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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 0-20839
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DUPONT PHOTOMASKS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2238819
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
100 TEXAS AVENUE
ROUND ROCK, TEXAS 78664
(Address of principal executive offices)
Registrant's telephone number, including area code: 512-310-6559
Securities registered pursuant to Section 12(b) of the Act
(Each class is registered on the NASDAQ National Market):
Title of Each Class
Common stock ($.01 par value)
No securities are registered pursuant to Section 12(g) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Aggregate market value of voting stock held by nonaffiliates of the
registrant (excludes outstanding shares beneficially owned by directors and
officers and shares held by E.I. du Pont de Nemours and Company) as of September
8, 1997, was approximately $315 million. As of such date, 15,154,600 shares of
the registrant's common stock, $.01 par value, were outstanding.
Documents Incorporated by Reference
(Specific pages incorporated are indicated under the applicable Item herein):
INCORPORATED BY
REFERENCE IN PART NO.
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The Company's Proxy Statement, dated September 15, 1997,
filed in connection with the Annual Meeting of
Stockholders to be held on October 27, 1997............... III
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DUPONT PHOTOMASKS, INC.
The terms "DPI" or the "Company" as used herein refer to DuPont Photomasks,
Inc. and its consolidated subsidiaries, as the context may indicate.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . 14
Executive Officers of the Company . . . 14
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . 16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . 16
Item 8. Financial Statements and Supplementary
Data . . . . . . . . . . . . . . . . . 22
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Disclosure . . . . . . . . . . . . . . 22
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . 23
Item 11. Executive Compensation . . . . . . . . 23
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . 23
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . 23
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . 23
Signatures. . . . . . . . . . . . . . . 24
NOTE ON INCORPORATION BY REFERENCE
Throughout this report, various information and data are incorporated by
reference to portions of the Company's 1997 Proxy Statement. Any reference
in this report to disclosures in the Company's 1997 Proxy Statement shall
constitute incorporation by reference of that specific material into this
Form 10-K.
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The discussion in this document contains analysis or trends and other forward
looking statements within the meaning of Section of 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements involve management assumptions and are subject
to risks and uncertainties, including those discussed under "Business--Risk
Factors" below.
PART I
ITEM 1. BUSINESS
THE COMPANY
Based on worldwide sales, the Company is one of the largest photomask
manufacturers in the world. The Company sells its products to approximately 200
customers in 20 different countries. Essentially all of the Company's sales are
to customers in the semiconductor manufacturing industry.
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 manufactures a broad range of photomasks based on
customer-supplied design data. The Company also manufacturers photoblanks
and pellicles, the principal components of photomasks, principally for
internal consumption. The Company operates globally with established
manufacturing facilities in North America, Europe and Asia.
Prior to the Company's initial public offering on June 13, 1996 (the
"Initial Public Offering"), the Company was a wholly-owned subsidiary of E.I.
du Pont de Nemours and Company ("DuPont"). The Company was reincorporated in
Delaware prior to the Initial Public Offering and non-U.S. operations were
realigned so that these operations would be conducted by wholly-owned
subsidiaries of DPI. Upon completion of the Initial Public Offering, DuPont,
through its wholly-owned subsidiary DuPont Chemical and Energy Operations,
Inc. ("DCEO"), owned 10,500,000 shares (approximately 69.3%) of the Company's
common stock. As a result, DuPont has sufficient voting power to control the
direction and policies of the Company, including any merger, consolidation or
sale of all or substantially all of the assets of the Company, to elect the
members of the Board of Directors of the Company and to prevent or cause a
change in control of the Company.
Historically, the Company has derived certain tangible and intangible
benefits from being a subsidiary of DuPont. Upon completion of the Initial
Public Offering, the relationship between the Company and DuPont has been
defined pursuant to several transitional agreements. These agreements will
continue to provide the Company with certain benefits for a limited time.
INDUSTRY BACKGROUND
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 several hours.
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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. The excess capacity was further exacerbated by the advent
of reduction photolithography in the mid-1980's. Reduction photolithography,
which allowed the 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. Concurrent 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 5 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.
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
25 photomasks for the current 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 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. In addition, the
demand for semiconductor devices from traditional markets such as personal
computers, cellular telephones, pagers, automobiles, medical products,
household appliances and other electronic consumer products is growing
significantly as semiconductor content in electronic systems increases and as
these products expand into new market segments.
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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 some "5X" reduction steppers
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. See "Risk Factors."
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.
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 25
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 beam 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.
The Company manufactures a broad range of photomasks for varying
customer applications, including applications requiring the use of leading
edge photomasks. The Company manufactures these products using multiple
production techniques, including electron beam and laser beam exposure as
well as lower cost optical exposure techniques.
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 over 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.
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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 Corporation 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.
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 six patents covering various aspects of pellicle technology,
with three patents pending. To assure a backup supply, the Company purchases
approximately 20% to 30% of the pellicles it uses to manufacture photomasks
from Micro Lithography, Inc. and several other suppliers. See "Risk
Factors."
GLOBAL MANUFACTURING AND OPERATIONS
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. Additionally, the Company has
announced plans to build a manufacturing facility on a to be identified
"greenfield" site near Portland, Oregon. In Europe, the Company's
manufacturing facilities are located in Rousset, France and Hamburg, Germany
and it is constructing a third photomask manufacturing facility on a
"greenfield" site in Hamilton, Scotland. In Asia, the Company currently
operates a manufacturing facility in Ichon, Republic of Korea ("Korea") and
is participating in the operation of a facility with its joint venture
partner in Shanghai, Peoples Republic of China ("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 a global
leader in 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.
Approximately 24% of the Company's sales in fiscal 1997 were in Europe.
Through its manufacturing facilities in Germany and France, the Company
supplies photomasks to the major European semiconductor manufacturers. In
addition, through its planned facility in Hamilton, 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 approximately 78% from
fiscal 1995 to fiscal 1997. The Company supplies photomasks to semiconductor
manufacturers principally in Korea through its facility in Ichon, Korea.
This facility also serves customers located in Japan, Hong Kong, Taiwan and
Singapore. In addition, the Company has expanded its Asian operations to
China. As part of a joint venture, the Company is participating in the
operation of a Shanghai, China manufacturing facility which began producing
photomasks in fiscal 1997. The Company is a majority owner of this joint
venture.
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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.
Each of the Company's wholly-owned 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 production facilities equipped with state-of-the-art
manufacturing equipment. See "Risk Factors."
CUSTOMERS
The Company is the principal photomask supplier of many of the leading
global semiconductor manufacturers. Essentially, all the Company's sales are
to customers in the semiconductor manufacturing industry.
In fiscal 1997, the Company's largest customer, SGS-Thomson accounted
for approximately 12% of the Company's sales. The Company's largest 6
customers, in the aggregate, accounted for more than half of sales.
The Company has entered into multi-year, non-exclusive supply agreements
with some of its customers, including Lucent Technologies, Motorola, Philips
and SGS-Thomson. Each agreement is separately negotiated and therefore
specific terms vary. See "Risk Factors."
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. In North America, the
Company competes primarily with Photronics, Inc. and, to a lesser extent,
with other smaller independent photomask suppliers. In Europe, the Company
competes primarily with Compugraphics International Limited and Photronics.
In Asia, the Company primarily competes with Dai Nippon Printing, Hoya
Corporation, Taiwan Mask Corporation and Toppan. The Company expects that
some of its competitors will 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 recently opened 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. In addition, captive photomasks
operations can, and sometimes do, sell into the merchant market.
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. The Company also 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."
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 anticipate, respond to and
utilize changing technologies.
The Company, along with Advanced Micro Devices, Micron Technology and
Motorola, has begun operation of a joint venture for advanced photomask
technology development and pilot line fabrication of leading edge photomasks.
The venture, a limited liability company called the DPI Reticle Technology
Center, L.L.C. ("RTC"), is located in a fully equipped, free-standing
facility next to the photomasks manufacturing site the Company operates in
Round Rock, Texas.
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The Company, independently and through its participation in the RTC,
intends to continue to invest in research and development in order to ensure
its technological capabilities. 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.
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 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 masks 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 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 0.35 micron semiconductor lithography. This technology is providing the
platform for the development of manufacturing technologies consistent with
0.25 micron semiconductor lithography at high yields and rapid cycle time.
The Company has been a leader in the development of leading edge photomasks
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 Inc. in
the United States and the Joint European Submicron Strategic Initiative 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.
The Company has established a research and development group that
consists of trained and experienced personnel. The capabilities of this
group have 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. 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 "Risk Factors."
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PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSES
INTELLECTUAL PROPERTY
The Company believes that the success of its business depends primarily
on its proprietary technology, information, 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. Certain aspects of the Company's photoblanks and
pellicles technologies are, however, protected by twelve 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, 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.
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 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.
See "Risk Factors."
EMPLOYEES
As of June 30, 1997, the Company had approximately 1,500 employees
worldwide, of whom approximately 10% have engineering or technical degrees.
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. The Company believes that
it has a good relationship with its employees. See "Risk Factors."
RISK FACTORS
The Company's business is subject to various risks and uncertainties.
The following factors should be carefully considered in reading this report.
CAPITAL INTENSIVE INDUSTRY
Due to the capital intensive nature of photomask manufacturing
operations, at a given threshold of manufacturing capacity, a high proportion
of the Company's operating costs remain relatively constant as sales volume
increases or decreases. To the extent the Company has under-utilized
production capacity, operating profit increases or decreases significantly as
sales volume increases or decreases. The Company anticipates that operating
costs will increase as it adds capacity to position itself for future growth.
A decrease in capacity utilization could have a material adverse effect on
the Company's results of operations.
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RAPID TECHNOLOGICAL CHANGE
The photomask industry is characterized by rapid technological change
and new product introduction and enhancements that require 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. The
Company believes it 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 results of
operations. Also, there can be no assurance that additional research and
development investments by the Company will result in any technological
innovations.
Technological advances achieved by a competitor or a customer, leading
to the commercial availability of alternate methods of transferring circuit
designs onto semiconductor wafers without the use of photomasks, including
direct write lithography, could have a material adverse effect on the
Company's results of operations or financial position. An alternative to
photomasks 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.
RELATIONSHIP WITH AND DEPENDENCE ON SEMICONDUCTOR INDUSTRY
Substantially all the Company's sales are derived from semiconductor
manufacturers. Growth in the demand for semiconductors does 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.
Technological and manufacturing advances in the semiconductor industry could
have a material adverse effect on the demand for photomasks. In addition,
contractions or downturns in the semiconductor industry could 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. Future downturns in the semiconductor industry could have a material
adverse effect on the Company's results of operations.
CONCENTRATION OF CUSTOMERS
In fiscal 1997, the Company's largest 6 customers, in the aggregate,
accounted for more than half of sales. All these customers are in the
semiconductor industry. The loss of, or a significant reduction of orders
from, any of these customers could have a material adverse effect on the
Company's results of operations.
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 10 to
14 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 the 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.
10
<PAGE>
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 the 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 can 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.
COMPETITION; REVERSAL OF CONSOLIDATION TREND
The Company 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.
SIGNIFICANT INTERNATIONAL OPERATIONS
Approximately 44% of the Company's sales in fiscal 1997 were derived
from sales in non-U.S. markets. The Company expects sales from non-U.S.
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 operation of a manufacturing facility in
Shanghai, China as part of a joint venture arrangement with the Shanghai
Institute of Metallurgy and is constructing a photomask manufacturing
facility on a "greenfield" site in Hamilton, Scotland.
Non-U.S. 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 financial statements reflect remeasurement of items
denominated in non-U.S. currencies to U.S. Dollars, the Company's functional
currency. Exchange gains or losses are included in income in the period in
which they occur. Prior to the Initial Public Offering, DuPont managed the
Company's exposure to fluctuations in currency exchange rates as part of its
overall management of exchange rate exposure. No separate hedging of the
Company's exchange rate exposure was undertaken. Accordingly, the financial
statements prior to the Initial Public Offering do not reflect any hedging
activities. Effective with the completion of the Initial Public Offering,
the Company monitors its exchange rate exposure and attempts to reduce such
exposure by hedging. In 1997, the Company entered into Korean Won forward
contracts designed to reduce such exposure. There can be no assurance that
such forward contracts or any other hedging activity will be adequate to
eliminate, or even mitigate, the impact of the Company's exchange rate
exposure. The risks associated with non-U.S. 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.
DEPENDENCE ON MANAGEMENT AND TECHNICAL PERSONNEL
The Company's future success depends upon, in part, qualified
managerial, engineering and technical personnel, as well as the Company's
ability to continue to attract and retain additional personnel. The
Company's inability to attract and retain additional qualified personnel
could have a material adverse effect on the Company's results of operations.
11
<PAGE>
CONTROL BY AND RELATIONSHIP WITH DUPONT
DuPont, through DCEO, owns approximately 69.3% of the outstanding Common
Stock of the Company. As a result, DuPont has sufficient voting power to
control the direction and policies of the Company, including any merger,
consolidation or sale of all or substantially all of the assets of the
Company, to elect the members of the Board of Directors of the Company and to
prevent or cause a change in control of the Company. 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.
Historically, the Company has derived certain tangible and intangible
benefits from being a subsidiary of DuPont. The current relationship between
the Company and DuPont is 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.
NO INDEPENDENT OPERATING HISTORY PRIOR TO THE OFFERING
Prior to the Initial Public Offering, the Company was a wholly-owned
subsidiary of DuPont and had no independent operating history. Since the
Initial Public Offering, the Company has been developing financial,
management, administrative, research and other resources previously provided
by DuPont, which are necessary to operate successfully as an independent
public company. 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.
INTELLECTUAL PROPERTY
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.
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. 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,
fluctuation 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.
12
<PAGE>
CHANGES IN GOVERNMENTAL LAWS AND REGULATIONS
The Company is subject to numerous governmental laws and regulations,
including, for example, environmental, tax and occupational safety and
health. Changes in these laws and regulations may have a material adverse
effect on the Company's financial position and results of operations.
ITEM 2. PROPERTIES
FACILITIES
The Company conducts manufacturing operations throughout the world.
Each of the Company's wholly-owned operations is ISO-9002 qualified. The
Company believes that its facilities are adequate and suitable for their
respective uses. The table below presents certain information (as of June
30, 1997) relating to the Company's principal manufacturing and support
facilities.
<TABLE>
FLOOR SPACE TYPE OF
LOCATION SQUARE FEET INTEREST USE
-------- ----------- -------- ---
<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
Round Rock, Texas 17,000 Owned Research
Round Rock, Texas 17,000 Leased Administration
Round Rock, Texas (under construction) Owned Administration
EUROPE
Rousset, France 24,000 Leased Photomasks
Hamburg, Germany 22,000 Leased Photomasks
Hamilton, Scotland (under construction) Owned Photomasks
ASIA
Ichon, Korea 102,000 Owned Photomasks
Shanghai, China 16,000 Jointly Owned Photomasks
</TABLE>
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) 310-6559.
The research facility in Round Rock is leased to the RTC and contains
primarily RTC manufacturing equipment leased by the RTC from a third party.
Facilities and property located in Santa Clara and Hamburg are leased under
leases that expire in 2001 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 also maintains customer
service data centers in leased facilities in Beaverton, Oregon and Dallas,
Texas.
The Company's Santa Clara facility is in a seismically active area.
Although the Company has obtained 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 Company's North
American business.
13
<PAGE>
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 waste. 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 $1 million in each of fiscal
1998, 1999 and 2000. In addition, the Company expects to incur expenses
relating to environmental matters of approximately $300,000 in each of fiscal
1998, 1999 and 2000. 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. With respect to any environmental contamination present on the
Company's manufacturing sites at the time of the Initial Public 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 Initial
Public Offering, the Company will be indemnified by DuPont pursuant to an
agreement between DuPont and the Company effective the date of the Initial
Public Offering. The Company is responsible for any environmental
liabilities resulting from its operations following the consummation of its
Initial Public Offering.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
The following is a list, as of September 8, 1997, of the Company's
executive officers, each of whom has been an executive officer since December
21, 1995 except Mr. Launder and Mr. Lynn who became executive officers on
October 1, 1996 and March 1, 1997.
AGE
---
Chief Executive Officer:
J. Michael Hardinger (1) . . . . . . . . . . . . . . . . . . . . 50
Other Executive Officers:
Preston M. Adcox, President and Chief Operating Officer . . . . 54
Gerard Cognie, Executive Vice President--European Operations . . 52
David S. Gino, Executive Vice President--Finance and Chief
Financial Officer . . . . . . . . . . . . . . . . . . . . . 39
Arthur W. Launder, Executive Vice President-North American
Photomask Operations. . . . . . . . . . . . . . . . . . . . 58
John M. Lynn, Executive Vice President, General Counsel and
Secretary . . . . . . . . . . . . . . . . . . . . . . . . . 39
Kenneth A. Rygler, Executive Vice President--Worldwide
Marketing and Strategic Planning . . . . . . . . . . . . . 53
- --------------
(1) Member of the Board of Directors.
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. Mr. Hardinger is also a member of the
Texas Commerce Bank Austin Advisory Board of Directors.
14
<PAGE>
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. He became a Managing Director in DuPont's
semiconductor materials business in 1988 and had global responsibility for
DuPont's photomask operations until 1996. 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 and the Chairman of the Board of DuPont Photomasks (France) S.A. He
joined DuPont in 1968 and from 1988 to 1996 served as the Director of DuPont's
European photomask operations and from 1985 to 1996 served as the Director of
Electronics for DuPont France.
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.
ARTHUR W. LAUNDER. Mr. Launder is Executive Vice President-North American
Photomask Operations. He joined the Company in 1996 after serving as President
of ASM America, Inc. Prior to joining ASM America, Inc. in 1994, he had been
President and Chief Operating Officer of Photronics, Inc. from 1987 to 1994 and
Senior Vice President and General Manager of Micro Mask, Inc. from 1983 to 1987.
JOHN M. LYNN. Mr. Lynn is Executive Vice President and General Counsel of the
Company. He also serves as Corporate Secretary. He joined DuPont in 1980 as a
chemical engineer and then, after a departure for law school, rejoined DuPont as
a lawyer in 1985. He held a number of legal advisory positions with DuPont
prior to joining the Company in 1996.
KENNETH A. RYGLER. Mr. Rygler is Executive Vice President--Worldwide Marketing
and Strategic Planning of the Company. He joined DuPont in 1964 and held
numerous sales, marketing, planning and business development management
positions.
The Company's executive officers are appointed annually by the Board of
Directors in accordance with the Company's Bylaws.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the NASDAQ National Market under the
symbol "DPMI". The number of record holders of common stock was 96 at September
8, 1997.
The high and low sales prices of Company stock for each quarterly period
since June 14, 1996, the first trading day after the Initial Public Offering,
are set forth in the table below.
HIGH LOW
---- ---
YEAR ENDING JUNE 30, 1996
Fourth Quarter $23.50 $19.25
YEAR ENDING JUNE 30, 1997
First Quarter $29.25 $17.87
Second Quarter $47.50 $26.75
Third Quarter $63.00 $36.25
Fourth Quarter $59.50 $36.75
YEAR ENDING JUNE 30, 1998
First Quarter (through September 8, 1997) $69.50 $46.75
15
<PAGE>
Since June 13, 1996, the Company has not paid any dividends. 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.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Financial Review
(Dollars in thousands, except per share amounts)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Sales . . . . . . . . . . . $118,896 $134,548 $161,514 $213,415 $261,185
Income (loss) before
extraordinary item . . . . (37,558) (10,865) 4,119 26,904 36,762
Net income (loss) . . . . . (37,558) (10,865) 4,119 26,904 59,004
Earnings per share before
extraordinary item . . . . 2.36
Earnings per share . . . . 3.79
Total assets . . . . . . . 176,953 160,901 171,701 227,893 291,579
Borrowings . . . . . . . . 3,731 8,090 7,225 10,778 12,318
DuPont master notes . . . . 142,841 140,846 125,570
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the financial
statements of the Company and the related notes thereto. Prior to the
Company's Initial Public Offering on June 13, 1996, it was a wholly-owned
subsidiary of E.I. duPont de Nemours and Company ("DuPont"). Therefore, the
Company's historical results are not necessarily indicative of the results
that would have been achieved if the Company had been independent and may not
be an accurate indication of future results.
The unaudited pro forma income statement estimates the effects of
certain events associated with the Initial Public Offering as if such events
had taken place on July 1, 1995. The unaudited pro forma income statement
does not purport to represent what the results of operations of the Company
would actually have been had certain events in fact occurred on July 1, 1995
or to project the results of operations of the Company for any future period.
16
<PAGE>
INCOME STATEMENT
(Percent of sales)
FOR THE YEARS ENDED JUNE 30,
----------------------------
PRO FORMA
---------
1995 1996 1996 1997
---- ---- ---- ----
(UNAUDITED)
Sales . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . . 72.5 65.0 64.5 61.5
Selling, general and administrative
expense . . . . . . . . . . . . . . . . . 13.5 11.8 12.3 12.1
Research and development expense . . . . . 5.4 4.3 3.9 4.7
Other operating expense . . . . . . . . . . 2.2 1.6 1.4 1.1
------ ------ ------ ------
Operating profit . . . . . . . . . . . . . 6.4 17.3 17.9 20.6
Interest (income) expense . . . . . . . . . 4.2 3.3 (0.8)
Exchange (gain) loss . . . . . . . . . . . (0.3) 0.4 0.3 0.3
------ ------ ------ ------
Income before income taxes, minority
interest and extraordinary item. . . . . 2.5 13.6 17.6 21.1
Provision for income taxes . . . . . . . . 1.3 6.2 7.4
------ ------ ------ ------
Income before minority interest and
extraordinary item. . . . . . . . . . . . 2.5 12.3 11.4 13.7
Minority interest in loss of majority owned
joint venture. . . . . . . . . . . . . . (0.3) (0.3) (0.4)
------ ------ ------ ------
Income before extraordinary item . . . . . 2.5 12.6 11.7 14.1
Extraordinary item . . . . . . . . . . . . (8.5)
------ ------ ------ ------
Net income . . . . . . . . . . . . . . 2.5% 12.6% 11.7% 22.6%
------ ------ ------ ------
------ ------ ------ ------
GENERAL
During the 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 reduced the number of
photomasks required to manufacture a semiconductor device. The Company
believes that weak market conditions during this period contributed to the
poor financial performance of several merchant photomask manufacturers,
including the Company. Since that time, however, growth in the photomask
market has resumed.
The Company's sales increased from $161.5 million in 1995 to $261.2
million in 1997. The increase of over 61% was primarily the result of an
accelerating trend in the semiconductor industry toward semiconductor device
customization, which generates demand for new photomasks, semiconductor
device complexity, which increases the value and number of photomask layers
needed to produce a semiconductor device, and the proliferation of
semiconductor devices into new products and markets.
The Company's sales continued to be internationally diverse. North
American sales constituted approximately 56% of the Company's sales in 1995
and 1997, while sales in Europe and Asia accounted for approximately 26% and
18% of sales in 1995 and 24% and 20% in 1997. Sales in North America grew
approximately 62% from 1995 to 1997 from $90.1 million to $145.6 million.
Sales in Europe grew approximately 50% from 1995 to 1997 from $42.0 million
to $63.0 million. Sales in Asia grew approximately 78% from 1995 to 1997
from $29.5 million to $52.6 million. The Company expects sales in non-U.S.
markets to continue to represent a significant portion of sales.
Due to the capital intensive nature of photomask manufacturing
operations, at a given threshold of manufacturing capacity, a high proportion
of the Company's operating costs remain relatively constant as sales volume
increases or decreases. To the extent that the Company has under-utilized
production capacity, operating profit increases or decreases significantly as
sales volume increases or decreases. In the early 1990's, the Company had
excess capacity. Therefore, as sales increased from 1995 to 1997, costs
associated with manufacturing remained relatively unchanged and the Company's
operating profit over the period benefited. The Company anticipates that
operating costs will increase as it adds capacity to position itself for
future growth.
17
<PAGE>
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
SALES
Sales are comprised primarily of photomask sales to semiconductor
manufacturers. Sales increased 22.4% from $213.4 million in 1996 to $261.2
million in 1997. Sales in North America, Europe and Asia increased from
$121.6 million, $52.9 million and $38.9 million in 1996 to $145.6 million,
$63.0 million and $52.6 million in 1997. A continued increase in the demand
for advanced photomasks, which have higher average selling prices, was a
primary contributor to the increase in sales during this period. This shift
in demand reflects a trend toward higher utilization of complex semiconductor
devices with finer linewidths. The increase in sales during this period also
reflects the overall increase in demand for photomasks.
COST OF GOODS SOLD
Cost of goods sold consists of material, labor, depreciation and
overhead. Cost of goods sold increased 15.7% from $138.8 million in 1996 to
$160.6 million in 1997 resulting primarily from higher costs associated with
increased sales. As a percentage of sales, cost of goods sold decreased from
65.0% in 1996 to 61.5% in 1997. The decrease was primarily due to continued
improvements in capacity utilization including increased use of internally
sourced photoblanks and pellicles.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense includes salaries of sales
personnel, marketing expense, general and administrative expense and product
distribution expense. Prior to January 1, 1996, general and administrative
expense principally included allocated costs for services provided by
centralized DuPont organizations. These allocated costs are not necessarily
indicative of the costs that would have been incurred if the Company had been
independent. Since January 1, 1996, general and administrative expense
includes fees incurred by the Company under administrative services
agreements with DuPont and certain DuPont subsidiaries ("Administrative
Service Agreements"). Selling, general and administrative expense as a
percentage of sales increased from 11.8% in 1996 to 12.1% in 1997. Selling,
general and administrative expense increased 25.6% from $25.2 million in 1996
to $31.6 million in 1997. The increases were due largely to increases in
selling expenses corresponding to increased sales and increases in incentive
compensation expenses corresponding to increases in earnings.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense consists primarily of employee costs,
cost of material consumed, depreciation, engineering related costs and the
Company's allocated share of DuPont's central research and development.
These allocations were $1.1 million in 1996. Such allocations terminated
December 31, 1995. Since that date, the Company has received services from
DuPont central research and development pursuant to a research, development
and consulting agreement with DuPont.
Research and development expense, excluding DuPont allocations,
increased from $8.1 million in 1996 to $12.4 million in 1997. As a
percentage of sales, research and development expense increased slightly
compared to the prior year. The increases reflect pre-operating losses from
the Company's joint venture participation, with Advance Micro Devices, Micron
Technology and Motorola, in a limited liability company called the DPI
Reticle Technology Center, L.L.C. ("RTC") which was formed to develop
advanced photomask technology and pilot line fabricate leading edge
photomasks. The Company believes that, through its participation in the RTC,
it will be able to help meet the future technology needs of the semiconductor
industry for advanced photomasks. There can be no assurance that the RTC
will yield results that are favorable to the Company.
18
<PAGE>
Research and development expense is net of funds the Company received
from customers, industry groups such as SEMATECH Inc. and the Joint European
Submicron Strategic Initiative and government sources. 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. However, there can be no assurance
that such expenditures will enable the Company to develop new technologies or
to maintain its technological leadership.
OTHER OPERATING EXPENSE
Other operating expense consists primarily of costs not directly related
to the manufacture of the Company's products. Historically, a significant
portion of this item has been pre-operating losses related to new facilities
and the expense associated with the early retirement of equipment resulting
from technological obsolescence. The photomask industry is characterized by
rapid technological change and new product introductions and enhancements
which may, in the future, result in additional technological obsolescence.
The timing and amounts of these retirements are uncertain and difficult to
predict. Also, as the Company adds capacity to position itself for future
growth, it will incur additional pre-operating losses related to new
facilities. Other operating expense decreased from $3.4 million in 1996 to
$2.8 million in 1997.
INTEREST (INCOME) EXPENSE
Interest expense was $7.1 million in 1996 and interest income was $2.1
million in 1997. The primary source of interest expense in 1996 was the
Company's master note arrangements with DuPont. On June 28, 1996, DuPont
contributed the $90.5 million balance outstanding on the master notes to the
Company as a capital contribution. Interest income results from short-term
investment of the Company's cash balances.
EXCHANGE (GAIN) LOSS
Exchange (gain) loss consists of gains and losses resulting from the
remeasurement of the Company's accounts denominated in non-U.S. currencies
into U.S. Dollars, which is the Company's functional currency. Exchange loss
was $0.9 million in 1996 and $0.8 million in 1997. The loss is primarily due
to fluctuations of the U.S. Dollar against the German Mark, French Franc and
Korean Won. Exchange (gain) loss is net of the impact of hedging activities
designed to reduce exchange rate exposure.
PROVISION FOR INCOME TAXES
Prior to the Initial Public Offering, tax expense was determined and
allocated to the Company by applying the separate taxpayer approach outlined
in FAS 109. Under this approach, the Company had net operating loss
carryforwards in the U.S. and Europe, some of which became fully utilized
during the year ended June 30, 1996. The Company's operations in Korea are
subject to a government granted tax exemption. 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. In
actuality, the Company's results prior to the Initial Public Offering were
included in consolidated tax returns filed by DuPont and the tax benefit of
prior year losses was realized by DuPont. Since the Initial Public Offering,
tax expense has been determined in accordance with FAS 109 and approximates
the U.S. statutory rate.
MINORITY INTEREST IN LOSS OF MAJORITY OWNED JOINT VENTURE
The minority interest impact of the Company's joint venture in China was
($0.7 million) in 1996 compared to ($0.9 million) in 1997, reflecting
increased pre-operating losses from, and partner funding of, the joint
venture.
EXTRAORDINARY ITEM
In January 1997, the Company sold its entire investment in Etec Systems,
Inc. common stock. Aggregate net proceeds from the sale of $39.2 million
will be used in operations. The Company realized a $34.2 million gain on the
sale. The related provision for income taxes was $12.0 million.
19
<PAGE>
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
SALES
Sales increased 32.1% from $161.5 million in 1995 to $213.4 million in
1996. Sales in North America, Europe and Asia increased from $90.1 million,
$42.0 million and $29.5 million in 1995 to $121.6 million, $52.9 million and
$38.9 million in 1996. A continued increase in the demand for advanced
photomasks, which have higher average selling prices, was a primary
contributor to the increase in sales during this period. This shift in
demand reflects a trend toward higher utilization of complex semiconductor
devices with finer linewidths. The increase in sales during this period also
reflects the overall increase in demand for photomasks. In addition,
approximately $13 million of photomask sales to Lucent Technologies
("Lucent") were generated during 1996 under a five-year supply agreement
executed in connection with the April 1995 purchase of selected photomask
manufacturing equipment from an affiliate of AT&T. Under the terms of the
supply agreement, Lucent has agreed to purchase certain minimum quantities of
photomasks from the Company.
COST OF GOODS SOLD
Cost of goods sold increased 18.6% from $117.0 million in 1995 to $138.8
million in 1996 resulting primarily from higher costs associated with
increased sales. As a percentage of sales, cost of goods sold decreased from
72.5% in 1995 to 65.0% in 1996. The decrease was primarily due to continued
improvements in capacity utilization including increased use of internally
sourced photoblanks and pellicles.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Prior to January 1, 1996, general and administrative expense principally
included allocated costs for services provided by centralized DuPont
organizations. These allocated costs are not necessarily indicative of the
costs that would have been incurred if the Company had been independent.
Since January 1, 1996, general and administrative expense includes fees
incurred by the Company under Administrative Service Agreements. Selling,
general and administrative expense as a percentage of sales declined from
13.5% in 1995 to 11.8% in 1996. Selling, general and administrative expense
increased 15.4% from $21.8 million in 1995 to $25.2 million in 1996. The
increase was due largely to increases in selling expenses corresponding to
increased sales.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense consists primarily of employee costs,
cost of material consumed, depreciation of equipment, engineering related
costs and the Company's allocated share of DuPont's central research and
development. These allocations were $2.0 million and $1.1 million in 1995 and
1996. Such allocations terminated December 31, 1995. Prospectively, the
Company will receive services from DuPont central research and development
pursuant to a research, development and consulting agreement with DuPont.
Research and development expense, excluding DuPont allocations, increased
from $6.8 million in 1995 to $8.1 million in 1996. 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. and the Joint European Submicron Strategic Initiative and
government sources.
OTHER OPERATING EXPENSE
Other operating expense decreased from $3.5 million in 1995 to $3.4
million in 1996.
INTEREST EXPENSE
Interest expense was essentially flat at approximately $7 million for
both 1995 and 1996.
20
<PAGE>
EXCHANGE (GAIN) LOSS
Exchange gain was $0.5 million in 1995 compared to an exchange loss of $0.9
million in 1996. The loss in 1996 was primarily attributable to the fluctuation
of the U.S. Dollar against the German Mark, French Franc and Korean Won.
PROVISION FOR INCOME TAXES
Tax expense has been determined and allocated to the Company by applying
the separate taxpayer approach outlined in FAS 109. Under this approach, the
Company had net operating loss carryforwards in the U.S. and Europe, some of
which became fully utilized during the year ended June 30, 1996. The
Company's operations in Korea are subject to a government granted tax
exemption. 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. In actuality, the Company's results were
included in consolidated tax returns filed by DuPont and the tax benefit of
prior year losses was realized by DuPont.
MINORITY INTEREST IN LOSS OF MAJORITY OWNED JOINT VENTURE
The minority interest impact of the Company's joint venture in China was
($0.2 million) in 1995 compared to ($0.7 million) in 1996, reflecting increased
pre-operating losses from, and partner funding of, the joint venture.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $34.5 million at June 30, 1996 and
$66.1 million at June 30, 1997. The increase in working capital for the year
ended June 30, 1997 is due principally to higher cash balances. Cash and
cash equivalents were $8.4 million at June 30, 1995, $20.2 million at June
30, 1996 and $51.4 million at June 30, 1997. The increase in 1996 was
primarily due to the Company retaining a portion of the net proceeds of the
Initial Public Offering. The increase in 1997 was primarily due to the
Company retaining a portion of the cash generated from operations and the
cash proceeds from the sale of the Company's investment in Etec Systems, Inc.
common stock. The Company's ongoing cash requirements will be for capital
expenditures, research and product development and working capital.
Cash provided by operations was $29.0 million in 1995, $50.4 million in
1996 and $41.7 million in 1997. The Company believes that cash provided by
operations will be the Company's primary source of liquidity. Cash used in
investing activities was $18.6 million in 1995, $29.4 million in 1996 and
$11.8 million in 1997. The Company's most significant use of cash for
investing activities was capital expenditures and acquisitions. The Company
expects capital expenditures in 1998 will be approximately $70 million. The
capital expenditures for 1998 will be used primarily to expand the Company's
manufacturing capacity and advance the Company's technical capability. Cash
used in financing activities was $7.0 million in 1995 and $8.5 million in
1996 and cash provided by financing activities was $2.5 million in 1997.
Prior to the Company's Initial Public Offering, it participated in DuPont's
centralized cash management system whereby substantially all of the net cash
generated by the Company was transferred, principally via the master notes,
to DuPont.
The Company and DuPont have entered into a credit agreement pursuant to
which DuPont has agreed to provide a credit facility to the Company in an
aggregate amount of $100.0 million. The Credit Agreement has a term of 48
months and any loans thereunder will bear interest at LIBOR plus 25 basis
points. At the Company's option, advances under the Credit Agreement are
convertible into term loans with maturities up to seven years. The credit
facility will serve as a back-up to cash from operations. To date, there
have been no borrowings under the credit facility. There can be no assurance
that alternative sources of financing will be available upon the expiration
of such facility or that alternative sources of funding will be available if
the Company's borrowing requirements exceed the facility. The credit
agreement contains, among other things, covenants restricting the Company's
ability to incur additional debt. In addition, there can be no assurance
that, even if funding is available, the terms thereof will be attractive to
the Company.
OTHER MATTERS
Non-U.S. 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
21
<PAGE>
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
financial statements reflect remeasurement of items denominated in non-U.S.
currencies to U.S. Dollars, the Company's functional currency. Exchange gains
or losses are included in income in the period in which they occur. Prior to
the Initial Public Offering, DuPont managed the Company's exposure to
fluctuations in currency exchange rates as part of its overall management of
exchange rate exposure. No separate hedging of the Company's exchange rate
exposure was undertaken. Accordingly, the financial statements prior to the
Initial Public Offering do not reflect any hedging activities. Effective with
the completion of the Initial Public Offering, the Company monitors its exchange
rate exposure and attempts to reduce such exposure by hedging. In 1997, the
Company entered into Korean Won forward contracts designed to reduce such
exposure. There can be no assurance that such forward contracts or any other
hedging activity will be adequate to eliminate, or even mitigate, the impact of
the Company's exchange rate exposure. The risks associated with non-U.S.
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.
Inflation impacts the Company through increases in the cost of labor,
services and raw materials. In general, these increases have been mitigated by
periodic increases in the prices of the Company's products.
DISCUSSION OF PRO FORMA
The unaudited pro forma income statement estimates the effects that the
Initial Public Offering, various realignment transactions and the following
would have had on the Company's results of operations had they occurred as of
July 1, 1995: (i) the discontinuance of DuPont's postretirement benefits and
replacement of DuPont's defined benefit pension plan with the Company's defined
contribution pension plan; (ii) the elimination of DuPont allocated overhead
expenses that are not expected to be incurred by the Company following the
Initial Public Offering; (iii) the cost of services to be provided by third
parties or DuPont, pursuant to several transitional agreements, 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. The principal effect of these adjustments
would have been a decrease in costs of goods sold of $1.2 million for 1996. In
addition, selling, general and administrative expense would have increased by
$1.1 million for 1996 and research and development expense would have decreased
$0.9 million for 1996. As a result of these adjustments, operating profit would
have increased by $1.3 million for 1996. Furthermore, elimination of the master
notes would have decreased interest expense by $7.0 million for 1996. Net
income, after an increase in the provision for income taxes, would have
decreased by $1.8 million for 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
PAGE(S)
---------
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . F-1
Income Statement for the Three Years Ended June 30, 1997 . . . . . . . F-2
Balance Sheet at June 30, 1996 and 1997. . . . . . . . . . . . . . . . F-3
Statement of Cash Flows for the Three Years Ended June 30, 1997. . . . F-4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . F-5 to 15
All Schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or Notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Information with respect to the following Items is incorporated by
reference to the pages indicated in the Company's Proxy Statement, dated
September 15, 1997, filed in connection with the Annual Meeting of Stockholders
to
22
<PAGE>
be held October 27, 1997. However, information regarding executive officers
is contained in Part I of this report (page 15) pursuant to General Instruction
G of this Form.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PAGE(S)
--------
Election of Directors. . . . . . . . . . . . . . . . . . . . . . . . . 3 to 5
Compliance With Section 16(a) of the Exchange Act. . . . . . . . . . . 10
ITEM 11. EXECUTIVE COMPENSATION
PAGE(S)
--------
Executive Compensation and Other Information . . . . . . . . . . . . . 10 to 15
Director Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 15
Employment Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PAGE(S)
-------
Beneficial Ownership of Securities . . . . . . . . . . . . . . . . . . 1 to 2
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PAGE(S)
-------
Transactions and Relationship Between the Company and DuPont . . . . . 5 to 10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The following financial statements, financial statement schedules and
exhibits are filed as a part of this Report:
1. Financial statements--see Index to Financial Statements on
page 22
2. Financial statement schedules--see Index to Financial Statements
on page 22
3. Exhibits--see Index to Exhibits on page 26
(B) Reports on Form 8-K
Form 8-K, dated June 10, 1997, filed in connection with the Company's
announced new production facility to be located in the Portland,
Oregon area of the United States.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: September 12, 1997 DUPONT PHOTOMASKS, INC.
(Registrant)
By: /s/ DAVID S. GINO
---------------------------------
David S. Gino
EXECUTIVE VICE PRESIDENT--FINANCE
AND CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
NAME TITLE DATE
---- ----- ----
/s/ J. MICHAEL HARDINGER
- ----------------------------- Chairman of the Board and September 12, 1997
J. Michael Hardinger Chief Executive Officer
(Principal Executive Officer)
/s/ PRESTON M. ADCOX
- ----------------------------- President and Chief Operating
Preston M. Adcox Officer September 12, 1997
/s/ DAVID S. GINO
- ----------------------------- Executive Vice President-- September 12, 1997
David S. Gino Finance and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
/s/ JOHN L. DOYLE
- ----------------------------- Director September 12, 1997
John L. Doyle
/s/ JOHN C. HODGSON
- ----------------------------- Director September 12, 1997
John C. Hodgson
/s/ CHARLES O. HOLLIDAY, JR.
- ----------------------------- Director September 12, 1997
Charles O. Holliday, Jr.
/s/ PETER G. KEHOE
- ----------------------------- Director September 12, 1997
Peter G. Kehoe
24
<PAGE>
NAME TITLE DATE
---- ----- ----
/s/ GARY W. PANKONIEN
- ----------------------------- Director September 12, 1997
Gary W. Pankonien
/s/ JOHN C. SARGENT
- ----------------------------- Director September 12, 1997
John C. Sargent
/s/ MARSHALL C. TURNER
- ----------------------------- Director September 12, 1997
Marshall C. Turner
/s/ SUSAN A. VLADUCHICK
- ----------------------------- Director September 12, 1997
Susan A. Vladuchick
25
<PAGE>
INDEX TO EXHIBITS
An asterisk below indicates an exhibit previously filed with the Securities
and Exchange Commission as an exhibit to Registrant's Registration Statement on
Form S-1, Registration No. 333-3386 (the "IPO Registration Statement"), such
exhibit being incorporated by reference. Unless otherwise indicated, the number
of the exhibit below is also the number of such exhibit in the IPO Registration
Statement.
EXHIBIT
NUMBER
- ------
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*
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 between the Company and E.I. du
Pont de Nemours dated April 30, 1996*
10.3 Company's Amended Bonus Plan, as adopted by the Company's Board of
Directors on October 28, 1996
10.4 Company's Amended and Restated Non-employee Directors Stock Option Plan
as adopted by the Company's Board of Directors on June 9, 1997
10.5 Company's Amended and Restated Stock Performance Plan as adopted by the
Company's Board of Directors on June 9, 1997
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 among the Company, DuPont Chemical and
Energy Operations, Inc. and E.I. du Pont de Nemours and Company
dated May 14, 1996*
10.9 Amended Credit Agreement between the Company and DuPont Chemical and
Energy Operations, Inc. dated as of August 1, 1997
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 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*
10.15 Company's 1997 Stock Option and Restricted Stock Plan as adopted by the
Company's Board of Directors on June 9, 1997
11 Statement re Computation of Per Share Earnings
21 List of principal subsidiaries of the Company
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Dupont Photomasks, Inc.
In our opinion, the accompanying balance sheet and the related income
statement and statement of cash flows present fairly, in all material
respects, the financial position of DuPont Photomasks, Inc. and its
subsidiaries at June 30, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, 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
Austin, Texas
July 29, 1997
F-1
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
INCOME STATEMENT
<TABLE>
YEAR ENDED JUNE 30,
-------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
---------
1995 1996 1996 (NOTE 1) 1997
---- ---- ------------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . $161,514 $213,415 $213,415 $261,185
Cost of goods sold . . . . . . . . 117,022 138,796 137,615 160,564
Selling, general and
administrative expense . . . . 21,803 25,167 26,229 31,611
Research and development
expense . . . . . . . . . . . 8,777 9,162 8,290 12,372
Other operating expense . . . . . . 3,490 3,404 3,126 2,755
-------- -------- ---------- ----------
Operating profit . . . . . . . . . 10,422 36,886 38,155 53,883
Interest (income) expense . . . . . 6,957 7,078 62 (2,080)
Exchange (gain) loss . . . . . . . (493) 886 590 796
-------- -------- ---------- ----------
Income before income taxes, minority
interest and extraordinary
item . . . . . . . . . . . . . 3,958 28,922 37,503 55,167
Provision for income taxes . . . . 2,678 13,126 19,308
-------- -------- ---------- ----------
Income before minority interest and
extraordinary item . . . . . . 3,958 26,244 24,377 35,859
Minority interest in loss of
majority owned joint
venture . . . . . . . . . . . (161) (660) (660) (903)
-------- -------- ---------- ----------
Income before extraordinary
item . . . . . . . . . . . . . 4,119 26,904 25,037 36,762
Extraordinary item . . . . . . . . (22,242)
-------- -------- ---------- ----------
Net income . . . . . . . . . . . . $4,119 $26,904 $25,037 $59,004
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Earnings per share before
extraordinary item . . . . . . $1.65 $2.36
Extraordinary item . . . . . . . . (1.43)
---------- ----------
Earnings per share . . . . . . . . $1.65 $3.79
---------- ----------
---------- ----------
Weighted average shares
outstanding . . . . . . . . . 15,194,913 15,562,522
---------- ----------
---------- ----------
The accompanying notes are an integral part of this statement.
</TABLE>
F-2
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
BALANCE SHEET
ASSETS
<TABLE>
JUNE 30,
--------
1996 1997
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PAR VALUE AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 20,179 $ 51,351
Accounts receivable, trade . . . . . . . . . . . . . 32,293 38,973
Accounts receivable, related parties . . . . . . . . 4,726 3,670
Inventories . . . . . . . . . . . . . . . . . . . . 10,227 15,651
Deferred income taxes . . . . . . . . . . . . . . . 1,543 3,351
Prepaid expenses and other current assets . . . . . 3,238 8,711
-------- --------
Total current assets . . . . . . . . . . . . . 72,206 121,707
-------- --------
Property and equipment . . . . . . . . . . . . . . . . . 123,048 162,310
Accounts receivable, related parties . . . . . . . . . . 1,928 1,746
Deferred income taxes . . . . . . . . . . . . . . . . . . 3,245 2,386
Other assets . . . . . . . . . . . . . . . . . . . . . . 27,466 3,430
-------- --------
Total assets . . . . . . . . . . . . . . . . . $227,893 $291,579
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade . . . . . . . . . . . . . . $ 10,382 $ 27,207
Accounts payable, related parties . . . . . . . . . 5,885 4,889
Short-term borrowings . . . . . . . . . . . . . . . 1,454 1,845
Income taxes payable . . . . . . . . . . . . . . . . 2,333 1,295
Other accrued liabilities . . . . . . . . . . . . . 17,694 20,389
-------- --------
Total current liabilities . . . . . . . . . . . 37,748 55,625
-------- --------
Long-term borrowings . . . . . . . . . . . . . . . . . . 9,324 10,473
Deferred income taxes . . . . . . . . . . . . . . . . . . 11,588 6,300
Other liabilities . . . . . . . . . . . . . . . . . . . . 3,747 2,597
Minority interest in net assets of majority owned joint
venture . . . . . . . . . . . . . . . . . . . . . . 872 687
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 15,100,000 and 15,104,568 issued
and outstanding . . . . . . . . . . . . . . . . 151 151
Additional paid-in capital . . . . . . . . . . . . . 152,880 156,742
Unrealized holding gain . . . . . . . . . . . . . . 11,583
Retained earnings . . . . . . . . . . . . . . . . . 59,004
-------- --------
Total liabilities and stockholders' equity . . $227,893 $291,579
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
<TABLE>
YEAR ENDED JUNE 30,
(DOLLARS IN THOUSANDS)
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 4,119 $ 26,904 $ 59,004
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization . . . . . . . . . . . . . . 25,543 26,882 26,593
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 42 (2,028) (494)
Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,219)
Cash provided (used) by changes in assets and liabilities
Accounts receivable. . . . . . . . . . . . . . . . . . . (1,471) (7,706) (6,945)
Inventories. . . . . . . . . . . . . . . . . . . . . . . (296) (3,399) (5,444)
Prepaid expenses and other current assets . . . . . . . 2,253 (1,021) (5,038)
Accounts payable . . . . . . . . . . . . . . . . . . . . (2,360) (4,190) 2,470
Other accrued liabilities. . . . . . . . . . . . . . . . 1,201 14,989 5,814
-------- -------- --------
Net cash provided by operating activities. . . . . . . . 29,031 50,431 41,741
-------- -------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . (14,853) (24,294) (51,057)
Payments for acquisitions . . . . . . . . . . . . . . . . (4,000) (6,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 272 920
Proceeds from sale of investment . . . . . . . . . . . . . 39,219
-------- -------- --------
Net cash used in investing activities. . . . . . . . . . (18,581) (29,374) (11,838)
-------- -------- --------
Cash flows from financing activities:
Increase (decrease) in borrowings . . . . . . . . . . . . (1,591) (1,666) 2,394
Net proceeds from issuance of common stock . . . . . . . . 72,066 61
Net cash paid to DuPont . . . . . . . . . . . . . . . . . (5,432) (78,908)
-------- -------- --------
Net cash (used in) provided by financing activities. . . (7,023) (8,508) 2,455
-------- -------- --------
Effect of exchange rate changes on cash. . . . . . . . . . . 1,061 (782) (1,186)
-------- -------- --------
Net increase in cash and cash equivalents. . . . . . . . . . 4,488 11,767 31,172
Cash and cash equivalents at beginning of year . . . . . . . 3,924 8,412 20,179
-------- -------- --------
Cash and cash equivalents at end of year . . . . . . . . . . $ 8,412 $ 20,179 $ 51,351
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
DUPONT PHOTOMASKS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying financial statements include the
accounts of DuPont Photomasks, Inc. and its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated. The
Company's principal business is the manufacture and sale of photomasks,
high-purity quartz or glass plates containing precision microscopic images of
integrated circuits, to semiconductor manufacturers.
Prior to the Company's initial public offering (the "IPO") on June 13,
1996, the Company was a wholly-owned subsidiary of E.I. duPont de Nemours and
Company ("DuPont"). DuPont, through its wholly-owned subsidiary, DuPont
Chemical and Energy Operations, Inc. ("DCEO"), owns 10,500,000 shares of the
Company's common stock. On the IPO date, 4,000,000 shares of the Company's
common stock were sold to the public. An additional 600,000 shares of common
stock were sold to the public on June 14, 1996 pursuant to an over-allotment
option. Retained earnings are shown assuming that the IPO occurred on June 30,
1996, the Company's year end.
DuPont's photomask business was realigned (the "Realignment") during the
year preceding the IPO so that photomask operations in Germany, France, the
Republic of Korea ("Korea") and the Peoples Republic of China ("China") which
were previously owned by various DuPont subsidiaries are owned by wholly-owned
subsidiaries of the Company. Income and expenses related to the Realignment
have been eliminated and are not presented in the financial statements.
The historical financial statements of the Company prior to the IPO have
been derived from the accounting records of DuPont and reflect all sales and
costs directly attributable to DuPont's photomask business during the periods
presented as well as certain charges and allocations from DuPont which were
based primarily on usage. For purposes of the historical financial statements
prior to the IPO, charges and allocations between the Company and DuPont are
deemed to have been settled in the period in which they originated.
REVENUE RECOGNITION: Sales and related costs of goods sold are included in
income when goods are shipped to the customer. Provision is made for estimated
sales returns.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include highly liquid
investments with original maturities of three months or less.
INVENTORIES: Inventories are valued at the lower of cost or market, with cost
being determined using the average cost method.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost and are
depreciated using the straight-line method over the estimated useful lives of
the assets. The gross value of property and equipment and related accumulated
depreciation are eliminated at the date of disposal and the resulting gain or
loss is included in income. Maintenance and repairs are charged to operations;
replacements and betterments are capitalized.
INTANGIBLE ASSETS: Intangible assets are amortized using the straight-line
method over their estimated useful lives. Net intangible assets, primarily
supply agreements, were $3,883 and $2,750 at June 30, 1996 and 1997 and are
included in other assets. The future economic benefit of long-lived assets is
reviewed periodically through an undiscounted cash flow analysis to determine if
an impairment has occurred.
F-5
<PAGE>
PENSIONS, OTHER POST RETIREMENT BENEFITS AND PROFIT SHARING: Through June 30,
1996, the Company's active U.S. employees were covered by DuPont defined benefit
pension and other postretirement benefit plans. The cost of these plans was
determined and allocated on an actuarial basis in accordance with Statement of
Financial Accounting Standards No. ("FAS") 87 and FAS 106 and is principally
included in cost of goods sold. Effective July 1, 1996, the Company eliminated
the DuPont plans and implemented a defined contribution retirement plan covering
substantially all of the active U.S. employees. The defined contribution
retirement plan provided for the Company to contribute three to five percent of
an employee's compensation into a participant directed investment account.
Effective July 1, 1997, the Company eliminated the defined contribution
retirement plan and implemented a profit sharing plan covering substantially all
of the active U.S. employees.
Pension coverage for non-U.S. employees is provided through separate plans.
Obligations under these plans are systematically provided for principally by
establishing book reserves. Certain non-U.S. employees are covered by separate
profit sharing plans.
RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred. The Company is party to certain contracts which provide for partial
funding of its research and development costs. Funding under these contracts
has been recognized as an offset to research and development expense. The
Company participates in a joint venture for advanced photomask development and
pilot line fabrication of leading edge photomasks.
NON-U.S. CURRENCIES: The Company has determined that the U.S. Dollar is the
functional currency of its worldwide operations. Accounts denominated in
non-U.S. currencies are remeasured into U.S. Dollars and the resulting exchange
gains and losses are included in income in the period they occur.
INCOME TAXES: The Company accounts for income taxes using an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, all expected future events are considered other than
enactments of changes in tax laws or rates. Valuation allowances are
established as necessary to reduce deferred tax assets to their expected
realizable value.
Prior to the IPO, the taxable income (loss) of the Company was included in
the consolidated tax returns of the DuPont entities of which it was a part. As
such, separate income tax returns were not prepared or filed for the Company.
Deferred income taxes and tax expense were determined and allocated to the
Company by applying the separate taxpayer approach outlined in FAS 109.
Deferred income taxes at June 30, 1996 differ from amounts allocated to the
Company under the separate taxpayer approach. The difference arises from the
fact that, since the IPO, the Company's tax return has not been consolidated
with DuPont. As a result, deferred tax assets arising from net operating losses
prior to the IPO date, deemed to be carried forward and available to offset
future tax liabilities under the separate taxpayer approach, have been
eliminated, reflecting the fact that these losses were previously utilized by
DuPont in its consolidated returns. In addition, deferred income taxes were
established related to the Realignment.
The Company's operations in Korea operate under a government granted tax
exemption which expires in 2003.
PRO FORMA INFORMATION (UNAUDITED): The pro forma income statement for the year
ended June 30, 1996 has been prepared by the Company to illustrate the estimated
effects of the IPO, the Realignment and the related transactions described below
as if they had occurred July 1, 1995. The pro forma income statement does not
purport to represent what the results of operations would actually have been if
the IPO, the Realignment and the related transactions had in fact occurred July
1, 1995 or to project what the results of operations will be for any future
period.
Pro forma cost of goods sold reflects a $1,181 reduction of cost resulting
from (i) changes in employee benefit plans implemented in conjunction with the
IPO and (ii) the elimination of DuPont allocated expenses partially offset by
the addition of contracted services (including services contracted under
administrative services agreements with DuPont and certain DuPont subsidiaries
("Administrative Service Agreements")) and employees to perform these functions.
F-6
<PAGE>
Pro forma selling, general and administrative expense reflects a net
$1,062 increase in cost resulting from (i) changes in employee benefit plans
implemented in conjunction with the IPO, (ii) the elimination of DuPont
allocated expenses offset by the addition of contracted services (including
services contracted under Administrative Service Agreements) and employees to
perform these functions and (iii) compensation expense resulting from
restricted stock grants under a stock performance plan.
Pro forma research and development expense reflects an $872 reduction of
cost resulting from (i) changes in employee benefit plans implemented in
conjunction with the IPO and (ii) the elimination of DuPont allocated expenses
partially offset by the addition of contracted services (including services
contracted under a research, development and consulting agreement with DuPont)
and employees to perform these functions.
Pro forma other operating expense reflects a $278 reduction of cost
resulting from the elimination of DuPont allocated expenses partially offset by
the addition of contracted services (including services contracted under
Administrative Service Agreements) and employees to perform these functions.
Pro forma interest expense reflects a $7,016 reduction of cost resulting
from the elimination of interest expense relating to the Company's master notes
with DuPont.
Pro forma exchange (gain) loss reflects a $296 gain resulting from the
elimination of certain non-U.S. currency balances as a result of the
Realignment.
The pro forma provision for income taxes reflects a $10,448 increase in
cost resulting principally from the elimination of deferred tax benefits
associated with prior period losses that were deemed to be available to reduce
tax expense allocated to the Company under the separate taxpayer approach in FAS
109, but which, in actuality, were utilized by DuPont in its consolidated tax
returns.
Pro forma earnings per share was computed based on 15,194,913 shares
outstanding, reflecting the effects of the Realignment, the IPO and the dilutive
effect of grants under the Company's stock performance plans.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions, based upon all known facts and circumstances, that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS: Certain prior year balances have been reclassified to
conform to the 1997 presentation.
2. ACQUISITIONS
On April 7, 1995, the Company purchased, from an affiliate of 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 ("Lucent"). Consideration
for the equipment was $10,000 and consideration for the supply agreement was
$5,000. Under the terms of the supply agreement, Lucent agreed to purchase
certain minimum quantities of photomasks from the Company 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 Company to grant price discounts to Lucent in the event that
purchases by Lucent during a given year exceed specified limits.
F-7
<PAGE>
3. RELATED PARTY TRANSACTIONS
The 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 by
centralized DuPont organizations outside the photomask business. Prior to the
IPO, the costs of these functions and services were directly charged and/or
allocated to the photomask business using methods that DuPont management
believes were reasonable. Such charges and allocations are not necessarily
indicative of the costs that would have been incurred if the Company had been a
separate entity. Amounts charged and allocated for these functions and services
were $13,106 for the year ended June 30, 1995 and $7,251 for the period July 1,
1995 to December 31, 1995. Effective January 1, 1996, the Company entered
several transitional agreements which set forth services to be provided to the
Company and the fees to be paid by the Company for such services. Charges to
the Company under these agreements were $1,661 for the period January 1, 1996 to
June 30, 1996 and $3,944 for the year ended June 30, 1997. Amounts charged and
allocated to the Company for functions and services provided by DuPont are
principally included in general and administrative expense.
The Company owned 1,025,640 shares of Etec Systems, Inc. ("Etec") common
stock until January 1997. Etec is the Company's principal supplier of electron
beam and laser beam systems. At June 30, 1996, the investment in Etec was
classified as an available for sale security and the $22,820 estimated fair
value (based on the June 28, 1996 closing market price of Etec common stock) of
this investment was included in other assets. The associated unrealized holding
gain was reported as a separate component of stockholders' equity, net of tax
liabilities. In January 1997, the Company sold the entire investment.
Aggregate net proceeds from the sale of $39,219 will be used in operations. The
Company realized a $34,219 gain on the sale. The related provision for income
taxes was $11,977.
Accounts receivable, related parties includes receivables from employees of
the Company of $2,149 (Current $221, Non-Current $1,928) and $1,836 (Current
$90, Non-Current $1,746) at June 30, 1996 and 1997 which relate principally to
housing and automobile loans to non-U.S. employees. The remainder represents
receivables for goods sold to various DuPont entities and other related parties
and amounts due to the Company under the tax indemnification agreement with
DuPont and the Administrative Service Agreements. Sales to related parties,
principally various DuPont entities who serve as resellers for the Company, were
$6,368, $8,214 and $8,764 for the years ended June 30, 1995, 1996 and 1997.
Accounts payable, related parties represents payables to DuPont for payroll
and benefits and vendor payments paid by DuPont on behalf of the Company and
billed on a one-month-lag basis and amounts payable under Administrative Service
Agreements. In August 1996, the Company paid $1,785 in settlement of certain
amount payable to DuPont at June 30, 1996 and DuPont contributed $3,745 of its
remaining outstanding receivable to the Company as an equity contribution.
4. ACCOUNTS RECEIVABLE, TRADE
Essentially all of the Company's sales are to customers in the
semiconductor manufacturing industry. The Company assesses the financial
strength of its customers prior to extending credit in order to reduce the risk
of loss as the Company generally does not require collateral. Four of the
Company's customers each represented more than ten percent of sales in the year
ended June 30, 1995 and, in the aggregate, these four customers represented
approximately forty-two percent of sales in the year. Two of the Company's
customers each represented more than ten percent of sales in the year ended
June 30, 1996 and, in the aggregate, these two customers represented
approximately twenty-five percent of sales in the year. One of the Company's
customers represented approximately twelve percent of sales in the year ended
June 30, 1997.
F-8
<PAGE>
5. INVENTORIES
Inventories consist of the following:
JUNE 30,
--------
1996 1997
---- ----
Raw materials and supplies . . . . . . . . . . . $ 7,006 $13,122
Work-in-process . . . . . . . . . . . . . . . . . 785 902
Finished product . . . . . . . . . . . . . . . . 2,436 1,627
------- -------
Inventories . . . . . . . . . . . . . . . . . . . $10,227 $15,651
------- -------
------- -------
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
ESTIMATED JUNE 30,
USEFUL --------
LIVES 1996 1997
----- ---- ----
Construction-in-progress . . . . . $ 21,829 $ 30,873
Land . . . . . . . . . . . . . . . 5,328 5,627
Buildings . . . . . . . . . . . . . 10 to 20 years 50,701 51,899
Equipment . . . . . . . . . . . . . 3 to 7 years 206,739 259,114
--------- ---------
284,597 347,513
Less: accumulated depreciation . (161,549) (185,203)
--------- ---------
Property and equipment . . . . . . $ 123,048 $ 162,310
--------- ---------
--------- ---------
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
JUNE 30,
--------
1996 1997
---- ----
Accrued vacation pay . . . . . . . . . . . . . . . . $ 3,185 $ 3,454
Accrued compensation and benefits . . . . . . . . . . 5,761 11,815
Lucent supply agreement . . . . . . . . . . . . . . . 1,500
Other . . . . . . . . . . . . . . . . . . . . . . . . 7,248 5,120
------- -------
Other accrued liabilities . . . . . . . . . . . . . $17,694 $20,389
------- -------
------- -------
F-9
<PAGE>
8. BORROWINGS
Borrowings consist of the following:
JUNE 30,
--------
1996 1997
---- ----
Non-interest bearing notes payable to customers
due 1997 . . . . . . . . . . . . . . . . . . . $ 560
Capital lease obligations . . . . . . . . . . . . 5,889 $ 5,073
6% bank borrowings due 2000 through 2007 . . . . 2,500 4,500
10% bank borrowings due 1997 through 2001 . . . . 1,829 2,745
------- -------
10,778 12,318
Less: short-term borrowings . . . . . . . . . (1,454) (1,845)
------- -------
Long-term borrowings . . . . . . . . . . . . . . $ 9,324 $10,473
------- -------
------- -------
9. LEASES
Minimum lease payments for years ending June 30 are as follows:
CAPITAL OPERATING
LEASES LEASES
------ ------
1998 . . . . . . . . . . . . . . . . . . . . . $ 789 $ 433
1999 . . . . . . . . . . . . . . . . . . . . . 744 349
2000 . . . . . . . . . . . . . . . . . . . . . 744 305
2001 . . . . . . . . . . . . . . . . . . . . . 744 304
2002 . . . . . . . . . . . . . . . . . . . . . 744 51
Thereafter. . . . . . . . . . . . . . . . . . . 3,190
------- ------
Minimum lease payments . . . . . . . . . . . 6,955 $1,442
------- ------
------
Less: interest . . . . . . . . . . . . . . (1,882)
-------
Present value of minimum lease payments . . . . $ 5,073
-------
-------
10. MASTER NOTES AND CREDIT AGREEMENT
Interest expense includes amounts paid to DuPont under the master notes of
$6,898 and $7,016 for the years ended June 30, 1995 and 1996. The interest rate
charged on the notes was generally equivalent to the rate DuPont paid for its
commercial paper borrowings. In conjunction with the IPO, DuPont, on June 28,
1996, contributed the $90,453 balance outstanding on the master notes to the
Company as a capital contribution.
The Company and DCEO have entered into a credit agreement (the "Credit
Agreement") pursuant to which DCEO has agreed to provide a credit facility to
the Company in an aggregate amount of $100,000. The Credit Agreement has a term
of 48 months and any loans thereunder will bear interest at LIBOR plus 25 basis
points. At the Company's option, advances under the Credit Agreement are
convertible into term loans with maturities up to seven years. The amounts
loaned under the Credit Agreement are unsecured and the Credit Agreement
contains various representations, covenants and events of default typical for
financings of a similar size and nature. No amounts have been borrowed or are
outstanding under the Credit Agreement.
F-10
<PAGE>
11. STOCKHOLDERS' EQUITY
Stockholders' equity at June 30 is as follows:
<TABLE>
ADDITIONAL UNREALIZED
COMMON PAID-IN HOLDING RETAINED
STOCK CAPITAL GAIN EARNINGS
----- ------- ---- --------
<S> <C> <C> <C> <C>
Realignment and contribution of capital . . $105 $ 80,860
Issuance of common stock . . . . . . . . . 46 72,020
Unrealized holding gain . . . . . . . . . . $ 11,583
---- -------- --------
Balance at June 30, 1996. . . . . . . . . 151 152,880 11,583
Contribution of capital . . . . . . . . . . 3,745
Issuance of common stock . . . . . . . . . 117
Unrealized holding gain . . . . . . . . . . 10,659
Sale of investment . . . . . . . . . . . . (22,242)
Net income . . . . . . . . . . . . . . . . $59,004
---- -------- -------- -------
Balance at June 30, 1997. . . . . . . . . $151 $156,742 $ -- $59,004
---- -------- -------- -------
---- -------- -------- -------
</TABLE>
12. STOCK PERFORMANCE PLANS
The Company has several stock performance plans whereby options to purchase
shares of common stock or shares of restricted stock have been or can be granted
to directors, officers and employees. Generally, option exercise prices are
equal to the fair market value at the date of grant. Restricted stock grants do
not require the payment of any cash consideration by the recipient. Matters
such as vesting periods and expirations are determined on a plan-by-plan or
grant-by-grant basis. A summary of stock option activity is as follows:
1996 1997
---- ----
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- ----- --------- -----
Balance at beginning of year . . . . 953,784 $17.00
Options granted. . . . . . . . . . . 953,784 $17.00 86,976 $29.21
Options forfeited. . . . . . . . . . (46,640) $17.00
Options exercised. . . . . . . . . . (3,576) $17.00
------- -------
Balance at end of year . . . . . . . 953,784 $17.00 990,544 $18.07
------- -------
------- -------
Exercisable at end of year . . . . . 223,210 $17.00
------- -------
------- -------
Additional information related to stock options at June 30, 1997 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE LIFE NUMBER EXERCISE
EXERCISE PRICE RANGE OF SHARES PRICE (YEARS) OF SHARES PRICE
-------------------- --------- ----- ------- --------- -----
$17.00 to $18.50 . . . . . 946,812 $17.07 9.0 223,210 $17.00
$25.87 to $35.56 . . . . . 17,698 $31.65 9.3
$37.28 to $53.19 . . . . . 26,034 $45.34 9.7
F-11
<PAGE>
A summary of restricted stock grant activity is as follows:
<TABLE>
1996 1997
---- ----
MARKET VALUE MARKET VALUE
NUMBER OF SHARES PER SHARE NUMBER OF SHARES PER SHARE
---------------- --------- ---------------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of
year . . . . . . . . . . . 94,913 $17.00
Restricted stock granted . . . 94,913 $17.00 4,744 $18.50 to $45.88
Restricted stock forfeited . . (9,605) $17.00
Restricted stock issued . . . (992) $17.00
------ ------
Balance at end of year . . . . 94,913 $17.00 89,060 $17.54
------ ------
------ ------
</TABLE>
At June 30, 1997, there were 3,338,336 shares reserved for future grants
under existing stock performance plans. The Company applies APB 25 and its
related interpretations in accounting for its stock performance plans. The
weighted average fair values of stock options granted in 1996 and 1997 were
$9.41 and $16.16. The weighted average fair values were determined using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest rate of 6.5%, no dividend yield, expected term of five years and
volatility of 58%. Had compensation cost been determined based on the fair
value of stock option awards at the date of grant, net income (earnings per
share) would have been $26,904 and $57,456 ($3.73) in 1996 and 1997. In
February 1997, the Financial Accounting Standards Board issued FAS 128 which
the Company will adopt in December 1997. Basic and diluted earnings per
share, as defined in FAS 128, would have been $3.91 and $3.79 for 1997.
13. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
YEAR ENDED JUNE 30,
-------------------
1995 1996 1997
------- ------- -------
Current:
Federal . . . . . . . . . . . . . . $10,706 $25,819
State . . . . . . . . . . . . . . . 1,738 787
Non-U.S. . . . . . . . . . . . . . . $ 1,554 4,572 4,679
Deferred:
Federal . . . . . . . . . . . . . . (10,706) (1,039)
State . . . . . . . . . . . . . . . (1,738) (59)
Non-U.S. . . . . . . . . . . . . . . (1,554) (1,894) 1,098
------- ------- -------
Provision for income taxes . . . . . . $ -- $ 2,678 $31,285
------- ------- -------
------- ------- -------
The provision for income taxes differs from the amount computed by
applying the federal statutory rate as a result of the following:
YEAR ENDED JUNE 30,
-------------------
1995 1996 1997
------- ------- -------
Tax at 35% statutory federal tax rate . . . $1,385 $10,123 $31,285
Higher effective tax rate on non-U.S.
operations . . . . . . . . . . . . . . . 485 2,657 2,158
Tax exemption . . . . . . . . . . . . . . . (2,340) (3,081) (4,809)
Change in valuation allowance . . . . . . . 574 (7,808) (243)
State taxes, net of federal . . . . . . . . (161) 586 633
Other . . . . . . . . . . . . . . . . . . . 57 201 2,261
------- ------- -------
Provision for income taxes . . . . . . . . $ -- $ 2,678 $31,285
------- ------- -------
------- ------- -------
F-12
<PAGE>
Deferred tax assets (liabilities) consist of the following:
JUNE 30,
1997
----
Deferred tax assets:
Inventories . . . . . . . . . . . . . . . . $ 953
Depreciation . . . . . . . . . . . . . . . 3,071
Accrued liabilities . . . . . . . . . . . . 1,955
Other . . . . . . . . . . . . . . . . . . . 466
--------
Deferred tax assets . . . . . . . . . . . 6,445
--------
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . (3,805)
Other . . . . . . . . . . . . . . . . . . . (3,203)
--------
Deferred tax liabilities . . . . . . . . . (7,008)
--------
Deferred income taxes . . . . . . . . . . $ (563)
--------
--------
Prior to the IPO, 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 Company.
In conjunction with the IPO, the Company, DuPont and DCEO entered into a
tax indemnification agreement pursuant to which the Company will make
payments to DuPont and/or DuPont will make payments to the Company, as
appropriate, of taxes payable or receivable at the IPO date. The amount due
from DuPont under the tax indemnification agreement was $2,073 and $256 at
June 30, 1996 and 1997. The Company has a capital loss carryforward of
$18,513 arising from the Realignment. Benefit from this carryforward, if and
when realized, is payable to DuPont under the tax indemnification agreement.
F-13
<PAGE>
14. GEOGRAPHIC INFORMATION
The Company operates within a single industry segment. Geographic
information as of and for the years ended June 30, 1995, 1996 and 1997 is as
follows:
<TABLE>
UNITED ASIA
STATES EUROPE PACIFIC TOTAL
-------- ------- ------- --------
<S> <C> <C> <C> <C>
1995
Sales . . . . . . . . . . . . . . . . . . . $ 90,095 $41,958 $29,461 $161,514
Transfers between geographic areas. . . . . 9,710 4,130 187
-------- ------- ------- --------
99,805 46,088 29,648 161,514
-------- ------- ------- --------
-------- ------- ------- --------
Net income (loss) . . . . . . . . . . . . . (5,518) 3,426 6,167 4,119
Identifiable assets . . . . . . . . . . . . 84,107 37,685 49,909 171,701
1996
Sales . . . . . . . . . . . . . . . . . . . $121,620 $52,910 $38,885 $213,415
Transfers between geographic areas. . . . . 14,613 2,278 79
-------- ------- ------- --------
136,233 55,188 38,964 213,415
-------- ------- ------- --------
-------- ------- ------- --------
Net income . . . . . . . . . . . . . . . . 14,987 7,154 4,479 26,904
Identifiable assets . . . . . . . . . . . . 126,540 36,214 65,139 227,893
1997
Sales . . . . . . . . . . . . . . . . . . . $145,621 $62,988 $52,576 $261,185
Transfers between geographic areas. . . . . 21,973 1,019 649
-------- ------- ------- --------
167,594 64,007 53,225 261,185
-------- ------- ------- --------
-------- ------- ------- --------
Net income . . . . . . . . . . . . . . . . 38,836 9,037 11,131 59,004
Identifiable assets . . . . . . . . . . . . 151,293 50,877 89,409 291,579
</TABLE>
Sales outside the United States of products manufactured in and exported
from the United States are not significant. Products are transferred between
geographic areas on a basis intended to approximate the market value of such
products.
15. COMMITMENTS AND CONTINGENCIES
The Company has various purchase commitments incident to the normal course
of business including non-refundable deposits to purchase equipment aggregating
$12,679 at June 30, 1997. In the aggregate, such commitments are not at prices
in excess of current market. The Company is subject to litigation in the normal
course of business. Management believes the effect, if any, of an unfavorable
settlement of such litigation would not have a material adverse effect on the
financial position, results of operations, cash flows or liquidity of the
Company.
F-14
<PAGE>
16. UNAUDITED QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data for the years ended June 30, 1996 and
1997 is as follows:
QUARTER
----------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
1996
Sales . . . . . . . . . . . . . . . . . $46,039 $50,279 $55,874 $61,223
Operating profit . . . . . . . . . . . 4,887 8,748 11,502 11,749
Net income . . . . . . . . . . . . . . 2,426 6,564 9,412 8,502
1997
Sales . . . . . . . . . . . . . . . . . $64,244 $64,260 $62,760 $69,921
Operating profit . . . . . . . . . . . 13,740 13,962 13,920 12,261
Income before extraordinary item . . . 9,015 9,433 9,722 8,592
Net income . . . . . . . . . . . . . . 9,015 9,433 31,964 8,592
F-15
<PAGE>
AMENDED BONUS PLAN
FOR DUPONT PHOTOMASKS, INC.
(AMENDED 10/28/96)
I. PURPOSE
The purposes of this Amended Bonus Plan for DuPont Photomasks, Inc.
(the "Plan") are: a) to provide greater incentive for employees to
exert their best efforts on behalf of DuPont Photomasks, Inc. ("DPI"
or the "Company"); b) to attract and retain in the employ of DPI key
employees of outstanding competence; and c) further align the
interests of such employees with those of the Company.
II. FORM OF BONUS
Bonuses under this Plan will be paid, at the option of the Compensation
Committee of DPI, in (i) cash, (ii) shares of the Common Stock, $.0l
par value, of DPI ("DPI Stock"), or (iii) a combination of cash and
DPI Stock.
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 9% of the Company's
pre-tax earnings, in any fiscal year; provided however, that the
Compensation Committee, in its discretion, may exceed this fund limit
up to an amount not greater than the carry forward amount in any year
in which the Compensation Committee has carried forward any unawarded
portion of said fund from a prior year(s).
2. 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, at the discretion of the Compensation Committee, may be
carried forward and be available for grants in a succeeding year or
years.
3. The aggregate number of shares of DPI Stock which may be awarded as
bonuses under this Plan shall not together exceed one million
(1,000,000) shares.
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.
1
<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 to more senior 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,
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.
VI. BONUS GRANTS
1. A performance goal based on the Company's pre-tax earnings,
excluding abnormal costs, will be set annually by the Board of
Directors. Target bonus grants will be established annually by the
Compensation Committee, upon recommendations by the Chief Executive
Officer of the Company, based on the position of eligible employees
and computed as a percentage of the employee's 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 or at periodic times during the year as
determined by the Compensation Committee.
2
<PAGE>
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.
4. If any bonus is paid in DPI Stock, the value of DPI Stock awarded
under this Plan shall be its fair market value on the date the bonus
is granted. Fair market value shall be the average of the high and
low prices of the DPI Stock, as reported on the NASDAQ Composite Index
on the date of grant of stock, 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.
VII. RECOMMENDATIONS AND APPROVAL OF GRANTS
1. Grants to employees shall be made by the Compensation Committee.
Recommendations for grants to employees shall be made to the
Compensation Committee by the Chief Executive Officer of the Company.
2. The Compensation Committee may appoint a subcommittee comprised
solely of two (2) or more Non-Employee Directors, to make grants to
directors and executive officers. A "Non-Employee Director" is a
director who is not an officer or employee of the Company or a parent
or subsidiary of the Company, who does not possess an interest in any
other transaction for which disclosure would be required pursuant to
Rule 404(a), of Regulation S-K of the General Rules and Regulations of
the 1934 Act and who is not engaged in a business relationship for
which disclosure is required pursuant to Rule 404(b). Anything to the
contrary herein notwithstanding, if a subcommittee of Non-Employee
Directors cannot be formed, the Board of Directors shall approve all
grants to executive officers and directors. Any grant to an employee
who is not a member of the Board of Directors shall be made in the
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.
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.
3
<PAGE>
IX. AMENDMENTS
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.
END
4
<PAGE>
AMENDED AND RESTATED
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 shareholders 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 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.
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.
1
<PAGE>
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 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 V9.
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 of the Board, or
(b) the initial public offering of the Company's stock.
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 preceding the Annual Meeting and
has therefore received an Option under Article V2, above, shall not receive an
Option for an additional 3,000 shares at such Annual Meeting.
4. Except as set forth in Article VII, 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:
A. After the expiration of ten years from the date the Option was
granted;
B. 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
2
<PAGE>
C. 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 or his permitted
transferees (pursuant to Article VII), 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 V6 hereof but not expired
and has not been fully exercised, such person or his permitted transferees
(pursuant to Article VII), 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 such
a director (but in no event after the Option has expired under the provisions
of Article V5A above), exercise the Option with respect to any shares of
Common Stock 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 appointment 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.
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 preceding day on which sales were reported
on such Index.
3
<PAGE>
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.
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. All or a portion of the Option granted to a Non-Employee Director may be on
terms that permit transfer without consideration by such Non-Employee Director
to:
(i) the spouse, children or grandchildren of the Non-Employee Director
("Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members (including a custodian under a Uniform Gifts to Minors Act for
the benefit of a child or grandchild), or
(iii) a partnership or other entity in which such Immediate Family
Members are the only partners,
PROVIDED that (A) the stock option agreement pursuant to which such Options are
granted must expressly provide for transferability in a manner consistent with
this Section, and (B) subsequent transfers of transferred Options shall be
prohibited except by will or the laws of descent and
4
<PAGE>
distribution. Following transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable immediately prior
to transfer, provided that for purposes of each agreement, the term
"Non-Employee Director" shall be deemed to refer to the transferee (however,
the events of termination of service as a director of Section V hereof shall
continue to be applied with respect to the Non-Employee Director). Except as
set forth above, 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 V5C 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 V5B), 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.
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 DISCLOSURE.
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
5
<PAGE>
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
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.
6
<PAGE>
AMENDED AND RESTATED
STOCK PERFORMANCE PLAN
I. PURPOSE
The purposes of this Amended and Restated Stock Performance Plan (the
"Plan") are (a) to provide greater incentive for employees who 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
its Subsidiaries; and (b) to further the identity of interest 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 ("non-qualified 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 the number
of shares covered by grants as of the date of this amendment, 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.
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
1
<PAGE>
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. An individual's stock options and restricted stock that are
canceled, lapse, expire or are forfeited will continue to be counted
against the individual limit set forth above. 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 of 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.
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.
2
<PAGE>
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.
VI. 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 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 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 shall be the date of
the Compensation Committee authorization of the award or such later date
as may be determined by the Compensation Committee a 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
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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 (the
"Exercise Price") 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
represented on the NASDAQ Composite index on the date of grant of a
stock option or the date of exercise of a stock option or if no sal
es 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 Exercise 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 the 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 any time of
exercise make arrangement to pay the Company the full Exercise Price
of the shares he or she has elected to purchase (i) in cash or by
check (U.S. Dollars), (ii) by tendering to the Company shares of
common stock owned by the grantee which have been owned at least six
months having an aggregate fair market value per share as of the date
of exercise and tender that is not greater than the exercise price for
shares with respect to which the option is being exercised and by
paying any remaining amount of the purchase price as provided above,
or (iii) by the grantee delivering to the Company
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a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a
check payable and acceptable to the Company to pay the option exercise
price as provided above, provided, the grantee and the broker comply
with such procedures and enter into such agreements of indemnity as
the Compensation Committee may prescribe as a condition of such
payment procedure. In lieu of (ii) above, upon confirming that the
grantee owns the number of additional shares being tendered, a new
certificate may be issued for the number of shares being acquired
pursuant to the exercise of the option less the number of shares being
tendered upon the exercise and to the grantee (or not require
surrender of) the certificate for the shares being tendered upon the
exercise. Payment instruments will be received subject to collection.
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 Companys 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 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. RELOAD OPTIONS.
In the event a person who is an active employee of the Company or a
Subsidiary shall exercise a stock option (the "Original Option") by
paying all or a portion of the Exercise Price of the shares of common
stock subject to the Original Option by tendering to the Company
shares of COMMON stock owned by such person, which have been held by
him or her for at least six months, or an amount in cash equal to the
Exercise Price, an option to purchase the number of shares of common
stock obtained by the employee upon exercise the ("Reload Option")
shall be deemed granted to the employee as of the exercise date;
provided that a Reload Option has been granted to such optionee with
respect to such option, as evidenced in his or her Agreement and that
the employee does not reject such
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Reload Option in accordance with this Section X. The Exercise Price of
the common stock subject to the Reload Option shall be 100% of the
fair market value per share of the common stock on such date, subject
to adjustment, as provided in Section XIV. The Reload Option may be
used or refused with to each tranche of options as they vest and are
exercised on a one-time basis only (even if the employee elects to
exercise less than the total number of vested shares). If the
employee elects to accept the Reload Option, the employee must agree
that all shares purchased through the exercise of the Original Option
must be held for some minimum period of time established by the
Compensation Committee and set forth in the Employees' Agreement. In
no event shall any Reload Option be granted if it would cause the
number of Awards granted to any Executive Officer in a year to exceed
the individual limit in Section III above.
XI. 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 makes 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 XIII the
restrictions on the stock in any restricted stock grant may not lapse
earlier than the second anniversary of the date of grant.
XII. ASSIGNABILITY OF GRANTS
All or a portion of the stock options or restricted stock granted to a
grantee may be on terms that permit transfer without consideration by
such grantee to:
(I) the spouse, children or grandchildren of the grantee ("Immediate
Family Members"),
(ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members (including a custodian under a Uniform Gifts to
Minors Act for the benefit of a child or grandchild), or
(iii) a partnership or other entity in which such Immediate Family
Members are the only partners,
PROVIDED that (A) the stock option agreement pursuant to which such
stock options or restricted stock are granted must expressly provide
for transferability in a manner consistent with this Section, and (B)
subsequent transfers of transferred Options shall be prohibited except
by will or the laws of descent and distribution. Following transfer,
any such Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided
that for purposes of each agreement and Sections IX.2 and XVII.2, the
term "grantee" shall be deemed to refer to the transferee (however,
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the events of termination of employment of Section XIII hereof shall
continue to be applied with respect to the employee). Except as set
forth above, a grantee'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 a grantee'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.
XIII. 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.
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
(with a MINIMUM of five years of service) 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 during his or her
employment 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 or
such termination and not yet exercised or, as the case may be,
unrestricted shall become immediately exercisable or unrestricted
unless otherwise provided in the written agreement governing the
specific Grant. Notwithstanding the provisions of Article VIII hereof,
such options shall remain exercisable for a period
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of three years therefrom and shall thereafter expire.
XIV. ADJUSTMENTS
1. In the event of any stock dividend, split-up, reclassification or
other analogous change in capitalization, the Compensation Committee
shall make such adjustment in the light of the change, as it deems to
be equitable, both to the grantees and to the Company, in
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.
XV. 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 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 XIV,
B. Permit grant of stock options at less than par value,
C. Extend the minimum term of stock options, or
D. Permit a grant under this Plan to a member of the Compensation
Committee.
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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.
XVI. CHANGE OF CONTROL
A. Notwithstanding anything in this Plan to the contrary, in the event
of a Change of Control, the unexercised options outstanding under this
Plan will automatically become exercisable in full and all conditions
to which any Restricted Stock is subject shall be deemed satisfied as
of the Change of Control Date. The existence of this Plan or of
options granted hereunder shall not in any way prevent any Change of
Control transaction and no holder of options granted under this Plan
shall have the right to prevent any such transaction.
B. For purposes of the Plan, the term "CHANGE OF CONTROL" shall mean
the occurrence of any one or more of the following events:
(1) any corporation (other than the Company or a Subsidiary), person
or group (within the meaning of Sections 13(d) or 14(d)(2) of the
1934 Act) makes a tender or exchange offer which, if consummate
would make such corporation, person or group the beneficial owner
(within the meaning of Rule 13d-3 under the 1934 Act) of voting
securities of the Company representing more than 25% of the total
number of votes eligible to be cast at any election of directors of
the Company and, pursuant to such offer, purchases are made (an
"Offer");
(2) the shareholders of the Company approve an agreement to merge or
consolidate the Company with or into another corporation or to
sell, lease or otherwise dispose of all or substantially all of
its assets, or adopt a plan of liquidation;
(3) any corporation, person or group (within the meaning of Sections
13(d) and 14(d)(2) of the 1934 Act), other than E.I. du Pont de
Nemours and Company or their affiliates, becomes the beneficial
owner (within the meaning of Rule 13d-3 under the 1934 Act) of
voting securities of the Company representing more than 25% of the
total number of votes eligible to be cast at any election of
directors of the Company; or
(4) those persons who constitute the Directors at the beginning of
any one year period cease to constitute a majority of the Board at
any time during such one-year period; provided that changes in
board membership among the employees or consultants of E. I.
Du Pont de Nemours and Company who are Directors or nominees of the
Company shall not be considered in determining whether this event
has occurred.
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As used here the term "CHANGE OF CONTROL DATE" means the first purchase
of voting securities of the Company pursuant to an Offer, the date of any
shareholder approval or adoption of an agreement or plan referred to
in Section XVI.B.(2), the date on which the event described in Section
XVI.B.(3) occurs, or the date on which the change in constituency of
the Board, described in Section XVI.B.(4.) occurs, as the case may be.
C. In the event that the Compensation Committee determines that an
"excess parachute payment" (as defined in Code Sec. 280G) would
result if the full provision in this Section occurred (when added
to any other payments or benefits under any other agreements,
arrangements or plans that are contingent on a Change of Control or
that would otherwise constitute "parachute payments" as defined in
Code Sec. 280G) then the number of shares as to which
exercisability is accelerated shall be reduced at the election of
the Compensation Committee to the minimum extent necessary to
prevent any excess "parachute payment" from occurring (the
"limitations"). Notwithstanding the above, if, in the opinion of
the Compensation Committee, the total "parachute payments" (reduced
by the amount of excise tax imposed on the employee under Code
Section 4999 and by the state and federal income taxes on all such
payments in excess of such limitation) would exceed such total
amounts payable if such limitation were applied, the Compensation
Committee shall not reduce the number of accelerated shares.
D. In the event of a dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the surviving
corporation or becomes the wholly-owned subsidiary of another
corporation, any outstanding options hereunder may be terminated by
the Company as of the effective date of such dissolution,
liquidation, merger or consolidation by giving notice to each
holder thereof of its intentions to terminate not less than ten
(10) days preceding such effective date and permitting the exercise
until such effective date, or the Expiration Date if earlier, of
all such outstanding options. Notwithstanding the preceding
sentence, if the Company is not the surviving corporation or
becomes the wholly-owned subsidiary of another corporation as a
result of the Company being reorganized or merged or consolidated
with another corporation while unexercised options are outstanding
under this Plan, the surviving or parent corporation, as the case
may be, may assume the unexercised options outstanding under this
Plan or substitute new options in the surviving corporation or
parent corporation, as the case may be, for the outstanding
options; provided, however, that the excess of the aggregate fair
market value of the securities subject to the options immediately
after the substitution or assumption over the aggregate option
price of such shares is not less than the excess of the aggregate
fair market value of the Common Stock subject to the outstanding
option immediately before such substitution or assumption over the
aggregate option price of such Common Stock, and the vesting status
of any substituted options duplicates as nearly as practicable the
vesting status of the old option.
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XVII. 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.
3. In the event of a conflict between the terms of this Plan and the
terms of a written agreement governing a specific Grant, the terms
of the written agreement shall prevail.
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CREDIT AGREEMENT
This Credit Agreement is entered into as of the 1st day of August,
1997, 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.
All financial terms used in this Agreement but not defined on Exhibit 1 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 $100,000,000. 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 $100,000,000. 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 may be used for but not
limited to 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 $100,000,000 bearing interest as specified in the Revolving
Note.
(d) The term of the Facility will expire on September 30, 2001, 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
jurisdiction 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.
3.2. DUE AUTHORIZATION. The execution, delivery and performance by
Borrower of this Agreement, the Note and the other Loan Documents have been duly
authorized by all necessary action,
<PAGE>
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. Borrower has duly executed and delivered this
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 materially affected its business, financial
position, results of operations, assets or prospects since the submission of the
most recent financial statements to Lender.
3.6. 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.
3.7. 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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3.8. 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.
4.2. FINANCIAL STATEMENTS. Borrower will maintain a standard and modem
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 against by corporations with
established reputations engaged in the same or similar business as Borrower.
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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.
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
knowledge by the Chief Financial Officer 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. 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 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.
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 $50,000,000 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 $50,000,000 in any fiscal
year.
5.3. GUARANTEES AND LOANS. Without the prior written consent of the
Lender, Photomasks will not enter into any direct or indirect guarantees in
excess of $50,000,000 other than by endorsement of
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checks for deposit or other than in the ordinary course of business nor make
any advance or loan in excess of $50,000,000 other than in the ordinary
course of business as presently conducted by Photomasks or other than
advances or loans to its Affiliates.
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
Chief Financial Officer of 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 to permit inspection 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
(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.
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<PAGE>
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 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.
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) 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;
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(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.
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. 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.
8.5. 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.
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<PAGE>
8.6. 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 78664
Attention: Treasurer
To Lender:
Du Pont Chemical and Energy Operations, Inc.
1007 Market Street D8045
Wilmington, DE 19898
Attention: Tm Schmelzer - Administrator
Either party may change such address by sending notice of the change to
the other party.
8.7. 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.
8.8. 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.
8.9. 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.
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<PAGE>
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: Exec. VP & CFO
---------------------------------
DU PONT CHEMICAL AND ENERGY
OPERATIONS, INC.
By: /s/ C. L. DOWNING
----------------------------------
Its: VICE PRESIDENT AND TREASURER
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<PAGE>
EXHIBITS
TO
CREDIT AGREEMENT
BETWEEN
DU PONT PHOTOMASKS, INC.
AND DU PONT CHEMICAL AND ENERGY OPERATIONS, INC.
Exhibit 1 - Definitions
Exhibit 2 - Revolving Note
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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. "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.
3. "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.
4. "ERISA" means the Federal Employee Retirement Income Security Act
of 1974, as amended, or any successor act.
5. "Event(s) of Default" will have the meaning set forth in Section
6.1 of the Agreement.
6. "Facility" will have the meaning set forth in Section 2.1 of the
Agreement.
7. "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.
8. "Loan Documents" means this Agreement, the Note, 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.
9. "Note" means the Revolving Note.
10. "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.
11. "Revolving Loans" has the meaning assigned to that term in Section
2.1 of this Agreement.
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<PAGE>
12. "Revolving Note" has the meaning assigned to that term in Section
2.1 of this Agreement.
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<PAGE>
EXHIBIT 2
REVOLVING NOTE
$100,000,000 August 1, 1997
On September 30, 2001, 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 One Hundred Million and no/100's Dollars ($100,000,000) 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 25 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 August, 1997, and on the first day of February and of August 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 September 30, 2001, 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: LIBOR will be equal to the average daily rate during the
preceding month for U.S. dollars having 30-day maturity as reported on
Bloomberg US0001M (INDEX) HP.
"Bloomberg US0001M (INDEX) HP" means the display page so designated on
the Bloomberg Financial Markets (or such other page as may replace that page
on that service, or such other service as may be nominated as the information
provider, for the purpose of displaying rates or prices relating to LIBOR).
Subject to the conversion rights of the Borrower, the initial 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.
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<PAGE>
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.
Borrower has the option to reduce, extend or modify the maturity date of
this note in accordance with the provisions set forth in this paragraph. So
long as Borrower gives Lender five business days notice prior to the initial
maturity date of this note, Borrower may convert indebtedness to a 2, 3, 5,
or 7 year term loan (hereinafter referred to as the "Conversion Right"). The
Conversion Right may only be exercised once with respect to any designated
amount of indebtedness, and at no time shall the aggregate amount of
indebtedness under the Loan Facility exceed One Hundred Million Dollars
($100,000,000). Other than Borrower's right to modify' the maturity dates
pursuant to the Conversion Right, all other terms of this note shall remain
applicable, and in full force and effect.
At the time of notice, Borrower will indicate the desired loan term, and
the loan interest rate will then become fixed at the applicable spread over
the yield of the U.S. Treasury Note of the same maturity. Yields on the
Treasury Notes will be obtained from Bloomberg Financial Markets at H.15
(INDEX). The applicable loan spread will be as follows:
2 year Treasuries + 200 BP
3 year Treasuries + 225 BP
5 year Treasuries + 250 BP
7 year Treasuries + 265 BP
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.
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<PAGE>
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 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,
/s/ KAREN LEE MATUSZEWSKI By: /s/ DAVID S. GINO
- --------------------------- -----------------------------
/s/ SHARON DAUGHETT Its: Exec. VP & CFO
- --------------------------- ----------------------------
By:
-----------------------
Its:
----------------------
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<PAGE>
CORPORATION ACKNOWLEDGMENT
STATE OF TEXAS
----------------
COUNTY OF WILLIAMSON ss
---------------
Before me the undersigned, a Notary Public, in and for said County and
State, on this 1st of August, 1997, personally appeared David S. Gino to me
known to be the identical person ___ who subscribed the name to the maker
thereof to the foregoing instrument as its Executive Vice President and Chief
Financial Officer and acknowledged to me that ___ he ___ executed the same as
his 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.
/s/ C.D. SCHEDLER
-----------------------------------
[SEAL] NOTARY PUBLIC
My Commission Expires: 3-16-98
---------
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<PAGE>
DUPONT PHOTOMASKS, INC
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
1. PURPOSE
The purpose of the DUPONT PHOTOMASKS, INC, 1997 Stock Option and
Restricted Stock Plan (the "PLAN") is to advance the interests of DuPont
Photomasks, Inc. (the "COMPANY") and its Subsidiaries (as defined below) by
providing incentive awards and stock ownership opportunities to certain key
employees (including officers), consultants, directors and other individuals
who contribute significantly to the performance of the Company and its
Subsidiaries. In addition, the Plan is intended to enhance the ability of
the Company and its Subsidiaries to attract and retain individuals of
superior managerial ability and to motivate such key employees to exert their
best efforts towards future progress and profitability of the Company and its
Subsidiaries. Accordingly, the Company may make awards ("Awards") to key
employees, consultants and other individuals in the form of (i) options
("OPTIONS") to purchase shares of the Company's common stock, par value $.01
per share ("COMMON STOCK"), and (ii) shares of Common Stock which are
restricted as provided in Section 7 ("Restricted Stock"). Options may be
either incentive stock options ("ISOs") which are qualified under Section 422
of the Internal Revenue Code of 1986, as amended (the "CODE"), or
nonqualified stock options ("NONQUALIFIED OPTIONS").
For purposes of the Plan, a "SUBSIDIARY" shall be any corporation
in which the Company has a direct or indirect ownership interest of 50% or
more of the total combined voting power of all classes of stock in such
corporation.
2. APPROVAL OF AWARDS
Each Award may be approved in any of the following ways:
A. BOARD/COMMITTEE APPROVAL. The entire Board or the Committee (as
defined below) may vote in advance to approve such Award.
B. SHAREHOLDER APPROVAL/RATIFICATION. In compliance with Section 4
of the Securities Exchange Act of 1934 ("1934 ACT"), a majority of the
shareholders of the Company duly entitled to vote on such matters at meetings
held in accordance with the laws of the State of Delaware may, either in
advance of the Award or no later than the next annual meeting of
shareholders, affirmatively vote to approve such Award.
1
<PAGE>
3. ADMINISTRATION AND INTERPRETATION
A. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "COMMITTEE") of the Board of Directors (the "BOARD") of DuPont
Photomasks, Inc. The Committee may prescribe, amend and rescind rules and
regulations for administration of the Plan and shall have full power and
authority to construe and interpret the Plan. The Committee may correct any
defect or any omission or reconcile any inconsistency in the Plan or, subject
to the requirements of Section 2 herein, in any grant made under the Plan in
the manner and to the extent it shall deem desirable.
Committee members shall be appointed by and shall serve at the pleasure
of the Board. The Board may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed
and may fill vacancies, however caused, in the Committee.
A majority of the members of the Committee shall constitute a quorum,
and the acts of a majority of the members present at a meeting, or the acts
of a majority of the members evidenced in writing, shall be the acts of the
Committee. Members of the Committee may, in the discretion of the Board,
receive compensation for their services as members, and all expenses and
liabilities they incur in connection with the administration of the Plan
shall be borne by the Company.
The day-to-day administration of the Plan may be carried out by such
officers and employees of the Company or its Subsidiaries as shall be
designated from time to time by the Committee. The Committee may employ
attorneys, consultants, accountants, appraisers, brokers or other persons,
and the Committee, the Company and the officers and employees of the Company
shall be entitled to rely upon the advice, opinions or valuations of any such
persons.
The Committee, the Board, or the shareholders, as the case may be, shall
have concurrent authority to make all decisions concerning specific Awards
granted under the Plan, including without limitation the selection of the
persons to whom Awards are granted, the number of shares of Common Stock
subject to each Award and the terms and conditions of each Award. The
Committee shall construe the terms and provisions of the Plan and the
Agreements and adopt, from time to time, such rules and regulations, not
inconsistent with the terms of the Plan, as it may deem advisable to carry
out the Plan. All decisions by the Committee shall be final. The effective
date of an Award is referred to herein as the "GRANT DATE."
In the Committee's discretion, the Chief Executive Officer of the
Company may be delegated the authority to grant Awards to key employees of
the Company who are neither directors nor executive officers (as such term is
defined under the 1934 Act) of the Company.
In the event one or more members of the Committee do not qualify as
outside directors, the Committee may, in the exercise of its discretion,
appoint a subcommittee comprised solely of two (2) or more outside directors
("Outside Directors Committee") in compliance with Section 162)(m)(4)(C) of
the which shall have the exclusive authority to approve grants under the Plan
to the chief executive officer and to other executive officers whose
compensation may otherwise exceed the deduction limit of Section 162(m) of
the Code ("Executive Officers"). Grants approved by the
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Outside Directors Committee shall be subject to ratification by the Committee
as a whole if the appointment by the Committee so provides. Grants to
Executive Officers shall be contingent on shareholder approval of the
material terms of the Plan to the extent required under Section 162(m) of the
Code.
B. INTERPRETATION. The interpretation and construction by the Committee
of any provisions of the Plan or of any grant under the Plan shall be final
and conclusive for all purposes.
C. LIMITATION ON LIABILITY. Neither the Committee nor any member
thereof shall be liable for any act, omission interpretation, construction
or determination made in connection with the Plan in good faith and the
members of the Committee shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage or
expense (including counsel fees) arising therefrom to the full extent
permitted by law and the articles of incorporation of the Company. The
members of the Committee, if appointed, shall be named as insureds under
any directors and officers liability insurance coverage that may be in
effect from time to time.
4. SHARES SUBJECT TO GRANTS UNDER THE PLAN
The aggregate number of shares which may be issued under Awards granted
under the Plan shall not exceed 3,000,000 shares of Common Stock; provided
however, that the number of shares with respect to which Awards may be
granted to any single Executive Officer of the Company during any fiscal year
shall not exceed 2,000,000 shares of Common Stock. Such shares may consist
of authorized but unissued shares of Common Stock or previously issued
shares of Common Stock reacquired by the Company. Until termination of the
Plan, the Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan and the outstanding Awards. The
aggregate number of shares of Common Stock which are available for Awards
under the Plan shall be decreased by each exercise of an Option, and by each
grant of Restricted Stock. To the extent that such Award lapses the shares
theretofore subject to such Award may again be granted under the Plan. If
any Award, in whole or in part, expires or terminates unexercised or is
canceled or forfeited, the shares covered by such Award may be subject to
another Award granted under the Plan. Nevertheless, an Award that is
canceled, lapses, expires or is forfeited will continue to be counted against
the individual limit on Awards granted to a single Executive Officer in any
fiscal year. The aggregate number of shares which may be issued under awards
granted under the Plan shall be subject to adjustment as provided in Section
8 hereof.
5. ELIGIBILITY
The individuals who shall be eligible to receive Awards under the Plan
shall be such key employees, directors, independent consultants and other
individuals as the Committee from time to time shall determine. However,
only employees of the Company and Subsidiaries shall be eligible to receive
grants of ISOs. In granting Awards, the Board, the Committee or the
shareholders shall take into consideration the contribution an individual has
made or may make to the success of the Company or its Subsidiaries and such
other factors as the Committee shall determine. The Board,
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the Committee or the shareholders shall also have the authority to consult
with and receive recommendations from officers and other employees of the
Company and its Subsidiaries with regard to these matters. In no event shall
any individual or his legal representatives, heirs, legatees, distributees or
successors have any right to participate in the Plan except to such extent,
if any, as the Committee shall determine.
Awards may be granted under the Plan from time to time in substitution
for stock options, restricted stock or other stock-based compensation awards
granted by other corporations where, as a result of a merger or consolidation
of such other corporation, or the acquisition by the Company or a Subsidiary
of stock or other beneficial ownership interest in such other corporation,
the individuals who held such awards become eligible to receive Awards under
the Plan.
6. GRANTS AND TERMS OF OPTIONS
A. GRANTS OF OPTIONS. Grants of Options under the Plan shall be for
such number of shares of Common Stock and shall be subject to such terms and
conditions as the Board, the Committee or the shareholders shall designate.
Options may be granted by the Board, the Committee or the shareholders to any
eligible individual at any time and from time to time.
B. TERMS OF OPTIONS. Each grant of an Option shall be evidenced by an
Agreement executed by an authorized officer of the Company. Each Agreement
shall be in a form approved by the Committee, shall comply with and be
subject to the terms and conditions of the Plan and may contain such other
provisions, consistent with the terms and conditions of the Plan and the
specific Awards, as the Committee shall deem advisable. References herein to
an Agreement shall include, to the extent applicable, any amendment to the
Agreement and any interpretation or construction thereof by the Committee
pursuant to this Plan.
(1) Exercise of Options. Options shall not be exercisable prior to
the date six (6) months following the Grant Date. In the discretion
of the Committee, each Agreement may state that the Option granted
therein may not be exercised in whole or in part for a period or
periods of time specified in such Agreement and may further limit
the exercisability of the Option in such a manner as the Committee
deems appropriate, consistent with the terms of the specific Award.
In addition, the Committee may, by a resolution duly adopted,
suspend the exercisability of all outstanding Options at any time
and from time to time upon a determination, in its discretion that
such suspension is in the best interests of the Company and its
shareholders; provided, that the resolution effecting any such
suspension shall also make provision for the exercise of all
outstanding Options for a reasonable period of time following such
suspension (but in no event less than 30 days). Except as provided
herein or as so specified in the Agreement or in a resolution of the
Committee, any Option may be exercised in whole at any time or in
part from time to time during its term. The Committee may, in its
discretion, consistent with the terms of the specific Award, at any
time and from time to time accelerate the exercisability of all or
part of any Option. A recipient of the Option ("Optionee") may
exercise an Option by providing written notice to the Company at any
time or
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from time to time during the period such Option is exercisable and
by satisfying such other conditions as set forth in the Agreement
relating to the Option, including without limitation satisfying the
requirements for tax withholding with respect to such exercise.
(2) PAYMENT OF OPTION EXERCISE PRICE. Upon exercise of an Option, the full
price per share (the "EXERCISE PRICE") for the shares with respect to which
the Option is being exercised shall be payable to the Company (i) in cash or
by check payable and acceptable to the Company, (ii) by tendering to the
Company shares of Common Stock owned by the Optionee for at least six months,
having an aggregate Market Value Per Share (as defined below) as of the date
of exercise and tender that is not greater than the Exercise Price for the
shares with respect to which the Option is being exercised and by paying any
remaining amount of the Exercise Price as provided above, or (iii) by the
Optionee delivering to the Company a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay the
option exercise price, provided that the Optionee and the broker shall comply
with such procedures and enter into such agreements of indemnity as the
Committee may prescribe as a condition of such payment procedure. In lieu of
(ii) above, upon confirming that the Optionee owns the number of additional
shares being tendered, a new certificate may be issued for the number of
shares being acquired pursuant to the exercise of the Option less the number
of shares being tendered upon the exercise and return to the Optionee (or not
require surrender of) the certificate for the shares being tendered upon the
exercise. Payment instruments will be received subject to collection.
(3) NUMBER OF SHARES. Each Agreement shall state the total number of shares
of Common Stock that are subject to the Option, which number shall be subject
to adjustment pursuant to Section 8.
(4) EXERCISE PRICE. The Exercise Price for each Option shall be fixed on,
or in case of ratification by the shareholders as of, the Grant Date. The
Exercise Price may be greater or, other than with respect to an ISO, less
than the Market Value Per Share on the Grant Date, but in no event less than
the par value of the Common Stock; provided that, as to Options awarded to
Executive Officers, the Exercise Price shall be not less than the Market
Value Per Share on the Grant Date. The Exercise Price shall be subject to
adjustment pursuant to Section 8. Nothing contained herein shall prohibit the
Board of Directors or the Committee, in the sound exercise of business
judgment, from canceling outstanding Options and reissuing new Options at a
lower exercise price, in the event that the fair market value per share of
Common Stock at any time prior to the date of exercise falls below the
exercise price of Options granted pursuant to the Plan; provided, however,
that such actions shall only be permitted when approved by a majority of the
disinterested directors on the Board or the Committee as the case may be.
(5) TERM. The term of each Option shall be determined at the Grant Date;
provided, however, that each Option shall expire no later than ten years from
the Grant Date
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and in the event no determination is made to the contrary, shall expire ten
years from the Grant Date (such date, as determined by the Committee or
provided for herein, being referred to hereafter as the "EXPIRATION TIME").
(6) MARKET VALUE PER SHARE. "MARKET VALUE PER SHARE" shall be determined as
of any particular date by any fair and reasonable means determined by the
Board, the Committee or the shareholders, as the case may be.
(7) TERMINATION OF EMPLOYMENT.
(a) ISOs In the event that an Optionee's employment with the Company
shall terminate for reasons other than (i) permanent disability within the
meaning of Code Section 22(e)(3) or (ii) death, the Optionee shall have the
right, subject to subsections (1) and (5) above, to exercise any ISO at any
time during the period of three (3) months following such termination to the
extent the ISO was exercisable on the termination date.
In the event that an Optionee's employment with the Company shall
terminate due to permanent disability, the Optionee shall have the right,
subject to subsections (1) and (5) above, to exercise any ISO at any time
during the period of 12 months following such termination, to the extent such
ISO was exercisable on the termination date. Whether any termination of
employment is due to permanent disability, and whether any authorized leave
of absence or absence on military or government service or for other reasons
shall constitute a termination of employment, for the purposes of the Plan
shall be determined by the Committee.
If an Optionee shall die while entitled to exercise an ISO, the
Optionee's estate, personal representative or beneficiary, as the case may
be, shall have the right, subject to subsections (1) and (5) above, to
exercise any ISO at any time during the period of 12 months following the
date of the Optionee's death, to the extent that such ISO was exercisable on
the date of the Optionee's death.
In the absence of a provision to the contrary contained in the Agreement,
an ISO which has not been exercised during the period of 12 months following
the date of an Optionee's death or permanent disability, shall be and become
a Nonqualified Option exercisable for the remainder of the term of the
Agreement, if not previously expired, to the same extent that such Option was
exercisable during such 12 month period.
The Committee may, in its discretion, consistent with the terms of the
specific grant, (i) accelerate the exercisability of all or part of an ISO
that is not otherwise exercisable or (ii) provide that an ISO shall remain
outstanding and be exercisable following termination of employment (or other
specified events in the case of non-employees) on such other terms and
conditions as the Committee shall approve consistent with the Code and the
regulations promulgated thereunder regarding ISOs.
(b) Nonqualified Options. With respect to Nonqualified Options, the
Board, the Committee or the shareholders, as the case may be, may specify any
terms and conditions
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upon which such Nonqualified Option shall terminate. The Committee may, in
its discretion, consistent with the terms of the specific grant, (i)
accelerate the exercisability of all or part of a Nonqualified Option that is
not otherwise exercisable or (ii) provide that a Nonqualified Option shall
remain outstanding and be exercisable following termination of employment (or
other specified events in the case of non-employees) on such other terms and
conditions as the Committee shall approve. Notwithstanding the above, in the
event an employee ceases to be an employee by reason of retirement or death,
the total number of shares of common stock covered by the Nonqualified Option
shall thereupon become exercisable provided such Nonqualified Option shall
have been granted at least six months prior to such retirement or death.
(8) ELIGIBILITY FOR INCENTIVE STOCK OPTIONS. ISOs may be granted to
individuals who are key employees (including officers who are also key
employees) of the Company at the time the ISO is granted. ISOs may be
granted to the same individual on more than one occasion, but in no event
shall an ISO be granted after June 8, 2007.
No employee shall be eligible to receive ISOs that become exercisable for
the first time in any calendar year with respect to stock with an aggregate
fair market value (determined at the Grant Date) in excess of $100,000 (or
such other limits as may be imposed by the applicable laws and regulations
under the Code in effect on the date of grant). This limitation applies to
the aggregate amount of ISOs granted under the Plan and all other option
plans of the Company, its parent and subsidiary corporations
(9) RELOAD OPTIONS. In the event a person who is an active employee of the
Company or a Subsidiary shall exercise an Option (the "ORIGINAL OPTION") by
paying all or a portion of the Exercise Price of the shares of Common Stock
subject to the Original Option by tendering to the Company shares of Common
Stock owned by such person, which have been held by him or her for at least
six months, or an amount in cash equal to the Exercise Price, an Option to
purchase the number of shares of Common Stock, obtained by the employee upon
exercise (the "RELOAD OPTION") shall be deemed granted to the employee as of
the exercise date; provided that a Reload Option has been granted to such
Optionee with respect to such Option, as evidenced in his Agreement and that
the employee does not reject such Reload Option in accordance with this
Section 6. The Exercise Price of the Common Stock subject to the Reload
Option shall be 100% of Market Value Per Share of the Common Stock on such
date, subject to adjustment as provided in Section 8. The Reload Option may
be used or refused with respect to each tranche of options as they vest and
are exercised on a one-time basis, (even if the employee elects to exercise
less than the total number of vested shares). If the employee elects to
accept the Reload Option, the employee must agree that all shares purchased
through the exercise of the original Option must be held for some minimum
period of time established by the Compensation Committee and set forth in the
Employee's Agreement. In no event shall any Reload Options be granted if it
would cause the number of Awards granted to any Executive Officer in a year
to exceed the individual limit in Section 4 above.
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7. RESTRICTED STOCK
A. AWARDS OF RESTRICTED STOCK. Restricted Stock may be awarded to any
individual eligible to receive the same, at any time and from time to
time. The issuance of Restricted Stock to an individual pursuant to an
Award may be made subject to such restrictions and the future
satisfaction or occurrence of terms, conditions or contingencies
(collectively, "Conditions") set when the Award is made, such that
failure of any Condition shall cause all or part of such shares to be
forfeited.
B. DESCRIPTION OF RESTRICTED STOCK. Shares of Restricted Stock may not
be sold, exchanged, pledged, transferred, assigned or otherwise
encumbered or disposed of until the Conditions set at the time of the
Award have been satisfied. A share of Restricted Stock shall be subject
to such restrictions and Conditions as may be established at the time of
the Award, which may include, without limitation, "LAPSE" and "NON-LAPSE"
restrictions (as such terms are defined in regulations promulgated under
Section 83 of the Code) and the achievement of specific goals. The
Committee may, in its discretion, consistent with the terms of the
specific Award, at any time and from time to time accelerate the "lapse"
restrictions or reduce the "non-lapse" restrictions of all or any part of
a Restricted Stock Award.
After the satisfaction or occurrence of the Conditions and the lapse of
all restrictions, a certificate, without a legend shall be delivered to
the recipient for the number of shares that are no longer subject to
restrictions and Conditions. The remaining shares of Restricted Stock
issued with respect to such Award, if any, shall either be returned to
the Company and forfeited by the recipient or, if appropriate under the
terms of the Award applicable to such shares, shall continue to be
subject to the restrictions and Conditions.
C. PAYMENT OF RESTRICTED STOCK. The satisfaction of the Conditions and
the lapse of all actions, and the delivery of a certificate without a
legend for the portion of such award that is no longer subject to
restrictions and Conditions, is hereinafter referred to as the "payment"
of such portion of the Award. Subject to the provisions above, each
Award shall be paid at the time and in the manner specified at the time
of the Award.
D. PAYMENT IN THE EVENT OF TERMINATION OF EMPLOYMENT. In the event a
recipients employment with the Company shall terminate prior to the
satisfaction or occurrence of a Condition applicable to all or a portion
of an Award of Restricted Stock, then such portion of the Award shall be
returned to the Company and forfeited by the recipient; provided,
however, if the termination of employment is due to the employee's death,
permanent disability or retirement, the Committee may, in its sole
discretion, deem the Conditions to have been met for all or part of such
portion of the Award. With respect to the shares of Restricted Stock
granted to an individual who is not an employee of the Company on the
Grant Date, the Committee may specify the circumstances upon which the
shares of Restricted Stock shall be forfeitable prior to the satisfaction
of applicable Conditions.
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If a recipient dies after satisfaction of the Conditions for the
payment of all or a portion of an Award of Restricted Stock but prior to the
actual payment of all or such portion thereof, such payment shall be made to
the recipient's beneficiary or beneficiaries at the time and in the same
manner that such payment would have been made to the recipient.
8. RECAPITALIZATION OR REORGANIZATION
A. The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of
the company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting
Common Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding.
B. The shares with respect to which awards may be granted are shares of
Common Stock as presently constituted.
(i) STOCK SPLIT. If, and whenever, prior to the termination of the
Plan or the expiration of an outstanding Option, the Company shall
effect a subdivision of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the
Company, the remaining shares of Common Stock available under the Plan
and the number of shares of Common Stock with respect to which
outstanding Options may thereafter be exercised shall be
proportionately increased, and the Exercise Price under outstanding
Options shall be proportionately reduced.
(ii) REVERSE STOCK SPLIT. If, and whenever, prior to the termination
of the Plan or the expiration of an outstanding Option, the Company
shall effect a consolidation of shares of Common Stock, the remaining
shares of Common Stock available under the Plan and the number of
shares of Common Stock with respect to which any outstanding Option may
thereafter be exercised shall be proportionately reduced, and the
Exercise Price under the outstanding Options shall be proportionately
increased.
C. Except as may otherwise be expressly provided in the Plan, the
issuance by the Company of shares of stock of any class or securities
convertible into shares of stock of any class, shall not affect Options
granted under this Plan, and no adjustments shall be made to the grants
under this Plan.
D. If the Company effects a recapitalization or otherwise materially
changes its capital structure (both of the foregoing are herein referred
to as a ("FUNDAMENTAL CHANGE") then thereafter upon any exercise of an
Option theretofore granted, the holder shall be entitled to purchase
under such Option, in lieu of the number of shares of Common Stock that
would have been received, the number and class of shares of stock and
securities to which the holder would have been entitled pursuant to the
terms of the Fundamental Change if,
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immediately prior to such Fundamental Change, the Optionee had been
the holder of record of that number of shares of Common Stock.
E. Any adjustment provided for above shall be subject to any required
shareholder action.
9. RECIPIENT'S AGREEMENT; COMPLIANCE WITH SECURITIES REGULATIONS
If, at the time of the exercise of any Option or award of Restricted
Stock, in the opinion of counsel for the Company, it is necessary or
desirable, in order to comply with any then applicable laws or
regulations relating to the sale of securities, for the individual
exercising the Option or receiving the Restricted Stock to agree to hold
any of their shares for investment and without intention to resell or
distribute the shares and to agree to dispose of such shares only in
compliance with such laws and regulations, the individual will, upon the
request of the company, execute and deliver to the Company a further
agreement to such effect.
10. WITHHOLDING FOR TAXES
Any cash payment under the Plan shall be reduced by any amounts
required to be withheld or paid with respect thereto under all present
or future federal, state and local tax and other laws and regulations
that may be in effect as of the date of each such payment ("TAX
AMOUNTS"). Any issuance of Common Stock pursuant to the exercise of an
Option or other distribution of Common Stock under the Plan shall not be
made until appropriate arrangements have been made for the payment of
any amounts that may be required to be withheld or paid with respect
thereto. Such arrangements may, at the discretion of the Committee,
include allowing the participant to tender to the Company shares of
Common Stock owned by the participant, or to request the Company to
withhold a portion of the shares of Common Stock being acquired pursuant
to the exercise or otherwise distributed to the participant, which have
a Market Value Per Share as of the date of such exercise, tender or
withholding that is not greater than the sum of all Tax Amounts,
together with payment of any remaining portion of all Tax Amounts in
cash or by check payable and acceptable to the Company. Payment
instruments will be received subject to collection.
11. DESIGNATION OF BENEFICIARY
Each individual to whom an Award has been made under this Plan may
designate a beneficiary or beneficiaries (which beneficiary may be an
entity other than a natural person) to receive any payment that under
the terms of such Award may become payable on or after the individual's
death. At any time, and from time to time, any such designation may be
changed or canceled by the individual without the consent of any such
beneficiary. Any such designation, change or cancellation must be on a
form provided for that purpose by the Committee and shall not be
effective until received by the Committee. If no beneficiary has been
named by a deceased participant, or the designated beneficiaries have
predeceased the individual, the beneficiary shall be the individual's
estate. If an individual designates more
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than one beneficiary, any payments under this Plan to such beneficiaries
shall be made in equal shares unless the individual has designated
otherwise, in which case the payments shall be made in the shares
designated by the individual.
12. CHANGE OF CONTROL
A. Notwithstanding anything in this Plan to the contrary, in the event
of a Change of Control, the unexercised Options outstanding under this
Plan will automatically become exercisable in full and all Conditions to
which any Restricted Stock is subject shall be deemed satisfied as of
the Change of Control Date. The existence of this Plan or of Options
granted hereunder shall not in any way prevent any Change of Control
transaction and no holder of Options granted under this Plan shall have
the right to prevent any such transaction.
B. For purposes of the Plan, the term "CHANGE OF CONTROL" shall mean
the occurrence of any one or more of the following events:
(1) any corporation (other than the Company or a Subsidiary),
person or group (within the meaning of Sections 13(d) or 14(d)(2) of the
1934 Act) makes a tender or exchange offer which, if consummated, would
make such corporation, person or group the beneficial owner (within the
meaning of Rule 13d-3 under the 1934 Act) of voting securities of the
Company representing more than 25% of the total number of votes eligible
to be cast at any election of directors of the Company and, pursuant to
such offer, purchases are made (an "OFFER");
(2) the shareholders of the Company approve an agreement to merge
or consolidate the Company with or into another corporation or to sell,
lease or otherwise dispose of all or substantially all of its assets, or
adopt a plan of liquidation;
(3) any corporation, person or group (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act), other than E. I. Du Pont
de Nemours and Company or their affiliates, becomes the beneficial owner
(within the meaning of Rule 13d-3 under the 1934 Act) of voting
securities of the Company representing more than 25% of the total number
of votes eligible to be cast at any election of directors of the
Company; or
(4) those persons who constitute the Directors at the beginning of
any one-year period cease to constitute a majority of the Board at any
time during such one-year period; provided that changes in board
membership among the employees or consultants of E. I. du Pont de
Nemours and Company who are Directors or nominees of the Company shall
not be considered in determining whether this event has occurred.
As used herein, the term ("CHANGE OF CONTROL DATE") means the first
purchase of voting securities of the Company pursuant to an Offer, the
date of any shareholder approval or adoption of an agreement or plan
referred to in Section 12.B.(2), the date on which the event described
in Section 12.B.(3) occurs, or the date on which the change in
constituency of the Board, described in Section 12.B.(4) occurs, as the
case may be.
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C. In the event that the Compensation Committee determines that an
"excess parachute payment" (as defined in Code Sec. 280G) would result
if the full acceleration Provision in this Section occurred (when added
to any other payments or benefits under any other agreements,
arrangements or plans that are contingent on a Change of Control or that
would otherwise constitute "parachute payments" as defined in Code Sec.
280G) then the number of shares as to which exercisability is
accelerated shall be reduced at the election of the Compensation
Committee to the minimum extent necessary to prevent any "excess
parachute payment" from occurring ("the limitation"). Notwithstanding
the above, if, in the opinion of the Compensation Committee, the total
"parachute payments" (reduced by the amount of excise tax imposed on the
employee under Code Section 4999 and by the state and federal income
taxes on all such payments in excess of such limitation) would exceed
such total amounts payable if such limitation were applied, the
Compensation Committee shall not reduce the number of accelerated shares.
D. In the event of a dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the surviving
corporation or becomes the wholly-owned subsidiary of another
corporation, any outstanding options hereunder may be terminated by the
Company as of the effective date of such dissolution, liquidation,
merger or consolidation by giving notice to each holder thereof of its
intention to do so not less than (10) days preceding such effective date
and permitting the exercise until such effective date, or the Expiration
Date if earlier, of all such outstanding Options. Notwithstanding the
preceding sentence, if the Company is not the surviving corporation or
becomes the wholly owned subsidiary of another corporation as a result
of the Company being reorganized or merged or consolidated with another
corporation while unexercised options are outstanding under this Plan,
the surviving or parent corporation, as the case may be, may either (1)
assume the unexercised options outstanding under this Plan; or (2)
substitute new options in the surviving corporation or parent
corporation, as the case may be, for the outstanding Options. The
latter alternative can be used only if the excess of the aggregate fair
market value of the securities subject to the options immediately after
the substitution or assumption over the aggregate option price of such
shares is not less than the excess of the aggregate fair market value of
the Common Stock subject to the outstanding Option immediately before
such substitution or assumption over the aggregate option price of such
Common Stock, and that the vesting status of any substituted options
duplicates as nearly as practicable the vesting status of the old
options.
13. MISCELLANEOUS
A. NO EMPLOYMENT CONTRACT. Nothing contained in the Plan shall be
construed as conferring upon any employee the right to continue in the
employ of the Company or any Subsidiary.
B. EMPLOYMENT WITH SUBSIDIARIES. For purposes of determining
employment with respect to ISOs, employment by the Company shall be
deemed to include employment by, and to continue during any period in
which an employee is in the employment of any Subsidiary.
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C. NO RIGHTS AS A SHAREHOLDER. A participant shall have no rights as a
shareholder with respect to shares covered by such participant's Option
or Restricted Stock award until the date of the issuance of shares to
the employee pursuant thereto. No adjustment will be made for dividends
or other distributions or rights for which the record date is prior to
the date of such issuance.
D. NO RIGHT TO CORPORATE ASSETS. Nothing contained in the Plan shall
be construed as giving any participant, such participant's beneficiaries
or any other person any equity or other interest of any kind in any
assets of the Company or any Subsidiary or creating a trust of any kind
or a fiduciary relationship of any kind between the Company or a
Subsidiary and any such person, except to the extent such person is a
holder of shares of Common Stock issued pursuant to the Plan.
E. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any Subsidiary from taking
any corporate action that is deemed by the Company or such Subsidiary to
be appropriate or in its best interest, whether or not such action would
have an adverse effect on the Plan or any award made under the Plan. No
participant, beneficiary or other person shall have any claim against
the Company or any Subsidiary as a result of any such action.
F. ASSIGNABILITY. All or a portion of the Nonqualified Options and
Restricted Stock to be granted to an Optionee may, in the discretion of
the Committee (or the Board of Directors, as the case may be), be on
terms that permit transfer without consideration by such Optionee to:
(i) the spouse, children or grandchildren of the Optionee
("Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members (including a custodian under a Uniform Gifts to
Minors Act for the benefit of a child or grandchild), or
(iii) a partnership or other entity in which such Immediate Family
Members are the only partners, PROVIDED that (A) the stock option
agreement pursuant to which such Nonqualified Options or
Restricted Stock are granted must be approved by the Committee,
and must expressly provide for transferability in a manner
consistent with this Section, and (B) subsequent transfers of
transferred Options or Restricted Stock shall be prohibited
except by will or the laws of descent and distribution.
Following transfer, any such Options or Restricted Stock shall
continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for
purposes of each Agreement and Sections 6.B(2) and 10 hereof the
term "Optionee" shall be deemed to refer to the transferee
(however, the events of termination of employment of Section 7.D
hereof shall continue to be applied with respect to the original
Optionee). Except as set forth above, Options and
13
<PAGE>
Restricted Stock may not be transferred except by will or the
laws of descent and distribution.
G. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares of Common Stock pursuant to the Plan will be used for
general corporate purposes.
H. GOVERNING LAW; CONSTRUCTION. All rights and obligations under the
Plan shall be governed by, and the Plan shall be construed in accordance
with, the laws of the State of Delaware without regard to the principles
of conflicts of laws. Titles and headings to Sections herein are for
purposes of reference only, and shall in no way limit, define or
otherwise affect the meaning or interpretation of any provisions of the
Plan.
I. AMENDMENT AND TERMINATION. The Committee may from time to time and
at any time alter, amend, suspend, discontinue or terminate this Plan
and any Awards hereunder; provided, however, that no such action of the
Committee may, without the approval of the shareholders of the Company,
alter the provisions of the Plan so as to (i) increase the maximum
number of shares of Common Stock that may be subject to Awards and
distributed in the payment of Awards and exercises under the Plan
(except as provided in Section 8); (ii) change the eligibility
provisions of the Plan; or (iii) change the individual limit in Section
4 above. For the purposes of awarding ISOs, the Plan shall terminate on
June 8, 2007, and no ISOs shall be awarded after such date.
J. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS. Notwithstanding the
above, if the issuance or other distribution of shares of Common Stock
or Restricted Stock would cause a breach of any applicable law or
regulation, absent some act by the individual or the Company, the
issuance or distribution of such shares, as the case may be, shall be
deferred until such action shall have been taken.
14
<PAGE>
EXHIBIT 11
DUPONT PHOTOMASKS, INC.
EARNINGS PER SHARE COMPUTATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Quarter Ended June 30,1997
--------------------------
Primary Fully Diluted
------- -------------
Weighted average shares outstanding 15,100,521 15,100,521
Dilutive effect of stock performance plans 496,543 517,164
----------- -----------
15,597,064 15,617,685
----------- -----------
----------- -----------
Net income $ 8,592 $ 8,592
----------- -----------
----------- -----------
Earnings per share $ 0.55 $ 0.55
----------- -----------
----------- -----------
Year Ended June 30, 1997
------------------------
Primary Fully Diluted
------- -------------
Weighted average shares outstanding 15,100,521 15,100,521
Dilutive effect of stock performance plans 419,718 462,001
----------- -----------
15,520,239 15,562,522
----------- -----------
----------- -----------
Income before extraordinary item $ 36,762 $ 36,762
Extraordinary item (22,242) (22,242)
----------- -----------
Net income $ 59,004 $ 59,004
----------- -----------
----------- -----------
Earnings per share before extraordinary item $ 2.37 $ 2.36
Extraordinary item (1.43) (1.43)
----------- -----------
Earnings per share $ 3.80 $ 3.79
----------- -----------
----------- -----------
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF DUPONT PHOTOMASKS, INC.
<TABLE>
NAME ORGANIZED UNDER LAWS OF OWNERSHIP
---- ----------------------- ---------
<S> <C> <C>
DuPont Dai Nippon Engineering Delaware 50.0%
DuPont Photomasks Company Limited, Shanghai Peoples Republic of China 60.5%
DuPont Photomasks Delaware, Inc. Delaware 100.0%
DuPont Photomasks Foreign Sales Corporation Barbados 100.0%
DuPont Photomasks (France) S.A. France 100.0%
DuPont Photomasks GmbH & Co. KG (Germany) Germany 100.0%
DuPont Photomasks Korea Ltd. Republic of Korea 100.0%
DuPont Photomasks UK Limited United Kingdom 100.0%
DPI Reticle Technology Center, L.L.C. Delaware 25.0%
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-21847) of DuPont Photomasks, Inc. of our report
dated July 29, 1997 appearing in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Austin, Texas
September 15, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF DUPONT PHOTOMASKS, INC. AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<PERIOD-START> JUL-01-1996
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 51,351
<SECURITIES> 0
<RECEIVABLES> 38,973
<ALLOWANCES> 0
<INVENTORY> 15,651
<CURRENT-ASSETS> 121,707
<PP&E> 347,513
<DEPRECIATION> 185,203
<TOTAL-ASSETS> 291,579
<CURRENT-LIABILITIES> 55,625
<BONDS> 10,473
0
0
<COMMON> 151
<OTHER-SE> 215,746
<TOTAL-LIABILITY-AND-EQUITY> 291,579
<SALES> 261,185
<TOTAL-REVENUES> 261,185
<CGS> 160,564
<TOTAL-COSTS> 160,564
<OTHER-EXPENSES> 15,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,080)
<INCOME-PRETAX> 55,167
<INCOME-TAX> 19,308
<INCOME-CONTINUING> 36,762
<DISCONTINUED> 0
<EXTRAORDINARY> (22,242)
<CHANGES> 0
<NET-INCOME> 59,004
<EPS-PRIMARY> 3.80
<EPS-DILUTED> 3.79
</TABLE>
