulting to assist DuPont Photomask in
defining their long-term networking needs; including planning and consultation
for the re-routing of the telecommunications connection between Danbury, CT and
Newtown, CT as a result of the pending sale of the Newtown facility by DuPont.
1.1. The attached pricing schedules, Schedule A-1 and A-2, itemize all
Computer Applications Services, and Computing and Telecommunications Services to
be provided by
<PAGE>
DuPont, as of the effective date of this Agreement, to DuPont Photomask, subject
to the term, scope, limitations, and exclusions set forth in this Agreement.
Pricing for variable Information Systems Services such as, but not limited to
Computing and Telecommunications Services, is based on consumption. Pricing for
these same Services will be adjusted periodically based on actual consumption as
set forth in paragraph 3 herein. Subject to the other provisions of this
Agreement, DuPont or DuPont Photomask may modify the schedule of services, or
DuPont Photomask may decrease the level of Service(s), with forth-five (45) days
prior written notice, as long as (a) the costs to DuPont Photomasks are
substantially similar to any services modified by DuPont, (b) a decrease in the
level of Service(s) does not result in any residual cost to DuPont, or (c) if
there is any additional cost because of any modification of Service(s), such
costs will be paid by DuPont Photomask on a pro rata basis, based on the ratio
of the additional costs attributable to modifications required by DuPont
Photomasks to the use of such modification by other users as otherwise provided
in this paragraph. New facilities or locations, or increased or new services,
that DuPont Photomask wishes to add or to have included in this Agreement will
need to be agreed to, in writing, with DuPont and may result in new fees.
1.2. DuPont Photomask will execute, deliver and abide by the Electronic
Information Security Agreement (ELIS Form 0004E) attached to the Administrative
Services Agreement as Exhibit A-1, Schedule B. Any exceptions to be mutually
agreed to in writing.
1.3. DuPont Photomask, in the use of DuPont systems, will not violate any
Federal, State or other governmental statute, law, rule, regulation or
ordinance, including, but not limited to, the United States Copyright Act of
1976, as amended. Nor shall either Party cause or place any computer viruses,
worms, Trojan horses, or other similar software programs or routines to be
loaded onto or affect any DuPont software, hardware, networking or data systems.
2. Termination of Services - Consistent with Article 4, Paragraph 4.03 of the
Transitional Administrative Services Agreement.
3. Pricing - In addition to any prices charged in Section 2.01(b) of the
Transitional Administrative Services Agreement, the following prices will be
charged to DuPont Photomask;
3.1. Monthly prices are itemized in Schedules A-1 and A-2 for Computer
Applications Services, and Computing and Telecommunications Services. One time
charges or fees may need to be paid to software vendors or contractors for use
of software packages or licenses, including charges or fees listed on Schedule
C. These charges or fees will be invoiced directly to DuPont
-2-
<PAGE>
Photomask based on the actual invoices from the vendors or contractors.
Schedule D defines the services and pricing for maintenance and support of the
CA-MANMAN application.
3.2. Normal and customary business expenses in accordance with DuPont
expense guidelines incurred by DuPont associated with any travel to a DuPont
Photomask locations by DuPont personnel to provide any of the services
hereunder.
3.3. The initial monthly pricing for Services set forth in this Exhibit
will be fixed, except as otherwise provided in this Exhibit, during the first
twelve (12) months after the effective date of the Agreement. Thereafter,
pricing will be adjusted, from time to time, based on cost increases and on
actual use of Services. DuPont will provide Company with at least forty-five
(45) days prior written notice of any such price increase and an explanation of
the rationale for any such increase with detail of cost increases necessitating
an increase in pricing for Services.
4. Computer Application Services
4.1. Definitions
4.1.1. Computer Applications Services and Computing and
Telecommunications Services means the usage of: (a) computer software used in
support of DuPont Photomask operations; (b) technical professional services
necessary to provide support for the computer software; (c) technology
platforms, network interconnects and related services necessary to operate the
applications services provided; and, (d) voice communication services.
4.2. Scope and Limitations
4.2.1. DuPont will provide DuPont Photomask with the use of
Computer Application Services substantially similar to those services which were
provided to the business assets at Company's existing business locations prior
to the effective date of this Agreement DuPont reserves the right to modify the
types and levels of services, as changes are made to such applications to
reflect the needs of the DuPont business, so long as the replacement computer
application services are substantially similar to the services replaced or
modified, and agrees to provide advance notification to DuPont Photomask as
notification is presented to other DuPont businesses but at least ninety (90)
days before such modification is made.
-3-
<PAGE>
4.2.2. DuPont reserves the right to relocate any and all of DuPont
Photomask's applications to DuPont computer systems not currently utilized to
provide such services at no additional charge to DuPont Photomask.
4.2.3. DuPont reserves the right to provide these services by, or
through, the use of Affiliates, Third Party Contractors or Agents, provided that
DuPont shall continue to be responsible and liable to DuPont Photomask for all
performance hereunder pursuant to the terms of the Transitional Administrative
Services Agreement.
4.2.4. DuPont Photomask may not install its own or any third party
software into any DuPont system without the prior written consent of DuPont,
which consent will not be unreasonably withheld.
4.2.5. No non-DuPont Photomask employee, performing work for DuPont
Photomask, may access or use DuPont provided Services without prior written
consent by DuPont, which consent will not be unreasonably withheld. This shall
include, but not be limited to, DuPont Photomask Contractors, Consultants or
Agents, or Employees of entities, directly or indirectly, having an ownership
interest in DuPont Photomask.
4.2.6. Notwithstanding anything to the contrary contained herein,
in the event DuPont commits an error with respect to or incorrectly performs or
fails to perform any Service(s), at DuPont Photomask's request, DuPont will use
all reasonable commercial efforts to promptly correct such error, re-perform or
perform such Service(s).
4.2.7. DuPont will provide disaster recovery procedures for all
Services covered under this Agreement that are presently included in DuPont's
disaster recovery plans.
4.2.8. DuPont will administer all RACF and other security measures
to be applied to DuPont Photomask's computer application users. DuPont
Photomask will have access and control of its information and data being used;
and, DuPont reserves the right to define DuPont Photomask's access level to
systems and applications to ensure that DuPont Photomask can only access DuPont
Photomask applications and data.
4.2.9. Availability of Computer Applications Services, provided as
part of this Agreement, will be published by DuPont and made available to DuPont
Photomask's representative promptly upon reasonable request.
-4-
<PAGE>
4.2.10. Should DuPont Photomask elect to migrate from DuPont
systems, DuPont will provide DuPont Photomask with extracts in mutually defined
formats from existing databases and make available pre-existing system
documentation.
4.2.11. All forms output for all application systems covered under
this Agreement will remain as the DuPont standard forms utilized prior to the
Effective Date of this Agreement which includes, but is not limited to, checks,
invoices, shipping advices, electronic message headers, etc.
5. Company Obligations - DuPont's obligation to provide services and DuPont
Photomask's right to receive services will be subject to the following:
5.1. DuPont Photomask and DuPont will provide an information systems
representative to act as a single point of contact to the other with regard to
all information systems services. This person is called the "Information
Systems Service Coordinator" whose name and contact information are:
For DuPont Photomask: Name: Jill Carroll
Title: Senior Systems Specialist
Address: Round Rock, TX
Telephone: 512-244-0024 x 280
For DuPont: Name: Alan M. Ingalls
Title: Project Manager
Address: Wilmington, DE
Telephone: 302-773-0808
5.2. DuPont Photomask will be responsible for providing functionality
testing to confirm nonimpact during any applications, computer, and
telecommunication upgrades; provided that DuPont will have given DuPont
Photomask sufficient time and opportunity prior to implementation of any such
upgrades.
5.3. DuPont Photomask will provide all equipment necessary for accessing,
inputting and receiving output from DuPont computer applications provided as
part of this Agreement at DuPont Photomask business locations.
-5-
<PAGE>
5.4. DuPont Photomask will engage in studies and forecasting as would be
normal and customary for a user in accessing and using the computers,
telecommunications and applications hereunder.
5.5. DuPont Photomask will provide physical security for and access to any
wiring closets and PBX equipment that will reside on DuPont Photomask property
or facilities where DuPont will be providing support for said equipment. Access
to the equipment facility will be limited to DuPont, Third Party or Affiliate
agents, and DuPont Photomask personnel performing support for the equipment
unless mutually agreed to in writing.
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<PAGE>
- -------------------------------------------------------------------------------
TRANSITIONAL SERVICES AGREEMENT
SCHEDULE A-1 - COMPUTER APPLICATION SERVICES
REGION: UNITED STATES
- -------------------------------------------------------------------------------
Business Function DuPont Application Name Initial Price/Mo.
- -------------------------------------------------------------------------------
Manufacturing MANMAN ** $ 9,583.00 **
Safety & Environment SIS MSDS Safety Data Sheets,
DUCIS-TSCA Government Reporting,
CESIS, CSWIS, SARA-313 $ 150.00
Finance ETER Travel Expense Reporting $ 125.00
Finance VPCS Vendor Payment $ *
Finance ARCS Accounts Receivable $ *
Finance GCAP Earnings & Cash FLow $ *
Finance GFDB Earnings & Cash Flow $ *
Finance GFDB/COGS Intercompany Transfer $ *
Human Resources HRS $ *
Human Resources PCBS $ *
- -------------------------------------------------------------------------------
TOTAL INITIAL MONTHLY PRICE $ 9,708.00
- -------------------------------------------------------------------------------
* Charges included in other Financial and HR Services charges.
** See Schedule C
- -------------------------------------------------------------------------------
TRANSITIONAL SERVICES AGREEMENT
SCHEDULE A-2 - COMPUTING & TELECOMMUNICATIONS SERVICES
REGION: UNITED STATES
- -------------------------------------------------------------------------------
Business Function DuPont Application Name Initial Price/Mo.
- -------------------------------------------------------------------------------
Computing Services IBM MVS & VM Services $ 338.00
Computing Services DEC VAX Services $ 7,915.00
Voice Services DUCOM/PBX Voice Mail $ 13,650.00
Data Communications Leased Data Lines Wide Area $ 55,175.00
Data Communications E-Mail Interconnect Services $ 467.00
Data Communications Electronic Data Interchange $ --
- -------------------------------------------------------------------------------
TOTAL INITIAL MONTHLY PRICE $ 77,545.00
- -------------------------------------------------------------------------------
-7-
<PAGE>
EXHIBIT A-1
SCHEDULE B
ELECTRONIC INFORMATION SECURITY ("ELIS") AGREEMENT
THIS ELIS AGREEMENT is made as of the date set forth below by and between
E. I. du Pont de Nemours and Company, ("DuPont") and the undersigned company
("Company").
The Parties, for good and valuable consideration, and intending to be legally
bound, hereby agree as follows:
1. DuPont grants access to certain DuPont and DuPont affiliate networks,
computer systems, software and/or data ("Systems") as specified in DuPont ELIS
Forms -0002C or reasonable facsimile thereof to the Company under the terms and
conditions of this Agreement and to no other networks, computer systems,
software and/or data. DuPont's grant of access to Company will be a grant of
access to the Company employees, agents, or subcontractors specifically listed,
by name ("Users"), on the ELIS Form -0002C or reasonable facsimile thereof and
agreed to by DuPont. The Company shall be liable for the actions or omissions
of Users in accessing Systems. Users will access and use Systems only for
legitimate business purposes in furtherance of Company's business relationship
with DuPont or its affiliates and for no other purpose and will not unreasonably
interfere with the business operations of DuPont. Company will notify DuPont
immediately, in writing, if any User ceases to be employed by Company or no
longer requires access to Systems. Systems availability will be under the sole
control of DuPont.
2. Company agrees, in a form and substance reasonably acceptable to DuPont,
that Company will: (1) secure written acknowledgement by Company employees
accessing Systems that the issuing and retention of accounts and SecurID cards
(or equivalent) are at the sole discretion of DuPont; (2) train Company
employees in the proper and secure access and use of DuPont Systems; (3) secure
written agreement by Company employees that Company employees will return the
SecurID Cards (or equivalent) issued to them at the conclusion of their
authorized use of DuPont Systems or upon either Company management or DuPont
request and to follow then current DuPont ELIS guidelines and standards for
voice, data, and network security; and (4) take such actions as are necessary or
appropriate to prevent improper access to DuPont Systems or applications on
DuPont systems by Company employees. Company will work with Company employees
and DuPont Sponsors to assure that only duly authorized Company employees are
accessing appropriate DuPont Systems and applications. Company will promptly,
after the execution of this Agreement, and from time to time thereafter as
information changes, or as reasonably requested by DuPont, provide DuPont with
updated written notice of all Company employees accessing DuPont Systems.
3. Any material breach of this Agreement by either Party will entitle the
other Party to terminate this Agreement without prejudice to its rights or
remedies available at law or in equity. Upon termination or expiration of this
Agreement, Company will cease and will ensure that Users will cease all attempts
to access Systems.
4. DuPont may require Company to implement certain control procedures before
DuPont grants access to Systems. The implementation of any such DuPont required
control procedures will not
<PAGE>
relieve Company from any of its obligations under this Agreement. DuPont will
have the right to audit the control procedures at Company locations upon at
least forty eight (48) hours prior written notice.
5. Company will abide by all applicable United States Federal, State or local
laws, statutes, rules, ordinances and regulations. This Agreement will be
governed by the laws of the State of Delaware, United States of America and the
courts within Delaware will be the only courts of competent jurisdiction. The
United Nations Convention on the International Sales of Goods will not apply to
this Agreement. Company will adhere to the United States Export Administration
Laws and Regulations and will not export or re-export any technical data or
products received from DuPont or the direct product of such technical data to
any proscribed country listed in the United States Export Administration
Regulations unless properly authorized by the United States Government and
DuPont.
6. DuPont makes no warranties, express or implied, including the warranty of
fitness for a particular purpose or merchantablity, with respect to the Systems
or to the equipment provided for in Article 14.
7. Except for information owned by Company prior to input into Systems, all
information, including data, except Company data, created or contained in
systems, including messages, is the property of DuPont or one or more third
parties ("Information"). DuPont reserves the right to access all information
and data, whether or not owned by Company, DuPont, or third parties, sent
through or stored in Systems. Company will not access or use third party
Information stored in or transmitted through Systems except upon the prior
written agreement of the Parties.
8. For the purposes of this Agreement, the term "computer virus" shall mean
and include, but not be limited to, any undocumented or hidden functionality or
performance capability contained in software or data which is designed to
destroy, corrupt or facilitate the theft of data or software, or disable or lock
software or a computer system, or any undocumented and unauthorized method for
gaining access electronically to software or other corporate resources or data.
Subject to the terms of the Transitional Administrative Services Agreement,
Company shall be liable for all damage to or loss of computer files or programs,
disruption of use of all or any part of System or other DuPont computer systems,
or other loss or damage to DuPont, which results in whole or in part, directly
or indirectly, from the introduction of a computer virus by Users on DuPont
Systems or other DuPont computer systems or networks.
9. No liability will result to either Party from delay in performance or from
non-performance by circumstances beyond the reasonable control of the Party who
has delayed performance or not performed.
10. DuPont reserves the right to change its ELIS policies or procedures at any
time. Upon receipt of any such revisions from DuPont, Users will abide by the
terms of the then current policies or procedures.
11. No rights, ownership, or licenses to any copyrights, patents, trade secrets
or other intellectual property rights are granted hereunder. In no event will
Users copy, download, modify, reverse engineer, decompile, disassemble, or
create derivative works of any data, DuPont software programs, or third party
software programs licensed to DuPont except with the prior written consent of
DuPont.
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<PAGE>
If Company desires DuPont to operate Company software on Company's or DuPont's
computers, Company must provide a proof of a valid license for the relevant
software to be run on the applicable computers.
12. In order to implement Company's access to Systems, it may be necessary for
DuPont, at its election, to install and maintain equipment at Company locations.
DuPont will have the right to reasonable access Company locations to install,
operate, use, inspect, or remove the equipment. DuPont will have the right to
remove the equipment upon the expiration, termination, or cancellation of this
Agreement. The equipment will remain the property of DuPont. Company will
immediately return the equipment to DuPont upon receipt of DuPont's written
request, provided such request does not constitute breach of this agreement.
Both parties assume all risks and liability for property damage or personal
injury that may arise from the installation, operation, or use of the equipment
as provided in the Transitional Administrative Services Agreement. DuPont
reserves the right to file a U.C.C. financing statement or other documentation
as may be necessary to preserve DuPont's interest in and assure its right to
recover without lien or other encumbrance the equipment.
13. This Agreement is signed by the duly authorized representatives of Company
and DuPont on the date set forth below.
14. This Agreement embodies the entire understanding between DuPont and Company
and there are no contracts, agreements, understandings, conditions, warranties
or representations, oral or written, express or implied, with reference to the
subject matter hereof which are not merged herein.
E. I. du Pont de Nemours and Company Company:
-------------------------
By: By:
----------------------------- ------------------------------
Printed Name Printed Name
----------------------------- ------------------------------
Signature Signature
Title: Title:
------------------------- --------------------------
Date: ------------------------------
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<PAGE>
EXHIBIT A-1
SCHEDULE C
- -------------------------------------------------------------------------------
TRANSITIONAL SERVICES AGREEMENT
SCHEDULE C
COMPUTER SOFTWARE NOT PRIMARILY RELATING TO DPI TO BE USED
BY DUPONT TO PROVIDE TRANSITIONAL INFORMATION SYSTEMS SERVICES
- -------------------------------------------------------------------------------
Consent Monthly
Licensor Application Req? Price Notes
- -------------------------------------------------------------------------------
Computer Associates MANMAN Y *
Aldrich Chemical Co. Sigma-Aldrich MSDS Y *
Software AG ADABAS Y *
IBM RMDS Y *
* To be determined
<PAGE>
EXHIBIT A-1
SCHEDULE D
1996 MANMAN APPLICATION MAINTENANCE AND SUPPORT AGREEMENT
SCOPE OF SERVICES: SUPPORT & MAINTENANCE of CA-MANMAN system
including custom transactions, reports, interfaces
and integrated third party software.
BUSINESS/FUNCTION SUPPORTED: DuPont Photomasks Inc.
SERVICE PROVIDER: DuPont Printing & Publishing - Information Systems
CHARGES: $115,000 through 12/31/96
INCLUDES:
- Routine system maintenance services for CA-MANMAN databases, data
files and related MANMAN batch jobs in conjunction with computer
operations services provided under SEPARATE AGREEMENT by DUPONT
INFORMATION SYSTEMS, to assure availability and reliable operation of
the application.
- Application support for CA-MANMAN including custom transactions,
reports and interfaces (VPCS etc.), CA-MANMAN related batch jobs,
CA-MANMAN database and data files.
- Application support of integrated third party software: CA-DATAPORT,
UDMS, VERTEX
- Annual maintenance fees for CA-MANMAN, CA-DATAPORT, UDMS and VERTEX
software.
DOES NOT INCLUDE:
- Computer operation (Datacenter) services
- Wide Area Network (WAN) services
- Increases in software maintenance fees beyond the customary annual
increases or purchase of a new software license, if required by the
CA-MANMAN vendor Computer Associates.
<PAGE>
ATTACHMENT:
1996 MANMAN APPLICATION MAINTENANCE AND SUPPORT AGREEMENT
COST BREAKDOWN AND SERVICE DETAIL
1.0 COST BREAKDOWN
1.1 1996 SOFTWARE MAINTENANCE COSTS*
MANMAN Application Software $30,000
VERTEX Software $ 4,200
UDMS Software $ 5,800
-------
TOTAL $40,000
( * Does not include costs to upgrade DATAPORT software to be
compatible with future release of MANMAN)
1.2 RESOURCE COST $75,000
1.1.1 RESOURCE DETAIL
It is estimated that it will take .75 to 1.0 people to
resolve problems, assist users, perform maintenance
required to insure the application is available for
use, and minimize risk of data loss for 6 Photomask
locations.
Total cost for .75 people is $75M.
1.2.2 KEY ITEMS INCREASING SUPPORT & MAINTENANCE LEVELS
- Using MANMAN System for cash disbursements
(currently in VPCS)
- Use of G/L Consolidations in MANMAN
- Implementation of MOM Order Entry Sys. at Kokomo
- Data which requires increased systems management
increased 25% during 1995
- Installation of 4th Photomask disk drive on
1/29/96
1.2.3 KEY ITEMS DECREASING SUPPORT & MAINTENANCE LEVELS
- Shutting down VPCS interface for Photomask
2.0 MANMAN SYSTEM SUPPORT
2.1 DESCRIPTION OF SERVICES PROVIDED:
Resolve problems and assist site contacts with questions relating
to the use of existing software and functionality. Areas
included:
- MANMAN application software
- UDMS Application Software and security
- Vertex Application Software
- MANMAN batch jobs
- VPCS Interface (DuPont Vendor Payment System)
- MANMAN databases and datafiles
- Management of CA/MANMAN Maintenance and other third party
software maintenance agreements
- Dataport Interface software (used for the MOMS --) MM
Interface
-2-
<PAGE>
2.2 SUPPORT DETAILS:
2.2.1 MANMAN/UDMS/VERTEX/DATAPORT PROBLEMS
LEVEL 1 MANMAN application support is provided to end-
users by DuPont Photomask MANMAN Site Administrators.
The DuPont MANMAN Application Support Team provides
LEVEL 2 support to MANMAN Site Administrators, systems
development personnel, and/or key contacts on two
levels: primary and emergency. Primary support is
provided during normal hours of business 0700-1630 EST.
Emergency support is available after primary service
hours for severity 1 problems only.
MANMAN Site Administrators, systems development
personnel, and/or key contacts should call the MANMAN
Application Support Team at DuCom 248-5481 or (919)
248-5481 for primary or emergency problems. A call-
back will be made within 15 minutes after receipt of
the call.
Severity Code levels:
1. A "system down" or MANMAN inoperative
condition that is impacting production.
2. A condition impacting production for which
MANMAN is, or is suspected to be, the cause.
3. A question concerning MANMAN performance, or
an intermittent or low-impact condition
associated with MANMAN.
4. A question about the use of existing MANMAN
functionality. (Answers and assistance will
be supplied by vendor, where appropriate).
2.2.2 APPLICATION SOFTWARE "BUGS" AND/OR PROBLEMS
When a bug (i.e., the software does not function as the
vendor designed it) is identified in MANMAN, UDMS, or
Vertex, it will be documented and follow-up done with
the vendor's technical staff by the MANMAN Support
Team. This will insure we know exactly when the fix
will be done. Responsibility for fixes will reside
with the vendor or creator of the problem code.
For severity 1 problems, the DuPont MANMAN Application
Support Team will communicate status and action plan
information to a primary site or business contact every
2 hours. For severity 2 problems, similar
communications will occur at least once a day. For
severity 3 or 4 problems, the Team will provide an
initial response within 5 working days.
The primary site/business contact should communicate to
the Team if they are not satisfied with the response to
a problem. The Team will then escalate the problem
internally and through the vendor's recommended
procedure.
2.2.3 FIRST LEVEL EFFECTIVENESS
The DuPont MANMAN Support Team will work with DPI
MANMAN Site Administrators during the year to enhance
their effectiveness.
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<PAGE>
3.0 MANMAN/VERTEX/UDMS/DATAPORT SOFTWARE MAINTENANCE
3.1 DESCRIPTION OF SERVICES PROVIDED:
MANMAN/VERTEX/UDMS/DATAPORT Application Maintenance includes
proactive tasks necessary to prevent problems, maintain efficient
use of computing resources, and develop contingency plans in case
there is a problem.
3.2 MAINTENANCE DETAILS:
3.2.1 VERTEX SALES TAX UPDATE
Each month an update of U.S. tax rates is received from
Vertex Inc. On-line files are updated prior to the 1st
of each month, when the records become effective.
3.2.2 BATCH JOB MAINTENANCE
The MANMAN Support Team will create, schedule and
modify database backup jobs, as well as MANMAN batch
jobs which execute standard MANMAN commands. New jobs
will be created within 5 days of receiving the request
and necessary responses to prompts. Modifications will
be made within 3 days of the request.
3.2.3 DISK MANAGEMENT
Disk space will be managed to maximize system response
time and minimize risk of data loss. This will include
redistribution of files, as appropriate, to maximize
utilization of available space. Additional disk space
beyond normal, forecasted, growth (i.e., additional
test databases, abnormally large versions of reports,
etc.) must be negotiated between DuPont and DuPont
Photomask, Inc.
3.2.4 RUJ AND AIJ MANAGEMENT
Insure recovery-unit journaling (RUJ) and after-image
journaling (AIJ) are maintained, for production
databases, using alternate devices to allow recovery in
the event of a disk failure or system crash.
3.2.5 RESIZING OF DATABASES
Based on routine analysis, resize database (areas) that
have grown beyond their optimal size and could affect
system performance. Downtime to perform this
maintenance will be by agreement between the DuPont
MANMAN Support Team Data Base Administrator and DPI
Site MANMAN Administrator based on business needs,
currently scheduled maintenance and availability of
Data Base Administrator.
3.2.6 DATABASE VERIFICATIONS/PHYSICAL INTEGRITY
This will include checks for "dump" files and database
corruption. In cases where a "copy" database is used,
for production purposes, verification will be done
against that database, rather than the primary
(production) database. This will allow a more thorough
check and less impact on users.
The Team will look for DBMS "dump" files against each
production database once a day and will run DBMS verify
procedures against each production database once/month.
-4-
<PAGE>
3.2.7 DATABASE ARCHIVE MANAGEMENT
Working with the DPI Site MANMAN Administrator, DPI
Finance, DuPont Finance and the DuPont MANMAN Support
Team will develop a schedule to archive historical data
from the on-line database to either disk storage files
or magnetic tape. The length of time data will be
available on-line will be determined by business need,
system performance and cost (disk space, etc.). The
DuPont MANMAN Support Team will create, run, and
maintain jobs to perform archives. Responsibility to
communicate/schedule required downtime with the
affected (functional) areas will be that of the DPI
Site MANMAN Administrator.
3.2.8 CONTINGENCY PLANNING
Responsibility for development and testing of
contingency plans, in the case of a
disruption/disaster, will be shared between DuPont and
DuPont Photomask, Inc.
3.2.9 PLANNING AND INSTALLATION OF MANMAN APPLICATION
SOFTWARE
Interim and major upgrades will be done following the
"MANMAN Application Software Upgrade Procedure". A
schedule will be published to Site MANMAN
Administrators with at least one month lead time before
a planned upgrade to MANMAN-related software. All
commercial software upgrades will be installed first in
a test environment. Site MANMAN Administrators are
expected to help with pre-production acceptance testing
of these upgrades.
-5-
<PAGE>
EXHIBIT A-2
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont Finance
SERVICE TO BE PROVIDED: DPI and Subsidiary Tax Preparation and Filing
Tax Planning and Guidance
DESCRIPTION OF SERVICE:
- Preparation and filing of Federal, State and local income, excise,
payroll, property, VAT, and miscellaneous tax returns for DPI, DPI
Subsidiaries, joint ventures, affiliates and partnerships.
- Worldwide Tax Planning and Guidance.
- Assist in the establishment of tax policies.
- Represent DPI opposite, Federal, State and local government tax
authorities.
PRICE OF SERVICE:
- Year 1 -- $228,000
- Year 2 -- $239,400
DUPONT SERVICE COORDINATOR: Noah Schreiber
<PAGE>
EXHIBIT A-2
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
ENTITY PROVIDING SERVICE: DuPont Business Accounting & Reporting
SERVICE TO BE PROVIDED: Preparation and reporting of sales and earnings
data Preparation and reporting of
investment/cashflow data
Preparation and reporting of taxes (S&U, WFS, R&D
& Income)
Reconciliation for:
Accounts Payable
Master Note (G/L 1170)
DuPont Services (G/L 8157)
Bank and Cash Activities
Inventory Reconciliations
DESCRIPTION OF SERVICE:
1. Sales and Earnings Reporting
This service includes:
A) Preparing monthly sales estimate for all domestic sites
including shipments of semi-finished & finished products to
all regions (domestic & foreign) for outside sales and
transfers to be reported in GCAP.
B) Monthly closing of Photomasks' books for all domestic sites
on MANMAN for sales and earnings reportings in GCAP.
Sales and earnings preparation and reporting service is contingent on
Photomasks' continuous use of the MANMAN system.
2. Investment and Cashflow Reporting
This service includes:
A) Preparing and reporting Photomasks' investment and cashflow
data for GCAP purposes.
Investment and cashflow preparation and reporting service is
contingent on Photomasks' continuous use of the MANMAN system.
<PAGE>
3. Tax Reporting
This service includes:
A) Calculating and reporting monthly sales and use taxes.
B) Calculating and reporting yearly income, R&D and WFS taxes.
This service is contingent on Photomasks' continuous use of the MANMAN
system.
4. Reconciliations
This service includes:
A) Reconciling the difference between what DuPont charged and what
Photomasks posted. This reconciliation is contingent upon Photomasks'
continuing to sue DuPont's A/P system.
B) Master note reconciliation consists of keeping track of how much
Photomasks borrows from and repays to DuPont. This reconciliation is
contingent on Photomasks' retaining G/L 1170.
C) Monthly reconciliation of amount payable to DuPont (all DuPont
services billed to G/L 8157) based on how much DuPont charges
Photomasks for their services against what Photomasks is reporting on
their books. This service is contingent upon Photomasks' maintaining
G/L 8157 and accounts in G/L 8645 and 8151.
D) Reconciling Photomasks cash account to Mellon Bank statement. This
service is contingent on Photomasks' continuous use of the MANMAN
system.
E) Reconciling Photomasks' inventory consisting of reviewing what
Pellicles and Blanks products have been sent to Mask shops versus what
products the Mask shops show received. Any differences require a
manual adjustment to be made in MANMAN systems only. This service is
contingent on Photomasks' maintaining the MANMAN system.
PRICE OF SERVICE: $243,000 per year
-2-
<PAGE>
EXHIBIT A-2
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
ENTITY PROVIDING SERVICE: DuPont Business Accounting & Reporting
SERVICE TO BE PROVIDED: Accounts Receivable
DESCRIPTION OF SERVICE:
1. Daily application of foreign and domestic customer remittances,
received by international wire transfer and by lockbox bank, to open
invoices.
2. Daily accounting and reconciliation of cash collections received from
wire transfers and lockbox.
3. Monthly accounting and reportings of accounts receivable balances.
4. Generate and mail inter-company monthly customer statements.
5. Issue international wire transfers.
6. Issue credit reference inquiries.
7. Back-up to issue credit memos and miscellaneous invoices.
CONDITIONS FOR PROVISION OF SERVICE:
1. Continued use of existing DuPont Photomasks MANMAN (OMAR) system.
2. Customer remittances to be submitted to a designated lockbox account.
3. Business to provide and maintain correct customer ship-to and bill-to
name and address records.
4. Continued use of existing DuPont PROFS or E-mail system.
<PAGE>
SERVICES NOT TO BE PROVIDED:
1. Analysis of customer credit risk.
2. Resolution of customer disputes and payment discrepancies.
3. Collection of open accounts receivable balances.
4. Customer aging reports.
5. Generating or mailing customer invoices and statements.
PRICE OF SERVICE: $121,500 per year
-2-
<PAGE>
EXHIBIT A-2
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
ENTITY PROVIDING SERVICE: DuPont Business Accounting & Reporting
SERVICE TO BE PROVIDED: Accounts Payable
DESCRIPTION OF SERVICE:
1. Payment of trade debt including invoice verification of goods/services
received, price, quantity and terms.
2. Maintenance of vendor master file data for active vendors.
3. Issuance of checks or processing of payments via EFT or bank wires to
vendors.
4. Distribution of disbursement amounts to appropriate capital and/or
cost accounts.
5. Processing and accounting for vendor credits and escheatments.
6. Handling of vendor inquiries.
7. Monthly performance reporting by site, purchase order prefix and
vendor of transaction volume, verification errors, and late payments.
8. 1099 Reporting.
CONDITIONS FOR PROVISION OF SERVICE:
1. Continued use of existing DuPont procurement systems, payable
practices, access to purchase order sand receiving documents in
hardcopy or electronic form, and continued use of DuPont accounting
systems.
2. Business operations to provide:
A) All data necessary to establish and maintain vendor records,
including payment instructions by either check or EFT and
bank wires.
B) Assistance in resolving source document errors and
discrepancies identified in verification process.
3. Reimbursement of all disbursements prior to release of checks or EFT
transmission.
<PAGE>
SERVICES NOT TO BE PROVIDED:
1. Cash Management.
2. Management of procurements made via ProCard.
3. Forecasts of disbursements.
PRICE OF SERVICE: $243,000 per year
-2-
<PAGE>
EXHIBIT A-2
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont Corporate Accounting
SERVICE TO BE PROVIDED: Consulting
LENGTH OF SERVICE AGREEMENT: 4 months beginning May 27, 1996
DESCRIPTION OF SERVICE:
- General consulting with regard to: (a) separation and transition from
existing DuPont accounting system and (b) preparation of SEC reports
and filings within the business, to include travel and administrative
support.
PRICE OF SERVICE:
- Costs of the above service will be $9,000 monthly.
<PAGE>
EXHIBIT A-2
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC., & SUBSIDIARIES
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont Finance
SERVICE TO BE PROVIDED: Internal Auditing
DESCRIPTION OF SERVICE:
- Planning and conducting periodic internal audits of DPI's
PRICE OF SERVICE:
$50,000 per year
<PAGE>
EXHIBIT A-2
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC., & SUBSIDIARIES
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont Finance
SERVICE TO BE PROVIDED: Internal Auditing
DESCRIPTION OF SERVICE:
- Planning and conducting periodic internal audits of DPI's
PRICE OF SERVICE:
$50,000 per year
<PAGE>
EXHIBIT A-2
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC., & SUBSIDIARIES
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont Treasury & Banking
SERVICE TO BE PROVIDED: Banking and Treasury Support
DESCRIPTION OF SERVICE:
- Electronic wire transfers.
- Cash management and banking.
- Lock box services administration.
- Assistance in loan negotiations, and money market and foreign exchange
transactions.
PRICE OF SERVICE:
$25,000 per year
<PAGE>
EXHIBIT A-3
1996 SERVICE AGREEMENT
FOR PHOTOMASK
HR SERVICES
<PAGE>
EXHIBIT A-3
REIMBURSEMENT OF COSTS
DPI employees will continue to participate in and be covered by
DuPont's benefit and pension plans from January 1, 1996 to June 30, 1996.
During this period DuPont will bill DPI the actual cost of these benefits and
DPI agrees to reimburse DuPont for the actual cost of the benefits received by
DPI's employees.
<PAGE>
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources Service Company
SERVICE TO BE PROVIDED: Compensation and Benefits Administration
DESCRIPTION OF SERVICES:
1. Administration and Delivery of Compensation
- Delivery, recordkeeping, accounting, counsel, and related
training for:
- Salary/Wage
- Variable Compensation
- Awards
- Special Compensation
- Salary Forecasting
- Payroll Tax Reporting to Government
- Financial and Accounting Controls
- Internal Cost Distribution
2. Administration and Delivery of Benefits
- Benefits counseling and consulting services
- Administer flexible benefits package (Beneflex), including annual
enrollment
- Administer benefit changes, information requests and interface
with third party suppliers/insurance carriers/vendors
- Coordinate integration with compensation system
- Financial and accounting controls, ensuring regulatory compliance
and meeting reporting requirements
3. Maintenance of HR data base in order to support compensation and
benefits services and other personnel reports and systems.
4. Use of software systems, data bases, and systems support required to
provide the above services.
5. Administrative fees paid to Medical and Benefits providers (Cigna,
Aetna, Merrill Lynch) will be charged to Photo Mask in 1996 as part of
HR's total leveraged services, based on Photo Mask headcount.
<PAGE>
COST OF SERVICE:
Total Services as described above:
$21,250 Per Month
Administrative Fees paid to providers:
$22,365 Per Month
COST OF ADMINISTERING SUPPLEMENTAL COMPENSATION & BENEFIT PLANS
- Photo Mask Founders Shares
- Long-Term Incentive Plan
- Accomplishment Awards
We are unsure at this point of the administrative effort involved, but we feel
it will be minimal. If we find that there is significant effort involved (more
than 8 hours at one time), we will use the rate schedules as outlined on the
final page of the agreements.
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
-----------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources Service Company
SERVICE TO BE PROVIDED: Local Pay Determination (LPD)
DESCRIPTION OF SERVICES:
- To assist and counsel sites on local pay methodology
Specific services include:
- Survey development and analysis
- Conducting local pay surveys
- Preparation of survey results
- Consulting on local pay decisions
This service can range from occasional consultations to performing the
entire task for the plant site.
COST OF SERVICE:
LPD Professional - $350 Per Day
LPD Consultant - $600 Per Day
Systems Cost - $100 Per Annual Adjustment
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
--------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
--------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources Service Company
SERVICE TO BE PROVIDED: Relocation Administration Services
DESCRIPTION OF SERVICES:
- Full Domestic Relocation Administration and Assistance
- Counseling of employees
- Processing of relocation reimbursements and payments
- Monitoring of activity/cost and payments through system-based
processes
- Relocation policy development and consultation
- Home takeover assistance
COST OF SERVICE:
$1,300 Per Relocation
$2,000 Per International Relocation
COST OF SERVICE WITHOUT HOME TAKEOVER:
$500 Per Relocation
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
--------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
--------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources Service Company
SERVICE TO BE PROVIDED: Administration of Employee Travel Expense
Reimbursement
DESCRIPTION OF SERVICES:
- Administer the Employee Travel Expense Reimbursement System (ETER)
- Answer questions of employees
- Enter non-electronic travel expense
- Coordinate approval and reimbursement process
- Maintain relationship with outside supplies
COST OF SERVICE:
$1.5M Per Month
If less than 70% of travel expense reports are entered electronically,
additional charge of $7 per manual report.
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
---------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
---------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources
SERVICE TO BE PROVIDED: Compensation and Benefits Policy & Design
DESCRIPTION OF SERVICES:
- Policy and design of compensation and benefit plans
- Benchmarking benefits and compensation with other companies to ensure
competitiveness
- Design of variable compensation programs
- Studies of compensation and benefit programs and policies
COST OF SERVICE:
Consultant - $800 Per Day
Support Person - $200 Per Day
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
-------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources
SERVICE TO BE PROVIDED: Diversity Education
DESCRIPTION OF SERVICES:
- Design and policy concerning diversity goals and recommendations
- Consultation on diversity issues and diversity educational offerings
COST OF SERVICE:
Consultant - $800 Per Day
Support Person - $200 Per Day
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
--------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
---------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources
SERVICE TO BE PROVIDED: Work/Life Issues
DESCRIPTION OF SERVICES:
- Design and policy concerning work/life issues
- Consultation on work/life issues, including
- Family Leave
- Just-In-Time Care
- Child and Elder Care Referral Services
- School Search
- Other work/life programs
COST OF SERVICE:
$2,500 Per Month
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
---------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
----------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources
Integrated Health Care
SERVICE TO BE PROVIDED: Occupational Medicine Consulting
DESCRIPTION OF SERVICES:
- Occupational Health and Medicine consulting services
COST OF SERVICE:
$2,500 Per Month
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
--------------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
--------------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources
Integrated Health Care
SERVICE TO BE PROVIDED: Employee Assistance Program
DESCRIPTION OF SERVICES:
- A network of internal consultants and external health care and service
providers who deal with a wide range of personal employee and
dependent concerns. Primary focus is on the chemical dependence and
mental health problems that contribute to escalating costs and detract
from productivity.
EAP professionals provide the objectivity needed to monitor routinely
the health of organizations, enabling early identification of elements
that detract from business objectives. They do not replace the
Employee Relations function on site but rather partner with them in
achieving the common goal of the healthy organization.
SPECIFIC SERVICES INCLUDE:
- Assessment of the problem, referral to the appropriate service
provider, and follow-up
- Crisis intervention, 24 hours a day, 365 days a year
- Counseling employees concerning work place problems
- Counseling management in handling problem employees
- Counseling management of organizations with unusual and immediate
concerns
- Mental health and substance abuse education
- Managed care services including a preferred provider network
- Intensive case management that involves managing both the clinical and
financial aspects of any situation
COST OF SERVICE:
$7,000 Per Month
This includes the operating cost of the internal EAP organization. It does not
include claims cost or charges from VBH - our EAP administrator.
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
----------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
----------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources
SERVICE TO BE PROVIDED: Personnel Relations
DESCRIPTION OF SERVICES:
- Consultation services with business around issues of:
- Union-Labor negotiations
- Compliance with regulations
- Third-party interventions
- Improving practices
- Consistent treatment of employees
- Employee surveys
COST OF SERVICE:
Consultant - $800 Per Day
Support Person - $200 Per Day
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
----------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
---------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources Service Company
SERVICE TO BE PROVIDED: HRS Timekeeping Systems Support
DESCRIPTION OF SERVICES:
- Support the timekeeping system (HRS) used by Photo Mask to feed
information to Pay-U.S. Also contains plant personnel information.
COST OF SERVICE:
$4,100 Per Month
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
---------------------------------
HR SERVICE COMPANY
PROVIDER OF HR SERVICES
---------------------------------
PHOTO MASK SERVICE AGREEMENT
SERVICE PROVIDER: DuPont Human Resources Service Company
SERVICE TO BE PROVIDED: One-Time Changes to our Leveraged Processes and
Systems
DESCRIPTION OF SERVICES:
- Changes are necessary to provide full compensation and benefits
administrative services to Photo Mask effective 1/1/96. When
significant effort is undertaken to make specific changes or to
fulfill specific requests in the future, there will be charges.
COST OF SERVICE:
- The cost of these services will be based on the following schedule:
- Office & Clerical Support - $200 Per Day
- Exempt Professional - $500 Per Day
- (Analyst, Programmer, Account)
- Consultant/Manager - $800 Per Day
Any charges that are received from a current service provider will be passed
through to Photo Mask.
- Significant systems charges will be billed to Photo Masks.
DUPONT SERVICE COORDINATOR: John Jackson, HRSC
<PAGE>
EXHIBIT A-4
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont Legal
SERVICE TO BE PROVIDED: Consulting with regard to patent,
environmental OSHA and human resource legal
matters
LENGTH OF SERVICE AGREEMENT: Six months beginning June 30, 1996
PRICE OF SERVICE:
$140 per hour plus out-of-pocket expenses
DUPONT SERVICE COORDINATOR: T. F. Killheffer
<PAGE>
EXHIBIT A-5
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont Electronic Materials Business ("ELM")
SERVICE TO BE PROVIDED: Consulting
LENGTH OF SERVICE AGREEMENT: 18 months beginning July 1, 1996
DESCRIPTION OF SERVICE:
Consulting by H. K. Mueller in the area of:
- Strategic planning.
- New JV and partnership formation and relationships
- Relationship and partnership with DNP.
- China JV and project
- Technology initiatives, e.g., greater polishing, greater sourcing,
cooperative R&D projects
- DuPont CR&D support of DPI.
PRICE OF SERVICE:
- Assuming an average of 50% of H. K. Mueller's time the price for the
service will be $13,000 monthly, plus out-of-pocket expenses including
travel.
DUPONT SERVICE COORDINATOR: Bill Healy, DuPont ELM
<PAGE>
EXHIBIT A-6
AGREEMENT FOR CONSULTING SERVICES
This Agreement is by and between DuPont Photomasks, Inc. ("Photomasks") and
DuPont Corporation ("DuPont"). Louis A. Parisi ("Parisi"), a DuPont employee,
is signatory to this Agreement, accepting to be bound by all the provisions
hereof which address Parisi's rights and obligations hereunder. This Agreement
is effective as of March 1, 1996, or the day that the IPO process is complete
and DuPont Photomasks, Inc. is formed.
WHEREAS, DuPont employs personnel with expertise in the following areas:
manufacturing processes, equipment, manufacturing of powder products, facility
design and construction, and
WHEREAS, Photomasks wishes to utilize the services of DuPont to provide
expertise in the areas described above, and further wishes to engage DuPont as
its consultant for this purpose with the understanding that DuPont will assign
Parisi to perform the consulting services requested, and
WHEREAS, DuPont desires to provide the consulting services requested by
Photomasks by assigning Parisi to work at Photomasks' Poughkeepsie, New York,
site to assist Photomasks as Photomasks may advise, and
NOW THEREFORE, in consideration of the services to be provided by DuPont
(via its employee, Parisi), and the payments to be made by Photomasks, as
described below, the parties do hereby agree as follows:
1. As requested by Photomasks, DuPont shall provide consulting services
to Photomasks, in such fields as process technology and equipment used
therefore, process control systems, and new product characteristics and
development, at Photomasks' Poughkeepsie location, by providing the full-time
services of one person employed by DuPont, to be designed by Photomasks and
agreed to by DuPont.
2. Until such time as Photomasks may terminate this Agreement, in
accordance with Section 15 below, or may designate its desire to select another
DuPont person, Photomasks designates Parisi as the DuPont person to provide the
services described in Section 1 above.
3. Parisi shall at all times be employed by DuPont, and not by
Photomasks, However, Parisi's obligations with respect to assignment of
inventions as set forth in paragraph 2 of his Employee Agreement with DuPont
shall cease to be incurred as of the effective date of this Agreement; provided,
however, that any obligation arising from paragraph 2 prior to the effective
date of this Agreement shall continue in force. The obligation of paragraph 1
of Parisi's Employment Agreement shall continue in force and shall continue to
be incurred, after the effective date of this Agreement. Also, Parisi's
obligations as set forth in paragraph 3 with respect to returning DuPont
confidential materials shall
<PAGE>
commence as of the effective date of this Agreement. DuPont shall be
responsible for all costs and expenses associated with Parisi's employment,
including, but not limited to, salary, benefits (including health and pension
benefits); employer liability for state, federal and local taxes, including
social security withholding; and professional, personal and other insurance.
4. Parisi shall abide by all policies and practices of Photomasks, as may
be effective from time to time during the term of this Agreement.
5. DuPont will work with Photomasks to be jointly responsible for
providing Parisi with performance appraisals. DuPont will be responsible for
Parisi's career planning as per DuPont policy and any particular agreements
DuPont may have with Parisi.
6. In consideration for DuPont's providing Photomasks with the services
of a designated person, as described above, who, until further notice from
Photomasks, shall be Parisi, Photomasks agrees to pay DuPont the total sum of
$25,350 per each full consecutive three-month period during which Parisi
provides full-time consulting services at Photomasks' Poughkeepsie plant, per
Photomasks' request. Payment shall be made by Photomasks within thirty days of
Photomasks' receipt of invoice from DuPont, and shall be made to the address
designated by DuPont. DuPont shall bill Photomasks quarterly, in arrears. The
payment described in this Section 6 shall constitute the total amount of
remuneration due from Photomasks to DuPont under this Agreement, and under no
circumstances shall Photomasks have any obligation to pay any consideration,
remuneration or indemnity to Parisi.
7. Parisi agrees and acknowledges that he may be exposed to Photomasks'
confidential information (hereinafter referred to as "Information") concerning
know-how, trade secrets, and inventions relating to processes and equipment for
producing Photomasks' products or processes and business information relating to
development plans, customers, pricing, business interests, and commercial
operations. Parisi agrees that he shall not disclose the Information to anyone
other than Photomasks' employees with whom he may be associated in carrying out
the consulting work to be performed hereunder for Photomasks, without first
obtaining Photomasks' prior written consent to make such disclosure. Parisi
agrees that he shall not use, other than to perform the consulting services
requested by Photomasks hereunder, any Information which he may acquire, obtain
or observe in connection with providing the consulting services contemplated by
this Agreement. Notwithstanding the foregoing, Parisi shall not have any
obligation of confidence or restricted use with respect to information which:
(a) is in the public domain, or becomes part of the public domain
through no act or omission by Parisi. (Information shall not be deemed to be in
the public domain merely because individual elements thereof are separately
found in the public domain);
(b) was known to Parisi prior to disclosure by Photomasks, as
evidenced by competent written proof;
(c) which is disclosed to Parisi by a third party having the right to
make such disclosures, and which Parisi is free to disclose to others without
breach of any agreement or undertaking of confidence; or
-2-
<PAGE>
(d) which is released from its confidential status by the prior
written consent of Photomasks.
8. All records and copies of records concerning Photomasks' operations,
investigations and/or business, made or received by Parisi, are and shall be
Photomasks' property exclusively, and Parisi shall keep the same at all times in
Parisi's custody or as directed by Photomasks, and subject at all times to
Photomasks' control and will surrender the same to Photomasks upon termination
of this Agreement or Photomasks' request, whichever is earlier.
9. If the work performed by Parisi for Photomasks shall result in the
development of any inventions (hereinafter referred to as "Inventions"), whether
or not patentable, in processes, products, apparatus, or formulations, or in the
development of any trade secrets, or in the compilation of any data and/or
information, or in the development of any copyrightable materials, (hereinafter
referred to as "Inventions"), such Inventions shall be the exclusive property of
Photomasks.
10. Parisi shall:
(a) disclose to Photomasks promptly in writing all Inventions,
whether conceived or reduced to practice, in connection with his service
hereunder;
(b) make, at the sole option of Photomasks and at Photomasks' expense
such applications for United States and foreign patents covering such Inventions
as Photomasks by request:
(c) assign to Photomasks Parisi's entire right, title and interest in
and to all such Inventions, applications and patents;
(d) execute, acknowledge, and deliver such papers, and do such other
rightful acts, as Photomasks may consider necessary to secure to, and maintain
for, Photomasks the fullest rights to said Inventions, applications and patents;
and
(e) at Photomasks' request and expense provide all reasonable
assistance and cooperation to Photomasks in the enforcement of said patents.
With respect to (d) and (e) above, DuPont shall also provide reasonable
assistance and cooperation to Photomasks as necessary.
11. Photomasks and DuPont hereby agree and acknowledge that neither of
them desires to receive the other's confidential and proprietary information,
and all parties agree that Parisi shall not disclose to Photomasks any DuPont
confidential information which Parisi may possess or acquire, nor shall Parisi
disclose to DuPont any Photomasks confidential information which he may possess
or acquire.
12. Photomasks, DuPont and Parisi each warrant that except as otherwise
disclosed in this Agreement, each has no obligations in conflict with any of the
provisions hereof. Photomasks, DuPont and Parisi each agree not to assume
obligations to third parties in conflict with any of the provisions hereof.
-3-
<PAGE>
13. It is understood that Parisi will act independently in the performance
of the consulting services contemplated hereby for Photomasks, that he is not
engaged as an employee of Photomasks, that neither Parisi nor DuPont is
appointed an agent for Photomasks for any purpose, and that neither Parisi nor
DuPont has authority to bind Photomasks to any agreement.
14. Photomasks and DuPont fully and completely release each other, and
each other's respective officers, employees, and independent contractors from
any and all liability related to Parisi's presence on any property owned, leased
or otherwise possessed by Photomasks, or Parisi's use of tools, equipment or
other implements in the performance of services hereunder, or Parisi's conduct
pursuant to this Agreement. In the event that a third party, other than Parisi,
makes any claims against Photomasks and/or DuPont, based upon Parisi's conduct
and performance of services hereunder, then Photomasks and/or DuPont shall be
liable therefore, and shall indemnify each other, in proportion to their
relative fault. Any claims by Parisi with respect to his conduct and
performance of services hereunder shall be governed by New York's workers'
compensation laws, as the same may be amended from time to time.
15. Even though Parisi's assignment ends June 1, 1997, this Agreement
shall continue until June 30, 1998, unless earlier terminated by Photomasks or
DuPont on ninety (90) calendar days' prior written notice to the other party.
Any obligation arising under Sections 7 through 11 inclusive and Section 14
shall survive any termination or expiration of this Agreement.
16. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
DuPont Photomasks, Inc. DuPont Corporation
By:____________________________ By: ____________________________
Title: ________________________ Title: _________________________
Agreed and Acknowledged:
_______________________________
LOUIS A. PARISI
-4-
<PAGE>
EXHIBIT A-6
AGREEMENT FOR CONSULTING SERVICES
This Agreement is by and between DuPont Photomasks, Inc. ("Photomasks") and
DuPont Corporation ("DuPont"). John A. Nykaza ("Nykaza"), a DuPont employee, is
signatory to this Agreement, accepting to be bound by all the provisions hereof
which address Nykaza's rights and obligations hereunder. This Agreement is
effective as of March 1, 1996, or the day that the IPO process is complete and
DuPont Photomasks, Inc. is formed.
WHEREAS, DuPont employs personnel with expertise in the following areas:
manufacturing processes, equipment, manufacturing of powder products, facility
design and construction, and
WHEREAS, Photomasks wishes to utilize the services of DuPont to provide
expertise in the areas described above, and further wishes to engage DuPont as
its consultant for this purpose with the understanding that DuPont will assign
Nykaza to perform the consulting services requested, and
WHEREAS, DuPont desires to provide the consulting services requested by
Photomasks by assigning Nykaza to work at Photomasks' Santa Clara, California,
site to assist Photomasks as Photomasks may advise, and
NOW THEREFORE, in consideration of the services to be provided by DuPont
(via its employee, Nykaza), and the payments to be made by Photomasks, as
described below, the parties do hereby agree as follows:
1. As requested by Photomasks, DuPont shall provide consulting services
to Photomasks, in such fields as process technology and equipment used
therefore, process control systems, and new product characteristics and
development, at Photomasks' Santa Clara location, by providing the full-time
services of one person employed by DuPont, to be designed by Photomasks and
agreed to by DuPont.
2. Until such time as Photomasks may terminate this Agreement, in
accordance with Section 15 below, or may designate its desire to select another
DuPont person, Photomasks designates Nykaza as the DuPont person to provide the
services described in Section 1 above.
3. Nykaza shall at all times be employed by DuPont, and not by
Photomasks, However, Nykaza's obligations with respect to assignment of
inventions as set forth in paragraph 2 of his Employee Agreement with DuPont
shall cease to be incurred as of the effective date of this Agreement; provided,
however, that any obligation arising from paragraph 2 prior to the effective
date of this Agreement shall continue in force. The obligation of paragraph 1
of Nykaza's Employment Agreement shall continue in force and shall continue to
be incurred, after the effective date of this Agreement. Also, Nykaza's
obligations as set forth in paragraph 3 with respect to returning DuPont
confidential materials
<PAGE>
shall commence as of the effective date of this Agreement. DuPont shall be
responsible for all costs and expenses associated with Nykaza's employment,
including, but not limited to, salary, benefits (including health and pension
benefits); employer liability for state, federal and local taxes, including
social security withholding; and professional, personal and other insurance.
4. Nykaza shall abide by all policies and practices of Photomasks, as may
be effective from time to time during the term of this Agreement.
5. DuPont will work with Photomasks to be jointly responsible for
providing Nykaza with performance appraisals. DuPont will be responsible for
Nykaza's career planning as per DuPont policy and any particular agreements
DuPont may have with Nykaza.
6. In consideration for DuPont's providing Photomasks with the services
of a designated person, as described above, who, until further notice from
Photomasks, shall be Nykaza, Photomasks agrees to pay DuPont the total sum of
$25,350 per each full consecutive three-month period during which Nykaza
provides full-time consulting services at Photomasks' Santa Clara plant, per
Photomasks' request. Payment shall be made by Photomasks within thirty days of
Photomasks' receipt of invoice from DuPont, and shall be made to the address
designated by DuPont. DuPont shall bill Photomasks quarterly, in arrears. The
payment described in this Section 6 shall constitute the total amount of
remuneration due from Photomasks to DuPont under this Agreement, and under no
circumstances shall Photomasks have any obligation to pay any consideration,
remuneration or indemnity to Nykaza.
7. Nykaza agrees and acknowledges that he may be exposed to Photomasks'
confidential information (hereinafter referred to as "Information") concerning
know-how, trade secrets, and inventions relating to processes and equipment for
producing Photomasks' products or processes and business information relating to
development plans, customers, pricing, business interests, and commercial
operations. Nykaza agrees that he shall not disclose the Information to anyone
other than Photomasks' employees with whom he may be associated in carrying out
the consulting work to be performed hereunder for Photomasks, without first
obtaining Photomasks' prior written consent to make such disclosure. Nykaza
agrees that he shall not use, other than to perform the consulting services
requested by Photomasks hereunder, any Information which he may acquire, obtain
or observe in connection with providing the consulting services contemplated by
this Agreement. Notwithstanding the foregoing, Nykaza shall not have any
obligation of confidence or restricted use with respect to information which:
(a) is in the public domain, or becomes part of the public domain
through no act or omission by Nykaza. (Information shall not be deemed to be in
the public domain merely because individual elements thereof are separately
found in the public domain);
(b) was known to Nykaza prior to disclosure by Photomasks, as
evidenced by competent written proof;
-2-
<PAGE>
(c) which is disclosed to Nykaza by a third party having the right to
make such disclosures, and which Nykaza is free to disclose to others without
breach of any agreement or undertaking of confidence; or
(d) which is released from its confidential status by the prior
written consent of Photomasks.
8. All records and copies of records concerning Photomasks' operations,
investigations and/or business, made or received by Nykaza, are and shall be
Photomasks' property exclusively, and Nykaza shall keep the same at all times in
Nykaza's custody or as directed by Photomasks, and subject at all times to
Photomasks' control and will surrender the same to Photomasks upon termination
of this Agreement or Photomasks' request, whichever is earlier.
9. If the work performed by Nykaza for Photomasks shall result in the
development of any inventions (hereinafter referred to as "Inventions"), whether
or not patentable, in processes, products, apparatus, or formulations, or in the
development of any trade secrets, or in the compilation of any data and/or
information, or in the development of any copyrightable materials, (hereinafter
referred to as "Inventions"), such Inventions shall be the exclusive property of
Photomasks.
10. Nykaza shall:
(a) disclose to Photomasks promptly in writing all Inventions,
whether conceived or reduced to practice, in connection with his service
hereunder;
(b) make, at the sole option of Photomasks and at Photomasks' expense
such applications for United States and foreign patents covering such Inventions
as Photomasks by request:
(c) assign to Photomasks Nykaza's entire right, title and interest in
and to all such Inventions, applications and patents;
(d) execute, acknowledge, and deliver such papers, and do such other
rightful acts, as Photomasks may consider necessary to secure to, and maintain
for, Photomasks the fullest rights to said Inventions, applications and patents;
and
(e) at Photomasks' request and expense provide all reasonable
assistance and cooperation to Photomasks in the enforcement of said patents.
With respect to (d) and (e) above, DuPont shall also provide reasonable
assistance and cooperation to Photomasks as necessary.
11. Photomasks and DuPont hereby agree and acknowledge that neither of
them desires to receive the other's confidential and proprietary information,
and all parties agree that Nykaza shall not disclose to Photomasks any DuPont
confidential information which Nykaza may possess or acquire, nor shall Nykaza
disclose to DuPont any Photomasks confidential information which he may possess
or acquire.
-3-
<PAGE>
12. Photomasks, DuPont and Nykaza each warrant that except as otherwise
disclosed in this Agreement, each has no obligations in conflict with any of the
provisions hereof. Photomasks, DuPont and Nykaza each agree not to assume
obligations to third parties in conflict with any of the provisions hereof.
13. It is understood that Nykaza will act independently in the performance
of the consulting services contemplated hereby for Photomasks, that he is not
engaged as an employee of Photomasks, that neither Nykaza nor DuPont is
appointed an agent for Photomasks for any purpose, and that neither Nykaza nor
DuPont has authority to bind Photomasks to any agreement.
14. Photomasks and DuPont fully and completely release each other, and
each other's respective officers, employees, and independent contractors from
any and all liability related to Nykaza's presence on any property owned, leased
or otherwise possessed by Photomasks, or Nykaza's use of tools, equipment or
other implements in the performance of services hereunder, or Nykaza's conduct
pursuant to this Agreement. In the event that a third party, other than Nykaza,
makes any claims against Photomasks and/or DuPont, based upon Nykaza's conduct
and performance of services hereunder, then Photomasks and/or DuPont shall be
liable therefore, and shall indemnify each other, in proportion to their
relative fault. Any claims by Nykaza with respect to his conduct and
performance of services hereunder shall be governed by California's workers'
compensation laws, as the same may be amended from time to time.
15. Even though Nykaza's assignment ends February 1, 1998, this Agreement
shall continue until June 30, 1998, unless earlier terminated by Photomasks or
DuPont on ninety (90) calendar days' prior written notice to the other party.
Any obligation arising under Sections 7 through 11 inclusive and Section 14
shall survive any termination or expiration of this Agreement.
16. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
DuPont Photomasks, Inc. DuPont Corporation
By: _____________________________ By: ____________________________
Title: _________________________ Title: _________________________
Agreed and Acknowledged:
________________________________
JOHN A. NYKAZA
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<PAGE>
EXHIBIT A-7
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont (U.S.A.) Sourcing
SERVICE TO BE PROVIDED: Sourcing
DESCRIPTION OF SERVICE:
1. Procurement of goods and services as defined in the Description of
Services attached.
2. Use reasonable good faith efforts to permit DuPont Photomasks, Inc.,
to continue access to all corporate agreements.
PRICE OF SERVICE:
- Costs for the above service will be $16,000 monthly ($192,000
annually).
DUPONT SERVICE COORDINATOR: P. J. Keller
<PAGE>
EXHIBIT A-7
ATTACHMENT
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
SERVICE AGREEMENT DETAIL (CONT'D)
ENTITY PROVIDING SERVICE: DuPont (U.S.A.) Sourcing
ANNUAL MONTHLY
SERVICE PRICE PRICE COMMENT
- ------- ----- ----- --------
Contracting $60,000 $ 5,000 50% of G. Down plus
appropriate clerical
support
Equipment/MRO 15,000 1,250 Engineering Procurement
support plus access to
Corporate supply
agreements
Transportation/ Distribution 50,000 4,167 Global Support &
Management
Other 15,000 1,250 ISP Travel and Misc.
Consulting & Training
Subtotal $140,000 $11,667
U.S. Overhead 53.200 $4,433 38% Upcharge
Total U.S. $192,000 $16,000
<PAGE>
EXHIBIT A-8
DUPONT PHOTOMASKS, INC.
DESCRIPTION OF SERVICE
ENTITY PROVIDING SERVICE: E. I. du Pont de Nemours and Company
SERVICE TO BE PERFORMED: Safety Services -- U.S. Sites
DESCRIPTION OF SERVICE:
- Safety and Occupational Health services including scheduled surveys
and reports.
- Daily and weekly tracking of distribution concerning OSHA and other
federal regulatory issues and concerns.
- Occupational injury and illness statistics, reports, programs, goals,
and performance.
- Safety and Occupational Health programs.
- Distribution and follow-up with respect to regulatory compliance
advice and information.
KEY CUSTOMER SATISFACTION FACTORS:
- Required Safety & Occupational Health information communicated on a
timely basis.
- Prompt response to inquiries and regulatory needs.
- Identification and assistance with site-specific programs.
- Prompt and direct in-house response to key safety, health, regulatory
and fire protection issues and concerns.
METHOD OF COST ALLOCATION:
- DPI will be charged fully allocated cost of personnel assigned on
direct usage basis.
BASIS OF COST ALLOCATION:
- Average fully allocated cost of personnel assigned to DPI times total
effort specific to DPI.
PRICE OF SERVICE: $15,000/year
<PAGE>
EXHIBIT A-9
E. I. DU PONT DE NEMOURS AND COMPANY
AND
DUPONT PHOTOMASKS, INC.
SERVICE AGREEMENT DETAIL
ENTITY PROVIDING SERVICE: DuPont Continuous Business Improvement
SERVICE TO BE PROVIDED: Continuous Business Improvement Consulting
SERVICE START DATE: Estimated to begin on July 1, 1996
DESCRIPTION OF SERVICE:
(1) Provide general consulting to implement business resource planning.
(2) Provide project management and process improvement support and
facilitation in support of the "central inventory phase II project.
PRICE OF SERVICE:
(1) Price of item #1 above is $50,000 annually.
(2) Price of item #2 above is $140,000 annually.
DUPONT SERVICE COORDINATOR: A. Alrich
<PAGE>
ENVIRONMENTAL INDEMNIFICATION AGREEMENT
THIS AGREEMENT, executed this 30th day of April, 1996, by and between E.
I. du Pont de Nemours and Company ("EID"), a corporation duly organized and
existing under the laws of the state of Delaware, with its principal place of
business at 1007 Market Street, Wilmington, Delaware 19898, and Du Pont
Photomasks, Inc. ("DPI"), a corporation duly organized and existing under the
laws of the state of Delaware, with its principal place of business at 100
Texas Avenue, Round Rock, Texas 78664 (collectively "the Parties") and
effective as of the date common stock of DPI is initially offered to the
public (the "IPO").
WHEREAS, EID indirectly owns one hundred percent (100%) of the shares of
common stock of DPI;
WHEREAS, it is the intention of EID to reduce its percentage of ownership
of DPI through the sale of shares of stock of DPI to the public;
WHEREAS, certain manufacturing operations have been conducted in and on the
facilities and properties of DPI and will continue to be carried on after the
IPO; and
WHEREAS, EID and DPI wish to establish a method for allocating between them
the responsibility for any and all costs, claims or damages to the facilities
and properties of DPI and to the environment as a result of such manufacturing
operations;
<PAGE>
NOW, THEREFORE, in consideration of mutual covenants and agreements, both
Parties hereby agree as follows:
1. For purposes of this Agreement:
(a) "Closing" shall mean the date on which common stock of DPI is first
sold to the public;
(b) "Facility Site(s)" shall mean all DPI manufacturing sites currently or
previously owned or leased by DPI and located in Danbury CT,
Poughkeepsie NY, Kokomo IN, Round Rock TX, Santa Clara CA, San Jose
CA, Ichon Republic of Korea, Rousset France, Hamburg Federal Republic
of Germany;
(c) "Hazardous Waste" shall mean and include any hazardous waste,
hazardous material, hazardous substance, pollutant, contaminant,
pollution, toxic pollutant, oil, chemical substance or mixture, as
such terms are defined in the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental, Response, Compensation and
Liability Act ("CERCLA"), the Clean Water Act, the Safe Drinking Water
Act, the Toxic Substances Control Act, and any similar terms in any
similar state or local laws, and any amendment or interpretation of
such definition.;
(d) "Environmental Condition of Undetermined Cause" shall mean an
environmental condition resulting from or relating to the generation,
storage, use, treatment, disposal, release, emission or discharge of
any Hazardous Waste (a "Covered Activity") at a Facility Site in
circumstances such that the Parties in good faith cannot make a
determination with reasonable certainty whether such condition was
2
<PAGE>
caused by Covered Activities occurring before the Closing or occurring
after the Closing.
2. Except as provided in Article 5 hereof, EID hereby assumes all
liability for and agrees to indemnify, hold harmless and defend DPI, its
directors, officers and employees from and against any and all claims, costs
(including without limitation attorney's fees), liabilities or damages,
including, without limitation, claims which would require a clean-up or other
form of environmental remediation (collectively "losses"), arising out of or
relating to (i) Covered Activities by DPI at a Facility Site prior to Closing
or (ii) alleged violations by DPI attributable to a condition in place or a
circumstance existing on or prior to Closing (other than violations attributable
to a condition in place or a circumstance existing on or prior to the Closing
that was lawful on that date but later became a violation due to changes in the
law after Closing) of applicable federal, states or local laws, regulations,
permits, authorizations or licenses (including, without limitation, CERCLA,
RCRA, the Clean Air Act, the Clean Water Act and the Toxic Substances Control
Act), pertaining to a Covered Activity.
Without limiting the generality of the foregoing, EID hereby assumes all
liability for and agrees to indemnify, hold harmless and defend DPI, its
directors, officers and employees from and against any and all losses arising
out of or relating to: (i) the American Company Services Site in Indiana, the
Kinbuck Landfill in Edison, New Jersey, Solvent Recovery System of New England,
the Old Southington Landfill and the Hertel Landfill, Plattekill, New York; (ii)
the EID sites at which any Hazardous Waste generated or used by DPI may have
been stored, treated or disposed of; (iii) any activities or operations of EID
or an affiliate of EID other than DPI at any Facility Site; and (iv) the
existing sludge beds and groundwater contamination at the Danbury, Connecticut
facility.
3
<PAGE>
3. To the extent DPI becomes aware of or receives notice of a loss or
potential loss which it believes to fall within the scope of Article 2 hereof,
DPI agrees to give prompt notice of such loss to EID and to cooperate fully with
EID in the defense or resolution of such loss, although failure to give prompt
notice shall not invalidate the provisions of Article 2 hereof. If such loss
includes an assertion by a federal, state or local environmental agency that
investigation and/or remediation is required of a site covered by Article 2, DPI
agrees that, subject to the last sentence of Article 5 hereof:
(a) EID or its designee shall control any and all contacts and
negotiations with such agency, with the understanding that EID shall
keep DPI fully apprised of such negotiations and provide to DPI copies
of any correspondence with or material submissions to or received from
such agency;
(b) EID or its designee shall have the sole right to conclude any
agreement, order or similar understanding with such agency as to the
timing and scope of any investigation and/or remediation activities;
provided, however, that EID or its designee shall keep DPI fully
apprised of negotiations with such agency and that such sole right
shall not extend to any such agreement, order or understanding which
would materially impair the operations of DPI unless the prior written
consent of DPI has been obtained by EID; and
4
<PAGE>
(c) EID or its designee shall have reasonable access to any and all areas
of Facility Sites necessary to carry out such investigation and/or
remediation activities, consistent with EID's obligations in Section
(b) above and Article 4 hereof.
4. EID, to the extent it conducts investigation and/or remediation
activities pursuant to an agreement, order or similar understanding with an
environmental agency on a Facility Site, shall use its reasonable best efforts
to avoid disrupting or adversely impacting the business operations of DPI. EID
and DPI agree, however, that the indemnity given in Article 2 hereof shall not
extend to any loss or damage to the business of DPI resulting from unavoidable
disruption and adverse impact of such investigation and/or remediation
activities where EID has so used its reasonable best efforts. Where EID has not
exerted its reasonable best efforts as above, the indemnity in Article 2 shall
apply to loss or damage to the business of DPI resulting from such disruption.
5. In the case of a loss arising under this agreement with respect to an
Environmental Condition of Undetermined Cause:
(a) if the Parties can agree, after good faith negotiations, upon an
appropriate allocation of responsibility between EID and DPI based upon
available factual information, then EID shall indemnify, hold harmless and
defend DPI, its directors, officers and employees from and against EID's
allocated amount of the cost of resolving such losses; or
(b) if the Parties cannot agree, after good faith negotiations, upon an
appropriate allocation of responsibility between EID and DPI based upon
available factual information, then EID shall indemnify, hold harmless and
defend DPI, its
5
<PAGE>
directors, officers and employees from and against the percentage of the cost of
resolving any loss set forth below depending upon the date on which DPI first
notified EID of such loss or potential loss:
DATE OF NOTIFICATION
<TABLE>
<CAPTION>
EID
Percentage After and On or Prior to
---------- ----- --- ---------------
<S> <C> <C> <C>
100% -- 1st Anniversary of Closing
80% 1st Anniversary of Closing 2nd Anniversary of Closing
60% 2nd Anniversary of Closing 3rd Anniversary of Closing
40% 3rd Anniversary of Closing 4th Anniversary of Closing
20% 4th Anniversary of Closing 5th Anniversary of Closing
0 5th Anniversary of Closing
</TABLE>
The Parties agree that in the case of claims for Environmental Conditions of
Undetermined Cause, the Party bearing the majority of liability under the
formula above shall have control of any negotiations described in Article 3(a)
and (b) hereof.
6. The Facility Sites are industrial property and DPI agrees it will not
seek indemnification for remediation beyond that required for properties
dedicated to industrial and related uses including, but not limited to, research
and development activities; provided, however, that if any regulatory agency
requires remediation beyond standards for industrial use, then the indemnity in
Article 2 shall apply.
7. EID's obligations hereunder run to and are for the benefit of DPI, its
directors, officers and employees only during the term of DPI ownership of such
6
<PAGE>
Facility Site and shall, upon the sale by DPI of any Facility Site to a third
party, terminate with respect to DPI, its directors, officers and employees and
any purchaser of such Facility Site, but EID's obligations hereunder shall
remain in effect for (a) any claims of loss of which DPI has notified EID prior
to the date of transfer of such Facility Site, (b) any losses relating to any
site which is not a Facility Site and (c) any Facility Site still owned by DPI.
8. All notices, consents, requests, approvals, and other communications
provided for or required herein, and all legal process in regard thereto, must
be in writing and shall be deemed validly given, made or served, (a) when
delivered personally or sent by telecopy to the facsimile number indicated below
with a required confirmation copy sent to the address below; or (b) on the next
business day after delivery to a nationally-recognized express delivery service
with instructions and payment for overnight delivery; or (c) on the third day
after deposit in any depository regularly maintained by the United States postal
service, postage prepaid, certified or registered mail, return receipt
requested, addressed to the following addresses or to such other address as the
Party to be notified shall have specified to the other Party in accordance with
this paragraph:
If to DPI: DuPont Photomasks, Inc.
P.O. Box 200
100 Texas Avenue
Round Rock, TX 28680-0200
Fax: 512-244-9469
Attn: V. H. Leichliter
If to the EID: E. I. du Pont de Nemours and Company
1007 Market Street
Wilmington, Delaware 19898
Fax: 302-774-6198
Attn: V. R. Rice
7
<PAGE>
9. This Agreement may not be changed orally and no waiver of compliance
with any provision or condition hereof and no consent provided for herein shall
be effective unless evidenced by an instrument in writing duly executed by the
proper party. Either party may at any time waive compliance by the other party
with any covenants or conditions contained in this Agreement only by written
instrument executed by the party waiving such compliance. No such waiver,
however, shall be deemed to constitute the waiver of any such covenant or
condition in any other circumstance or the waiver of any other covenant or
condition.
10. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
11. This Agreement may not be assigned by either party without the prior
written consent of the other party, and any attempt to do so shall be void.
12. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware.
13. This Agreement (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties,
with respect to the subject matter hereof, and (b) is not intended to confer
upon any other persons any rights or remedies hereunder. In case any provision
in this Agreement
8
<PAGE>
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
E. I. DU PONT DE NEMOURS AND COMPANY
By: /s/ R. Wiederhorn
--------------------------------------
DUPONT PHOTOMASKS, INC.
By: B. Grotte
--------------------------------------
9
<PAGE>
04/10/96
BONUS PLAN
DUPONT PHOTOMASKS, INC.
<PAGE>
BONUS PLAN
FOR
DU PONT PHOTOMASKS, INC.
I. PURPOSE
The purposes of this Bonus Plan for Du Pont Photomasks, Inc. (the
"Plan") are: (a) to provide greater incentive for employees to exert their best
efforts on behalf of the Du Pont Photomasks, Inc. ("DPI" or "the Company") by
rewarding them for services rendered with compensation, varied by performance,
that is in addition to their regular salaries; (b) to attract and retain in the
employ of DPI persons of outstanding competence; and, (c) to further the
identity of interests of such employees with those of DPI.
II. FORM OF BONUS
Bonuses under this Plan will be paid in cash.
III. LIMITATIONS ON BONUS
1. Bonus grants under this Plan shall be made from the Bonus Fund which
shall be determined and credited annually by the Compensation Committee of DPI.
The Bonus Fund shall not exceed 160% of the total approved Bonus targets for
those employees expected to participate in the Plan in any given year.
2. The Bonus Fund in any given year shall not exceed six percent (6%) of
the Company's pre-tax earnings.
3. Bonus grants for each year need not have an aggregate value equal to
the entire amount available in the Bonus Fund. Any unawarded portion of said
fund shall not be carried forward and will not be available for grants in a
succeeding year or years.
IV. ADMINISTRATION
1. Except as otherwise specifically provided, the Plan shall be
administered by the Compensation Committee of the Board of Directors of DPI, and
the members thereof shall be ineligible for grants under this Plan while serving
on said Committee.
<PAGE>
2. The decision of the Compensation Committee with respect to any
questions arising as to interpretation of this Plan, including the severability
of any and all of the provisions hereof, shall be final, conclusive, and
binding.
V. ELIGIBILITY FOR BONUS
1. A Bonus under the Plan may be granted to any employee who has
contributed in a general way to the Company's success by his or her ability,
efficiency, and loyalty, consideration being given to those employees who have
contributed the most, and to those with ability to succeed in more important
managerial responsibility in DPI. A Bonus may also be granted to:
(a) a person performing services on a consultant basis,
(b) an employee who retired or plans to retire by separation from service
from the Company or a plan company at age 62 or greater,
(c) a former employee terminated on account of lack of work, and
(d) the surviving spouse or estate of a deceased employee.
2. Except as set forth in subparagraphs (a) to (d) of the preceding
paragraph, to be eligible for a Bonus grant an employee shall be employed by DPI
or a plan company as of the date final action is taken on a grant under this
Plan and shall be expected to continue in the employ of such company.
3. For purposes of this Plan, the term "employee" shall include an
employee of a corporation or other business entity in which DPI shall directly
or indirectly own fifty percent or more of the outstanding voting stock or other
ownership interest. The term "plan company" as used in this Plan shall mean a
business entity whose employees are eligible for grants under this Plan.
2
<PAGE>
VI. BONUS GRANTS
1. A performance goal based on the Company's earnings and cash flow will
be set annually by the Board of Directors. Target bonus grants will be
established based on the position of eligible employees and computed as a
percentage of the employees salary. The amount of bonus paid will be based on
the employee's target bonus grant, the performance of the Company compared with
the performance goal and individual contribution by the employee.
2. The Committee shall determine each year the total amount of the Bonus
fund to be distributed. Subject to Article VIII, any Bonus for any fiscal year
shall be delivered as soon as practicable after the close of such fiscal year.
3. Annually upon the approval of Bonus grants, each beneficiary shall be
informed of his or her grant and that such a grant is subject to the applicable
provisions of the Plan.
VII. RECOMMENDATIONS AND APPROVAL OF GRANTS
1. Recommendations for grants to members of the Board of Directors shall
be made by the Compensation Committee. Recommendations for grants to employees
shall be made to the Compensation Committee by the Chairman of DPI.
2. Any grant to a director shall be made in the sole discretion of the
Board of Directors, a majority of whose members taking final action on any such
grant shall be ineligible for grants under Article V. Any grant to an employee
who is not a member of the Board of Directors shall be made in the sole
discretion of the Compensation Committee which shall take final action on any
such grant. No persons shall have a right to a grant under this Plan until
final action has been taken for such grant. At the discretion of the
Compensation Committee, grants to employees of a plan company may be made
subject to approval by the Board of Directors or other management group of such
plan company.
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<PAGE>
VIII. DELIVERY
Grants under this Plan shall be delivered to the beneficiary promptly,
or at such future times and under such terms and conditions as the Compensation
Committee may determine. If it is determined that the grant be delivered
promptly to the beneficiary, that beneficiary may be granted the option to defer
delivery of the grant to the extent provided in terms and conditions established
by the Compensation Committee.
IX. AMENDMENTS
While it is the present intention of the Company to approve grants
annually, when performance warrants such grants, the Company reserves the right
to modify this Plan from time to time or to repeal the Plan entirely, or to
direct the discontinuance of grants either temporarily or permanently; provided,
however, that no modification of this Plan shall operate to annul, without the
consent of the beneficiary, a grant already approved hereunder; provided, also,
that no modification without approval of the Compensation Committee shall
increase the maximum amount which may be credited to the Bonus Fund as herein
above provided.
X. MISCELLANEOUS
All expenses and costs in connection with the administration of this
Plan shall be borne by DPI and no part thereof shall be charged against the
Bonus Fund.
4
<PAGE>
Attachment I
DU PONT PHOTOMASKS, INC.
TARGET BONUS GRANTS
(Effective beginning with fiscal 1996 grants)
Target bonus grants will continue below Level 4 to provide the opportunity for
any Du Pont Photomasks, Inc. employee to be recommended for a Bonus grant.
TARGET GRANT AS A % OF U.S. SALARY GUIDE
Level Current Targets for
Du Pont Photomasks, Inc.
CEO 50%
COO 40%
9 35%
8A 30%
8 30%
7A 25%
7 25%
6A 20%
6 16%
5A 14%
5 12%
4A 10%
4 10%
3A 8%
3 8%
2A 8%
2 8%
1A 8%
1 8%
C-A 8%
5
<PAGE>
NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
DUPONT PHOTOMASKS, INC.
<PAGE>
DUPONT PHOTOMASKS, INC.
NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
I. Purpose
The Purpose of the DuPont Photomasks, Inc. Non-Employee Directors'
Stock Option Plan (the "Plan") is to secure for DuPont Photomasks, Inc. (the
"Company") and its stockholders the benefits of the incentive inherent in
increased ownership of common stock, par value $.01 per share (the "Common
Stock"), of the Company by the members of the Board of Directors (the "Board")
of the Company who are not employees of the Company or any of its subsidiaries
("Non-Employee Directors"). It is expected that the Plan will encourage
qualified persons to become directors of the Company and that ownership of
Company stock will provide such Non-Employee Directors with a more direct stake
in the future welfare of the Company and encourage them to remain directors of
the Company.
II. Administration
The Plan shall be administered by the Board. The Board shall have all
the powers vested in it by the terms of the Plan, such powers to include
authority (within the limitations described herein) to prescribe the form of the
agreement embodying awards of stock options made under the Plan (the "Options")
and the power to determine the restrictions, if any, on the ability of
participants to dispose of any stock issued in connection with the exercise of
any options granted pursuant to the Plan. The Board shall, subject to the
provisions of the Plan, have the power to construe the Plan, to determine all
questions arising thereunder and to adopt and amend such rules and regulations
for the administration of the Plan as it may deem desirable. Any decisions of
the Board in the administration of the Plan, as described herein, shall be final
and conclusive. The Board may authorize any one or more of their number or the
Secretary or any other officer of the Company to execute and deliver documents
on behalf of the Board. The Board hereby authorizes the Secretary to execute
and deliver all documents to be delivered by the Board pursuant to the Plan. No
member of the Board shall be liable for anything done or omitted to be done by
such member or by any other member of the Board in connection with the Plan,
except for such member's own willful misconduct or as expressly provided by
statute.
<PAGE>
III. Amount of Stock
The stock which may be issued and sold under the Plan will be the
Common Stock (par value $.01 per share) of the Company. The total amount of
stock for which Options may be granted under the Plan shall not exceed 250,000
Common Stock shares, subject to adjustment as provided in Article VI below. The
stock to be issued may be either authorized and unissued shares or issued shares
acquired by the Company or its subsidiaries.
IV. Eligibility
Each member of the Board of the Company who is not an employee of the
Company or any of its subsidiaries (a "Non-Employee Director") shall be eligible
to receive an Option in accordance with Article V below (provided such Non-
Employee Director is not precluded by his or her employer from receiving an
option grant). The adoption of this Plan shall be not deemed to give any
director any right to be granted an Option, except to the extent and upon such
terms and conditions, in accordance with the terms of the Plan, as may be
determined by the Board.
V. Terms and Conditions of Options
Each Option granted under the Plan shall be evidenced by an agreement
in such form as the Board shall prescribe from time to time in accordance with
the Plan, and shall comply with the following terms and conditions:
1. The Option exercise price shall be the fair market value of the Common
Stock shares subject to such Option on the date the Option is granted,
as determined in accordance with Article V.9.
2. Each Non-Employee Director shall receive an Option for 10,000 shares
of Common Stock the later of: (a) upon his or her first election to
the Board, or (b) the initial public offering of the Company's stock.
2
<PAGE>
3. Except as provided below, each year, as of the first day of the month
following the Annual Meeting of Stockholders of the Company, each Non-
Employee Director who has been reelected as a member of the Board as
of the adjournment of the Annual Meeting shall receive an Option for
3,000 shares of Common Stock; provided, however, that a non-Employee
Director who has been first elected to the Board within the 60 day
period immediately preceeding the Annual Meeting and has therefore
received an Option under Article V.2., above, shall not receive an
Option for an additional 3,000 shares at such Annual Meeting.
4. The Option shall not be transferable by the optionee otherwise than by
will or the laws of descent and distribution, and shall be exercisable
during the lifetime of the optionee only by the optionee.
5. No Option or any part of an Option shall be exercisable:
(i) after the expiration of ten years from the date the Option was
granted;
(ii) unless written notice of the exercise is delivered to the Company
specifying the number of shares to be purchased and payment in
full is made for the shares of Common Stock being acquired.
Payment shall be made in cash (U.S. dollars); and
(iii)unless the person exercising the Option has been, at all times
during the period beginning with the date of grant of the Option
and ending on the date of such exercise, a Director of the
Company, except that if such person shall cease to be such a
Director by reason of Retirement or death while holding an Option
that has vested under the terms of Article V.6. hereof but not
expired and has not been fully exercised, such person, or in the
case of death, the executors, administrators, legatees or
distributees, as the case may be, may at any time for a period of
six months after the date such person ceased to be a such a
Director (but in no event after the Option has expired under the
provisions of Article V.5.(i) above), exercise the Option with
respect to any shares of Common Stock
3
<PAGE>
as to which such person has not exercised the Option on the date
the person ceased to be such a Director. In the event any Option
is exercised by the executors, administrators, legatees or
distributees of the estate of a deceased optionee, the Company
shall be under no obligation to issue stock thereunder unless and
until the Company is satisfied that the person or persons
exercising the Option are the duly appointed legal
representatives of the deceased optionee's estate or the proper
legatees or distributees thereof.
6. One-quarter (25%) of the total number of shares of Common Stock
covered by the Option shall become exercisable beginning with the
first anniversary date of the grant of the Option; thereafter an
additional one-quarter (25%) of the total number of shares of Common
Stock covered by the Option shall become exercisable on each
subsequent anniversary date of the grant of the Option until on the
fourth anniversary date of the grant of the Option the total number of
shares of Common Stock covered by the Option shall become exercisable.
In the event the Non-Employee Director ceases to be a Director by
reason of Retirement or death, the total number of shares of Common
Stock covered by the Option shall thereupon become exercisable
provided such Option shall have been granted at least 6 months prior
to such Retirement or death.
7. Options granted to a person shall automatically be forfeited by such
person if such person shall cease to be a Director for reasons other
than Retirement or death.
8. As used in this Article V, the term "Retirement" means the termination
of a Director's service on the Board, including resignation from the
Board upon reaching age 70 or otherwise resigning or not standing for
reelection with the approval of the Board, but shall not include any
termination of service resulting from an act of (i) fraud or
intentional misrepresentation or (ii) embezzlement, misappropriation
or conversion of assets or opportunities of the Company or any direct
or indirect majority-owned subsidiary of the Company, by such Non-
Employee Director. The determination of whether termination results
from any such act shall be made by the Board, whose determination
shall be conclusive.
4
<PAGE>
9. As used herein, fair market value shall be, at the time of the initial
public offering of the stock, the initial offering price and
thereafter shall be the average of the high and low prices of the
Common Stock on the date of determination as reported on the NASDAQ
Composite Index or if no sales of such stock were reported on the date
of determination, the average of the high and low prices of such stock
or the next preceeding day on which sales were reported on such Index.
10. Only non-qualified stock options may be granted under this plan.
VI. Adjustment in the Event of Change in Stock
1. In the event of any stock dividend, split-up, reclassification or
other analogous change in capitalization, the Compensation Committee
shall make such adjustments, in the light of the change, as it deems
to be equitable, both to the optionees and to the Company, in
(a) the number of shares and prices per share applicable to
outstanding stock options,
(b) the aggregate limitation set forth in Article III with respect to
the number of shares which may be made subject to options.
Furthermore, in the event of a distribution to common stockholders
other than interim or year-end dividends declared as such by the Board
of Directors, the Compensation Committee shall make such adjustments,
in the light of the distribution, as it deems to be equitable, both to
the optionees and to the Company, in respect of the items described in
(a) above.
2. Any fractional shares resulting from adjustments made pursuant to this
Article shall be eliminated.
5
<PAGE>
VII. Miscellaneous Provisions
1. Except as expressly provided for in the Plan, no Non-Employee Director
or other person shall have any claim or right to be granted an Option
under the Plan. Neither the Plan nor any action taken hereunder shall
be construed as giving any Non-Employee Director any right to be
retained in the service of the Company.
2. An optionee's rights and interest under the Plan may not be assigned
or transferred in whole or in part either directly or by operation of
law or otherwise (except in the event of an optionee's death, by will
or by laws of descent and distribution), including, but not by way of
limitation, execution, levy, garnishment, attachment, pledge,
bankruptcy, or in any other manner, and no such right or interest of
any participant in the Plan shall be subject to any obligation or
liability of such participant.
3. No Common Stock shares shall be issued hereunder unless counsel for
the Company shall be satisfied that such issuance will be in
compliance with applicable Federal, state, and other securities laws
and regulations.
4. It shall be a condition to the obligation of the Company to issue
Common Stock shares upon exercise of an Option, that the optionee (or
any beneficiary or person entitled to act under Article V.5.(iii)
above) pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying any liability
to withhold Federal, state, local, or foreign income or other taxes.
If the amount requested is not paid (which payment may be made in any
manner prescribed in Article V.5.(ii)), the Company may refuse to
issue Common Stock shares.
5. The expenses of the Plan shall be borne by the Company.
6. The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other
segregation of assets to assure the issuance of shares upon exercise
of any Option under the Plan, and the issuance of shares upon exercise
of Options shall be subordinate to the claims of the Company's general
creditors.
6
<PAGE>
7. By accepting any Option or other benefit under the Plan, each optionee
and each person claiming under or through such person shall be
conclusively deemed to have indicated his or her acceptance and
ratification of, and consent to, any action taken under the Plan by
the Company or the Board.
VIII. Amendment or Discontinuance
The Plan may be amended at any time and from time to time by the Board
as the Board shall deem advisable; provided, however, that no amendment shall
become effective without stockholder approval if such stockholder approval is
required by law, rule or regulation, and provided further, to the extent
required by Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), in effect from time to time, Plan provisions
relating to the amount, price, and timing of Options shall not be amended more
than once every six months, except that the foregoing shall not preclude any
amendment to comport with changes in the Internal Revenue Code of 1986, the
Employee Retirement Income Security Act of 1974, or the rules thereunder in
effect from time to time. No amendment of the Plan shall materially and
adversely affect any right of any participant with respect to any Option
theretofore granted without such participant's written consent.
IX. Effective Date of Plan
The Plan shall become effective when the Plan is approved and adopted
by the Company's stockholders.
X. Term
The Plan shall continue in effect without limit unless and until the
Board otherwise determines.
XI. Compliance with SEC Regulations
It is the Company's intent that the Plan comply in all respects with
Rule 16b-3 under the Exchange Act, and any related regulations. If any
provision of this Plan is later found not to be in compliance with such Rule and
regulations, the provision shall be deemed null and void All grants and
exercises of options under this Plan shall be executed in accordance with the
7
<PAGE>
requirements of Section 16 of the Exchange Act and regulations promulgated
thereunder.
XII. Governing Law
The validity and construction of the Plan and any agreements entered
into thereunder shall be governed by the laws of the State of Delaware.
8
<PAGE>
04/10/96
STOCK PERFORMANCE PLAN
DUPONT PHOTOMASKS, INC.
<PAGE>
STOCK PERFORMANCE PLAN
I. PURPOSES
The purposes of this Stock Performance Plan (the "Plan") are: (a) to
provide greater incentive for employees who are or will be primarily responsible
for the growth and success of the business to exert their best efforts on behalf
of DuPont Photomasks, Inc. ("the Company"); and (b) to further the identity of
interests of such employees with those of the Company's stockholders generally
by encouraging them to acquire stock ownership in the Company.
II. FORM OF GRANTS
1. Grants under this Plan may be made in the form of stock options,
restricted stock or a combination of either of these forms and may be
made in replacement of or as alternatives to salary or grants under
any other plan or program of a plan company.
2. Stock options to purchase shares of the Company's common stock granted
under this Plan are not incentive stock options qualified under the
Internal Revenue Code ("nonqualified stock options").
3. Shares of restricted stock granted under this Plan shall be subject to
restriction, such as forfeiture and a minimum vesting period. A
grantee shall have the right to dividends (unless otherwise
restricted). Shares may be evidenced by book-entry registration, a
stock certificate registered in the grantee's name but held in the
Company's custody, issuance of an appropriate legended stock
certificate or by any other appropriate means as may be determined by
the Compensation Committee.
III. LIMITATIONS ON GRANTS
1. The aggregate number of shares of the Company's stock which may be
made subject to stock options granted under this Plan and/or granted
as restricted stock under this Plan shall not together exceed
2,000,000, or 15% of such number for any grantee during any five
consecutive years, of which only 300,000 shares may be subject to
restricted stock grants.
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<PAGE>
2. If any stock option or restricted stock (without benefit of dividends)
granted under this Plan shall terminate or expire for any reason
without having been exercised or vested in full, the shares not
acquired under such grant shall become available again for further
grants under this Plan; provided also, that shares withheld by or
tendered to the Company as payment of exercise price or other
consideration or satisfaction of withholding taxes shall become
available again for further grants to employees who are not executive
officers. The limitations set forth above shall be subject to
adjustment as provided in Article XIII hereof.
IV. ADMINISTRATION
1. Except as otherwise specifically provided, the Plan shall be
administered by the Compensation Committee of the Company's Board of
Directors. The Compensation Committee shall be elected pursuant to
the Bylaws of the Company, and the members thereof shall be ineligible
for grants while serving on said Committee.
2. The Compensation Committee is authorized, subject to the provisions of
the Plan, from time to time to establish such rules and regulations as
it deems appropriate for the proper administration of the Plan, and to
make such determinations and take such steps in connection therewith
as it deems necessary or advisable.
3. The Compensation Committee shall, subject to the provisions of the
Plan, determine the time or times when stock options will be granted,
which employees, if any, shall be granted stock options, the types of
stock options to be granted, whether they shall be granted singly or
in combination, when they shall be exercisable, the number of shares
to be covered by each stock option or options, and the terms and
conditions of such stock options.
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<PAGE>
4. The Compensation Committee shall, subject to the provisions of the
Plan, determine the time or times when restricted stock will be
granted, which employees, if any, shall be granted restricted stock,
the number of restricted shares to be granted, the restrictions or
conditions on the right to transfer or dispose of such shares, and the
terms and conditions of such restricted stock, including the number,
amount, and timing of vesting increments.
5. The decision of the Compensation Committee with respect to any
questions arising as to interpretation of this Plan, including the
severability of any and all of the provisions thereof, shall be final,
conclusive and binding.
V. ELIGIBILITY FOR GRANTS
1. Grants under this Plan may be made to employees (including those who
are directors or executive officers of the Company) and individuals
performing services for the Company on a consulting basis as may be
determined by the Compensation Committee. In determining those
individuals to whom grants are to be made, the Compensation Committee
may take into consideration present and potential contributions to the
Company's success by such individuals, and any other factors which the
Compensation Committee may deem relevant in connection with
accomplishing the purposes of the Plan.
2. The term "employee" may include an employee of the Company or of a
corporation or other business entity in which the Company shall
directly or indirectly own fifty percent or more of the outstanding
voting stock or other ownership interest, but shall exclude any
director who is not also an officer or a full-time employee of a plan
company. The term "plan company" as used in this Plan shall mean a
business entity whose employees are eligible for grants under this
plan. The term "grantee" as used in this Plan means an employee or
other individual to whom a grant has been made under this Plan or,
where appropriate, his or her successor in interest upon death.
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<PAGE>
VI. RECOMMENDATIONS AND GRANTS
1. Recommendations for grants to members of the Board of Directors shall
be made by the Compensation Committee. Recommendations for grants to
employees or other individuals who are not members of the Board of
Directors shall be made to the Compensation Committee by the Chairman.
2. Any grant to a director shall be made in the sole discretion of the
Board of Directors, whose members taking final action on any such
grant shall be ineligible for grants under Article V. Any grant to an
employee or other individual who is not a member of the Board of
Directors shall be made by the Compensation Committee which shall take
final action on any such grant.
3. Grants may be made at any time under this Plan and in any of the forms
or combinations thereof provided in Article II hereof. A grantee may
receive and may hold more than one grant under this Plan.
4. The date on which a grant shall be deemed to have been made under this
Plan shall be the date of the Compensation Committee authorization of
the award or such later date as may be determined by the Compensation
Committee at the time the grant is authorized. Each grantee shall be
advised in writing by the Company of a grant and the terms and
conditions thereof, which terms and conditions, as the Compensation
Committee from time to time shall determine, shall not be inconsistent
with the provisions of this Plan.
VII. OPTION PRICE
The price per share of the Company's common stock which may be
purchased upon exercise of a stock option granted under this Plan shall be
determined by the Compensation Committee, but shall in no event be less than the
fair market value of such share on the date the stock option is granted, and in
no event less than the par value thereof. For purposes of this Plan, fair
market value shall be, at the time of the initial public offering of the stock,
the initial offering price and thereafter shall be the average of the high and
low prices of the Company's common stock as reported on the NASDAQ Composite
Index on the date of grant of a stock option or the date of exercise of a stock
- 4 -
<PAGE>
option, or if no sales of such stock were reported on said Index on such date,
the average of the high and low prices of such stock on the next preceding day
on which sales were reported on said Index. Such price shall be subject to
adjustment as provided in Article XIII hereof.
VIII. TERM
The term of stock options or restricted stock granted under this Plan
shall be for such period as the Compensation Committee shall determine, but,
except as provided in Article XII hereof, not for more than ten years from date
of grant.
IX. EXERCISE OF STOCK OPTIONS
1. Except as provided in Article XII, no more than one quarter (25%) of
the total number of shares of stock covered by an option shall become
exercisable beginning with the first anniversary date of the grant of
the option; thereafter an additional amount not to exceed one quarter
(25%) of the total number of shares covered by the option shall become
exercisable on each subsequent anniversary date of the grant of the
option until no sooner than the fourth such anniversary date the total
number of shares covered by the option shall become exercisable. The
Compensation Committee may fix from time to time a minimum number of
shares which must be purchased at the time a stock option is
exercised.
2. A grantee electing to exercise a stock option shall at the time of
exercise make arrangement to pay the Company in cash (U.S. dollars)
the full purchase price of the shares he or she has elected to
purchase. With respect to shares of the Company's common stock to be
delivered upon exercise of a stock option, the Compensation Committee
shall periodically determine whether, and to what extent, such stock
shall be in the form of new common stock issued for such purposes, or
common stock acquired by the Company.
3. Notwithstanding any other provision of this Plan, when the fair market
value of a share of the Company's common stock on the date a grantee
elects to exercise a stock option is less than such amount per share
above the grant price as may be determined by the
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<PAGE>
Compensation Committee from time to time, the Company may at its
election pay the grantee in cash for each share he or she elected to
purchase an amount equal to the excess of such fair market value over
the option price provided for in the stock option. The Compensation
Committee shall periodically determine whether the Company shall make
such cash payment upon exercise of a stock option. When the Company
makes a payment to the grantee under this paragraph 3 of Article IX,
it shall not require the grantee to tender the full purchase price of
the shares he or she has elected to purchase, the Company's obligation
to issue or deliver such shares shall be null and void, and the right
to purchase such number of shares subject to option shall be
terminated. Such payment by the Company shall be deemed to be an
exercise of a stock option and the purchase of shares thereunder for
purposes of Article II and Article III.
X. RESTRICTED STOCK GRANTS
Restricted stock shall be subject to a restriction period after which
restrictions shall lapse. The restriction period shall commence on the date the
grant is made and may end on such date as the Compensation Committee shall
determine. The Compensation Committee may require the achievement of
predetermined performance objectives in order for such shares to vest. Except
as provided in Article XII, the restrictions on the stock in any restricted
stock grant may not lapse earlier than the second anniversary of the date of
grant.
XI. NONTRANSFERABILITY OF GRANTS
During a grantee's lifetime no stock option or restricted stock
granted under this Plan shall be transferable, and stock options may be
exercised only by the grantee, except as may otherwise be provided in rules
established by the Compensation Committee to permit transfers or to authorize a
third party to act on behalf of the grantee with respect to any stock options.
XII. TERMINATION OF EMPLOYMENT
1. The Compensation Committee shall, subject to the provisions of the
Plan, determine the rules relating to rights under stock options and
restricted stock grants upon a grantee's termination of employment.
- 6 -
<PAGE>
2. A grantee shall forfeit all rights to and under unvested stock options
and restricted stock grants
(a) if the grantee is dismissed or leaves the service of the plan
companies for any reason other than his or her death, retirement
by separation from service from a plan company at age 62 or
greater or termination by a plan company due to divestiture or
lack of work, or
(b) if the grantee retires as described in subparagraph 2.(a) above,
and if thereafter the Compensation Committee, after a hearing at
which the grantee shall be entitled to be present, shall find
that he or she has willfully engaged in any activity which is
harmful to the interest of any of such companies;
provided, however, that such stock options and restricted stock grants
may continue in effect to such extent and under such conditions as the
Compensation Committee may determine; and provided, further, that the
Compensation Committee may accelerate or waive any restrictions or
conditions applicable to such stock options and restricted stock
grants, in whole or in part, based on such factors and criteria as the
Compensation Committee may determine.
3. Upon the death of the grantee or his or her retirement or termination
as described in subparagraph 2.(a) above, whichever shall first occur,
all stock options and shares of restricted stock granted more than six
months prior to such death or one year prior to such retirement and
not yet exercised or, as the case may be, unrestricted shall become
immediately exercisable or unrestricted. Nothwithstanding the
provisions of Article VIII hereof, such options shall remain
exercisable for a period of three years therefrom and shall thereafter
expire.
XIII. ADJUSTMENTS
1. In the event of any stock dividend, split-up, reclassification or
other analogous change in capitalization, the Compensation Committee
shall make such adjustments, in the light of the change, as it deems
to be equitable, both to the grantees and to the Company, in
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<PAGE>
(a) the number of shares and prices per share applicable to
outstanding stock options,
(b) the number of shares applicable to outstanding restricted stock
grants,
(c) the aggregate limitation set forth in Article III with respect to
the number of shares which may be made subject to options and
restricted stock grants.
Furthermore, in the event of a distribution to common stockholders
other than interim or year-end dividends declared as such by the Board
of Directors, the Compensation Committee shall make such adjustments,
in the light of the distribution, as it deems to be equitable, both to
the grantees and to the Company, in respect of the items described in
(a) and (b) above.
2. Any fractional shares or fractional stock appreciation rights
resulting from adjustments made pursuant to this Article shall be
eliminated.
XIV. AMENDMENTS
The Board of Directors reserves the right to modify this Plan from
time to time or to repeal the Plan entirely, or to direct the discontinuance of
grants either temporarily or permanently; provided, however, that no
modification of this Plan shall operate to annul, without the consent of the
grantee, a grant already made hereunder; provided, also, that no modification
without approval of the stockholders shall
(a) increase the number of shares which may be made subject to stock
options or restricted stock grants which may be granted under this
Plan in the aggregate, except by way of adjustments as provided in
Article XII,
(b) permit grant of stock options at value,
(c) extend the maximum term of stock options, or
(d) permit a grant under this Plan to a member of the Compensation
Committee;
except that the Board of Directors may take any action it deems advisable
to comport with the provisions of the Internal Revenue Code, as it may be
amended.
- 8 -
<PAGE>
XV. MISCELLANEOUS
1. The Compensation Committee may adopt such modifications, procedures,
and subplans as may be necessary or desirable to comply with
provisions of the laws of countries other than the United States in
which the Company or a plan company may operate to assure the
viability of the benefits of grants made to employees in such
countries and to meet the purposes of the Plan.
2. Grantees may use shares of the Company's common stock to satisfy
withholding taxes relating to grants under this Plan to the extent
provided in terms and conditions established by the Compensation
Committee.
- 9 -
<PAGE>
EXHIBIT 10.6
04/10/96
FOUNDERS STOCK OPTION PLAN
DUPONT PHOTOMASKS, INC.
<PAGE>
FOUNDERS STOCK OPTION PLAN
I. PURPOSE
The purpose of this Founders Stock Option Plan (the "Plan") is to
offer employees a favorable opportunity to share in the success of DuPont
Photomasks, Inc. (the "Company") through stock options, thereby giving them a
stake in the growth and prosperity of the Company and benefiting the Company.
II. FORM OF AWARDS
1. Awards under this Plan may be granted in the form of stock options.
2. Stock options to purchase shares of the Company's common stock granted
under this Plan will be stock options that are not incentive stock
options qualified under the Internal Revenue Code ("nonqualified stock
options").
III. LIMITATIONS ON AWARDS
1. The aggregate number of shares of the Company's stock which may be
made subject to stock options granted under this Plan shall not exceed
400,000. The limitations set forth above shall be subject to
adjustment as provided in Article XII hereof.
IV. ADMINISTRATION
1. Except as otherwise specifically provided, the Plan shall be
administered by the Compensation Committee of the Company's Board of
Directors, and the members thereof shall be ineligible for awards
while serving on said Committee.
2. The Compensation Committee is authorized, subject to the provisions of
the Plan, from time to time to establish such rules and regulations as
it deems appropriate for the proper administration of the Plan, and to
make such determinations and take such steps in connection therewith
as it deems necessary or advisable.
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3. The Compensation Committee shall, subject to the provisions of the
Plan, determine the time when stock options will be granted, which
employees of the Company, if any, shall be granted stock options, when
they shall be exercisable, the number of shares to be covered by each
stock option, and the terms and conditions of such stock options.
4. The decision of the Compensation Committee with respect to any
questions arising as to interpretation of this Plan, including the
severability of any or all of the provisions thereof, shall be final,
conclusive and binding.
5. Nothing in this Plan shall be deemed to give any employee, or any
employee's legal representatives or assigns, any right to participate
in the Plan except to such extent, if any, as the Committee may have
determined or approved pursuant to the provisions of this Plan.
V. ELIGIBILITY FOR AWARDS
1. Awards under this Plan may be granted to employees of or individuals
performing services on a consulting basis for the Company or a plan
company as determined by the Compensation Committee.
2. The term "employee" may include an employee of a plan company but
shall exclude any director who is not also an officer or a full-time
employee of the Company or a plan company. The term "optionee" as
used in this Plan means an employee to whom a stock option award has
been granted under this Plan or, where appropriate, his or her
successor in interest upon death.
3. The term "plan company" shall mean a corporation or other business
entity in which this Company shall directly or indirectly own fifty
percent or more of the outstanding voting stock or other ownership
interest.
VI. GRANTING OF AWARDS
1. Any award granted to an employee shall be made by the Compensation
Committee which shall take final action on any such award.
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<PAGE>
2. Awards may be granted at any time under this Plan and in the form
provided in Article II hereof.
3. The date on which an award shall be deemed to have been granted under
this Plan shall be the date of the Compensation Committee
authorization of the award or such later date as may be determined by
the Compensation Committee at the time the award is authorized. Each
optionee shall be advised in writing by the Company of an award and
the terms and conditions thereof, which terms and conditions, as the
Compensation Committee from time to time shall determine, shall not be
inconsistent with the provisions of this Plan.
VII. GRANT PRICE
The price per share of the Company's common stock which may be
purchased upon exercise of a stock option granted under this Plan shall be
determined by the Compensation Committee, but shall in no event be less than the
fair market value of such share on the date the stock option is granted, and in
no event less than the par value thereof. For purposes of the grant price, fair
market value shall be, at the time of the intial public offering of the stock,
the initial offering price and thereafter shall be the average of the high and
low prices of the Company's common stock as reported on the NASDAQ Composite
Index on the date of grant of a stock option, or if no sales of such stock were
reported on said Index on such date, the average of the high and low prices of
such stock on the next preceding day on which sales were reported on said Index.
Such price shall be subject to adjustment as provided in Article XII hereof.
VIII. OPTION TERM
The term of each stock option granted under this Plan shall be for
such period as the Compensation Committee shall determine, but not for more than
ten years from date of grant.
IX. EXERCISE OF OPTIONS
1. One quarter (25%) of the total number of shares of stock covered by an
option shall become exercisable beginning with the first anniversary
date of the grant of the option; thereafter an additional one quarter
(25%) of the total number of shares covered by the option shall become
exercisable on each subsequent
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<PAGE>
anniversary date of the grant of the option until on the fourth such
anniversary date the total number of shares covered by the option
shall become exercisable. The Compensation Committee may fix from
time to time a minimum number of shares which must be purchased at the
time a stock option is exercised.
2. An optionee electing to exercise a stock option shall at the time of
exercise make arrangement to pay the Company in cash (U.S. dollars)
the full purchase price of the shares he or she has elected to
purchase. With respect to shares of the Company's common stock to be
delivered upon exercise of a stock option, the Company's Board of
Directors shall periodically determine whether, and to what extent,
such stock shall be in the form of new common stock issued for such
purposes, or common stock acquired by the Company.
X. NONTRANSFERABILITY OF AWARDS
During an optionee's lifetime no stock option granted under this Plan
shall be transferable and stock options may be exercised only by the optionee,
except as may otherwise be provided in rules established by the Compensation
Committee to permit transfers or to authorize a third party to act on behalf of
the optionee with respect to any stock options.
XI. TERMINATION OF EMPLOYMENT
1. The Compensation Committee shall, subject to the provisions of the
Plan, determine the rules relating to rights under stock options upon
a grantee's termination of employment.
2. A grantee shall forfeit all rights to and under unvested stock options
(a) if the grantee is dismissed or leaves the service of the plan
companies for any reason other than his or her death, retirement
by separation from service from a plan company at age 62 or
greater or termination by a plan company due to divestiture or
lack of work, or
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<PAGE>
(b) if the grantee retires as described in subparagraph 2.(a) above,
and if thereafter the Compensation Committee, after a hearing at
which the grantee shall be entitled to be present, shall find
that he or she has willfully engaged in any activity which is
harmful to the interest of any of such companies;
provided, however, that such stock options may continue in effect to
such extent and under such conditions as the Compensation Committee
may determine; and provided, further, that the Compensation Committee
may accelerate or waive any restrictions or conditions applicable to
such stock options, in whole or in part, based on such factors and
criteria as the Compensation Committee may determine.
3. Upon the death of the grantee or his or her retirement or termination
as described in subparagraph 2.(a) above, whichever shall first occur,
all stock options granted more than six months prior to such death or
one year prior to such retirement and not yet exercised shall
thereupon become immediately exercisable for a period of one year
therefrom and shall thereafter expire.
XII. ADJUSTMENTS
1. In the event of any stock dividend, split-up, reclassification or
other analogous change in capitalization, the Compensation Committee
shall make such adjustments, in the light of the change, as it deems
to be equitable, both to the optionees and to the Company, in
(a) the number of shares and prices per share applicable to
outstanding stock options,
(b) the aggregate limitation set forth in Article III with respect to
the number of shares which may be made subject to options.
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Furthermore, in the event of a distribution to common stockholders
other than interim or year-end dividends declared as such by the Board
of Directors, the Compensation Committee shall make such adjustments,
in the light of the distribution, as it deems to be equitable, both to
the optionees and to the Company, in respect of the items described in
(a) above.
2. Any fractional shares resulting from adjustments made pursuant to this
Article shall be eliminated.
XIII. AMENDMENTS
The Company reserves the right to change this Plan in its discretion
by action of the Compensation Committee or discontinue this Plan in its
discretion by action of the Board of Directors.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of December 31, 1995 by and between Du Pont Photomasks, Inc., a Delaware
corporation (the "Company") and Du Pont Chemical and Energy Operations, Inc. a
Delaware corporation ("DCEO" ).
This Agreement is made pursuant to the Agreement of Merger dated as of
December 27, 1995, (the "Merger Agreement") pursuant to which the Company will
issue its Common Stock to DCEO as of December 31, 1995.
The parties hereby agree as follows:
1. DEFINITIONS
1.01 "AFFILIATE" means, with respect to a specified Person, any Person
controlling, controlled by or under common control with such Person.
1.02 "COMMISSION" means the Securities and Exchange Commission.
1.03 "COMMON STOCK" means the common stock, $.01 par value per share, of
the Company.
1.04 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
1.05 "HOLDER" means a holder of Registrable Securities. A person is deemed
to be a Holder of Registrable Securities whenever such person owns Registrable
Securities; PROVIDED, HOWEVER, that unless the Company is otherwise notified by
the Holder of a Registrable Security, the Holder of a Registrable Security shall
be deemed to be that person set forth on the books and record of the Company or
the registrar for such Registrable Securities.
1.06 "INSPECTORS" means collectively any Holder, any underwriter
participating in any disposition pursuant to a Registration Statement and any
attorney, accountant or other professional retained by any such Holder or
underwriter.
1.07 "IPO" means the initial public offering of Common Stock by the Company
that is registered under the Securities Act with the Commission.
1.08 "MAJORITY HOLDERS" means the holder or holders of a majority of the
Registrable Securities to be registered under a Registration Statement.
1.09 "OTHER SELLING HOLDERS" means all persons and entities other than the
Selling Holders who have been granted registration rights by the Company.
1.10 "PERSON" means an individual, a partnership, a corporation, a limited
liability company, a limited liability partnership, an association, a joint
stock company, a trust, a joint venture, an
<PAGE>
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
1.11 "RECORDS" means all financial and other records, pertinent corporate
documents and properties of the Company.
1.12 "REGISTRABLE SECURITIES" means all shares of Common Stock held at the
relevant time by DCEO, or any transferee or assignee of Common Stock previously
held by DCEO (provided that pursuant to such transfer or assignment DCEO has
specifically assigned certain of its rights hereunder), and any other issued or
issuable shares of Common Stock held by DCEO at the relevant time, either at the
time of initial issuance or subsequently, by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities (i) when
they have been transferred in a public offering registered under the Securities
Act or in a sale made through a broker, dealer or market-maker pursuant to Rule
144 under the Securities Act or (ii) when any Holder requests in writing that
such Registrable Securities not be registered pursuant to the terms of this
Agreement.
1.13 "REGISTRATION EXPENSES" means (i) registration and filing fees, (ii)
fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing, mailing and
delivery expenses, (iv) internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses incurred in connection with the
listing of the Registrable Securities if the Company shall choose to list such
Registrable Securities, (vi) reasonable fees and disbursements of counsel for
the Company and customary fees and expenses for independent certified public
accountants retained by the Company (including, without limitation, the expenses
or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters), (vii) the reasonable fees
and disbursements of one counsel retained by or for the benefit of all of the
holders of Registrable Securities (determined by the Selling Holders of such
securities in any manner in which they collectively choose), (viii) the
reasonable fees and expenses of any special experts retained by the Company in
connection with such registration and (ix) the reasonable fees and expenses of
any transfer agents and registrars of the Registrable Securities, as selected by
the Company; PROVIDED, HOWEVER, the Company shall not have any obligation to pay
any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or, except as provided by clause (ii) above, any out-
of-pocket expenses of the Holders (or the agents who manage their accounts) or
the fees and disbursements of counsel for any underwriter.
1.14 "REGISTRATION STATEMENT" means a registration statement on Form S-1 or
another appropriate form filed by the Company during the period that this
agreement is in effect.
1.15 "RULE 144" means Rule 144 or other comparable provision that may be
adopted by the Commission.
1.16 "SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
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<PAGE>
1.17 "SELLING HOLDER" means, with respect to any Registration Statement,
any Holder whose securities are included therein.
2. REGISTRATION RIGHTS
2.01 DEMAND REGISTRATION RIGHTS. Upon the written request of a Holder, the
Company shall file with the Commission a Registration Statement (a "DEMAND
REGISTRATION") under the Securities Act covering all or part of then outstanding
Registrable Securities, and shall use its best efforts to cause the Registration
Statement to become effective as soon as practicable; provided, however, that
the number of Registrable Securities for which such registration is sought must
exceed 1,000,000 shares of the Company's Common Stock.
(a) NUMBER OF DEMAND REGISTRATIONS. The Holder will be entitled to
request five Demand Registrations with respect to the Registrable
Securities. Except as otherwise provided herein, a registration will not
be deemed a Demand Registration until it has become effective and the
Holder is legally permitted to sell all of the Registrable Securities that
are requested to be included in such Registration Statement; PROVIDED
HOWEVER, in the event that the Holder fails to take such actions as are
required on its part to cause the registration to become effective, such
registration shall be deemed a Demand Registration.
(b) PRIORITY ON DEMAND REGISTRATIONS. In the event that a Demand
Registration is an underwritten offering, and the managing underwriters
advise the Company in writing that in their opinion the number of
Registrable Securities, the Company's securities, and any other securities
requested to be included exceeds the number that can be sold in such
offering without adversely affecting such underwriters' ability to effect
an orderly distribution of such securities (including the price thereof),
the Company will include in such registration: (i) first, the number of
Registrable Securities requested to be included by DCEO; (ii) second, the
number of Registrable Securities requested to be included by any other
Holder; (iii) third, if all the Registrable Securities requested to be
included are included in such registration, the number of the Company's
securities requested to be included that, in the opinion of such
underwriters, can be sold; and (iv) fourth, if all Registrable Securities
and the Company's securities requested to be included are included in such
registration, any other securities requested to be included in such
registration that, in the opinion of such underwriters, can be sold.
(c) CONDITIONS AND LIMITATIONS ON DEMAND REGISTRATIONS. The Company may
postpone for up to 60 days the filing or the effectiveness of a
Registration Statement for a Demand Registration if (i) the President of
the Company delivers a written certificate to each Holder or such Holder's
representative certifying that the Company's Board of Directors (evidenced
by a resolution) has determined that public disclosure in a Registration
Statement of certain information concerning the Company at that time would
materially adversely affect the financial position or business of the
Company or (ii) such Demand Registration would require an audit of the
Company's financial statements at a time such audit would not otherwise be
required pursuant to the Exchange Act; provided that in any such event, the
Holder may withdraw such request and that, if such request is withdrawn,
such request will not be deemed a Demand
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<PAGE>
Registration. The Company may only make one election in any 12-month
period to postpone a Demand Registration pursuant hereto.
2.02 PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its Common Stock (whether for its own account or the account of
others) under the Securities Act (other than pursuant to a Demand
Registration) an offering registered on Form S-8, Form S-4 or the IPO and
the registration form to be used is suitable for the registration of
Registrable Securities (a "PIGGYBACK REGISTRATION"), the Company will give
prompt written notice of the proposed registration to each Holder and,
subject to the priority provisions of Section 2.02(b), will include in such
registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 30 days after
receipt of such notice, PROVIDED, HOWEVER, that (i) the Company will not be
required to effect a Piggyback Registration if it is registering securities
in connection with an employee stock option plan, a merger, exchange offer
or another transaction of the type specified in Rule 145 and (ii) the
Company may withdraw any proposed Registration Statement or offering of
securities under this Section at any time without liability to any Holder,
in which case the Company will not be required to effect a registration,
unless such Holder converts its request into a Demand Registration.
(b) PRIORITY ON PRIMARY REGISTRATIONS. In the event that a Piggyback
Registration is in connection with an underwritten primary offering of the
Company's securities and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be
included in such registration exceeds the number that can be sold in such
offering without adversely affecting such underwriters' ability to effect
an orderly distribution of such securities, the Company will include in
such registration: (i) first, the Company's securities proposed to be sold
by the Company; (ii) second, the number of Registrable Securities requested
to be included that, in the opinion of such underwriters, can be sold, PRO
RATA among the Holders of such securities on the basis of the amount of
Registrable Securities then owned by each such Holder; and (iii) third, if
all Registrable Securities requested to be included are included in such
registration, any other securities requested to be included in such
registration that, in the opinion of such underwriters, can be sold.
(c) PRIORITY ON OTHER REGISTRATIONS. In the event that a Piggyback
Registration is in connection with an underwritten offering of the
Company's securities pursuant to the exercise of registration rights by a
stockholder of the Company who is not a Holder hereunder and the managing
underwriters advise the Company in writing that in their opinion the number
of securities requested to be included in such registration exceeds the
number that can be sold in such offering without adversely affecting such
underwriters' ability to effect an orderly distribution of such securities,
the Company will include in such registration: (i) first, the shares of
Company Common Stock requested to be registered by such Company stockholder
pursuant to the exercise of its registration rights, (ii) second, any
Company's securities proposed to be sold by the Company in such offering;
(iii) third, the number of Registrable Securities requested to be included
that, in the opinion of such underwriters, can be sold, PRO RATA among the
Holders of such securities on the basis of the amount of Registrable
Securities then owned by each such Holder; and (iv) fourth, if all
Registrable Securities requested to be included are
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<PAGE>
included in such registration, any other securities requested to be
included in such registration that, in the opinion of such underwriters,
can be sold.
(d) CONDITION TO PIGGYBACK REGISTRATIONS. Registrable Securities and
any other securities registered in a Piggyback Registration shall be
offered to the public at no less than the price at which other equivalent
securities of the Company then registered are offered to the public.
3. HOLDBACK AGREEMENT. To the extent not inconsistent with applicable law,
each Holder agrees not to effect any sale or distribution of any securities of
the issue being registered or any securities similar to those being registered,
or any securities convertible into or exchangeable or exercisable for such
securities, including a sale pursuant to Rule 144, during the ten (10) business
days prior to, and during the 120-day period beginning on, the effective date of
such registration statement (except as part of such registration), if and to the
extent timely notified in writing by the managing underwriter or underwriters in
the case of an underwritten public offering.
4. SELECTION OF UNDERWRITERS. At the option of the Majority Holders, the
offering of Registrable Securities pursuant to Section 2.01 may be in the form
of an underwritten offering; PROVIDED, that the Majority Holders shall be
entitled to select the book-running managing underwriter subject to the approval
of the Company, which approval will not be unreasonably withheld.
5. REGISTRATION.
5.01 REGISTRATION PROCEDURES. In connection with the offering the
Registrable Securities pursuant to Section 2, the Company shall:
(a) prepare and file the Registration Statement with the Commission
on any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities thereunder in accordance with the
intended method of distribution thereof, and use its reasonable best
efforts (subject to Section 2.01(c)) to cause such filed Registration
Statement to become effective as soon as practicable; and after the filing
of the Registration Statement, the Company will promptly notify each Holder
of Registrable Securities covered by the Registration Statement of any stop
order issued or threatened by the Commission and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered;
(b) in the event of a Demand Registration, prepare and file with the
Commission such amendments and supplements to the Registration Statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period of not less than 270
days or such shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold and comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by the Registration Statement during such period
in accordance with the intended methods of disposition by the holders
thereof set forth in the Registration Statement;
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<PAGE>
(c) furnish to each Holder whose Registrable Securities are to be
included in the Registration Statement, prior to filing the Registration
Statement, if requested, copies of the Registration Statement as proposed
to be filed, and thereafter furnish to such Holder such number of copies of
the Registration Statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in the
Registration Statement (including each preliminary prospectus) and such
other documents as such Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Holder;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or state blue sky laws
of such jurisdictions as any Holder or managing underwriter reasonably (in
light of the intended plan of distribution) requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable such Holder or managing underwriter to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such Holder;
PROVIDED, HOWEVER, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 5.01(d), (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction;
(e) use its reasonable best efforts to cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company to enable the Holder or Holders thereof to
consummate the disposition of such Registrable Securities;
(f) notify each Holder of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the preparation of
a supplement or amendment to such prospectus so that, as thereafter
delivered to the Holders of such Registrable Securities, such prospectus
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and promptly making available to each
Holder any such supplement or amendment;
(g) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
Registrable Securities;
(h) make available for inspection by Inspectors all Records as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all information reasonably requested by any such Inspectors in
connection with the Registration Statement. Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in the Registration Statement or (ii) release of
such Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction. Each Holder of such Registrable Securities
agrees that information obtained by it as a result of such inspections
shall be deemed confidential and shall not be used by it as the basis for
any
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<PAGE>
market transactions in the securities of the Company or its affiliates
unless and until such is made generally available to the public. Each
Holder of such Registrable Securities further agrees that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
(i) use its reasonable best efforts to obtain a comfort letter or
comfort letters from the Company's independent public accountants in
customary form and covering such matters of the type customarily covered by
comfort letters;
(j) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonable practicable, an earnings
statement covering a period of twelve months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder;
(k) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be listed on the NASDAQ National
Market ("NASDAQ") and, if listed on the NASDAQ system, use its reasonable
best efforts to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 of the Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the National Association of Securities Dealers, Inc.; and
(l) provide a transfer agent and registrar for all such Registrable
Securities (if the Company does not already have such an agent) not later
than the effective date of such registration statement.
The Company may require each Holder of Registrable Securities to promptly
furnish in writing to the Company such information regarding the distribution of
the Registrable Securities as it may from time to time reasonably request and
such other information as may be legally required in connection with such
registration.
Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of any kind described in Section 5.01(f) hereof, such
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to the Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5.01(f) hereof. In the event the Company shall give
such notice, the Company shall extend the period during which the Registration
Statement shall be maintained effective (including the period referred to in
Section 5.01(f) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 5.01(f) hereof to
the date when the Company shall make available to the Holders of Registrable
Securities covered by the Registration Statement a prospectus supplemented or
amended to conform with the requirements of Section 5.01(f) hereof.
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<PAGE>
5.02. REGISTRATION EXPENSES. If Registrable Securities are included in
a registration statement for a Demand Registration or Piggyback Registration,
the Company shall pay the Registration Expenses.
6. RULE 144. With a view to making available the benefits of Rule 144 under
the Securities Act (or similar rule then in effect) available to each Holder,
the Company shall:
(a) make and keep available adequate current public information with
respect to the Company within the meaning of Rule 144(c) under the
Securities Act (or similar rule then in effect);
(b) furnish to each Holder forthwith upon request (i) a written
statement by the Company as to its compliance with the informational
requirements of Rule 144(c) (or similar rule then in effect) or (ii) a copy
of the most recent annual or quarterly report of the Company; and
(c) comply with all other necessary filing and other requirements so
as to enable each Holder to sell Registrable Securities under Rule 144
under the Securities Act (or similar rule then in effect).
7. GRANTING OF REGISTRATION RIGHTS. Without DCEO's prior written consent, the
Company shall not in the future grant any rights to any other person to register
any shares of capital stock or other securities of the Company; provided,
however, DCEO's consent will no longer be required if and when DCEO's direct or
beneficial ownership of the Company's voting securities is less than 50% of the
total outstanding voting securities.
8. INDEMNIFICATION AND CONTRIBUTION.
8.01 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless, to the extent permitted by law, each Holder from and against any
and all losses, claims, damages or liabilities (or any actions in respect
thereof) to which such Holder may become subject, under the Securities Act or
otherwise arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities or in any amendment or
supplement thereto or in any related preliminary prospectus, or arising out of
or based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Holder for any legal or other expenses
reasonably incurred by such Holder in connection with investigating or defending
any such loss, claim, damage, liability or action as such expenses are incurred,
except insofar as such losses, claims, damages, liabilities or actions arise out
of, or are based upon, any such untrue statement or omission or alleged untrue
statement or omission from any of such documents based upon information
furnished in writing to the Company by such Holder or on such Holder's behalf
expressly for use therein and; PROVIDED, FURTHER, that with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this Section shall
not apply to the extent that any such loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus was not sent or
given to the persons asserting any such loss, claim, damage, or liability if it
is determined that it was the responsibility of such Holder to provide such
person with a current copy of the
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prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The Company also
agrees to indemnify any underwriters of the Registrable Securities, their
officers and directors and each person who controls such underwriters (within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act) on substantially the same basis as that of the indemnification of
the Holders provided in this Section.
8.02 INDEMNIFICATION BY HOLDER OR REGISTRABLE SECURITIES. Each Holder
agrees to indemnify and hold harmless the Company, its directors and officers
and each person or entity, if any, who controls the Company (within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act) to
the same extent as the foregoing indemnity from the Company to such Holder, from
and against any losses, claims, damages or liabilities (or actions in respect
thereof) to which the Company may become subject, under the Securities Act or
otherwise arising out of or based upon any untrue statement of any material fact
contained in any Registration Statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Holder
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action as such expenses are incurred.
8.03 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt of
notice of the commencement of any action or proceeding (including any
governmental investigation) against any person or entity entitled to
indemnification under Section 8.01 or 8.02 above (an "Indemnified Party"), such
Indemnified Party will, if a claim in respect thereof is to be made against any
indemnifying party under Section 8.01 or 8.02 above (an "Indemnifying Party"),
notify the Indemnifying Party of the commencement thereof; PROVIDED, HOWEVER,
that the omission to so notify the Indemnifying Party will not relieve it from
any liability which it may have to any Indemnified Party otherwise than under
Section 8.01 or 8.02 above. In case any such action is brought against any
Indemnified Party and it notifies the Indemnifying Party of the commencement
thereof, the Indemnifying Party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such Indemnified Party (who shall not, except with the consent of the
Indemnified Party, be counsel to the Indemnifying Party), and after notice from
the Indemnifying Party to such Indemnified Party of its election so to assume
the defense thereof, the Indemnifying Party will not be liable to such
Indemnified Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that in
the event that such action or proceeding includes both the Indemnified Party and
the Indemnifying Party, and there exists, in the opinion of the Indemnified
Party's counsel, a conflict between the Indemnifying Party and Indemnified
Party, the Indemnifying Parties shall, in connection with any such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction, arising out of the same
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general allegations or circumstances, be liable for the fees and expenses of not
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for such Indemnified Party. An Indemnifying Party will
not, without the prior written consent of the Indemnified Party, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
Indemnified Parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each Indemnified Party from all liability arising out of such claim, action,
suit or proceeding. The Indemnifying Party shall not be liable for any
settlement of any such action or proceeding effected without its written consent
(which consent shall not be unreasonably withheld), but if settled with its
written consent, or if there be a final judgment in favor of the party
instituting any such action or proceeding, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.
8.04 CONTRIBUTION. In the event that the indemnification provided for in
this Section is unavailable or insufficient to hold harmless an Indemnified
Party under Section 8.01 or 8.02 above, then each Indemnifying Party shall
jointly and severally contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities
referred to in Section 8.01 and 8.02 as (i) as between the Company on the one
hand and the underwriters on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
underwriters on the other or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and of the
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities or judgments, as well as
any other relevant equitable considerations and (ii) as between the Company on
the one hand and each Holder on the other, in such proportion as is appropriate
to reflect the relative fault of the Company and of each Holder in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the underwriters, in
each case as set forth in the table on the cover page of the prospectus. The
relative fault of the Company on the one hand and of the underwriters on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The relative fault of the Company on the one hand and of each Holder
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an Indemnified Party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this Section shall be deemed
to include any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any action or claim which is
the subject of this Section.
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No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8.05 OBLIGATIONS. The obligations of the Company under this Section shall
be in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each director of any Holder and
to each person, if any, who controls any Holder or any underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act. The obligations of each Holder under this Section shall be in addition to
any liability which the respective Holder may otherwise have and shall extend,
upon the same terms and conditions, to each director of the Company, to each
officer of the Company who has signed any registration statement and to each
person, if any, who controls the Company or any underwriter (within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act).
9. MISCELLANEOUS.
9.01 NOTICES. All notices and other communications provided for or
permitted hereunder shall be made by hand-delivery or registered first-class
mail:
(i) HOLDER. If to a Holder of Registrable Securities, at the most
current address, and with a copy to be sent to each additional address given by
such Holder.
(ii) if to the Company:
Du Pont Photomasks, Inc.
100 Texas Avenue
Round Rock, Texas
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered, or two business days
after being deposited in the mail, postage prepaid, if mailed.
9.02 TRANSFER OF REGISTRATION RIGHTS; SUCCESSORS AND ASSIGNS. DCEO may
transfer or assign its rights hereunder, in whole or in part, without the prior
approval of the Company. This Agreement and its benefits shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto.
9.03 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the written consent of the Company and the Majority Holders.
9.04 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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9.05 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.06 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of law.
9.07 SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of each Holder
shall be enforceable to the fullest extent permitted by law.
9.08 SPECIFIC PERFORMANCE. The parties hereto acknowledge that there would
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having jurisdiction.
9.09 ENTIRE AGREEMENT. This Agreement, together with the Merger Agreement,
is intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein and
therein. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement and the
Merger Agreement (including the exhibits thereto) supersede all prior agreements
and understandings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
the day and year first written above.
DUPONT PHOTOMASKS, INC.
By: /s/ David S. Gino
-------------------------------
Name: David S. Gino
Title: Executive Vice President
DU PONT CHEMICALS AND ENERGY OPERATIONS, INC.
By: /s/ Charles L. Downing
-------------------------------
Name: Charles L. Downing
Title: Vice President and Treasurer
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EXHIBIT 10.8
TAX INDEMNIFICATION AGREEMENT
TAX INDEMNIFICATION AGREEMENT (the "Agreement"), dated May 14, 1996,
entered into by and among E. I. DU PONT DE NEMOURS AND COMPANY ("EID"), a
Delaware corporation, Du Pont Chemical and Energy Operations, Inc. ("DCEO"), a
Delaware corporation, and DUPONT PHOTOMASKS, INC. ("DPI"), a Delaware
corporation,
WHEREAS, prior to the Closing Date (as hereinafter defined) DPI was a
member of an affiliated group (within the meaning of Section 1504(a) of the
Internal Revenue Code of 1986, as amended (the "Code") having EID as its common
parent (such affiliated group, the "EID Affiliated Group");
WHEREAS, prior to the Closing Date and the restructuring of the Photomask
Business (as hereafter defined) the Photomask Business outside the United States
was conducted by wholly-owned indirect subsidiaries of EID's Du Pont Photomasks
(France) S.A., Du Pont Photomask GmbH & Co. KG ("COKG"), and Du Pont Korea Ltd.;
WHEREAS, EID intends to restructure its Photomasks Business so that DPI
will own directly or through certain wholly-owned companies the entire
Photomasks Business;
WHEREAS, EID will cause to be sold to the public a portion of the common
stock of DPI in a Public Offering (as hereafter defined);
WHEREAS, the parties desire to provide for the accrual, allocation, payment
and indemnification of tax liabilities of the Photomasks Business;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
"CLOSING DATE" means the close of business on the date on which DPI ceases
to be a member of the EID Affiliated Group.
"CONSOLIDATED RETURNS" means any consolidated or combined tax returns with
respect to United States federal, state, or local taxes on or based on net
income, net worth or gross receipts required to be filed by EID.
<PAGE>
"DPI COMPANY TAXES" means United States federal, state and local taxes on
or based on net income, net worth or gross receipts (including interest and
penalties relating thereto) attributable to the operations of DPI.
"DPI SUBSIDIARY" means each corporation of which DPI owns on the Closing
Date or thereafter, directly or indirectly, capital stock representing more than
50% of the outstanding voting stock.
"EID SUBSIDIARY" OR "EID SUBSIDIARIES" mean each corporation of which EID
owns, directly or indirectly, capital stock representing more than 50% of the
outstanding voting stock. EID Subsidiary or EID Subsidiaries shall include the
COKG notwithstanding that the COKG is treated as a partnership for German tax
purposes and a corporation for U.S. tax purposes. EID Subsidiary or EID
Subsidiaries shall not include DPI or Subsidiary.
"PHOTOMASKS BUSINESS" means the business consisting of the development,
manufacture and marketing of photomasks and related components, including but
not limited to pellicles and photomasks blanks used in the manufacture of
semiconductor devices of all types.
"PHOTOMASKS PRODUCT" shall mean photomasks and related components,
including but not limited to pellicles and photomasks blanks used in the
manufacture of semiconductor devices of all types.
"PUBLIC OFFERING" means either the sale to the public by DCEO or the
issuance to the public by DPI of common stock of DPI.
"TAXES" means all federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, severance, production excise,
payroll, withholding, and any other taxes (including interest and penalties
thereon).
ARTICLE II
REPRESENTATIONS OF EID
SECTION 2.1 All tax returns, reports and forms for any taxable year or
tax period ending on or before the Closing Date that are required to be filed on
or before the Closing Date with respect to any activities or assets of the
Photomasks Business with any domestic (federal, state, local, or otherwise) or
foreign taxing jurisdiction, excluding any
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Consolidated Returns, shall have been timely filed in accordance with all
applicable laws, and all Taxes shown as due on such returns, reports, and forms
shall have been paid, and any proposed deficiency asserted by any such taxing
authority with respect thereto has been paid or properly protested.
SECTION 2.2 All Consolidated Returns, including any reports and forms
relating thereto, for any taxable year or tax period ending on or before the
Closing Date that are required to be filed on or before the Closing Date or
after the Closing Date have been or shall be timely filed in accordance with all
applicable laws, and all DPI Company Taxes shown as due on such Consolidated
Returns have been or shall be paid, and any proposed deficiency asserted by any
appropriate taxing authority with respect thereto has been paid or properly
protested.
ARTICLE III
TAX MATTERS
SECTION 3.1 EID shall include (to the extent required by law) the
taxable income or loss and all other tax items of DPI for the taxable years or
tax periods ending on or before the Closing Date in Consolidated Returns. For
the period January 1 through the Closing Date the following arrangement shall
apply to ensure that the correct amount of DPI Company Taxes shown as due on the
Consolidated Returns is billed to and paid by DPI:
(a) An estimate of the amount of such DPI Company Taxes due, which
estimate shall be determined in good faith and shall reflect amounts, if any,
previously paid by DPI with respect to DPI Company Taxes through the Closing
Date, shall be billed to DPI and paid to EID prior to the Closing Date.
(b) Upon filing of the Consolidated Returns for the taxable year
which shall include the period commencing on January 1 and ending on the Closing
Date, either
(i) the unpaid amount, if any, of DPI Company Taxes shown as due
on such Consolidated Returns shall be billed to DPI, and DPI or its designee
shall pay such amount to EID within 30 days after receiving written notice from
EID of such amount, or,
(ii) if the amount of such DPI Company Taxes paid to EID, if any,
exceeds the amount of the DPI Company Taxes shown as due on such Consolidated
Returns, EID or its designee shall pay such excess to DPI or its designee within
30 days after filing the Consolidated Returns for the taxable year which
includes the Closing Date.
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(c) DPI Company Taxes required to be reported on Consolidated Returns
shall be determined in accordance with U.S. federal income tax regulation
Section 1.1552.
SECTION 3.2 Subject to the provisions of Sections 3.1, EID and EID
Subsidiaries shall be liable for and shall hold DPI and Subsidiaries (including
such Subsidiaries as successors in interest) harmless from and against any and
all Taxes due or payable by DPI or the Subsidiaries or by EID or EID
Subsidiaries which are attributable to the Photomasks Business for any taxable
year or tax period ending on or before the Closing Date.
SECTION 3.3 Subject to the provisions of Sections 3.1, DPI and
Subsidiaries shall be liable for and shall hold EID and EID Subsidiaries
harmless from and against any and all Taxes due or payable to EID or the EID
Subsidiaries or by DPI or Subsidiaries that are attributable to the DPI and
Subsidiaries for any taxable year or tax period beginning on or after the
Closing Date. Notwithstanding this Section 3.3, in the event an EID Subsidiary
engages in reselling Photomasks Products, Section 3.2 shall apply with respect
to Taxes which are due or payable and which are attributable to such reselling
activity for all taxable years or tax periods whether ending before or after the
Closing Date.
SECTION 3.4 Any Taxes for any tax period beginning before the Closing
Date and ending after the Closing Date shall be apportioned between DPI as a
member of the EID Affiliated Group and DPI (as a separate company which is not a
member of the EID Affiliated Group), respectively, on the basis of a method
consistent with U.S. federal income tax regulation Section 1.1502-76(b)(4) and
each such period shall be deemed to be a tax period subject to the provisions of
Sections 3.2 and 3.3. In the case of real and personal property such
apportionment shall be on a per diem basis.
SECTION 3.5 DPI shall file or cause to be filed all required separate
(non-consolidated or non-combined) state, local and foreign tax returns for the
tax period beginning before the Closing Date and ending after the Closing Date,
and DPI shall pay or cause its Subsidiaries to pay all Taxes shown as due on any
such tax returns with respect to DPI and Subsidiaries.
SECTION 3.6 Any refunds or credits of Taxes attributable to the
operations of the Photomasks Business arising from events occurring before the
Closing Date shall be for the account of EID and EID Subsidiaries, and, to the
extent that such refunds or credits arise from events occurring after the
Closing Date, such refunds or credits shall be for the account of DPI and
Subsidiaries. DPI and Subsidiaries shall use their best efforts to promptly
forward to or to reimburse EID and EID Subsidiaries for any such refunds or
credits due EID and EID Subsidiaries after receipt thereof, and EID shall
promptly forward and reimburse DPI and Subsidiaries for any refunds or credits
due DPI and
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Subsidiaries after receipt thereof. Notwithstanding this Section 3.6, in the
event an EID Subsidiary engages in reselling Photomasks Products any refunds or
credits of Taxes attributable to such reselling activity shall be for the
account of EID and EID Subsidiaries whether such refunds or credits arise from
events occurring before or after the Closing Date.
SECTION 3.7 As part of the restructuring of the Photomasks Business,
prior to the date of Closing DPI will sell 31% of the stock of Du Pont Korea
Ltd. to EID for a sales price which will be determined based upon an appraisal
conducted by an independent third party. Under the Code and the regulations
promulgated thereunder, any loss realized on such sale will be deferred until
such time as when DCEO's ownership in DPI is equal to 50% or less. Such loss
when recognized may only be applied to reduce capital gains recognized by DPI.
Accordingly, the parties hereby agree that to the extent such loss is utilized
by DPI, whether on a current, carryback or carryforward basis (including when
DPI was a member of the EID Affiliated Group), and DPI thereby reduced its
income tax liability the benefits of such tax reduction shall be paid to EID or,
in the case where there is a reduction in the DPI Company Taxes shown as due on
the Consolidated Returns as a result of a carryback, such tax reduction shall be
retained by EID.
SECTION 3.8 EID or EID designee shall exercise, at EID's expense,
complete control of the audit, appeal, litigation and/or settlement of any
issues raised in any official inquiry, examination or proceeding that could
result in an official determination with respect to Taxes due or payable by the
EID Affiliated Group, EID Subsidiaries, DPI or Subsidiaries with respect to the
Photomasks Business for any taxable year or tax period (including a period
deemed to be a tax period under Section 3.4) ending on or before the Closing
Date. The parties shall cooperate, as EID or its designees may reasonably
request, in any such inquiry, examination or proceeding.
ARTICLE IV
INDEMNIFICATION
SECTION 4.1 INDEMNIFICATION. (a) Except to the extent of any due and
unpaid obligations of DPI with respect to its payment obligations under Article
III, EID and DCEO shall jointly and severally indemnify and hold harmless DPI
and each Subsidiary for the amount of any and all liability, loss, expense or
damage any such company may suffer or incur as a result of any or all claims,
demands, costs or expenses (including, without limitation, attorneys' and
accountants' fees), interest, penalties, or judgments made against it arising
from or incurred in relation to all Taxes for all Consolidated Returns, and
shall make any payment, remove any lien, and take any action reasonably
necessary to avoid any such company from incurring such liabilities, losses,
expenses, or damages.
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(b) Except to the extent of any due and unpaid obligations of EID
with respect to its payment obligations under Article III, DPI shall indemnify
and hold harmless EID and each EID Subsidiary for the amount of any and all
liability, loss, expense or damage any such company may suffer or incur as a
result of any or all claims, demands, costs or expenses (including, without
limitation, attorneys' and accountants' fees), interest, penalties, or judgments
made against it arising from or incurred in relation to any failure of DPI to
pay any amount to EID with respect to DPI's obligations under Article III.
SECTION 4.2 TIME OF PAYMENT. (a) Payments under this Agreement shall be
due no later than thirty (30) days after the date written demand therefor, with
a reasonably detailed explanation for the basis of the claim, is actually
received by EID or DPI.
SECTION 4.3 INTEREST ON UNPAID AMOUNTS. Except as otherwise provided
herein, in the event that any Party fails to pay any amount owed pursuant to
this Agreement within ten (10) days after the date when such amount is due,
interest shall accrue on the unpaid amount at the rate applicable to
underpayments of the tax with respect to which such amount relates from the due
date until such amounts are fully paid.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 DESTINATION OF AGENT. For all purposes of this Agreement,
DPI shall be the agent for each of the Subsidiaries, with full power to give any
consent and/or exercise any right provided for herein on behalf of such
Subsidiary.
SECTION 5.2 RESOLUTION OF DISPUTES. Any dispute concerning the
calculation or basis of determination of any payment provided for hereunder
shall be resolved by a law firm or "big six" accounting firm, selected jointly
by EID and DPI, whose judgment shall be conclusive and binding upon the parties
in the absence of manifest error. The fees and other expenses of such law or
accounting firm shall be paid 50% by EID and 50% by DPI.
SECTION 5.3 BINDING EFFECT: SUCCESSORS. This Agreement shall be binding
upon the Parties hereto and shall inure to the benefit of and be binding upon
any of their successors or assigns; PROVIDED, HOWEVER, that none of EID, DPI,
any of the Subsidiaries may assign or delegate any of its obligations hereunder
without the consent of DPI (in the case of a proposed assignment or delegation
by EID) or EID (in the case of a proposed assignment or delegation by DPI or any
of the Subsidiaries).
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SECTION 5.4 ENTIRE AGREEMENT. This Agreement embodies the entire
understanding between the Parties relating to its subject matter and supersedes
and terminates all prior agreements and understandings among the Parties with
respect to such subject matter. Any and all prior correspondence, conversations
and memoranda with respect to such subject matter are merged herein and shall be
without effect hereon. No promises, covenants or representations of any kind,
other than those expressly stated herein, have been made to induce any Party to
enter into this Agreement. This Agreement shall not be modified or terminated
except by a writing duly signed by each of the Parties (or, in the case of a
Subsidiary, by DPI acting as its agent on its behalf), and no waiver of any
provisions of this Agreement shall be effective unless in a writing duly signed
by the Party sought to be bound (or, in the case of a Subsidiary, by DPI acting
as its agent on its behalf).
SECTION 5.5 NOTICES. Any payment, notice or communication required or
permitted to be given under this Agreement shall be in writing (including
telegraphic, telecopy, telex or cable communication) and mailed, telegraphed,
telecopied, telexed, cabled or delivered:
If to EID and DCEO, to:
1007 Market Street
Wilmington, Delaware 19898
Attention: Vice President and Treasurer
If to DPI on its own behalf, or as agent for the Subsidiaries, to:
100 Texas Avenue
Round Rock, Texas 78664
Attention: Executive Vice President and General Counsel
or to such other person or address as a Party shall furnish in writing to all
the other Parties. Subject to the provisions of Section 4.1(a), all such
notices and communications shall be effective (i) when received, if mailed or
delivered, or (ii) when delivered to the telegraph company, transmitted by
telecopier, confirmed by telex answerback or delivered to the cable company,
respectively.
SECTION 5.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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SECTION 5.7 GOVERNING LAW. This Agreement shall be governed by the laws
applicable to contracts entered into and to be fully performed within the State
of Delaware by residents thereof.
SECTION 5.8 JURISDICTION. Each of EID, DPI, any of the other
Subsidiaries agree that, in the event of any legal suit or proceeding arising in
connection with this Agreement and the obligations of the Parties hereunder, it
shall submit to the jurisdiction of the United States District Court of Delaware
and further agrees to venue in such court.
SECTION 5.9 INTERPRETATION. This Agreement shall be interpreted in such
a manner as is fair and equitable to all the Parties.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed by its respective duly authorized officer as of the date first set
forth above.
E. I. DU PONT DE NEMOURS AND COMPANY
By: /s/ JOHN C. SARGENT
---------------------------------
Title: VICE PRESIDENT AND TREASURER
----------------------------
DUPONT PHOTOMASKS, INC.
By: /s/ DAVID S. GINO
---------------------------------
Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
----------------------------------------------------
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CREDIT AGREEMENT
This Credit Agreement is entered into as of the 1st day of January, 1996,
by and between Du Pont Photomasks, Inc., a Delaware corporation (the "Borrower")
(together with its consolidated subsidiaries, "Photomasks") and Du Pont Chemical
and Energy Operations, Inc., a Delaware corporation ("Lender").
Section 1. DEFINITIONS.
Certain capitalized terms have the meanings set forth on Exhibit 1 hereto
or in the Security Agreement. All financial terms used in this Agreement but
not defined on Exhibit 1 or in the Security Agreement have the meanings given to
them by generally accepted accounting principles. All other undefined terms
have the meanings given to them in the Delaware Uniform Commercial Code as in
effect from time to time.
Section 2. LOANS.
2.1. REVOLVING CREDIT LOANS. (a) Subject to the terms and conditions
hereof, Lender hereby agrees to extend to Borrower a line of credit facility
(the "Facility") under which Lender may make loans (the "Revolving Loans") to
Borrower at Borrower's request from time to time during the term of this
Agreement of amounts up to $30,000,000. Borrower may borrow, prepay (without
penalty or charge), and reborrow under the Facility, provided that the principal
amount of all Revolving Loans outstanding at any one time under the Facility
will not exceed $30,000,000 at any one time outstanding. If the amount of
Revolving Loans outstanding at any time under the Facility exceeds the limits
set forth above, Borrower will immediately pay the amount of such excess to
Lender in cash.
(b) Borrower may request a Revolving Loan by written or telephone
notice to Lender. Lender will make Revolving Loans by crediting the amount
thereof to Borrower's account. Revolving Loan proceeds will be used for general
working capital purposes, general corporate purposes and capital expenditures.
(c) As provided in Section 7, Borrower will duly issue and deliver to
Lender a Revolving Note in the form of Exhibit 2 (the "Revolving Note"), in the
principal amount of $30,000,000 bearing interest as specified in the Revolving
Note.
(d) The term of the Facility will expire on December 31, 1997, and
the Revolving Note will become payable in full on such date. Borrower may
prepay the principal balance of the Revolving Note in whole or part at any time
(without penalty or charge).
Section 3. REPRESENTATIONS AND WARRANTIES.
Borrower hereby warrants and represents to Lender the following:
3.1. ORGANIZATION AND QUALIFICATION. Borrower is a corporation organized
under the laws of the State of Delaware, has the power and authority to carry on
its business and to enter into and perform this Agreement, the Note and the
other Loan Documents, is qualified and licensed to do business in each jurisdic-
tion in which such qualification or licensing is required and where failure to
be licensed or qualified would have a material effect on Photomasks, taken as a
whole. All information provided to Lender with respect to Photomasks and its
operations is true and correct in all material respects on the date as of which
such information is provided.
<PAGE>
3.2. DUE AUTHORIZATION. The execution, delivery and performance by
Borrower of this Agreement, the Security Agreement, the Note and the other Loan
Documents have been duly authorized by all necessary action, and will not
contravene or constitute a default under any law or any governmental rule or of
the certificate of incorporation or bylaws of Borrower or any order binding on
Borrower, nor violate any agreement or instrument by which Borrower is bound nor
result in the creation of a Lien on any assets of Borrower except the Lien to
Lender granted herein. Borrower has duly executed and delivered this Agreement,
the Security Agreement, the Note and the other Loan Documents, and they are
valid and binding obligations of Borrower enforceable according to their
respective terms except as limited by equitable principles and by bankruptcy,
insolvency or similar laws affecting the rights of creditors generally. No
notice to or consent by any governmental body is needed in connection with this
transaction.
3.3. LICENSES, ETC. Borrower maintains in full force and effect any and
all material licenses, permits, franchises, governmental authorizations,
patents, trademarks, copyrights or other rights necessary for the ownership of
its properties and the conduct of its business. Borrower maintains in full
force and effect material licenses, patents, patent applications, copyrights,
trademarks, trademark applications, and trade names to continue to conduct its
business as heretofore conducted by it, without any known conflict with the
rights of any other person or entity, except where such conflict would not have
a material adverse effect on Photomasks, taken as a whole.
3.4. LAWS AND TAXES. Photomasks is in compliance with all laws,
regulations, rulings, orders, injunctions, decrees, conditions or other
requirements applicable to or imposed upon Photomasks by any law or by any
governmental authority , court or agency having jurisdiction over Photomasks,
the failure to comply with which will have a material adverse affect on
Photomasks, taken as a whole. Borrower has filed all required material tax
returns and reports that are now required to be filed by it in connection with
any federal, state and local tax, duty or charge levied, assessed or imposed
upon Borrower or its assets, including unemployment, social security, and real
estate taxes. Borrower has paid all taxes which are now due and payable, except
to the extent that the same are being contested in good faith. No taxing
authority has asserted or assessed any additional tax liabilities against
Borrower which are outstanding on the date of this Agreement and which would
have a material adverse effect on Photomasks, taken as a whole, except to the
extent that the same are being contested in good faith.
3.5. FINANCIAL CONDITION. All financial statements required hereunder to
be delivered to Lender are true and correct and have been prepared in accordance
with generally accepted accounting principles consistently applied. Photomasks
has no material obligations or liabilities of any kind not disclosed in such
financial statements, and there has been no material adverse change in the
financial condition of Photomasks nor has Photomasks suffered any damage,
destruction or loss which has adversely affected its business, financial
position, results of operations, assets or prospects since the submission of the
most recent financial statements to Lender.
3.6. TITLE. Photomasks has good and marketable title to the assets
reflected on the most recent balance sheet submitted to Lender, free and clear
from all liens and encumbrances of any kind, except for the following
(collectively, the "Permitted Liens"):
(a) Liens existing on the date of this Agreement including Liens
securing Indebtedness outstanding on the date of this Agreement;
(b) any Lien existing on any asset of any corporation at the time
such corporation becomes a subsidiary and not created in contemplation of such
event;
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(c) any Lien on any asset securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring such
asset, PROVIDED that such Lien attaches to such asset concurrently with or
within 90 days after the acquisition thereof;
(d) any Lien on any asset of any corporation existing at the time
such corporation is merged or consolidated with or into the Borrower or a
subsidiary and not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof
by the Borrower or a subsidiary and not created in contemplation of such
acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
foregoing clauses of this Section 3.6, PROVIDED that such Indebtedness is not
increased and is not secured by any additional assets;
(g) Liens arising in the ordinary course of Photomasks' business
which do not secure Indebtedness;
(h) Liens imposed by law which secure amounts not yet due and payable
or that are being contested in good faith;
(i) Liens not otherwise permitted by the foregoing clauses of this
Section 3.6 securing Indebtedness in an aggregate principal or face amount at
any date not to exceed $500,000;
(j) any Lien held by Lender.
3.7. DEFAULTS. Borrower is in compliance with all material agreements
applicable to it, and there does not now exist any material default or violation
by Borrower of or under any of the terms, conditions or obligations of any
indenture, mortgage, deed of trust, franchise, permit, contract, agreement or
other instrument to which Borrower is a party or by which it is bound, and the
consummation of the transactions contemplated by this Agreement will not result
in such default or violation.
3.8. ENVIRONMENTAL LAWS. (a) Borrower and its subsidiaries (i) are in
compliance with all applicable Environmental Laws, (ii) have received all
permits, licenses and other authorizations which are required under applicable
Environmental Laws and (iii) are in compliance with all terms and conditions of
any such permit, license and authorization, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses and
authorizations or failure to comply with the terms and conditions of such
permits, licenses and authorizations, would not, singly or in the aggregate,
result in a material adverse effect on the Borrower and its subsidiaries, taken
as a whole.
(b) Borrower is not aware of any costs or liabilities associated with
Environmental Laws which would, singly or in the aggregate, result in a material
adverse effect on the Borrower and its subsidiaries, taken as a whole.
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3.9 ERISA. Borrower is in compliance with all of its obligations to
contribute to any employee benefit plan or pension plan regulated by the
Employee Retirement Income Security Act of 1974 ("ERISA"). Borrower has not
received notice informing it that it is not in full compliance with any of the
requirements of ERISA and the regulations promulgated thereunder, and there
exists no event described in Section 4043(c) thereof ("Reportable Event") that
would have a material adverse effect on Photomasks, taken as a whole.
Section 4. AFFIRMATIVE COVENANTS.
4.1. BOOKS AND RECORDS. Borrower will maintain proper books of account and
records and enter therein complete and accurate entries and records of all of
its transactions in accordance with generally accepted accounting principles and
give representatives of Lender access thereto at all reasonable times, including
permission to examine, copy and make abstracts from any such books and records
and such other information which might be helpful to Lender in evaluating the
status of the Loans as it may reasonably request from time to time, subject to
Lender's pledge to keep information confidential which is designated as such.
Borrower will give Lender reasonable access to the Collateral and the other
property securing the Obligations for the purpose of performing examinations
thereof and to verify its condition or existence.
4.2. FINANCIAL STATEMENTS. Borrower will maintain a standard and modern
system for accounting and will furnish to Lender.
(a) With respect to the first three quarters of the Borrower's fiscal
year, as soon as available and in any event within forty-five (45) days after
the end of each quarter, a copy of Borrower's consolidated financial statements
for that quarter and for the year to date in a form reasonably acceptable to
Lender, prepared and certified as complete and correct, subject to changes
resulting from year-end adjustments, by the principal financial officer of
Borrower;
(b) As soon as available and in any event within ninety (90) days
after the end of each fiscal year, a copy of Borrower's consolidated financial
statements for that year audited by a firm of independent certified public
accountants acceptable to Lender (which acceptance will not be unreasonably
withheld), and accompanied by a standard audit opinion of such accountants
without significant qualification;
(c) Simultaneously with the statements submitted under (a) and (b)
above, a certificate signed by the chief financial officer of Borrower,
(i) stating that such office is familiar with all documents relating to Lender
and that no Event of Default specified in this Agreement, nor any event which
upon notice or lapse of time, or both would constitute such an Event of Default,
has occurred, or if any such condition or event existed or exists, specifying it
and describing what action Borrower has taken or proposes to take with respect
thereto, and (ii) setting forth, in summary form, figures showing the financial
status of Borrower in respect of the financial restrictions contained in this
Agreement;
(d) Copies of all federal, state and local income tax returns and
such other information as Lender may reasonably request, subject to Lender's
pledge to keep information confidential which is designated as such.
4.3. CONDITION AND REPAIR. Borrower will maintain its assets in good
repair and working order, ordinary wear and tear excepted, and will make all
appropriate repairs and replacements thereof.
4.4. INSURANCE. Prior to the drawdown or borrowing of any funds pursuant
to this Agreement, Borrower will use reasonable efforts to insure or cause
Photomasks' properties and business to be insured against loss or damage of the
kinds and in the amounts customarily insured
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against by corporations with established reputations engaged in the same or
similar business as Borrower. All such policies will (a) be issued by
financially sound and reputable insurers, (b) name Lender as an additional
insured and, where applicable, as loss payee under a lender loss payable
endorsement satisfactory to Lender and (c) will provide for thirty (30) days
written notice to Lender before such policy is altered or canceled all of which
will be evidenced by a Certificate of Insurance delivered to Lender by Borrower
within one hundred twenty (120) days from the date of execution of this
Agreement.
4.5. TAXES. Borrower will pay when due all taxes, assessments and other
governmental charges imposed upon it or its assets, franchises, business, income
or profits before any penalty or interest accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which by law might be a lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially damaged as a result thereof) no such charge or claim
need be paid if it is being diligently contested in good faith, and if Borrower
establishes an adequate reserve or other appropriate provision required by
generally accepted accounting principles.
4.6. EXISTENCE, BUSINESS. Borrower will (a) maintain its existence,
(b) engage primarily in business of the same general character as that now
conducted, and (c) refrain from entering into any lines of business
substantially different from the business or activities in which Borrower is
presently engaged.
4.7. COMPLIANCE WITH LAWS. Borrower will comply with all federal, state
and local laws, regulations and orders applicable to Borrower or its assets,
including without limitation all Environmental Laws, in all respects material to
Borrower's business, assets or prospects and will immediately notify Lender of
any violation of any rule, regulation, statute, ordinance, order or law relating
to the public health or the environment and of any complaint or notifications
received by Borrower regarding any environmental or safety and health rule,
regulation, statute, ordinance or law.
4.8. NOTICE OF DEFAULT. Borrower will, within three (3) days of its
knowledge thereof, give written notice to Lender of (a) the occurrence of any
event or the existence of any condition which would be, after notice or lapse of
applicable grace periods, an Event of Default, and (b) the occurrence of any
event or the existence of any condition which would prohibit Borrower from
continuing to make the representations set forth in this Agreement.
4.9. COSTS. Borrower will pay to Lender its fees, costs and expenses
(including, without limitation, reasonable attorneys' fees, court costs,
litigation and other expense) (collectively, "Costs") incurred or paid by Lender
in enforcing the Loan Documents and Lender's security interest in the Collateral
or any other property pledged to secure the Loans. The Costs will be due upon
demand by Lender. If Borrower fails to pay the Costs upon such demand, Lender
is entitled to disburse such sums as an advance under the Facility, and
thereafter the Costs will bear interest from the date incurred or disbursed at
the highest rate set forth in the Notes.
4.10. OTHER AMOUNTS DEEMED LOANS. If Borrower fails to pay any tax,
assessment, governmental charge or levy or to maintain insurance within the time
permitted by this Agreement, or to discharge any Lien prohibited hereby, or to
comply with any other obligation, Lender may, but shall not be obligated to,
pay, satisfy, discharge or bond the same for the account of Borrower, and to the
extent permitted by law and at the option of Lender, all monies so paid by
Lender on behalf of Borrower will be deemed Revolving Loans and Obligations.
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<PAGE>
Section 5. NEGATIVE COVENANTS.
5.1. INDEBTEDNESS. Without the Lender's prior written consent, Photomasks
will not incur, create, assume or permit to exist any Indebtedness (in addition
to the Indebtedness hereunder) in excess of $30,000,000 in the aggregate, other
than in the ordinary course of business as presently conducted by Photomasks or
other advances or loans to its Affiliates.
5.2. LEASES. Without the Lender's prior written consent, Photomasks will
not enter into any lease of real or personal property as lessee (other than
leases in existence on the date this Agreement is executed which have been
disclosed to Lender) if the aggregate payments due under such lease and all
other leases of Photomasks then in effect would exceed $30,000,000 in any fiscal
year.
5.3. PLEDGE OR ENCUMBRANCE OF ASSETS. Without the prior written consent of
Lender, Photomasks will not create, incur, assume or permit to exist any Lien in
any present or future asset, except for Permitted Liens.
5.4. MERGER; DISPOSITION OF ASSETS. Without the Lender's prior written
consent, which may not be unreasonably withheld, Borrower will not (a) change
its capital structure, (b) merge or consolidate with any corporation, (c) amend
or change its articles of incorporation or bylaws or (d) sell, transfer or
otherwise dispose of all or any substantial part of its assets, whether now
owned or hereafter acquired, except for sales of Inventory in the ordinary
course of business.
Section 6. EVENTS OF DEFAULT AND REMEDIES.
6.1. EVENTS OF DEFAULT. Any of the following events will be an Event of
Default ("Event of Default"):
(a) any representation or warranty made by Borrower herein or in any
of the Loan Documents is incorrect in any material respect when made or
reaffirmed and shall not have been corrected within 10 days of discovery by the
Borrower of such incorrectness; or
(b) Borrower defaults in the payment of any principal on any
Obligation when due and payable, by acceleration or otherwise; or
(c) Borrower defaults in payment of any interest on any Obligation
when due and payable, provided that Lender has provided Borrower notice of such
default and Borrower fails to cure such default within 7 days; or
(d) Borrower fails to observe or perform any covenant, condition or
agreement herein and fails or is unable to cure such default within 30 days of
the occurrence thereof, provided that such 30 day grace period will not apply to
any failure permit inspection of the Collateral or of the books and records of
Borrower; or
(e) a court enters a decree or order for relief with respect to
Borrower or an involuntary case under any applicable bankruptcy, insolvency or
other similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of Borrower or for any
substantial part of its property, or orders the wind-up or liquidation of its
affairs; or a petition initiating an involuntary case under any such bankruptcy,
insolvency or similar law is filed and is pending for thirty (30) days without
dismissal; or
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(f) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law in effect, or makes any general
assignment for the benefit of creditors, or fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing; or
(g) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $500,000 and such
default gives any creditor or lessor the right to accelerate the maturity of any
such indebtedness or lease payments which right is not contested by Borrower or
is determined by any court of competent jurisdiction to be valid; or
(h) final judgment of the payment of money in excess of $500,000 is
rendered against Borrower and remains undischarged for 30 days during which
execution is not effectively stayed; or
(i) an Event of Default or default occurs under any other Loan
Document; or
(j) a trustee is appointed by a United States District Court to
administer any employee benefit plan; or the Pension Benefit Guaranty
Corporation institutes proceedings to terminate any of Borrower's employee
benefit plans.
6.2. REMEDIES. If any Event of Default will occur, Lender may cease
advancing money hereunder, and/or declare all Obligations to be due and payable
forthwith, whereupon they will forthwith become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
6.3. SETOFF. If any Event of Default will occur, Lender is authorized,
without notice to Borrower, to offset and apply to all or any part of the
Obligations all moneys, credits and other property of any nature whatsoever of
Borrower now or at any time hereafter in the possession of, in transit to or
from, under the control or custody of, or on deposit with Lender, including but
not limited to certificates of deposit.
6.4. DEFAULT RATE. After the occurrence of an Event of Default, all
amounts of principal outstanding as of the date of the occurrence of such Event
of Default will bear interest at the Default Rate, in Lender's sole discretion,
without notice to Borrower. This provision does not constitute a waiver of any
Event of Default or an agreement by Lender to permit any later payments
whatsoever.
6.5. NO REMEDY EXCLUSIVE. No remedy set forth herein is exclusive of any
other available remedy or remedies, but each is cumulative and in addition to
every other remedy available under this Agreement, the Loan Documents or as may
be now or hereafter existing at law, in equity or by statute. Borrower waives
any requirement of marshaling of assets which may be secured by any of the Loan
Documents.
6.6. EFFECT OF TERMINATION. The termination of this Agreement will not
affect any rights of either party or any obligation of either party to the
other, arising prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights created or Obligations incurred prior to such termination
have been fully disposed of, concluded or liquidated. The security interest,
lien and rights granted to Lender hereunder and under the Loan Documents will
continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that no Revolving Loans are outstanding to Borrower, until
all of the Obligations, have been paid in full.
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Section 7. CONDITIONS PRECEDENT.
7.1. CONDITIONS TO INITIAL LOANS. Lender will have no obligation to make
or advance any Revolving Loan until Borrower has delivered to Lender at or
before the closing date, in form and substance satisfactory to Lender:
(a) An executed version of the Revolving Note in the form of
Exhibit 2 attached hereto.
(b) A certified resolution of Borrower authorizing this transaction
in a form acceptable to Lender.
(c) An executed version of the Security Agreement in the form of
Exhibit 3 attached hereto.
(d) Evidence of Uniform Commercial Code searches, tax Lien and
litigation searches, insurance certificates, notices or other documents which
Lender may require to reflect, perfect or protect Lender's Lien in the
Collateral and all other property pledged to secure the Obligations and to fully
consummate this transaction.
(e) All requisite releases of Liens and termination statements
necessary to release all Liens and encumbrances against the Collateral and all
requisite waivers, in a form satisfactory to Lender, which are necessary to
grant Lender a first Lien in the Collateral, including but not limited to all
Equipment of Borrower.
(f) Such additional information and materials as Lender may
reasonably request.
7.2. CONDITIONS TO EACH REVOLVING LOAN. On the date of each Revolving
Loan, the following statements will be true:
(a) All of the representations and warranties contained herein and in
the Loan Documents will be correct in all material respects as though made on
such date;
(b) No event will have occurred and be continuing, or would result
from such Revolving Loan, which constitutes an Event of Default, or would
constitute an Event of Default but for the requirement that notice be given or
lapse of time or both;
(c) The aggregate unpaid principal amount of the Revolving Loans
after giving effect to such Revolving Loan will not violate the lending limits
set forth in Section 2.1 of this Agreement.
Lender may request a certificate by an officer of the Borrower
evidencing the above. The acceptance by Borrower of the proceeds of each
Revolving Loan will be deemed to constitute a representation and warranty by
Borrower that the conditions in Section 7.2 of this Agreement, other than those
that have been waived in writing by Lender, have been satisfied.
8.1. MISCELLANEOUS. This Agreement, the exhibits and the other Loan
Documents are the complete agreement of the parties hereto and supersede all
previous understandings relating to the subject matter hereof. This Agreement
may be amended only in writing signed by Borrower and Lender. This Agreement
may be executed in counterparts. If any part of this Agreement is held invalid,
the remainder of this Agreement will not be affected thereby. This Agreement is
and is intended to be a continuing agreement and will remain in full force and
effect until the Revolving Loans are finally and irrevocably paid in full and
the Facility is terminated.
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8.2. WAIVER BY BORROWER. Borrower waives notice of non-payment, demand,
presentment, protest or notice of protest of any Accounts or other Collateral,
and all other notices (except those notices specifically provided for in this
Agreement); consents to any renewals or extensions of time of payment thereof;
and generally waives any suretyship defenses and defenses in the nature thereof.
8.3. BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of the respective legal representatives, successors and assigns of the
parties hereto; however, Borrower may not assign any of its rights or delegate
any of its obligations hereunder. Lender (and any subsequent assignee) may
transfer and assign this Agreement or may assign partial interests or
participation in the Loans to other persons. Lender may, with the prior written
consent of Borrower which may not be unreasonably withheld, disclose to all
prospective and actual assignees and participants all financial, business and
other information about a Borrower which Lender may possess at any time, subject
to such assignee's signing a confidentiality agreement.
8.4. SECURITY. The Obligations are secured as provided herein, in the
Security Agreement, the Loan Documents and in each other document or agreement
which by its terms secures the repayment or performance of the Obligations.
8.5. SURVIVAL. All representations, warranties, covenants and agreements
made by Borrower herein and in the Loan Documents will survive the execution and
delivery of this Agreement, the Loan Documents and the issuance of the Note.
8.6. DELAY OR OMISSION. No delay or omission on the part of Lender in
exercising any right, remedy or power arising from any Event of Default will
impair any such right, remedy or power or any other right, remedy or power or be
considered a waiver of any right, remedy or power or any Event of Default nor
will the action or omission to act by Lender upon the occurrence of any Event of
Default impair any right, remedy or power arising as a result thereof or affect
any subsequent Event of Default of the same or different nature.
8.7. NOTICES. Any notices under or pursuant to this Agreement will be
deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, addressed as follows:
To Borrower:
Du Pont Photomasks, Inc.
100 Texas Avenue
Round Rock, Texas
To Lender:
Du Pont Chemical and Energy Operations, Inc.
1007 Market Street
Wilmington, DE 19898
Attention: Tom Schmelzer - Administrator
Either party may change such address by sending notice of the change to the
other party.
8.8. NO PARTNERSHIP. Nothing contained herein or in any of the Loan
Documents is intended to create or will be construed to create any relationship
between Lender and Borrower other than as expressly set forth herein or therein
and will not create any joint venture, partnership or other relationship.
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8.9. INDEMNIFICATION. If after receipt of any payment of all or part of
the Obligations, Lender is for any reason compelled to surrender such payment to
any person or entity, because such payment is determined to be void or voidable
as a preference, impermissible setoff, or diversion of trust funds, or for any
other reason, this Agreement will continue in full force and effect and Borrower
will be liable to, and will indemnify, save and hold Lender, its officers,
directors, attorneys, and employees harmless of and from the amount of such
payment surrendered. The provisions of this Section will be and remain
effective notwithstanding any contrary action which may have been taken by
Lender in reliance on such payment, and any such contrary action so taken will
be without prejudice to Lender's rights under this Agreement and will be deemed
to have been conditioned upon such payment becoming final, indefeasible and
irrevocable. In addition, Borrower will indemnify, defend, save and hold
Lender, its officers, directors, attorneys, and employees harmless of, from and
against all claims, demands, liabilities, judgments, losses, damages, costs and
expenses, joint or several (including all accounting fees and attorneys' fees
reasonably incurred), that Lender or any such indemnified party may incur
arising out of this Agreement, any of the Loan Documents or any act taken by
Lender hereunder except for the willful misconduct or gross negligence of such
indemnified party. The provisions of this Section will survive the termination
of this Agreement.
8.10. GOVERNING LAW; JURISDICTION. This Agreement, the Note and the
other Loan Documents will be governed by the domestic laws of the State of
Delaware without regard to the principles of conflicts of law. Borrower agrees
that the state and federal courts in New Castle County, Delaware, or any other
court in which Lender initiates proceedings have exclusive jurisdiction over all
matters arising out of this Agreement, and that service of process in any such
proceeding will be effective if mailed to Borrower at its address described in
the Notices section of this Agreement. LENDER AND BORROWER HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
by their duly authorized officers as of the date first above written.
DU PONT PHOTOMASKS, INC.
By: /s/ David S. Gino
--------------------------------
Its: Executive Vice President and CEO
--------------------------------
DU PONT CHEMICAL AND ENERGY
OPERATIONS, INC.
By: /s/ C.L. Downing
--------------------------------
Its: Vice President and Treasurer
--------------------------------
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EXHIBITS
TO
CREDIT AGREEMENT
BETWEEN
DU PONT PHOTOMASKS, INC.
AND DU PONT CHEMICAL AND ENERGY OPERATIONS, INC.
Exhibit 1 - Definitions
Exhibit 2 - Revolving Note
Exhibit 3 - Security Agreement
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EXHIBIT 1
DEFINITIONS
1. "Affiliate" means any corporation, subsidiary, partnership, limited
liability company, trust or other legal entity controlled by the Borrower.
2. "Collateral" has the meaning assigned to that term in the Security
Agreement.
3. "Default Rate" means two percent (2%) in excess of the interest rate
otherwise in effect under amounts outstanding under the Note. In no event will
the interest rate accruing under such Note be increased to be in excess of the
maximum interest rate permitted by applicable state or federal usury laws then
in effect.
4. "Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees or other governmental restrictions relating to the environment or to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial toxic or hazardous substances or waste
into the environment (including without limitation ambient air, surface water,
ground water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes.
5. "ERISA" means the Federal Employee Retirement Income Security Act of
1974, as amended, or any successor act.
6. "Event(s) of Default" will have the meaning set forth in Section 6.1
of the Agreement.
7. "Facility" will have the meaning set forth in Section 2.1 of the
Agreement.
8. "Indebtedness" of any person means (a) all debt of such person for
borrowed money, (b) all indebtedness of such person secured by any mortgage,
pledge, lien or conditional sale or other title retention agreement to which any
property or asset owned or held by such person is subject, whether or not the
indebtedness secured thereby will have been assumed by such person (excluding
non-capitalized leases which may amount to title retention agreements but
including capitalized leases) and (c) all indebtedness of others which such
person has directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), discounted or sold
with recourse or agreed (contingently or otherwise) to purchase or repurchase or
otherwise acquire, or in respect of which such person has agreed to apply or
advance funds (whether by way of loan, stock purchase, capital contribution or
otherwise) or otherwise to become directly or indirectly liable.
9. "Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including interests of vendors or lessors
under conditional sale contracts and capitalized leases.
10. "Loan Documents" means this Agreement, the Note, the Security
Agreement, and every other document or agreement executed by any party
evidencing, guarantying or securing any of the Obligations; and "Loan Document"
means any one of the Loan Documents.
11. "Note" means the Revolving Note.
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<PAGE>
12. "Obligation(s)" means all loans, advances, and indebtedness of
Borrower owed to Lender of every kind and description whether now existing or
hereafter arising under this Agreement, the Note and the other Loan Documents.
13. "Permitted Liens" has the meaning assigned thereto as set forth in
Section 3.6 hereof.
14. "Revolving Loans" has the meaning assigned to that term in Section 2.1
of this Agreement.
15. "Revolving Note" has the meaning assigned to that term in Section 2.1
of this Agreement.
16. "Security Agreement" means the Security Agreement dated the date
hereof between Borrower and Lender securing the Obligations.
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<PAGE>
EXHIBIT 2
REVOLVING NOTE
$30,000,000 January 1, 1996
On December 31, 1997, Du Pont Photomasks, Inc., a Delaware corporation, for
value received, hereby promises to pay to the order of Du Pont Chemical and
Energy Operations, Inc., a Delaware corporation (the "Lender"), at its offices,
located at 1007 Market Street, Wilmington, Delaware, in lawful money of the
United States of America and in immediately available funds, the principal sum
of Thirty Million and no/100's Dollars ($30,000,000) or such lesser unpaid
principal amount as may be advanced by Lender pursuant to the terms of the
Credit Agreement of even date herewith by and between Borrower and Lender, as
the same may be amended from time to time (the "Agreement").
The principal balance outstanding hereunder, will bear interest from the
date of the first advance until paid at an annual floating rate of interest
equal to LIBOR in effect from time to time plus a spread of 50 basis points.
Accrued and unpaid interest will be payable in immediately available funds
at the principal office of the Lender set forth above on the first day of June,
1996, and on the first day of each calendar month thereafter during the term
hereof. Interest will be calculated based on a 365-day year and charged for the
actual number of days elapsed.
On December 31, 1997, all outstanding principal and all accrued and unpaid
interest will be due and payable. After maturity, whether by acceleration or
otherwise, this Note will bear interest (computed and adjusted in the same
manner, and with the same effect, as interest hereon prior to maturity) payable
on demand, at a rate per annum equal to the Default Rate (as defined in the
Agreement), until paid, and whether before or after the entry of judgment
hereon.
"LIBOR" will be determined by Lender in accordance with the following
provisions: On each LIBOR Interest Determination Date, LIBOR will be determined
on the basis of the rate for deposits in U.S. dollars having 180-day maturity,
commencing on the second London Banking Day immediately following such LIBOR
Interest Determination Date, which appears on the Telerate Page 3750 (as defined
below) as of 11:00 a.m., New York City time, on the LIBOR Interest Determination
Date. If such rate does not so appear on the Telerate Page 3750, the rate in
respect of such LIBOR Interest Determination Date will be the arithmetic mean of
the rates quoted by major banks in the City of New York, selected by Lender, at
approximately 1:00 p.m., New York City time, on that LIBOR Interest
Determination Date for loans in U.S. dollars to leading European banks for a
period of 180 days commencing on that Interest Reset Date and in a principal
amount equal to an amount not less than $1,000,000 that is representative for a
single transaction in such market at such time; PROVIDED, HOWEVER, if the
aforesaid rate cannot be determined by Lender, LIBOR in respect of such LIBOR
Interest Determination Date will be LIBOR then in effect on such LIBOR Interest
Determination Date. The "LIBOR Interest Determination Date" will be the second
London Banking Day preceding any Interest Reset Date. The "Interest Reset Date"
shall be each January 1 and June 1. "London Banking Day" means any day dealing
in deposits in U.S. dollars are transacted in the London interbank market.
"Telerate Page 3750" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service,
or such other service as may be nominated as the information vendor, for the
purpose of displaying rates or prices relating to LIBOR).
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<PAGE>
The principal amount of each loan made by Lender under this Note and the
amount of each prepayment made by Borrower under this Note will be recorded by
Lender on the schedule attached hereto or in the regularly maintained data
processing records of Lender. The aggregate unpaid principal amount of all
loans set forth in such schedule or in such records will be presumptive evidence
of the principal amount owing and unpaid on this Note. However, failure by
Lender to make any such entry will not limit or otherwise affect Borrower's
obligations under this Note or the Agreement.
All payments received by Lender under this Note will be applied first to
payment of amounts advanced by Lender on behalf of Borrower or which may be due
for insurance, taxes and attorneys' fees or other charges to be paid by Borrower
pursuant to the Agreement and the Loan Documents (as defined in the Agreement),
then to accrued interest on this Note, then to principal.
This Note is the Revolving Note referred to in the Agreement, and is
entitled to the benefits, and is subject to the terms, of this Agreement.
Capitalized terms used but not otherwise defined herein will have the meanings
attributed thereto in the Agreement. The principal of this Note is prepayable
in the amounts and under the circumstances, and its maturity is subject to
acceleration upon the terms, set forth in the Agreement. Except as otherwise
expressly provided in the Agreement, if any payment on this Note becomes due and
payable on a day other than one on which banks are open for business in New
York, New York (a "Business Day"), the maturity thereof will be extended to the
next Business Day, and interest will be payable at the rate specified herein
during such extension period.
After the occurrence of an Event of Default, all amounts of principal
outstanding as of the date of the occurrence of such Event of Default will bear
interest at the Default Rate, in Lender's sole discretion, without notice to
Borrower. This provision does not constitute a waiver of any Events of Default
or an agreement by Lender to permit any late payments whatsoever.
Borrower may prepay any portion of this Note in part at any time without
premium or penalty.
In no event will the interest rate on this Note exceed the highest rate
permissible under any law which a court of competent jurisdiction will, in a
final determination, deem applicable hereto. In the event that a court
determines that Lender has received interest and other charges under this Note
in excess of the highest permissible rate applicable hereto, such excess will be
deemed received on account of, and will automatically be applied to reduce the
amounts due to Lender from Borrower under this Note, other than interest, and
the provisions hereof will be deemed amended to provide for the highest
permissible rate. If there are no such amounts outstanding, Lender will refund
to Borrower such excess.
Borrower and all endorsers, sureties, guarantors and other persons liable
on this Note hereby waive presentment for payment, demand, notice of dishonor,
protest, notice of protest and all other demands and notices in connection with
the delivery, performance and enforcement of this Note, and consent to one or
more renewals or extensions of this Note.
This Note may not be changed orally, but only by an instrument in writing.
This Note is being delivered in, is intended to be performed in, will be
construed and enforceable in accordance with, and be governed by the internal
laws of, the State of Delaware without regard to principles of conflict of laws.
Borrower agrees that the State and Federal courts in New Castle County, Delaware
or any other court in which Lender initiates proceedings will have exclusive
jurisdiction over all matters arising out of this Note, and that service of
process in any such proceeding will be effective if mailed to Borrower at its
address described in the Notices
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<PAGE>
section of the Agreement. BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF
ANY MATTERS ARISING OUT OF THIS NOTE.
WITNESSES: DU PONT PHOTOMASKS, INC.
By:
--------------------
- -------------------------------
Its:
--------------------
- -------------------------------
By:
----------------
Its:
----------------
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<PAGE>
CORPORATION ACKNOWLEDGMENT
STATE OF _______________________
COUNTY OF _____________________ ss
Before me the undersigned , a Notary Public, in and for said County and
State, on this ____ day of _______, 19___, personally appeared
__________________________ to me known to be the identical person___ who
subscribed the name to the maker thereof to the foregoing instrument as its
_________________________________________ and acknowledged to me that __he__
executed the same as ____________ free and voluntary act and deed and as the
free and voluntary act and deed of such corporation, for the uses and purposes
therein set forth.
Given under my hand and seal of office the day and year last above written.
_________________________
NOTARY PUBLIC
My Commission Expires: ______________
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<PAGE>
EXHIBIT 3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is entered into as of the ___ day of June, 1996, by
and between Du Pont Photomasks, Inc., a Delaware corporation (the "Borrower")
and Du Pont Chemical and Energy Operations, Inc., a Delaware corporation (the
"Lender").
Section 1. DEFINITIONS:
1.1. SPECIFIC DEFINITIONS. The following definitions will apply:
(a) "Debtors" means Borrower's customers and all other persons
obligated to Borrower on Accounts.
(b) "Equipment" means all machinery, machine tools, and equipment as
set forth on any schedule which is either now or in the future attached to
Lender's copy of this Agreement.
(c) In addition to the foregoing, the definition of the terms
Equipment and Accounts will have the meaning attributed thereto in the
applicable version of the Uniform Commercial Code adopted in the jurisdiction
where Secured Party's principal place of business is located as in effect on the
date hereof.
1.2. OTHER DEFINITIONS. Capitalized terms not defined herein have the
meanings set forth in the Credit Agreement dated the date hereof between
Borrower and Lender (the "Credit Agreement"). All other undefined terms will
have the meaning given to them in the Delaware Uniform Commercial Code.
Section 2. SECURITY.
2.1. SECURITY INTEREST OF LENDER. To induce Lender to make the Loans, and
as security for all Obligations, Borrower hereby assigns to Lender as collateral
and grants to Lender a continuing pledge and security interest subject only to
the Permitted Liens in the following property of Borrower (the "Collateral"),
whether now owned or existing or hereafter acquired or arising and regardless of
where it is located:
(a) all Equipment;
(b) all Accounts;
(c) all Proceeds; and
(d) all instruments, chattel paper, documents, securities, money or
other property, owned by Borrower or in which Borrower has an interest, which
are in the possession or control of Lender.
2.2. PROVISIONS CONCERNING EQUIPMENT. (a) Borrower warrants and
represents that Borrower has informed Lender of all places where any of such
Borrower's Equipment is located or has been located at any time during the past
four months. No Equipment will be moved to any location not disclosed to Lender
but Equipment may be moved from one such location to another.
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<PAGE>
(b) Borrower will keep and maintain the Equipment in good operating
condition and repair, ordinary wear and tear excepted, make all necessary
replacements so that its value and operating efficiency is maintained and
preserved. Borrower will immediately notify Lender of any material loss or
damage to the Collateral.
2.3 PROVISIONS CONCERNING ACCOUNTS
(a) Anything herein to the contrary notwithstanding, Borrower shall
retain all its right, title and interest to the Accounts.
(b) Lender hereby authorizes Borrower to collect the Accounts. All
Proceeds constituting collections of Accounts while held by Borrower shall
continue to be collateral security for all of the Obligations.
2.4. LIENS. Borrower has good and marketable title to its respective
Collateral. All assets of Borrower are owned free, clear and unencumbered
except for the Permitted Liens.
2.5. FURTHER ASSURANCES. (a) Borrower will execute and deliver to Lender
at Lender's request all financing statements, continuation statements and other
documents that Lender may reasonably request, in form satisfactory to Lender, to
perfect and maintain perfected Lender's security interest in the Collateral and
to fully consummate all transactions contemplated under this Agreement.
Borrower hereby irrevocably makes, constitutes and appoints Lender (and any of
Lender's officers, employees or agents designated by Lender) as Borrower's true
and lawful attorney with power to sign the name of Borrower on any such
documents.
(b) Lender may inspect and verify each Borrower's books and records
at any time or times hereafter, during usual business hours, in order to verify
the amount or condition of the Collateral, or any other matter relating to the
Collateral or Borrower's financial condition. Borrower will promptly deliver to
Lender copies of all books and records requested by Lender, subject to Lender's
pledge to keep information confidential which is designated as such.
2.6. OTHER AMOUNTS DEEMED LOANS. If Borrower fails to pay any tax,
assessment, government charge or levy or to maintain insurance within the time
permitted by this Agreement or the Credit Agreement, or to discharge any Lien
prohibited hereby, or to comply with any other obligation, Lender may, but will
not be required to pay, satisfy, discharge or bond the same of the account of
such Borrower, and to the extent permitted by law and all monies so paid out
will be secured by the Collateral.
2.7. BORROWER REMAINS LIABLE. Borrower will remain liable under any
contracts and agreements included in the Collateral to perform all of its duties
and obligations thereunder to the same extent as if this Agreement had not been
executed, and Lender will not have any obligation or liability under such con-
tracts and agreements by reason of this Agreement or otherwise.
2.8. INSURANCE. Prior to the drawdown or borrowing of any funds pursuant
to the Credit Agreement, Borrower will use reasonable efforts to insure or cause
to be insured the Collateral against loss or damage of the kinds and in the
amounts customarily insured against by corporations with established reputations
engaged in the same or similar business as Borrower. All such policies will
(a) be issued by financially sound and reputable insurers, (b) name Lender as an
additional insured and, where applicable, as loss payee under a lender loss
payable endorsement satisfactory to Lender, and (c) will provide for thirty (30)
days written notice to Lender before such policy is altered or canceled all of
which will be evidenced by a Certificate of Insurance delivered to Lender by
Borrower within 120 days from the date of execution of this Agreement.
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<PAGE>
Section 3. EVENTS OF DEFAULT AND REMEDIES.
3.1. EVENTS OF DEFAULT. Any of the following events will be an Event of
Default.
(a) Borrower fails to keep its assets insured as required herein or
in the Credit Agreement, or material uninsured damage to or loss, theft or
destruction of the Collateral occurs; or
(b) Borrower fails to observe or perform any covenant, condition or
agreement herein and fails or is unable to cure such default within 30 days of
the occurrence thereof, provided that such 30 day grace period will not apply to
any failure to maintain insurance or permit inspection of the Collateral or of
the books and records of Borrower; or
(c) an Event of Default occurs under the Credit Agreement.
3.2. REMEDIES. If any Event of Default will occur and be continuing in
addition to the remedies provided in the Credit Agreement:
(a) Lender may resort to the rights and remedies of a secured party
under the Uniform Commercial Code including the right to enter any premises of
Borrower, with or without legal process and take possession of the Collateral
and remove it and any records pertaining thereto and/or remain on such premises
and use it for the purpose of collecting, preparing and disposing of the
Collateral;
(b) Lender may ship, reclaim, recover, store, finish, maintain and
repair the Collateral, and may sell the Collateral at public or private sale,
and Borrower will be credited with the net proceeds of such sale only when they
are actually received by Lender and any requirement of reasonable notice of any
disposition of the Collateral will be satisfied if such notice is sent to
Borrower 10 days prior to such disposition;
(c) Borrower will upon request of Lender assemble the Collateral and
any records pertaining thereto and make them available at a place designated by
Lender; or
(d) Lender may use, in connection with any assembly or disposition of
the Collateral, any trademark, trade name, tradestyle, copyright, patent right,
trade secret or technical process used or utilized by Borrower.
3.3. NO REMEDY EXCLUSIVE. No remedy set forth herein is exclusive of any
other available remedy or remedies, but each is cumulative and in addition to
every other remedy given under this Agreement or the Credit Agreement or now or
hereafter existing at law or in equity or by statute.
Section 4. MISCELLANEOUS PROVISIONS.
4.1. MISCELLANEOUS. No delay or omission to exercise any right will impair
any such right or be a waiver thereof, and a waiver on one occasion will be
limited to that particular occasion. This Agreement may be amended only in
writing signed by the party against whom enforcement of the amendment is sought.
This Agreement may be executed in counterparts. If any part of this Agreement
is held invalid, the remainder of this Agreement will not be affected thereby.
4.2. BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of the respective legal representatives, successors and assigns of the
parties hereto; however, Borrower may not assign any of its rights or delegate
any of its obligations hereunder. Lender (and any subsequent assignee) may
transfer and assign this Agreement or may assign partial interests or
participation in the Loans to other persons.
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<PAGE>
4.3. FINANCING STATEMENT. Borrower hereby authorizes Lender to file a copy
of this Agreement as a Financing Statement with appropriate county and state
government authorities necessary to perfect the Lender's security interest in
the Collateral as set forth herein.
4.4. NOTICES. Any notices under or pursuant to this Agreement will be
deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, to the addresses then provided for in
the Notices section of the Credit Agreement.
4.5. GOVERNING LAW; JURISDICTION. This Agreement will be governed by the
domestic laws of the State of Delaware without regard to the principles of
conflicts of law. Borrower agrees that the state and federal courts in New
Castle County, Delaware or any other court in which Lender initiates proceedings
have exclusive jurisdiction over all matters arising out of this Agreement, and
that service of process in any such proceeding will be effective if mailed to a
Borrower at its address described in the Notices section of the Credit
Agreement. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY
MATTERS ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, Borrower and Lender have executed this Security
Agreement by their duly authorized officers as of the date first above written.
WITNESSES: DUPONT PHOTOMASKS, INC.
- --------------------------- By:
-----------------------
Its:
-----------------------
- --------------------------- By:
-------------------
Its:
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WITNESSES: DU PONT CHEMICAL AND ENERGY
OPERATIONS, INC.
- --------------------------- By:
-----------------------
Its:
-----------------------
- --------------------------- By:
-------------------
Its:
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<PAGE>
Exhibit 10.10
September 21, 1995
PERSONAL & CONFIDENTIAL
J. M. Hardinger
This is to confirm several items discussed in our meeting on September 18 and
reflects DuPont's understanding of the issues addressed. Please advise me as
soon as possible if you have any questions or concerns regarding these matters.
1. You will retire from DuPont effective the day before you commence
employment with DPI. For all purposes, including pension, stock options, and
post-retirement medical coverage, you will be considered to have retired at age
50, subject to any required approvals by DuPont committees or other entities, as
specified in the applicable benefit plans, which will be pursued on your behalf.
Prior to your attainment of age 50, your pension benefit will be paid from the
assets of DuPont, not from the Pension and Retirement Plan.
2. You must make certain elections in connection with your retirement
regarding treatment of deferred compensation, retirement payouts, spousal
survival options, and other benefits. These elections are customarily made
thirty days before retirement. DuPont will modify these election dates as
necessary to facilitate your post-retirement planning, provided such
modifications are consistent with I.R.S. and plan administration requirements.
DuPont will provide you with notice of the expected date of commencement of
employment with DPI at least 45 days prior to the effective date.
3. Your 1995 DuPont variable compensation will be granted in 1996 without
proration. All options granted in 1995 will be 100% vested.
4. Your pension benefit calculation will be revised once the variable
compensation for 1995 is paid.
5. It is anticipated that you will receive the following compensation and
benefits from DPI. To the extent such compensation and benefits are not
received from DPI, DuPont will reimburse you.
<PAGE>
a. Your base salary will be a minimum of $290,000. Salary increases will
be set by the Board of DPI based on performance and comparison with appropriate
frame companies.
b. You will participate in DPI's incentive compensation plan.
c. If you are terminated without cause during the first two years of
employment with DPI, you will receive a severance payment of three times your
base salary. If you are terminated without cause after two years of employment,
you will receive a severance payment of one and a half times your base salary.
Your removal by DPI from the position of Chairman of the Board and Chief
Executive Officer will be tantamount to termination. Cause shall be defined as
any act of serious misconduct, including fraud, embezzlement, and conviction of
a felony.
d. Upon commencement of employment with DPI, you will be granted
$2,475,000 of stock options priced at one hundred percent of the IPO price. The
vesting period for such options will be four years, with twenty-five percent of
the options vesting on each of the first, second, third and fourth anniversary
dates of the grant. The options will be subject to a 20% price hurdle and all
other terms set forth in the DPI stock option plan. These options will vest
immediately in the event of termination without cause or death.
e. DPI will provide to you life insurance in the amount of one times
salary, and will make available for purchase additional coverage up to four
times salary under the terms of the DPI plan.
f. You will receive a grant of restricted stock, valued at ten months'
base salary, at the time of the IPO. This stock will carry a two year
restriction on sale or transfer, and will be subject to all other terms of the
DPI plan.
g. Your relocation will be handled under the terms of DuPont's relocation
policy regardless of completion date.
h. DPI will purchase typical directors and officers liability insurance
covering the IPO and subsequent events. DPI will indemnify you for any
liability in excess of the directors and officers insurance to the extent
permitted under Delaware law.
i. In the event you are exposed to excise taxes as a result of a change of
control of DPI, DPI will make its best efforts to reduce or defer payments due
to maximize your after-tax income.
<PAGE>
j. You will be covered under the applicable DPI benefit plans, including,
but not limited to, 401(k) and medical coverage.
k. Perquisites appropriate to the position of Chairman of the Board and
Chief Executive Officer, if any, will be determined by the DPI Board of
Directors.
The foregoing will be effective upon your retirement from DuPont and
commencement of employment with DPI.
/s/ C. O. Holliday, Jr.
C. O. Holliday, Jr.
Senior Vice President
I hereby accept the terms of this letter.
/s/ J. M. Hardinger
- -----------------------------------
J. M. Hardinger
Date: 9/22/95
- -----------------------------------
<PAGE>
EXHIBIT 10.11
RESEARCH, DEVELOPMENT AND
CONSULTING AGREEMENT
between
E. I. du Pont de Nemours and Company
1007 Market Street, Wilmington, Delaware 19898
("DuPont")
and
DuPont Photomasks, Inc.
100 Texas Avenue, Round Rock, Texas 78664
("DPI")
This Agreement, effective January 1, 1996, by and between DuPont and DPI
provides for research and consulting activities applicable to photomasks, blanks
and pellicles ("Field").
1. SCOPE
For the term of this Agreement, DuPont, primarily through its Central
Research Facility, agrees to provide to DPI reasonable technical assistance and
consulting of two general types in the Field:
(a) State-of-the-art analytical support and general consulting on an
as-needed basis ("Analytical Support and Counseling").
(b) Research projects at DPI's request and agreeable to DuPont addressing
specific DPI research needs such as, but not limited to, supporting outside
contracts between DPI and SEMATECH. These projects may be long term and detailed
("Research Projects"). In addition, DuPont agrees to advise DPI if other
research being conducted by DuPont may have application to the Field, and if so,
the Parties may discuss a specific Research Project based on this other
research.
2. COMPENSATION
(a) DPI agrees to pay $100,000 per calendar year to DuPont for Analytical
Support and Consulting.
(b) In the event the cost of Analytical Support and Consulting in
accordance with DuPont's customary charges for the services provided are
estimated to exceed the $100,000, DuPont shall notify DPI and DPI shall either
agree to any additional projected costs or elect not to have DuPont provide
these additional services.
<PAGE>
(c) Invoices by DuPont shall be on a quarterly basis and DPI shall remit
payment to DuPont within thirty (30) days of invoice date. DuPont shall provide
instructions for where payment shall be sent.
(d) Research Projects between the Parties will be negotiated as to each
Project's scope, whether DPI will totally or partially fund the Research
Project(s), timing, term, cost and payment schedule, etc. and will be attached
to this Agreement when negotiated during the term of this Agreement.
3. COOPERATION AND KEY PERSONNEL
(a) DuPont and DPI agree to meet periodically as appropriate, but at least
once per year, to review and discuss DPI's staffing and consulting needs for
Analytical Support and Consulting and for any Research Projects.
(b) Dr. Roger French is considered by DPI to be a key DuPont person for
any research project. Accordingly, the Parties shall include a provision
concerning his availability and commitment in any negotiated Research Project.
(c) Company contacts for communications between DuPont and DPI to
facilitate this Agreement are:
For DuPont: Lloyd Guggenberger
DuPont Company
Central Research & Development
Experimental Station 356-301
Wilmington, Delaware 19880-0356
For DPI: Dr. Franklin D. Kalk
DuPont Photomasks, Inc.
100 Texas Avenue
Round Rock, Texas 78664
4. CONFIDENTIALITY
(a) Each Party will hold in confidence and not disclose to any third Party
without the prior written consent of the other Party nor use for any other
purpose than that contemplated herein any information specifically marked as
"confidential" received by it from the other Party, or if oral, designated as
"confidential" at the time of disclosure or so designated within thirty (30)
days of disclosure. "Any Third Party" does not mean any subsidiary of a Party
and each Party is hereby permitted to disclose confidential information
hereunder to its subsidiaries who have a bona fide need to know the same
provided that each will abide by this confidentiality commitment.
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<PAGE>
(b) The foregoing obligation of confidentiality and non-use shall extend
for the term of this Agreement and for a period of ten (10) years thereafter,
provided that no Party shall be obligated to maintain in confidence information:
(a) which is or becomes part of the public domain other than through
breach of this Agreement or through the fault of the receiving
Party, or
(b) which is or becomes available to the receiving Party from a third
Party entitled to disclose it, or
(c) which is made available by the disclosing Party in written form
to a third Party on an unrestricted basis, or
(d) which is required to be disclosed by law or governmental order,
or
(e) disclosure of which is mutually agreed to by the Parties, or
(f) which the receiving Party has developed independent of any
references to the confidential information, or
(g) which the receiving Party had knowledge as shown by its written
records prior to disclosure thereof.
(c) If by Agreement of the Parties any Party hereto discloses such
information to a third Party, such disclosing Party shall ensure that suitable
obligations of secrecy are undertaken by such third Party which are no less
stringent than those of this Article.
(d) Anything to the contrary notwithstanding
(i) DuPont shall have no obligation for confidentiality in any
technical field other than relating to photomasks, pellicles and
blanks unless so identified by DPI and demonstrated by DPI to be
related to its business activities; and
(ii) DPI shall have the right to disclose Confidential DuPont
Information if in the sole discretion of DPI such disclosure is
necessary for marketing photomasks, pellicles or blanks; and
(iii)either Party may disclose Confidential Information of the other
Party in the filing of any patent application.
5. INTELLECTUAL PROPERTY
(a) In connection with any Research Project(s) carried out hereunder,
DuPont will make semi-annual presentations to DPI of technology developed by
DuPont relating to the Field. In the event DPI undertakes the total funding of
any such Research Project, DPI will own any
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<PAGE>
technology developed in the Research Project relating to the Field unless
otherwise negotiated by the Parties, and will have the right to file any patent
applications it deems appropriate based on ideas and/or inventions made in the
Research Project. In the event DPI undertakes a partial funding of any such
Research Project, DuPont will own any technology developed in the Research
Project and will grant DPI an exclusive worldwide license of the technology in
the Field with the right to sublicense such technology including any patents
issued to DuPont based on any ideas and/or inventions made in the Research
Project, at a reasonable royalty to be negotiated between the parties.
(b) Both Parties shall cooperate with each other to apply for U.S. or
foreign patents and shall execute all papers necessary or advisable for the
filing and prosecution of any such patent applications. Patent applicant shall
bear all costs of patent application, prosecution, maintenance and enforcement.
6. TERM
(a) This Agreement shall be effective on January 1, 1996 and continue in
full force and effect for five (5) years and shall continue thereafter until
terminated by either Party in whole or in part within ninety (90) days after any
annual meeting of the Parties as described in 3(a) herein.
(b) Either Party may immediately terminate this Agreement by notice to the
other Party in the event the other Party enters into bankruptcy proceedings,
becomes insolvent or commits an act of bankruptcy or breaches a material
provision of this Agreement and doesn't cure such breach after thirty (30) days
notice of breach.
7. GENERAL
(a) The Parties acknowledge that they are independent contractors in
carrying out this Agreement and are not representatives, agents or partners or
joint venturers with each other. Neither Party has any authority to make any
representations or warranties or to bind the other Party in any respect without
the other Party's prior written consent.
(b) No liability shall result to either Party from delay in performance or
from nonperformance caused by circumstances beyond the control of the Party who
has delayed performance of not performed. The nonperforming Party shall be
diligent in attempting to remove any such cause and shall promptly notify the
other Party of its extent and probable duration.
(c) Neither Party shall assign or transfer this Agreement, in whole or in
part, or any interest arising under this Agreement, or subcontract any work
hereunder, without the prior written consent of the other Party.
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<PAGE>
(d) Either Party's waiver of any of its remedies afforded hereunder or by
law is without prejudice and shall not operate to waive any other remedies, nor
shall such waiver operate to waive each Party's rights to any remedies for a
future breach, whether of a like or different character.
(e) The laws of the State of Delaware shall govern the construction of
this Agreement.
(f) In the event that any clause of this Agreement shall be found to be
void or unenforceable, such findings shall not be construed to render any other
clause of this Agreement either void or unenforceable, and all other clauses
shall remain in full force and effect unless the clause(s) which is/are invalid
or unenforceable shall substantially affect the rights or obligations granted to
or undertaken by either Party.
(g) This Agreement embodies the entire understanding between DuPont and
DPI and there are no contracts, conditions, or representations, oral or written,
with reference to the subject matter hereof which are not merged herein. No
modification hereto shall be of any force or effect unless reduced to writing
and signed by both Parties hereto.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives.
DUPONT PHOTOMASKS INC. E. I. DU PONT DE NEMOURS AND COMPANY
By: /s/ Van H. Leichliter By: /s/ John C. Sargent
------------------------ ----------------------------
Title: Executive Vice President Title: Vice President and Treasurer
------------------------ ----------------------------
and General Counsel
------------------------
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<PAGE>
EXHIBIT 10.12
BUSINESS TRANSFER AGREEMENT
This Agreement (this "Agreement"), entered this 22nd day of December, 1995
by and between DuPont Korea Ltd., a corporation organized and existing under the
laws of Korea with its principal place of business at 345-1 Suha-ri,
Shindeun-myon, Ichon-kun, Kyunggi-do, Korea ("Assignor") and DuPont Photomasks
Korea Ltd., a corporation organized and existing under the laws of Korea with
its principal place of business at 345-1 Suha-ri, Shindeun-myon, Ichon-kun,
Kyunggi-do, Korea ("Assignee") (Assignor and Assignee collectively, "the
Parties"),
WITNESSETH:
WHEREAS, the Assignor intends to assign to the Assignee any and all of the
Assignor's photomasks manufacturing, distribution, marketing and incidental
businesses thereto set forth in detail in Attachment I hereto ("Business"); and
WHEREAS, in order to consummate such business transfer, the Assignor will
withdraw from the Business and wishes to transfer the entire business in Korea
including assets, liabilities, employees and customers as a whole to Assignee,
and Assignee wishes to purchase the Business;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein, the Parties agree as follows.
ARTICLE 1. ASSIGNMENT
(a) Assignor hereby agrees to assign the entire Business as a whole to
Assignee, and Assignee agrees to acquire the Business under the terms
and conditions of this Agreement. The business includes, but is not
limited to, (i) any and all assets and liabilities of Assignor related
to the Business as set forth in detail in Attachment II hereto (the
"Assets and Liabilities"), and (ii) any and all employees engaging in
the business except for those who determine to remain as employees of
the Assignor as of the date hereof and as set forth in detail in
Attachment III hereto ("Employees").
(b) The Assets consist of all property and rights held by Assignor in
connection with the Business except for cash on hand and deposits in
banks. The Liabilities consist of all encumbrances and claims on or
against the Assets or the Assignor in connection with Assignor's
Business. Assets and Liabilities set forth in Attachment II are not
exhaustive, but provided only for the purpose of reference. The
Attachment II were prepared based upon the balance sheet with respect
to the Business ("Balance Sheet") conducted as of October 31, l995
("Balance Sheet Date") attached hereto as Attachment IV.
<PAGE>
ARTICLE 2. CLOSING
(a) The Closing shall occur on January 30, 1996 or such other date as
agreed upon by and between the Parties (the "Closing Date").
(b) On the Closing Date, Assignor and Assignee shall each take any and all
measures to effectuate the following:
1. Assignor transfers and Assignee accepts title, risk of loss and
all rights in the Assets. Assignor shall also deliver all Assets
to Assignee at the premises of Assignor. Further, Assignee shall
assume all Liabilities.
2. Assignor shall execute, obtain and deliver to Assignee contracts
and other documents as may be appropriate to complete the
transaction contemplated by this Agreement, including the change
of any registration or the obtaining of approvals or consents of
the third parties concerning the transfer of the Assets and
Liabilities. This includes the Assignor's delivery of (i) such
good and sufficient instruments of transfer as shall be necessary
and effective to vest in the Assignee good and marketable title
to the Assets, (ii) assignments and other instruments effectively
transferring and assigning to the Assignee all agreements and
contracts, and (iii) all approvals and consents of third parties
as are necessary to convey clear title to the Assets and
otherwise to consummate the transactions hereunder. Further, the
Assignee shall execute and deliver to the Assignor an undertaking
or an instrument of assumption whereby Assignee will assume and
agree to pay or discharge the Liabilities.
(c) Employees shall be transferred from Assignor to Assignee on the
Closing Date, unless any employee determines to remain as an
employee of the Assignor on or before the Closing Date. Assignee
agrees to employ Employees, and to assume all obligations and
liabilities therefor, on the same terms and conditions as those
under which said employees are employed by Assignor as of Closing
Date.
(d) Insofar as the transfer or delivery of any of the Assets shall
not have been completed or the collection of any moneys due to
Assignee shall not have been realized by the Closing Date,
Assignor shall as from such date be deemed to stand possessed of
such Assets as trustee for and on behalf of Assignee and all
moneys received by Assignor after the Closing Date in respect of
sums payable to Assignee shall be received by Assignor on behalf
on Assignee, who shall be entitled to receive and account of such
sums from Assignor.
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<PAGE>
ARTICLE 3. CONDITIONS TO CLOSING
The obligation of either Assignor or Assignee to consummate the transactions as
contemplated in this Agreement is subject to the satisfaction of the following
conditions on or prior to the Closing Date, unless waived by either party in
writing:
(a) Representations and Warranties. The representations and warranties of
Assignor and Assignee in this Agreement or in any schedule,
certificate or document delivered pursuant hereto shall be true and
correct in all material respects on the Closing Date as though made on
and as of the Closing Date.
(b) Government Approvals. Subject to Article 4 hereof, on or before the
Closing Date, all governmental approvals and/or waivers of
requirements which may be necessary for the completion of the
transaction and the effectuation of its essential purposes, and
licenses and permits to operate Assignor's business, have been
obtained. The Assignor and the Assignee shall each take any and all
measures to obtain, or to assist the other to obtain, such
governmental approvals in due course.
ARTICLE 4. ICHON PLANT
(a) Notwithstanding any provision in this Agreement or any other agreement
implementing this transaction to the contrary, Assignee and Assignor
acknowledge that the final title transfer of the land and buildings
located in Ichon plant set forth in detail in Attachment V ("Ichon
Plant") may require prerequisite government permits, approvals,
reports, or other official procedures that may not be completed on or
before the Closing Date.
(b) Assignor shall tender possession and control of the Ichon Plant to
Assignee on the Closing Date and ensure that Assignee may engage in
the Business on or after the Closing Date in substantially the same
manner as has been conducted by Assignor.
(c) Both Assignor and Assignee shall secure all such required government
approvals, submit all necessary reports, and finalize any other
official procedures required to normally and legally transfer title of
the Ichon Plant from Assignor to Assignee as soon as possible after
the Closing Date, but not later than March 31, 1996. Assignor and
Assignee shall fully cooperate with each other in obtaining such
governmental approvals. The completion of any such procedure
regarding the Ichon Plant after the Closing Date shall in no way
impair the continuing validity of this Agreement or any other
agreement implementing this transaction.
(d) The parties agree that a separate summary sales agreement(s), which
provides for basic terms and conditions with respect to the transfer
of the land and buildings at the Ichon site, may need to be prepared
and executed between the related parties to obtain the aforementioned
governmental approval in an expeditious and smooth manner. The
parties shall cooperate with each other in preparing and executing
such summary
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<PAGE>
agreements. In case of any conflict and discrepancy between this
Agreement and such a summary agreement(s), however, this Agreement
shall prevail.
ARTICLE 5. CONSIDERATION
In consideration of the transfer of Business, Assignee shall pay 29,249,258,800
Won, excluding any value added tax ("Transfer Price"), on the Closing Date The
value of the Assets and Liabilities, on which the Transfer Price has been
calculated, shall be as shown in the Balance Sheet. Immediately after the
Closing Date, but at latest within two (2) months from the Closing Date, the
Assignor and the Assignee shall evaluate the Business as of the Closing Date and
determine the difference by subtracting the Transfer Price from the amount of
such evaluation ("Closing Date Value"). The resulting difference, if positive,
shall be immediately paid by Assignee to the Assignor. Should such difference
be negative, such difference shall be paid by Assignor to Assignee.
ARTICLE 6. WARRANTY AND REPRESENTATION
(a) The Assignor represents and warrants to the Assignee as follows:
1. Assignor is a corporation duly organized, validly existing and in
good standing under the laws of the Republic of Korea and has all
requisite corporate power and authority to own, lease and operate
its properties, to carry on its business as now being conducted,
and to execute, deliver and perform this Agreement;
2. The execution, delivery and performance of this Agreement and all
writings relating hereto by Assignor have been duly and validly
authorized by all requisite corporate action. This Agreement
constitutes the valid and binding obligation of Assignor,
enforceable in accordance with its terms. Except as disclosed
herein or in any Attachment hereto, neither the execution and
delivery of this Agreement, nor the consummation by Assignor of
the transactions contemplated hereby, nor compliance with any of
the provisions hereof will (i) conflict with or result in a
breach of the Articles of Incorporation of Assignor, (ii) violate
any statute, law, rule or regulation, or any order, writ,
injunction or decree of any court or other governmental
authority, or (iii) violate or conflict with or constitute a
default under (or give rise to any penalty or an increase in any
cost, rate or charge, or any right of termination, cancellation
or acceleration under) any agreement or writing of any nature to
which Assignor is a party or by which the Assets or its other
properties may be bound;
3. On the Closing Date, Assignor shall have good and merchantable
title to the Assets;
4. The Balance Sheet fairly presents the financial position of the
Business as of the Balance Sheet Date in accordance with
generally accepted Korean accounting principles consistently
applied. Further, since the Balance Sheet Date, there has
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<PAGE>
been no material adverse change in the Assets and Liabilities,
business, or condition, financial or otherwise, of the Business;
5. The Assignor has complied in all material respects with all laws,
ordinances, regulations and orders, and administrative guidance
applicable to its business. Further, the Assignor is not a party
to, nor to the knowledge of the Assignor is Assignor threatened
with, any litigation or judicial, administrative, or arbitration
proceeding which if decided adversely to the Assignor, could have
an adverse effect upon the transactions contemplated hereby;
6. The Assignor covenants and agrees that, for the duration of the
period between the execution of this Agreement and the Closing
Date, it will carry on the Business diligently and substantially
in the same manner as heretofore conducted, it shall not engage
in any new line of business; and
7. Assignor agrees that it will at any time and from time to time
after the Closing Date, upon the request of Assignee, do,
execute, acknowledge and deliver such further acts, assignments,
transfers, instruments or documents as may reasonably be required
in order to effectuate the provisions and purposes of this
Agreement.
(b) Assignee represents and warrants to Assignor as follows:
1. Assignee is a corporation duly organized, validly existing and in
good standing under the laws of the Republic of Korea, with full
corporate power to enter into and perform this Agreement; and
2. This Agreement has been executed by an officer of Assignee duly
authorized by its Board of Directors to enter into such an
Agreement, and no further corporate authority is necessary for
the execution of this Agreement and the consummation of the
transactions provided for herein.
ARTICLE 7. INDEMNIFICATION
(a) The Assignor shall indemnify, save, and hold harmless the Assignee,
its successors and assigns, and its officers, directors, employees,
and representatives from and against any and all costs, losses,
claims, liabilities, damages, lawsuits, judgments, and expenses
("Costs") in connection with or arising out of or resulting from or
incident to any breach of, or inaccuracy with respect to any covenant
or representation or warranty herein contained made by the Assignor.
(b) The Assignee shall indemnify, save, and hold harmless the Assignor,
its successors and assigns, and its officers, directors, employees,
and representatives from and against any and all Costs in connection
with or arising out of or resulting from or incident to any breach of,
or inaccuracy with respect to, any covenant or
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<PAGE>
representation or warranty herein contained made by the Assignee, and
against and in respect from all losses, expenses, fine, debts and
obligations of any nature whatsoever incurred by Assignor to the
extent that they relate to or arise out of; (i) the liabilities
assumed by Assignee pursuant to this Agreement or (ii) Assignee's
ownership, use or operation of the Assets on or after the Closing
Date.
ARTICLE 8. TAXES
Assignor and Assignee shall pay and bear their respective taxes as set
forth in this Agreement. The amount of any value added taxes on the items among
the Assets (the "VAT") which are subject to value added tax liabilities under
Korean law, will be borne by Assignee. However, Assignor shall pay the VAT to
the tax authorities without collecting such VAT from Assignee. Assignee shall
repay to Assignor such amount of the VAT when Assignee offsets such VAT against
its own value added tax liabilities which Assignee incurred in relation to its
business or when Assignee gets a refund of the VAT from the tax authorities.
ARTICLE 9. TERMINATION
Either Party may terminate this Agreement by written notice to the other
before the Closing Date for any reason.
ARTICLE 10. AMENDMENT
This Agreement may be amended only by written agreement executed by both
Parties.
ARTICLE 11. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Korea. It is agreed that in case any; controversy or claim arises out
of, or in connection with, this Agreement or with respect to a breach thereof,
the Parties shall seek to solve the matter amicably through discussions between
the Parties. If the Parties fail to resolve such controversy, claim or breach
within thirty (30) days after initiation of such discussion by amicable
arrangement and compromise, the Parties shall submit to the jurisdiction of the
Seoul District Court with respect to any suit from such controversy, claim or
breach.
ARTICLE 12. LANGUAGE
This Agreement is written in English, which version shall prevail over any
translation thereof.
ARTICLE 13. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
when so executed shall constitute an original, but all of which together shall
constitute one agreement.
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<PAGE>
ARTICLE 14. NOTICES
Any notice under this Agreement shall be in writing (letter, telex,
facsimile or telegram) and shall be effective when received by the addressee at
its address indicated below.
(a Notice sent to the Assignor shall be addressed as follows:
Address : 345-1 Suha-ri, Shindeun-myon, Ichon-kun, Kyunggi-do, Korea
Attention : Jeong Taik Rim
Facsimile : 0336-30-1115
(b) Notice sent to the Assignee shall be addressed as follows:
Address : 345-1 Suha-ri, Shindeun-myon, Ichon-kun, Kyunggi-do, Korea
Attention : Jeff Geissler
Facsimile : 0336-30-1118
(c) The Parties by notice hereunder may designate other addresses to which
notices shall be sent.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their authorized representatives on the day and year first above written.
Assignor :
DuPont Korea Ltd.
By: /s/ JONG SE KIM
-------------------------
Name: Jong Se Kim
Title: Representative Director
Assignee :
DuPont Photomasks Korea Ltd.
By: /s/ CHEROO WON
--------------------------
Name: Cheroo Won
Title: Representative Director
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<PAGE>
ATTACHMENT I
DETAILS OF BUSINESS
Manufacture, distribution, marketing of photomasks and incidental businesses
thereto:
1. Manufacture, distribution, marketing of photomasks.
2. Import of raw materials such as Blank Masks, Pellicle, and Chemicals
3. Any other activities necessary or advisable for any of the foregoing
activities.
-8-
<PAGE>
ATTACHMENT II
DETAILS OF ASSETS AND LIABILITIES
A. ASSETS
The Assets shall mean any assets of the Assignor related to the Business,
which shall include, but not limited to, the following:
(1) The trade accounts receivable, notes receivable and miscellaneous
accounts receivable;
(2) The inventory and supplies;
(3) The prepaid expenses and prior deposits;
(4) The telephone/telex deposits and other deposits;
(5) The fixed assets consisting of items in the category of structures,
machinery and equipment, vehicles and furniture;
(6) Copies or originals of all of the books and records and systems
necessary for the operation of the Business;
(7) All rights under all agreements, contracts, and other arrangements
related to the Business, including those specified in Schedule A;
(8) Ichon Plant and Ichon Plant factory registration; and
(9) All items used in the Business not recorded as assets in the Balance
Sheet.
B. LIABILITIES
The Liabilities shall mean any obligation or liabilities of the Assignor,
arising out of or relating to the Business, which shall include, but not limited
to, the following:
(1) The trade accounts payable, notes payable and miscellaneous accounts
payable;
(2) Employees related liabilities;
(3) The liabilities related to the Business with respect to warranties;
and
(4) All liabilities related to the Business, but not recorded as assets in
the Balance Sheet.
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<PAGE>
<TABLE>
<CAPTION>
ICHON EMPLOYEE LISTS
Emp No. Name Entrance Date Depart Position
- ------- ----- ------------- ------ --------
<S> <C> <C> <C> <C> <C>
100010 Park Keun-Won 8-May-1989 75 Ichon PM Management (402) Plant Manager
100013 Park Jong Hyo 16-Jan-1989 65 Ichon PM Production (482) Production Manager
100086 Park Chang Uk 21-Jul-1988 52 Ichon Site Engineering (13) SHEA & Site Engineering Man
100089 Lee Dong Koo 1-Oct-1988 51 Ichon Site ER/ADM/MGMT (10) H.R. & Adm. Manager
100099 Kim Tae Ho 12-Aug-1986 73 Ichon PM Marketing (7040) Marketing Manager
100125 Won Chuiwoo 16-Mar-1981 51 Ichon Site ER/ADM/MGMT (10) Site Manager
100170 Bae Hwa Sup 4-Sep-1989 66 Ichon PM Process Eng. (45) Sr. Inspection Engineer
100171 Park Keon Taek 17-Aug-1989 66 Ichon PM Process Eng. (45) Sr. Process Engineer
100172 Kim Ja Hwa 4-Sep-1989 69 Ichon PM Prod. Plan (481) Data Planning Supervisor
100173 Shin Cheol 21-Aug-1989 69 Ichon PM Production (482) Sr. Production Engineer
100198 Kye Kwang Sik 20-Dec-1989 55 Ichon Site ML&S (150) Sourcing Administrator
100201 Kim Ki Jong 24-Jan-1990 66 Ichon PM Process Eng. (45) Engineering Manager
100204 Lee Hack Yeon 22-Jan-1990 73 Ichon PM Marketing (7040) Account Manager
100259 Choi Ik Zoo 1-Apr-1988 51 Ichon Site ER/ADM/MGMT (10) H.R./Adm. Administrator
100261 Lee Eun Seok 18-Sep-1985 51 Ichon Site ER/ADM/MGMT (10) General Transportation Coord.
100322 Lee Hee Young 16-Apr-1990 52 Ichon Site Engineering (13) Electrical/Instrument Engineer
100336 Lee In Sook 16-May-1990 53 Ichon Site Safety (131) Nurse
100348 Jung Jae Hoon 15-Mar-1990 68 Ichon PM Sys. Engr. (432) Inspection Equip. Engineer
100349 Oh Jung Guen 15-Mar-1990 68 Ichon PM Sys. Engr. (432) Process Equip. Engineer
100379 Park Se Jin 18-Jun-1990 71 Ichon PM Facilities (433) Fac./Equipment Engineer
100406 Choe Gwon Yong 31-Jan-1991 54 Ichon Site ISD (143) Engineer/Sys. & Networks
100438 Kim Young il 26-Apr-1990 71 Ichon PW Facilities (433) Facility Engineer
100440 Lee Woo Kang 21-May-1990 65 Ichon PM Production (482) Prod. Shift Supervisor
100451 Kim Myung Sook 15-Mar-1990 69 Ichon PM Prod. Plan (481) Operator
100452 Jung Mi Seon 15-Mar-1990 51 Ichon Site ER/ADM/MGMT (10) H.R. Resource
100455 Yoon Jae Sun 15-Mar-1990 65 Ichon PM Production (482) Operator
100456 Park Hyun Mi 1-Dec-1990 65 Ichon PM Production (482) Operator
100503 Seol Dong Kwon 7-Feb-1990 69 Ichon PM Prod. Plan (481) Data Preparation Engineer
100504 Oh Joon Hee 7-Feb-1991 65 Ichon PM Production (482) Shift Leader
100505 Jang Jung Koon 7-Feb-1991 68 Ichon PM Sys. Engr. (432) Inspection Equip. Technician
100506 Lee Eun Joo 11-Feb-1991 69 Ichon PM Prod. Plan. (481) Data Prep. Technician
100509 Lee Young Soo 25-Feb-1991 71 Ichon PM Facilities (433) Facility Engineer
100513 Lee Jung Ok 4-Mar-1991 65 Ichon PM Production (482) Operator
100519 Kim Do Yun 18-Mar-1991 66 Ichon PM Process Eng. (45) E-beam Process Engineer
100536 Kwon Joong Hoon 10-Jun-1991 08 Biz. Develop/Plan Business Analyst
100539 Nam Yun Ju 11-Jun-1991 65 Ichon PM Production (482) Operator
100540 Park In Soo 1-Jul-1991 65 Ichon PM Production (482) Operator
100542 Cho Young Rok 15-Jul-1991 70 Ichon PM Quality Mngt. (53) Q.M. Supervisor
100543 Lee Jong Jun 22-Jul-1991 70 Ichon PM Quality Mngt. (53) Quality Technician
100550 Kim Sook-Kyung 16-Sep-1991 65 Ichon PM Production (482) Operator
100553 Kim Sun-Ja 16-Sep-1991 65 Ichon PM Production (482) Operator
100571 Kim Ju Nam 16-Sep-1991 65 Ichon PM Production (482) Operator
100575 Kim Deuk-Bae 1-Oct-1991 73 Ichon PM Marketing (7040) Marketing Rep.
100593 Kwon Hee-Kyung 6-Jan-1992 55 Ichon Site ML&S (150) Sourcing Assistant
100594 Lee Jung-Ji 13-Jan-1992 69 Ichon PM Prod. Plan. (481) Computer System Engineer
100607 Lee Bok-Hee 10-Feb-1992 65 Ichon PM Production (482) Operator
100608 Kim Lee-Sook 2-Mar-1992 70 Ichon PM Quality Mngt. (64) Operator
100612 Park Dong-Hyang 2-Mar-1992 69 Ichon PM Prod. Plan (481) Operator
100619 Ju Young-Man 2-Apr-1992 71 Ichon PM Facilities (433) Facility Technician
100627 Choi Jung-Mi 6-Apr-1992 69 Ichon PM Prod. Plan (481) Operator
100637 Park Yoo-Jin 20-Apr-1992 70 Ichon PM Quality Mngt. (64) Document Control
100650 Lee Kyu-Bum 27-Apr-1992 71 Ichon PM Facilities (433) Facility Engineer
100652 Kim Jong-Suk 4-May-1992 73 Ichon PM Marketing (7040) Sales Rep.
100655 Lee In-Soo 4-May-1992 66 Ichon PM Process Eng. (45) Optical Process Engineer
100656 Son Yong-Suk 4-May-1992 66 Ichon PM Process Eng. (45) Inspection Engineer
100659 Shin Kyung-Che 1-Jun-1992 68 Ichon PM Sys. Engr. (432) Process Equip. Tech.
100663 Kim Eun Sook 14-Jul-1992 65 Ichon PM Production (482) Operator
100665 Yang Jun-Soo 14-Jul-1992 65 Ichon PM Production (482) Operator
100679 Lee Joo-Hee 20-Jul-1992 69 Ichon PM Prod. Plan (481) Operator
100683 Kim Sang-Hee 10-Aug-1992 73 Ichon PM Marketing (7040) Customer Service Rep.
100684 Choi Kil-Sub 12-Aug-1992 65 Ichon PM Production (482) Shift Leader Technician
100685 Kim Woo-Sung 10-Aug-1992 68 Ichon PM Sys. Engr. (432) Process Equip. Technician
100688 Park Myung-Hee 12-Aug-1992 70 Ichon PM Quality Mngt. (64) Operator
100689 Kim Jae-Koo 1-Sep-1992 65 Ichon PM Production (482) Production Control
100696 Lee Ok-Jin 17-Sep-1992 65 Ichon PM Production (482) Operator
100697 Lee Soo-Young 17-Sep-1992 65 Ichon PM Production (482) Operator
100698 Yoo Yoon-Ja 17-Sep-1992 65 Ichon PM Production (482) Operator
-10-
<PAGE>
<CAPTION>
Emp No. Name Entrance Date Depart Position
- ------- ----- ------------- ------ --------
<S> <C> <C> <C> <C> <C>
100699 Kim Sung-Mi 17-Sep-1992 65 Ichon PM Production (482) Operator
100700 Kang Ji-Hee 17-Sep-1992 65 Ichon PM Production (482) Operator
100704 Lee Eun-Sook 24-Sep-1992 73 Ichon PM Marketing (7040) Clerk
100714 Choi Hun-Jung 24-Nov-1992 65 Ichon PM Production (482) Operator
100715 Kim Jung-Nam 24-Nov-1992 65 Ichon PM Production (482) Operator
100717 Song Hyun-kyun 24-Nov-1992 65 Ichon PM Production (482) Operator
100719 Lee Ki-Suk 30-Nov-1992 70 Ichon PM Quality Mngt. (64) Quality Technician
100720 Kim Il-Joong 30-Nov-1992 73 Ichon PM Marketing (7040) Customer Service Rep.
100722 Park Young-A 4-Dec-1992 65 Ichon PM Production (482) Operator
100738 Lee Won-Jae 18-Jan-1993 73 Ichon PM Marketing (7040) Sales Engineer
100742 Yoon Suk-Won 18-Jan-1993 68 Ichon PM Sys. Engr. (432) Process Equip. Technician
100743 Park Jong-Bok 18-Jan-1993 65 Ichon PM Production (482) Production Technician
100744 Lee Na-Young 22-Feb-1993 66 Ichon PM Process Eng. (45) Training Coordinator
100745 Kim Young-Hee 2-Mar-1993 70 Ichon PM Quality Mngt. (64) Operator
100756 Jeon Mi-Sook 10-May-1993 65 Ichon PM Production (482) Operator
100763 Park Hyang-Suk 5-Jul-1993 65 Ichon PM Production (482) Operator
100766 Hong Jung-Hwa 23-Jul-1993 65 Ichon PM Production (482) Operator
100763 Yoo Mi-Ra 9-Aug-1993 69 Ichon PM Prod. Plan (481) Data Prep. Technician
100769 Park Hyo-Soon 6-Sep-1993 70 Ichon PM Quality Mngt. (64) Operator
100773 Park Kyung-Hee 14-Oct-1993 65 Ichon PM Production (482)
100732 Lee Ju-Eun 11-Nov-1993 51 Ichon Site ER/ADM/MGMT (10) H.R. Assistant
100733 Lim Yoon-Sun 15-Nov-1993 75 Ichon PM Management (402) Secretary
100735 Kim Hee-Jung 6-Dec-1993 69 Ichon PM Prod. Plan (481) Operator
100788 Park Nam-Kyu 4-Jan-1994 70 Ichon PM Quality Mngt. (64) Q.M. Engineer
100816 Kim Young-Sook 14-Feb-1994 65 Ichon PM Production (482) Operator
100830 Kim Myoung-He 7-Apr-1994 73 Ichon PM Marketing (7040)
100833 Youn Mi-Juong 18-Apr-1994 65 Ichon PM Production (482) Operator
100834 Koak Kyung-Lim 18-Apr-1994 65 Ichon PM Production (482) Operator
100835 Kang Soon-Nam 19-May-1994 65 Ichon PM Production (482) Operator
100856 Lee Jin-Hee 7-Jun-1994 65 Ichon PM Production (482) Operator
100857 Mun Hye-Jeoun 7-Jun-1994 65 Ichon PM Production (482) Operator
100858 Jun So-Young 7-Jun-1994 65 Ichon PM Production (482) Operator
100859 Her Kyung-Nim 7-Jun-1994 65 Ichon PM Production (482) Operator
100860 Park Sang-Hui 15-Jun-1994 65 Ichon PM Production (482) Clerk
100869 Kim Kyong-suk 12-Jul-1994 69 Ichon PM Prod. Plan. (481) Operator
100870 Park Myong-suk 12-Jul-1994 69 Ichon PM Prod. Plan. (481) Operator
100873 Kim Eui-sung 18-Jul-1994 73 Ichon PM Marketing (7040) Customer Service Rep.
100874 Kim Kyong-ja 18-Jul-1994 73 Ichon PM Marketing (7040) Clerk
100888 Seo Hye-Young 10-Sep-1994 73 Ichon PM Marketing (7040) Customer Service Rep.
100891 Kwon Ki-Ok 12-Oct-1994 70 Ichon PM Quality Mngt. (64) Operator
100892 Choi Won-Yu 4-Oct-1994 71 Ichon PM Facilities (433) Electric Technician
100893 Park Mi-Suk 5-Oct-1994 65 Ichon PM Production (482) Operator
100896 Shin Eun-Young 12-Oct-1994 65 Ichon PM Production (482) Operator
100897 Kim Eun-ju 13-Oct-1994 65 Ichon PM Production (482) Operator
100920 Lee Young-il 1-Dec-1994 66 Ichon PM Process Eng. (45) E-beam Process Engineer
100921 Oh Seok-pil 1-Dec-1994 66 Ichon PM Process Eng. (45) Inspection Engineer
100923 Kim Seungryon 12-Dec-1994 65 Ichon PM Production (482) Technician
100926 Lee Chang-suk 12-Dec-1994 65 Ichon PM Production (482) Operator
100927 Song Pan-dol 19-Dec-1994 68 Ichon PM Sys. Engr. (432) Inspection Equip. Tech.
100928 Song Eun-joo 19-Dec-1994 65 Ichon PM Production (482) Operator
100929 Lee Hyun-jung 19-Dec-1994 65 Ichon PM Production (482) Operator
100931 Ju Kwang-seo 3-Jan-1995 71 Ichon PM Facilities (433) Facility Technician
100933 Han Bok-soon 23-Jan-1995 65 Ichon PM Production (482) Operator
100934 Choi Min-young 16-Jan-1995 65 Ichon PM Production (482) Operator
100937 Kim Hyen-chu 23-Jan-1995 65 Ichon PM Production (482) Operator
100938 Lim Eun-jung 23-Jan-1995 65 Ichon PM Production (482) Operator
100949 Lee Ku-youn 13-Mar-1995 65 Ichon PM Production (482) Operator
100957 Kim Young-mi 17-Apr-1995 65 Ichon PM Production (482) Operator
100960 Kim Eun-kyung 2-May-1995 70 Ichon PM Quality Mngt. (64) Operator
100961 You Mi-young 8-May-1995 78 Ichon Site Mngt. Secretary
100962 Yoon Tae-kun 20-Apr-1995 71 Ichon PM Facilities (433) Facility Technician
100968 Yun In-ja 31-May-1995 70 Ichon PM Quality Mngt. (64) Operator
100969 Han Hyou-hui 31-May-1995 65 Ichon PM Production (482) Operator
100971 Shin In-ja 31-May-1995 65 Ichon PM Production (482)
100972 Park Jum-ee 31-May-1995 65 Ichon PM Production (482)
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<PAGE>
<CAPTION>
Emp No. Name Entrance Date Depart Position
- ------- ----- ------------- ------ --------
<S> <C> <C> <C> <C> <C>
100976 Lee Sang-chel 26-Jun-1995 73 Ichon PM Marketing (7040) Shipping Clerk
100980 Mun So-yon 1-Aug-1995 69 Ichon PM Prod. Plan (481) Operator
100981 Park Min-ok 1-Aug-1995 70 Ichon PM Quality Mngt. (64) Operator
100982 Kim Hye-yeon 1-Aug-1995 70 Ichon PM Quality Mngt. (64) Operator
100983 Kim Soon-bok 1-Aug-1995 69 Ichon PM Prod. Plan (481) Operator
100984 Jo Eun-suk 1-Aug-1995 65 Ichon PM Production (482) Operator
100985 Lee Ju-hee 1-Aug-1995 65 Ichon PM Production (482) Operator
100986 Kim Sun-hee 1-Aug-1995 65 Ichon PM Production (482) Operator
100997 Choi Eun-kyoun 9-Oct-1996 69 Ichon PM Prod. Plan (481) Technician
101001 Han Chong-a 23-Oct-1995 73 Ichon PM Marketing (7040) Customer Services Rep.
101003 Shin Myong-sun 6-Nov-1995 65 Ichon PM Production (482) Operator
101004 Park Mi-kyong 6-Nov-1995 70 Ichon PM Quality Mngt. (64) Operator
101005 Shin In-wha 20-Nov-1995 65 Ichon PM Production (482) Operator
101007 Park Mi-kyong 23-Nov-1995 65 Ichon PM Production (482) Operator
101008 Bang Yoon-hee 23-Nov-1995 65 Ichon PM Production (482) Operator
101011 Choi Hui-ye 12-Dec-1995 70 Ichon PM Quality Mngt. (64) Operator
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ATTACHMENT IV
BALANCE SHEET FOR BUSINESS
ASSET AMOUNT LIABILITIES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts Receivable-Trade 558,657,098 Accounts Payable-Trade 110,644,299
- ------------------------------------------------------------------------------------------------------------------------------
Intercompany Accounts Intercompany Accounts Payable - Trade 1,3364,121,501
Receivable - Trade 906,550,830
- ------------------------------------------------------------------------------------------------------------------------------
Note Receivable - Trade 1,592,760,540 Accounts Payable - Other 27,706,600
- ------------------------------------------------------------------------------------------------------------------------------
(Quick Asset) 3,057,968,468 Accrued Expenses 206,949,000
- ------------------------------------------------------------------------------------------------------------------------------
Finished Goods 910,553,615 Total Current Liabilities 1,709,421,400
- ------------------------------------------------------------------------------------------------------------------------------
Raw Materials 478,460,991 Allowance for Severance Pay 1,204,980,000
- ------------------------------------------------------------------------------------------------------------------------------
Supplies 173,639,399 National Pension for Severance Pay 75,077,400
- ------------------------------------------------------------------------------------------------------------------------------
(Inventories) 1,562,654,005 Total Long-Term Liabilities 1,129,902,600
- ------------------------------------------------------------------------------------------------------------------------------
Prepaid Expenses 76,995,167 Total Liabilities 2,839,324,000
- ------------------------------------------------------------------------------------------------------------------------------
Short-Term Loans to Employees 13,920,517 Net Asset Value (Sales Proceeds) 29,249,258,800
- ------------------------------------------------------------------------------------------------------------------------------
(Other Current Assets) 90,915,684
- ------------------------------------------------------------
(Total Current Assets 4,711,538,157
- ------------------------------------------------------------
Telex and Telephone Rights 7,470,000
- ------------------------------------------------------------
Other Deposit 25,100,000
- ------------------------------------------------------------
Long Term Loans 1,034,399,000
- ------------------------------------------------------------
Other Assets 1,066,939,000
- ------------------------------------------------------------
Land 4,168,775,000
- ------------------------------------------------------------
Building 9,723,626,933
- ------------------------------------------------------------
Structure 930,720,000
- ------------------------------------------------------------
Machinery and Equipment 10,628,856,076
- ------------------------------------------------------------
Tools and Equipment 218,628,601
- ------------------------------------------------------------
Furniture, etc. 587,469,033
- ------------------------------------------------------------
Vehicles 52,000,000
- ------------------------------------------------------------
Total Fixed Assets 26,310,075,643
- ------------------------------------------------------------
Total Assets 32,088,582,800
- ------------------------------------------------------------
</TABLE>
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<PAGE>
ATTACHMENT V
DETAILS OF ICHON PLANT
BUILDINGS
Use Size
---------------------- -------------
Manufacturing Bldg. 7,235.86 m to the 2nd power
Site Service Bldg. 1,673.76 m to the 2nd power
Sewage Treatment Bldg. 127.20 m to the 2nd power
Guard House 23.38 m to the 2nd power
Utility Bldg. 420.00 m to the 2nd power
Pump House 48.00 m to the 2nd power
LAND
Size: 32,825 m to the 2nd power
Location: 345-1, Suha-ri, Shindeun-myon, Ichon-kun, Kyunggi-do, Korea
-14-
<PAGE>
SCHEDULE A
AGREEMENTS, CONTRACTS, AND OTHER ARRANGEMENTS
1. Sales Agreements
2. Technology Inducement Agreement
3. Service Agreement
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<PAGE>
EXHIBIT 10.13
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, effective as of ______________, 1996, between
DUPONT PHOTOMASKS, INC., a Delaware corporation (the "Corporation"), and
___________________________ (the "Indemnitee").
W I T N E S S E T H :
WHEREAS, Indemnitee is a member of the Board of Directors of the
Corporation (the "Board of Directors"), and in such capacity is performing a
valuable service for the Corporation; and
WHEREAS, Indemnitee is willing to serve, continue to serve, and take on
additional service for or on behalf of the Corporation, subject to certain
conditions, including without limitation, the execution and performance of this
Agreement by the Corporation; and
WHEREAS, it is intended that Indemnitee shall be paid promptly by the
Corporation all amounts necessary to effectuate in full the indemnity provided
herein;
NOW, THEREFORE, in consideration of the premises and the covenants in this
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. SERVICES BY INDEMNITEE Indemnitee agrees to serve as a director
of the Corporation so long as he or she is duly appointed or elected and
qualified in accordance with the applicable provisions of the Certificate of
Incorporation ("Charter") and By-Laws ("By-Laws") of the Corporation and until
such time as he or she resigns or fails to stand for election or is removed from
his or her position in accordance with such Charter and By-Laws. Indemnitee may
at any time and for any reason resign or be removed from such position (subject
to any other contractual obligation or other obligation imposed by operation of
law and subject to any applicable provisions of the Charter or By-Laws).
2. INDEMNIFICATION The Corporation shall indemnify Indemnitee
whenever he or she is or was a party or is threatened to be made a party to any
Proceeding, including without limitation any such Proceeding brought by or in
the right of the Corporation, because he or she is or was a director of the
Corporation, or is or was serving or had agreed to serve at the request of the
Corporation as a director, officer, employee or agent of another corporation, or
other business entity or enterprise, or because of anything done or not done by
<PAGE>
Indemnitee in such capacity, against Expenses and Liabilities actually and
reasonably incurred by Indemnitee or on his or her behalf in connection with
such Proceeding, including the costs of any investigation, defense, settlement
or appeal; provided that, such Indemnitee acted in good faith and in a manner
such person reasonably believed to be in, or not opposed to, the best interest
of the Corporation, and with respect to any criminal Proceeding, had no
reasonable cause to believe that such conduct was unlawful; and except that with
respect to a Proceeding brought by or in the right of the Corporation, no
indemnification shall be made with respect to any claim, issue or matter if
Indemnitee was finally adjudged by a court of competent jurisdiction to be
liable to the Corporation or for amounts paid in settlement to the Corporation
unless and to the extent that the court in which the suit was brought or other
court of competent jurisdiction determines that Indemnitee is entitled to
indemnification for such amounts as the court deems proper.
3. ADVANCEMENT OF EXPENSES If in the judgment of the Board of Directors
of the Corporation Indemnitee is reasonably likely to be entitled to
indemnification pursuant to Section 2, then all Expenses incurred by or on
behalf of Indemnitee shall be advanced from time to time by the Corporation to
Indemnitee within thirty (30) days after the Corporation's receipt of a written
request for an advance of Expenses, whether prior to or after final disposition
of a Proceeding. The written request for an advancement of any and all Expenses
under this paragraph shall contain reasonable detail of the Expenses incurred by
Indemnitee. If required by law at the time of such advance, Indemnitee hereby
agrees to repay the amounts advanced if it is ultimately determined that
Indemnitee is not entitled to be indemnified pursuant to the terms of this
Agreement.
4. LIMITATIONS The foregoing indemnity and advancement of Expenses
shall apply only to the extent that Indemnitee has not been indemnified and
reimbursed pursuant to such insurance as the Corporation may maintain for
Indemnitee's benefit, provided however, that notwithstanding the availability of
such other indemnification and reimbursement pursuant to such Corporation-
maintained policies, Indemnitee may claim indemnification and advancement of
Expenses pursuant to this Agreement by assigning to the Corporation, at its
request, Indemnitee's claims under such insurance to the extent Indemnitee has
been paid by the Corporation.
5. INSURANCE AND FUNDING The Corporation may purchase and maintain
directors and officers, insurance in such amounts as approved by the Board of
Directors to protect Indemnitee against any Expenses and Liabilities in
connection with any Proceeding to the fullest extent permitted by applicable
laws. The Corporation may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit) to ensure the
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<PAGE>
payment of such amounts as may be necessary to effect indemnification or
advancement of Expenses as provided in this Agreement.
6. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION
(a) Whenever Indemnitee believes that he or she is entitled to
indemnification pursuant to this Agreement, Indemnitee shall submit to the
Corporation a written request for indemnification. Any request for
indemnification shall include sufficient documentation or information reasonably
available to Indemnitee to support his or her claim for indemnification.
Indemnitee shall submit such claim for indemnification within a reasonable time
not to exceed five years after any judgment, order, settlement, dismissal,
arbitration award, conviction, acceptance of a plea of nolo contendere or its
equivalent, final termination or other disposition or partial disposition of any
Proceeding, whichever is the later date for which Indemnitee requests
indemnification. The Chairman of the Board, the President or the Secretary or
other appropriate officer shall, promptly upon receipt of Indemnitee's request
for indemnification, advise the Board of Directors in writing that Indemnitee
has made such request. Determination of Indemnitee's entitlement to
indemnification shall be made not later than ninety (90) days after the
Corporation's receipt of his or her written request for such indemnification.
(b) The Indemnitee shall be entitled to select the forum in which
Indemnitee's request for indemnification will be heard, which selection shall be
included in the written request for indemnification required in Section 6(a).
The forum shall be any one of the following:
(i) The stockholders of the Corporation;
(ii) A quorum of the Board of Directors consisting of Disinterested
Directors; or
(iii) If such quorum is not obtainable, or even if obtainable, if
a quorum of Disinterested Directors so directs, by Independent Legal
Counsel in a written opinion as designated by Indemnitee.
If Indemnitee fails to make such designation, his or her claim shall
be determined by an appropriate court of the State of Delaware.
7. FEES AND EXPENSES OF INDEPENDENT LEGAL COUNSEL The Corporation
agrees to pay the reasonable fees and expenses of Independent Legal Counsel
should such counsel be retained to make a determination of
-3-
<PAGE>
Indemnitee's entitlement to indemnification pursuant to Section 6 of this
Agreement.
8. REMEDIES OF INDEMNITEE
(a) In the event that (i) a determination pursuant to Section 6
hereof is made that Indemnitee is not entitled to indemnification, (ii)
advances of Expenses are not made pursuant to this Agreement for any
reason, (iii) payment has not been timely made following a determination of
entitlement to indemnification pursuant to this Agreement, or (iv)
Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall
be entitled to a final adjudication of his or her rights in an appropriate
court of the State of Delaware. The Corporation shall not oppose
Indemnitee's right to seek any such adjudication.
(b) In the event that a determination that Indemnitee is not entitled
to indemnification, in whole or in part, has been made pursuant to Section
6 hereof, the decision in the judicial proceeding provided in paragraph (a)
of this Section 8 shall be made de novo and Indemnitee shall not be
prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Indemnitee is entitled to indemnification
has been made pursuant to Section 6 hereof or otherwise pursuant to the
terms of this Agreement, the Corporation shall be bound by such
determination in the absence of (i) a misrepresentation of a material fact
by Indemnitee or (ii) a specific finding (which has become final) by an
appropriate court of the State of Delaware that all or any part of such
indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 8, the
Corporation shall be precluded from asserting that the procedures and
presumptions of this Agreement are not valid, binding and enforceable. The
Corporation shall stipulate in any such court that the Corporation is bound
by all the provisions of this Agreement and is precluded from making any
assertion to the contrary.
9. MODIFICATION, WAIVER, TERMINATION AND CANCELLATION No supplement,
modification, termination, cancellation or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver.
-4-
<PAGE>
10. NOTICE BY INDEMNITEE AND DEFENSE OF CLAIM Indemnitee shall
promptly notify the Corporation in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter, whether civil, criminal, administrative or
investigative, but the omission to so notify the Corporation will not relieve it
from any liability for Expenses or Liabilities which it may have to Indemnitee
under the terms of this Agreement or otherwise if such omission was not the
result of bad faith by Indemnitee. If such omission was the result of
Indemnitee's bad faith and such omission prejudices the Corporation's rights,
the Corporation will be relieved from liability for Expenses or Liabilities only
to the extent of such prejudice; provided, however, no such omission will
relieve the Corporation from any liability which it may have to Indemnitee
otherwise than under this Agreement. With respect to any Proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at its
own expense; and
(b) The Corporation jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with
counsel reasonably satisfactory to Indemnitee; provided, however, that the
Corporation shall not be entitled to assume the defense of any Proceeding
if Indemnitee shall have reasonably concluded that there may be a conflict
of interest between the Corporation and Indemnitee with respect to such
Proceeding. After notice from the Corporation to Indemnitee of its
election to assume the defense thereof, and Indemnitee's written
confirmation that there is no conflict of interest between the Corporation
an Indemnitee with respect to such Proceeding, the Corporation will not be
liable to Indemnitee under this Agreement for any expenses subsequently
incurred by Indemnitee in connection with the defense thereof, other than
reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ his or her own counsel in such
Proceeding, but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at
the expense of Indemnitee unless:
(i) The employment of counsel by Indemnitee has been authorized
by the Corporation;
(ii) Indemnitee shall have reasonably concluded that counsel
engaged by the Corporation may not adequately represent Indemnitee; or
(iii) The Corporation shall not in fact have employed counsel
to assume the defense in such Proceeding or shall not in
-5-
<PAGE>
fact have assumed such defense and be acting in connection therewith
with reasonable diligence;
in each of which cases the fees and expenses of such counsel shall be at
the expense of the Corporation.
(c) The Corporation shall not settle any Proceeding in any manner
which would impose any Liability or limitation on Indemnitee without
Indemnitee's written consent; provided, however, that Indemnitee will not
unreasonably withhold his or her consent to any proposed settlement.
11. NOTICES All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
__________________________
__________________________
__________________________
with a copy to:
__________________________
__________________________
__________________________
(b) If to the Corporation, to:
DuPont Photomasks, Inc.
100 Texas Avenue
Round Rock, Texas 78664
or such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
12. NONEXCLUSIVITY The rights of Indemnitee hereunder shall not be deemed
exclusive of any other rights to which Indemnitee may now or in the future be
entitled under the General Corporation Law of the State of Delaware, the
Articles or By-Laws, or any agreements, vote of stockholders, resolution of the
Board of Directors or otherwise.
-6-
<PAGE>
13. CERTAIN DEFINITIONS
(a) "DISINTERESTED DIRECTOR" shall mean a director of the
Corporation who is not or was not a party to the Proceeding in respect of
which indemnification is being sought by Indemnitee.
(b) "EXPENSES" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery
service fees, all other disbursements or out-of-pocket expenses and
reasonable compensation for time spent by Indemnitee for which he or she is
otherwise not compensated by the Corporation) actually and reasonably
incurred in connection with a Proceeding or establishing or enforcing a
right to indemnification under this Agreement, the Corporation's Charter
and By-Laws applicable law or otherwise; provided, however, that "Expenses"
shall not include any Liabilities.
(c) "INDEMNIFICATION PERIOD" shall mean the period of time during
which Indemnitee shall continue to serve as a director or as an officer of
the Corporation, and thereafter so long as Indemnitee shall be subject to
any possible Proceeding arising out of acts or omissions of Indemnitee as a
director or as an officer of the Corporation.
(d) "INDEPENDENT LEGAL COUNSEL" shall mean any person or firm who is
licensed to practice law within the jurisdiction of the United States or
any state thereof (including the District of Columbia) and who is in good
standing of all applicable bar associations of which he is a member and
who, under the applicable standards of professional conduct then
prevailing, would not have a conflict in representing either the
Corporation or the Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
(e) "LIABILITIES" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, convictions, fines, ERISA or
Internal Revenue Code excise taxes and penalties, penalties and any other
amounts paid in settlement (including all interest assessments and other
charges paid or payable in connection with or in respect of such judgments,
fines, penalties or amounts paid in settlement) of any Proceeding.
(f) "PROCEEDING" shall mean any threatened, pending or completed
action, claim, suit, order, arbitration, settlement, alternate dispute
resolution mechanism, investigation, administrative hearing or any
-7-
<PAGE>
other proceeding whether civil, criminal, administrative or investigative,
including any appeal therefrom.
14. BINDING EFFECT, DURATION AND SCOPE OF AGREEMENT This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns (including any direct
or indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Corporation), spouses, heirs
and personal and legal representatives. This Agreement shall continue in effect
during the Indemnification Period, regardless of whether Indemnitee continues to
serve as a director or as an officer.
15. SEVERABILITY If any provision or provisions of this Agreement (or
any portion thereof) shall be held to be invalid, illegal or unenforceable for
any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby; and
(b) to the fullest extent legally possible, the provisions of this
Agreement shall be construed so as to give effect to the intent of any
provision held invalid, illegal or unenforceable.
16. GOVERNING LAW AND INTERPRETATION OF AGREEMENT This Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of Delaware, as applied to contracts between Delaware residents entered
into and to be performed entirely within Delaware. If the laws of the State of
Delaware are hereafter amended to permit the Corporation to provide broader
indemnification rights than said laws permitted the Corporation to provide prior
to such amendment, the rights of indemnification and advancement of expenses
conferred by this Agreement shall automatically be broadened to the fullest
extent permitted by the laws of the State of Delaware, as so amended.
17. CONSENT TO JURISDICTION The Corporation and Indemnitee each
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
18. ENTIRE AGREEMENT This Agreement represents the entire agreement
between the parties hereto, and there are no other agreements, contracts or
understanding between the parties hereto with respect to the subject
-8-
<PAGE>
matter of this Agreement, except as specifically referred to herein or as
provided in Section 12 hereof.
19. COUNTERPARTS This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement.
DUPONT PHOTOMASKS, INC.
By: ________________________________
Name: _____________________________
Title: _______________________________
[Director]
___________________________________
Name: ______________________________
-9-
<PAGE>
EXHIBIT 10.14
CORPORATE TRADE NAME AND TRADEMARK AGREEMENT
This Agreement is made and entered into this 16th day of May, 1996.
between
E. I. du Pont de Nemours and Company, a company organized and existing under the
laws of the State of Delaware, and having its principal place of business at
1007 Market Street, Wilmington, Delaware 19898 (hereinafter referred to as
"DuPont" or "Licensor");
and
DuPont Photomasks, Inc., a company organized and existing under the laws of the
State of Delaware, and having its principal place of business at 100 Texas
Avenue, Round Rock, Texas 78664 (hereinafter refereed to as "DPI" or "Licensee")
of the other party.
In consideration of the mutual promises and covenants contained herein, the
parties have agreed as follows:
WHEREAS, Licensor is the sole and exclusive owner of the trademark DuPont
in Oval, and has registered said trademark; and
WHEREAS, Licensee has requested permission to use said trademark as part of
its corporate logotype and in connection with the sale of Licensee's products
manufactured by it and Licensor is willing to grant Licensee use of said
trademark on the terms and conditions hereinafter set forth; and
WHEREAS, Licensee desires to use the tradename "DuPont" as a part of its
corporate name or the terms and conditions hereinafter set forth.
ARTICLE 1. DEFINITIONS
(a) "Licensee's Corporate Name" shall mean the tradename "DuPont Photomasks,
Inc." or the substantial equivalent thereof.
(b) "Affiliated Company" shall mean any corporation which is affiliated with
the Licensee through the ownership by the Licensee or a subsidiary of the
Licensee of at least 51% of the stock/equity shares entitled to vote for
the election of directors of such corporation.
<PAGE>
ARTICLE 2. CORPORATE TRADE NAME
2.1. The Licensor hereby grants to the Licensee, and the Licensee hereby accepts
the non-assignable and non-exclusive license to use the tradename "DuPont"
as part of the Licensee's Corporate Name, or as part of the Corporate name
of an Affiliated Company.
2.2 Licensor hereby grants to Licensee and its affiliated Companies the
nonexclusive and nontransferable right to use the trademark DuPont in Oval
as part of its corporate logotype and for the sale of Licensee's products
manufactured by it, subject to the following limitations:
(a) Licensor reserves the right as owner of said trademark to specify the
manner of its use by Licensee in its company logotype and in labeling,
advertising and sales promotion material.
(b) Licensee hereby acknowledges the validity of Licensor's trademark and
Licensor's exclusive ownership of said trademark. Licensee shall not
use or take any action with respect to the licensed trademark to
prejudice or infringe Licensor's rights thereto.
(c) Licensee shall not sublicense use of said trademark without the
written approval of Licensor, and, except for those rights expressly
granted herein, hereby waives all right, title and interest to said
trademark as a licensed user thereof.
ARTICLE 3. ASSIGNMENT
The Licensee shall not assign or otherwise transfer this Agreement or any
interest arising therefrom without the previous consent in writing of the
Licensor. The Licensor shall have the right to assign or transfer any or all
its rights or obligations hereunder to any of its subsidiaries or affiliates.
ARTICLE 4. LICENSEE'S COVENANTS
a) The Licensee recognizes the title of the Licensor to the tradename "DuPont"
and hereby covenants that it shall not at any time do or suffer to be done
any act or thing which will in any way impair the rights of the Licensor in
this regard. It is understood that the Licensee shall not acquire and
shall not claim any right by virtue of this agreement or through its use of
the tradename "DuPont". The Licensee further undertakes that it shall not
authorize, assist or knowingly allow the use of the tradename "DuPont" by
any third party except by Licensee's customers or Licensee's agents,
representatives or contractors in conjunction with marketing
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selling or distributing Licensee's products. The covenant foregoing shall
survive the termination of this Agreement for a period of three (3) years
thereafter.
b) The Licensee undertakes to bring to the notice of the Licensor all cases or
potential cases of infringement or passing off of the tradename "DuPont" or
registration or attempted registration of the tradename "DuPont" or of any
corporate name, trademark or tradename similar thereto of which Licensee
has knowledge. In the event of the Licensor undertaking any opposition to
or any action to restrain or punish such act or acts, the Licensee agrees
to cooperate fully with the Licensor. If required by the Licensor, the
Licensee shall permit the Licensor to undertake such opposition or action
in the name of the Licensee. The Licensee shall have no right to prosecute
any claim against any alleged infringer, or to participate in any
litigation against such alleged infringer.
(c) In the event of any claim or litigation by a third party alleging that said
trademark imitates or infringes a trademark or trade name of such party or
is invalid, Licensee shall promptly give notice of such claim or litigation
to Licensor and Licensor shall assume responsibility for and control of the
handling, defense or settlement thereof, including assuming all costs
thereof, and shall use its best efforts to defend the trademark.
ARTICLE 5. USE OF MARKED MATERIAL
To the extent the trademarks, service marks, brand names or trade,
corporate or business names of DuPont or of any of DuPont's affiliates or
divisions are used by DPI or by an affiliated Company on stationery, signage,
invoices, receipts, forms, packaging, advertising and promotional materials,
product, training and service literature and materials, computer programs or
like materials ("Marked Materials"), DPI and any affiliated Company may use
such existing Marked Materials for a period ending on January 1, 1998 without
altering or modifying such Market Materials, or removing such trademarks,
service marks, brand names, or trade, corporate or business names, but
neither DPI are any affiliated Company shall thereafter use such trademarks,
service marks, brand names or trade, corporate or business names in any other
manner unless otherwise permitted by DuPont.
ARTICLE 6. TERMINATION
6.1 The Licensor shall have the right to terminate this Agreement upon the
occurrence of any or all of the following events upon 90 days prior written
notice to the Licensee:
(a) If the Licensor and/or its affiliates cease to hold 51% of the total
outstanding common stock of the Licensee;
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(b) If the Licensee shall attempt or purport to assign or otherwise sell,
transfer or encumber this Agreement, without the written consent of
the Licensor;
(c) If the Licensee uses the tradename "DuPont" otherwise than under the
terms of this Agreement.
6.2 After January 1, 2000, the Licensor shall have the right to terminate this
Agreement, without giving any reason whatsoever, upon 90 days prior written
notice to the Licensee.
6.3 Licensee has the right to terminate this agreement in whole or in part at
any time upon ninety (90) days prior written notice to Licensor.
ARTICLE 7. POST TERMINATION
Upon termination of this Agreement for any reason whatsoever, the Licensee
shall within 90 days after demand of the Licensor:
(a) proceed forthwith to change its tradename so that the word "DuPont"
shall be omitted therefrom;
(b) cease to use the word "DuPont" or any word similar thereto as, or as
part of its corporate name or in any other manner whatsoever; and
(c) cease to use the Licensor's trademarks licensed herein.
ARTICLE 8. WAIVER
No waiver by either party of any breach or series of breaches or defaults
in performance by the other party, and no failure, refusal or neglect to
exercise any right, power or option given to either party hereunder or to insist
upon strict compliance with or performance of the obligations under this
Agreement, shall constitute a waiver of the provisions of this Agreement with
respect to any subsequent breach thereof or a waiver by such party of its right
at any time thereafter to require exact and strict compliance with the
provisions hereof.
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ARTICLE 9. NO OBLIGATION
This agreement does not, in any way, require Licensee to use the trademark
DuPont in Oval or the DuPont tradename in straight line form for any time
period, but confers upon the Licensee a License for the right to use such marks
under the terms of this License Agreement.
ARTICLE 10. GOVERNING LAW
This Agreement shall be construed and interpreted in accordance with the
laws of Delaware.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on the
day and year first above written.
On behalf of On behalf of
E. I. DU PONT DE NEMOURS AND COMPANY DU PONT PHOTOMASKS , INC.
By: /s/ John C. Sargent By: /s/ Van H. Leichliter
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Title: Vice President and Treasurer Title: Executive Vice President
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and General Counsel
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-1 of our reports dated
April 4, 1996 and May 10, 1996, relating to the combined financial statements of
DuPont Photomasks Business, a division of E. I. du Pont de Nemours and Company,
which appear in such Prospectus. We also consent to the references to us under
the headings "Experts" and "Selected Combined Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Combined Financial Data."
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
May 15, 1996
