<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ATMI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3559 06-1481060
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
EUGENE G. BANUCCI, PH.D.
PRESIDENT
ATMI HOLDINGS, INC.
7 COMMERCE DRIVE
DANBURY, CONNECTICUT 06810
(203) 794-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
7 COMMERCE DRIVE
DANBURY, CONNECTICUT 06810
(203) 794-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
COPIES TO:
DONNA L. BROOKS, ESQ. CARMELO M. GORDIAN, ESQ.
SHIPMAN & GOODWIN LLP BROBECK, PHLEGER & HARRISON LLP
ONE AMERICAN ROW 301 CONGRESS AVENUE, SUITE 1200
HARTFORD, CONNECTICUT 06103 AUSTIN, TEXAS 78701
TELEPHONE NO.: (860) 251-5000 TELEPHONE NO.: (512) 477-5495
FACSIMILE NO.: (860) 251-5999 FACSIMILE NO.: (512) 477-5813
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the reorganization of Advanced Delivery & Chemical Systems
Nevada, Inc., Advanced Delivery & Chemical Systems Manager, Inc., Advanced
Delivery & Chemical Systems Holdings, LLC, ATMI Holdings, Inc. and Advanced
Technology Materials, Inc. (the "Company") as described in the Proxy
Statement/Prospectus included herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ATMI Holdings, Inc.
Common Stock, par value
$.01 per share........ 6,250,000(1)(2) $16.00(1) $ 12,473,000(3) $ 3,779.70
- ----------------------------------------------------------------------------------------
ATMI Holdings, Inc.
Common Stock, par value
$.01 per share........ 9,000,000 $31.25(4) $281,250,000 $85,227.27
- ----------------------------------------------------------------------------------------
Total................ -- -- -- $89,006.97(5)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The number of shares to be registered and the offering price per share for
the Exchange (as defined herein) will not be determined until the fifth
day prior to the annual meeting of the stockholders of the Company. The
number of shares to be registered and the per share price set forth in the
table for the Exchange (as defined herein) do not relate directly to the
Proposed Maximum Aggregate Offering Price reflected, because of the
applicability of Rule 457(f)(2) as set forth in Note (3) below.
(2) For purposes of calculating the number of shares to be registered, it is
estimated that the applicable price of Company Common Stock will be $14.00
per share.
(3) Maximum Aggregate Offering Price for the shares to be registered for the
Exchange (as defined herein) is reflected in accordance with Rule
457(f)(2), solely for the purpose of calculating the registration fee,
based upon the book value of the ADCS Interests (as defined herein) at
June 30, 1997, the latest practicable date prior to the date of filing of
this Registration Statement.
(4) Based on the average of the high and low prices of Company Common Stock on
September 8, 1997.
(5) Of this amount, $48,121.51 was paid by the Company with its preliminary
proxy materials filed under Schedule 14A on June 11, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ADVANCED TECHNOLOGY MATERIALS, INC.
7 COMMERCE DRIVE
DANBURY, CONNECTICUT 06810
September 10, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Advanced Technology Materials, Inc. (the "Company"), which will be held at the
Ethan Allen Inn, 21 Lake Avenue Extension, Danbury, Connecticut 06811, at
10:00 a.m., local time, on October 10, 1997 (together with all adjournments
and postponements thereof, the "Annual Meeting").
The enclosed materials describe a number of proposals that you will be asked
to vote on at the Annual Meeting or by signing the enclosed Proxy.
First, you will be asked to elect members of the Company Board of Directors
for the ensuing year.
Second, you will be asked to approve the Merger and Exchange Agreement by
and among the Company, ATMI Holdings, Inc., a newly-formed corporation that is
currently a wholly-owned subsidiary of the Company ("Holdings"), Alamo Merger,
Inc., a newly-formed corporation that is currently a wholly-owned subsidiary
of Holdings ("Merger Subsidiary"), and Advanced Delivery & Chemical Systems
Nevada, Inc. and its related entities (the "ADCS Group"). Pursuant to the
Merger and Exchange Agreement, Merger Subsidiary will merge with and into the
Company, with the Company being the surviving corporation (the "Merger"). As a
result of the Merger, the Company will become a wholly-owned subsidiary of
Holdings, and the stockholders of the Company will receive shares of Holdings
Common Stock. Also pursuant to the Merger and Exchange Agreement,
simultaneously with the consummation of the Merger, the owners of (i) all of
the issued and outstanding shares of capital stock of ADCS Nevada and ADCS
Manager and (ii) one percent of the membership interests in ADCS Holdings
(together, the "ADCS Interests") will transfer all of their ADCS Interests to
Holdings in exchange for shares of Holdings Common Stock (the "Exchange" and
together with the Merger, the "Reorganization"). In addition, the holders of
outstanding options and warrants to purchase shares of Company Common Stock
shall be entitled to purchase the same number of shares of Holdings Common
Stock at the same per share exercise price provided for in the stock option or
warrant agreements evidencing such options or warrants. A copy of the Merger
and Exchange Agreement is annexed to the accompanying Proxy
Statement/Prospectus as Appendix A.
Third, you will also be asked to approve the Lawrence Merger Agreement by
and among the Company, Welk Acquisition Corporation, a newly-formed
corporation and currently a wholly-owned subsidiary of the Company ("Lawrence
Merger Subsidiary"), Holdings and Lawrence Semiconductor Laboratories, Inc.
("LSL") and a related entity. Pursuant to the Lawrence Merger Agreement,
Lawrence Merger Subsidiary will merge with and into LSL, with LSL being the
surviving corporation (the "Lawrence Acquisition"), and LSL will become a
wholly-owned subsidiary of Holdings if the Reorganization is consummated or of
the Company if the Reorganization is not consummated. In connection with the
Lawrence Acquisition, the shares of LSL Common Stock issued and outstanding
immediately prior to the Lawrence Acquisition will be converted into (i)
shares of Holdings Common Stock if the Reorganization is consummated or (ii)
shares of Company Common Stock if the Reorganization is not consummated. A
copy of the Lawrence Merger Agreement is annexed to the accompanying Proxy
Statement/Prospectus as Appendix E.
Fourth, you will be asked to approve an amendment to the Company's Restated
Certificate of Incorporation, as amended, to increase the number of shares of
Company Common Stock authorized to be issued by 1,000,000,
<PAGE>
from 15,000,000 to 16,000,000. Even if such amendment is approved by the
stockholders of the Company, the amendment will not become effective if the
Reorganization is consummated.
Fifth, you will be asked to approve the adoption of the Company's 1997 Stock
Plan (the "1997 Stock Plan"). Pursuant to the 1997 Stock Plan, 900,000 shares
of Company Common Stock will be reserved for issuance. Even if the 1997 Stock
Plan is approved by the stockholders of the Company, the 1997 Stock Plan will
become effective only if the Reorganization is not consummated and the
stockholders of the Company approve the amendment to the Company's Restated
Certificate of Incorporation, as amended. Holdings currently has a stock plan
that is identical to the 1997 Stock Plan, and the Holdings stock plan will be
operative if the Reorganization is consummated.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES TO SERVE
AS DIRECTORS OF THE COMPANY. YOUR BOARD OF DIRECTORS ALSO HAS DETERMINED THAT
THE MERGER AND EXCHANGE AGREEMENT, THE LAWRENCE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR AND REASONABLE AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE PROPOSALS TO ADOPT THE MERGER AND EXCHANGE AGREEMENT AND THE
LAWRENCE MERGER AGREEMENT. YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION AND THE
ADOPTION OF THE 1997 STOCK PLAN ARE ADVISABLE AND IN THE BEST INTERESTS OF THE
COMPANY AND RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE AMENDMENT TO THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION AND THE ADOPTION OF THE 1997
STOCK PLAN.
The accompanying Proxy Statement/Prospectus contains information about the
Company, the ADCS Group and LSL and describes the transactions contemplated by
the Merger and Exchange Agreement and the Lawrence Merger Agreement you are
being asked to consider and vote upon either by attending the Annual Meeting
or by signing and returning your Proxy. The accompanying Proxy
Statement/Prospectus also contains information about the proposed amendment to
the Company's Restated Certificate of Incorporation and about the proposed
adoption of the 1997 Stock Plan. Please give the information contained in the
accompanying Proxy Statement/Prospectus your most careful attention.
Regardless of whether you are able to attend the Annual Meeting, please
complete, sign and date the enclosed Proxy and return it in the enclosed
envelope as soon as possible. If you attend the Annual Meeting, you may revoke
your Proxy and vote your shares in person if you wish.
PLEASE SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY.
Very truly yours,
Eugene G. Banucci, Ph.D.
Chief Executive Officer and
President
<PAGE>
ADVANCED TECHNOLOGY MATERIALS, INC.
7 COMMERCE DRIVE
DANBURY, CONNECTICUT 06810
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 10, 1997
To Our Stockholders:
The 1997 Annual Meeting of Stockholders of Advanced Technology Materials,
Inc. (the "Company") will be held at the Ethan Allen Inn, 21 Lake Avenue
Extension, Danbury, Connecticut 06811, on October 10, 1997 at 10:00 a.m.
(local time) for the following purposes:
1. To elect the Company Board of Directors;
2. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger and Exchange dated as of April 7, 1997 (the
"Merger and Exchange Agreement"), by and among the Company, ATMI Holdings,
Inc., a Delaware corporation and wholly-owned subsidiary of the Company
("Holdings"), Alamo Merger, Inc., a Delaware corporation and wholly-owned
subsidiary of Holdings ("Merger Subsidiary"), Advanced Delivery & Chemical
Systems Nevada, Inc., a Nevada corporation ("ADCS Nevada"), Advanced
Delivery & Chemical Systems Manager, Inc., a Delaware corporation ("ADCS
Manager"), Advanced Delivery & Chemical Systems Holdings, LLC, a Delaware
limited liability company ("ADCS Holdings"), Advanced Delivery & Chemical
Systems Operating, LLC, a Delaware limited liability company, and Advanced
Delivery & Chemical Systems, Ltd., a Texas limited partnership, a copy of
which is set forth as Appendix A to the attached Proxy
Statement/Prospectus. Pursuant to the Merger and Exchange Agreement, among
other things: (i) Merger Subsidiary will be merged with and into the
Company, with the Company being the surviving corporation; (ii) the Company
will become a wholly-owned subsidiary of Holdings; and (iii) the holders of
(1) all of the issued and outstanding shares of capital stock of ADCS
Nevada and ADCS Manager, and (2) one percent of the membership interests in
ADCS Holdings will transfer such shares and interests to Holdings in
exchange for shares of Holdings common stock;
3. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of May 17, 1997, as amended by the
First Amendment to Agreement and Plan of Merger dated as of June 6, 1997
and the Second Amendment to Agreement and Plan of Merger dated as of July
30, 1997 (as amended, the "Lawrence Merger Agreement"), by and among the
Company, Welk Acquisition Corporation, a Delaware corporation and currently
a wholly-owned subsidiary of the Company ("Lawrence Merger Subsidiary"),
Holdings, Lawrence Semiconductor Laboratories, Inc., an Arizona corporation
("LSL"), and Lawrence Semiconductor Laboratories Marketing and Sales, Inc.,
an Arizona corporation, a copy of which is set forth as Appendix E to the
attached Proxy Statement/Prospectus. Pursuant to the Lawrence Merger
Agreement, among other things, Lawrence Merger Subsidiary will be merged
with and into LSL, with LSL being the surviving corporation and LSL will
become a wholly-owned subsidiary of Holdings if the Reorganization is
consummated or of the Company if the Reorganization is not consummated;
4. To approve the proposed amendment to the Company's Restated
Certificate of Incorporation, as amended, to increase the number of
authorized shares of common stock;
5. To approve the Company's 1997 Stock Plan; and
6. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
<PAGE>
Only stockholders of record at the close of business on September 10, 1997
are entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
By order of the Board of Directors,
Ward C. Stevens
Secretary
Dated: September 10, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE. ANY PERSON GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME
PRIOR TO ITS EXERCISE AND, IF PRESENT AT THE ANNUAL MEETING, MAY WITHDRAW IT
AND VOTE IN PERSON.
<PAGE>
ADVANCED TECHNOLOGY MATERIALS, INC.
7 COMMERCE DRIVE
DANBURY, CONNECTICUT 06810
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 10, 1997
----------------
PROSPECTUS
OF
ATMI HOLDINGS, INC.
----------------
This Proxy Statement/Prospectus is being furnished by Advanced Technology
Materials, Inc. (the "Company") to the holders of its common stock, par value
$.01 per share ("Company Common Stock"), in connection with the solicitation
of proxies by the Board of Directors of the Company (the "Company Board of
Directors") for use at the Annual Meeting of Stockholders to be held at the
Ethan Allen Inn, 21 Lake Avenue Extension, Danbury, Connecticut 06811, on
October 10, 1997, at 10:00 a.m., local time, and at any adjournments or
postponements thereof (the "Annual Meeting").
At the Annual Meeting, the stockholders of the Company will be asked to
elect the Company Board of Directors.
The stockholders of the Company will also be asked to vote on a proposal to
approve and adopt the Agreement and Plan of Merger and Exchange dated as of
April 7, 1997 (the "Merger and Exchange Agreement"), by and among the Company,
ATMI Holdings, Inc., a newly-formed Delaware corporation that is currently a
wholly-owned subsidiary of the Company ("Holdings"), Alamo Merger, Inc., a
newly-formed Delaware corporation that is currently a wholly-owned subsidiary
of Holdings ("Merger Subsidiary"), Advanced Delivery & Chemical Systems
Nevada, Inc., a Nevada corporation ("ADCS Nevada"), Advanced Delivery &
Chemical Systems Manager, Inc., a Delaware corporation ("ADCS Manager"),
Advanced Delivery & Chemical Systems Holdings, LLC, a Delaware limited
liability company ("ADCS Holdings"), Advanced Delivery &
(continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 19 FOR A DISCUSSION OF CERTAIN RISK
FACTORS RELATED TO THE COMPANY, THE ADCS GROUP, LAWRENCE AND THE TRANSACTIONS.
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Proxy Statement/Prospectus and the form of Proxy are first being mailed
to stockholders of the Company on or about September 12, 1997.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS SEPTEMBER 10, 1997.
<PAGE>
(continued from previous page)
Chemical Systems Operating, LLC, a Delaware limited liability company ("ADCS
Operating"), and Advanced Delivery & Chemical Systems, Ltd., a Texas limited
partnership ("ADCS LP"). The Company, Holdings and Merger Subsidiary are
sometimes referred to collectively in this Proxy Statement/Prospectus as the
"ATMI Group," and ADCS Nevada (including ADCS Nevada's predecessor in
interest, Advanced Delivery & Chemical Systems Illinois, Inc.), ADCS Manager,
ADCS Holdings, ADCS Operating and ADCS LP are sometimes referred to
collectively in this Proxy Statement/Prospectus as the "ADCS Group." Pursuant
to the Merger and Exchange Agreement, Merger Subsidiary will merge with and
into the Company, with the Company being the surviving corporation (the
"Merger"). As a result of the Merger, the Company will become a wholly-owned
subsidiary of Holdings. Also pursuant to the Merger and Exchange Agreement,
simultaneously with the consummation of the Merger, the record and beneficial
owners (the "ADCS Holders") of (i) all of the issued and outstanding shares of
capital stock of ADCS Nevada (the "ADCS Nevada Common Stock") and ADCS Manager
(the "ADCS Manager Common Stock," and together with the ADCS Nevada Common
Stock, the "ADCS Capital Stock") and (ii) the one percent of the membership
interests in ADCS Holdings held by the ADCS Holders (the "ADCS Holdings
Membership Interests," and together with the ADCS Capital Stock, the "ADCS
Interests") will transfer all of their ADCS Interests to Holdings in exchange
for shares of Holdings common stock, par value $.01 per share ("Holdings
Common Stock") (the "Exchange," and together with the Merger, the
"Reorganization"). THE PERIOD DURING WHICH TIME THE ADCS HOLDERS MAY ELECT TO
EXCHANGE THEIR ADCS INTERESTS FOR HOLDINGS COMMON STOCK WILL EXPIRE AT 5:00
P.M. (EASTERN TIME) ON OCTOBER 10, 1997.
In addition, the stockholders of the Company will also vote on a proposal to
approve and adopt an Agreement and Plan of Merger dated as of May 17, 1997, as
amended by the First Amendment to Agreement and Plan of Merger dated as of
June 6, 1997 and the Second Amendment to Agreement and Plan of Merger dated as
of July 30, 1997 (as amended, the "Lawrence Merger Agreement"), by and among
the Company, Welk Acquisition Corporation, a newly-formed Delaware corporation
that is currently a wholly-owned subsidiary of the Company ("Lawrence Merger
Subsidiary"), Holdings, Lawrence Semiconductor Laboratories, Inc., an Arizona
corporation ("LSL"), and Lawrence Semiconductor Laboratories Marketing and
Sales, Inc., an Arizona corporation ("LSLMS"). LSL and LSLMS are sometimes
referred to collectively in this Proxy Statement/Prospectus as "Lawrence."
Pursuant to the Lawrence Merger Agreement, Lawrence Merger Subsidiary will
merge with and into LSL, with LSL being the surviving corporation (the
"Lawrence Acquisition"), and LSL will become a wholly-owned subsidiary of the
Company if the Reorganization is not consummated or of Holdings if the
Reorganization is consummated. Prior to the consummation of and as a condition
to the Lawrence Acquisition, Lamonte H. Lawrence, the sole stockholder of
LSLMS, will contribute all of the issued and outstanding shares of capital
stock of LSLMS to LSL, with LSLMS becoming a wholly-owned subsidiary of LSL.
In connection with the Lawrence Acquisition, the shares of common stock of LSL
("LSL Common Stock") issued and outstanding immediately prior to the Lawrence
Acquisition will be converted into (i) shares of Holdings Common Stock if the
Reorganization is consummated or (ii) shares of Company Common Stock if the
Reorganization is not consummated. The Reorganization and the Lawrence
Acquisition are sometimes referred to collectively in this Proxy
Statement/Prospectus as the "Transactions."
Furthermore, the stockholders of the Company will vote on a proposal to
approve the proposed amendment (the "Amendment") to the Company's Restated
Certificate of Incorporation, as amended, to increase the number of authorized
shares of Company Common Stock from 15,000,000 shares to 16,000,000 shares.
Even if the stockholders of the Company approve the Amendment, the Amendment
will not become effective if the Reorganization is consummated.
Finally, the stockholders of the Company will vote on a proposal to approve
the Company's 1997 Stock Plan (the "1997 Stock Plan"). Assuming approval of
the 1997 Stock Plan by the stockholders of the Company, the 1997 Stock Plan
will become effective only if the Reorganization is not consummated and the
stockholders of the Company approve the Amendment. Holdings currently has a
stock plan that is identical to the 1997 Stock Plan, and the Holdings stock
plan will be operative if the Reorganization is consummated.
ii
<PAGE>
This Proxy Statement/Prospectus is also being furnished to (i) the ADCS
Holders for consideration in their decision to participate in the Exchange and
(ii) the stockholders of LSL (the "LSL Stockholders") for consideration in
their decision to approve the Lawrence Merger Agreement.
Holdings has filed a Registration Statement on Form S-4 (together with all
amendments and exhibits thereto, the "Registration Statement") with the
Securities and Exchange Commission (the "SEC"), covering the shares of
Holdings Common Stock to be issued in connection with the Reorganization. This
Proxy Statement/Prospectus also constitutes the Prospectus of Holdings filed
as part of the Registration Statement. See "AVAILABLE INFORMATION."
The Reorganization will be effected pursuant to the terms and subject to the
conditions of the Merger and Exchange Agreement which is attached to this
Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference. The Lawrence Acquisition will be effected pursuant to the terms and
subject to the conditions of the Lawrence Merger Agreement which is attached
to this Proxy Statement/Prospectus as Appendix E and is incorporated herein by
reference.
iii
<PAGE>
AVAILABLE INFORMATION
Holdings has filed the Registration Statement under the Securities Act of
1933, as amended (the "Securities Act"), with the SEC covering the shares of
Holdings Common Stock to be issued in connection with the Reorganization. This
Proxy Statement/Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to Holdings and Holdings Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Statements contained in this Proxy
Statement/Prospectus as to the contents of any agreement or any other document
to which reference is made are not necessarily complete, and, in each
instance, if such agreement or document is filed as an exhibit, reference is
made to the copy of such agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference to such exhibit. The Registration Statement, including exhibits
and schedules thereto, may be inspected and copied at the principal office of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material may be obtained from such office at prescribed rates. In addition,
Holdings is required to file electronic versions of these documents with the
SEC through the SEC's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The SEC maintains a World Wide Web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices maintained by the SEC: Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048; Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and Pacific Regional Office, 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036-3648. Copies of such
materials can also be obtained from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company's Common Stock is quoted for trading on The Nasdaq National Market
("Nasdaq") and reports, proxy statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
Holdings will become subject to the same informational requirements as the
Company if the Reorganization is consummated, and will file reports, proxy
statements and other information with the SEC in accordance with the Exchange
Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC (File Number 0-
22756) are incorporated herein by reference: (1) the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996; (2) the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June
30, 1997; (3) the Company's Current Reports on Form 8-K dated April 18, 1997
and May 30, 1997; and (4) the description of Company Common Stock contained in
the Company's Registration Statement on Form 8-A filed on October 29, 1993,
which description was amended on Form 8-A/A filed on November 11, 1993. All
documents filed by the Company with the SEC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
date of the Annual Meeting shall be deemed to be incorporated by reference
into this Proxy Statement/Prospectus and to be a part hereof from the date of
filing of such documents (all such documents, and the documents enumerated
above, being hereinafter referred to as "Incorporated Documents"). Any
statements contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference
iv
<PAGE>
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING
TO THE COMPANY WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE FROM DEAN HAMILTON, MANAGER OF MARKETING COMMUNICATIONS,
ADVANCED TECHNOLOGY MATERIALS, INC., 7 COMMERCE DRIVE, DANBURY, CONNECTICUT
06810 (TELEPHONE NUMBER: (203) 794-1100). IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY OCTOBER 3, 1997.
INFORMATION PROVIDED BY THE COMPANY, THE ADCS GROUP AND LAWRENCE
THE INFORMATION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS CONCERNING THE
ATMI GROUP HAS BEEN PROVIDED BY THE COMPANY, THE INFORMATION SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS CONCERNING THE ADCS GROUP HAS BEEN PROVIDED BY THE
ADCS GROUP, AND THE INFORMATION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS
CONCERNING LAWRENCE HAS BEEN PROVIDED BY LAWRENCE.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR HOLDINGS. THIS PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR
FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY HEREOF NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR HOLDINGS SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS
PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................. iv
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................... iv
INFORMATION PROVIDED BY THE COMPANY, THE ADCS GROUP AND LAWRENCE...... v
SUMMARY OF PROXY STATEMENT/PROSPECTUS................................. 1
The Companies....................................................... 1
Risk Factors........................................................ 2
The Annual Meeting.................................................. 3
Election of Company Directors....................................... 4
The Reorganization.................................................. 4
The Lawrence Acquisition............................................ 10
Equity Ownership of Certain Persons with Interests in the
Transactions....................................................... 14
Market and Market Prices............................................ 16
Amendment to the Company's Restated Certificate of Incorporation.... 18
1997 Stock Plan..................................................... 18
RISK FACTORS.......................................................... 19
Risk Factors Related to the Company................................. 19
Risk Factors Related to the ADCS Group.............................. 22
Risk Factors Related to Lawrence.................................... 26
Risk Factors Related to the Transactions............................ 29
COMPARATIVE PER COMMON SHARE DATA..................................... 34
SELECTED FINANCIAL DATA............................................... 37
THE ANNUAL MEETING.................................................... 40
Introduction........................................................ 40
Place, Date and Time of Annual Meeting.............................. 40
Matters to be Considered............................................ 40
Record Date and Outstanding Shares.................................. 40
Votes Required...................................................... 40
Proxies............................................................. 41
Expenses; Solicitation.............................................. 41
ELECTION OF COMPANY DIRECTORS (Proposal 1)............................ 42
Company Board of Directors Committees and Meetings.................. 43
Company Directors' Compensation..................................... 43
EXECUTIVE COMPENSATION................................................ 45
Summary Compensation................................................ 45
Option Exercises and Year-End Values................................ 45
Non-Competition Agreements.......................................... 46
Compensation Committee Report....................................... 46
Stock Performance Graph............................................. 48
PRINCIPAL COMPANY STOCKHOLDERS AND STOCK OWNERSHIP OF COMPANY
MANAGEMENT.......................................................... 49
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA.................. 51
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........... 54
BUSINESS OF THE COMPANY............................................... 63
BUSINESS OF THE ADCS GROUP............................................ 64
General............................................................. 64
Background.......................................................... 64
Business Strategy................................................... 64
Products and Services............................................... 64
Markets, Sales and Distribution..................................... 66
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Customers.............................................................. 67
Competition............................................................ 67
Backlog................................................................ 67
Patents and Proprietary Rights......................................... 67
Research and Development............................................... 68
Environmental Regulation............................................... 68
Employees.............................................................. 69
Properties............................................................. 69
Insurance; Product Liability........................................... 69
Litigation............................................................. 69
ADCS Restructure....................................................... 69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--THE ADCS GROUP........................................... 71
Overview............................................................... 71
Results of Operations.................................................. 72
Liquidity and Capital Resources........................................ 74
Inflation.............................................................. 74
MANAGEMENT OF THE ADCS GROUP............................................. 75
Board of Directors..................................................... 75
Officers............................................................... 75
Executive Compensation................................................. 76
Related Transaction.................................................... 76
BENEFICIAL OWNERSHIP OF ADCS INTERESTS................................... 77
BUSINESS OF LAWRENCE..................................................... 78
General................................................................ 78
Background............................................................. 78
Industry............................................................... 79
Business Strategy...................................................... 80
Customers and Suppliers................................................ 80
Competition............................................................ 81
Backlog................................................................ 81
Proprietary Rights..................................................... 81
Research and Development............................................... 81
Environmental Regulation............................................... 81
Litigation............................................................. 82
Employees.............................................................. 82
Properties............................................................. 82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--LAWRENCE..................................... 83
Overview............................................................... 83
Results of Operations.................................................. 83
Liquidity and Capital Resources........................................ 84
Inflation.............................................................. 85
MANAGEMENT OF LAWRENCE................................................... 86
Directors and Executive Officers....................................... 86
Executive Compensation................................................. 87
Certain Relationships and Related Transactions......................... 87
BENEFICIAL OWNERSHIP OF LSL COMMON STOCK................................. 88
THE REORGANIZATION (Proposal 2).......................................... 89
General................................................................ 89
The Merger............................................................. 89
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Exchange............................................................. 89
Results of the Reorganization............................................ 91
Background of the Reorganization......................................... 92
Company's Reasons for the Reorganization................................. 93
Recommendation of the Company Board of Directors......................... 94
ADCS Group's Reasons for the Reorganization.............................. 94
Appraisal Rights......................................................... 95
Opinion of Alex. Brown, Financial Advisor to the Company................. 95
Effective Time of the Reorganization..................................... 100
Exchange of Certificates and the ADCS Interests.......................... 100
Conditions to the Reorganization......................................... 101
Business Pending the Reorganization...................................... 102
Termination.............................................................. 103
Indemnification and Escrow............................................... 104
Interests of Certain Persons in the Reorganization....................... 106
Employment Agreements.................................................... 107
Accounting Treatment..................................................... 108
Certain Federal Income Tax Consequences.................................. 108
Resale of Holdings Common Stock by Affiliates............................ 110
Registration Rights Agreement............................................ 110
Nasdaq Listing........................................................... 111
THE LAWRENCE ACQUISITION (Proposal 3)...................................... 112
General.................................................................. 112
Terms of the Lawrence Acquisition........................................ 112
Possible Adjustments to Purchase Price................................... 113
Results of the Lawrence Acquisition...................................... 114
Background of the Lawrence Acquisition................................... 115
Company's Reasons for the Lawrence Acquisition........................... 116
Recommendation of the Company Board of Directors......................... 117
Lawrence's Reasons for the Lawrence Acquisition; Recommendation of
LSL's Board of Directors................................................ 118
Fairness Opinion of Hambrecht & Quist.................................... 118
Effective Time of the Lawrence Acquisition............................... 125
Conditions to the Lawrence Acquisition................................... 125
Business Pending the Lawrence Acquisition................................ 127
Termination.............................................................. 128
Indemnification and Escrow............................................... 129
Agreements with Lamonte H. Lawrence and Affiliated Entities.............. 130
Staying and Severance Agreements......................................... 131
Employment Agreements.................................................... 131
Accounting Treatment..................................................... 132
Certain Federal Income Tax Consequences.................................. 132
Resale of Lawrence Acquisition Shares.................................... 134
Registration Rights Agreement............................................ 134
Nasdaq Listing........................................................... 135
EQUITY OWNERSHIP OF CERTAIN PERSONS WITH INTERESTS
IN THE TRANSACTIONS....................................................... 136
Company Common Stock..................................................... 136
ADCS Interests........................................................... 138
LSL Common Stock......................................................... 140
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF CAPITAL STOCK OF HOLDINGS................................... 141
Common Stock............................................................. 141
Preferred Stock.......................................................... 141
Delaware Law and Certain Charter and Bylaw Provisions.................... 142
Registration Rights...................................................... 143
Transfer Agent and Registrar............................................. 143
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY................................ 144
Common Stock............................................................. 144
Preferred Stock.......................................................... 144
Delaware Law and Certain Charter and Bylaw Provisions.................... 144
Registration Rights...................................................... 145
Transfer Agent and Registrar............................................. 145
COMPARISON OF MATERIAL RIGHTS OF HOLDINGS STOCKHOLDERS
AND COMPANY STOCKHOLDERS.................................................. 146
Classified Board of Directors............................................ 146
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nomination of Directors................................................. 146
Special Meetings of Stockholders......................................... 146
Other Voting Rights...................................................... 146
COMPARISON OF HOLDINGS COMMON STOCK AND THE ADCS INTERESTS................. 147
Holdings Common Stock and ADCS Nevada Common Stock....................... 147
Holdings Common Stock and ADCS Manager Common Stock...................... 150
Holdings Common Stock and ADCS Holdings Membership Interests............. 153
COMPARISON OF HOLDINGS COMMON STOCK AND LSL COMMON STOCK................... 156
COMPARISON OF COMPANY COMMON STOCK AND LSL COMMON STOCK.................... 159
OPERATIONS AND MANAGEMENT AFTER THE TRANSACTIONS........................... 164
Operations............................................................... 164
Management............................................................... 164
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION (Proposal 4)............ 166
Increase in Authorized Shares of Company Common Stock.................... 166
Possible Anti-takeover Effect............................................ 166
1997 STOCK PLAN (Proposal 5)............................................... 168
Nature and Purpose....................................................... 168
Duration................................................................. 169
Administration........................................................... 169
Shares Subject to the 1997 Stock Plan.................................... 169
Eligibility.............................................................. 169
Options and SARs......................................................... 170
Awards................................................................... 172
Change in Control........................................................ 172
Federal Income Tax Consequences.......................................... 172
LIMITATION OF LIABILITY AND INDEMNIFICATION................................ 175
LEGAL MATTERS.............................................................. 175
EXPERTS.................................................................... 175
INDEPENDENT AUDITORS....................................................... 176
OTHER BUSINESS............................................................. 176
STOCKHOLDER PROPOSALS FOR 1998............................................. 176
GLOSSARY................................................................... 177
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
ix
<PAGE>
<TABLE>
<C> <S> <C>
APPENDICES:
Agreement and Plan of Merger and Exchange (the
A. Reorganization)............................................. A-1
B. Opinion of Alex. Brown & Sons Incorporated.................. B-1
C. Certificate of Incorporation of Holdings.................... C-1
D. Bylaws of Holdings.......................................... D-1
Agreement and Plan of Merger, as amended (the Lawrence
E. Acquisition)................................................ E-1
F. Opinion of Hambrecht & Quist LLC............................ F-1
G. Advanced Technology Materials, Inc. 1997 Stock Plan......... G-1
</TABLE>
x
<PAGE>
SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. Certain capitalized terms used in this Summary are
defined elsewhere in this Proxy Statement/Prospectus. This Summary is not
intended to be complete and is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated by
reference or otherwise referred to herein. This Proxy Statement/Prospectus
contains forward-looking statements which involve risks and uncertainties. The
actual results of the Company, Holdings, the ADCS Group and Lawrence could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Proxy Statement/Prospectus. Certain terms used herein are
defined in the Glossary on page 177 of this Proxy Statement/Prospectus.
THE COMPANIES
The Company. The Company is a leading supplier of point-of-use environmental
equipment, thin film materials and delivery systems and thin film deposition
services to the semiconductor industry. The Company's products are primarily
based on proprietary and patented chemical vapor deposition ("CVD")
technologies used in semiconductor thin film manufacture. Currently, the
Company's primary commercial business is the manufacture, sale and service of
semiconductor environmental equipment through its wholly-owned subsidiary, ATMI
EcoSys Corporation ("EcoSys"). In addition, the Company's NovaMOS division
develops, manufactures and sells the raw materials used in CVD processes used
in the manufacture of semiconductor thin films. Finally, the Company's
Epitronics division develops, manufactures, distributes and sells high
performance substrates and thin film deposition services to the semiconductor
industry.
The Company was incorporated in Connecticut in 1986 and reincorporated in
Delaware in 1987. The principal executive offices of the Company are located at
7 Commerce Drive, Danbury, Connecticut 06810, and its telephone number is (203)
794-1100. See "BUSINESS OF THE COMPANY."
The ADCS Group. The ADCS Group manufactures, markets and designs ultrahigh
purity specialty thin film materials and related delivery equipment for CVD,
diffusion and etch applications in the semiconductor and semiconductor
equipment manufacturing industries. The ADCS Group distributes its products
worldwide through its international sales network. The ADCS Group's
manufacturing facilities are located in Burnet, Texas and Anseong, South Korea.
The ADCS Group was originally formed in 1988 as Advanced Delivery & Chemical
Systems, Inc., an Illinois corporation, later renamed Advanced Delivery &
Chemical Systems Illinois, Inc. ("ADCS Illinois"), and was reorganized as the
ADCS Group in 1996. References herein to the ADCS Group shall include its
predecessor, ADCS Illinois, unless the context indicates otherwise. The
principal executive offices of the ADCS Group are located at 6805 Capital of
Texas Highway, Suite 330, Austin, Texas 78731, and its telephone number is
(512) 418-8200. See "BUSINESS OF THE ADCS GROUP."
Lawrence. LSL is an outsourcer of epitaxial processing of silicon wafers
using CVD technology to meet customer specifications. Epitaxial processing is
one of many steps involved in transforming a silicon wafer into a semiconductor
chip, the primary functional component of most electronic products, and has the
purpose of, among other things, allowing for improved isolation of circuits,
establishing electrical uniformity throughout the wafer and determining the
electrical characteristics of the finished device. Epitaxial structures are
utilized primarily on complex electronic devices that would not be
manufacturable on a prime polished wafer alone.
LSLMS provides marketing and sales support for LSL.
LSL was incorporated in California in 1987 and was reincorporated in Arizona
in 1997. LSLMS was incorporated in Arizona in 1991. Prior to the consummation
of and as a condition to the Lawrence Acquisition, Lamonte H. Lawrence, the
sole stockholder of LSLMS, will contribute all of the issued and outstanding
shares of capital stock of LSLMS to LSL, with LSLMS becoming a wholly-owned
subsidiary of LSL.
1
<PAGE>
The principal executive offices of Lawrence are located at 550 West Juanita,
Mesa, Arizona 85210, and its telephone number is (602) 668-4000. See "BUSINESS
OF LAWRENCE."
Holdings. Holdings is a Delaware corporation and a wholly-owned subsidiary of
the Company organized for the purpose of acting as a constituent entity in the
Transactions and has not engaged in any substantive business activity. The
principal executive offices of Holdings are located at 7 Commerce Drive,
Danbury, Connecticut 06810, and its telephone number is (203) 794-1100.
Merger Subsidiary. Merger Subsidiary is a Delaware corporation and a wholly-
owned subsidiary of Holdings organized for the purpose of acting as a
constituent entity in the Reorganization and merging with the Company and has
not engaged in any substantive business activity. The principal executive
offices of Merger Subsidiary are located at 7 Commerce Drive, Danbury,
Connecticut 06810, and its telephone number is (203) 794-1100.
Lawrence Merger Subsidiary. Lawrence Merger Subsidiary is a Delaware
corporation and currently a wholly-owned subsidiary of the Company organized
for the purpose of acting as a constituent entity in the Lawrence Acquisition
and has not engaged in any substantive business activity. If both Transactions
are consummated, Lawrence Merger Subsidiary will become a wholly-owned
subsidiary of Holdings immediately prior to such consummation. The principal
executive offices of Lawrence Merger Subsidiary are located at 7 Commerce
Drive, Danbury, Connecticut 06810, and its telephone number is (203) 794-1100.
RISK FACTORS
In evaluating the Transactions, the stockholders of the Company, the ADCS
Holders and the LSL Stockholders should consider the following risk factors
relating to the Company, the ADCS Group, Lawrence and the Transactions, which
are discussed in greater detail in "RISK FACTORS" beginning on page 19. All
stockholders of the Company, the ADCS Holders and the LSL Stockholders are
urged to read "RISK FACTORS" in its entirety.
This Proxy Statement/Prospectus contains forward-looking statements and,
although the Company believes that they are based on reasonable assumptions, no
assurances can be given that actual results will not differ from such forward-
looking statements.
Risk factors relating to the Company include risks associated with: the
development stage of certain of the Company's business units, including risks
related to product commercialization; dependence on industry collaborators;
potential fluctuation in quarterly results; the Company's limited manufacturing
capability; the Company's substantial future capital needs and the risk that
additional financing may be unavailable if needed; the expansion of operations
and management of growth by the Company; the Company's ability to protect the
proprietary nature of its technology, including the defense of its patents; the
Company's dependence on key personnel; the Company's dependence on government
contracts; and that the Company has never paid cash dividends, nor does the
Company or Holdings intend to do so in the foreseeable future. There are also
several risk factors relating to the markets in which the Company competes,
including the intensity of competition in the markets for semiconductor
devices, materials and manufacturing equipment, the rapid change and competing
technologies in semiconductor technology and risks arising out of environmental
regulations to which the Company is subject.
Risk factors relating to the ADCS Group include risks associated with: the
development stage of certain of the ADCS Group's business units, including
risks related to product commercialization; its dependence on a single customer
for a large portion of its sales; the ADCS Group's dependence on the
semiconductor industry as its only market; its dependence on foreign sales and
the risks associated with foreign markets; the ADCS Group's joint venture in
South Korea; potential fluctuation in quarterly results; the rapid change that
characterizes semiconductor technology and the ADCS Group's dependence on a
single product; the ADCS Group's ability to protect the proprietary nature of
its technology, including the defense of its patents; and the ADCS Group's
dependence on key personnel. Several risk factors are inherent in the markets
in which the ADCS Group competes, including
2
<PAGE>
the product liability risk associated with selling thin film materials; risks
relating to the intense competition in the markets for semiconductor devices
related materials and manufacturing equipment; risks of decreased profits as
thin film material products are viewed as more of a commodity, rather than a
specialized product; risks associated with litigation, which is commonplace in
the semiconductor industry; and risks arising out of environmental regulations
to which the ADCS Group is subject.
Risk factors relating to Lawrence include risks associated with: Lawrence's
dependence on the semiconductor market; Lawrence's strategy of targeting niche
markets of the semiconductor industry, including potential competition for such
niche markets; the availability of competing technologies; Lawrence's
substantial future capital needs, for which additional financing may prove
unavailable; Lawrence's non-compliance with certain of its debt covenants;
Lawrence's ability to manage its growth; potential disruption in Lawrence's
operations; Lawrence's dependence on particular customers; potential
fluctuations in quarterly results; the lack of protection available for
Lawrence's proprietary technologies; Lawrence's dependence on key personnel and
industry collaborators; and risks arising out of environmental regulations to
which Lawrence is subject.
In addition to the risks associated with each of the Company, the ADCS Group
and Lawrence, there are certain risk factors relating to the Transactions.
These include risks associated with: the integration of business operations of
the different entities; the substantial expense resulting from the
Transactions; the potential for fluctuation in the market price of Company
Common Stock, resulting in uncertainty as to the number of shares of Company
Common Stock or Holdings Common Stock to be issued in connection with the
Exchange and the Lawrence Acquisition; the concentration of stock ownership in
certain stockholders after the Transactions; future volatility in the price of
Company Common Stock or Holdings Common Stock; the unlikelihood of the payment
of dividends on Company Common Stock or Holdings Common Stock; the potential
dilutive effect of the Transactions; the potential benefits of not completing
the Transactions for the ADCS Holders and LSL Stockholders, who would be more
likely to receive distributions of net profits; the indemnification and escrow
provisions relating to the Transactions; the anti-takeover effect of certain
charter and bylaw provisions and the possible issuance of preferred stock; the
possibility that, even if approved by the stockholders of the Company, the
Transactions may not be consummated, and the substantial termination fees
associated with termination of either of the Transactions; the potential that
such fees may not compensate for any business opportunities lost in favor of
pursuing the Transactions; and the limited scope of the tax opinions received
by the Company, the ADCS Group and Lawrence with respect to certain of the
expected federal income tax consequences of the Transactions.
THE ANNUAL MEETING
Place, Date and Time of the Annual Meeting. The Annual Meeting will be held
at the Ethan Allen Inn, 21 Lake Avenue Extension, Danbury, Connecticut 06811,
on October 10, 1997, at 10:00 a.m., local time. See "THE ANNUAL MEETING--Place,
Date and Time of Annual Meeting."
Matters to be Considered. At the Annual Meeting, the stockholders of the
Company will be asked: (1) to elect the Company Board of Directors; (2) to
consider and vote on a proposal to approve and adopt the Merger and Exchange
Agreement; (3) to consider and vote on a proposal to approve and adopt the
Lawrence Merger Agreement; (4) to approve the proposed amendment to the
Company's Restated Certificate of Incorporation, as amended, to increase the
number of authorized shares of Company Common Stock; (5) to consider and vote
on a proposal to approve and adopt the 1997 Stock Plan; and (6) to transact
such other business as may properly come before the Annual Meeting. See "THE
ANNUAL MEETING--Matters to be Considered."
Record Date and Outstanding Shares. The Company Board of Directors has fixed
the close of business on September 10, 1997 as the record date (the "Record
Date") for the determination of stockholders entitled to notice of and to vote
at the Annual Meeting. Accordingly, only holders of record of Company Common
Stock as of the Record Date have the right to receive notice of and to vote at
the Annual Meeting and will be entitled to one vote for each share of Company
Common Stock held. On the Record Date, there were 8,816,455 shares of Company
Common Stock outstanding held by approximately 203 holders of record. See "THE
ANNUAL MEETING--Record Date and Outstanding Shares."
3
<PAGE>
ELECTION OF COMPANY DIRECTORS
The stockholders of the Company will be asked to elect the Company Board of
Directors. The Company Board of Directors has nominated Eugene G. Banucci,
Ph.D., Mark A. Adley, John A. Armstrong, Ph.D., Robert S. Hillas and Stephen H.
Mahle, each of whom is currently a director of the Company. Duncan W. Brown,
Ph.D. and Gary A. Andersen have completed their terms as directors and will not
be standing for reelection at the Annual Meeting. The affirmative vote of a
plurality of shares of Company Common Stock represented at the Annual Meeting
in person or by proxy is required to elect any nominee for director. The
foregoing nominees will also constitute five of the (i) six members of the
Board of Directors of Holdings if only the Reorganization is consummated, (ii)
six members of the Company Board of Directors if only the Lawrence Acquisition
is consummated, or (iii) seven members of the Board of Directors of Holdings if
both Transactions are consummated. See "ELECTION OF COMPANY DIRECTORS" and
"OPERATIONS AND MANAGEMENT AFTER THE TRANSACTIONS--Management."
THE REORGANIZATION
In considering the acquisition of the ADCS Group, the parties identified
three goals: (i) issuance of securities as consideration for the ADCS
Interests; (ii) tax-free treatment of the Exchange to the ADCS Holders; and
(iii) pooling-of-interests accounting treatment. The Reorganization is designed
to accomplish these goals, which a simpler structure could not accommodate. The
Reorganization involves the creation of a holding company by means of the
Merger resulting in the Company becoming a wholly-owned subsidiary of Holdings
and the simultaneous share exchange with the ADCS Holders resulting in the ADCS
Group also becoming subsidiaries of Holdings.
The Merger
Terms of the Merger. Pursuant to the Merger and Exchange Agreement and
subject to approval of the stockholders of the Company and certain other
conditions, Merger Subsidiary will merge with and into the Company, with the
Company being the surviving corporation. As a result of the Merger, the Company
will become a wholly-owned subsidiary of Holdings. Upon consummation of the
Merger, each outstanding share of Company Common Stock will be converted into
the right to receive one share of Holdings Common Stock, and each outstanding
option and warrant to acquire Company Common Stock will entitle the holder
thereof to purchase, on identical terms, an equivalent number of shares of
Holdings Common Stock. It is currently contemplated that the Merger will occur
promptly following approval of the Merger by the stockholders of the Company at
the Annual Meeting, or as soon as reasonably practicable thereafter as the
conditions to the Merger and Exchange Agreement may be satisfied or waived. See
"THE REORGANIZATION--The Merger."
Recommendation of the Company Board of Directors. The Company Board of
Directors has unanimously approved the Merger and Exchange Agreement, subject
to the receipt of stockholder approval and consummation of the Exchange, and
unanimously recommends that the stockholders of the Company approve such
agreement. The Company Board of Directors believes the Merger and Exchange
Agreement and the transactions contemplated thereby are fair and reasonable and
in the best interests of the Company and its stockholders. See "THE
REORGANIZATION--Recommendation of the Company Board of Directors."
Required Stockholder Approval. The affirmative vote of the holders of a
majority of the shares of Company Common Stock issued and outstanding on the
Record Date is required to approve the Merger and Exchange Agreement. As of the
Record Date, the directors and executive officers of the Company, and their
affiliates, owned 430,046 shares of Company Common Stock (representing 4.9% of
the total outstanding shares of Company Common Stock as of such date). See "THE
ANNUAL MEETING--Votes Required" and "EQUITY OWNERSHIP OF CERTAIN PERSONS WITH
INTERESTS IN THE TRANSACTIONS."
4
<PAGE>
Effective Time of the Merger. The Merger will become effective at such time
(the "Effective Time") as a Certificate of Merger setting forth the principal
terms of the Merger provided for in the Merger and Exchange Agreement is duly
filed with the Secretary of State of the State of Delaware in accordance with
the Delaware General Corporation Law ("DGCL"). Under the Merger and Exchange
Agreement, the required filing is expected to be made as soon as reasonably
practicable after the satisfaction or waiver of all conditions to the
Reorganization, including the approval of the Merger and Exchange Agreement by
the stockholders of the Company at the Annual Meeting. See "THE
REORGANIZATION--Effective Time of the Reorganization."
Exchange of Certificates. As promptly as practicable after the Effective
Time, transmittal materials will be provided to each holder of record of
Company Common Stock for use in exchanging such holder's stock certificates for
stock certificates evidencing shares of Holdings Common Stock to be issued to
them in the Merger. Stockholders of the Company are requested not to surrender
their certificates of Company Common Stock until they receive such transmittal
materials. See "THE REORGANIZATION--Exchange of Certificates and the ADCS
Interests."
Appraisal Rights. Under the DGCL, stockholders of the Company do not have any
appraisal rights with respect to the Merger. See "THE REORGANIZATION--Appraisal
Rights."
The Exchange
The Merger and Exchange Agreement provides that, as a condition to the
obligations of the ATMI Group thereunder, the ADCS Interests shall have been
acquired simultaneously with the Effective Time. Accordingly, the ADCS Holders
will be offered the opportunity to exchange the ADCS Interests for shares of
Holdings Common Stock, as provided in the Merger and Exchange Agreement. The
number of shares of Holdings Common Stock to be exchanged for the ADCS
Interests (the "Exchange Consideration") will be equal in number to $87.5
million divided by the "Exchange Average Closing Price" of Company Common
Stock; provided, however, that in the event that the combined book value of the
ADCS Group determined as of the closing date of the Reorganization (the
"Closing Date") in accordance with generally accepted accounting principles
("GAAP") is less than $10 million by an amount greater than $500,000, the
number of shares of Holdings Common Stock to be issued to the ADCS Holders in
connection with the Exchange shall be decreased by a number of shares equal to
(i) $10 million less (ii) the book value as of the Closing Date, divided by the
Exchange Average Closing Price. Such determination of book value will be made
by Holdings no later than 90 days after the Closing Date. If Holdings and the
holders owning 70% or more of the Exchange Consideration do not agree on such
book value within 60 days after determination of such book value, a nationally
recognized accounting firm acceptable to Holdings and the holders owning 70% or
more of the Exchange Consideration shall make such determination which shall be
final and binding on all parties. "Exchange Average Closing Price" means the
average closing price of Company Common Stock as reported by Nasdaq for the
twenty trading days ended five days prior to the Annual Meeting; provided that
in the event the Exchange Average Closing Price is greater than $16.00 per
share, the Exchange Average Closing Price shall be deemed to be $16.00 per
share; and in the event that the Exchange Average Closing Price is less than
$14.00 per share, the Exchange Average Closing Price shall be deemed to be
$14.00 per share. The Exchange Consideration shall be allocated to each ADCS
Holder according to the ADCS Holders' relative pro rata ownership percentages
of the ADCS Interests taken as a whole (the "Pro Rata Portion").
THE PERIOD DURING WHICH TIME THE ADCS HOLDERS MAY ELECT TO EXCHANGE THEIR
ADCS INTERESTS FOR HOLDINGS COMMON STOCK WILL EXPIRE AT 5:00 P.M. (EASTERN
TIME) ON OCTOBER 10, 1997. The ADCS Holders have no rights to approve or
terminate the Merger and Exchange Agreement. However, they are neither bound to
deliver their ADCS Interests nor bound to consummate the Exchange. In the event
that Holdings is not able to acquire all of the ADCS Interests through the
Exchange, the ATMI Group may proceed with the Reorganization or terminate the
Merger and Exchange Agreement, and in some circumstances the ADCS Group will be
required to pay the Company a termination fee of $5 million.
5
<PAGE>
Because the number of shares of Holdings Common Stock issuable to the ADCS
Holders will depend on the Exchange Average Closing Price and the combined book
value of the ADCS Group, there is no guarantee as to the number of shares of
Holdings Common Stock that the ADCS Holders will receive, except that they can
receive in the aggregate a maximum of 6,250,000 shares and, in the absence of
an adjustment to the Exchange Consideration, a minimum of 5,468,750 shares.
The following table sets forth examples of the number of shares of Holdings
Common Stock to be issued in exchange for the ADCS Interests on a per share or
per limited liability company unit basis given different combined book values
of the ADCS Group as of the Closing Date and different Exchange Average Closing
Prices. Notwithstanding the following per share/per unit exchange ratio
examples, the ADCS Holders will not be provided the opportunity to exchange
individual components of their ADCS Interests. Instead, such exchanges must be
made on an aggregate basis. All per share numbers other than with respect to
ADCS Manager Common Stock have been rounded to the nearest tenth of a share.
<TABLE>
<CAPTION>
SAMPLE ADCS GROUP BOOK VALUE; SAMPLE EXCHANGE AVERAGE CLOSING PRICE
----------------------------------------------------------------------------------------
ADCS GROUP ADCS GROUP ADCS GROUP ADCS GROUP ADCS GROUP ADCS GROUP
BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE
GREATER THAN GREATER THAN GREATER THAN EQUAL TO EQUAL TO EQUAL TO
OR EQUAL TO OR EQUAL TO OR EQUAL TO $8,000,000 $8,000,000 $8,000,000
$9,500,000 $9,500,000 $9,500,000
EXCHANGE EXCHANGE EXCHANGE EXCHANGE EXCHANGE EXCHANGE
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
CLOSING PRICE CLOSING PRICE CLOSING PRICE CLOSING PRICE CLOSING PRICE CLOSING PRICE
OF $16.00(1) OF $15.00(1) OF $14.00(1) OF $16.00(1) OF $15.00(1) OF $14.00(1)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF SHARES OF
HOLDINGS COMMON STOCK
TO BE EXCHANGED FOR:
One share of ADCS
Nevada Common
Stock(2)............. 8,936.6 9,532.4 10,213.2 8,732.3 9,314.5 9,979.8
One share of ADCS
Manager Common
Stock(3)............. 0.907 0.963 1.032 0.882 0.941 1.008
One limited liability
company unit of ADCS
Holdings(4).......... 54,140.6(5) 57,750.0(5) 61,875.0(5) 52,903.1(5) 56,430.0(5) 60,460.7(5)
</TABLE>
- --------
(1) The aggregate number of shares of Holdings Common Stock to be exchanged for
the ADCS Interests (i) in the event the ADCS Group book value equals or
exceeds $9,500,000 and assuming Exchange Average Closing Prices of $16.00,
$15.00 or $14.00, would be 5,468,750 shares, 5,833,333 shares or 6,250,000
shares, respectively; or (ii) in the event the ADCS Group book value equals
$8,000,000 and assuming Exchange Average Closing Prices of $16.00, $15.00
or $14.00, would be 5,343,750 shares, 5,700,000 shares or 6,107,142 shares,
respectively.
(2) 99.0% of the Exchange Consideration will be allocated to the ADCS Nevada
Common Stock, of which there are 605.8308 shares outstanding.
(3) 0.01% of the Exchange Consideration will be allocated to the ADCS Manager
Common Stock, of which there are 605.8308 shares outstanding.
(4) 0.99% of the Exchange Consideration will be allocated to the ADCS Holdings
Membership Interests (i.e., the one limited liability company unit of ADCS
Holdings collectively held by the ADCS Holders). No shares will be offered
in exchange for the remaining 99 ADCS Holdings limited liability company
units held by ADCS Nevada.
(5) Represents the aggregate number of shares of Holdings Common Stock to be
issued in exchange for the ADCS Holdings Membership Interests (i.e., the
one limited liability company unit of ADCS Holdings collectively held by
the ADCS Holders). Each ADCS Holder would be entitled to receive a portion
of such number of shares of Holdings Common Stock in proportion to such
holder's relative pro rata ownership of the ADCS Holdings Membership
Interests.
6
<PAGE>
As of June 30, 1997, the ADCS Group book value was equal to approximately
$12,473,000. Furthermore, if the closing of the Reorganization (the "Closing")
were to occur on the date of this Proxy Statement/Prospectus, the Exchange
Average Closing Price would be $16.00. Therefore, as of the date of this Proxy
Statement/Prospectus, the Company expects that an aggregate of 5,468,750 shares
of Holdings Common Stock will be issued and that approximately (i) 8,937 shares
of Holdings Common Stock will be issued in exchange for each share of ADCS
Nevada Common Stock, (ii) 0.9 shares of Holdings Common Stock will be issued in
exchange for each share of ADCS Manager Common Stock and (iii) 54,141 shares of
Holdings Common Stock will be issued in exchange for the ADCS Holdings
Membership Interests (i.e., the one limited liability company unit of ADCS
Holdings collectively held by the ADCS Holders). With respect to the ADCS
Holdings Membership Interests, each ADCS Holder would be entitled to receive a
portion of the 54,141 shares of Holdings Common Stock to be exchanged therefor
in proportion to such ADCS Holder's respective percentage ownership of the ADCS
Holdings Membership Interests.
The stockholders of the Company and the ADCS Holders may call a toll-free
telephone number established by the Company (1-888-566-0155) after the last
trading day ended five days prior to the date of the Annual Meeting to learn
(i) the number of shares of Holdings Common Stock that will comprise the
Exchange Consideration and (ii) the number of shares of Holdings Common Stock
to be issued in exchange for (A) each share of ADCS Nevada Common Stock, (B)
each share of ADCS Manager Common Stock, and (C) the ADCS Holdings Membership
Interests.
See "THE REORGANIZATION--The Exchange."
At the Closing, 750,000 shares of the Exchange Consideration will be placed
in escrow. Such shares will be allocated among the ADCS Holders in accordance
with their respective Pro Rata Portions and will be held and applied in
accordance with the indemnification agreement to be entered into by Holdings,
the Company and the ADCS Holders on the Closing Date (the "Indemnification
Agreement") and the escrow agreement to be entered into by Holdings, the ADCS
Holders and State Street Bank and Trust Company, as escrow agent, on the
Closing Date (the "Escrow Agreement"). See "THE REORGANIZATION--Indemnification
and Escrow."
The Reorganization
General. Upon consummation of the Reorganization, the capital stock of
Holdings issued and outstanding immediately prior to the Effective Time shall
be cancelled. In the Merger, the shares of Company Common Stock shall be
cancelled, representing only the right to receive shares of Holdings Common
Stock on a share-for-share basis. In the Exchange, Holdings will acquire the
ADCS Interests in exchange for the Exchange Consideration.
In the Merger, the holders of outstanding options and warrants to purchase
shares of Company Common Stock shall be entitled to purchase the same number of
shares of Holdings Common Stock at the same per share exercise price provided
for in the stock option or warrant agreements evidencing such options or
warrants prior to the Effective Time.
After consummation of the Reorganization, Holdings will operate under the
name "ATMI, Inc." and the Company and the ADCS Group will be direct or indirect
wholly-owned operating subsidiaries of Holdings. In addition, the operations of
the Company's NovaMOS division and the operations of the ADCS Group will be
conducted as a single division following the Closing. No other material
disposition or restructuring of either the Company or the ADCS Group or any
material part thereof is contemplated as a result of the Reorganization.
Assuming an Exchange Average Closing Price of $14.00 per share, a combined book
value of the ADCS Group in excess of $9,500,000, and the acquisition by
Holdings of all the ADCS Interests, the stockholders of the Company and the
ADCS Holders would own approximately (i) 58.5% and 41.5%, respectively, of the
approximately 15,066,455 shares of Holdings Common Stock that would be
outstanding if the Lawrence Acquisition were not consummated, or (ii) 44.9% and
31.8%, respectively, of the approximately 19,654,690 shares of Holdings Common
Stock that would be outstanding if the Lawrence Acquisition were consummated.
See "THE REORGANIZATION--Results of the Reorganization."
7
<PAGE>
Opinion of Financial Advisor. The Company retained Alex. Brown & Sons
Incorporated ("Alex. Brown") as financial advisor to render its opinion in
connection with the Reorganization. Alex. Brown has rendered its opinion, dated
April 7, 1997, to the Company Board of Directors that the Exchange
Consideration is fair to the Company, from a financial point of view, as of
such date. A copy of such opinion is attached hereto as Appendix B and should
be read carefully in its entirety with respect to the assumptions made, other
matters considered and the limitations of the review undertaken. See "THE
REORGANIZATION--Opinion of Alex. Brown, Financial Advisor to the Company."
Conditions to the Reorganization. The obligation of each of the ATMI Group
and the ADCS Group to consummate the Reorganization is subject to certain
conditions typical in transactions of this type. See "THE REORGANIZATION--
Conditions to the Reorganization."
Business Pending the Reorganization. The Merger and Exchange Agreement
provides that, until the Closing, the ATMI Group and its subsidiaries and the
ADCS Group and its subsidiaries will conduct their respective businesses in the
ordinary course and will use their diligent efforts to preserve intact their
present business organization, preserve their goodwill and the confidentiality
of their business know-how, keep available the services of their present key
employees and those material to the operations of the business, and preserve
their present relationships with collaborators, licensors and others having
business relations with them. The ATMI Group and its subsidiaries and the ADCS
Group and its subsidiaries also agreed to certain restrictions and limitations
with respect to the operation of their respective businesses prior to the
Closing. See "THE REORGANIZATION--Business Pending the Reorganization."
Termination. The Merger and Exchange Agreement may be terminated at any time
prior to the Closing, whether before or after approval of the Merger and
Exchange Agreement by the requisite stockholders of the Company, by either
party, for any reason or under certain circumstances which are set forth under
"THE REORGANIZATION--Termination." If either party terminates the Merger and
Exchange Agreement for certain reasons specified in the Merger and Exchange
Agreement, the party creating the reason for termination is obligated to pay
the other party a fee of $5 million. See "THE REORGANIZATION--Termination."
Interests of Certain Persons in the Reorganization. In considering the
recommendations of the Company Board of Directors with respect to the Merger
and Exchange Agreement and the transactions contemplated thereby, stockholders
of the Company should be aware that certain executive officers of the Company
have various interests in the Reorganization that are in addition to interests
of stockholders of the Company generally. In particular, the obligations of the
ADCS Group to consummate the Reorganization are subject to the condition that
Eugene G. Banucci, Ph.D., Peter S. Kirlin, Ph.D. and Daniel P. Sharkey enter
into two-year employment agreements with Holdings and/or the Company. The
employment agreements provide for annual salaries to Dr. Banucci, Dr. Kirlin
and Mr. Sharkey of $210,000, $150,000 and $130,000, respectively, subject to
certain adjustments. Such individuals have received identical respective
salaries since January 1997. With respect to the ADCS Group, assuming a price
per share of Holdings Common Stock of $31.00 (the closing price per share of
Company Common Stock on September 8, 1997) and no adjustment in the number of
shares of Holdings Common Stock to be distributed to the ADCS Holders, the
directors and executive officers of the ADCS Group will receive an aggregate of
approximately $143,762,500 in shares of Holdings Common Stock in connection
with the Reorganization. Individually, Stephen H. Siegele, Frederick H.
Siegele, Frederick J. Siegele and Robert M. Jackson, each an executive officer
of the ADCS Group, will receive approximately $115,959,400, $19,496,100,
$5,594,500, and $2,712,500, respectively, in shares of Holdings Common Stock.
In addition, the obligations of the ATMI Group to consummate the Reorganization
are subject to the condition that Stephen H. Siegele, Frederick H. Siegele and
Frederick J. Siegele enter into two-year employment agreements with the Company
or the ADCS Group, as the Company may determine. Stephen H. Siegele would enter
into his employment agreement promptly following the Closing Date. The
employment agreements provide for annual salaries to Stephen H. Siegele,
Frederick H. Siegele and Frederick J. Siegele of $400,000, $150,000 and
$160,000, respectively, subject to certain adjustments. Such respective amounts
are less than the compensation
8
<PAGE>
each received from the ADCS Group in fiscal 1996. The ADCS Holders will also be
entitled to certain registration rights with respect to the shares of Holdings
Common Stock they receive in the Exchange. See "THE REORGANIZATION--Interests
of Certain Persons in the Reorganization," "THE REORGANIZATION--Employment
Agreements," "THE REORGANIZATION--Registration Rights Agreement" and "EQUITY
OWNERSHIP OF CERTAIN PERSONS WITH INTERESTS IN THE TRANSACTIONS."
Promptly following the Closing Date, Holdings has agreed to appoint Stephen
H. Siegele as a Class III Director of Holdings with a term of three years, and
upon the expiration of his initial three-year term, to the extent permitted by
law, to nominate Stephen H. Siegele to serve for an additional three-year term
and to support his nomination to the same extent and in the same manner as it
supports other nominees on the slate of directors proposed by Holdings,
provided that at the time of such nomination, the Exchange Consideration owned
of record by the ADCS Holders represents in the aggregate 10% or more of the
shares of Holdings Common Stock then outstanding. See "OPERATIONS AND
MANAGEMENT AFTER THE TRANSACTIONS--Management."
Accounting Treatment. It is intended that the Reorganization will be
accounted for as a pooling of interests under GAAP. It is a condition to the
consummation of the Reorganization that the Company and the ADCS Group each
receive a letter from Ernst & Young LLP, the Company's and the ADCS Group's
independent auditors, regarding Ernst & Young's concurrence with the
conclusions of management for the Company and the ADCS Group, as to the
appropriateness of pooling-of-interests accounting for the Reorganization under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Merger and Exchange Agreement. See "THE REORGANIZATION--
Accounting Treatment."
Federal Income Tax Consequences. A condition to the consummation of the
Reorganization is the receipt by the Company and the ADCS Group of an opinion
of Ernst & Young LLP substantially to the effect that, whether or not the
Lawrence Acquisition is consummated, the Reorganization will constitute a tax-
free transfer to a controlled corporation within the meaning of Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code") and the Merger will
also constitute a tax-free reorganization within the meaning of Section 368(a)
of the Code. If the Reorganization so qualifies, (i) no gain or loss will be
recognized to the holders of Company Common Stock upon their receipt of
Holdings Common Stock in exchange for their Company Common Stock, and (ii) no
gain or loss will be recognized to the ADCS Holders upon their receipt of
Holdings Common Stock in exchange for their ADCS Interests. The holders of
Company Common Stock and the ADCS Holders are urged to consult their own
personal tax and financial advisors concerning the federal income tax
consequences of the Reorganization, as well as any applicable state, local,
foreign or other tax consequences, based upon such holder's own particular
facts and circumstances. See "THE REORGANIZATION--Certain Federal Income Tax
Consequences."
Resale Restrictions. All shares of Holdings Common Stock received by
stockholders of the Company and ADCS Holders in the Reorganization will be
freely transferable, except that shares of Holdings Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of Holdings, the Company or the ADCS Group immediately prior to
the consummation of the Reorganization may be resold by them only as permitted
by the Securities Act and other applicable securities laws. Generally, all
shares of Holdings Common Stock received by such "affiliates" may be sold
subject to certain volume and manner of sale limitations. Stephen H. Siegele,
who, among others, is an affiliate of the ADCS Group and will be an affiliate
of Holdings after the Closing, will receive 68.4% of the Exchange
Consideration. See "THE REORGANIZATION--Resale of Holdings Common Stock by
Affiliates."
Registration Rights. In connection with the Exchange, Holdings will grant
certain registration rights to the ADCS Holders with respect to Holdings Common
Stock issued to them pursuant to the Exchange. See "THE REORGANIZATION--
Registration Rights Agreement."
9
<PAGE>
Nasdaq Listing. Holdings Common Stock, including the shares to be issued in
the Reorganization, has been approved for listing on Nasdaq upon notice of
issuance. Listing of Holdings Common Stock on Nasdaq is a condition of
consummation of the Reorganization. Holdings Common Stock will be listed under
the symbol "ATMI," which is the current symbol for Company Common Stock. See
"THE REORGANIZATION--Nasdaq Listing."
THE LAWRENCE ACQUISITION
Terms of the Lawrence Acquisition. Pursuant to the Lawrence Merger Agreement
and subject to approval of the stockholders of the Company and certain other
conditions, Lawrence Merger Subsidiary will merge with and into LSL, with LSL
being the surviving corporation. As a result of the Lawrence Acquisition, LSL
will become a wholly-owned subsidiary of the Company if the Reorganization is
not consummated or of Holdings if the Reorganization is consummated, in which
case the Company will have contributed all of the issued and outstanding shares
of capital stock of Lawrence Merger Subsidiary to Holdings prior to the
Reorganization. Prior to the consummation of and as a condition to the Lawrence
Acquisition, Lamonte H. Lawrence, the sole stockholder of LSLMS, will
contribute all of the issued and outstanding shares of capital stock of LSLMS
to LSL, with LSLMS becoming a wholly-owned subsidiary of LSL. See "THE LAWRENCE
ACQUISITION--Conditions to the Lawrence Acquisition." Upon consummation of the
Lawrence Acquisition, the outstanding shares of LSL Common Stock will be
converted into the right to receive (i) shares of Holdings Common Stock if the
Reorganization is consummated or (ii) shares of Company Common Stock if the
Reorganization is not consummated. The aggregate number of shares of Holdings
Common Stock or Company Common Stock, as the case may be, to be exchanged for
the outstanding shares of LSL Common Stock (the "Lawrence Acquisition
Consideration") will be equal to $78 million divided by the "Lawrence
Acquisition Average Closing Price" of Company Common Stock. The purchase price
may be adjusted as provided in the Lawrence Merger Agreement, including a
dollar-for-dollar adjustment based upon any change in the combined net worth of
LSL and LSLMS as indicated on their unaudited financial statements as of
December 31, 1996, and their audited financial statements as of the Lawrence
Effective Time (as defined herein). See "THE LAWRENCE ACQUISITION--Possible
Adjustments to Purchase Price." "Lawrence Acquisition Average Closing Price"
means the average closing price of Company Common Stock as reported by Nasdaq
for the twenty trading days preceding (and including) the third day prior to
the date of the Annual Meeting; provided that in the event the Lawrence
Acquisition Average Closing Price is greater than $21.00 per share, the
Lawrence Acquisition Average Closing Price shall be deemed to be $21.00 per
share; and in the event that the Lawrence Acquisition Average Closing Price is
less than $17.00 per share, the Lawrence Acquisition Average Closing Price
shall be deemed to be $17.00 per share. The Lawrence Acquisition Consideration
will be distributed among the LSL Stockholders in proportion to their
respective holdings of LSL Common Stock immediately prior to the consummation
of the Lawrence Acquisition. See "THE LAWRENCE ACQUISITION--Terms of The
Lawrence Acquisition."
At the Lawrence Effective Time, five percent of the Lawrence Acquisition
Consideration will be placed in escrow. If the purchase price adjustment based
upon any change in the combined net worth of LSL and LSLMS results in the
issuance of additional shares to the LSL Stockholders, certificates
representing five percent of the additional shares of Holdings Common Stock or
Company Common Stock, as the case may be, to be delivered to the LSL
Stockholders will also be placed in escrow. All such shares shall be allocated
among the LSL Stockholders pro rata in accordance with their respective
holdings of LSL Common Stock and will be held and applied in accordance with
the terms of the Lawrence Merger Agreement and the escrow agreement ("the
Lawrence Escrow Agreement") to be entered into by and among the Company, LSL,
Lawrence Merger Subsidiary, Holdings, Security Trust Company, as escrow agent,
and Lamonte H. Lawrence, as representative of the LSL Stockholders (in such
capacity, the "Representative"). See "THE LAWRENCE ACQUISITION--Indemnification
and Escrow."
Because the number of shares of Holdings Common Stock or Company Common
Stock, as the case may be, issuable to the LSL Stockholders will depend on the
Lawrence Acquisition Average Closing Price and
10
<PAGE>
possible adjustments to the purchase price, there is no guarantee as to the
number of shares of Holdings Common Stock or Company Common Stock that the LSL
Stockholders will receive. Assuming no adjustments to the $78 million purchase
price, the LSL Stockholders can receive in the aggregate a maximum of 4,588,235
shares and a minimum of 3,714,285 shares. The Lawrence Merger Agreement is
subject to the approval of the LSL Stockholders and, consequently, the LSL
Stockholders are not bound to deliver their shares of LSL Common Stock and to
consummate the transaction. See "THE LAWRENCE ACQUISITION--Terms of the
Lawrence Acquisition."
The following table sets forth the number of shares of Holdings Common Stock
or Company Common Stock, as the case may be, to be issued upon conversion of
the LSL Common Stock held by the LSL Stockholders on a per share basis given
different possible values for the combined net worth of LSL and LSLMS as of the
Lawrence Effective Time (as defined below) and different Lawrence Acquisition
Average Closing Prices.
Number of Shares of Company Common Stock or Holdings Common Stock per Share of
LSL Common Stock(1)
<TABLE>
<CAPTION>
LSL/LSLMS COMBINED NET WORTH
-----------------------------------
<S> <C> <C> <C>
$8,642,849(2) $7,500,000 $9,000,000
---------- ---------- ----------
LAWRENCE ACQUISITION AVERAGE CLOSING PRICE
$17.00................................. 448.235 441.513 450.336
$19.00................................. 401.053 395.538 402.932
$21.00................................. 362.857 357.415 364.558
</TABLE>
- --------
(1) Assumes an adjustment to the purchase price for payment prior to the
Lawrence Effective Time to a third party of $1,800,000 as a break-up fee in
connection with another transaction contemplated by LSL.
(2) Unaudited Combined Net Worth at December 31, 1996, as adjusted for
$2,000,000 settlement with Applied Materials, Inc. discussed herein.
As of June 30, 1997, the combined net worth for LSL and LSLMS was $9,294,659.
Furthermore, if the closing of the Lawrence Acquisition (the "Lawrence
Closing") were to occur as of the date of this Proxy Statement/Prospectus, the
Lawrence Acquisition Average Closing Price would be $21.00. Therefore, as of
the date of this Proxy Statement/Prospectus, the Company expects that 365.961
shares of Holdings Common Stock or Company Common Stock, as the case may be,
will be issued for each share of LSL Common Stock, for an aggregate of
3,659,610 shares.
The stockholders of the Company and the LSL Stockholders may call a toll-free
telephone number established by the Company (1-888-566-0155) after the last
trading day ended three days prior to the date of the Annual Meeting to learn
the number of shares of Holdings Common Stock or Company Common Stock, as the
case may be, to be issued in exchange for each share of LSL Common Stock and
for all shares of LSL Common Stock in the aggregate.
After consummation of the Lawrence Acquisition, LSL will be a wholly-owned
operating subsidiary of Holdings if the Reorganization is consummated or of the
Company if the Reorganization is not consummated and will constitute a part of
the Company's Epitronics division. No material disposition or restructuring of
either the Company or LSL or any material part thereof is contemplated as a
result of the Lawrence Acquisition. Assuming a Lawrence Acquisition Average
Closing Price of $17.00 per share and no adjustments to the $78 million
purchase price, the stockholders of the Company and the LSL Stockholders would
own approximately 65.8% and 34.2% respectively, of the approximately 13,404,690
shares of Company Common Stock that would be outstanding if the Reorganization
is not consummated. If both Transactions are consummated and there is no
adjustment to the $78 million purchase price, the stockholders of the Company,
the ADCS Holders and the LSL Stockholders would own approximately 44.9%, 31.8%
and 23.3% respectively, of the approximately 19,654,690
11
<PAGE>
shares of Holdings Common Stock that would be outstanding. See "THE LAWRENCE
ACQUISITION--Results of the Lawrence Acquisition."
Recommendation of the Company Board of Directors. The Company Board of
Directors has unanimously approved the Lawrence Merger Agreement, subject to
the receipt of stockholder approval, and unanimously recommends that the
stockholders of the Company approve such agreement. The Company Board of
Directors believes the Lawrence Merger Agreement and the transactions
contemplated thereby are fair and reasonable and in the best interests of the
Company and its stockholders. See "THE LAWRENCE ACQUISITION--Recommendation of
the Company Board of Directors."
Required Stockholder Approval. The affirmative vote of the holders of a
majority of the shares of Company Common Stock issued and outstanding on the
Record Date is required to approve the Lawrence Merger Agreement. As of the
Record Date, the directors and executive officers of the Company, and their
affiliates, owned 430,046 shares of Company Common Stock (representing 4.9% of
the total outstanding shares of Company Common Stock as of such date). See "THE
ANNUAL MEETING--Votes Required" and "EQUITY OWNERSHIP OF CERTAIN PERSONS WITH
INTERESTS IN THE TRANSACTIONS."
Effective Time of the Lawrence Acquisition. The Lawrence Acquisition will
become effective upon the filing of properly executed Articles of Merger and a
Plan of Merger with the Arizona Corporation Commission and a Certificate of
Merger with the Secretary of State of the State of Delaware (the "Lawrence
Effective Time"). See "THE LAWRENCE ACQUISITION--General."
Fairness Opinion of Hambrecht & Quist. The Company retained Hambrecht & Quist
LLC ("Hambrecht & Quist") as financial advisor solely to render its opinion in
connection with the Lawrence Acquisition. Hambrecht & Quist has rendered its
opinion, dated May 16, 1997, to the Company Board of Directors that the
Lawrence Acquisition Consideration is fair to the Company from a financial
point of view as of such date. A copy of such opinion is attached hereto as
Appendix F and should be read carefully in its entirety with respect to the
assumptions made, other matters considered and the limitations of the review
undertaken. See "THE LAWRENCE ACQUISITION--Fairness Opinion of Hambrecht &
Quist."
Conditions to the Lawrence Acquisition. The obligation of each of the
Company, Holdings and Lawrence to consummate the Lawrence Acquisition is
subject to certain conditions typical in transactions of this type. See "THE
LAWRENCE ACQUISITION--Conditions to the Lawrence Acquisition."
Business Pending the Lawrence Acquisition. The Lawrence Merger Agreement
provides that, until the Lawrence Closing, the Company and Lawrence will
conduct their respective businesses in the ordinary course and will use their
diligent efforts to preserve intact their present business organization, keep
available the services of their present officers and key employees, and
preserve the goodwill of those having business relations with them. The Company
and Lawrence also agreed to certain restrictions and limitations with respect
to the operation of their respective businesses prior to the Lawrence Closing.
See "THE LAWRENCE ACQUISITION--Business Pending the Lawrence Acquisition."
Termination. The Lawrence Merger Agreement may be terminated at any time
prior to the Lawrence Effective Time, whether before or after approval of the
Lawrence Merger Agreement by the requisite stockholders of the Company, by
mutual written consent or by either party under certain circumstances. If
either party terminates the Lawrence Merger Agreement for certain reasons
specified in the Lawrence Merger Agreement, the party creating the reason for
termination is obligated to pay the other party a fee of $5 million. See "THE
LAWRENCE ACQUISITION--Termination."
12
<PAGE>
Interests of Principal LSL Stockholder. Upon the consummation of the Lawrence
Acquisition, assuming a price per share of Holdings Common Stock or Company
Common Stock, as the case may be, of $31.00 (the closing price per share of
Company Common Stock on September 8, 1997) and no adjustment in the number of
shares of Holdings Common Stock or Company Common Stock, as the case may be, to
be distributed to the LSL Stockholders, Lamonte H. Lawrence, the President,
Chief Executive Officer and principal stockholder of LSL will receive
approximately $112,840,000 in shares of Holdings Common Stock or Company Common
Stock, as the case may be. In addition, the Company will enter into a
noncompete agreement with Mr. Lawrence and LSL will enter into a consulting
agreement with Lawrence Semiconductor Investments, Inc. ("LSI"). Mr. Lawrence
is the sole stockholder of LSI and may benefit materially from the consulting
agreement. Pursuant to the consulting agreement, LSL will pay LSI for
consulting services at a per diem rate of $2,880 plus out-of-pocket expenses
subject to a minimum of $250,000 in the first twelve-month period. Such minimum
was determined as approximately one-third of Mr. Lawrence's compensation from
LSL and LSLMS in 1996, as Mr. Lawrence, on behalf of LSI, is expected to devote
approximately one-third of his time during the year subsequent to the Lawrence
Acquisition to Lawrence-related matters. The Company believes that the cash
compensation to be paid to LSI pursuant to the consulting agreement is
equivalent to the fair value of the services to be provided by LSI. In
addition, Mr. Lawrence shall, promptly following the Lawrence Closing, be
appointed to serve as (i) a member of the class of directors elected for a term
not to exceed two years on Holdings' seven member Board of Directors, if the
Reorganization is consummated or (ii) a member elected for a one year term on
the Company's six member Board of Directors, if the Reorganization is not
consummated. See "THE LAWRENCE ACQUISITION--Conditions to the Lawrence
Acquisition," "THE LAWRENCE ACQUISITION--Agreements with Lamonte H. Lawrence
and Affiliated Entities" and "OPERATIONS AND MANAGEMENT AFTER THE
TRANSACTIONS--Management."
Accounting Treatment. It is intended that the Lawrence Acquisition will be
accounted for as a pooling of interests under GAAP. It is a condition to the
consummation of the Lawrence Acquisition that the Company, Lawrence and Lamonte
H. Lawrence shall have received a letter from Ernst & Young LLP and Price
Waterhouse LLP regarding those firms' concurrence with the conclusions of
management for the Company and LSL as to the appropriateness of pooling-of-
interests accounting for the Lawrence Acquisition under Accounting Principles
Board Opinion No. 16 if closed and consummated in accordance with the Lawrence
Merger Agreement. See "THE LAWRENCE ACQUISITION--Accounting Treatment."
Federal Income Tax Consequences. A condition to the consummation of the
Lawrence Acquisition is the receipt by the Company of an opinion of Ernst &
Young LLP substantially to the effect that the Lawrence Acquisition will
constitute a tax-free reorganization. If the Lawrence Acquisition so qualifies,
no gain or loss will be recognized to the LSL Stockholders upon their receipt
of Holdings Common Stock or Company Common Stock, as the case may be, in
exchange for the LSL Common Stock. The LSL Stockholders are urged to consult
their own personal tax and financial advisors concerning the federal income tax
consequences of the Lawrence Acquisition, as well as any applicable state,
local, foreign or other tax consequences, based upon such stockholder's own
particular facts and circumstances. See "THE LAWRENCE ACQUISITION--Certain
Federal Income Tax Consequences."
Resale Restrictions and Registration Rights. The shares of Holdings Common
Stock or Company Common Stock, as the case may be, to be issued to the LSL
Stockholders in the Lawrence Acquisition will not be registered under the
Securities Act or other applicable securities laws and may not be resold or
otherwise transferred unless such shares are registered or they are sold
pursuant to Rule 144 under the Securities Act or another exemption from
registration under applicable law. In connection with the Lawrence Acquisition,
however, Holdings or the Company, as the case may be, will grant certain
registration rights to the LSL Stockholders with respect to Holdings Common
Stock or Company Common Stock issued to them pursuant to the Lawrence
Acquisition. See "THE LAWRENCE ACQUISITION--Resale of Lawrence Acquisition
Shares" and "THE LAWRENCE ACQUISITION--Registration Rights Agreement."
13
<PAGE>
Nasdaq Listing. Holdings Common Stock, including the shares to be issued in
the Lawrence Acquisition, has been approved for listing on Nasdaq upon notice
of issuance. Listing of Holdings Common Stock on Nasdaq is a condition of
consummation of the Lawrence Merger Agreement. Holdings Common Stock will be
listed under the symbol "ATMI," which is the current symbol for Company Common
Stock. If the Reorganization is not consummated, the Company, whose shares are
currently listed on Nasdaq, will file a Notification Form for Listing of
Additional Shares with respect to the Lawrence Acquisition Consideration. See
"THE LAWRENCE ACQUISITION--Nasdaq Listing."
EQUITY OWNERSHIP OF CERTAIN PERSONS WITH INTERESTS IN THE TRANSACTIONS
Company Common Stock. The following table sets forth certain information
regarding (i) beneficial ownership of Company Common Stock by (1) each director
and executive officer of the Company and (2) all directors and executive
officers of the Company as a group as of the Record Date, (ii) beneficial
ownership of Holdings Common Stock by such persons after consummation of the
Reorganization only (assuming all of the ADCS Holders participate in the
Exchange, an Exchange Average Closing Price of $14.00 per share and no
adjustment in the number of shares of Holdings Common Stock to be distributed
to the ADCS Holders), (iii) beneficial ownership of Company Common Stock by
such persons after consummation of the Lawrence Acquisition only (assuming a
Lawrence Acquisition Average Closing Price of $17.00 per share and no
adjustment in the number of shares of Company Common Stock to be issued to the
LSL Stockholders), and (iv) beneficial ownership of Holdings Common Stock by
such persons after consummation of both Transactions (following the assumptions
made in (ii) and (iii) above).
As the share exchange in the Merger will be on a one-for-one basis, the
number of shares of Company or Holdings Common Stock beneficially owned will
not change.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE AFTER THE
NUMBER PERCENTAGE AFTER THE LAWRENCE PERCENTAGE
OF BEFORE THE REORGANIZATION ACQUISITION AFTER THE
NAME POSITION HELD SHARES TRANSACTIONS ONLY ONLY TRANSACTIONS
---- ------------- ------- ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Eugene G. Banucci President, 309,682 3.5% 2.0% 2.3% 1.6%
Chief Executive
Officer
and Chairman
of the Board
Peter S. Kirlin Executive Vice 54,234 * * * *
President
Daniel P. Sharkey Vice President, 74,375 * * * *
Chief Financial
Officer
and Treasurer
Duncan W. Brown Vice President 172,771 1.9% 1.1% 1.3% *
and Director
Ward C. Stevens Vice President 175,639 2.0% 1.2% 1.3% *
and Secretary
Nicholas J. Wood Vice President- 14,400 * * * *
Marketing
Mark A. Adley Director 21,000 * * * *
Gary A. Andersen Director 13,500 * * * *
John A. Armstrong Director 18,000 * * * *
Robert S. Hillas Director 30,977 * * * *
Stephen H. Mahle Director 4,600 * * * *
All directors and 889,178 9.6% 5.7% 6.4% 4.4%
executive officers
as a group (11
persons)
</TABLE>
- --------
* Less than 1%
14
<PAGE>
See "EQUITY OWNERSHIP OF CERTAIN PERSONS WITH INTERESTS IN THE TRANSACTIONS--
Company Common Stock."
ADCS Interests. The following table sets forth certain information regarding
(i) beneficial ownership of the ADCS Interests by (1) each person known by the
ADCS Group to own beneficially more than five percent of the ADCS Interests,
(2) each director of ADCS Nevada, (3) each executive officer of the ADCS Group
and (4) all directors and executive officers of the ADCS Group as a group, and
(ii) beneficial ownership of Holdings Common Stock by such persons, assuming
all of the ADCS Holders participate in the Exchange, an Exchange Average
Closing Price of $14.00 per share and no adjustment in the number of shares of
Holdings Common Stock to be distributed to the ADCS Holders, (1) after
consummation of the Reorganization only and (2) after consummation of both
Transactions (assuming a Lawrence Acquisition Average Closing Price of $17.00
per share and no adjustment in the number of shares of Holdings Common Stock to
be issued to the LSL Stockholders).
<TABLE>
<CAPTION>
SHARES OF
ADCS NEVADA ADCS MANAGER ADCS HOLDINGS AGGREGATE HOLDINGS PERCENTAGE
--------------- --------------- -------------- PERCENTAGE COMMON STOCK AFTER THE PERCENTAGE
BENEFICIAL % % % OF ADCS AFTER THE REORGANIZATION AFTER THE
OWNER SHARES INTEREST SHARES INTEREST UNITS INTEREST INTERESTS REORGANIZATION ONLY TRANSACTIONS
---------- ------ -------- ------ -------- ----- -------- ---------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen H.
Siegele......... 414.5 68.4% 414.5 68.4% 0.684 0.684% 68.4% 4,275,000 28.4% 21.8%
F.H.S.
Investments,
Ltd............. 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5% 718,750 4.8% 3.7%
Frederick H.
Siegele(1)...... 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5% 718,750 4.8% 3.7%
Bernard McKeown.. 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5% 718,750 4.8% 3.7%
Frederick J.
Siegele......... 19.8 3.3% 19.8 3.3% 0.033 0.033% 3.3% 206,250 1.4% 1.0%
Robert M.
Jackson......... 9.9 1.6% 9.9 1.6% 0.016 0.016% 1.6% 100,000 * *
Curtis D. Logan.. -- * -- * -- * * -- * *
All directors and
executive
officers as a
group (five
persons)........ 513.6 84.8% 513.6 84.8% 0.848 0.848% 84.8% 5,300,000 35.2% 27.0%
</TABLE>
- --------
* Less than 1%
(1) General Partner of F.H.S. Investments, Ltd.
Stephen H. Siegele, who will be named a Class III director of Holdings
following the consummation of the Reorganization, Frederick H. Siegele, the
father of Stephen H. Siegele, Frederick J. Siegele, the brother of Stephen H.
Siegele, and Robert M. Jackson are expected to remain as employees of the ADCS
Group following the Reorganization and will collectively own approximately (i)
35.2% of Holdings Common Stock to be outstanding after the Reorganization if
the Lawrence Acquisition is not consummated or (ii) 27.0% of Holdings Common
Stock to be outstanding after the Reorganization if the Lawrence Acquisition is
consummated.
See "EQUITY OWNERSHIP OF CERTAIN PERSONS WITH INTERESTS IN THE TRANSACTIONS--
ADCS Interests."
15
<PAGE>
LSL Common Stock. The following table sets forth certain information
regarding (i) beneficial ownership of the LSL Common Stock by (1) each person
known by Lawrence to own beneficially any shares of LSL Common Stock and (2)
all directors and executive officers of Lawrence as a group as of the Record
Date, (ii) beneficial ownership of Company Common Stock by such persons after
the consummation of the Lawrence Acquisition only, and (iii) beneficial
ownership of Holdings Common Stock by such persons after the consummation of
both Transactions (assuming all of the ADCS Holders participate in the
Exchange, an Exchange Average Closing Price of $14.00 per share and no
adjustment in the number of shares of Holdings Common Stock to be distributed
to the ADCS Holders), assuming in the case of clauses (ii) and (iii), a
Lawrence Acquisition Average Closing Price of $17.00 per share and no
adjustment in the number of shares of Company Common Stock or Holdings Common
Stock, as the case may be, to be issued to the LSL Stockholders.
<TABLE>
<CAPTION>
SHARES OF COMPANY OR
LSL HOLDINGS COMMON PERCENTAGE AFTER THE PERCENTAGE
----------------- STOCK AFTER THE LAWRENCE AFTER THE
BENEFICIAL OWNER SHARES % INTEREST LAWRENCE ACQUISITION ACQUISITION ONLY TRANSACTIONS
---------------- ------ ---------- -------------------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Lamonte H. Lawrence..... 9,800 98.0% 4,496,470 33.5% 22.9%
The Arizona State
University Foundation.. 200 2.0% 91,765 * *
All directors and
executive officers as a
group (four persons)... 9,800 98.0% 4,496,470 33.5% 22.9%
</TABLE>
- --------
*Less than 1%
See "EQUITY OWNERSHIP OF CERTAIN PERSONS WITH INTERESTS IN THE TRANSACTIONS--
LSL Common Stock."
MARKET AND MARKET PRICES
Company Common Stock is listed under the symbol "ATMI" on Nasdaq. Set forth
below are the closing prices per share of Company Common Stock on Nasdaq on (i)
April 7, 1997, the last business day preceding public announcement of the
Reorganization, (ii) May 16, 1997, the last business day preceding public
announcement of the Lawrence Acquisition, and (iii) September 8, 1997:
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE
DATE OF COMPANY COMMON STOCK
---- -----------------------
<S> <C>
April 7, 1997.................................... 16 7/8
May 16, 1997..................................... 18 5/8
September 8, 1997................................ 31
</TABLE>
16
<PAGE>
The following table sets forth certain information as to the high and low
reported sale prices per share of Company Common Stock for the calendar
quarters indicated. The Company has never paid dividends on its capital stock.
If the Reorganization is not consummated, the Company intends to retain all
available earnings, if any, generated by its operations for development and
growth of its business and does not intend to pay cash dividends in the
foreseeable future. In addition, Holdings has never paid dividends on its
capital stock. If the Reorganization is consummated, Holdings intends to retain
all such available earnings and does not anticipate the payment of dividends in
the foreseeable future.
<TABLE>
<CAPTION>
COMPANY
COMMON STOCK
-------------
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter............................................... 8 1/8 5
Second Quarter.............................................. 10 1/2 6 5/8
Third Quarter............................................... 16 10
Fourth Quarter.............................................. 14 3/8 9 1/4
1996
First Quarter............................................... 12 3/4 9 5/8
Second Quarter.............................................. 15 7/8 10 3/8
Third Quarter............................................... 13 7/8 10 3/4
Fourth Quarter.............................................. 18 1/2 12 1/4
1997
First Quarter............................................... 22 16
Second Quarter.............................................. 29 3/4 15 3/4
Third Quarter (through September 8, 1997)................... 32 1/2 25
</TABLE>
As of the Record Date, there were approximately 203 record holders of Company
Common Stock.
There is no public market for the ADCS Interests or the LSL Common Stock.
Neither ADCS Manager nor ADCS Holdings has paid cash dividends or made any
distributions to date. For the portion of 1996 during which it was an "S"
corporation for federal tax purposes, ADCS Nevada made distributions for tax
payments required to be made by the ADCS Holders totaling an aggregate of
$1,792,000. ADCS Illinois, the predecessor to ADCS Nevada, declared and paid no
cash dividends in 1995, and ADCS Nevada made distributions of an aggregate of
$5,297 for the six months ended June 30, 1997 for certain tax payments to be
made by the ADCS Holders.
LSL has never paid cash dividends on its capital stock and currently intends
to retain all of its earnings for use in its business to finance future growth
and, accordingly, does not anticipate paying cash dividends in the foreseeable
future.
The ADCS Holders and the LSL Stockholders are advised to obtain current
Nasdaq market quotations for Company Common Stock. No assurance can be given as
to the market price of Company Common Stock or Holdings Common Stock at the
consummation of the Transactions or at any other time.
17
<PAGE>
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
The Amendment would increase the number of shares of authorized Company
Common Stock from 15,000,000 shares to 16,000,000 shares. The increase in
authorized capital will be necessary if the Reorganization is not consummated
to accommodate the 1997 Stock Plan (if approved by the stockholders of the
Company) and for other corporate purposes. If the Reorganization is
consummated, the Amendment will not become effective even if approved by the
stockholders of the Company. The affirmative vote of a majority of the shares
of Company Common Stock outstanding as of the Record Date is required to
approve and adopt the Amendment. See "THE ANNUAL MEETING--Votes Required" and
"AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION."
1997 STOCK PLAN
Holdings has a stock plan which is identical to the 1997 Stock Plan and which
will become effective upon the consummation of the Reorganization. If the
Reorganization is not consummated, the Company Board of Directors has approved
the 1997 Stock Plan so that it can continue to provide stock-based incentives
to employees, directors, officers and consultants of the Company and
unanimously recommends the 1997 Stock Plan to the stockholders of the Company
for their approval. If so approved, the 1997 Stock Plan will become effective
only if the Reorganization is not consummated and the stockholders of the
Company approve the Amendment. The affirmative vote of a majority of the shares
of Company Common Stock present in person or represented by proxy and entitled
to vote is required to approve and adopt the 1997 Stock Plan. See "THE ANNUAL
MEETING--Votes Required" and "1997 STOCK PLAN."
18
<PAGE>
RISK FACTORS
In addition to the other information in this Proxy Statement/Prospectus,
stockholders of the Company, the ADCS Holders and the LSL Stockholders should
consider carefully the following factors in evaluating the Transactions.
Furthermore, in assessing the following factors, the stockholders of the
Company, the ADCS Holders and the LSL Stockholders should bear in mind that
the relative magnitudes of the following risks may vary depending on whether
only the Reorganization is consummated, only the Lawrence Acquisition is
consummated or both Transactions are consummated.
This Proxy Statement/Prospectus includes forward-looking statements.
Statements which are not historical facts in this Proxy Statement/Prospectus
are forward-looking statements, made on a good faith basis. Examples of
forward-looking statements include, without limitation, statements by the
Company, the ADCS Group and Lawrence regarding financial projections,
expectations for demand and sales of new and existing products, market and
technology opportunities, business strategies, business opportunities,
objectives of management for future operations and semiconductor industry and
market segment growth. All forward-looking statements involve risks and
uncertainties. Actual results may differ materially from forward-looking
statements for reasons including, but not limited to, changes in the pattern
of semiconductor industry growth, the markets for or customer interest in the
products of the Company, the ADCS Group or Lawrence, product and market
competition, delays or problems in the development and commercialization of
products, or technological changes affecting the competencies of the Company,
the ADCS Group or Lawrence.
RISK FACTORS RELATED TO THE COMPANY
Development Stage of Certain Business Units; Product
Commercialization. Although the Company currently offers commercial products
serving semiconductor materials and equipment market segments, many of the
Company's products are in the early stages of development, testing and
commercialization. Any delays in development may result in the introduction of
the Company's products later than anticipated, which could have a material
adverse effect on the Company's financial and competitive positions. There can
be no assurance that any products under development will be technically or
commercially successful, or that the Company will be able to manufacture
adequate quantities of its products at commercially acceptable cost levels or
on a timely basis.
Dependence on Industry Collaborators. The Company has formed, and intends to
form, alliances with other businesses for the development, manufacturing,
marketing and distribution of certain of its products. The success of the
Company's various alliances is dependent upon the general business conditions
of the members, each member's commitment to the relationship, and the skills
and experience of each member's employees who are responsible for the
relationship. A decision by any member of an alliance to limit or terminate
its responsibilities or the participation by the Company under the alliance or
the failure or inability of these industry collaborators to fulfill their
obligations to the Company could have a material adverse effect on the
business of the Company. There can be no assurance that the Company will be
successful in forming and maintaining such alliances. There can be no
assurance that the Company or its marketing collaborators will be successful
in gaining market acceptance for the Company's products.
Potential Fluctuation in Quarterly Results. The Company's quarterly
operating results have varied significantly as a result of a number of
factors, including varying levels of contract research activities, the timing
of significant orders from, and shipments to, customers and the timing and
market acceptance of new products. The Company expects that its operating
results will fluctuate in the future as a result of these and other factors
including its product mix, the Company's success in developing, introducing
and shipping new products and the level of competition. There can be no
assurance that the Company will be able to sustain a level of profitability on
a quarter-to-quarter basis.
19
<PAGE>
Competition. The markets for semiconductor devices, materials and
manufacturing equipment are intensely competitive. There are a number of
domestic and international companies engaged in commercial activities in the
market niches the Company serves. Many of these companies have substantially
greater financial, research and development, manufacturing and marketing
resources than the Company. In addition, as this industry evolves, other
competitors may emerge.
Rapid Technological Change and Competing Technologies. Semiconductor
technology is characterized by rapid change. The future success of the Company
will depend in large part upon its ability to keep pace with advancing
semiconductor technology. Rapid changes are likely to occur in the development
of new semiconducting materials and processes. There can be no assurance that
the Company will be able to develop technologies in response to such changes.
There can also be no assurance that the Company's development efforts will not
be rendered obsolete by technological advances of others, or that other
equipment or materials will not prove more advantageous to customers in the
market niches the Company serves.
Limited Manufacturing Capability. The manufacture of semiconductors involves
highly complex manufacturing processes. The Company has established
manufacturing facilities for many of its products, including semiconductor
environmental treatment systems, source materials, liquid delivery systems,
substrates and epitaxial wafers. The Company has also established a pilot
facility to fabricate, test and assemble semiconductor thin films, devices and
circuits. To be financially successful, the Company must manufacture its
products in commercial quantities, at acceptable costs and on a timely basis
and, accordingly, must expand its facilities. There can be no assurance that
the Company will be able to manufacture such products in high volume. The
Company has limited experience in manufacturing, and it may incur significant
start-up costs and unforeseen expenses in connection with attempts to
manufacture these products and expand its facilities.
Substantial Future Capital Needs; Availability of Capital. The
commercialization of the Company's potential products will require a
commitment of substantial funds to conduct research, development and testing,
to develop and establish commercial-scale manufacturing systems and to market
any resulting products. Changes in technology or sales growth beyond currently
established capabilities will also require further investment. To the extent
that internally generated funds are insufficient to fund the Company's
operating requirements, the Company or Holdings may need to seek additional
funding either through collaborative arrangements or through public or private
financing. There can be no assurance that additional financing will be
available on acceptable terms, or at all. If adequate funds are not available,
the Company's business would be materially adversely affected.
Expansion of Operations and Management of Growth. The Company has recently
experienced a period of growth, added new personnel in various areas of the
business and intends to continue to expand its business. Because of the level
of scientific and management expertise necessary to support growth, the
Company must recruit and retain highly qualified and well-trained personnel.
There may be only a limited number of persons with the requisite skills to
serve in these positions, and it may become increasingly difficult for the
Company to hire such personnel over time. The Company's expansion may also
significantly strain operational, management, financial, sales and marketing
and other resources. To manage growth effectively, the Company must continue
to enhance its systems and controls and successfully expand, train and manage
its employee base. There can be no assurance that the Company will be able to
manage this expansion effectively, including providing satisfactory levels of
customer service and technical support. There can be no assurance that the
Company will be able to recruit, train and retain sufficient scientific and
technical personnel. Any failure to manage the Company's growth properly could
have a material adverse effect on the Company's business, operating results
and financial condition.
Patents and Protection of Proprietary Technology. The Company's ability to
compete effectively with other companies will depend, in part, on the ability
of the Company to maintain the proprietary nature of its technology. Although
the Company has been awarded, has filed applications for or has been licensed
under numerous patents in the United States and foreign countries, there can
be no assurance as to the degree of protection offered by these patents or as
to the likelihood that pending patents will be issued. There can be no
20
<PAGE>
assurance that competitors in both the United States and foreign countries,
many of which have substantially greater resources and have made substantial
investments in competing technologies, will not apply for and obtain patents
that will prevent, limit or interfere with the Company's ability to make and
sell its products. There can also be no assurance that competitors will not
intentionally infringe the Company's patents. The defense and prosecution of
patent suits are both costly and time-consuming, even if the outcome is
favorable to the Company. In foreign countries, the expenses associated with
such proceedings can be prohibitive. In addition, there is an inherent
unpredictability in obtaining and enforcing patents in foreign countries. An
adverse outcome in the defense of a patent suit could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease selling its
products. Although the Company believes that its products and other
proprietary rights do not infringe the proprietary rights of third parties,
there can be no assurance that third parties will not assert infringement
claims against the Company in the future. The Company also relies on
unpatented proprietary technology, and there can be no assurance that others
may not independently develop the same or similar technology or otherwise
obtain access to the Company's proprietary technology. To protect its rights
in these areas, the Company requires all employees and most consultants,
advisors and collaborators to enter into confidentiality agreements. There can
be no assurance that these agreements will provide meaningful protection for
the Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information. If the Company is unable
to maintain the proprietary nature of its technologies, the Company's business
could be materially adversely affected.
Dependence on Key Personnel. The Company is dependent upon a number of key
scientific and management personnel, including its Chief Executive Officer,
Eugene G. Banucci. The loss of the services of one or more key individuals
could have a material adverse effect on the Company. The Company maintains a
key person life insurance policy in the amount of $1,000,000 on the life of
Dr. Banucci. As a condition to closing of the Merger and Exchange Agreement,
Dr. Banucci and certain other executive officers of the Company will enter
into two-year employment and non-competition agreements with the Company. In
the event the Company or Holdings should seek to enforce such non-competition
provisions in court, the court may, in exercising its discretionary authority,
determine not to enforce, or to limit enforcement of, such provisions against
an employee. See "THE REORGANIZATION--Employment Agreements."
Dependence Upon Government Contracts. A significant portion of the Company's
revenues has been derived from contracts with agencies of the United States
government. For the years ended December 31, 1994, 1995 and 1996, and the six
months ended June 30, 1997, such contracts accounted for approximately
$7,222,000, $8,712,000, $9,846,000 and $4,900,651, respectively, or
approximately 37%, 29%, 21% and 19%, respectively, of the Company's total
revenues for each of those periods. The Company's contracts involving the
United States government are, or may be, subject to various risks, including
unilateral termination for the convenience of the government, reduction or
modification in the event of changes in the government's requirements or
budgetary constraints, increased or unexpected costs causing losses or reduced
profits under fixed-price contracts or unallowable costs under cost
reimbursement contracts, risks of potential disclosure of the Company's
confidential information to third parties, the failure or inability of the
prime contractor to perform its prime contract in circumstances where the
Company is a subcontractor, the failure of the government to exercise options
provided for in the contracts and the exercise of "march-in" rights by the
government. March-in rights refer to the right of the government or government
agency to exercise a non-exclusive, royalty-free, irrevocable, world-wide
license to any technology developed under contracts funded by the government
if the contractor fails to continue to develop the technology. The programs in
which the Company participates may extend for several years but are normally
funded on an annual basis. There can be no assurance that the government will
continue its commitment to programs to which the Company's development
projects are applicable, or that the Company can compete successfully to
obtain funding available pursuant to such programs. A reduction in, or
discontinuance of, such commitment to the Company's participation in these
programs would have a material adverse effect on the Company's business,
operating results and financial condition.
21
<PAGE>
Environmental Regulations. The Company uses, generates and discharges toxic,
volatile or otherwise hazardous chemicals and wastes in its research and
development and manufacturing activities. Therefore, the Company is subject to
a variety of federal, state and local governmental regulations related to the
storage, use and disposal of these materials. The Company believes that it has
all the permits necessary to conduct its business. However, the failure to
comply with present or future regulations could result in fines being imposed
on the Company, suspension of production or a cessation of operations. While
the Company believes that it has properly handled its hazardous materials and
wastes and has not contributed to any on-site contamination or environmental
condition at its premises in Danbury, Connecticut, these premises may have
been contaminated prior to the Company's occupancy. The Company is not aware
of any environmental investigation, proceeding or action by federal or state
agencies involving these premises. However, under certain federal and state
statutes and regulations, a government agency may seek recovery and response
costs from both operators and owners of property where releases of hazardous
substances have occurred or are ongoing. The prior occupant of the Danbury,
Connecticut premises has agreed to indemnify the Company for remediation costs
in connection with any pre-existing, on-site contamination or environmental
condition. However, there can be no assurance that this indemnification will
prove adequate to cover any liability imposed on the Company related to the
environmental condition of the premises or the cost of defending an
environmental action, either of which could be substantial. The Company's
activities may also result in its being subject to additional regulation. Such
regulations could require the Company to acquire significant additional
equipment or to incur other substantial expenses to comply with environmental
regulations. Any failure by the Company to control the use of, or to restrict
adequately the discharge of, hazardous substances could subject it to
substantial financial liabilities and could have a material adverse effect on
the Company's business, operating results and financial condition.
Lack of Dividends. The Company has never paid cash dividends on its equity
securities. If the Reorganization is not consummated, the Company intends to
retain all available earnings, if any, generated by its operations for
development and growth of its business and does not intend to pay cash
dividends in the foreseeable future. Similarly, if the Reorganization is
consummated, Holdings intends to retain all such available earnings and does
not intend to pay cash dividends in the foreseeable future.
RISK FACTORS RELATED TO THE ADCS GROUP
Development Stage of Certain Business Units; Product
Commercialization. Although the ADCS Group currently offers commercial
products serving semiconductor materials and equipment market segments, many
of its products are in the early stages of development, testing and
commercialization. Any delays in development may result in the introduction of
the ADCS Group's products later than anticipated, which could have an adverse
effect on its financial and competitive positions. There can be no assurance
that any products under development will be technically or commercially
successful, or that the ADCS Group will be able to manufacture adequate
quantities of its products at commercially acceptable cost levels or on a
timely basis.
Dependence on a Single Customer. Sales to a single customer, Applied
Materials, Inc. ("Applied Materials"), which had purchased the ADCS Group's
thin film materials delivery systems and then resold these systems in
connection with the sale of its own equipment, accounted for approximately
34.4%, 34.0% and 31.0% of the ADCS Group's total sales for the years ended
December 31, 1995 and 1996 and the six months ended June 30, 1997,
respectively. Applied Materials notified the ADCS Group in mid-1996 that it
intends to discontinue purchases of equipment for resale to end users.
Although Applied Materials has continued to purchase the ADCS Group's delivery
systems equipment (albeit with substantial quarterly fluctuations) and has set
no date by which it intends to cease such purchases, the ADCS Group believes
that its future business and results of operations depend in large part on its
ability to increase its sales directly to end users. There can be no assurance
that the ADCS Group will be able to continue the growth in sales of its
delivery systems equipment, or even maintain the current level of sales. A
failure by the ADCS Group to achieve such level of sales or the profitability
of such sales could have a material adverse effect on its business, operating
results and financial condition. See "BUSINESS OF THE ADCS GROUP--Customers"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--THE ADCS GROUP--Results of Operations."
22
<PAGE>
Dependence on Semiconductor Industry. Essentially all of the ADCS Group's
sales are to customers in the semiconductor and semiconductor equipment
manufacturing industries. The demand for the specialty thin film materials
produced by the ADCS Group closely tracks the demand for chemicals in the
industry generally, while sales of delivery systems closely track general
capital expenditure trends in the industry. As a consequence, general declines
in the industry, and especially declines in output and expenditure, could have
a materially adverse effect on the ADCS Group's business, operating results
and financial condition.
Dependence on Foreign Sales; Risks Associated with Foreign Markets. In the
years ended December 31, 1995 and 1996 and the six months ended June 30, 1997,
sales in foreign markets accounted for 35.0%, 42.6% and 34.7%, respectively,
of the ADCS Group's net sales. The ADCS Group anticipates that, in the future,
sales in foreign markets will continue to account for a significant percentage
of its sales. A significant portion of the ADCS Group's sales will therefore
be subject to risks associated with sales in foreign markets, including export
controls, unexpected changes in legal and regulatory requirements and policy
changes affecting the markets for semiconductor technology, changes in
tariffs, exchange rates and other barriers, political and economic
instability, difficulties in accounts receivable collection, difficulties in
managing resellers or representatives, difficulties in staffing and managing
foreign operations, difficulties in protecting the ADCS Group's intellectual
property overseas, seasonality of sales and potentially adverse tax
consequences. There can be no assurance that such factors will not have a
material adverse effect on the ADCS Group's future international sales and,
consequently, the ADCS Group's business, operating results and financial
condition. Although the ADCS Group's sales to date have been denominated in
United States dollars, the value of the United States dollar in relation to
foreign currencies may also adversely affect the ADCS Group's sales to foreign
customers. To the extent that the ADCS Group expands its international
operations or changes its pricing practices to denominate prices in foreign
currencies, the ADCS Group will be exposed to increased risks of currency
fluctuations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--THE ADCS GROUP" and "BUSINESS OF THE ADCS GROUP--
Markets, Sales and Distribution."
Product Liability Risk Associated With Selling Thin Film Materials. Because
the management of the ADCS Group believes that product liability insurance is
prohibitively expensive, the ADCS Group does not maintain such insurance.
However, product liability exposure represents considerable risk to the ADCS
Group. Although the ADCS Group takes significant safeguards in its
manufacturing process, if any thin film material sold by the ADCS Group is
defective, the result may be that the semiconductor devices that contain the
material may be rendered useless. A very small amount of thin film material is
used in manufacturing a single semiconductor device. Further, a semiconductor
device cannot be fully tested until the manufacturing process has been
completed, and a significant amount of value has been added to the device. As
a result, a defect in the ADCS Group's products could result in damages
significantly in excess of the revenues generated from the sale of the
defective thin film materials. See "BUSINESS OF THE ADCS GROUP--Insurance;
Product Liability."
ADCS-Korea Joint Venture. In 1995, the ADCS Group entered into a joint
venture with K.C. Tech Co., Ltd. ("K.C. Tech") to form ADCS-Korea Co., Ltd.
("ADCS-Korea"), of which the ADCS Group and K.C. Tech own 70% and 30%
interests, respectively. ADCS-Korea was established to manufacture, sell and
distribute the ADCS Group's thin film materials in South Korea. The ADCS Group
formerly had marketed and sold its products in South Korea through K.C. Tech,
receiving 100% of the revenues less K.C. Tech's sales commission. Although the
ADCS Group does expect to receive a royalty on products it licenses to ADCS-
Korea to market and sell in South Korea, the ADCS Group is effectively
transferring a 30% interest in its revenue for those products it licenses to
ADCS-Korea in the South Korean market. While the ADCS Group believes that this
local presence is necessary in order for it to maintain and eventually expand
its share of the South Korean market, there can be no assurance that the ADCS-
Korea joint venture will become successful or profitable to the extent that
the ADCS Group will be able to recover the potential revenues it has foregone
by forming this venture, or that the ADCS Group will ever see a return of its
start-up costs in this venture. See "BUSINESS OF THE ADCS GROUP--Markets,
Sales and Distribution."
23
<PAGE>
Potential Fluctuation in Quarterly Results. The ADCS Group's quarterly
operating results have varied significantly as a result of a number of
factors, including the general reluctance of companies in the semiconductor
industry to enter into long-term chemical supply contracts. The ADCS Group
expects that its operating results will fluctuate in the future as a result of
these and other factors including its product mix, its success in developing,
introducing and shipping new products and the level of competition. There can
be no assurance that the ADCS Group will be able to sustain a level of
profitability on a quarter-to-quarter basis. See "BUSINESS OF THE ADCS GROUP--
Customers."
Competition. The markets for semiconductor devices, related materials and
manufacturing equipment are intensely competitive. There are a number of
domestic and international companies engaged in commercial activities in the
market niches served by the ADCS Group. Many of these companies have
substantially greater financial, research and development, manufacturing and
marketing resources than the ADCS Group. In addition, as this industry
evolves, other competitors may emerge. See "BUSINESS OF THE ADCS GROUP--
Competition."
Rapid Technological Change; Dependence on a Single Product. Semiconductor
technology is characterized by rapid change. The future success of the ADCS
Group will depend in large part on its ability to keep pace with advancing
semiconductor technology. Rapid changes are likely to occur in the development
of new semiconducting materials and processes, and in the chemicals and
equipment required to support those processes. There can be no assurance that
the ADCS Group will be able to develop technologies in response to such
changes. There can be no assurance that the ADCS Group's development efforts
will not be rendered obsolete by the technological advances of others, or that
other equipment or materials will not prove more advantageous to customers in
the market niches the ADCS Group serves. In the past, the ADCS Group has
derived a significant portion of its revenues from sales of a single thin film
material, tetraethylorthosilicate ("TEOS"), which is a critical component of
current semiconductor technology. Sales of TEOS in the years ended December
31, 1995 and 1996 and the six months ended June 30, 1997 were approximately
$6,254,000, $7,037,000 and $2,661,000, respectively. As a percentage of the
ADCS Group's total sales, TEOS accounted for approximately 40%, 32% and 25.5%,
respectively, during such periods. The industry's continuing attempt to
minimize the size of microcomputer chips could result in the obsolescence of
this single thin film material. There can be no assurance that in the future
the ADCS Group will be able to introduce new products in a timely and cost-
effective manner or that such products will achieve market acceptance. See
"BUSINESS OF THE ADCS GROUP--Business Strategy" and "BUSINESS OF THE ADCS
GROUP--Products and Services."
Nature of Product. The markets for semiconductor devices, related materials
and manufacturing equipment increasingly view the ADCS Group's thin film
material products as a commodity rather than a specialized product. As the
thin film materials produced by the ADCS Group become more of a commodity,
less profit can be expected from a given volume of production, and larger
chemical-market players may be able to operate successfully on a smaller
profit margin by maintaining larger volumes of production, thereby posing
significant threats to the ADCS Group's market share and revenue. See
"BUSINESS OF THE ADCS GROUP--Products and Services."
Patents and Proprietary Rights. The ADCS Group's ability to compete
effectively with other companies will depend, in part, on the ability of the
ADCS Group to maintain the proprietary nature of its technology. Although the
ADCS Group has been awarded or has filed applications for numerous patents in
the United States and foreign countries, there can be no assurance as to the
degree of protection offered by these issued patents or as to the likelihood
that pending patents will be issued. There can be no assurance that
competitors in both the United States and foreign countries, many of which
have substantially greater resources and have made substantial investments in
competing technologies, have not applied for or obtained or will not apply for
and obtain patents that will prevent, limit or interfere with the ADCS Group's
ability to make and sell its products. There can also be no assurance that
competitors will not intentionally infringe the ADCS Group's patents. The
defense and prosecution of patent suits are both costly and time-consuming,
even if the outcome is favorable to the ADCS Group. In foreign countries, the
expenses associated with such proceedings can be prohibitive. In addition,
there is an inherent unpredictability in obtaining and enforcing patents in
foreign countries. An adverse
24
<PAGE>
outcome in the defense of a patent suit could subject the ADCS Group to
significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the ADCS Group to cease selling its
products. Although the ADCS Group has received notification from a third party
that by selling one of its products the ADCS Group may be contributorily
infringing on the proprietary rights of that third party, the ADCS Group does
not believe that its products and technology directly or contributorily
infringe any valid proprietary rights of any third party. The ADCS Group
believes revenues on sales of the product involved in this dispute to be
immaterial. However, there can be no assurance that a court will not find that
the ADCS Group infringes on any such patents or proprietary rights or that the
damages, if any, required to be paid by the ADCS Group will not have a
material adverse effect on its business, financial condition and results of
operations, or that third parties will not successfully assert infringement
claims against the ADCS Group in the future. The ADCS Group also relies on
unpatented proprietary technology, and there can be no assurance that others
may not independently develop the same or similar technology or otherwise
obtain access to the ADCS Group's proprietary technology. To protect its
rights in these areas, the ADCS Group generally requires employees and
consultants to enter into confidentiality agreements. There can be no
assurance that these agreements will provide meaningful protection for the
ADCS Group's trade secrets, know-how or other proprietary information in the
event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information. If the ADCS Group is
unable to maintain the proprietary nature of its technologies, its business,
operating results and financial condition could be materially adversely
affected. See "BUSINESS OF THE ADCS GROUP--Patents and Proprietary Rights."
Litigation. Litigation in the semiconductor industry is common.
Consequently, third parties may at some future time allege that the ADCS Group
is infringing certain patents and other intellectual property rights of
others. There are no pending lawsuits against the ADCS Group asserting
infringement by the ADCS Group of any intellectual property rights, and the
ADCS Group does not believe that it is infringing any such rights. If any
claim arises, the ADCS Group will evaluate its merits and may seek a license
from the claimant. There can be no assurance that licenses, if needed by the
ADCS Group, would be obtained on acceptable terms, that litigation would not
occur or that damages for past infringement by the ADCS Group, if any, would
not be material. Litigation, which could result in substantial cost to and
diversion of resources of the ADCS Group, may be necessary to enforce
intellectual property rights of the ADCS Group or to defend the ADCS Group
against infringement claims. The failure to obtain necessary licenses or the
advent of litigation could have a material adverse effect on the ADCS Group's
business, operating results and financial condition.
Dependence on Key Personnel. The ADCS Group is dependent upon certain key
scientific and management personnel, including its President, Stephen H.
Siegele. The loss of the services of one or more key individuals could have a
material adverse effect on the ADCS Group. The ADCS Group does not maintain
key person insurance for any of its key personnel. As a condition to closing
of the Merger and Exchange Agreement, Stephen H. Siegele will enter into a
two-year employment and non-competition agreement with the Company or the ADCS
Group. See "THE REORGANIZATION--Employment Agreements." In the event the ADCS
Group, the Company, or Holdings should seek to enforce such non-competition
provisions in court, the court may, in exercising its discretionary authority,
determine not to enforce, or to limit enforcement of, such provisions against
an employee. See "MANAGEMENT OF THE ADCS GROUP."
Environmental Regulations. The ADCS Group uses, generates and discharges
toxic, volatile or otherwise hazardous chemicals and wastes in its research
and development and manufacturing activities. Therefore, the ADCS Group is
subject to a variety of federal, state and local governmental regulations
related to the storage, use and disposal of these materials. The ADCS Group
believes that it has, or is seeking to obtain, all the permits necessary to
conduct its business. However, failure to comply with present or future
regulations or the failure of the ADCS Group to obtain the permits it is
currently seeking could result in fines being imposed on the ADCS Group,
suspension of production or a cessation of operations. While the ADCS Group
believes that it has properly handled hazardous materials and wastes and has
not contributed to any on-site contamination on any of its premises, these
premises may have been contaminated prior to the Company's occupancy. The ADCS
Group is not aware of any environmental investigation, proceeding or action by
federal or state agencies involving any
25
<PAGE>
of its premises. However, under certain federal and state statutes and
regulations, a government agency may seek recovery and response costs from
operators and owners of property where releases of hazardous substances have
occurred or are ongoing. The ADCS Group's activities may also result in its
being subject to additional regulation. Such regulations could require the
ADCS Group to acquire significant additional equipment or to incur other
substantial expenses to comply with environmental regulations. Any failure by
the ADCS Group to control the use of, or to restrict adequately the discharge
of, hazardous substances could subject it to substantial financial liabilities
and could have a material adverse effect on the ADCS Group's business,
operating results and financial condition. See "BUSINESS OF THE ADCS GROUP--
Environmental Regulation."
RISK FACTORS RELATED TO LAWRENCE
Dependence on Semiconductor Market. Lawrence's results of operations are
materially dependent upon economic and business conditions in the
semiconductor industry. The semiconductor industry has experienced significant
growth in recent years. There can be no assurance that such growth will
continue in the future or that a general economic slowdown or recession will
not have a material adverse effect on Lawrence's results of operations.
Competition; Growth Strategy. Lawrence's processes are based primarily on
proprietary epitaxial processing technology used in processing silicon wafers.
Lawrence's strategy is to use these technologies to develop and introduce new
customer applications in high-growth niche markets of the semiconductor
industry. There can be no assurance that Lawrence will be able to maintain or
defend its proprietary technologies (see "RISK FACTORS--Risk Factors Related
to Lawrence--Lack of Protection for Proprietary Technologies") or to continue
to successfully pursue its strategy of developing and introducing processes in
high-growth niche markets. There can also be no assurance that competitors
with substantially greater resources will not introduce new technologies more
quickly to the semiconductor market or be better positioned to develop or
exploit new core technologies. See "BUSINESS OF LAWRENCE--Business Strategy"
and "BUSINESS OF LAWRENCE--Competition."
Competing Technologies. Lawrence uses a process known as vapor-phase single
crystal growth to place a layer of silicon on the surface of a prime polished
silicon wafer. This epitaxial coating achieves certain desired performance
characteristics for Lawrence's customers' products. Technologies and materials
currently exist that compete with Lawrence's methods, such as gallium arsenide
and silicon-on-insulator structures, which to date have been less cost-
effective than Lawrence's processing. There can be no assurance that existing
or newly-developed technologies or materials will not become superior to or
more cost-effective than Lawrence's current epitaxial processing. Furthermore,
there can be no assurance that Lawrence's current technologies will not be
rendered obsolete, or that Lawrence will develop successful processes and
technologies in response to future demands of the industry.
Substantial Future Capital Needs; Availability of Capital. Lawrence will
require a commitment of substantial funds to maintain and expand its
commercial-scale processing facilities and to respond successfully to changes
in technology or in sales growth beyond currently established capabilities. To
the extent that internally generated funds are insufficient to fund Lawrence's
operating requirements, Lawrence may need to seek additional funding either
through collaborative arrangements or through private or public financing.
There can be no assurance that additional financing will be available on
acceptable terms, or at all. If adequate funds are not available, Lawrence's
business could be materially adversely affected.
Noncompliance with Debt Covenants. Certain of Lawrence's notes payable
contain covenants requiring Lawrence to maintain compliance with debt to
tangible net worth, debt service coverage and current assets to current
liabilities ratios as defined in the related agreements. At December 31, 1996,
Lawrence was not in compliance with the debt (defined as all liabilities) to
tangible net worth ratio of 3.0 to 1.0, and such violation continued into
1997. Additionally, subsequent to December 31, 1996, Lawrence was not in
compliance with the covenant requiring the maintenance of a ratio of current
assets to current liabilities of at least 1.2 to 1.0. On June 10, 1997, the
lender agreed to waive these covenant violations through September 30, 1997.
Although Lawrence
26
<PAGE>
believes that it will be able to maintain compliance with all specified ratios
subsequent to September 30, 1997, there can be no assurance that it will be
able to do so or, in the event of noncompliance, that it will be able to
secure future waivers from the lender, which non-compliance or failure to
secure waivers could have a material adverse effect on Lawrence's financial
condition and results of operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LAWRENCE--Liquidity and
Capital Resources."
Management of Growth. Lawrence is experiencing a period of growth and has
added new personnel in various areas of its business. Because of the level of
scientific and management expertise necessary to support growth, Lawrence must
continue to recruit and retain critical personnel. There may be only a limited
number of persons with the requisite skills to serve in these positions, and
in the future it may become increasingly difficult for Lawrence to hire such
personnel. Lawrence's expansion may also significantly strain operational,
management, financial, sales and marketing and other resources. To manage
growth effectively, Lawrence must continue to enhance its systems and controls
and successfully expand, train and manage its employee base. There can be no
assurance that Lawrence will be able to manage this expansion effectively,
including the provision of satisfactory levels of customer service and
technical support. Any failure to manage Lawrence's growth properly could have
a material adverse effect on Lawrence's business, operating results and
financial condition.
Risks Associated with Manufacturing Operations. Any prolonged disruption in
Lawrence's operations, whether due to technical or labor difficulties,
destruction of or damage to any facility or other reasons, could have a
material adverse effect on Lawrence's business, operating results and
financial condition.
Lawrence utilizes a number of advanced chemicals, gases, and other
sophisticated materials in its epitaxial processing operations. Due to the
highly technical and specialized nature of certain of its production
materials, Lawrence relies from time to time on a single supplier to provide
it with sufficient quantities of certain materials used in its processing. To
minimize its reliance on a particular vendor, Lawrence continually seeks to
identify multiple vendors qualified to support its materials. Although
Lawrence believes that it is not currently dependent on any single supplier,
the inability of Lawrence to obtain sufficient quantities of certain
production inputs could have a material adverse effect on Lawrence's business,
operating results and financial condition. See "BUSINESS OF LAWRENCE--
Customers and Suppliers."
Lawrence is dependent on the use of epitaxial reactors for the commercial
application of its processes. Currently, suitable reactors are available from
only a small number of manufacturers, the most prominent of which are Applied
Materials and Advanced Semiconductor Materials of America, Inc. ("ASM"). There
can be no assurance that Lawrence will be able to purchase reactors suitable
to its current or future needs from these manufacturers. See "BUSINESS OF
LAWRENCE--Litigation." There can also be no assurance that Lawrence can obtain
the quantity of reactors it requires, within the time constraints and at a
price which allows Lawrence to retain existing customers and attract new
customers and to retain current profit margins. See "BUSINESS OF LAWRENCE--
Customers and Suppliers."
The long term growth of Lawrence may be curtailed if Lawrence is unable to
source and deploy new reactors on a timely and cost effective basis. Lawrence
currently uses ASM reactors on an exclusive basis. In settlement of certain
litigation between Applied Materials and Lawrence and to reduce the dependence
for reactor supply on ASM, Lawrence has entered into an agreement with Applied
Materials to purchase, install and qualify an Applied Materials reactor. The
qualification with Applied Materials targets both technical and financial
performance. This process is expected to be complete by the end of 1997.
The litigation between ASM and Applied Materials has not been settled. If
the litigation were settled in such a way that resulted in ASM being unable to
provide spare parts and service to the reactors it had previously
manufactured, then Lawrence (and other ASM customers) could be adversely
affected if Lawrence were unable to acquire the parts and service elsewhere.
It is not expected that the settlement between Applied Materials and ASM will
result in curtailed supply of reactors capable of meeting Lawrence's
requirements.
27
<PAGE>
Lawrence utilizes a 24-hour-per-day, 7 day-per-week, operation schedule to
serve the processing needs of its customers. In the event of any catastrophic
event which results in damage to Lawrence's facilities, or in the event of any
delay in its receipt of chemicals and gases necessary to its processing of
wafers, Lawrence's ability to satisfy the requirements of its customers could
be jeopardized.
Dependence on Particular Customers. A significant portion of Lawrence's
revenues has been derived from particular customers. For the year ended
December 31, 1996, sales to Lawrence's ten and twenty top customers totaled
approximately 79% and 93%, respectively, of all sales during the period. Sales
to Lawrence's three largest customers accounted for 24%, 14% and 11% of all
sales during the period. Lawrence's relationships with these customers are
subject to various risks, including termination, reduction, or modification in
the event of changes in the customers' requirements or budgetary constraints,
risks of potential disclosure of Lawrence's confidential information to third
parties and the failure or inability of a customer to perform its prime
contract with its customer. There can be no assurance that such customers will
continue to utilize the processes of Lawrence at the same levels as in the
past. In addition, Lawrence does not have long-term agreements with its
largest customers. The lack of such long-term agreements presents the risk
that Lawrence's customers could identify alternative providers for their
epitaxial processing needs, subject to such provider's ability to meet the
customer's specifications. There can be no assurance that Lawrence's major
customers will not secure such alternative sources for epitaxial processing. A
reduction in, or discontinuance of, these customers' purchases from Lawrence
would have a material adverse effect on Lawrence's business, operating results
and financial condition. See "BUSINESS OF LAWRENCE--Customers and Suppliers."
Potential Fluctuation in Quarterly Results. Lawrence's quarterly operating
results may vary significantly as a result of the timing of orders from and
shipments to customers. There can be no assurance that Lawrence will be able
to sustain any specific level of profitability on a quarterly basis.
Lack of Protection for Proprietary Technologies. Lawrence's ability to
compete effectively with other companies depends, in part, on Lawrence's
ability to maintain the proprietary nature of its technologies. These
technologies are generally not eligible for patent protection. Further, there
can be no assurance that competitors both in the United States and abroad,
many of which have substantially greater resources and have made substantial
investments in competing technologies, will not apply for and obtain patents
that will prevent, limit, or interfere with Lawrence's ability to collaborate
with its customers on improved processes in the future. There can also be no
assurance that competitors will not engage in theft of Lawrence's trade
secrets. The defense and prosecution of patent and trade secret suits are
costly and time-consuming, even if the outcome is favorable to Lawrence. In
foreign countries, the expenses associated with such proceedings can be
prohibitive. In addition, there is an inherent unpredictability in protecting
and enforcing trade secrets in foreign countries. An adverse outcome in the
defense of a patent suit could subject Lawrence to significant liabilities to
third parties, require disputed rights to be licensed from third parties or
require Lawrence to cease selling its processes. Although Lawrence believes
that its proprietary rights do not infringe the proprietary rights of third
parties, there can be no assurance that third parties will not assert
infringement claims against Lawrence in the future. See "BUSINESS OF
LAWRENCE--Litigation" for a description of a patent infringement claim made by
Applied Materials against Lawrence that has been settled. There can also be no
assurance that others may not independently develop the same or similar
technology or otherwise obtain access to Lawrence's proprietary technology.
Although Lawrence requires undertakings from all employees, certain former
employees, and most consultants, advisers, and collaborators regarding the
confidential nature of Lawrence's processes, there can be no assurance as to
the degree of protection of Lawrence's trade secrets, know-how or other
proprietary information offered by these confidentiality undertakings in the
event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information. If Lawrence is unable to
maintain the proprietary nature of its technologies, Lawrence's business could
be materially adversely affected. See "BUSINESS OF LAWRENCE--Proprietary
Rights."
Dependence on Key Personnel. Lawrence is dependent on a number of key
scientific and management personnel, including its Chief Executive Officer,
Lamonte H. Lawrence. The loss of the services of one or more
28
<PAGE>
key individuals could have a material adverse effect on Lawrence. The Lawrence
Merger Agreement requires LSI, which is wholly-owned by Mr. Lawrence, and LSL
to enter into a three-year Consulting Agreement as of the Lawrence Effective
Time pursuant to which LSI will provide consulting services to LSL, and
requires Mr. Lawrence to enter into a Noncompete Agreement as of the Lawrence
Effective Time. See "THE LAWRENCE ACQUISITION--Agreements with Lamonte H.
Lawrence and Affiliated Entities" for a description of the terms of the
Consulting Agreement and the Noncompete Agreement. As a further condition to
closing of the Lawrence Merger Agreement, certain other key management
personnel will enter into three-year employment and non-competition agreements
with LSL. In the event LSL, the Company or Holdings should seek to enforce
such non-competition provisions in court, the court may, in exercising its
discretionary authority, determine not to enforce, or to limit enforcement of,
such provisions against an employee. See "THE LAWRENCE ACQUISITION--Employment
Agreements" and "MANAGEMENT OF LAWRENCE."
Environmental Regulations. Lawrence uses, generates, and discharges toxic,
volatile or otherwise hazardous chemicals and wastes in its processing
activities. Therefore, Lawrence is subject to a variety of federal, state and
local governmental laws, rules and regulations related to the storage, use and
disposal of these materials. The failure to comply with present or future
laws, rules or regulations could result in fines or other liabilities being
imposed on Lawrence, suspension of production or a cessation of operations.
Under certain federal and state statutes and regulations, a government agency
may seek recovery and response costs from both operators and owners of
property where releases of hazardous substances have occurred or are ongoing.
Lawrence's activities may also result in its being subject to additional
regulation. Such regulations could require Lawrence to acquire significant
additional equipment or to incur other substantial expenses to comply with
environmental laws, rules or regulations. Any failure by Lawrence to control
the use of, or to restrict adequately the discharge of, hazardous substances
could subject it to substantial financial liabilities and could have a
material adverse affect on Lawrence's business, operating results and
financial condition. See "BUSINESS OF LAWRENCE--Environmental Regulation."
Dependence on Industry Collaborators. Lawrence has collaborated with many of
its customers and other businesses for the development of certain of its
processes. The success of Lawrence's collaborations is dependent upon the
general business conditions in the semiconductor industry, the commitment of
the collaborators to their relationship with Lawrence, and the skill and
experience of the employees of the collaborators who are responsible for the
relationships with Lawrence. A decision by any such customer or collaborator
to limit or terminate its relationship with Lawrence, or a failure by any such
customer or collaborator to fulfill its obligations to Lawrence, could have a
material adverse effect on the business of Lawrence. There can be no assurance
that Lawrence will continue to be successful in forming and maintaining such
close relationships with customers and industry collaborators.
RISK FACTORS RELATED TO THE TRANSACTIONS
Integration of Business Operations. The Company, Holdings, the ADCS Group
and Lawrence have entered into the Transactions with the expectation that the
Transactions will result in beneficial synergies for the combined companies.
If the Reorganization is consummated, the Transactions may affect Holdings'
ability to integrate and manage its overall business effectively, and if the
Reorganization is not consummated, the Lawrence Acquisition may affect the
Company's ability to manage its overall business effectively. There can be no
assurance that either Holdings or the Company, as the case may be, will be
able to integrate successfully the administrative, management and service
operations of the Company, the ADCS Group and Lawrence in general, or
integrate the operations of the Company's NovaMOS division and the ADCS Group
or Lawrence and the Company's Epitronics division in particular, that such
integration will occur in a timely and efficient manner, if at all, or that
the uncertainty associated with such integration will not result in the loss
of customers or key employees. The successful combination of the various
companies will require, among other things, the timely integration of such
companies' respective product and service offerings and coordination of their
respective sales and marketing, research and development, and finance and
administrative activities. The difficulties of such
29
<PAGE>
integration may be increased by the necessity of coordinating geographically
separated organizations. The failure to achieve such integration in a timely,
effective or efficient manner could have a material adverse effect on the
business, operating results and financial condition of Holdings or the
Company, as the case may be. The integration of the operations of the ADCS
Group and Lawrence following the Transactions will require the dedication of
management resources and temporarily distract attention from the day-to-day
business of the Company, which could temporarily adversely affect the
Company's business and operating results. There can be no assurance that
Holdings or the Company, as the case may be, will not incur additional charges
in subsequent quarters to reflect costs associated with the Transactions or
that management will be successful in its efforts to integrate the operations
of the Company, the ADCS Group and Lawrence. See "OPERATIONS AND MANAGEMENT
AFTER THE TRANSACTIONS."
Substantial Expenses Resulting from the Transactions. The Company expects to
incur costs and expenses of approximately $3.5 million in connection with the
Transactions, which will be reflected in the financial statements of the
Company or Holdings in the period that the Transactions are consummated. These
costs will therefore negatively impact operating results for the fiscal
quarter in which the Transactions are consummated. Although the Company,
Holdings, the ADCS Group and Lawrence do not believe that the costs will
exceed these estimates, there can be no assurance that these estimates are
correct or that unanticipated contingencies will not occur that will
substantially increase the costs of combining the operations of the companies
or will result in a material adverse effect on the operating results of the
companies in future periods. In addition, upon consummation of the Lawrence
Acquisition, LSL will become obligated to pay a "break-up" fee of
approximately $1.8 million in connection with the termination of a prior
letter agreement between LSL and an investor relating to the possible
recapitalization of LSL. However, the purchase price payable by the Company in
connection with the Lawrence Acquisition will be reduced by the amount of such
break-up fee, and the Lawrence Acquisition Consideration shall be decreased by
the number of shares equal to the dollar value of such reduction, divided by
the Lawrence Acquisition Average Closing Price.
Amount of Common Stock Issuable Pursuant to the Transactions. Although the
Exchange Consideration payable to the ADCS Holders is based upon $87.5 million
and the Lawrence Acquisition Consideration payable to the LSL Stockholders is
based upon $78 million (subject to certain adjustments), the Exchange
Consideration and the Lawrence Acquisition Consideration will be paid in
shares of Holdings Common Stock if the Reorganization is consummated or, in
the case of the Lawrence Acquisition Consideration, in shares of Company
Common Stock if the Reorganization is not consummated. The market price of
Company Common Stock has historically been volatile, and there can be no
assurance as to the market value of Company Common Stock on the Closing Date
and/or the Lawrence Closing Date. The Merger and Exchange Agreement provides
that the number of shares of Holdings Common Stock to be issued to the ADCS
Holders pursuant to the Exchange shall be equal in number to $87.5 million
divided by the "Exchange Average Closing Price." The Lawrence Merger Agreement
provides that the number of shares of Holdings Common Stock or Company Common
Stock, as the case may be, to be issued to the LSL Stockholders pursuant to
the Lawrence Acquisition shall be equal in number to $78 million divided by
the "Lawrence Acquisition Average Closing Price." The actual market value of
the Exchange Consideration payable to the ADCS Holders and the Lawrence
Acquisition Consideration payable to the LSL Stockholders could be
substantially less than the minimum average closing prices allowable under
each of the Merger and Exchange Agreement and the Lawrence Merger Agreement
($14.00 or $17.00 per share, respectively) on the Closing Date and/or the
Lawrence Closing Date, as applicable. Accordingly, if the actual market value
of Company Common Stock is less than the appropriate average closing price,
then the actual value of the Exchange Consideration paid to the ADCS Holders
would be less than $87.5 million on the Closing Date and the actual value of
the Lawrence Acquisition Consideration paid to the LSL Stockholders would be
less than $78 million on the Lawrence Closing Date. Conversely, if the actual
market value of Company Common Stock is greater than the maximum average
closing prices allowable under each of the Merger and Exchange Agreement and
the Lawrence Merger Agreement ($16.00 or $21.00 per share, respectively), then
the actual value of the Exchange Consideration paid to the ADCS Holders would
be greater than $87.5 million on the Closing Date and the actual value of the
Lawrence Acquisition Consideration payable to the LSL Stockholders would be
greater than $78 million on the Lawrence Closing Date.
30
<PAGE>
Concentration of Ownership. After consummation of the Reorganization,
assuming (i) all of the ADCS Holders participate in the Exchange, (ii) an
Exchange Average Closing Price of $14.00 per share and (iii) no adjustment in
the number of shares of Holdings Common Stock to be distributed to the ADCS
Holders, the directors and executive officers of the ADCS Group as a group and
Stephen H. Siegele individually will beneficially own approximately (1) 35.2%
and 28.4%, respectively, of the shares of Holdings Common Stock outstanding if
only the Reorganization is consummated, and (2) 27.0% and 21.8%, respectively,
of the shares of Holdings Common Stock outstanding if both Transactions are
consummated (assuming a Lawrence Acquisition Average Closing Price of $17.00
per share and no adjustment in the number of shares of Holdings Common Stock
to be issued to the LSL Stockholders). In addition, after consummation of the
Lawrence Acquisition, assuming (i) a Lawrence Acquisition Average Closing
Price of $17.00 per share and (ii) no adjustment in the number of shares of
Company Common Stock or Holdings Common Stock, as the case may be, to be
issued to the LSL Stockholders, Lamonte H. Lawrence will beneficially own
approximately (1) 33.5% of the shares of Company Common Stock outstanding if
only the Lawrence Acquisition is consummated, and (2) 22.9% of the shares of
Holdings Common Stock outstanding if both Transactions are consummated
(assuming all of the ADCS Holders participate in the Exchange, an Exchange
Average Closing Price of $14.00 per share and no adjustment in the number of
shares of Holdings Common Stock to be distributed to the ADCS Holders).
Furthermore, after the consummation of the Transactions, (1) the executive
officers and directors of Holdings as a group will beneficially own 48.0% of
the shares of Holdings Common Stock if both Transactions are consummated, (2)
the executive officers and directors of Holdings as a group will beneficially
own 33.2% of the shares of Holdings Common Stock outstanding if only the
Reorganization is consummated and (3) the executive officers and directors of
the Company as a group will beneficially own 38.8% of the shares of Company
Common Stock outstanding if only the Lawrence Acquisition is consummated. As a
result of their stock ownership, the current directors and executive officers
of the ADCS Group as a group, each of Mr. Siegele and Mr. Lawrence
individually, and the executive officers and directors of Holdings or the
Company, as the case may be, will be able to exert significant influence over
all matters requiring stockholder approval, including the election of
directors and the approval of significant corporate transactions. This
concentration of ownership in such persons could also have the effect of
making it more difficult for a third party to acquire, or could discourage a
third party from attempting to acquire, control of Holdings or the Company, as
the case may be, and, therefore, may limit the price that certain investors
might be willing to pay in the future for shares of Holdings Common Stock or
Company Common Stock, as the case may be. See "EQUITY OWNERSHIP OF CERTAIN
PERSONS WITH INTERESTS IN THE TRANSACTIONS."
Distributions on Common Stock Unlikely. The ADCS Holders have received
significant distributions with respect to certain of their ADCS Interests. If
the Reorganization is consummated, Holdings expects to retain all cash from
operations and does not expect to pay dividends on Holdings Common Stock. If
the Reorganization is not consummated, the Company intends to retain all such
earnings and expects to pay no dividends. Consequently, the ADCS Holders and
the LSL Stockholders should not expect to receive dividends or distributions
following the Transactions. See "RISK FACTORS--Risk Factors Related to the
Company--Lack of Dividends" and "COMPARISON OF HOLDINGS COMMON STOCK AND THE
ADCS INTERESTS."
Volatility of Stock Prices. Company Common Stock has experienced, and
Holdings Common Stock can be expected to experience, substantial price
volatility in response to actual or anticipated quarterly variations in
results of operations, announcements of technological innovations or new
products by the Company, Holdings or its competitors, developments related to
patents or other intellectual property rights, developments in the
relationships with the customers, suppliers or strategic partners of the
Company, Holdings, the ADCS Group or Lawrence, and other events or factors. In
addition, any shortfall or changes in revenue, gross margins, earnings or
other financial results from analysts' expectations could cause the price of
Holdings Common Stock or Company Common Stock to fluctuate significantly. In
recent years, the stock market in general has experienced extreme price and
volume fluctuations, which have particularly affected the market price of many
technology companies and which have often been unrelated to the operating
performance of those companies. These broad market fluctuations may adversely
affect the market price of Holdings Common Stock or Company Common Stock.
31
<PAGE>
Potential Dilutive Effect to Stockholders. The Company believes that
beneficial synergies will result from the Transactions; however, there can be
no assurance that the combination of the respective businesses of the ATMI
Group, the ADCS Group and Lawrence, even if achieved in an efficient,
effective and timely manner, will result in combined operating results and
financial condition superior to what would have been achieved by each company
independently. The issuance of Holdings Common Stock (if the Reorganization is
consummated) or Company Common Stock (if the Reorganization is not
consummated) in connection with the Transactions could reduce the market price
of Company Common Stock or Holdings Common Stock. While the Transactions are
expected to be accretive (exclusive of transaction costs) to earnings of the
Company or Holdings, as the case may be, for fiscal 1997, the degree of such
accretion, if any, will depend on revenue growth, cost savings and/or other
business synergies sufficient to offset the effect of such stock issuance.
There can be no assurance that such synergies will be achieved. In addition,
there can be no assurance that securityholders of each of the Company, the
ADCS Group and Lawrence would not achieve greater returns on investment if the
Company, the ADCS Group and Lawrence were to remain independent companies.
Potential Benefits of Not Completing the Transactions. The continuation of
the operations of the ADCS Group and Lawrence in their current forms could
potentially result in the distributions of net profits among the respective
ADCS Holders and LSL Stockholders, whereas, if the Reorganization is
consummated, Holdings expects to retain all cash generated from operations and
does not expect to pay dividends on Holdings Common Stock for the foreseeable
future, and if the Reorganization is not consummated, the Company expects to
retain all such cash and to pay no dividends in the foreseeable future.
Indemnification and Escrow. The ADCS Holders will be required to indemnify
the Company, Holdings and certain of their subsidiaries and affiliates,
including the ADCS Group, from and against certain losses arising out of
breaches of representations and warranties made by the ADCS Group and the ADCS
Holders and for certain tax matters relating to the ADCS Group. As security
for these obligations, the ADCS Holders will be required to deliver into
escrow an aggregate of 750,000 shares of Holdings Common Stock to be received
in the Exchange, 625,000 shares of which will be available solely for certain
tax matters, 75,000 shares of which will be available solely for other tax
matters, and 50,000 shares of which will be available for breaches of
representations and warranties and for any purchase price adjustment. The
Company and the ADCS Group have divergent views on any potential exposures
related to the various tax matters for which there will be indemnification.
The ADCS Group believes that any exposure would be immaterial, and the Company
believes that any successful challenge to the tax matters is not probable.
While the possible exposures, if any, are difficult to quantify, the Company
believes that, regardless of the probability that liabilities arise, the
potential exposures could range from $0 to $22,000,000 depending on the tax
matter. The current value of the shares to be escrowed provides indemnity
towards the upper range of the potential exposures. Nevertheless, if any of
the contingencies were to mature into actual liabilities, there could be a
material adverse effect on the Company, Holdings or any of the other parties
entitled to indemnification. The LSL Stockholders have agreed to indemnify the
Company, Holdings, and certain of their subsidiaries and affiliates, from and
against certain losses arising out of breaches of representations and
warranties made by Lawrence. As security for these obligations, the LSL
Stockholders will be required to deliver into escrow an aggregate of five
percent of the shares to be received by such stockholders in the Lawrence
Acquisition. Under the respective agreements, the parties have agreed to time
limitations during which indemnification may be sought and certain thresholds
which must be reached before indemnification obligations arise. A possibility
exists that the losses could exceed the value of the shares held in escrow
because the shares held in escrow are insufficient in number or, due to market
conditions and potential stock price volatility, in value to compensate
adequately the Company, Holdings and the other parties entitled to
indemnification for any losses which are the subject of the indemnification.
Furthermore, a possibility exists that the losses which are the subject of the
indemnification will be incurred during periods other than those for which
claims may be made with respect to such losses. Consequently, losses for which
there is insufficient indemnification could have a material adverse effect on
the Company, Holdings or the other parties entitled to indemnification. See
"THE REORGANIZATION--Indemnification and Escrow" and "THE LAWRENCE
ACQUISITION--Indemnification and Escrow."
32
<PAGE>
Anti-Takeover Effect of Certain Charter and Bylaw Provisions; Possible
Issuance of Preferred Stock. The Company's Restated Certificate of
Incorporation and Bylaws, and Holdings' Certificate of Incorporation and
Bylaws contain provisions that may discourage acquisition bids or make it more
difficult for a third party to acquire the Company or Holdings. These
provisions could limit the price that certain investors might be willing to
pay in the future for shares of Company Common Stock or Holdings Common Stock
if the Reorganization is consummated. In addition, shares of preferred stock
may be issued in the future without further stockholder approval, and upon
such terms and conditions, and having such rights, privileges and preferences,
as the respective Board of Directors may determine. The rights of the holders
of Company Common Stock or Holdings Common Stock, as the case may be, will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. Neither the Company nor
Holdings has any present plans to issue any shares of preferred stock.
However, the issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or could discourage a third party from acquiring, a majority of
the outstanding voting stock of the Company or Holdings. See "DESCRIPTION OF
CAPITAL STOCK OF HOLDINGS" and "DESCRIPTION OF CAPITAL STOCK OF THE COMPANY."
Consummation of Transactions. The ADCS Holders are not required by the terms
of the Merger and Exchange Agreement to contribute their ADCS Interests to
Holdings for Exchange Consideration. The LSL Stockholders are not required by
the terms of the Lawrence Merger Agreement between the Company and Lawrence to
effect the Lawrence Acquisition and exchange their shares of LSL Common Stock
for the Lawrence Acquisition Consideration. Consequently, there can be no
assurance that the Transactions will be consummated even if approved by the
stockholders of the Company and if Holdings and the Company have satisfied all
conditions of closing.
Termination Fees; Foregone Business Opportunities. The Merger and Exchange
Agreement and the Lawrence Merger Agreement each provide for the payment of a
$5 million termination fee if the respective agreement is terminated under
certain circumstances. Payment of any such fees are not secured by the assets
of any of the parties; therefore, there can be no assurance that any party
against whom a termination fee is assessed will have sufficient funds or will
otherwise be willing or able to pay. In the event that either of the
agreements is terminated, there can be no assurance that any $5 million fee
payable by any party would be sufficient to cover all of the costs and
expenses associated with pursuing the transaction or would be sufficient to
compensate for any business opportunities that any party to which such fee was
payable had to forego in favor of pursuing the Reorganization or the Lawrence
Acquisition. See "THE REORGANIZATION--Termination" and "THE LAWRENCE
ACQUISITION--Termination."
Limited Scope of Tax Opinions. Ernst & Young LLP has delivered to the
Company and the ADCS Group an opinion with respect to certain of the expected
federal income tax consequences of the Reorganization and has delivered to the
Company and Lawrence an opinion with respect to certain of the expected
federal income tax consequences of the Lawrence Acquisition, copies of which
are attached as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus forms a part. Both tax opinions are limited to the
matters set forth therein and do not address any other issues, including but
not limited to, any state, local, foreign, consolidated return, employee
benefit, and Code Section 382 issues related to the limitations on the
utilization of net operating loss carryforwards, or alternative minimum tax
consequences to the parties to the Transactions. The tax opinions assume that
Company Common Stock, the ADCS Interests or the LSL Common Stock, as the case
may be, will be held as capital assets by the holders thereof immediately
prior to the respective effective times of the Transactions and do not address
the tax consequences that may be relevant to a particular stockholder subject
to special treatment under certain federal income tax laws. Holders of Company
Common Stock, the ADCS Holders and the LSL Stockholders are advised to consult
their own tax advisers as to the specific tax consequences of the Transactions
to them, including the application and effect of state, local and foreign
income and other tax laws. See "THE REORGANIZATION--Certain Federal Income Tax
Consequences" and "THE LAWRENCE ACQUISITION--Certain Federal Income Tax
Consequences."
33
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
(UNAUDITED)
The following tables set forth the book value per common share and income
per common share from continuing operations of the Company, the book value per
common share, cash dividends declared per common share and income per common
share from continuing operations of the ADCS Group and the book value per
common share and income per common share from continuing operations of
Lawrence for each of the three years in the period ended December 31, 1996 and
for the six months ended June 30, 1996 and 1997. The equivalent pro forma
combined per common share information is based on the historical financial
statements of the Company, the ADCS Group and Lawrence, as adjusted to reflect
the consummation of the Exchange and the Lawrence Acquisition under the
pooling-of-interests method. The equivalent pro forma combined information and
equivalent pro forma per common share information are unaudited. The
information set forth below should be read in conjunction with the respective
audited and unaudited consolidated or combined financial statements of the
Company, the ADCS Group and Lawrence, including the related notes thereto,
incorporated herein by reference or appearing elsewhere in this Proxy
Statement/Prospectus, and the Unaudited Pro Forma Condensed Combined Financial
Statements appearing elsewhere in this Proxy Statement/Prospectus.
The Company has not paid cash dividends since inception. It is anticipated
that Holdings, if the Reorganization is consummated, or the Company, if the
Reorganization is not consummated, will retain all earnings, if any, for use
in the expansion of its business and therefore does not anticipate paying any
cash dividends in the foreseeable future. The payment of future dividends will
be at the discretion of the applicable Board of Directors and will depend,
among other things, upon earnings, capital requirements, financial condition
and debt covenants. In addition, neither the ADCS Group nor Lawrence has paid
any dividends except for certain tax distributions paid by the ADCS Group in
1996.
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Reorganization and/or the Lawrence Acquisition been consummated at the
beginning of the periods indicated, nor is it necessarily indicative of the
combined results of operations in future periods of future combined financial
position.
The following equivalent pro forma and equivalent pro forma combined book
value per common share, cash dividends declared per common share and income
per common share from continuing operations have been presented on an
equivalent share basis under pooling-of-interests accounting and assuming the
minimum number of shares issuable to the ADCS Holders of 5,468,750 at an
assumed Exchange Average Closing Price of $16.00 per share and to the LSL
Stockholders of 3,714,285 at an assumed Lawrence Acquisition Average Closing
Price of $21.00 per share.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT JUNE 30, 1997
-------------------- ----------------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE:
Historical:
Company............................... $ 4.15 $ 4.43
ADCS Group............................ 18,102.41 20,588.26
Lawrence.............................. 811.30 929.47
Equivalent Pro Forma:
ADCS Group............................ 2.01 2.28
Lawrence.............................. 2.18 2.50
Equivalent Pro Forma Combined:
Company and ADCS Group................ 3.32 3.58
Company and Lawrence.................. 3.56 3.68
Company, ADCS Group and Lawrence...... 3.09 3.13
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
CASH DIVIDENDS DECLARED PER COMMON SHARE:
Historical:
ADCS Group................................................ $2,957.92
Equivalent Pro Forma:
ADCS Group................................................ 0.33
Equivalent Pro Forma Combined:
Company and ADCS Group.................................... 0.12
Company, ADCS Group and Lawrence.......................... 0.10
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME PER COMMON SHARE FROM
CONTINUING OPERATIONS:
Primary Historical:
Company................. $ 0.35 $ 0.07 $ 0.35 $ 0.12 $ 0.26
ADCS Group.............. 3,370.31 4,296.87 7,500.44 4,227.25 2,482.54
Lawrence................ 92.40 195.32 266.84 250.18 118.18
Equivalent Primary Pro
Forma:
ADCS Group.............. 0.36 0.47 0.83 0.47 0.28
Lawrence................ 0.25 0.53 0.72 0.67 0.32
Equivalent Primary Pro
Forma Combined:
Company and ADCS Group.. 0.35 0.23 0.53 0.25 0.26
Company and Lawrence.... 0.31 0.21 0.46 0.28 0.27
Company, ADCS Group and
Lawrence............... 0.33 0.29 0.57 0.33 0.27
</TABLE>
The following equivalent pro forma and equivalent pro forma combined book
value per common share, cash dividends declared per common share and income
per common share from continuing operations have been presented on an
equivalent share basis under pooling-of-interests accounting and assuming the
maximum number of shares issuable to the ADCS Holders of 6,250,000 at an
assumed Exchange Average Closing Price of $14.00 per share and to the LSL
Stockholders of 4,588,235 at an assumed Lawrence Acquisition Average Closing
Price of $17.00 per share.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT JUNE 30, 1997
-------------------- ----------------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE:
Historical:
Company............................... $ 4.15 $ 4.43
ADCS Group............................ 18,102.41 20,588.26
Lawrence.............................. 811.30 929.47
Equivalent Pro Forma:
ADCS Group............................ 1.75 2.00
Lawrence.............................. 1.77 2.03
Equivalent Pro Forma Combined:
Company and ADCS Group................ 3.15 3.40
Company and Lawrence.................. 3.33 3.43
Company, ADCS Group and Lawrence...... 2.83 2.87
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
CASH DIVIDENDS DECLARED PER COMMON SHARE:
Historical:
ADCS Group................................................ $2,957.92
Equivalent Pro Forma:
ADCS Group................................................ 0.29
Equivalent Pro Forma Combined:
Company and ADCS Group.................................... 0.11
Company, ADCS Group and Lawrence.......................... 0.09
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME PER COMMON SHARE FROM
CONTINUING OPERATIONS:
Primary Historical:
Company................. $ 0.35 $ 0.07 $ 0.35 $ 0.12 $ 0.26
ADCS Group.............. 3,370.31 4,296.87 7,500.44 4,227.25 2,482.54
Lawrence................ 92.40 195.32 266.84 250.18 118.18
Equivalent Primary Pro
Forma:
ADCS Group.............. 0.32 0.41 0.73 0.41 0.24
Lawrence................ 0.20 0.43 0.58 0.55 0.26
Equivalent Primary Pro
Forma Combined:
Company and ADCS Group.. 0.33 0.22 0.50 0.24 0.25
Company and Lawrence.... 0.29 0.20 0.43 0.26 0.26
Company, ADCS Group and
Lawrence............... 0.30 0.27 0.52 0.31 0.25
</TABLE>
36
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data for the
Company, the ADCS Group and Lawrence.
SELECTED CONSOLIDATED FINANCIAL DATA--THE COMPANY
The following selected consolidated financial data for the Company and its
consolidated subsidiaries for the five years ended December 31, 1996 are
derived from the audited consolidated financial statements of the Company. The
selected consolidated financial data for the six months ended June 30, 1996
and 1997 are derived from the unaudited consolidated financial statements of
the Company. Interim unaudited data for the six months ended June 30, 1996 and
1997 reflect, in the opinion of management of the Company, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
such data. Results for the six months ended June 30, 1997 are not necessarily
indicative of results which may be expected for any other interim period or
for the year as a whole. The data set forth below should be read in
conjunction with the consolidated financial statements, including the related
notes thereto, and other financial information, which are incorporated by
reference herein.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenues.......... $ 9,271 $13,244 $19,761 $30,048 $46,350 $22,438 $26,098
Operating income
(loss)................. (1,514) (635) (1,232) 185 2,933 934 2,428
Net income (loss)(a).... (1,156) (550) 2,636 554 3,321 1,110 2,446
Net income (loss) per
share(b)............... $ (0.23) $ (0.10) $ 0.35 $ 0.07 $ 0.35 $ 0.12 $ 0.26
------- ------- ------- ------- ------- ------- -------
Weighted average shares
outstanding(b)......... 5,009 5,473 7,595 8,074 9,359 9,364 9,584
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
---------------------------------------- -----------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities.............. $ 4,538 $13,444 $12,692 $25,465 $21,406 $18,189
Working capital.......... 4,678 14,050 13,341 26,224 27,103 28,253
Total assets............. 10,029 20,170 21,251 49,798 50,118 53,090
Long-term obligations,
less current portion.... 1,465 896 1,236 5,434 5,004 4,784
Minority interest........ 3,447 3,179 -- -- -- --
Stockholders' equity
(deficiency)............ (6,440) 12,099 14,785 32,897 36,393 39,017
</TABLE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA--THE COMPANY
(a) Net income in 1994 includes a non-recurring net gain of approximately
$3,593,000 related to the restructuring of the Company's joint venture and
costs incurred in the acquisition of Vector Technical Group, Inc. ("Vector").
(b) The calculation of net income (loss) per share and weighted average
shares outstanding gives effect to: (i) shares issued in conjunction with the
1994 acquisition of Vector (accounted for as a pooling of interests) as if the
acquisition occurred prior to all periods presented, (ii) the conversion of
all previously outstanding shares of Convertible Preferred Stock of the
Company into 4,040,039 shares of Company Common Stock, and (iii) the payment
of a dividend of 76,102 shares of Company Common Stock to certain holders of
Convertible Preferred Stock of the Company effective upon the closing of the
Company's initial public offering, in each case for all periods presented
although such inclusion is antidilutive.
37
<PAGE>
SELECTED COMBINED FINANCIAL DATA--THE ADCS GROUP
The following selected combined financial data for the ADCS Group for the
two years ended December 31, 1996 are derived from the audited combined
financial statements of the ADCS Group. The selected combined financial data
for the three years ended December 31, 1994 and the six months ended June 30,
1996 and 1997 are derived from the unaudited combined financial statements of
the ADCS Group. Interim unaudited data for the six months ended June 30, 1996
and 1997 reflect, in the opinion of management of the ADCS Group, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of such data. Results for the six months ended June 30, 1997 are
not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole. The data set forth below should be
read in conjunction with the combined financial statements, including the
related notes thereto, and other financial information, which are included in
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -------------------
1992 1993 1994 1995 1996(b) 1996 1997
------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF
OPERATIONS DATA:
Total revenues.......... $ 3,349 $ 4,459 $ 7,821 $ 15,715 $ 22,041 $ 10,988 $ 10,441
Operating income........ 626 1,271 2,910 3,957 6,897 2,984 2,231
Net income.............. 467 866 1,975 2,581 4,544 2,561 1,504
Net income per common
share(a)............... $796.93 $1,477.82 $3,370.31 $4,296.87 $7,500.44 $4,227.25 $2,482.54
------- --------- --------- --------- --------- --------- ---------
Weighted average shares
outstanding(a)......... 586 586 586 600.6694 605.8308 605.8308 605.8308
======= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------ AT JUNE 30,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities....... $1,056 $1,058 $2,741 $ 4,564 $ 3,768 $3,342
Working capital.............. 928 1,467 2,929 4,836 7,092 8,178
Total assets................. 1,920 2,504 5,728 10,249 12,741 14,517
Long-term obligations, less
current portion............. -- -- 387 164 172 181
Minority interest............ -- -- 6 535 545 572
Stockholders' equity......... 1,293 2,159 4,134 6,776 10,967 12,473
</TABLE>
NOTES TO SELECTED COMBINED FINANCIAL DATA--THE ADCS GROUP
(a) If the calculation of net income per common share and the weighted
average shares outstanding were presented on an equivalent share basis under
pooling-of-interests accounting, assuming an Exchange Average Closing Price of
$16.00 per share, a minimum of 5,468,750 shares of Holdings Common Stock would
be issuable in exchange for the ADCS Interests, and net income per share would
be $0.09, $0.16, $0.36, $0.47 and $0.83 for the years ended December 31, 1992,
1993, 1994, 1995 and 1996, respectively, and $0.47 and $0.28 for the six
months ended June 30, 1996 and 1997, respectively. Assuming an Exchange
Average Closing Price of $14.00 per share, a maximum of 6,250,000 shares of
Holdings Common Stock would be issuable in exchange for the ADCS Interests,
and net income per share would be $0.07, $0.14, $0.32, $0.41 and $0.73 for the
years ended December 31, 1992, 1993, 1994, 1995 and 1996, respectively, and
$0.41 and $0.24 for the six months ended June 30, 1996 and 1997, respectively.
(b) Net income and net income per common share for the year ended December
31, 1996 have been presented to include tax amounts as if the ADCS Group were
a C Corporation for the full year. Actual net income and net income per common
share, based on the ADCS Group's historical financial statements, were
$6,027,000 and $9,948.32, respectively, as a result of the ADCS Group's S-
Corporation status for a portion of the year ended December 31, 1996.
38
<PAGE>
SELECTED COMBINED FINANCIAL DATA--LAWRENCE
The following selected combined financial data for Lawrence for the four
years ended December 31, 1996 are derived from the audited combined financial
statements of Lawrence. The selected combined financial data for the year
ended December 31, 1992 and the six months ended June 30, 1996 and 1997 are
derived from the unaudited combined financial statements of Lawrence. Interim
unaudited data for the six months ended June 30, 1996 and 1997 reflect, in the
opinion of management of Lawrence, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of such data. Results
for the six months ended June 30, 1997 are not necessarily indicative of
results which may be expected for any other interim period or for the year as
a whole. The data set forth below should be read in conjunction with the
combined financial statements, including the related notes thereto, and other
financial information, which are included in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------------
1992 1993 1994 1995 1996(b) 1996 1997
-------- -------- -------- --------- ------------------- ---------
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF
INCOME DATA:
Total revenues.......... $ 3,572 $ 5,365 $ 7,178 $ 14,409 $ 20,271 $ 10,594 $ 9,495
Operating income........ 903 1,498 2,054 4,724 5,172 4,445 2,435
Net income.............. 448 734 924 1,953 2,668 2,502 1,182
Net income per common
share(a)............... $ 44.80 $ 73.40 $ 92.40 $ 195.32 $ 266.84 $ 250.18 $ 118.18
-------- -------- -------- --------- --------- --------- ---------
Weighted average shares
outstanding(a)......... 10,000 10,000 10,000 10,000 10,000 10,000 10,000
======== ======== ======== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------- AT JUNE 30,
1992 1993 1994 1995 1996 1997
------ ------ ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET
DATA:
Cash, cash equivalents and
marketable securities..... $ 155 $ 263 $ 1,041 $ 3,789 $ 5,638 $ 2,902
Working capital
(deficiency).............. 527 (113) 854 3,161 2,145 (74)
Total assets............... 5,817 6,844 14,016 18,579 30,577 33,434
Long-term obligations, less
current portion........... 2,931 1,550 6,397 6,559 10,674 10,467
Stockholders' equity....... 1,833 2,567 3,491 5,444 8,113 9,295
</TABLE>
NOTES TO SELECTED COMBINED FINANCIAL DATA--LAWRENCE
(a) Weighted average shares outstanding reflect the outstanding shares of
LSL Common Stock. If the calculation of net income per common share and the
weighted average shares outstanding were presented on an equivalent share
basis under pooling-of-interests accounting, assuming a Lawrence Acquisition
Average Closing Price of $21.00 per share, a minimum of 3,714,285 shares of
Holdings Common Stock or Company Common Stock, as the case may be, would be
issuable in exchange for all of the LSL Common Stock, and net income per share
would be $0.12, $0.20, $0.25, $0.53 and $0.72 for the years ended December 31,
1992, 1993, 1994, 1995 and 1996, respectively, and $0.67 and $0.32 for the six
months ended June 30, 1996 and 1997, respectively. Assuming a Lawrence
Acquisition Closing Price of $17.00 per share, a maximum of 4,588,235 shares
of Holdings Common Stock or Company Common Stock, as the case may be, would be
issuable, and net income per share would be $0.10, $0.16, $0.20, $0.43 and
$0.58 for the years ended December 31, 1992, 1993, 1994, 1995 and 1996,
respectively, and $0.55 and $0.26 for the six months ended June 30, 1996 and
1997, respectively.
(b) During 1996, Lawrence recorded an accrual for $2,000,000 in connection
with a patent infringement litigation settlement thereby reducing operating
income.
39
<PAGE>
THE ANNUAL MEETING
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the stockholders of
the Company in connection with the solicitation of proxies by the Company
Board of Directors for the Annual Meeting.
PLACE, DATE AND TIME OF ANNUAL MEETING
The Annual Meeting will be held at the Ethan Allen Inn, 21 Lake Avenue
Extension, Danbury, Connecticut 06811, on October 10, 1997 at 10:00 a.m.,
local time.
MATTERS TO BE CONSIDERED
At the Annual Meeting, the stockholders of the Company will be asked: (1) to
elect the Company Board of Directors; (2) to consider and vote on a proposal
to approve and adopt the Merger and Exchange Agreement; (3) to consider and
vote on a proposal to approve and adopt the Lawrence Merger Agreement; (4) to
approve the Amendment; (5) to consider and vote on a proposal to approve and
adopt the 1997 Stock Plan; and (6) to transact such other business as may
properly come before the Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
The Company Board of Directors has fixed the close of business on September
10, 1997 as the Record Date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting. Accordingly, only stockholders of
record of the Company at the close of business on the Record Date have the
right to receive notice of and to vote at the Annual Meeting and any
postponement or adjournment thereof and will be entitled to one vote for each
share of Company Common Stock held. As of the Record Date, there were
8,816,455 shares of Company Common Stock outstanding, held by approximately
203 holders of record.
VOTES REQUIRED
The presence, in person or by proxy, of the holders of a majority of the
shares of Company Common Stock entitled to be voted at the Annual Meeting is
necessary to constitute a quorum for the transaction of business. Abstentions
and broker non-votes will be included in the calculation of the number of
votes represented at the Annual Meeting for purposes of determining whether a
quorum has been achieved.
The election of Company directors will require the affirmative vote of a
plurality of the shares of Company Common Stock present in person or
represented by proxy and entitled to vote. Abstentions by holders of such
shares and broker non-votes with respect to the election of Company directors
will not be included in determining whether nominees have received the vote of
such plurality.
The affirmative vote of a majority of the shares of Company Common Stock
outstanding as of the Record Date is required to approve and adopt the Merger
and Exchange Agreement and the Lawrence Merger Agreement. Accordingly,
abstentions and broker non-votes will have the effect of votes against the
Merger and Exchange Agreement and/or the Lawrence Merger Agreement, as the
case may be. Brokers who hold shares of Company Common Stock as nominees will
not have discretionary authority to vote such shares in the absence of
instructions from the beneficial owners thereof.
The affirmative vote of a majority of the shares of Company Common Stock
outstanding as of the Record Date is required to approve the Amendment.
Accordingly, abstentions and broker non-votes will have the effect of votes
against the Amendment.
Approval of the 1997 Stock Plan will require the affirmative vote of a
majority of the shares of Company Common Stock present in person or
represented by proxy and entitled to vote. Abstentions by holders of such
shares with respect to voting on the 1997 Stock Plan will have the effect of a
vote against the 1997 Stock Plan; broker non-votes, with respect to voting on
the 1997 Stock Plan, will have no effect on the outcome of the vote.
40
<PAGE>
As of the Record Date, the directors and executive officers of the Company,
and their affiliates, owned 430,046 shares of Company Common Stock
(representing 4.9% of the total outstanding shares of Company Common Stock as
of such date).
PROXIES
Shares of Company Common Stock represented by a properly executed proxy
received by the Company will be voted at the Annual Meeting in accordance with
the instructions thereon, unless such proxy is properly revoked prior to the
Annual Meeting. Shares of Company Common Stock represented by properly
executed proxies that do not contain instructions to the contrary will be
voted FOR the election of the nominees for Company directors named herein, FOR
approval of the Merger and Exchange Agreement, FOR approval of the Lawrence
Merger Agreement, FOR approval of the Amendment, FOR approval of the 1997
Stock Plan and in the discretion of the proxy holder as to any other matter
that may properly come before the Annual Meeting. The Company Board of
Directors knows of no business that will be presented for consideration at the
Annual Meeting other than the election of Company directors, the proposal to
approve the Merger and Exchange Agreement, the proposal to approve the
Lawrence Merger Agreement, the approval of the Amendment and the proposal to
approve the 1997 Stock Plan. Proxies are being solicited hereby on behalf of
the Company Board of Directors.
Any stockholder of the Company may revoke such stockholder's proxy at any
time before it is voted by executing and delivering to the Company a proxy
bearing a later date, by delivering a written notice to the Secretary of the
Company stating that the proxy is revoked, or by voting in person at the
Annual Meeting.
EXPENSES; SOLICITATION
The cost of the solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, officers, directors and regular employees of
the Company may solicit proxies by telephone, telegram or by personal
interview. Such persons will receive no additional compensation for such
services. The Company has retained Morrow & Company, Inc., New York, to assist
in the solicitation and sending of proxy material. The Company will pay
approximately $6,000 for these services.
41
<PAGE>
ELECTION OF COMPANY DIRECTORS
(PROPOSAL 1)
The Company Board of Directors has nominated each of the nominees set forth
below as a director of the Company to serve until the next annual meeting of
the stockholders of the Company and until his successor is elected and
qualified or until his earlier resignation or removal. Each nominee is
currently a director of the Company. All of the nominees have indicated a
willingness to serve as directors, but if for any reason any nominee should be
unavailable to serve as a director at the time of the Annual Meeting, a
contingency which the Company Board of Directors does not expect, a different
person designated by the Company Board of Directors may be nominated in his
stead. All of the nominees will also constitute five of the (i) six members of
the Board of Directors of Holdings if only the Reorganization is consummated,
(ii) six members of the Company Board of Directors if only the Lawrence
Acquisition is consummated, or (iii) seven members of the Board of Directors
of Holdings if both Transactions are consummated. Duncan W. Brown, Ph.D. and
Gary A. Andersen have completed their terms as directors and will not be
standing for reelection at the Annual Meeting.
THE COMPANY BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY VOTE FOR SUCH NOMINEES.
The following sets forth the name and age of each nominee and the positions
and offices held by him, his principal occupation and business experience
during the past five years and the year of the commencement of his term as a
director of the Company.
EUGENE G. BANUCCI, PH.D., age 54, a founder of the Company, has served as
President, Chief Executive Officer, Chairman of the Board and a director since
1986. Previously, Dr. Banucci served in a variety of executive and managerial
positions. From 1984 to 1986, he was a director of American Cyanamid Company's
Chemical Research Division, with responsibility for the research, development
and technical service activities of the Chemicals Group.
MARK A. ADLEY, age 38, has served as a director of the Company since 1991.
Since 1996, Mr. Adley has been a Managing Director at Credit Suisse First
Boston Corporation ("CSFBC"). From 1994 to 1996, he served as a Director at
CSFBC. From 1992 through 1993, Mr. Adley served as an investment manager for
Clipper Asset Management Corporation, the General Partner of The Clipper
Group, L.P. ("Clipper"). During 1991, Mr. Adley served as an investment
manager for Clipper. Mr. Adley was a Director at CS First Boston Merchant Bank
during 1990 and, at The First Boston Corporation, was a Vice President from
1989 to 1990 and an Associate from 1985 to 1988.
JOHN A. ARMSTRONG, PH.D., age 63, has served as a director of the Company
since 1993. Dr. Armstrong is currently a visiting professor of physics at the
Massachusetts Institute of Technology. Previously, he was Vice President of
Science and Technology for IBM from 1987 until his retirement in 1993.
ROBERT S. HILLAS, age 48, has served as a director of the Company since
1987. Mr. Hillas has been a Managing Director of E.M. Warburg, Pincus & Co.
LLC since 1993. From 1985 to 1992, Mr. Hillas served as a General Partner of
DSV Management Ltd., the General Partner of DSV Partners IV, a venture capital
limited partnership, and from 1981 to 1992, as a General Partner of DSV
Partners III, a venture capital limited partnership.
STEPHEN H. MAHLE, age 51, has served as a director of the Company since
1996. Mr. Mahle has been President of the Brady Pacing Business, a division of
Medtronic, Inc., a medical device manufacturer, since 1995. From 1989 to 1995,
Mr. Mahle served as Vice President and General Manager of the Brady Pacing
Business. Previously, Mr. Mahle served in a variety of marketing and product
development roles for Medtronic, Inc.
42
<PAGE>
Upon consummation of the Reorganization, the above nominees, if elected,
would also serve as directors of Holdings. Immediately following the
consummation of the Reorganization, Stephen H. Siegele will be appointed as a
Class III director of Holdings. Mr. Siegele, age 37, a co-founder of the ADCS
Group, has served as a director of the ADCS Group since its inception in 1988.
Since 1994, Mr. Siegele has served as the President and Chief Executive
Officer of the ADCS Group. From 1988 to 1994, Mr. Siegele served as a Vice
President of the ADCS Group. Prior to that time, Mr. Siegele served in sales
and engineering positions at Intel Corporation and Olin Hunt Specialty
Products, Inc. In addition, if both Transactions are consummated, Lamonte H.
Lawrence will be appointed as a Class II director of Holdings immediately
following the consummation of the Transactions. If only the Lawrence
Acquisition is consummated, Mr. Lawrence will be appointed as a director of
the Company. Mr. Lawrence, age 58, the founder of Lawrence, has served as the
President and Chief Executive Officer of Lawrence since its inception in 1988.
Prior to that time, Mr. Lawrence served as an independent consultant. See
"OPERATIONS AND MANAGEMENT AFTER THE TRANSACTIONS--Management."
COMPANY BOARD OF DIRECTORS COMMITTEES AND MEETINGS
The standing committees of the Company Board of Directors are the Audit
Committee and the Compensation Committee. The Company Board of Directors does
not have a standing nominating committee.
The Audit Committee is currently comprised of Mark A. Adley and Robert S.
Hillas. The Audit Committee oversees the Company's system of internal
accounting controls, recommends to the Company Board of Directors the
appointment of a firm of independent certified auditors to conduct the annual
audit of the Company's financial statements, reviews the scope of the audit,
reviews reports from the independent certified auditors, and makes such
recommendations to the Company Board of Directors in connection with the
annual audit as it deems appropriate. The Audit Committee met twice during
1996.
The Compensation Committee is currently comprised of Gary A. Andersen and
John A. Armstrong. The Compensation Committee reviews the compensation of
officers of the Company and the Company's compensation policies and practices.
The Compensation Committee also administers the Company's 1987 and 1995 Stock
Plans, including the grant of stock options thereunder. The Compensation
Committee met twice during 1996.
The Company Board of Directors held five meetings during 1996. Each director
attended at least 75% of the aggregate of (i) the total number of meetings of
the Company Board of Directors and (ii) the total number of meetings held by
all committees of the Company Board of Directors on which such director
served.
COMPANY DIRECTORS' COMPENSATION
The Company's directors do not receive any cash compensation for service on
the Company Board of Directors or any committee thereof but are reimbursed for
expenses incurred in connection with attending meetings of the Company Board
of Directors and any committee thereof. In October 1993, the Company granted
options for the purchase of 22,500 shares of Company Common Stock to John A.
Armstrong in consideration of consulting services performed for the Company.
The exercise price of the options is $3.55 per share, which was the fair
market value of Company Common Stock on the date of grant, and the options
vest ratably over five years on each of the first five anniversary dates of
the grant date. In May 1994, the Company granted options for the purchase of
22,500 shares of Company Common Stock to Gary A. Andersen in consideration of
his services on the Company Board of Directors. The exercise price of the
options is $5.00 per share, which was the fair market value of Company Common
Stock on the date of grant, and the options vest ratably over five years on
each of the first five anniversary dates of the grant date. In December 1994,
the Company granted options for the purchase of 22,500 shares of Company
Common Stock to Robert S. Hillas in consideration of his services on the
Company Board of Directors. The exercise price of the options is $5.50 per
share, which was the fair market value of Company Common Stock on the date of
grant, and the options were immediately vested as to 50% of the grant in
consideration of past service on the Company Board of Directors and vested as
to the remaining 50% of the grant on December 9, 1995. In May 1995, the
Company granted options for the purchase of 22,500
43
<PAGE>
shares of Company Common Stock to Mark A. Adley in consideration of his
services on the Company Board of Directors. The exercise price of the options
is $8.50 per share, which was the fair market value of Company Common Stock on
the date of grant, and the options were immediately vested as to 40% of the
grant in consideration of past service on the Company Board of Directors and
the remaining 60% vest ratably over three years on each of the first three
anniversary dates of the grant date. In March 1996, the Company granted
options for the purchase of 22,500 shares of Company Common Stock to Stephen
H. Mahle in consideration of his services on the Company Board of Directors.
The exercise price of the options is $10.50 per share, which was the fair
market value of Company Common Stock on the date of grant, and the options
vest ratably over five years on each of the first five anniversary dates of
the grant date.
44
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information regarding the
compensation paid by the Company to the Company's Chief Executive Officer and
each of the other four most highly compensated executive officers for services
in all capacities to the Company and its subsidiaries for the fiscal year
ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) SATION($)(1)
- --------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Eugene G. Banucci.......... 1996 181,300 40,000 -- 2,121
President, Chief Executive 1995 155,250 40,000 35,000 2,875
Officer 1994 145,300 40,000 -- 1,530
and Chairman of the Board
Peter S. Kirlin............ 1996 111,100 30,000 -- --
Executive Vice President 1995 96,560 35,000 25,000 400
1994 91,300 20,000 -- --
Daniel P. Sharkey.......... 1996 110,000 20,000 -- 1,678
Vice President, Chief 1995 103,000 25,000 15,000 1,583
Financial 1994 98,000 20,000 -- 529
Officer and Treasurer
Ward C. Stevens............ 1996 101,000 25,000 -- 890
Vice President, Secretary 1995 96,000 10,000 5,000 1,823
1994 93,000 10,000 -- 579
Nicholas J. Wood(2)........ 1996 121,200 15,000 -- --
Vice President--Marketing 1995 41,667 16,526 36,000 --
1994 -- -- -- --
</TABLE>
- --------
(1) Represents premiums paid for life insurance and long term disability
policies of which the Company is not the beneficiary and flexible spending
contributions toward health care costs not covered by Company plans.
(2) Mr. Wood joined the Company on August 28, 1995.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information concerning option holdings as of
December 31, 1996 with respect to the individuals named in the Summary
Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END(#) AT FY-END($)(1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eugene G. Banucci....... -- -- 103,975 30,400 1,651,194 238,100
Peter S. Kirlin......... 6,000 73,679 54,234 25,540 847,573 236,057
Daniel P. Sharkey....... 4,000 50,222 69,875 21,000 1,103,247 214,750
Ward C. Stevens......... 9,375 121,245 74,725 5,400 1,231,315 44,850
Nicholas J. Wood........ -- -- 7,200 28,800 39,600 158,400
</TABLE>
- --------
(1) Based on the fair market value of the Company's Common Stock as of
December 31, 1996 ($17.25) minus the exercise price of the options.
45
<PAGE>
NON-COMPETITION AGREEMENTS
Eugene G. Banucci, Peter S. Kirlin and Ward C. Stevens are parties to
agreements with the Company containing covenants not to compete with the
Company during their employment and for two years thereafter. Eugene G.
Banucci, Peter S. Kirlin and Daniel P. Sharkey will also enter into employment
agreements, which include covenants not to compete, with the Company effective
upon the consummation of the Reorganization. See "THE REORGANIZATION--
Employment Agreements."
COMPENSATION COMMITTEE REPORT
The Compensation Committee, which is comprised of non-employee directors of
the Company, is responsible for administering the Company's executive
compensation program and reviewing and making recommendations to the Company
Board of Directors with respect to the compensation of executive officers and
other senior management and the Company's overall compensation policy. In
connection with such responsibilities, the Compensation Committee has
authority to administer the Company's 1987 and 1995 Stock Plans, including the
grant of stock options and other awards thereunder. All other actions of the
Compensation Committee are subject to the approval of the Company Board of
Directors.
The Company's executive compensation program is intended to attract and
retain talented executives and senior management by offering competitive
compensation opportunities. Furthermore, the Company's compensation program is
designed to motivate and reward high-performing individuals based on variable
compensation tied to overall corporate, separate business unit and individual
performance and the creation of stockholder value. The Company's philosophy is
that the combination of performance-based and stock-based compensation serves
to maximize annual and long-term results and, ultimately, stockholder value.
The components of the Company's executive compensation program include base
salary, annual cash and stock option incentives and long-term stock option
incentives. The Compensation Committee has discretion as to the components
awarded in a particular year to each executive officer.
Components of Executive Compensation
Base Salary. The Compensation Committee annually reviews officers' base
salaries. The Compensation Committee evaluates management's recommendations
based on the results achieved by each officer relative to the assigned goals
of the recently completed year as well as competitive salary practices of
other similar companies.
Annual Incentives. Annual incentives are designed to provide officers with a
potential cash and/or stock option award based on the achievement of annual
financial and operating objectives. These objectives and potential award
amounts are approved by the Compensation Committee and the Company Board of
Directors on an annual basis in advance and are based upon operating plans
approved by the Company Board of Directors. The Compensation Committee
approves specific objectives for each officer.
In 1996, these objectives included the performance of business divisions,
the achievement of budgeted financial performance and the successful
completion of certain other strategic transactions. The Compensation Committee
determined cash bonus awards for each executive officer at the end of 1996
based upon the achievement of specified objectives for each officer.
For 1997 and future years, the Compensation Committee intends to continue to
consider utilizing both stock option grants and cash bonus awards to reward
the achievement of annual objectives. Accordingly, the relative mix of stock-
based versus cash incentives may differ from that utilized in 1996.
Long-term Incentives. The Compensation Committee may also grant to officers
stock options under the Company's 1987 and 1995 Stock Plans that are distinct
from stock options granted as annual incentives. These options, which vest
over time, are awarded to officers based on their continued contribution to
the Company's achievement of financial and operating objectives. These awards
are designed to align the interests of the Company's officers with the
interests of the Company's stockholders and to motivate the Company's officers
to remain focused on the overall long-term performance of the Company. No such
stock options were granted during 1996.
46
<PAGE>
Chief Executive Officer Compensation
During 1996, the Company's most highly compensated executive officer was its
Chief Executive Officer, Eugene G. Banucci. Dr. Banucci participates in the
same executive compensation program provided to other executive officers and
senior management of the Company as described above. Approximately 50% of the
increase in Dr. Banucci's base salary is based on the Company's financial
performance, primarily earnings per share and revenue growth, in the previous
fiscal year. The other 50% is based on fulfillment of a series of objectives
during the previous fiscal year established at the beginning of the year by
the Compensation Committee in consultation with the Chief Executive Officer.
The objectives used to determine base salary for fiscal 1996 consisted of new
product introductions, market share growth and exceeding certain financial
objectives. In 1996, Dr. Banucci received a base salary of $181,300, which
included a 17% increase over his base salary in 1995. Dr. Banucci also
received a cash bonus for 1996 of $40,000 based upon the achievement of his
specified objectives during 1996.
Compensation Committee:
Gary A. Andersen
John A. Armstrong
47
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
Company Common Stock with the return on the Total Return Index for the Nasdaq
Stock Market (U.S.) and the Nasdaq Electronic Components Stock Index. The
measurement assumes a $100 investment as of November 23, 1993 (the first day
of public trading after the Company's initial public offering) with all
dividends reinvested. The data presented are on a semi-annual basis from the
time of the Company's initial public offering to the end of fiscal 1996.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Electronic Component
ATMI Nasdaq (U.S.) Stock Index
<S> <C> <C> <C>
11/93 100 100 100
12/93 84 105 103
6/94 68 96 98
12/94 85 103 113
6/95 150 128 202
12/95 143 145 188
6/96 193 165 213
12/96 246 180 325
</TABLE>
48
<PAGE>
PRINCIPAL COMPANY STOCKHOLDERS AND STOCK OWNERSHIP OF COMPANY MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Company Common Stock as of the Record Date by (i) each person
known by the Company to own beneficially more than five percent of the
outstanding Company Common Stock, (ii) each director and nominee for director
of the Company, (iii) each executive officer named in the Summary Compensation
Table, and (iv) all directors and executive officers of the Company as a
group. Except as otherwise indicated, all shares are owned directly. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table have sole voting and investment
power with respect to all shares of Company Common Stock shown as beneficially
owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL
OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------ ------------------------- ----------------
<S> <C> <C>
J.P. Morgan & Co., Incorporated(1)
60 Wall Street
New York, NY 10260................. 974,400 11.1%
Eugene G. Banucci(2)................ 309,682 3.5%
Ward C. Stevens(3).................. 175,639 2.0%
Duncan W. Brown(4).................. 172,771 1.9%
Daniel P. Sharkey(5)................ 74,375 *
Peter S. Kirlin(5).................. 54,234 *
Robert S. Hillas(6)................. 30,977 *
Mark A. Adley(7).................... 21,000 *
John A. Armstrong(5)................ 18,000 *
Nicholas J. Wood(5)................. 14,400 *
Gary A. Andersen(5)................. 13,500 *
Stephen H. Mahle(8)................. 4,600 *
All directors and executive officers
as a group (11 persons)(9)......... 889,178 9.6%
</TABLE>
- --------
* Less than 1%
(1) The shares shown as beneficially owned by J.P. Morgan & Co., Incorporated
were those reported as beneficially owned by it in its Form 13F-E for the
quarter ended March 31, 1997 filed with the SEC. Such form indicates that
J.P. Morgan & Co., Incorporated has sole voting power with respect to
560,700 shares and sole dispositive power with respect to all 974,400
shares.
(2) Includes 103,975 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date and 5,659 shares either
owned by Dr. Banucci's spouse or issuable upon exercise of options within
60 days of the Record Date by Dr. Banucci's spouse. Dr. Banucci disclaims
beneficial ownership of the shares held by his spouse.
(3) Includes 71,600 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date, 5,537 shares either owned
or issuable upon exercise of options within 60 days of the Record Date by
Dr. Stevens' spouse and 4,580 shares owned by his children. Dr. Stevens
disclaims beneficial ownership of the shares held by his spouse and
children.
(4) Includes 69,637 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date and 4,634 shares either
owned or issuable upon exercise of options within 60 days of the Record
Date by Dr. Brown's spouse. Dr. Brown disclaims beneficial ownership of
the shares held by his spouse.
49
<PAGE>
(5) Consists entirely of shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(6) Includes 11,250 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(7) Includes 18,000 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(8) Includes 4,500 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(9) Includes 459,132 shares issuable to executive officers and directors
pursuant to options which are exercisable within 60 days of the Record
Date.
50
<PAGE>
SELECTED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA
(UNAUDITED)
The following summary selected pro forma condensed combined financial data
should be read in conjunction with the pro forma condensed combined financial
statements and related notes thereto included elsewhere in this Proxy
Statement/Prospectus. The pro forma information is based on the historical
financial statements of the Company, the ADCS Group and Lawrence, which are
incorporated by reference or included in this Proxy Statement/Prospectus,
giving effect to the Exchange and the Lawrence Acquisition each under the
pooling-of-interests method. The pro forma balance sheet gives effect to the
Exchange and the Lawrence Acquisition as if they had occurred on June 30,
1997. The pro forma condensed balance sheet reflects an estimated $3,500,000
charge for transaction costs (approximately $2,000,000 for the Reorganization
and $1,500,000 for the Lawrence Acquisition) expected to be incurred in
connection with the Exchange and the Lawrence Acquisition, and a fee of
approximately $750,000 to Lawrence's investment banker and a break-up fee
payable by Lawrence in connection with another transaction of approximately
$1,800,000 to be incurred upon consummation of the Lawrence Acquisition.
However, because these charges are nonrecurring, they have not been reflected
in the pro forma condensed combined statements of operations. The selected pro
forma condensed combined financial data may not be indicative of the results
that would have occurred if the Transactions had been consummated as of the
dates indicated or the operating results which may be obtained by Holdings or
the Company in the future. The stockholders of the Company, the ADCS Holders
and the LSL Stockholders should carefully consider all of the pro forma
information since only the Reorganization may be consummated, only the
Lawrence Acquisition may be consummated or both Transactions may be
consummated.
PRO FORMA THE COMPANY, THE ADCS GROUP AND LAWRENCE
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- ---------------
1994(C) 1995 1996 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues........................ $34,760 $60,172 $88,662 $44,020 $46,034
Operating income...................... 3,732 8,866 15,002 8,363 7,094
Net income............................ 5,535 5,088 10,533 6,173 5,132
Net income per common share(a)........ $ 0.33 $ 0.29 $ 0.57 $ 0.33 $ 0.27
------- ------- ------- ------- -------
Equivalent weighted average shares
outstanding (minimum)(a)............. 16,778 17,257 18,542 18,547 18,767
======= ======= ======= ======= =======
Net income per common share(b)........ $ 0.30 $ 0.27 $ 0.52 $ 0.31 $ 0.25
------- ------- ------- ------- -------
Equivalent weighted average shares
outstanding (maximum)(b)............. 18,433 18,912 20,197 20,203 20,421
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............... $ 24,433
Working capital................................................ 31,971
Total assets................................................... 100,115
Long-term obligations, less current portion.................... 17,494
Stockholders' equity........................................... 56,399
</TABLE>
51
<PAGE>
PRO FORMA THE COMPANY AND THE ADCS GROUP
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- -----------------
1994(c) 1995 1996 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues...................... $27,582 $45,763 $68,391 $ 33,426 $ 36,539
Operating income.................... 1,678 4,142 9,830 3,918 4,659
Net income.......................... 4,611 3,135 7,865 3,671 3,950
Net income per common share(a)...... $ 0.35 $ 0.23 $ 0.53 $ 0.25 $ 0.26
------- ------- ------- -------- --------
Equivalent weighted average shares
outstanding (minimum)(a)........... 13,064 13,543 14,828 14,833 15,052
======= ======= ======= ======== ========
Net income per common share(b)...... $ 0.33 $ 0.22 $ 0.50 $ 0.24 $ 0.25
------- ------- ------- -------- --------
Equivalent weighted average shares
outstanding (maximum)(b)........... 13,845 14,324 15,609 15,614 15,834
======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............... $21,531
Working capital................................................ 36,095
Total assets................................................... 67,798
Long-term obligations, less current portion.................... 4,965
Stockholders' equity........................................... 51,154
</TABLE>
PRO FORMA THE COMPANY AND LAWRENCE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- -----------------
1994(c) 1995 1996 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues...................... $26,939 $44,457 $66,621 $ 33,032 $ 35,593
Operating income.................... 822 4,909 8,105 5,379 4,863
Net income.......................... 3,560 2,507 5,989 3,612 3,628
Net income per common share(a)...... $ 0.31 $ 0.21 $ 0.46 $ 0.28 $ 0.27
------- ------- ------- -------- --------
Equivalent weighted average shares
outstanding (minimum)(a)........... 11,309 11,788 13,073 13,079 13,298
======= ======= ======= ======== ========
Net income per common share(b)...... $ 0.29 $ 0.20 $ 0.43 $ 0.26 $ 0.26
------- ------- ------- -------- --------
Equivalent weighted average shares
outstanding (maximum)(b)........... 12,183 12,662 13,947 13,953 14,172
======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............... $21,091
Working capital................................................ 25,793
Total assets................................................... 87,071
Long-term obligations, less current portion.................... 17,313
Stockholders' equity........................................... 45,926
</TABLE>
52
<PAGE>
NOTES TO SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(a) Net income per common share has been computed based upon the combined
weighted average number of common shares outstanding of the Company and the
equivalent shares exchanged in the pooling of interests for the Exchange of
5,468,750 shares and for the Lawrence Acquisition of 3,714,285 shares, which
reflect the minimum number of shares issuable, assuming an Exchange Average
Closing Price of $16.00 per share and a Lawrence Acquisition Average Closing
Price of $21.00 per share.
(b) Net income per common share has been computed based upon the combined
weighted average number of common shares outstanding of the Company and the
equivalent shares exchanged in the pooling of interests for the Exchange of
6,250,000 shares and for the Lawrence Acquisition of 4,588,235 shares, which
reflect the maximum number of shares issuable, assuming an Exchange Average
Closing Price of $14.00 per share and a Lawrence Acquisition Average Closing
Price of $17.00 per share.
(c) Net income in 1994 includes a non-recurring net gain of approximately
$3,593,000 related to the restructuring of the Company's joint venture and
costs incurred in the acquisition of Vector.
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet at June
30, 1997 and the unaudited pro forma condensed combined statements of
operations for the years ended December 31, 1994, 1995 and 1996 and for the
six months ended June 30, 1996 and 1997 give effect to the transactions
contemplated by the Merger and Exchange Agreement pursuant to which the
Company will become a wholly-owned subsidiary of Holdings and each share of
Company Common Stock will be converted into one share of Holdings Common Stock
at the Effective Time and the ADCS Interests will be simultaneously exchanged
at the Closing Date for a minimum of 5,468,750 shares and a maximum of
6,250,000 shares of Holdings Common Stock, as if the Reorganization had
occurred on January 1, 1994 for purposes of the combined statements of
operations and at June 30, 1997 for the combined balance sheet. The unaudited
pro forma condensed combined balance sheet at June 30, 1997 and the unaudited
pro forma condensed combined statements of operations for the years ended
December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1996
and 1997 also give effect to the Lawrence Acquisition pursuant to which each
outstanding share of LSL Common Stock will be converted at the Lawrence
Effective Time into a minimum of 3,714,285 shares and a maximum of 4,588,235
shares of Holdings Common Stock or Company Common Stock, as the case may be.
The pro forma information gives effect to the Reorganization and the Lawrence
Acquisition under the pooling-of-interests method and to the adjustments
described in the accompanying notes to the unaudited pro forma condensed
combined financial statements.
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that would have occurred if the Transactions had
been consummated as of the dates indicated or the operating results which may
be obtained by Holdings or the Company in the future. The unaudited pro forma
condensed combined financial statements should be read in conjunction with the
consolidated audited financial statements, including the related notes
thereto, and other financial information included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and in the
Company's Quarterly Reports on Form 10-Q for the three month period ended June
30, 1997; in the ADCS Group's combined financial statements for the fiscal
years ended December 31, 1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997; and in Lawrence's combined financial statements for the fiscal
years ended December 31, 1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997.
The Reorganization and the Lawrence Acquisition are independent
transactions, and consummation of neither transaction is conditioned upon
consummation of the other transaction. Although there can be no assurance,
each of the Company, the ADCS Group and Lawrence intends for the
Reorganization and the Lawrence Acquisition to be consummated simultaneously.
The stockholders of the Company, the ADCS Holders and the LSL Stockholders
should carefully consider all of the pro forma information since only the
Reorganization may be consummated, only the Lawrence Acquisition may be
consummated or both Transactions may be consummated.
54
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA COMPANY,
COMPANY COMPANY ADCS
PRO FORMA AND ADCS PRO FORMA AND PRO FORMA GROUP AND
COMPANY ADCS GROUP ADJUSTMENTS GROUP LAWRENCE ADJUSTMENTS LAWRENCE ADJUSTMENTS LAWRENCE
------- ---------- ----------- --------- -------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents
and marketable
securities............ $18,189 $ 3,342 $21,531 $ 2,902 $21,091 $ 24,433
Accounts receivable,
net................... 12,527 3,010 15,537 6,348 18,875 21,885
Inventories............ 4,698 2,315 7,013 1,660 6,358 8,673
Other.................. 2,128 802 $ 1,664 (e) 626 $ 1,664 (e) $ 1,664 (e)
(1,473)(f) 3,121 (1,117)(f) 3,301 (2,590)(f) 2,630
------- ------- ------- ------- ------- --------
Total current assets.... 37,542 9,469 47,202 11,536 49,625 57,621
Property and equipment,
net.................... 9,122 4,615 13,737 21,755 30,877 35,492
Goodwill and other long-
term assets, net....... 6,426 433 6,859 143 6,569 7,002
------- ------- ------- ------- ------- --------
$53,090 $14,517 $67,798 $33,434 $87,071 $100,115
======= ======= ======= ======= ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 3,894 $ 1,014 $ 4,908 $ 1,904 $ 5,798 $ 6,812
Accrued expenses....... 4,022 161 $ 527 (f) 4,710 963 $ 2,933 (f) 7,918 $ 3,460 (f) 8,606
Notes payable, current
portion............... 587 8 595 5,937 6,524 6,532
Other.................. 786 108 894 2,806 3,592 3,700
------- ------- ------- ------- ------- --------
Total current
liabilities............ 9,289 1,291 11,107 11,610 23,832 25,650
Notes payable, less
current portion........ 4,726 150 4,876 10,467 15,193 15,343
Other long-term
liabilities............ 58 31 89 2,062 2,120 2,151
Minority interest....... 0 572 572 0 0 572
Stockholders' equity:
Common stock........... 88 227 (88)(a)(b) 0 37 (c) (88)(d)
(227)(b) (227)(d)
143 (b) 143 125 180 (d) 180
Additional paid-in
capital............... 37,412 0 172 (b) 60 (37)(c) 135 (d)
336 (e) 37,920 336 (e) 37,771 336 (e) 37,943
Retained earnings...... 1,517 12,246 (2,000)(f) 9,235 (4,050)(f) (6,050)(f)
1,328 (e) 13,091 1,328 (e) 8,030 1,328 (e) 18,276
------- ------- ------- ------- ------- --------
Total stockholders'
equity................. 39,017 12,473 51,154 9,295 45,926 56,399
------- ------- ------- ------- ------- --------
$53,090 $14,517 $67,798 $33,434 $87,071 $100,115
======= ======= ======= ======= ======= ========
</TABLE>
55
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA COMPANY,
COMPANY COMPANY ADCS
AND ADCS AND GROUP AND
COMPANY ADCS GROUP GROUP LAWRENCE LAWRENCE LAWRENCE
--------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues.............. $ 12,539 $ 7,821 $ 20,360 $7,178 $ 19,717 $ 27,538
Contract revenues............. 7,222 0 7,222 0 7,222 7,222
--------- --------- ---------- ------ ---------- ----------
Total revenues.................. 19,761 7,821 27,582 7,178 26,939 34,760
Cost of revenues:
Cost of product revenues...... 5,839 1,806 7,645 3,943 9,782 11,588
Cost of contract revenues..... 6,151 0 6,151 0 6,151 6,151
--------- --------- ---------- ------ ---------- ----------
Total cost of revenues.......... 11,990 1,806 13,796 3,943 15,933 17,739
--------- --------- ---------- ------ ---------- ----------
Gross profit.................... 7,771 6,015 13,786 3,235 11,006 17,021
Operating expenses:
Research and development...... 3,415 566 3,981 0 3,415 3,981
Selling, general and
administrative............... 5,588 2,539 8,127 1,181 6,769 9,308
--------- --------- ---------- ------ ---------- ----------
9,003 3,105 12,108 1,181 10,184 13,289
--------- --------- ---------- ------ ---------- ----------
Operating income (loss)......... (1,232) 2,910 1,678 2,054 822 3,732
Interest income (expense), net.. 390 23 413 (663) (273) (250)
Other income, net............... 3,594 0 3,594 167 3,761 3,761
--------- --------- ---------- ------ ---------- ----------
3,984 23 4,007 (496) 3,488 3,511
Income before taxes and minority
interest....................... 2,752 2,933 5,685 1,558 4,310 7,243
Income taxes.................... 124 970 1,094 634 758 1,728
--------- --------- ---------- ------ ---------- ----------
Income before minority
interest....................... 2,628 1,963 4,591 924 3,552 5,515
Minority interest............... 8 12 20 0 8 20
--------- --------- ---------- ------ ---------- ----------
Net income...................... $ 2,636 $ 1,975 $ 4,611 $ 924 $ 3,560 $ 5,535
========= ========= ========== ====== ========== ==========
Net income per common share(j).. $ 0.35 $3,370.31 $92.40
--------- --------- ------
Weighted average shares
outstanding(j)................. 7,595,193 586 10,000
========= ========= ======
Net income per common share(g).. $ 0.35 $ 0.31 $ 0.33
---------- ---------- ----------
Equivalent weighted average
shares outstanding
(minimum)(g)................... 13,063,943 11,309,478 16,778,228
========== ========== ==========
Net income per common share(h).. $ 0.33 $ 0.29 $ 0.30
---------- ---------- ----------
Equivalent weighted average
shares outstanding
(maximum)(h)................... 13,845,193 12,183,428 18,433,428
========== ========== ==========
</TABLE>
56
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMPANY,
COMPANY PRO FORMA ADCS
AND ADCS COMPANY AND GROUP AND
COMPANY ADCS GROUP GROUP LAWRENCE LAWRENCE LAWRENCE
--------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues................ $ 21,336 $ 15,715 $ 37,051 $14,409 $ 35,745 $ 51,460
Contract revenues............... 8,712 0 8,712 0 8,712 8,712
--------- --------- ---------- ------- ---------- ----------
Total revenues.................... 30,048 15,715 45,763 14,409 44,457 60,172
Cost of revenues:
Cost of product revenues........ 9,609 4,860 14,469 7,764 17,373 22,233
Cost of contract revenues....... 7,490 0 7,490 0 7,490 7,490
--------- --------- ---------- ------- ---------- ----------
Total cost of revenues............ 17,099 4,860 21,959 7,764 24,863 29,723
--------- --------- ---------- ------- ---------- ----------
Gross profit...................... 12,949 10,855 23,804 6,645 19,594 30,449
Operating expenses:
Research and development........ 4,206 1,491 5,697 0 4,206 5,697
Selling, general and
administrative................. 8,558 5,407 13,965 1,921 10,479 15,886
--------- --------- ---------- ------- ---------- ----------
12,764 6,898 19,662 1,921 14,685 21,583
--------- --------- ---------- ------- ---------- ----------
Operating income.................. 185 3,957 4,142 4,724 4,909 8,866
Interest income (expense), net.... 503 54 557 (914) (411) (357)
Other expense, net................ 0 (51) (51) (493) (493) (544)
--------- --------- ---------- ------- ---------- ----------
503 3 506 (1,407) (904) (901)
Income before taxes and minority
interest......................... 688 3,960 4,648 3,317 4,005 7,965
Income taxes...................... 134 1,389 1,523 1,364 1,498 2,887
--------- --------- ---------- ------- ---------- ----------
Income before minority interest... 554 2,571 3,125 1,953 2,507 5,078
Minority interest................. 0 10 10 0 0 10
--------- --------- ---------- ------- ---------- ----------
Net income........................ $ 554 $ 2,581 $ 3,135 $ 1,953 $ 2,507 $ 5,088
========= ========= ========== ======= ========== ==========
Net income per common share(j).... $ 0.07 $4,296.87 $195.32
--------- --------- -------
Weighted average shares
outstanding(j)................... 8,074,032 600.6694 10,000
========= ========= =======
Net income per common share(g).... $ 0.23 $ 0.21 $ 0.29
---------- ---------- ----------
Equivalent weighted average
shares outstanding (minimum)(g).. 13,542,782 11,788,317 17,257,067
========== ========== ==========
Net income per common share(h).... $ 0.22 $ 0.20 $ 0.27
---------- ---------- ----------
Equivalent weighted average shares
outstanding (maximum)(h)......... 14,324,032 12,662,267 18,912,267
========== ========== ==========
</TABLE>
57
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA COMPANY,
COMPANY COMPANY ADCS
AND ADCS AND GROUP AND
COMPANY ADCS GROUP GROUP LAWRENCE LAWRENCE LAWRENCE
--------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues...... $ 36,504 $ 22,041 $ 58,545 $20,271 $ 56,775 $ 78,816
Contract revenues..... 9,846 0 9,846 0 9,846 9,846
--------- --------- ---------- ------- ---------- ----------
Total revenues.......... 46,350 22,041 68,391 20,271 66,621 88,662
Cost of revenues:
Cost of product
revenues............. 15,939 6,567 22,506 10,384 26,323 32,890
Cost of contract
revenues............. 8,341 0 8,341 0 8,341 8,341
--------- --------- ---------- ------- ---------- ----------
Total cost of revenues.. 24,280 6,567 30,847 10,384 34,664 41,231
--------- --------- ---------- ------- ---------- ----------
Gross profit............ 22,070 15,474 37,544 9,887 31,957 47,431
Operating expenses:
Research and
development.......... 7,627 2,212 9,839 0 7,627 9,839
Selling, general and
administrative....... 11,510 6,365 17,875 4,715 16,225 22,590
--------- --------- ---------- ------- ---------- ----------
19,137 8,577 27,714 4,715 23,852 32,429
--------- --------- ---------- ------- ---------- ----------
Operating income........ 2,933 6,897 9,830 5,172 8,105 15,002
Interest income
(expense), net......... 627 210 837 (835) (208) 2
Other income, net....... 0 18 18 0 0 18
--------- --------- ---------- ------- ---------- ----------
627 228 855 (835) (208) 20
Income before taxes and
minority interest...... 3,560 7,125 10,685 4,337 7,897 15,022
Income taxes(i)......... 239 2,732 2,971 1,669 1,908 4,640
--------- --------- ---------- ------- ---------- ----------
Income before minority
interest............... 3,321 4,393 7,714 2,668 5,989 10,382
Minority interest....... 0 151 151 0 0 151
--------- --------- ---------- ------- ---------- ----------
Net income.............. $ 3,321 $ 4,544 $ 7,865 $ 2,668 $ 5,989 $ 10,533
========= ========= ========== ======= ========== ==========
Net income per common
share(j)............... $ 0.35 $7,500.44 $266.84
--------- --------- -------
Weighted average shares
outstanding(j)......... 9,359,021 605.8308 10,000
========= ========= =======
Net income per common
share(g)............... $ 0.53 $ 0.46 $ 0.57
---------- ---------- ----------
Equivalent weighted
average shares
outstanding
(minimum)(g)........... 14,827,771 13,073,306 18,542,056
========== ========== ==========
Net income per common
share(h)............... $ 0.50 $ 0.43 $ 0.52
---------- ---------- ----------
Equivalent weighted
average shares
outstanding
(maximum)(h)........... 15,609,021 13,947,256 20,197,256
========== ========== ==========
</TABLE>
58
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA COMPANY,
COMPANY COMPANY ADCS
AND ADCS AND GROUP AND
COMPANY ADCS GROUP GROUP LAWRENCE LAWRENCE LAWRENCE
--------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues...... $ 17,743 $ 10,988 $ 28,731 $10,594 $ 28,337 $ 39,325
Contract revenues..... 4,695 0 4,695 0 4,695 4,695
--------- --------- ---------- ------- ---------- ----------
Total revenues.......... 22,438 10,988 33,426 10,594 33,032 44,020
Cost of revenues:
Cost of product
revenues............. 7,607 3,416 11,023 4,968 12,575 15,991
Cost of contract
revenues............. 3,929 0 3,929 0 3,929 3,929
--------- --------- ---------- ------- ---------- ----------
Total cost of revenues.. 11,536 3,416 14,952 4,968 16,504 19,920
--------- --------- ---------- ------- ---------- ----------
Gross profit............ 10,902 7,572 18,474 5,626 16,528 24,100
Operating expenses:
Research and
development.......... 4,048 1,105 5,153 0 4,048 5,153
Selling, general and
administrative....... 5,920 3,483 9,403 1,181 7,101 10,584
--------- --------- ---------- ------- ---------- ----------
9,968 4,588 14,556 1,181 11,149 15,737
--------- --------- ---------- ------- ---------- ----------
Operating income........ 934 2,984 3,918 4,445 5,379 8,363
Interest income
(expense), net......... 287 141 428 (378) (91) 50
Other income, net....... 0 10 10 0 0 10
--------- --------- ---------- ------- ---------- ----------
287 151 438 (378) (91) 60
Income before taxes and
minority interest...... 1,221 3,135 4,356 4,067 5,288 8,423
Income taxes............ 111 638 749 1,565 1,676 2,314
--------- --------- ---------- ------- ---------- ----------
Income before minority
interest............... 1,110 2,497 3,607 2,502 3,612 6,109
Minority interest....... 0 64 64 0 0 64
--------- --------- ---------- ------- ---------- ----------
Net income.............. $ 1,110 $ 2,561 $ 3,671 $ 2,502 $ 3,612 $ 6,173
========= ========= ========== ======= ========== ==========
Net income per common
share(j)............... $ 0.12 $4,227.25 $250.18
--------- --------- -------
Weighted average shares
outstanding(j)......... 9,364,302 605.8308 10,000
========= ========= =======
Net income per common
share(g)............... $ 0.25 $ 0.28 $ 0.33
---------- ---------- ----------
Equivalent weighted
average shares
outstanding
(minimum)(g)........... 14,833,052 13,078,587 18,547,337
========== ========== ==========
Net income per common
share(h)............... $ 0.24 $ 0.26 $ 0.31
---------- ---------- ----------
Equivalent weighted
average shares
outstanding
(maximum)(h)........... 15,614,302 13,952,537 20,202,537
========== ========== ==========
</TABLE>
59
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMPANY COMPANY,
AND PRO FORMA ADCS
ADCS ADCS COMPANY AND GROUP AND
COMPANY GROUP GROUP LAWRENCE LAWRENCE LAWRENCE
--------- --------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues...... $ 21,197 $ 10,441 $ 31,638 $ 9,495 $ 30,692 $ 41,133
Contract revenues..... 4,901 0 4,901 0 4,901 4,901
--------- --------- ---------- ------- ---------- ----------
Total revenues.......... 26,098 10,441 36,539 9,495 35,593 46,034
Cost of revenues:
Cost of product
revenues............. 9,330 3,835 13,165 5,697 15,027 18,862
Cost of contract
revenues............. 4,039 0 4,039 0 4,039 4,039
--------- --------- ---------- ------- ---------- ----------
Total cost of revenues.. 13,369 3,835 17,204 5,697 19,066 22,901
--------- --------- ---------- ------- ---------- ----------
Gross profit............ 12,729 6,606 19,335 3,798 16,527 23,133
Operating expenses:
Research and
development.......... 4,112 996 5,108 0 4,112 5,108
Selling, general and
administrative....... 6,189 3,379 9,568 1,363 7,552 10,931
--------- --------- ---------- ------- ---------- ----------
10,301 4,375 14,676 1,363 11,664 16,039
--------- --------- ---------- ------- ---------- ----------
Operating income........ 2,428 2,231 4,659 2,435 4,863 7,094
Interest income
(expense), net......... 350 121 471 (498) (148) (27)
--------- --------- ---------- ------- ---------- ----------
Income before taxes and
minority interest...... 2,778 2,352 5,130 1,937 4,715 7,067
Income taxes............ 332 823 1,155 755 1,087 1,910
--------- --------- ---------- ------- ---------- ----------
Income before minority
interest............... 2,446 1,529 3,975 1,182 3,628 5,157
Minority interest....... 0 (25) (25) 0 0 (25)
--------- --------- ---------- ------- ---------- ----------
Net income.............. $ 2,446 $ 1,504 $ 3,950 $ 1,182 3,628 5,132
========= ========= ========== ======= ========== ==========
Net income per common
share(j)............... $ 0.26 $2,482.54 $118.18
--------- --------- -------
Weighted average shares
outstanding(j)......... 9,583,528 605.8308 10,000
========= ========= =======
Net income per common
share (g).............. $ 0.26 $ 0.27 $ 0.27
---------- ---------- ----------
Equivalent weighted
average shares
outstanding
(minimum)(g)........... 15,052,278 13,297,813 18,766,563
========== ========== ==========
Net income per common
share (h).............. $ 0.25 $ 0.26 $ 0.25
---------- ---------- ----------
Equivalent weighted
average shares
outstanding
(maximum)(h)........... 15,833,528 14,171,763 20,421,263
========== ========== ==========
</TABLE>
60
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Pursuant to the Merger and Exchange Agreement, the Company will become a
wholly-owned subsidiary of Holdings. Upon consummation of the Merger, each
outstanding share of Company Common Stock will be converted into the right to
receive one share of Holdings Common Stock. The effect of this transaction is
to decrease the stated common stock of the Company to zero and to establish
the stated common stock of Holdings at $88,000.
(b) In the Exchange, Holdings is to exchange a minimum of 5,468,750 shares
of Holdings Common Stock for the ADCS Interests, at an assumed Exchange
Average Closing Price of $16.00 per share. The unaudited pro forma condensed
combined financial statements assume that all 5,468,750 shares of Holdings
Common Stock will be issued to the ADCS Holders in accordance with the terms
of the Exchange. The effect of this transaction is to decrease the combined
stated common stock of the Company and the ADCS Group by $88,000 and $227,000,
respectively, and to increase the combined stated common stock of Holdings by
$143,000 and additional paid in capital by $172,000 to reflect the par value
of Holdings Common Stock to be outstanding after the Reorganization.
(c) In the Lawrence Acquisition, assuming the Reorganization is not
consummated, the Company is to exchange a minimum of 3,714,285 shares of
Company Common Stock for the LSL Common Stock, at an assumed Lawrence
Acquisition Average Closing Price of $21.00 per share. The unaudited pro forma
condensed combined financial statements assume that all 3,714,285 shares of
Company Common Stock will be issued to LSL Stockholders in accordance with the
terms of the Lawrence Acquisition. The effect of this transaction is to
increase the combined stated common stock of the Company and Lawrence by
$37,000 and to decrease the combined additional paid in capital by $37,000 to
reflect the par value of Company Common Stock to be outstanding after the
Lawrence Acquisition.
(d) In the Transactions, Holdings is to exchange a minimum of 5,468,750
shares of Holdings Common Stock for the ADCS Interests, at an assumed Exchange
Average Closing Price of $16.00 per share, and a minimum of 3,714,285 shares
for the LSL Common Stock, at an assumed Lawrence Acquisition Average Closing
Price of $21.00 per share. The unaudited pro forma condensed combined
financial statements assume that all shares of Holdings Common Stock will be
issued to the ADCS Holders in accordance with the terms of the Exchange and to
the LSL Stockholders in accordance with the terms of the Lawrence Acquisition.
The effect of this transaction is to decrease the combined stated common stock
of the Company, the ADCS Group and Lawrence by $88,000, $227,000 and $0,
respectively, and to increase the combined stated common stock of Holdings by
$180,000 and the combined additional paid in capital by $135,000 to reflect
the par value of Holdings Common Stock to be outstanding after the
Transactions.
(e) The pro forma condensed combined balance sheet includes the assumption
that Holdings or the Company, as the case may be, will recognize a deferred
tax asset for the expected future tax benefit to be derived from the Company's
net operating losses, deductions for non-qualified stock options exercises and
certain temporary differences as of June 30, 1997. Deferred tax assets are
determined based on differences between financial statement carrying amounts
and tax bases of assets using enacted tax rates in effect in the years in
which they are expected to reverse. The Company has assumed an effective tax
rate of 34% at June 30, 1997.
(f) The unaudited pro forma condensed combined balance sheet includes
$2,000,000 of transaction costs associated with the Reorganization and
$1,500,000 of transaction costs associated with the Lawrence Acquisition. As
of June 30, 1997, transaction costs of approximately $1,430,000 ($825,000
pertaining to the Reorganization and $605,000 related to the Lawrence
Acquisition), $648,000 and $512,000 for the Company, the ADCS Group and
Lawrence, respectively, were included in other current assets. The pro forma
condensed combined balance sheet has been adjusted to eliminate such costs and
to recognize additional accrued expenses equivalent to the expected
transaction costs associated with the Reorganization and the Lawrence
Acquisition. Retained earnings has been adjusted to reflect a net of tax
charge to earnings as if the Reorganization and the Lawrence Acquisition had
occurred on such date. Additionally, Lawrence would incur a fee of
approximately
61
<PAGE>
$750,000 to its investment banker and a break-up fee in connection with
another transaction of approximately $1,800,000 upon consummation of the
Lawrence Acquisition. Such amounts would be reflected as adjustments to the
purchase price and net book value defined in the Lawrence Merger Agreement.
However, because these charges are nonrecurring, they have not been reflected
in the pro forma condensed combined statements of operations.
The unaudited pro forma condensed combined statements of operations do not
include costs associated with the Transactions, which are expected to
approximate $3,500,000 in the aggregate and will be charged to earnings in the
period in which the Transactions are consummated. The investment banker and
break-up fees also have not been reflected in the pro forma condensed combined
statements of income because of the nonrecurring nature of these charges.
(g) Net income per common share has been computed based upon the combined
weighted average number of common shares outstanding of the Company and the
equivalent shares exchanged in the pooling of interests for the Exchange of
5,468,750 shares and for the Lawrence Acquisition of 3,714,285 shares, which
reflect the minimum number of shares issuable, assuming an Exchange Average
Closing Price of $16.00 per share and a Lawrence Acquisition Average Closing
Price of $21.00 per share.
(h) Net income per common share has been computed based upon the combined
weighted average number of common shares outstanding of the Company and the
equivalent shares exchanged in the pooling of interests for the Exchange of
6,250,000 shares and for the Lawrence Acquisition of 4,588,235 shares, which
reflect the maximum number of shares issuable, assuming an Exchange Average
Closing Price of $14.00 per share and a Lawrence Acquisition Average Closing
Price of $17.00 per share.
(i) Net income and net income per common share for the year ended December
31, 1996 have been presented to include tax amounts as if the ADCS Group were
a C Corporation for the full year. Actual net income and net income per common
share, based on the ADCS Group's historical financial statements, were
$6,027,000 and $9,948.32, respectively, as a result of the ADCS Group's S-
Corporation status for a portion of the year ended December 31, 1996.
(j) The calculation of net income per common share has been computed based
upon the weighted average shares outstanding as derived from the historical
consolidated financial statements of the Company and historical combined
financial statements of the ADCS Group and Lawrence.
62
<PAGE>
BUSINESS OF THE COMPANY
The Company is a leading supplier of point-of-use environmental equipment,
thin film materials and delivery systems, and thin film deposition services to
the semiconductor industry. The Company's products are based primarily on
proprietary and patented CVD technologies used in semiconductor thin film
manufacture. The Company's strategy is to use these technologies to develop
and, in conjunction with industry collaborators, sequentially introduce
products into high growth niche markets of the semiconductor industry. Using
this phased commercialization strategy, the Company has been able to develop
its CVD core technologies and establish businesses to support further
commercialization of its products.
Currently, the Company's primary commercial business, accounting for
approximately 50% of the Company's revenues for both the year ended December
31, 1996 and the six months ended June 30, 1997, is the manufacture, sale and
service of semiconductor environmental equipment through its wholly-owned
subsidiary, EcoSys. The many processes used to manufacture a semiconductor
require a number of thin film deposition steps that involve toxic or
environmentally hazardous materials. These materials are typically abated
through large systems that service multiple process effluent streams. Due to
the proliferation of new thin film processes, the industry has migrated
towards "point-of-use" or dedicated environmental equipment for individual
reactors or processes. EcoSys has become a leader in this marketplace through
its understanding of thin film processes, the introduction of new point-of-use
products and the acquisition of complementary product lines. EcoSys markets
and sells its products to customers worldwide, including Motorola, Texas
Instruments, Samsung, Hyundai and others.
The Company's NovaMOS division develops, manufactures and sells the raw
materials and delivery systems used in CVD processes and in the manufacture of
semiconductor thin films. NovaMOS has focused on next-generation semiconductor
materials and devices based on these materials and has entered into strategic
alliances with leading corporations to facilitate the commercialization of its
technologies. Preeminent among these alliances is an $11 million collaboration
with IBM, Texas Instruments, Micron Technology and Varian Associates to
develop thin film materials technology for next-generation memory devices. The
NovaMOS division manufactures and, through a distributor, sells the Company's
Safe Delivery System ("SDS") which reduces cylinder pressures and allows
controllable, on-demand release of semiconductor process gases.
The Company's Epitronics division develops, manufactures, distributes and
sells high performance substrates and thin film deposition services to the
semiconductor industry. Epitronics currently manufactures and sells epitaxial
wafers based on the III-V semiconductors, including gallium arsenide and
indium phosphide. Epitronics also distributes SIMOX (Separation by IMplanted
OXygen) wafers for Nippon Steel Corporation, which wafers are used for
fabricating high speed and radiation hard circuits. Epitronics is also
developing substrate and thin film technology intended for solid-state blue
light emitting diodes and lasers.
Each of Holdings, a wholly-owned subsidiary of the Company, Merger
Subsidiary, a wholly-owned subsidiary of Holdings, and Lawrence Merger
Subsidiary, currently a wholly-owned subsidiary of the Company, has been
organized for the purpose of acting as a constituent entity in the
Transactions and has not engaged in any substantive business activity.
Additional information about the Company is contained in the Incorporated
Documents.
63
<PAGE>
BUSINESS OF THE ADCS GROUP
GENERAL
The ADCS Group designs, manufactures and markets ultrahigh purity thin film
materials and their related delivery systems equipment for CVD, diffusion and
etch applications in the semiconductor and semiconductor equipment
manufacturing industries. The ADCS Group distributes its products worldwide
through its international sales and service network. The ADCS Group's
principal executive offices are located in Austin, Texas, and its
manufacturing facilities are located in Burnet, Texas and Anseong, South
Korea.
BACKGROUND
The ADCS Group designs, manufactures, and markets ultrahigh purity thin film
materials and their associated delivery systems equipment for the
semiconductor industry.
Semiconductor devices are manufactured by repeating a complex series of
process steps on a wafer substrate, usually made of silicon. The primary
process steps include deposition, patterning and etching. During deposition
processing, layers of conducting, semiconducting or insulating thin films are
formed on a wafer. Control of the deposition of these films is vital to the
ultimate performance of an individual device.
The two principal methods of film deposition are physical vapor deposition
("PVD"), which is now used primarily to deposit conductive metal layers, and
CVD, which is used primarily to deposit semiconducting and insulating thin
films. In the CVD process, wafers are typically placed in a sophisticated
reaction chamber and a specially designed gas or vaporized liquid material is
introduced. Simultaneously, a form of energy (heat, plasma, etc.) is added to
the reactor to cause the decomposition of the material being introduced. The
result of this decomposition is the deposition of a thin film on the surface
of the wafer.
The advantages of CVD are the relative thinness of the films applied to the
wafer, as well as their conformality (ability to coat evenly, especially in
holes and trenches designed into the device), purity and the ability to
uniformly coat over large areas. As a result of these advantages, thin film
deposition technology has migrated towards the use of CVD instead of PVD. This
trend has led to an increase in CVD equipment sales and rapid growth for
suppliers of CVD equipment and thin film materials.
BUSINESS STRATEGY
Since its founding, the ADCS Group believes it has been one of the fastest
growing suppliers of ultrahigh purity thin film materials and the associated
delivery systems equipment to the semiconductor industry. The ADCS Group
strives to ensure that its materials and related delivery systems meet and
exceed the requirements of its customers, which include semiconductor device
manufacturers and original equipment manufacturers ("OEMs") located throughout
the world. In developing its business, the ADCS Group has employed the
following business strategy:
. To offer the most consistent, highest purity thin film materials
available;
. To offer the most reliable, innovative equipment products;
. To improve the level of customer service and response offered and to
remain cost-effective to its customers;
. To meet customer needs for statistical quality control and dock-to-stock
programs; and
. To continue to meet the industry's needs for advanced thin film
materials required for next-generation devices and beyond.
PRODUCTS AND SERVICES
Thin Film Materials
The ADCS Group produces a broad range of thin film materials which are used
in processes for making semiconductor devices. One of the most important of
these processes is CVD, in which one or more thin film materials are first
turned into gases and then decomposed to form high-purity thin solid films on
a silicon wafer. These thin films serve various electrical functions in the
device.
64
<PAGE>
Chief among the ADCS Group's thin film materials is TEOS. Other products
include trimethylphosphite ("TMP"), triethylphosphate ("TEPO"),
trimethylborate ("TMB") and triethylborate ("TEB"). Collectively, these
materials accounted for 94% and 96% of the ADCS Group's thin film materials
sales and 55% and 51% of its total sales in 1995 and 1996, respectively. TEOS
alone accounted for approximately 40% and 32% of the ADCS Group's total sales
in the same periods, respectively.
TEOS is widely used to form silicon dioxide layers which generally serve as
insulators between the current-carrying conductive layers in a semiconductor
device. The conductive layers take the form of a series of interconnected
lines. Silicon dioxide is grown conformally over the lines and other features
on the surface of the wafer (1) by decomposing the TEOS at elevated
temperatures and low pressure ("LPCVD"), (2) by decomposing the TEOS at lower
temperatures using a plasma-enhanced process ("PECVD") or (3) by decomposing
the TEOS using ozone at atmospheric pressure ("APCVD").
Since devices are essentially built by depositing a series of films on top
of one another, it is sometimes advantageous to make the upper surface of the
TEOS silicon dioxide film as smooth and flat as possible. This can be achieved
by reflowing the as-deposited silicon dioxide film at elevated temperatures
thereby allowing it to flow and settle with the desired smooth surface. The
temperature at which the silicon dioxide begins to flow can be beneficially
reduced by intentionally introducing small, precisely controlled amounts of
boron and phosphorous into the film. This doping of the film is achieved by
co-introducing TMP or TEPO and TMB or TEB into the reactor along with the
TEOS. The result is a form of silicon dioxide called borophosphosilicate glass
("BPSG").
TEOS, TMP, TEPO, TMB and TEB are all liquids at room temperature. Because of
this, they are easier and safer to handle than traditional phosphorous and
boron containing pressurized gases such as phosphine and diborane. Together
with the improved purity levels and improved performance characteristics of
these materials, these handling benefits have contributed to their widespread
acceptance for BPSG processing.
The ADCS Group also sells thin film materials used in other semiconductor
manufacturing processes. These include, for example, titanium precursors for
barrier layer applications and phosphorous and boron halides for doping by
diffusion processing.
All of these thin films must be of very high purity in order to function
properly within the device, particularly with respect to unwanted metallic
contamination. The purity of the starting chemicals used in the process is,
therefore, critical. ADCS ULTRAPUR(TM) chemicals have purities in excess of
99.99999% to 99.999999% with respect to unwanted metal impurities. A
proprietary DOUBLE DISTILLATION(TM) purification process is used to produce
these high-purity specifications. In order to preserve this high purity, the
chemicals must be packaged and delivered in high quality, carefully
constructed and cleaned containers. The ADCS Group has developed a proprietary
COYOTE CLEAN(TM) process for preparation of its containers which range from
quartz and 316L stainless steel ampules to much larger MINIBULK(TM) and
SKINNIBULK(TM) canisters. Coupled with the ADCS Group's Quality Control
Program, the ADCS Group believes that this cleaning and container technology
produces the most consistent, highest purity chemicals in the industry and
ensures their quality as delivered into the film producing reactor. Continuing
its commitment to quality, the ADCS Group achieved ISO 9001 certification in
1997.
Delivery Systems
The ADCS Group designs, manufactures and sells proprietary continuous refill
and delivery systems and their related hardware. These systems and hardware
products are designed to deliver ultrahigh purity thin film materials to the
CVD reaction point under the proper physical conditions. The ADCS Group's
delivery hardware products include: stainless steel ampules, stainless steel
MINIBULK(TM) canisters, stainless steel SKINNIBULK(TM) canisters, quartz
bubblers, bulk chemical delivery cabinets, level sensing systems, manual and
continuous refill systems and other application-specific equipment.
65
<PAGE>
The ADCS Group believes its continuous refill systems enhance the
performance of the process tools they support by eliminating process downtime
during canister changes. Typically, process tools must cease operation when
canister changes are made to replenish the source material. ADCS Group refill
systems are designed to deliver source material to the process tool
continuously by incorporating a two canister configuration. The first canister
(a permanent "process" canister) is refilled automatically from a second
"bulk" canister. The process tool draws source materials from the process
canister. When the bulk canister is empty, the bulk canister is removed and
replaced with a full bulk canister while the process continues operating off
of source material drawn from the process canister. In addition to the
elimination of down time associated with canister changes, the ADCS Group
systems minimize the possibility of introduction of atmospheric and moisture
contamination during these change-outs.
In designing its systems, the ADCS Group has made a concerted effort to work
with most OEMs of CVD equipment. By working with the OEMs, the ADCS Group
believes it can provide the end user with appropriately designed and
configured delivery systems hardware and thoroughly tested and developed thin
film material processes. The ADCS Group also works with its end-user customers
(semiconductor device manufacturers) to optimize final system design and
produce the most workable logistical system solution for each installation.
The ADCS Group utilizes a modular system design for maximum system
reliability and design flexibility. Standard modules for bulk chemical
delivery, bulk chemical distribution, level monitoring, and refill control
enable a variety of applications to be met while preserving functionality.
The ADCS Group's thin film material delivery systems incorporate the
following design breakthroughs and innovations:
. ADCS Delivery/Purge Manifolds with minimum wetted volume;
. ADCS digital internal level sensor technology, which provides for more
reliable system operation;
. Automatically controlled Bulk Canister exchange sequences, which protect
system integrity and prevent source chemical contamination; and
. ADCS Group's Automatic Purge Control ("APC(TM)") Configuration Bulk
Supply Canisters incorporating pneumatically actuated valves and
internal level sensors for complete system automation.
Services
In addition to its thin film materials and associated delivery systems
equipment, the ADCS Group offers custom services, such as custom stainless
steel and quartz delivery hardware fabrication, custom bulk refill systems,
container cleaning, hardware repair and total chemical supply management
services.
MARKETS, SALES AND DISTRIBUTION
The ADCS Group supplies its thin film materials and associated delivery
systems equipment to manufacturers, end users and distributors in Canada,
China, Europe, Japan, Korea, Singapore, Taiwan, the United Kingdom and the
United States. The ADCS Group utilizes direct sales in North America and parts
of Europe, and independent sales representatives/distributors in certain parts
of Europe and in China, Japan, Singapore and Taiwan.
In 1995, the ADCS Group entered into a joint venture in the Republic of
South Korea with K.C. Tech to form ADCS-Korea for the purpose of
manufacturing, selling and distributing the ADCS Group's thin film materials
to the semiconductor and related industries in South Korea. The ADCS Group
owns a 70% interest in ADCS-Korea and is entitled to a royalty on revenues
from products sold by ADCS-Korea. ADCS-Korea is completing qualification of
its materials at its customers' sites and is commencing the manufacture of
materials for sale to South Korean semiconductor manufacturers. See "RISK
FACTORS--Rick Factors Related to the ADCS Group--ADCS-Korea Joint Venture."
66
<PAGE>
CUSTOMERS
The ADCS Group's customers include many of the leading semiconductor
manufacturers and semiconductor equipment OEMs in North America, Europe and
South Korea.
The ADCS Group sells its products primarily on a spot purchase/purchase
order basis and has relatively few long-term or guaranteed supply contracts.
Accordingly, there can be no assurance that these customers will continue to
purchase products from the ADCS Group.
Applied Materials, a leading semiconductor equipment manufacturer, is the
ADCS Group's largest customer, accounting for 34.4% and 34.0% of total sales
for the calendar years 1995 and 1996, respectively. In mid-1996, Applied
Materials notified the ADCS Group that it intends to discontinue purchasing
delivery systems equipment directly from the ADCS Group for resale to Applied
Materials' own customers. Instead, the ADCS Group would be required to offer
its delivery systems equipment for sale directly to the end user. No specific
date for discontinuance of these purchases has been given. Although the
resulting decrease in revenues from the loss of sales to Applied Materials
could materially adversely affect the ADCS Group's business, financial
condition and results of operations, if the ADCS Group is successful in
marketing and selling its delivery system equipment directly to end users, the
ADCS Group believes that the gross profit on such systems may be significantly
higher as a result of the discounted price afforded to Applied Materials.
Accordingly, any revenue loss might be mitigated. Nonetheless, there can be no
assurance that the ADCS Group will be able to maintain or increase its level
of sales or the profitability of such sales as a result of this change. See
"RISK FACTORS--Risk Factors Related to the ADCS Group--Dependence on a Single
Customer" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--THE ADCS GROUP--Results of Operations."
COMPETITION
The semiconductor equipment, materials and device markets are characterized
by rapidly evolving technology and products. Both large and small companies
offer products in these markets, and many of these companies have
significantly greater financial and other resources than the ADCS Group. The
ADCS Group's primary competitors in CVD materials and delivery systems in the
U.S. are the Schumacher Division of Air Products Corporation and the Diffusion
Systems Division of Olin Hunt Specialty Products, Inc. Overseas, the ADCS
Group competes with these companies and also with Yamanaka Hutech Corporation
and Kojundo in Asia and Merck KGaA in Europe. There are several other smaller
participants in these markets.
The ADCS Group attempts to compete on the bases of technology, quality,
service, expediency of delivery and price. Because of the potential
ramifications of a late delivery or a delivery of impure CVD materials, the
ADCS Group believes that customers in the semiconductor equipment, materials
and device markets place considerable emphasis on factors other than price, in
particular on quality, service and expediency of delivery. See "RISK FACTORS--
Risk Factors Related to the ADCS Group--Competition."
BACKLOG
As of June 30, 1996 the ADCS Group had no material backlog of customer
orders. As of June 30, 1997, the ADCS Group had a backlog of approximately
$2,459,000 in delivery system equipment orders.
PATENTS AND PROPRIETARY RIGHTS
The ADCS Group protects its technology by, among other things, filing patent
applications for technology considered important to the development of its
business. It also relies upon trade secrets, unpatented know-how and
continuing technological innovation.
As of June 30, 1997, the ADCS Group had been awarded four U.S. patents and
had six U.S. patent applications pending. Foreign counterparts of certain of
these applications have been filed or will be applied for at an appropriate
time. The ADCS Group decides on a case-by-case basis whether, and in what
circumstances, it will file foreign counterparts of a U.S. patent application.
The ADCS Group's U.S. issued patents and any patents issuing from applications
currently pending are expected to expire between 2013 and 2016.
67
<PAGE>
The ADCS Group's ability to compete effectively with other companies will
depend, in part, on its ability to maintain the proprietary nature of its
technology. Although the ADCS Group has been awarded U.S. patents and has
filed applications for patents in the United States and foreign countries,
there can be no assurance as to the degree of protection afforded by these
patents or as to the likelihood that pending patents will be issued. Although
the ADCS Group has received notification from a third party that by selling
one of its products the ADCS Group may be contributorily infringing on the
proprietary rights of that third party, the ADCS Group does not believe that
its products and technology actually or contributorily infringe any valid
proprietary rights of any third party. The ADCS Group's revenues on sales of
the product involved in this dispute are immaterial. However, there can be no
assurance that third parties will not successfully assert infringement claims
against the ADCS Group in the future.
The ADCS Group generally requires its employees, consultants, and other
advisors to execute agreements upon the commencement of employment or
consulting relationships with the ADCS Group. These agreements provide that
all confidential information developed or made known to the individual during
the course of the individual's relationship with the ADCS Group is to be kept
confidential and not disclosed to third parties except in specific
circumstances. Except for Stephen H. Siegele, Frederick H. Siegele, Julie
Siegele, Frederick J. Siegele and Bernard McKeown, who have oral agreements
with the ADCS Group, all of the ADCS Group's employees have entered into
written agreements providing for the assignment of rights to inventions made
by them while in the employment of the ADCS Group. See "RISK FACTORS--Risk
Factors Related to the ADCS Group--Patents and Proprietary Rights."
COCKTAIL/(TM)/, ADCS/(TM)/, ADCS DESIGN/(TM)/ (logo), ADCS AND DESIGN/(TM)/
(logo), MINIBULK/(TM)/, SKINNIBULK/(TM)/, APC/(TM)/, ULTRAPUR/(TM)/, MARS/(TM)/,
DOUBLE DISTILLATION/(TM)/ and COYOTE CLEAN/(TM)/ are trademarks of the ADCS
Group.
RESEARCH AND DEVELOPMENT
The ADCS Group's research and development expenditures are substantially
funded by internal sources and are classified as research and development
operating expenses on the ADCS Group's Combined Financial Statements. Total
sums expended for research and development were approximately 9.5% and 10.0%
of total sales for calendar years 1995 and 1996, respectively.
ENVIRONMENTAL REGULATION
The ADCS Group uses, generates and disposes of toxic, volatile or otherwise
hazardous chemicals and wastes in its research and development and
manufacturing activities. Therefore, the ADCS Group is subject to a variety of
federal, state and local governmental regulations related to the storage, use
and disposal of these materials. The ADCS Group believes that it has, or is
seeking to obtain, all the permits necessary to the conduct of its business.
However, the failure to comply with present or future regulations could result
in fines being imposed on the ADCS Group, suspension of production or a
cessation of operations.
While the ADCS Group believes that it has properly handled hazardous
materials and wastes and has not contributed to any on-site contamination on
its premises, these premises could have been contaminated prior to the ADCS
Group's occupancy. The ADCS Group is not aware of any environmental
investigation, proceeding or action by federal or state agencies involving its
facilities. However, under certain federal and state statutes and regulations,
a government agency may seek recovery and response costs from operators and
owners of property where releases of hazardous substances have occurred or are
ongoing. The ADCS Group's activities may also result in its being subject to
additional regulation. Such regulations could require the ADCS Group to
acquire significant additional equipment or to incur other substantial
expenses to comply with environmental regulations. Any failure by the ADCS
Group to control the use of, or to restrict adequately the discharge of,
hazardous substances could subject it to substantial financial liabilities and
could have a material adverse effect on the ADCS Group's business, operating
results and financial condition.
68
<PAGE>
EMPLOYEES
As of June 30, 1997, the ADCS Group had 61 full-time employees. None of the
ADCS Group's employees are represented by collective bargaining units, and the
ADCS Group has never experienced a work stoppage. The ADCS Group believes that
it has good relations with its employees.
PROPERTIES
The ADCS Group's headquarters and general corporate offices are located in
Austin, Texas, where it leases approximately 4,000 square feet. This lease
expires May 31, 2000. The ADCS Group owns approximately six acres of property
in Burnet, Texas, on which its 12,000 square foot manufacturing facility is
located. Although the ADCS Group believes its existing headquarters and
manufacturing facilities are adequate for the current level of demand, it
believes that it will become necessary to expand its production capability to
meet anticipated future growth. Accordingly, the ADCS Group will be required
to expand its manufacturing facilities if such growth in demand actually
occurs.
ADCS-Korea owns approximately 1.4 acres in an industrial park in Anseong,
South Korea, where its approximately 9,000 square foot manufacturing facility
and office are located.
The ADCS Group also leases sales offices in San Jose, California and
Beverly, Massachusetts, and an engineering office in Mountain View,
California. The lease on the San Jose office expires March 31, 1998. The
Mountain View, California and Beverly, Massachusetts leases are on a month-to-
month basis. The ADCS Group does not believe these leases are material to its
business.
INSURANCE; PRODUCT LIABILITY
Because the management of the ADCS Group believes that product liability
insurance is prohibitively expensive, the ADCS Group does not maintain such
insurance. However, product liability exposure represents considerable risk to
the ADCS Group. Although the ADCS Group takes significant safeguards in its
manufacturing process, if any thin film material sold by the ADCS Group is
defective, the result may be that the semiconductor devices that contain the
material may be rendered useless. A very small amount of thin film material is
used to manufacture a single semiconductor device. Further, a semiconductor
device cannot be fully tested until the manufacturing process has been
completed, and a significant amount of value has been added to the device. As
a result, a defect in the ADCS Group's products could result in damages
significantly in excess of the revenues generated from the sale of the
defective thin film materials. See "RISK FACTORS--Risk Factors Related to the
ADCS Group--Product Liability Risk Associated with Selling Thin Film
Materials."
The ADCS Group maintains property and equipment insurance considered
adequate by management and in line with industry standards.
LITIGATION
Management knows of no present or pending litigation against the ADCS Group
that would have a material effect either on the operations of the ADCS Group
or its financial condition. See "RISK FACTORS--Risk Factors Related to the
ADCS Group--Litigation."
ADCS RESTRUCTURE
The ADCS Group was founded in early 1988 as an Illinois corporation. During
1996, the ADCS Group consummated a series of transactions intended to qualify
for tax-free treatment for federal income tax purposes (the "ADCS
Restructure") in which each of the current members of the ADCS Group was
formed: two corporations, two limited liability companies and a limited
partnership. Pursuant to the ADCS Restructure, the ADCS Holders, as the former
shareholders of ADCS Illinois, exchanged their shares of ADCS Illinois on a
pro rata basis for all of the ADCS Nevada Common Stock. The ADCS Holders
received all of the shares of ADCS
69
<PAGE>
Manager Common Stock and an aggregate of one percent of the ADCS Holdings
Membership Interests in exchange for capital contributions. The remaining
ninety-nine percent of the ADCS Holdings Membership Interests is owned by ADCS
Nevada. The operating assets of ADCS Illinois were transferred to ADCS LP, of
which ADCS Operating and ADCS Holdings collectively own one hundred percent,
while all of the patents and technology (but not trademarks, trade names and
the like) of ADCS Illinois and certain contract rights remain in ADCS Nevada.
After the ADCS Restructure, all of the combined entities are owned, directly
or indirectly, by the same shareholder group, and in the same proportions, as
before the ADCS Restructure. No ruling was obtained from the Internal Revenue
Service ("IRS") regarding the ADCS Restructure. Consequently, there can be no
assurance that the IRS or a court will agree with the tax treatment of the
ADCS Restructure.
70
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--THE ADCS GROUP
OVERVIEW
The ADCS Group was founded in 1988 to design, manufacture and market
ultrahigh purity thin film materials and their related delivery systems
equipment for the semiconductor and semiconductor equipment manufacturing
industries. The ADCS Group has derived revenues in varying degrees from the
sale of both product lines. Until the six month period ended June 30, 1997,
the ADCS Group's delivery systems equipment had accounted for an increasing
percentage of its total revenues. The six months ended June 30, 1997, however,
were inconsistent with the prior periods sales trend, as chemical revenues
accounted for an increasing percentage of total revenues during such period.
In the experience of the management of the ADCS Group, equipment sales
fluctuate as a result of customer purchasing patterns more than, and are more
cyclical than, thin film material sales. See "RISK FACTORS--Risk Factors
Related to the ADCS Group--Dependence on Semiconductor Industry." While demand
for thin film materials is somewhat less cyclical, the market for thin film
materials has become increasingly competitive, which may adversely affect the
prices the ADCS Group may charge. See "RISK FACTORS--Risk Factors Related to
the ADCS Group--Nature of Product." For purposes of the ADCS Group's financial
statements and the discussion contained herein, the thin film materials
designed, manufactured and sold by the ADCS Group are referred to as
"chemicals."
The ADCS Group's products address the CVD, diffusion and etch areas of the
semiconductor device manufacturing process. Chemical revenues for the calendar
years ended December 31, 1994, 1995 and 1996 and for the six months ended June
30, 1996 and 1997 were approximately $6,610,000, $9,194,000, $11,834,000,
$5,314,000 and $6,550,000 respectively, or approximately 85%, 59%, 54%, 48%
and 63% of the ADCS Group's combined total revenues for each of the periods,
respectively. Approximately two-thirds of each of the previous three years'
chemical revenues and approximately 62.0% and 40.6% for the six months ended
June 30, 1996 and June 30, 1997, respectively, are attributable to TEOS.
In 1995 the ADCS Group entered into a joint venture in South Korea with K.C.
Tech to form ADCS-Korea and establish a manufacturing facility in Anseong,
South Korea similar to its facility in Burnet, Texas. The ADCS Group owns a
70% interest in ADCS-Korea and is entitled to receive a royalty on the sale of
all products produced by ADCS-Korea. ADCS-Korea produced its first product in
the second quarter of 1996 but did not begin to receive qualifications for any
products' use by its customers until the first quarter of 1997. ADCS-Korea
operations became profitable during the quarter ended June 30, 1997. Start-up
losses from its operations through March 31, 1997 were approximately $473,000.
The following table sets forth the percentage relationship to total revenues
of certain items in the ADCS Group's Combined Statement of Operations:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------ ------------
1994 1995 1996 1996 1997
----------- ----- ----- ----- -----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Chemical revenue................... 84.5% 58.5% 53.7% 48.4% 62.7%
Equipment revenue.................. 15.5 41.5 46.3 51.6 37.3
----- ----- ----- ----- -----
Total revenue.................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues................... 23.1 30.9 29.8 31.1 36.7
----- ----- ----- ----- -----
Gross profit....................... 76.9 69.1 70.2 68.9 63.3
Selling, general & administrative
expense........................... 32.5 34.4 28.9 31.7 32.4
Research & development............. 7.2 9.5 10.0 10.1 9.5
----- ----- ----- ----- -----
Total expense.................... 39.7 43.9 38.9 41.8 41.9
----- ----- ----- ----- -----
Operating income................... 37.2 25.2 31.3 27.1 21.4
Other income, net.................. 0.3 0.0 1.0 1.4 1.1
----- ----- ----- ----- -----
Income before income taxes and mi-
nority interest................... 37.5 25.2 32.3 28.5 22.5
Minority interest.................. 0.2 0.1 0.7 0.6 (0.2)
----- ----- ----- ----- -----
Income before income taxes......... 37.7 25.3 33.0 29.1 22.3
Income tax provision............... 12.4 8.9 5.7 5.8 7.9
----- ----- ----- ----- -----
Net income......................... 25.3% 16.4% 27.3% 23.3% 14.4%
===== ===== ===== ===== =====
</TABLE>
71
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and June 30, 1996
Total Revenue. Total revenue decreased 5.0% to approximately $10,441,000 in
the six months ended June 30, 1997 from approximately $10,988,000 in the same
period in 1996. Chemical revenue increased 23.3% to approximately $6,550,000
in the six months ended June 30, 1997 from approximately $5,314,000 in the
same period in 1996. Equipment revenue decreased 31.4% to approximately
$3,891,000 in the six months ended June 30, 1997 from approximately $5,674,000
in the same period in 1996. The increase in chemical revenue was attributable
both to sales to new customers and to increased sales to existing customers.
The decrease in equipment revenue was primarily attributable to the
significant number of delivery system sales to end-use customers during the
six months ended June 30, 1996. Delivery system equipment sales to OEM
customers, principally Applied Materials, decreased 4.9% to approximately
$2,926,000 in the six months ended June 30, 1997 from approximately $3,076,000
in the same period in 1996, while there was no material revenue attributable
to delivery system equipment sales to end-use customers in the six months
ended June 30, 1997, compared to approximately $1,490,000 in the six months
ended June 30, 1996. As discussed above under the caption "RISK FACTORS--Risk
Factors Related to the ADCS Group--Dependence on a Single Customer," Applied
Materials has notified the ADCS Group that it intends to discontinue
purchasing the ADCS Group's delivery system equipment for resale to end users.
The decrease in delivery system equipment sales in the six months ended June
30, 1997 may be indicative of Applied Materials beginning to exercise its
announced intention. While the ADCS Group anticipates that delivery system
equipment sales to end-users would increase as OEM sales decrease, there can
be no assurance that such a trend will occur. See "RISK FACTORS--Risk Factors
Related to the ADCS Group--Dependence on a Single Customer" and "BUSINESS OF
THE ADCS GROUP--Customers."
Gross Profit. Gross profit decreased 12.8% to approximately $6,606,000 (or
63.3% of total revenue) in the six months ended June 30, 1997 from
approximately $7,572,000 (or 68.9% of total revenue) in the same period in
1996. The decline in gross profit for the six months ended June 30, 1997 from
the same period of 1996 was primarily attributable to the shift toward OEMs in
the customer base for delivery system equipment sales. OEM customers utilize
equipment purchased from the ADCS Group as a value added attachment to
equipment which they sell in the normal conduct of their business. As a
result, sales to OEM customers yield substantially lower profit margins than
direct sales to end-use customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 3.0% to approximately $3,379,000 in the six
months ended June 30, 1997 from approximately $3,483,000 in the same period in
1996. This decrease is primarily attributable to the fact that employee
bonuses allocable to selling, general and administrative earned in the six-
month period ended June 30, 1996 exceeded those earned in the six-month period
ended June 30, 1997.
Research and Development Expenses. Research and development expenses
decreased 9.9% to approximately $996,000 in the six months ended June 30, 1997
from approximately $1,105,000 in the same period in 1996. This decrease is
primarily attributable to the fact that employee bonuses allocable to research
and development earned in the six-month period ended June 30, 1996 exceeded
those earned in the six-month period ended June 30, 1997.
Other Income (Expense). Other income (expense), excluding minority interest,
decreased 19.9% to approximately $121,000 in the six months ended June 30,
1997 from approximately $151,000 in the same period in 1996. This decrease is
primarily attributable to a decrease in interest income resulting from a
decline in invested surplus funds in the six-month period of 1997 compared to
the six-month period of 1996.
Minority Interest. Minority interest represents K.C. Tech's 30% share of
losses incurred by ADCS-Korea and an additional minority shareholding in an
unrelated business.
Income Taxes. The effective tax rate increased 15.5% to approximately 35.4%
in the six months ended June 30, 1997 from approximately 19.9% in the same
period in 1996. The increase was primarily attributable to partnership tax
treatment of the ADCS Group for the second half of the six months ended June
30, 1996. If the
72
<PAGE>
ADCS Group had been taxed as a corporation for the entire six-month period,
the effective tax rate would have approximated 37.1% for the six months ended
June 30, 1996 and the corresponding decrease in the effective tax rate would
be attributable to lower state income taxes in 1997.
Years Ended December 31, 1996, 1995 and 1994
Total Revenue. Total revenue increased 40.3% to approximately $22,041,000 in
1996 from approximately $15,715,000 in 1995, and increased 100.9% in 1995 from
approximately $7,821,000 in 1994. Chemical revenue increased by 28.7% to
approximately $11,834,000 in 1996 from approximately $9,194,000 in 1995, and
increased 39.1% in 1995 from approximately $6,610,000 in 1994. The increase in
chemical revenue was primarily attributable to increased sales to existing
customers experiencing rapid growth or expansion, but also included increases
from gains in market share. Equipment revenue increased 56.5% to approximately
$10,207,000 in 1996 from approximately $6,521,000 in 1995 and increased 438.5%
in 1995 from approximately $1,211,000 in 1994. The increase in equipment
revenue was primarily attributable to the introduction of the patented ADCS
automatic refill system and the successful marketing of these systems through
the OEM channel, primarily Applied Materials. However, as discussed above
under the caption "RISK FACTORS--Risk Factors Related to the ADCS Group--
Dependence on a Single Customer," Applied Materials has notified the ADCS
Group that it intends to discontinue purchasing the ADCS Group's delivery
system equipment for resale to end users. Therefore, there can be no assurance
that this trend will continue. See "RISK FACTORS--Risk Factors Related to the
ADCS Group--Dependence on a Single Customer" and "BUSINESS OF THE ADCS GROUP--
Customers."
Gross Profit. Gross profit increased 42.6% to approximately $15,474,000 in
1996 from approximately $10,855,000 in 1995 and increased 80.5% in 1995 from
approximately $6,015,000 in 1994. Gross margin increased to 70.2% of revenues
in 1996 from 69.1% of revenues in 1995 and decreased in 1995 from 76.9% of
revenues in 1994. The decline in gross margin since 1994 was primarily
attributable to the shift in product mix toward delivery system equipment
which yields lower margins than chemicals. To a lesser degree, the decline in
gross margin was due to aggressive initial pricing on new delivery system
equipment configurations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.7% to approximately $6,365,000 in 1996
from approximately $5,407,000 in 1995 and increased 113.0% in 1995 from
approximately $2,539,000 in 1994. The increase in 1996 resulted from the
employment of five new administrative personnel in the headquarters facility
and three new administrative personnel in the manufacturing facility. ADCS-
Korea start-up expenses accounted for approximately $438,000 of the 1996
increase. The increase in 1995 was primarily attributable to bonuses earned in
1995, which exceeded those earned in 1994.
Research and Development Expenses. Research and development expenses
increased 48.4% to approximately $2,212,000 in 1996 from approximately
$1,491,000 in 1995 and increased 163.4% in 1995 from approximately $566,000 in
1994. The increase in 1996 was primarily attributable to the different salary
allocation formulas utilized for total salary allocation to selling, general
and administrative, and research and development expenses in 1996 and 1995.
The different formulas were based on departmental workload allocations
relative to several employees serving in more than one employment capacity and
resulted in a larger allocation to research and development expenses in 1996.
The increase was also due in part to the employment of two additional
personnel and increased legal fees relating to patent application filings for
the period. The increase in 1995 was primarily attributable to bonuses earned
in 1995, which exceeded those earned in 1994.
Other Income (Expense). Other income (expense), excluding minority interest,
increased 7,500.0% to approximately $228,000 in 1996 from approximately $3,000
in 1995 and decreased 87.0% in 1995 from approximately $23,000 in 1994. The
increase in 1996 was primarily attributable to interest income earned from the
investment of approximately $4,000,000 in surplus funds which were not
available in 1995 and previous years. The 1995 decrease was primarily
attributable to the recognition of a nonrecurring loss on the disposition of
real estate purchased to facilitate the move of an employee.
73
<PAGE>
Minority Interest. Minority interest represents K.C. Tech's 30% share of the
losses incurred by ADCS-Korea and an additional minority shareholding in an
unrelated business.
Income Taxes. The effective tax rate decreased to approximately 17.2% in
1996 from approximately 35.0% in 1995 and increased from approximately 32.9%
in 1994. The decrease in 1996 was attributable to partnership tax treatment of
the ADCS Group for approximately one-half of that year. The increase from 1994
to 1995 was primarily attributable to utilization of research and development
tax credits in 1994, which were not available in 1995. The historical
effective tax rates in the tax years 1994-1996 reflect substantial deductions
taken for business expenses. Management of the ADCS Group has identified and
analyzed these deductions taken on the ADCS Group's 1994-1996 tax returns and
believes that if these deductions are challenged, management has meritorious
defenses. The ADCS Group would vigorously defend the deductions and believes
that any adjustments resulting from a challenge to these deductions would not
be material to the Combined Financial Statements of the ADCS Group.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the ADCS Group's funding requirements have been met by cash
flow from operations, and the ADCS Group believes that it currently has
available cash funds that are adequate to meet its projected working capital
and other cash requirements through 1998. The ADCS Group has no current plans
to raise additional capital.
Net cash used in operations was approximately $399,000 for the six-month
period ended June 30, 1996 and net cash provided from operations was
approximately $308,000, $3,091,000, $2,730,000 and $2,315,000 for the six-
month period ended June 30, 1997 and the fiscal years ended December 31, 1996,
1995, and 1994, respectively.
The ADCS Group's investing activities included capital expenditures of
approximately $737,000 and $949,000 for the six-month periods ended June 30,
1997 and 1996, respectively. Capital expenditures for the years ended December
31, 1996, 1995 and 1994 were approximately $2,225,000, $1,656,000 and
$1,052,000, respectively. Capital expenditures for the purchase of reusable
canisters, which house and deliver the chemicals used by the delivery systems,
comprised approximately 31% and 44% for the six months ended June 30, 1997 and
1996, respectively, and 43%, 33% and 31% for the years ended December 31,
1996, 1995 and 1994, respectively, of total capital expenditures. Capital
expenditures for ADCS-Korea plant and equipment totaled approximately $34,000,
$536,000, $852,000 and $895,000 for the six-month periods ended June 30, 1997
and 1996 and for the years ended December 31, 1996 and 1995, respectively.
Financing activities include the payment of approximately $1,792,000 in
distributions to shareholders for the payment of individual income taxes
relative to the period of time from April 1, 1996 through October 7, 1996, for
which the operations of the ADCS Group were taxed as a partnership.
INFLATION
The ADCS Group does not believe that inflation had a significant impact on
its results of operations during the periods and years for which financial
statements are included herein.
74
<PAGE>
MANAGEMENT OF THE ADCS GROUP
BOARD OF DIRECTORS
The Board of Directors of ADCS Nevada, the entity within the ADCS Group
which assumes primary responsibility for managing the operations of the ADCS
Group, consists of Stephen H. Siegele, Frederick H. Siegele and Frederick J.
Siegele.
OFFICERS
The following individuals serve as officers and senior managers of the ADCS
Group:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen H. Siegele......... 37 President and Chief Executive Officer
Curtis D. Logan............ 60 Chief Financial Officer
Frederick J. Siegele....... 32 Vice President, Secretary and General Counsel
Robert M. Jackson.......... 38 Vice President of Manufacturing
Frederick H. Siegele....... 66 Director of Research
Richard L. Hazard.......... 52 Vice President of Marketing
Andy J. Krell.............. 35 Global Sales Manager
John N. Gregg.............. 37 Director of Engineering
</TABLE>
STEPHEN H. SIEGELE, a co-founder of the ADCS Group, has served as President
and Chief Executive Officer of the ADCS Group since February 1994 and as a
director since its inception in 1988. He previously served as Vice President
of the ADCS Group from its inception until February 1994.
CURTIS D. LOGAN, a certified public accountant, has served as the ADCS
Group's Chief Financial Officer since 1995. From 1993 to 1995, Mr. Logan
served as Senior Vice President and Chief Financial Officer of Bollinger
Industries, Inc., a publicly traded sporting goods company, and from 1989 to
1993, he served as Chief Financial Officer, among other positions, for Walter
Bennett Communications, a privately held advertising agency. Previously, Mr.
Logan worked in the practice of public accounting for more than 20 years.
FREDERICK J. SIEGELE has served as Vice President, Secretary and as a
director of the ADCS Group since February 1994. He has been the ADCS Group's
General Counsel since 1991.
ROBERT M. JACKSON has served as the ADCS Group's Vice President of
Manufacturing since February 1994. From 1988 to February 1994, Mr. Jackson
served as Plant Manager of the ADCS Group.
FREDERICK H. SIEGELE, a co-founder of the ADCS Group, has served as the ADCS
Group's Director of Research since February 1994 and as a director since its
inception. From its inception until February 1994, Mr. Siegele served as
President of the ADCS Group.
RICHARD L. HAZARD has served as Vice President of Marketing of the ADCS
Group since September 1996. From 1984 to 1996, he served as director of world-
wide marketing for Matrix Integrated Systems, Inc., a semiconductor equipment
manufacturing company.
ANDY J. KRELL has served as Global Sales Manager of the ADCS Group since
August 1995. Previously, Mr. Krell served as the ADCS Group's East Coast
Regional Sales Manager from 1991 until August 1995.
JOHN N. GREGG has served as the ADCS Group's Director of Engineering since
February 1994. From 1990 until February 1994, Mr. Gregg served in various
engineering capacities with the ADCS Group.
Frederick H. Siegele is the father of Stephen H. Siegele and Frederick J.
Siegele.
75
<PAGE>
EXECUTIVE COMPENSATION
The Merger and Exchange Agreement provides that promptly following the
Closing, Holdings will take all actions necessary to nominate and elect
Stephen H. Siegele as a Class III member of the Board of Directors of
Holdings. No other director or executive officer of the ADCS Group will serve
as a director or executive officer of Holdings immediately following the
Closing. In 1994, 1995, and 1996, Mr. Siegele received total compensation,
including salary, bonus and other compensation, from the ADCS Group, of
$1,055,833, $3,047,815, and $2,765,000, respectively. The Merger and Exchange
Agreement provides that Holdings' and the Company's obligations to consummate
the Reorganization are subject to the condition that Stephen H. Siegele, among
others, enter into an employment agreement with the ADCS Group or the Company,
as the Company may determine, which will govern the terms of Mr. Siegele's
employment after the Reorganization. Among other things, Mr. Siegele's
employment agreement will provide for a salary of $400,000 per annum, subject
to increases to take into account appropriate cost of living adjustments and
general increases based on performance. See "THE REORGANIZATION--Interests of
Certain Persons in the Reorganization" and "THE REORGANIZATION--Employment
Agreements."
RELATED TRANSACTION
Upon its relocation to Austin, Texas from San Jose, California, the ADCS
Group purchased Stephen H. Siegele's California home as part of his relocation
package. The ADCS Group recorded a loss of approximately $50,000 for the year
ended December 31, 1996 upon the subsequent sale of this house.
76
<PAGE>
BENEFICIAL OWNERSHIP OF ADCS INTERESTS
The following table sets forth certain information regarding the beneficial
ownership of the ADCS Interests as of the Record Date by (i) each person known
by the ADCS Group to own beneficially more than five percent of the ADCS
Interests, (ii) each director of ADCS Nevada, (iii) each executive officer of
the ADCS Group, and (iv) all directors and executive officers of the ADCS
Group as a group. Except as otherwise indicated, all shares are owned
directly. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table have sole voting and
investment power with respect to all the ADCS Interests shown as beneficially
owned by them. The numbers have been rounded to the nearest tenth or one-
thousandth, as applicable.
<TABLE>
<CAPTION>
ADCS NEVADA ADCS MANAGER ADCS HOLDINGS(2) AGGREGATE
----------------- ----------------- ------------------- PERCENTAGE OF
BENEFICIAL OWNER(1) SHARES % INTEREST SHARES % INTEREST UNITS % INTEREST ADCS INTERESTS
- ------------------- ------ ---------- ------ ---------- ----- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen H. Siegele...... 414.5 68.4% 414.5 68.4% 0.684(3) 0.684%(3) 68.4%
F.H.S. Investments,
Ltd. .................. 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5%
Frederick H.
Siegele(4)............. 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5%
Bernard McKeown......... 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5%
Frederick J. Siegele.... 19.8 3.3% 19.8 3.3% 0.033 0.033% 3.3%
Robert M. Jackson....... 9.9 1.6% 9.9 1.6% 0.016 0.016% 1.6%
Curtis D. Logan......... -- * -- * -- * *
All directors and execu-
tive officers as a
group (five persons)... 513.6 84.8% 513.6 84.8% 0.848(3) 0.848%(3) 84.8%
</TABLE>
- --------
* Less than 1%
(1) Each named person's address is 6805 Capital of Texas Highway, Suite 330,
Austin, Texas 78731, except for Bernard McKeown, whose address is 12931
Drury Lane, Plymouth, MI 48170.
(2) The ADCS Holders collectively beneficially own one Unit, or 1%, of ADCS
Holdings. The remaining 99 Units, or 99% of the membership interests in
ADCS Holdings are held of record by ADCS Nevada, all of which is in turn
owned by the ADCS Holders. Only the one Unit, or 1% of the membership
interests in ADCS Holdings, collectively held directly by the ADCS Holders
will be exchanged for Holdings Common Stock. The 99 Units held of record
by ADCS Nevada will not be exchanged for Holdings Common Stock and will
remain held of record by ADCS Nevada as of the Closing Date.
(3) In addition to the 0.684 Units owned directly, Stephen H. Siegele may be
deemed the beneficial owner of the remaining 99 Units, or 99% of the
membership interests in ADCS Holdings. Stephen H. Siegele is the
beneficial owner of 68.4% of the Common Stock of ADCS Nevada and as such
may be deemed the beneficial owner of such remaining 99 Units, or 99% of
the membership interests in ADCS Holdings, which are held of record by
ADCS Nevada. Stephen H. Siegele disclaims beneficial ownership of all but
68.4% of 99%, or 67.7%, of the Units representing the membership interests
in ADCS Holdings. Only the one Unit, or 1% of the membership interests in
ADCS Holdings, collectively held directly by the ADCS Holders will be
exchanged for Holdings Common Stock. See Note (2) above.
(4) Frederick H. Siegele is the sole General Partner of F.H.S. Investments,
Ltd., a Texas limited partnership ("FHS"), and as such may be deemed a
beneficial owner of the shares held by FHS. However, Frederick H.
Siegele's general partnership interest only entitles him to a 1% interest
in FHS. The remaining 99% limited partnership interests in FHS are owned
as follows: (i) 33% by the Frederick J. Siegele Irrevocable Trust of which
Frederick J. Siegele is the sole beneficiary, (ii) 33% by the Stephen H.
Siegele Irrevocable Trust of which Stephen H. Siegele is the sole
beneficiary and (iii) 33% by the Stuart F. Siegele Irrevocable Trust of
which Stuart F. Siegele is the sole beneficiary. None of the limited
partners in FHS have or share any right to vote the ADCS Interests held by
FHS or have or share any investment power with respect to such ADCS
Interests held by FHS. Accordingly, each of such limited partners
disclaims beneficial ownership of the ADCS Interests held of record by
FHS. Frederick H. Siegele disclaims beneficial ownership of all but 1% the
ADCS Interests held of record by FHS which are attributable to him as a
result of his 1% general partnership interest.
77
<PAGE>
BUSINESS OF LAWRENCE
GENERAL
Lawrence is an outsourcer of epitaxial processing of silicon wafers using
CVD technology to meet customer specifications. Epitaxial processing is one of
many steps involved in transforming a silicon wafer into a semiconductor chip,
the primary functional component of most electronic products, and has the
purpose of, among other things, allowing for improved isolation of circuits,
establishing electrical uniformity throughout the wafer and determining the
electrical characteristics of the finished device. Epitaxial structures are
utilized primarily on complex electronic devices that would not be
manufacturable on a prime polished wafer alone. Lawrence focuses on advanced
epitaxial structures for a broad array of technologies including CMOS, BiCMOS,
Bipolar, CCD Imager, Smart Sensor and Heteroepitaxial structures. The majority
of these structures are produced on prime wafers that have undergone previous
processing steps and involve buried circuit elements under the epitaxial
layer(s).
Lawrence assists customers in product and process development as well as
provides outsourced epitaxial processing during production. Lawrence serves a
broad application base comprising discrete semiconductors, integrated
circuits, sensors and micromachined/non-electronic products, and various
segments of the electronics industry including computers, telecommunications,
industrial, consumer, aerospace and medical.
BACKGROUND
The epitaxial process involves the growth of a layer of silicon on the
surface of a prime polished silicon wafer by aligning the atoms of silicon
perfectly with the silicon atoms in the underlying substrate wafer, resulting
in superior electronic performance. The epitaxial layer eliminates deformities
resulting from mechanical polishing and etching and creates a region in which
the ultimate device structure is formed by the manufacturer. Lawrence
specializes in complex applications for which a generic epitaxial structure is
inadequate to achieve the desired performance features. The Lawrence process
often includes creating an epitaxial layer over buried circuits and other
mechanisms that are patterned and implanted before the epitaxial layer is
grown. Lawrence uses a process known as vapor-phase single crystal growth in
processing approximately 50,000 highly specialized custom wafers per month. In
addition to the performance characteristics attained, epitaxial wafers in
general result in increased yields of good chips per wafer due to a more
uniform surface and consistent electrical characteristics.
Epitaxial wafers may be broken down into two categories: specialty epitaxial
and standardized epitaxial. The primary difference relates to the level of
value added in the production process. Standardized wafers are more suited to
large production runs, with a single variety of wafer used in large numbers of
end products. The engineering is simpler: standardized wafers usually consist
of a single epitaxial layer over a polished silicon wafer. As such, they are
employed in mass quantities in end products and the alterations necessary to
customize the chip from one product to the next are neither complex nor time
consuming. Specialty epitaxial wafers are the result of a far more complex
processing. Generally, the epitaxial layer is grown from a single crystal, not
upon a simple polished silicon wafer, but on top of several additional doped
layers that have been patterned and implanted (or "buried") onto the silicon
wafer. Doping is the process by which an element is introduced into the
crystal lattice structure of silicon providing the free electrons necessary
for electricity to flow through the resulting material.
Lawrence engineers establish recipes to process wafers to customized
specifications and with extremely precise tolerances. To achieve such
formulas, engineers must precisely correlate measurements so that all
specifications can be satisfied simultaneously. Lawrence has the capability to
minimize variances in thickness and resistivity to 2% and 4%, respectively.
During the early stages of product development, Lawrence assists customers
in product engineering and performs test runs in developmental quantities.
Over time, these developmental quantities evolve into production as the
devices are perfected, qualified and accepted by the customers' customers. The
gestation period runs
78
<PAGE>
between three and four years for today's complex devices. Lawrence's extensive
process development effort often results in Lawrence processes being
incorporated into customers' next-generation products. Lawrence believes that
its initial investment in its customers' product development efforts has
created a competitive advantage by developing customer relationships and
keeping Lawrence abreast of its customers' needs and the industry's overall
direction.
INDUSTRY
Lawrence believes that the demand for smaller, faster and more powerful
electronic devices has made the improved isolation of chip elements,
electrical uniformity and other advanced performance characteristics provided
by an epitaxial layer imperative to a number of end products. Lawrence further
believes that for certain advanced switching devices, complex sensors,
industrial controls and other emerging products in which Lawrence's process is
designed, a highly-engineered epitaxial structure is the critical element to
end product performance and ultimately the commercial success of the product.
Silicon wafers are the starting point for the manufacture of semiconductors.
Pure silicon is one of the most refined materials in the world, and wafers
must be produced to meet purity requirements measured in parts per billion as
well as critical customer dimensions measured in thousands of angstroms (one
ten-billionth of a meter). However, even highly refined silicon does not meet
the performance characteristics demanded by advanced semiconductor device
manufacturers. Epitaxial processing allows chips to overcome some of the
natural limitations of silicon, giving rise to a large and growing market. The
improved isolation of the different elements of the chip provided by epitaxial
wafers allows for increased performance and reliability in the finished
semiconductor device. If these circuits are not sufficiently isolated, latch-
up, or electrical, communication between circuits occurs, and the entire chip
can be rendered inoperable.
While all epitaxial wafers prevent latch-up, more complex electrical devices
require even higher levels of chip sophistication than just an epitaxial layer
over a prime polished silicon wafer. These complex devices require highly
engineered, application-specific, specialty epitaxial wafers. These wafers can
enhance the productivity of advanced memory chips and digital integrated
circuits. In other devices, such as bipolar, BiCMOS and smart sensors,
specialty epitaxial wafers are imperative.
Lawrence believes that, because of their unique advantages, use of epitaxial
wafers is on the rise. Historically, given their higher cost, epitaxial wafers
have not been considered suitable for a number of applications in the
semiconductor industry. In areas where higher performance characteristics are
not a necessity, the additional cost can be prohibitive.
Lawrence believes four factors are driving the increasing use of epitaxial
wafers in the semiconductor industry. The first is the growth in the
semiconductor industry itself. The demand for silicon wafers is projected to
increase at a combined annual growth rate of approximately 14% from 1992 to
2001 according to Dataquest, Inc. ("Dataquest"), a semiconductor market
research firm. The second growth driver is that the demand for epitaxial
wafers is not expected to remain a constant proportion of overall wafer
demand. As electronic devices and semiconductors continually become more
complex and more highly engineered, the requirement for better performing
chips increases, raising the overall demand for epitaxial wafers. As a result,
growth rate is projected to increase 18.6% from 1992 to 2002 for all epitaxial
wafers according to Dataquest. According to Dataquest, epitaxial wafer output
was 520 million square inches in 1995, a number which is expected to more than
double by 2000, exceeding one billion square inches. The third factor is
yield. The increasing cost of chip fabrication has forced manufacturers to
produce increasingly higher yields to justify the associated capital costs of
the fabrication facilities. The fourth factor is that the highly engineered
and application-specific nature of specialty wafers offer what Lawrence
believes is a unique functionality that provides competitive differentiation.
Historically, electronics and semiconductor manufacturers developed and
produced in-house the particularly complex, application specific epitaxial
structures on which Lawrence focuses since large wafer manufacturers generally
provide only high-volume epitaxial structures applied directly to prime wafers
prior to any other
79
<PAGE>
processing. Through outsourcing complex epitaxial structure development and
processing, Lawrence's customers are free to focus on their core competencies
of product development, manufacturing and marketing. With the increasing
complexity of electronic devices, electronics and semiconductor manufacturers
must continually develop advanced products and produce them at a competitive
cost. These factors are driving manufacturers to seek application-specific
solutions that can be provided from product development through full-scale
production. Lawrence believes that semiconductor and electronics companies
perform in-house the vast majority of specialty epitaxial processing,
representing what Lawrence sees as its most significant opportunity.
BUSINESS STRATEGY
Lawrence's principal strategy is to seek new epitaxial processing
applications through the coordination of its process development and
processing capabilities and through close collaboration with customers during
the life cycles of their end products. The increasing complexity of electronic
devices drives electronics and semiconductor manufacturers to develop advanced
products and to produce them at a competitive cost. Manufacturers seek
application-specific solutions that can be provided from product development
through full-scale production.
Lawrence's core business is focused on smaller, emerging, customized
production lots versus large orders for standardized epitaxial processing.
Lawrence strives to continually develop its process to meet the performance
requirements of customers' emerging products. Lawrence believes that the
precision required by Lawrence's customers and the complexity involved in
achieving precise specifications makes Lawrence's processes very difficult for
competitors to duplicate.
In order for Lawrence to achieve its goal of becoming a "virtual" component
of its customers' manufacturing processes, quick turnaround of incoming orders
is essential. Lawrence targets a utilization rate of 80% of capacity so that
it can fulfill orders in times of unforeseen demand. Additionally, Lawrence's
rigid process controls are designed to improve its customers' profitability
through obtaining high yields of wafers within specifications. Lawrence's
customers have committed significant resources to the wafers that are sent to
Lawrence for processing. Many of these wafers already contain buried circuits
and other structures that are patterned and implanted before the epitaxial
layer is grown.
Lawrence combines its applications expertise with strong process controls
aimed at achieving efficient production. Utilization of reactors is maximized
by a 24 hours-per-day, seven days-a-week operation. Lawrence's capability to
perform all repair and maintenance functions for the reactors, including
quartz repair, reduces downtime for the reactors.
CUSTOMERS AND SUPPLIERS
The table below illustrates Lawrence's sales breakdown by application for
the year ended December 31, 1996 as rounded to the nearest whole percentage.
<TABLE>
<S> <C>
Integrated Circuits.................................................... 58%
Discrete Semiconductor Devices......................................... 20%
Sensor Applications.................................................... 18%
Micromachined and Non-electronic Applications.......................... 4%
</TABLE>
The table below illustrates Lawrence's sales breakdown by end product
industry for the year ended December 31, 1996 as rounded to the nearest whole
percentage.
<TABLE>
<S> <C>
Industrial............................................................. 23%
Auto Safety............................................................ 21%
Disk Drive............................................................. 21%
Telecommunications..................................................... 17%
Medical................................................................ 8%
Consumer............................................................... 4%
Other.................................................................. 6%
</TABLE>
80
<PAGE>
Lawrence is materially dependent on a limited number of customers. See "RISK
FACTORS--Risks Related to Lawrence--Dependence on Particular Customers."
In addition, Lawrence's manufacturing process is materially dependent upon
the availability of certain materials, certain of which are available from
time to time only from a single source. See "RISK FACTORS--Risks Related to
Lawrence--Risks Associated with Manufacturing Operations."
COMPETITION
Lawrence has many competitors who have substantially greater financial and
other resources than Lawrence. Lawrence expects continued competition from
existing competitors as well as competition from new entrants in the
semiconductor market. Increased competition could result in price reduction,
reduced margins and loss of market share, any of which could materially
adversely affect Lawrence's business, financial condition and results of
operations. See "RISK FACTORS--Risks Related to Lawrence--Competition; Growth
Strategy."
BACKLOG
As of December 31, 1996, Lawrence had no material backlog of processing
orders. Lawrence considers as firm backlog (i) orders for processing to be
completed within six months of the backlog date and (ii) fully executed and
funded research contract awards.
PROPRIETARY RIGHTS
Lawrence relies upon trade secrets, unpatented know-how, continuing
technological innovation and the aggressive pursuit of licensing opportunities
in order to develop and maintain its competitive position. Lawrence requires
undertakings from all employees, certain former employees, and most
consultants, advisers, sponsored researchers and outside scientific
collaborators regarding the confidential nature of Lawrence's processes upon
the commencement of employment or consulting relationships with Lawrence.
These agreements provide that all confidential information developed or made
known to the individual during the course of the individual's relationship
with Lawrence is to be kept confidential and not disclosed to third parties,
except in specific circumstances. All of Lawrence's employees have entered
into agreements providing for the assignment of rights to inventions made by
them while in the employ of Lawrence. See "RISK FACTORS--Risks Related to
Lawrence--Lack of Protection for Proprietary Technologies."
RESEARCH AND DEVELOPMENT
Lawrence has not incurred research and development expenses as those
expenses are generally borne by the customer.
ENVIRONMENTAL REGULATION
Lawrence uses, generates and discharges toxic, volatile or otherwise
hazardous chemicals and wastes in its processing activities. Therefore,
Lawrence is subject to a variety of federal, state and local governmental
laws, rules and regulations related to the storage, use and disposal of these
materials. Lawrence believes that it has all the permits necessary to conduct
its business. However, the failure to comply with present or future laws,
rules and regulations could result in fines or other liabilities being imposed
on Lawrence, suspension of production or a cessation of operations. While
Lawrence believes that it has properly handled its hazardous materials and
wastes and has not contributed to any on-site contamination or environmental
condition at its premises in Mesa, Arizona and Tempe, Arizona, and although
Lawrence required Phase I environmental testing of the property on which its
Mesa facility was constructed, prior to construction and occupancy, these
premises may have been contaminated prior to Lawrence's occupancy. Lawrence is
not aware of any environmental investigation, proceeding or action by federal
or state agencies involving these premises. However, under certain federal and
state statutes and regulations, a government agency may seek recovery and
response costs from both operators and owners of property where releases of
hazardous substances have occurred or are ongoing. Lawrence's activities may
also result in its being subject to additional regulation. Such regulations
could require Lawrence to acquire significant additional equipment or to incur
other substantial expenses to comply with environmental regulations. Any
failure by Lawrence to control the use of, or to restrict adequately the
discharge of, hazardous
81
<PAGE>
substances could subject it to substantial financial liabilities and could
have a material adverse effect on Lawrence's business, operating results and
financial condition. See "RISK FACTORS--Risks Related to Lawrence--
Environmental Regulations."
LITIGATION
Applied Materials, Inc. vs. Advanced Semiconductor Materials of America,
Inc. Beginning in 1991, Applied Materials brought several lawsuits against ASM
for willful infringement, alleging that the ASM Epsilon One(TM) atmospheric
reactors infringe several patents owned by Applied Materials. On April 26,
1994, in the first case to be tried, the trial court found that the ASM
Epsilon One(TM) atmospheric reactor is an infringing device and entered a
modified injunction against ASM. In a subsequent trial, the trial court also
found that ASM's reduced pressure reactors also infringed upon additional
Applied Materials' patents. Reduced pressure reactors are not as widely used
by Lawrence. No attempt has been made to date to enjoin Lawrence's use of
either the atmospheric or reduced pressure reactors.
On October 24, 1996, the Court of Appeals for the Federal Circuit affirmed
in part, and reversed in part, the trial court's decision involving the
atmospheric reactors. It upheld by a 2-1 ruling of the panel that ASM had
failed in its efforts to prove Applied Materials' 609 patent invalid although
it was successful in proving the invalidity and/or non-infringement of two
other patents of Applied Materials. In a companion appeal, the court upheld
the finding that the ASM reduced pressure reactors also infringed U.S. patents
held by Applied Materials.
Applied Materials, Inc. vs. Lawrence Semiconductor Laboratories, Inc. In
July 1996, Applied Materials brought suit against Lawrence in the United
States District Court, Northern District of California, San Jose Division,
Applied Materials vs. Lawrence Semiconductor Laboratories, Inc. (C-96
20591EAI), alleging that Lawrence's use of the ASM Epsilon One(TM) atmospheric
and reduced pressure reactors constitute acts of willful infringement of four
of the patents that are at issue in the ASM litigation. On May 15, 1997,
Lawrence settled the patent infringement litigation with Applied Materials.
Under the terms of the related settlement agreement, Lawrence agreed to pay
Applied Materials $2,000,000 and to purchase chemical reactors from Applied
Materials assuming Lawrence's business conditions justify such purchases. Such
conditions include growth in customer requirements necessitating the addition
of epitaxial processing capacity, such chemical reactors meeting the
requirements of Lawrence and its customers and the chemical reactors being
competitive in terms of price and productivity with other acceptable market
alternatives. Although the agreement specifies annual chemical reactor
purchase requirements for years 1997 through 2002, such requirements are not
cumulative in the event business conditions do not warrant the required
purchases in any given year. Lawrence anticipates purchasing one chemical
reactor in 1997 at an approximate cost of $2,500,000 with installation
expected during the second half of the year. Lawrence accrued the $2,000,000
relating to this settlement in 1996 financial statements. Under patent
regulations, once damages have been assessed and a settlement reached,
Lawrence will be entitled to use the equipment without further infringement or
claim for damages. The litigation was dismissed with prejudice on June 12,
1997.
EMPLOYEES
As of June 30, 1997, Lawrence employed 82 persons. None of Lawrence's
employees is represented by a labor union. Lawrence has not experienced any
work stoppages to date and believes its relationship with its employees is
good.
PROPERTIES
Lawrence owns its corporate headquarters which are located at 550 West
Juanita, Mesa, Arizona. This facility measures 33,353 square feet and is
expandable to 50,000 square feet. Lawrence obtains certain of its
manufacturing equipment by entering into capital leases while other equipment
is held subject to liens on the related equipment securing notes payable.
82
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--LAWRENCE
OVERVIEW
LSL was founded in 1988 and LSLMS was founded in 1991. Lawrence provides
epitaxial service to its customers, and Lawrence works closely with its
customers in designing their processes.
The following table sets forth the percentage relationship to net sales of
certain items in the Lawrence combined statements of income:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 54.9 53.9 51.2 46.9 60.0
------- ------- ------- ------- -------
Gross profit.................. 45.1 46.1 48.8 53.1 40.0
Selling, general &
administrative expense....... 16.5 13.3 13.4 11.1 14.4
Litigation settlement......... -- -- 9.9 -- --
------- ------- ------- ------- -------
Total expense................. 16.5 13.3 23.3 11.1 14.4
------- ------- ------- ------- -------
Operating income.............. 28.6 32.8 25.5 42.0 25.6
Other income, net............. 6.9 9.8 4.1 3.6 5.3
------- ------- ------- ------- -------
Income before income taxes.... 21.7 23.0 21.4 38.4 20.3
Income tax provision.......... 8.8 9.5 8.2 14.8 8.0
------- ------- ------- ------- -------
Net income.................... 12.9% 13.5% 13.2% 23.6% 12.3%
======= ======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and June 30, 1996
Net Sales. Net sales decreased by 10.4% during the first half of 1997
compared to the corresponding period in 1996. This decrease resulted primarily
from certain of Lawrence's customers not being in production during the first
ten days of 1997, a situation which did not occur in 1996, as well as reduced
processing capacity during the relocation from a leased facility in Tempe,
Arizona to a new company-owned facility located in Mesa, Arizona. The
relocation started during the second half of 1996 and was completed on July
19, 1997 as described below. Production capacity was reduced during this
period due to the relocation and subsequent testing required for the Company's
reactors to be qualified by the customer.
Gross Profit. Gross profit as a percentage of net sales decreased from 53.1%
in the first half of 1996 to 40.0% in the first half of 1997. This decrease
resulted from a shift to a less profitable sales mix coupled with higher
production costs. The increase in cost of sales resulted primarily from the
consolidation activities and transition costs related to the move to the new
company-owned facility. During the first six months of 1997 Lawrence included
$873,000 in cost of sales for redundant labor and overhead expenses related to
the consolidation. As of July 19, 1997, the consolidation was complete and all
activities have been relocated to Mesa.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of net sales increased to 14.4% in
1997 from 11.1% in the same period in 1996 as a result of increased executive
compensation.
Research and Development Expenses. Lawrence does not have research and
development expenses as such costs are borne by its customers.
83
<PAGE>
Income Taxes. The provision for income taxes as a percentage of net sales
decreased from 14.8% in 1996 to 8.0% in 1997, primarily as a result of lower
pretax income; however, Lawrence's effective income tax rate remained
relatively consistent between periods.
Years Ended December 31, 1996, 1995 and 1994
Net Sales. Net sales increased 40.7% to approximately $20,271,000 in 1996
from approximately $14,409,000 and increased 100.7% in 1995 from approximately
$7,178,000 in 1994. These increases resulted primarily from increased
processing services for existing customers.
Gross Profit. Gross profit increased 48.8% to approximately $9,887,000 in
1996 from approximately $6,645,000 in 1995 and increased 105.4% in 1995 from
approximately $3,235,000 in 1994. Gross profit as a percentage of net sales
increased to 48.8% in 1996 from 46.1% in 1995 up from 45.1% in 1994 as the
components of cost of sales, primarily plant labor and equipment related
expenses, remained relatively consistent as a percentage of net sales. Margin
improvements resulted from improved operating efficiencies caused by increased
throughput.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 41.3% to approximately $2,715,000 in 1996
from $1,921,000 in 1995 and increased 62.7% in 1995 from approximately
$1,181,000 in 1994. These increases were attributable to increased salaries
for sales personnel corresponding to increases in net sales. As a percentage
of net sales, these expenses increased to 13.4% in 1996 from 13.3% in 1995 and
decreased in 1995 from 16.5% in 1994. Income from operations in 1996 also
reflected a $2,000,000 charge resulting from settlement of patent litigation
by Lawrence in May 1997.
Research and Development Expenses. Lawrence does not have research and
development expenses, as such costs are borne by the customer.
Income Taxes. The provision for income taxes increased in 1996 from 1995 and
in 1995 from 1994 as a result of similar increases in taxable income as
Lawrence's effective tax rate remained relatively consistent between years.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Lawrence has met its capital requirements through cash flow
from operations, commercial financing, capital leases and operating leases for
equipment and real property. Total outstanding principal balances on notes
payable and capital leases were approximately $16,404,000 and $13,940,000 at
June 30, 1997 and December 31, 1996, respectively. Lawrence has commitments
from two lessors to provide capital lease financing totaling $3,400,000 during
the remainder of 1997. One of the commitments requires Lawrence to maintain
compliance with debt to tangible net worth and debt service coverage ratios as
defined in the related agreement.
Certain of the notes payable contain covenants requiring Lawrence to
maintain compliance with debt to tangible net worth, debt service coverage and
current assets to current liabilities ratios as defined in the related
agreement. At December 31, 1996, Lawrence was not in compliance with the debt
(defined as all liabilities) to tangible net worth ratio of 3.0 to 1.0, and
such violation continued into 1997. Additionally, subsequent to December 31,
1996, Lawrence was not in compliance with the covenant requiring the
maintenance of a ratio of current assets to current liabilities of at least
1.2 to 1.0. On June 10, 1997, the lender agreed to waive these covenant
violations through September 30, 1997. Although Lawrence believes that it will
be able to maintain compliance with all specified ratios subsequent to
September 30, 1997, there can be no assurance that it will be able to do so
or, in the event of noncompliance, that it will be able to secure future
waivers from the lender, which non-compliance or failure to secure waivers
could have a material adverse effect on Lawrence's financial condition and
results of operations.
84
<PAGE>
Net cash flow from operating activities for the six months ended June 30,
1997 and 1996 were approximately ($556,000) and $2,758,000 respectively. The
decrease in 1997 was primarily attributable to reduced net income and the
payment of $2,000,000 for the settlement of litigation with Applied Materials.
Net cash used in investing activities decreased by approximately $2,705,000 to
$608,000 in 1997 from 1996 due to a decrease in capital expenditures. Major
capital expenditures in 1996 related to the new facility and associated
capital equipment. Net cash used in financing activities increased $3,516,000
in 1997. Net cash used in financing activities in 1996 included $3,115,000 of
proceeds from borrowings. The cash used for financing in 1997 was primarily a
result of scheduled principal payments on notes payable and capital lease
obligations.
Net cash flows from operating activities for the years ended December 31,
1996 and 1995 were approximately $5,899,000 and $5,692,000, respectively. The
slight increase between years was primarily attributable to increased net
income and non-cash charges for depreciation, bad debts and deferred income
taxes, offset by increased working capital needs for business expansion in
1996 as well as the absence in 1996 of the non-cash charge relating to a sale-
leaseback transaction in 1995. Net cash used in investing activities increased
in 1996 compared to 1995 by approximately $4,902,000, primarily as a result of
the construction of Lawrence's new manufacturing facility in Mesa, Arizona as
well as the investment of excess cash balances in certificates of deposit. Net
cash provided by financing activities was approximately $908,000 in 1996
compared to a net cash usage of $1,620,000 in 1995. This change resulted
primarily from borrowings to fund the new manufacturing facility, offset by
increased principal payments on capital lease obligations and notes payable.
Net cash flows from operating activities for the years ended December 31,
1995 and 1994 were approximately $5,692,000 and $2,238,000, respectively. The
approximate $3,454,000 increase was primarily attributable to increased net
income combined with increased non-cash charges for depreciation, deferred
income taxes and a sale-leaseback transaction in 1995. Net cash used in
investing activities increased by approximately $966,000 primarily as a result
of increased capital expenditures to support business expansion. Net cash used
in financing activities increased by approximately $518,000 primarily as a
result of principal payments on capital lease obligations and notes payable
resulting from business expansion.
Management believes that cash from operating activities and available
borrowings will be sufficient for its anticipated capital requirements for the
immediate future.
INFLATION
Management believes that inflation did not have a significant impact on
Lawrence's results of operations during the first half of 1997 and the fiscal
years 1996, 1995 and 1994.
85
<PAGE>
MANAGEMENT OF LAWRENCE
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of Lawrence's directors and executive officers
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Lamonte H. Lawrence............ 58 President, Chief Executive Officer, Director
Tom L. Thompson................ 55 Chief Technical Officer
Gerald W. McReynolds........... 51 Chief Operating Officer
Barbara C. Freund.............. 35 Chief Financial Officer
Regina Lawrence................ 55 Secretary and Director
</TABLE>
LAMONTE H. LAWRENCE, a founder of Lawrence, has served as President, Chief
Executive Officer and a director since Lawrence's inception in 1988. Prior to
the establishment of Lawrence, Mr. Lawrence worked as an independent
consultant. In 1983, Mr. Lawrence founded U.S. Semiconductor Corp. where he
acted as President from its inception in 1983 to 1987. Other work experience
includes the positions of General Manager of Epitaxy, Inc. from 1982 to 1983,
Director of the Epitaxial Technology Laboratory of Applied Materials from 1979
to 1981, and various engineering and management positions culminating as
Product Manager at Motorola from 1960 to 1976.
TOM L. THOMPSON has served as Chief Technical Officer of Lawrence since
1988. His responsibilities include sustaining day-to-day process engineering
and directing process development as well as overseeing the modification of
reactors for improved reliability and performance. Prior to joining Lawrence,
Mr. Thompson worked as a Senior Staff Engineer at both Applied Materials from
1978 to 1988 and Motorola, Inc. from 1968 to 1978, and as a Staff Physicist at
Dow Corning Corporation from 1965 to 1968.
GERALD W. MCREYNOLDS has served as Chief Operating Officer of Lawrence since
1996. Prior to joining Lawrence, he held the positions of Manager of Support
Services at MEMC Electronic Materials Company from 1994 to 1996, Vice
President of Quality Assurance and Applications Engineering at Kawasaki Wafer
Technology from 1989 to 1994, Customer Quality Assurance Manager, Worldwide
Schedule Manger and Specifications Center Manager at Monsanto Electronic
Materials Company from 1974 to 1989, and Process Engineer at Amoco Chemicals
Company from 1968 to 1974.
BARBARA C. FREUND has served as Chief Financial Officer of Lawrence since
1995. From 1994 until 1995, she served as Controller. Previously, Ms. Freund
served as Assistant Controller at the Pointe Hilton Resort on South Mountain
from 1990 until 1993 and as Accounting Manager at the Pointe Hilton Resort
from 1986 until 1990. From 1985 to 1986, Ms. Freund held the position of
Accountant at MGM/MGA Clothing Company.
REGINA LAWRENCE has served as Secretary of Lawrence since 1993 and as a
director of Lawrence since 1996. From 1994 until 1996, she served as Operating
Director of the Sonoma County (California) Department of Human Services. Mrs.
Lawrence has also been consulting in human services and forensic social work
for over five years.
Lamonte H. Lawrence and Regina Lawrence are married.
86
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid by Lawrence to Mr. Lamonte H. Lawrence for the fiscal years
ended December 31, 1996, 1995 and 1994. Mr. Lawrence will serve as a director
of the Company if only the Lawrence Acquisition is consummated or a director
of Holdings if both Transactions are consummated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($)(1)
--------------------------- ---- ------------ ------------------
<S> <C> <C> <C>
Lamonte H. Lawrence 1996 709,243 43,967
President and Chief 1995 279,679 36,155
Executive Officer 1994 161,234 41,927
</TABLE>
- --------
(1) Represents premiums paid by LSL for life insurance insuring the life of
Mr. Lawrence.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lawrence has notes receivable from Mr. Lamonte H. Lawrence which bear
interest at 7% and are due upon demand. The balance at December 31, 1994, 1995
and 1996 includes accrued interest of $38,000, $70,000 and $126,000,
respectively. Interest income on the notes totaled $18,000, $32,000 and
$56,000 during 1994, 1995 and 1996, respectively.
Lawrence has amounts due from Lawrence Semiconductor Research Laboratories,
Inc. ("LSRL") for charges by Lawrence for use of its facility. Income from
such charges, which is included in net sales, totaled $204,000, $180,000 and
$255,000 in 1994, 1995 and 1996, respectively. The balance as of December 31,
1996 also includes $323,352 related to the transfer to LSRL of leasehold
improvements at net book value during 1996. All amounts are non-interest
bearing and are due upon demand.
Lawrence has amounts due from LSI for the net amount of non-interest bearing
advances from Lawrence made during 1996. The amount outstanding is due upon
demand.
During 1996, Lawrence leased an epitaxial reactor to LSRL. Monthly payments
required under the lease are equal to the monthly debt service requirements on
Lawrence's underlying note payable. Rental revenue relating to this lease
totaled $83,600 in 1996 and is reflected as a reduction of cost of sales in
the accompanying combined statement of income and retained earnings.
Mr. Lamonte H. Lawrence is the sole shareholder of each of LSI and LSRL.
87
<PAGE>
BENEFICIAL OWNERSHIP OF LSL COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of LSL Common Stock as of the Record Date by (i) each person known
by Lawrence to own beneficially any of the LSL Common Stock and (ii) all
directors and executive officers of Lawrence as a group. Except as otherwise
indicated, all shares are owned directly. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in the
table have sole voting and investment power with respect to all shares of LSL
Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS
------------------- ------------------------- ----------------
<S> <C> <C>
Lamonte H. Lawrence(1)(2)........... 9,800 98.0%
The Arizona State University
Foundation(3)...................... 200 2.0%
All directors and executive officers
as a group (4 persons)(4).......... 9,800 98.0%
</TABLE>
- --------
(1) Regina Lawrence, who serves as director and Secretary of Lawrence, is the
wife of Lamonte H. Lawrence. Pursuant to California law, Regina Lawrence
holds a one-half community property interest in the 9,800 shares held of
record by Lamonte H. Lawrence. Regina Lawrence disclaims beneficial
ownership of such shares.
(2) The address for Lamonte H. Lawrence is c/o Lawrence Semiconductor
Laboratories, Inc., 550 West Juanita, Mesa, Arizona, 85210.
(3) The address of the Arizona State University Foundation is 707 South
College, Tempe, Arizona 85281.
(4) No officer or director of Lawrence beneficially owns any shares of LSL
Common Stock, except for the ownership indicated in this table for Lamonte
H. Lawrence.
88
<PAGE>
THE REORGANIZATION
(PROPOSAL 2)
The description of the Reorganization contained in this Proxy
Statement/Prospectus summarizes the material provisions of the Merger and
Exchange Agreement and is qualified in its entirety by reference to the Merger
and Exchange Agreement, the full text of which is attached hereto as Appendix
A and is incorporated herein by reference. All stockholders of the Company,
the ADCS Holders and the LSL Stockholders are urged to read Appendix A in its
entirety.
GENERAL
The Reorganization will be effected through the merger of Merger Subsidiary
with and into the Company with the Company being the surviving corporation
(the "Merger") and the simultaneous exchange by the ADCS Holders of all of
their ADCS Interests for shares of Holdings Common Stock (the "Exchange"). As
a result of the Reorganization, Holdings will become the parent holding
company of the Company and of the ADCS Group. This structure is designed to
accomplish three goals which a simpler structure could not accommodate, namely
(i) issuance of securities as consideration for the ADCS Interests, (ii) tax-
free treatment of the Exchange to the ADCS Holders, and (iii) pooling-of-
interests accounting treatment.
THE MERGER
The Company incorporated Holdings and Merger Subsidiary under the laws of
the State of Delaware for the purpose of accomplishing the Reorganization.
Pursuant to the Merger and Exchange Agreement, at the Effective Time, Merger
Subsidiary will merge with and into the Company, with the Company being the
surviving corporation. In connection with the Merger, (i) each share of
Company Common Stock will be converted into the right to receive one share of
Holdings Common Stock, (ii) each share of common stock of Merger Subsidiary
held by Holdings will be automatically converted on a one-for-one basis into
shares of Company Common Stock, and (iii) shares of Holdings Common Stock held
by the Company prior thereto will be cancelled. As a result of the Merger,
Holdings will become the owner of all of the outstanding shares of Company
Common Stock, and each stockholder of the Company will become the owner of one
share of Holdings Common Stock for each share of Company Common Stock held
immediately prior to the Merger. In addition, each outstanding option and
warrant to acquire Company Common Stock will entitle the holder thereof to
purchase, on identical terms, an equivalent number of shares of Holdings
Common Stock. See "EXECUTIVE COMPENSATION--Option Exercises and Year-End
Values" for information regarding options held by certain executive officers.
It is not generally contemplated that Holdings will assume or guarantee any of
the Company's obligations, except as otherwise described in this Proxy
Statement/Prospectus. In addition, credit facilities currently outstanding or
available to the Company may be transferred to Holdings.
THE EXCHANGE
The Merger and Exchange Agreement provides that, as a condition to the
obligations of the ATMI Group thereunder, the ADCS Interests shall have been
acquired simultaneously with the Effective Time. Accordingly, the ADCS Holders
will be offered the opportunity to exchange the ADCS Interests for shares of
Holdings Common Stock, as provided in the Merger and Exchange Agreement. The
Exchange Consideration will be equal in number to $87.5 million divided by the
"Exchange Average Closing Price" of Company Common Stock; provided, however,
that in the event that the combined book value of the ADCS Group determined as
of the Closing Date in accordance with GAAP is less than $10 million by an
amount greater than $500,000, the number of shares of Holdings Common Stock to
be issued to the ADCS Holders in connection with the Exchange shall be
decreased by a number of shares equal to (i) $10 million less (ii) the book
value as of the Closing Date, divided by the Exchange Average Closing Price.
Such determination of book value will be made by Holdings no later than 90
days after the Closing Date. If Holdings and the holders owning 70% or more of
the Exchange Consideration do not agree on such book value within 60 days
after determination of such book value, a nationally recognized accounting
firm acceptable to Holdings and the holders owning 70% or more of the
89
<PAGE>
Exchange Consideration shall make such determination which shall be final and
binding on all parties. "Exchange Average Closing Price" means the average
closing price of Company Common Stock as reported by Nasdaq for the twenty
trading days ended five days prior to the Annual Meeting; provided that in the
event the Exchange Average Closing Price is greater than $16.00 per share, the
Exchange Average Closing Price shall be deemed to be $16.00 per share; and in
the event that the Exchange Average Closing Price is less than $14.00 per
share, the Exchange Average Closing Price shall be deemed to be $14.00 per
share. The Exchange Consideration shall be allocated to each ADCS Holder
according to the ADCS Holders' Pro Rata Portions.
THE PERIOD DURING WHICH TIME THE ADCS HOLDERS MAY ELECT TO EXCHANGE THEIR
ADCS INTERESTS FOR HOLDINGS COMMON STOCK WILL EXPIRE AT 5:00 P.M. (EASTERN
TIME) ON OCTOBER 10, 1997. The ADCS Holders have no rights to approve or
terminate the Merger and Exchange Agreement. However, they are neither bound
to deliver their ADCS Interests nor bound to consummate the Exchange. In the
event that Holdings is not able to acquire all of the ADCS Interests through
the Exchange, the ATMI Group may proceed with the Reorganization or terminate
the Merger and Exchange Agreement, and in some circumstances the ADCS Group
will be required to pay the Company a termination fee of $5 million.
Because the number of shares of Holdings Common Stock issuable to the ADCS
Holders will depend on the Exchange Average Closing Price and the combined
book value of the ADCS Group, there is no guarantee as to the number of shares
of Holdings Common Stock that the ADCS Holders will receive, except that they
can receive in the aggregate a maximum of 6,250,000 shares and, in the absence
of an adjustment to the Exchange Consideration, a minimum of 5,468,750 shares.
The following table sets forth examples of the number of shares of Holdings
Common Stock to be issued in exchange for the ADCS Interests on a per share or
per limited liability company unit basis given different combined book values
of the ADCS Group as of the Closing Date and different Exchange Average
Closing Prices. Notwithstanding the following per share/per unit exchange
ratio examples, the ADCS Holders will not be provided the opportunity to
exchange individual components of their ADCS Interests. Instead, such
exchanges must be made on an aggregate basis. All per share numbers other than
with respect to ADCS Manager Common Stock have been rounded to the nearest
tenth of a share.
<TABLE>
<CAPTION>
SAMPLE ADCS GROUP BOOK VALUE; SAMPLE EXCHANGE AVERAGE CLOSING PRICE
----------------------------------------------------------------------------------------
ADCS GROUP ADCS GROUP ADCS GROUP ADCS GROUP ADCS GROUP ADCS GROUP
BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE
GREATER THAN GREATER THAN GREATER THAN EQUAL TO EQUAL TO EQUAL TO
OR EQUAL TO OR EQUAL TO OR EQUAL TO
$9,500,000 $9,500,000 $9,500,000 $8,000,000 $8,000,000 $8,000,000
EXCHANGE EXCHANGE EXCHANGE EXCHANGE EXCHANGE EXCHANGE
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
CLOSING PRICE CLOSING PRICE CLOSING PRICE CLOSING PRICE CLOSING PRICE CLOSING PRICE
OF $16.00(1) OF $15.00(1) OF $14.00(1) OF $16.00(1) OF $15.00(1) OF $14.00(1)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF SHARES OF
HOLDINGS COMMON STOCK
TO BE EXCHANGED FOR:
One share of ADCS
Nevada Common
Stock(2)............. 8,936.6 9,532.4 10,213.2 8,732.3 9,314.5 9,979.8
One share of ADCS
Manager Common
Stock(3)............. 0.907 0.963 1.032 0.882 0.941 1.008
One limited liability
company unit of ADCS
Holdings(4).......... 54,140.6(5) 57,750.0(5) 61,875.0(5) 52,903.1(5) 56,430.0(5) 60,460.7(5)
</TABLE>
- --------
(1) The aggregate number of shares of Holdings Common Stock to be exchanged
for the ADCS Interests (i) in the event the ADCS Group book value equals
or exceeds $9,500,000 and assuming Exchange Average Closing Prices of
$16.00, $15.00 or $14.00, would be 5,468,750 shares, 5,833,333 shares or
6,250,000 shares, respectively; or (ii) in the event the ADCS Group book
value equals $8,000,000 and assuming Exchange Average Closing Prices of
$16.00, $15.00 or $14.00, would be 5,343,750 shares, 5,700,000 shares or
6,107,142 shares, respectively.
90
<PAGE>
(2) 99.0% of the Exchange Consideration will be allocated to the ADCS Nevada
Common Stock, of which there are 605.8308 shares outstanding.
(3) 0.01% of the Exchange Consideration will be allocated to the ADCS Manager
Common Stock, of which there are 605.8308 shares outstanding.
(4) 0.99% of the Exchange Consideration will be allocated to the ADCS Holdings
Membership Interests (i.e., the one limited liability company unit of ADCS
Holdings collectively held by the ADCS Holders). No shares will be offered
in exchange for the remaining 99 ADCS Holdings limited liability company
units held by ADCS Nevada.
(5) Represents the aggregate number of shares of Holdings Common Stock to be
issued in exchange for the ADCS Holdings Membership Interests (i.e., the
one limited liability company unit of ADCS Holdings collectively held by
the ADCS Holders). Each ADCS Holder would be entitled to receive a portion
of such number of shares of Holdings Common Stock in proportion to such
holder's relative pro rata ownership of the ADCS Holdings Membership
Interests.
As of June 30, 1997, the ADCS Group book value was equal to approximately
$12,473,000. Furthermore, if the closing of the Reorganization (the "Closing")
were to occur on the date of this Proxy Statement/Prospectus, the Exchange
Average Closing Price would be $16.00. Therefore, as of the date of this Proxy
Statement/Prospectus, the Company expects that an aggregate of 5,468,750
shares of Holdings Common Stock will be issued and that approximately (i)
8,937 shares of Holdings Common Stock will be issued in exchange for each
share of ADCS Nevada Common Stock, (ii) 0.9 shares of Holdings Common Stock
will be issued in exchange for each share of ADCS Manager Common Stock and
(iii) 54,141 shares of Holdings Common Stock will be issued in exchange for
the ADCS Holdings Membership Interests (i.e., the one limited liability
company unit of ADCS Holdings collectively held by the ADCS Holders). With
respect to the ADCS Holdings Membership Interests, each ADCS Holder would be
entitled to receive a portion of the 54,141 shares of Holdings Common Stock to
be exchanged therefor in proportion to such ADCS Holder's respective
percentage ownership of the ADCS Holdings Membership Interests.
The stockholders of the Company and the ADCS Holders may call a toll-free
telephone number established by the Company (1-888-566-0155) after the last
trading day ended five days prior to the date of the Annual Meeting to learn
(i) the number of shares of Holdings Common Stock that will comprise the
Exchange Consideration and (ii) the number of shares of Holdings Common Stock
to be issued in exchange for (A) each share of ADCS Nevada Common Stock, (B)
each share of ADCS Manager Common Stock, and (C) the ADCS Holdings Membership
Interests.
At the Closing, 750,000 shares of the Exchange Consideration will be placed
in escrow. Such shares will be allocated among the ADCS Holders in accordance
with their respective Pro Rata Portions and will be held and applied in
accordance with the Indemnification Agreement and the Escrow Agreement. See
"THE REORGANIZATION--Indemnification and Escrow."
RESULTS OF THE REORGANIZATION
After consummation of the Reorganization, Holdings will operate under the
name "ATMI, Inc.," and the Company and the ADCS Group will be direct or
indirect wholly-owned operating subsidiaries of Holdings. In addition, the
operations of the Company's NovaMOS division and the operations of the ADCS
Group will be conducted as a single division following the Closing. See
"OPERATIONS AND MANAGEMENT AFTER THE TRANSACTIONS." No other material
disposition or restructuring of either the Company or the ADCS Group or any
material part thereof is contemplated as a result of the Reorganization.
Assuming an Exchange Average Closing Price of $14.00 per share, a combined
book value of the ADCS Group in excess of $9.5 million and the acquisition by
Holdings of all the ADCS Interests, the stockholders of the Company and the
ADCS Holders would own approximately (i) 58.5% and 41.5%, respectively, of the
approximately 15,066,455 shares of Holdings Common Stock that would be
outstanding if the Lawrence Acquisition is not consummated, or (ii) 44.9% and
31.8%, respectively, of the approximately 19,654,690 shares of Holdings Common
Stock that would be outstanding if the Lawrence Acquisition is consummated.
91
<PAGE>
BACKGROUND OF THE REORGANIZATION
Since its formation in 1986, the Company has focused on the development of
new materials technologies for the manufacture of semiconductor chips. As an
element of its strategy, the Company has utilized a phased commercialization
plan to enter sequentially three market segments served by its core CVD
technology, namely semiconductor environmental equipment, semiconductor thin
film materials and semiconductor thin film deposition services. The first of
these market segments was semiconductor environmental equipment which is now
represented by the Company's EcoSys subsidiary. The Company first introduced
environmental products in 1989. The Company then began to build market
critical mass through mergers and acquisitions, including a merger with Vector
in 1994 and the acquisition of the Guardian(R) combustion scrubber product
line from Messer Griesheim Industries, Inc. in 1995. This strategy has allowed
EcoSys to become one of the world's largest suppliers of point-of-use
environmental equipment for the semiconductor industry, satisfying a key goal
of the Company's strategy which is to become a market leader in each of its
served market segments.
As the Company's semiconductor thin film materials development programs
progressed, it created the NovaMOS division in 1992 to serve the semiconductor
CVD precursors market segment. Over the last five years, the NovaMOS business
has introduced several products for next-generation semiconductor devices.
Concurrent with the formation of NovaMOS, the Company Board of Directors began
to consider ways to facilitate the rapid commercialization of these new
materials, including mergers and acquisitions. After several reviews by the
Company Board of Directors during 1992 and 1993 meetings, the Company Board of
Directors established a process for identifying acquisition/merger candidates
in the CVD precursors market segment and the criteria for evaluating them.
Included in the target company criteria were (1) complementary CVD precursor
products, (2) an existing distribution capability into the semiconductor
industry, (3) bulk CVD precursor manufacturing capability, and (4) a quality
reputation among the target company's customers. These criteria are referred
to below as the "CVD Precursor Market Initial Criteria." The establishment of
the CVD Precursor Market Initial Criteria led to meetings and discussions with
a number of companies that were possible targets.
As part of this process, Dr. Eugene Banucci, Chief Executive Officer for the
Company, had informal discussions with the President of the ADCS Group,
Stephen H. Siegele, in 1994. These informal discussions led to substantive
discussions in January 1995 between Dr. Banucci, Daniel Sharkey and Raymond
Krummen of the Company and Stephen H. Siegele, Frederick H. Siegele and
Frederick J. Siegele of the ADCS Group. From those discussions, the parties
concluded that they could not reach a mutually satisfactory valuation for the
ADCS Group; however, the parties determined to maintain contact should
conditions change.
In August 1996, as part of its strategic long range planning process, the
management of the Company again reviewed mechanisms to accelerate the growth
of its NovaMOS business and concluded that the acquisition of the ADCS Group
was the most compelling opportunity to do so. In contrast to every other
target company considered, the ADCS Group met all of the CVD Precusor Market
Initial Criteria. In September 1996, therefore, Dr. Banucci again informally
approached Stephen H. Siegele to determine the potential for an acquisition.
This conversation led Dr. Banucci to believe that a transaction was possible
and in a letter to the Company Board of Directors dated September 27, 1996, he
proposed several possible alternatives for such a transaction. At the October
11, 1996 Company Board of Directors meeting, the Company Board of Directors
instructed Dr. Banucci to negotiate a letter of intent and appointed Mark
Adley as the Board's outside director designee for oversight of the
negotiations.
The principal areas of negotiation throughout the process which began in
September 1996 and culminated in the execution of the definitive agreement in
April 1997 were: the form of the transaction and the type of consideration to
be paid for the ADCS Interests; the scope and nature of the representations
and warranties to be made by the ADCS Group and the ATMI Group; the conditions
for and effect of a termination of the Merger and Exchange Agreement,
including the existence and amount of a termination fee; and the terms, amount
and duration of the items covered by the Indemnification Agreement.
During October and November 1996, Dr. Banucci and Mr. Sharkey held
preliminary discussions with representatives of the ADCS Group on several
occasions. In late October 1996, the parties entered into a
92
<PAGE>
confidentiality agreement with respect to information to be exchanged in
connection with evaluating a possible combination. In October 1996, the
parties discussed several different potential forms of the transaction,
including a purchase price payable in cash, in stock and in a combination of
cash and stock. The parties agreed that if the proper form of the transaction
could be determined, the purchase price would be based on a multiple of the
ADCS Group's unaudited earnings before income taxes for the twelve month
period ended September 30, 1996, subject to certain expense adjustments, the
amount of which was subject to further negotiation by the parties. The parties
also agreed that the purchase price of the ADCS Interests would be reduced if
the combined book value of the ADCS Group as of the consummation of the
transaction was less than $10 million. In early December 1996, the parties
agreed to structure the transaction to provide for a purchase price for the
ADCS Interests payable solely in stock, based on the accounting and tax
benefits to the parties of such a transaction. At this time, Company Common
Stock was trading at or around $15.00 per share. Therefore, in order to
provide price protection to all parties by minimizing fluctuations in the
number of shares of Holdings Common Stock to be issued to the ADCS Holders as
the Exchange Consideration, the parties agreed to limit the Exchange Average
Closing Price to a range of $14.00 to $16.00 per share. Also at this time, the
parties agreed to the amount of the expense adjustments to be made to the ADCS
Group's earnings before income taxes for purposes of applying the multiple
previously agreed to by the parties. As a result, applying such multiple as
adjusted, the parties agreed to a purchase price of $87.5 million. The Company
provided the ADCS Group with a draft letter of intent in early December 1996,
and the parties continued to negotiate the fundamental terms of a possible
transaction until the signing of a letter of intent between the parties on
January 10, 1997 which summarized the fundamental terms of the transaction.
Since the transaction remained highly contingent on certain financial aspects
of the ADCS Group, the Company conducted extensive due diligence from January
1997 until the Merger and Exchange Agreement was executed in April 1997.
At a special meeting of the Company Board of Directors on February 10, 1997,
the Company Board of Directors reviewed both the ADCS Group's audited
financial results as well as the status of negotiations toward a definitive
agreement, and Mr. Sharkey was authorized to proceed with his investigation
and engagement of an investment banking firm to render an opinion as to the
fairness of the Exchange Consideration to the Company from a financial point
of view. The Company engaged Alex. Brown to render such an opinion. The
parties negotiated the definitive Merger and Exchange Agreement from late
January 1997 until April 1997. At a formal Company Board of Directors meeting
on March 7, 1997, the Company Board of Directors approved the material terms
of a definitive agreement proposed by Dr. Banucci. After this time, the
Company conducted further due diligence of the ADCS Group, and audited
financial statements as of and at December 31, 1996 of both companies were
prepared. At a meeting held on the morning of April 7, 1997, during which,
among other things, Alex. Brown rendered its oral opinion with respect to the
Reorganization (as discussed below), the Board of Directors of the Company
approved the definitive Merger and Exchange Agreement. That afternoon, the
ADCS Group and the Company signed the definitive Merger and Exchange
Agreement, which was publicly announced prior to the opening of trading on
April 8, 1997.
COMPANY'S REASONS FOR THE REORGANIZATION
The Company Board of Directors believes that the Reorganization is in the
best interests of the stockholders of the Company and has unanimously approved
the Merger and Exchange Agreement. Prior to reaching its conclusions, the
Company Board of Directors received a presentation from, and reviewed the
Reorganization with, the Company's management and its legal and financial
advisors. The Company Board of Directors believes that the following are
reasons for the stockholders of the Company to vote for approval of the
adoption of the Merger and Exchange Agreement and the Reorganization:
. the ADCS Group is a semiconductor materials company focused on the
supply of CVD precursors and delivery equipment to semiconductor company
end-users. As such, the ADCS Group manufactures and distributes products
complementary to but not competitive with the Company's products
(criteria 1 of the CVD Precursor Market Initial Criteria);
. the ADCS Group has an independent distribution channel which sells its
products to over half of the world's semiconductor manufacturers
(criteria 2 of the CVD Precursor Market Initial Criteria);
93
<PAGE>
. the ADCS Group has a manufacturing facility in Burnet, Texas for both
its CVD precursor products and its delivery systems products. In
addition, the ADCS Group has a 70% owned joint venture in Korea (ADCS-
Korea) that has recently constructed a manufacturing facility in
Anseong, South Korea (criteria 3 of the CVD Precursor Market Initial
Criteria);
. during due diligence, the Company determined that the ADCS Group had the
highest reputation for product quality and service among its customers
(criteria 4 of the CVD Precursor Market Initial Criteria);
. the ADCS Group is among the world leaders in market share for CVD
precursor products and has an established operating model that has been
quite profitable;
. the Company had new liquid delivery system products in development that
the Company believes potentially make the ADCS Group's current liquid
chemical products even more attractive to semiconductor end-users by
allowing more effective transport of the liquid chemicals into the thin
film reactors commonly used by semiconductor manufacturers in chip
fabrication;
. the lack of alternative acquisition candidates;
. the pooling-of-interests accounting treatment of the Reorganization;
. the likelihood of successful completion of the Reorganization;
. the opinion of Alex. Brown with respect to the fairness of the Exchange
Consideration to the Company from a financial point of view (See "THE
REORGANIZATION--Opinion Of Alex. Brown, Financial Advisor to the
Company"); and
. the Reorganization will allow stockholders of the Company to participate
in the potential future growth of a company which has substantially
greater operations and business resources.
The Company Board of Directors also considered a number of potentially
negative factors in its deliberations concerning the Reorganization,
including, but not limited to: (i) the risk that the potential benefits of the
Reorganization (including opportunities for expansion) would not be fully
realized; (ii) the risks associated with expansion and integration of the
businesses of the ATMI Group and the ADCS Group, including the need for the
ADCS Group to expand its management team; (iii) the risks associated with the
high percentage ownership of Holdings Common Stock by former ADCS Holders,
especially the Siegele family; (iv) the risks related to any adverse tax
consequences of the operation of the ADCS Group's business and of the ADCS
Restructure; and (v) the substantial direct expenses of the Reorganization.
The Reorganization and the future results of Holdings, the Company and the
ADCS Group are subject to risks and uncertainties, including those set forth
in "RISK FACTORS."
The Company Board of Directors also considered, among other matters: (i)
information concerning the ADCS Group's business prospects, financial
performance and results, including the financial statements as of and for the
three-year period ending December 31, 1996; (ii) current conditions in the
semiconductor industry and the size of the ADCS Group's market, as discussed
in "BUSINESS OF THE ADCS GROUP--Competition;" and (iii) reports from
management as to the results of their due diligence examination.
RECOMMENDATION OF THE COMPANY BOARD OF DIRECTORS
THE COMPANY BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THAT THE REORGANIZATION
IS FAIR AND REASONABLE AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS. THE COMPANY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE ADOPTION OF THE MERGER AND EXCHANGE AGREEMENT.
ADCS GROUP'S REASONS FOR THE REORGANIZATION
The respective Boards of Directors of ADCS Manager and ADCS Nevada (on
behalf of itself and as the Manager of ADCS Holdings) (the "ADCS Boards")
believe that the Reorganization is in the best interests of the ADCS Holders
and have unanimously approved the Merger and Exchange Agreement. The ADCS
Boards
94
<PAGE>
believe that the following are reasons for the ADCS Holders to exchange their
ADCS Interests pursuant to the Merger and Exchange Agreement:
. in exchange for the ADCS Interests, which have no public trading market,
the ADCS Holders will receive Holdings Common Stock which will be freely
transferable (subject to certain restrictions imposed by securities laws
and the requirements of pooling-of-interests accounting). See "THE
REORGANIZATION--Resale of Holdings Common Stock by Affiliates";
. as a public company, Holdings will provide access to public capital
markets and other financing alternatives which are currently unavailable
to the ADCS Group and which could provide funding for the ADCS Group's
expansion plans;
. the terms and conditions of the Merger and Exchange Agreement and the
related agreements;
. the access the Company is expected to provide to future generation
semiconductor technology, enabling the ADCS Group to be more competitive
in both existing and future product lines;
. the ADCS Group's existing distribution network could facilitate the
delivery of new products developed by the Company;
. the pooling-of-interests accounting treatment of the Reorganization;
. the tax-free nature of the Exchange;
. the likelihood of successful completion of the Reorganization; and
. the Reorganization will allow the ADCS Holders to participate in the
potential future growth of a company with substantially greater
operations and business resources than either entity currently has by
itself.
Potential negative consequences for ADCS Holders who participate in the
Exchange include: (i) the risk that the potential benefits of the
Reorganization and, if consummated, the Lawrence Acquisition (including
opportunities for expansion) will not be fully realized, (ii) the risk
associated with expansion and integration of the businesses of the ATMI Group,
Lawrence (if acquired) and the ADCS Group, including the need for the ADCS
Group to expand its management team, (iii) the loss of control of the ADCS
Holders over the ADCS Group's business, (iv) the potential for conflicting
demands for resources between the ATMI Group, Lawrence (if acquired) and the
ADCS Group and (v) the substantial direct expenses of the Reorganization and
the Lawrence Acquisition, if consummated.
For a more complete description of the risks of the Reorganization and the
Lawrence Acquisition, see "RISK FACTORS."
APPRAISAL RIGHTS
Pursuant to Section 262 of the DGCL, no holder of Company Common Stock will
have appraisal rights in connection with the Reorganization because Company
Common Stock is listed on Nasdaq and the stockholders of the Company will be
required under the terms of the Merger and Exchange Agreement to accept shares
of Holdings Common Stock for their shares of Company Common Stock.
OPINION OF ALEX. BROWN, FINANCIAL ADVISOR TO THE COMPANY
The Company retained Alex. Brown on February 10, 1997 to render its opinion
to the Company Board of Directors as to the fairness, from a financial point
of view, of the Exchange Consideration to the Company. Alex. Brown is an
internationally recognized investment banking firm, and as a customary part of
its investment banking business is regularly engaged in the valuation of
businesses and their securities in connection with merger transactions and
other types of acquisitions, negotiated underwritings, private placements and
valuations for corporate and other purposes. The Company selected Alex. Brown
as its financial advisor on the basis of its experience and expertise in
transactions similar to the Reorganization and its reputation in the
investment community. Alex. Brown was not retained, nor did it advise the
Company with respect to, alternatives to the Reorganization or the Company's
underlying decision to proceed with or effect the Reorganization. In
furnishing its opinion, Alex. Brown did not admit that it is an expert within
the meaning of the term "expert" as used in the Securities Act and the rules
and regulations promulgated thereunder, or that its opinion constitutes a
report
95
<PAGE>
or valuation within the meaning of Section 11 of the Securities Act and the
rules and regulations promulgated thereunder.
Alex. Brown was retained as an independent financial advisor. Neither Alex.
Brown nor any of its affiliates or representatives has any other relationship
with the Company or the ADCS Group or any of their affiliates, except that
Alex. Brown has acted as an investment banker to Lawrence and other
acquisition candidates that the Company has considered from time to time.
At the April 7, 1997 meeting of the Company Board of Directors,
representatives of Alex. Brown made a presentation with respect to the
Reorganization and rendered to the Company Board of Directors its oral
opinion, subsequently confirmed in writing as of the same date, that, as of
such date, and subject to the assumptions made, matters considered and
limitations set forth in such opinion and summarized below, the Exchange
Consideration was fair, from a financial point of view, to the Company. No
limitations were imposed by the Company Board of Directors upon Alex. Brown
with respect to the investigations made or procedures followed by it in
rendering its opinion.
The full text of Alex. Brown's written opinion dated April 7, 1997 (the
"Alex. Brown Opinion"), which sets forth, among other things, assumptions
made, matters considered and limitations on the review undertaken, is attached
hereto as Appendix B and is incorporated herein by reference. Stockholders of
the Company are urged to read the Alex. Brown Opinion in its entirety. The
Alex. Brown Opinion is directed to the Company Board of Directors, addresses
only the fairness of the Exchange Consideration to the Company from a
financial point of view and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote at the
Annual Meeting. The Alex. Brown Opinion was rendered to the Company Board of
Directors for its consideration in determining whether to approve the Merger
and Exchange Agreement. In connection with its opinion, Alex. Brown did not
consider the effect of the consummation of the Lawrence Acquisition either
with respect to the fairness, from a financial point of view, of the Exchange
Consideration, to the Company, or with respect to the various analyses Alex.
Brown employed in rendering its opinion. The discussion of the Alex. Brown
Opinion in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of the Alex. Brown Opinion.
In connection with the Alex. Brown Opinion, Alex. Brown reviewed certain
publicly available financial information and other information concerning the
Company and the ADCS Group and certain internal analyses and other information
furnished to it by the Company and the ADCS Group. Alex. Brown also held
discussions with the members of the senior managements of the Company and the
ADCS Group regarding the businesses and prospects of their respective
companies and the joint prospects of a combined company. In addition, Alex.
Brown (i) reviewed the reported prices and trading activity for Company Common
Stock, (ii) compared certain financial and stock market information for the
ADCS Group with similar information for certain comparable companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations which it deemed comparable in whole or in part,
(iv) reviewed the terms of the Merger and Exchange Agreement and certain
related documents, and (v) performed such other studies and analyses and
considered such other factors as it deemed appropriate.
In conducting its review and arriving at its opinion, Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
financial projections of the Company and the ADCS Group and other information
relating to the prospects of the Company and the ADCS Group provided to Alex.
Brown by the Company and the ADCS Group, Alex. Brown assumed that such
projections and other information were reasonably prepared and reflected the
best currently available judgments and estimates of the respective managements
of the Company and the ADCS Group as to the likely future financial
performances of their respective companies and of the combined entity. The
financial projections of the Company and the ADCS Group that were provided to
Alex. Brown were utilized and relied upon by Alex. Brown in the Contribution
Analysis, Discounted Cash Flow Analysis and the Pro Forma Earnings Analysis
summarized below. Alex. Brown assumed, with the consent of the Company, that
the Reorganization will qualify for pooling-of-interests accounting treatment.
Alex. Brown did not rely on any appraisal of the assets of the Company or the
96
<PAGE>
ADCS Group. The Alex. Brown Opinion is based on market, economic and other
conditions as they existed and could be evaluated as of the date of the
opinion letter.
The financial projections of the ADCS Group prepared by the management of
the Company and provided to Alex. Brown (the "ADCS Group I Projections")
included the following (in thousands of dollars) for the years ended December
31: (i) revenues of $26,100 in 1997 and $31,320 in 1998, (ii) net income of
$7,298 in 1997 and $9,288 in 1998, and (iii) free cash flow (net income
adjusted by depreciation/amortization, capital expenditures and the change in
non-cash working capital) of $5,437 in 1997 and $7,231 in 1998.
The ADCS Group's actual results may differ materially from those included in
the ADCS Group I Projections. Important factors and assumptions that could
cause the ADCS Group's actual results to differ materially from those included
in the ADCS Group I Projections include, without limitation, the integration
of operations resulting from the consummation of the Reorganization and the
Lawrence Acquisition, the effects of general economic conditions, changes in
the pattern of semiconductor industry growth or the markets in which the ADCS
Group sells products, customer interest in the ADCS Group's products, product
and market competition, delays or problems in the development,
commercialization and manufacture of the ADCS Group's products and
technological changes affecting the ADCS Group's core technologies. Other
factors and assumptions not identified above were also involved in the
derivation of the ADCS Group I Projections, and the failure of such other
assumptions to be realized, as well as other factors, may also cause actual
results to differ materially from those projected. The Company and the ADCS
Group assume no obligation to update the ADCS Group I Projections to reflect
actual results or changes in factors or assumptions affecting such forward-
looking statements. In light of the significant uncertainties inherent in
projections of any kind, inclusion of the ADCS Group I Projections in this
Proxy Statement/Prospectus should not be regarded as a representation by the
Company, the ADCS Group, Alex. Brown or any other person that the ADCS Group I
Projections will be achieved.
Stockholders of the Company, the ADCS Holders and the LSL Stockholders are
cautioned that any forward-looking information, including the ADCS Group I
Projections, contained in this Proxy Statement/Prospectus, should not be
regarded as fact and should not be relied upon as an accurate representation
of future results. In addition, the ADCS Group I Projections were not prepared
with a view to public disclosure or compliance with the published guidelines
of the SEC or the guidelines established by the American Institute of
Certified Public Accountants regarding projections and forecasts. The Company
does not, as a matter of course, publicly disclose forward-looking information
as to future revenues, earnings or other financial information. The ADCS Group
I Projections are included in this Proxy Statement/Prospectus only because
such information was made available to Alex. Brown by the Company. The ADCS
Group did not review or otherwise participate in the preparation of the ADCS
Group I Projections, nor did it provide the Company with any information in
connection therewith, other than providing its historical financial statements
and making its officers available to the Company and Alex. Brown to discuss
such financial statements and the ADCS Group's business generally. Moreover,
the ADCS Group I Projections do not purport to present operations in
accordance with generally accepted accounting principles and have not been
audited, compiled or otherwise examined by Ernst & Young LLP, the Company's
and the ADCS Group's independent auditors, or by any other independent
auditors. The ADCS Group I Projections were not prepared or otherwise verified
by Alex. Brown.
The following is a summary of the analyses performed and factors considered
by Alex. Brown in connection with the rendering of the Alex. Brown Opinion.
Historical Financial Position. In rendering its opinion, Alex. Brown
reviewed and analyzed the historical and current financial condition of the
ADCS Group which included (i) an assessment of the ADCS Group's recent
financial statements, (ii) an analysis of the ADCS Group's revenue, growth and
operating performance trends, and (iii) an assessment of the ADCS Group's
margin changes, market share and access to markets.
Historical Stock Price Performance. Alex. Brown reviewed and analyzed the
daily closing per share market prices and trading volume for Company Common
Stock, from April 4, 1996 to April 4, 1997. In addition, Alex. Brown reviewed
the daily closing per share market prices and trading volume for the Company
over the
97
<PAGE>
period from November 23, 1993 to April 4, 1997. Alex. Brown also reviewed the
daily closing per share market prices of Company Common Stock and compared the
movement of such daily closing prices with the movement of the Nasdaq
composite average over the period from April 4, 1996 through April 4, 1997.
Alex. Brown noted that, on a relative basis, the Company outperformed the
Nasdaq composite average. Alex. Brown also reviewed the daily closing per
share market prices of Company Common Stock and compared the movement of such
closing prices with the movement of two groups of selected companies (Applied
Materials, Inc., LAM Research Corporation, Novellus Systems, Inc. and Watkins-
Johnson Company, referred to collectively as the "Capital Equipment
Companies"; and Betzdearborn Inc., International Specialty Products Inc. and
MacDermid, Incorporated, referred to collectively as the "Specialty Chemicals
Companies") over the period from April 4, 1996 through April 4, 1997. On a
relative basis, Company Common Stock price outperformed both groups. This
information was presented to give the Company Board of Directors background
information regarding the stock price of the Company over the periods
indicated.
Analysis of Certain Other Publicly Traded Companies. This analysis examines
a company's valuation in the public market as compared to the valuation in the
public market of other selected publicly traded companies. Alex. Brown
compared certain financial information (based on the commonly used valuation
measurements described below), relating to the Company, to certain
corresponding information from two groups of publicly traded companies (the
Capital Equipment Companies and the Specialty Chemical Companies collectively,
the "Selected Companies"). Such financial information included, among other
things, (i) common equity market valuation, (ii) capitalization ratios, (iii)
operating performance, (iv) ratios of common equity market value as adjusted
for debt and cash ("Adjusted Value") to revenues and operating income each for
the latest reported twelve month period ("LTM") as derived from publicly
available information, and (v) ratios of common equity market prices per share
("Equity Value") to earnings per share ("EPS"). The financial information used
in connection with the multiples provided below with respect to the Company
and the Selected Companies was based on the LTM as derived from publicly
available information and on estimated EPS for calendar years 1997 and 1998 as
reported by the Institutional Brokers Estimating System ("IBES"). Alex. Brown
noted that, on a trailing LTM basis, the multiple of Adjusted Value to
revenues was 2.8x for the Company compared to a range of 0.5x to 2.4x, with a
mean of 1.5x, for the Capital Equipment Companies and a range of 1.4x to 2.4x,
with a mean of 1.9x, for the Specialty Chemical Companies; the multiple of
Adjusted Value to operating income was 44.0x for the Company compared to a
range of 6.8x to 45.6x, with a mean of 17.8x, for the Capital Equipment
Companies and a range of 9.2x to 15.8x, with a mean of 11.8x, for the
Specialty Chemical Companies. Alex. Brown further noted that the multiple of
Equity Value to trailing LTM EPS was 46.5x for the Company, compared to a
range of 10.9x to 67.9x, with a mean of 27.6x, for the Capital Equipment
Companies and a range of 14.8x to 23.4x, with a mean of 18.1x, for the
Specialty Chemical Companies; the multiple of Equity Value to calendar year
1997 estimated EPS was 27.5x for the Company, compared to a range of 16.1x to
24.6x, with a mean of 20.3x, for the Capital Equipment Companies and a range
of 12.3x to 20.4x, with a mean of 15.2x, for the Specialty Chemical Companies;
and the multiple of Equity Value to calendar year 1998 estimated EPS was 17.4x
for the Company, compared to a range of 11.3x to 15.7x, with a mean of 13.3x,
for the Capital Equipment Companies and a range of 11.1x to 16.4x, with a mean
of 13.0x, for the Specialty Chemical Companies. As a result of the foregoing
procedures, Alex. Brown noted that the multiples for the Company were
generally higher than the range of the multiples for the Selected Companies.
EPS projections for the Selected Companies were based on IBES estimates and
for the Company on third party research analysis. The EPS estimates, as of
April 7, 1997 for the calendar year 1997 for the Company was $0.60 and for the
calendar year 1998 was $0.95.
Analysis of Selected Mergers and Acquisitions. Alex. Brown reviewed the
financial terms, to the extent publicly available, of 18 proposed, pending or
completed mergers and acquisitions since February 6, 1995 in the semiconductor
capital equipment industry sector (the "Selected Transactions"). Alex. Brown
calculated various financial multiples and the premiums over market value
based on certain publicly available information for each of the Selected
Transactions and compared them to corresponding financial multiples and the
premiums over market for the Reorganization, based on the Exchange
Consideration of $87.5 million. Alex. Brown noted that the multiple of
adjusted purchase price (value of consideration paid for common equity
adjusted for debt, preferred stock and cash) to trailing LTM revenues was 3.9x
for the Reorganization versus a range of 0.8x to
98
<PAGE>
4.7x, with a mean of 2.2x, for the Selected Transactions and the multiple of
adjusted purchase price to trailing LTM operating income was 7.5x for the
Reorganization versus a range of 6.8x to 34.3x, with a mean of 15.8x, for the
Selected Transactions. Alex. Brown further noted that the multiple of
aggregate purchase price to trailing LTM net income was 13.2x for the
Reorganization versus a range of 11.8x to 48.2x, with a mean of 23.2x, for the
Selected Transactions. All multiples for the Selected Transactions were based
on public information available at the time of announcement of such
transaction, without taking into account differing market and other conditions
during the two-year period during which the Selected Transactions occurred.
Contribution Analysis. Alex. Brown analyzed the relative contributions of
the Company and the ADCS Group, as compared to the ADCS Group's relative
ownership of approximately 38% of the outstanding capital of the combined
company, to the pro forma income statements of the combined company, based on
managements' projections for their respective companies. This analysis showed
that on a pro forma combined basis (excluding (i) the effect of any synergies
that may be realized as a result of the Reorganization, and (ii) non-recurring
expenses relating to the Reorganization), for the year ending December 31,
1997, the ADCS Group and the Company would account for approximately 56% and
44% respectively, of the combined company's pro forma net income, and for the
year ending December 31, 1998 the ADCS Group and the Company would each
account for approximately 50% of the combined company's pro forma net income.
Discounted Cash Flow Analysis. Alex. Brown performed discounted cash flow
analysis for the ADCS Group. The discounted cash flow approach values a
business based on the current value of the future cash flow that the business
will generate. To establish a current value under this approach, future cash
flow must be estimated and an appropriate discount rate determined. Alex.
Brown aggregated the present value of the cash flows through 2001 with the
present value of a range of terminal values. Alex. Brown discounted these cash
flows at discount rates ranging from 17.5% to 22.5%. The terminal value was
computed based on projected operating income in calendar year 2001 and a range
of terminal multiples of 8.0x to 12.0x. Alex. Brown arrived at such discount
rates based on its judgment of the weighted average cost of capital of
publicly traded companies, and arrived at such terminal values based on its
review of the trading characteristics of the common stock of the Selected
Companies. This analysis indicated a range of values of $91.6 million to
$150.6 million.
Pro Forma Combined Earnings Analysis. Alex. Brown analyzed certain pro forma
effects of the Reorganization. Based on such analysis, Alex. Brown computed
the resulting accretion to the combined company's EPS estimate for the fiscal
years ending 1997 and 1998, pursuant to the Reorganization without taking into
account any potential cost savings and other synergies that the Company and
the ADCS Group could achieve if the Reorganization were consummated and before
nonrecurring costs relating to the Reorganization. Alex. Brown noted that the
Reorganization would be approximately 45% accretive and 29% accretive to the
combined company's EPS for the fiscal years ending 1997 and 1998,
respectively.
Relevant Market and Economic Factors. In rendering its opinion, Alex. Brown
considered, among other factors, the condition of the U.S. stock markets,
particularly in the semiconductor capital equipment industry sector, and the
current level of economic activity.
No company used in the analysis of other publicly traded companies nor any
transaction used in the analysis of selected mergers and acquisitions
summarized above is identical to the Company, the ADCS Group or the
Reorganization. Accordingly, such analyses must take into account differences
in the financial and operating characteristics of the Selected Companies and
the companies in the Selected Transactions and other factors that would affect
the public trading value and acquisition value of the Selected Companies and
the Selected Transactions, respectively.
While the foregoing summary describes all analyses and factors that Alex.
Brown deemed material in its presentation to the Company Board of Directors,
it is not a comprehensive description of all analyses and factors considered
by Alex. Brown. The preparation of a fairness opinion is a complex process
involving various determinations as to the most appropriate and relevant
methods of financial analysis and the applications of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary
99
<PAGE>
description. Alex. Brown believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors, would create
an incomplete view of the evaluation process underlying the Alex. Brown
Opinion. In performing its analyses, Alex. Brown considered general economic,
market and financial conditions and other matters, many of which are beyond
the control of the Company and the ADCS Group. The analyses performed by Alex.
Brown are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than those suggested by such
analyses. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Additionally, analyses relating to the value of a
business do not purport to be appraisals or to reflect the prices at which the
business actually may be sold. Furthermore, no opinion is being expressed as
to the prices at which shares of Company Common Stock or Holdings Common Stock
may trade at any future time.
Pursuant to a letter agreement dated February 10, 1997 between the Company
and Alex. Brown, the fees to date payable to Alex. Brown for rendering the
Alex. Brown Opinion have been $275,000. In addition, the Company has agreed to
reimburse Alex. Brown for its reasonable out-of-pocket expenses incurred in
connection with rendering the Alex. Brown Opinion, including fees and
disbursements of its legal counsel. The Company has agreed to indemnify Alex.
Brown and its directors, officers, agents, employees and controlling persons,
for certain costs, expenses, losses, claims, damages and liabilities related
to or arising out of its rendering of services under its engagement as
financial advisor. The fees payable to Alex. Brown are not dependent on the
conclusions stated in the Alex. Brown Opinion.
Alex. Brown may actively trade the equity securities of the Company for its
own account and for the account of its customers and accordingly may at any
time hold a long or short position in such securities. Alex. Brown regularly
publishes research reports regarding the semiconductor capital equipment
industry and the businesses and securities of publicly traded companies in the
industry.
EFFECTIVE TIME OF THE REORGANIZATION
The Merger will become effective upon the filing of a Certificate of Merger,
executed in accordance with the relevant provisions of the DGCL, with the
Secretary of State of the State of Delaware. Under the Merger and Exchange
Agreement, this filing is expected to be made as soon as reasonably
practicable after the satisfaction or waiver of all conditions to the
Reorganization. The Exchange is to occur simultaneously with the filing of the
Certificate of Merger pursuant to the Merger and Exchange Agreement.
EXCHANGE OF CERTIFICATES AND THE ADCS INTERESTS
Exchange Agent. Prior to the Effective Time, Holdings and the Company will
enter into an agreement with BankBoston, N.A., or such other national or state
bank selected by Holdings (the "Exchange Agent"), which will provide that
Holdings will deposit with the Exchange Agent as of the Effective Time, for
the benefit of the holders of Company Common Stock for exchange in accordance
with the Merger and Exchange Agreement, certificates representing the shares
of Holdings Common Stock issuable pursuant to the Merger and Exchange
Agreement in exchange for outstanding shares of Company Common Stock.
Company Common Stock Certificates. From and after the Effective Time, each
holder of a stock certificate, which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock, will be entitled to
receive in exchange therefor, upon surrender thereof to the Exchange Agent, a
certificate or certificates representing the number of shares of Holdings
Common Stock into which such shares of Company Common Stock shall have been
converted as a result of the Reorganization.
As promptly as practicable after the Effective Time, the Exchange Agent will
deliver to each holder of record of shares of Company Common Stock at the
Effective Time transmittal materials for use in exchanging the stock
certificates that formerly represented such shares for certificates for the
shares of Holdings Common Stock into which shares of Company Common Stock have
been converted. At the close of business on the business day preceding the
Effective Time, the stock transfer books of the Company will be closed.
100
<PAGE>
The certificates representing shares of Holdings Common Stock, and any
dividends or other distributions paid on such Holdings Common Stock will not
be delivered to holders of record of shares of Company Common Stock until the
certificates representing such shares of Company Common Stock are delivered to
Holdings through the Exchange Agent. No interest will be paid on dividends or
other distributions which the holder of such shares shall be entitled to
receive upon such delivery.
ADCS Interests. The Exchange Consideration will be allocated among the ADCS
Holders according to their respective Pro Rata Portions. Share certificates
evidencing the Exchange Consideration (other than 750,000 shares of Holdings
Common Stock to be delivered to State Street Bank and Trust Company as escrow
agent pursuant to the Escrow Agreement as described below) will be delivered
to the ADCS Holders at the Closing or as soon thereafter as practicable. No
fractional shares of Holdings Common Stock will be issued to any ADCS Holder
in connection with the Exchange. In lieu of any such fractional shares, each
ADCS Holder who would otherwise have been entitled to receive a fraction of a
share of Holdings Common Stock will be entitled to receive instead an amount
in cash equal to such fraction multiplied by the Exchange Average Closing
Price.
CONDITIONS TO THE REORGANIZATION
The obligation of the ATMI Group to consummate the Reorganization is subject
to, among others, the following conditions: (i) the representations and
warranties of the ADCS Group and the ADCS Holders set forth in the Merger and
Exchange Agreement or in any certificate, schedule or other instrument or
document shall be true and correct in all material respects on and as of the
Closing Date; (ii) the ADCS Group shall have performed all of its obligations
as contemplated by the Merger and Exchange Agreement at or prior to the
Closing Date; (iii) the Company Board of Directors shall have received an
opinion from Alex. Brown to the effect that the Exchange Consideration payable
pursuant to the Reorganization is fair from a financial point of view to the
Company; (iv) the ADCS Holders shall have delivered to the Company all
certificates representing the ADCS Nevada Common Stock and ADCS Manager Common
Stock and assignments of all ADCS Holdings Membership Interests; (v) there
shall not have been any material adverse change in the business, properties,
condition or results of operations of the ADCS Group or any of its
subsidiaries, (vi) each ADCS Holder shall have executed a release as described
in the Merger and Exchange Agreement; (vii) each ADCS Holder shall have
executed a certificate of holder containing certain representations and
warranties as described in the Merger and Exchange Agreement; (viii) certain
agreements among the ADCS Holders and the ADCS Group regarding the ADCS
Interests shall have been terminated; and (ix) the Registration Statement of
which this Proxy Statement/Prospectus forms a part, shall have been declared
effective under the Securities Act and shall not be subject to any stop order.
The obligation of the ADCS Group to consummate the Reorganization is subject
to, among others, the following conditions: (i) the representations and
warranties of the ATMI Group set forth in the Merger and Exchange Agreement or
in any certificate, schedule or other instrument or document shall be true and
correct in all material respects on and as of the Closing Date; (ii) the ATMI
Group shall have performed all of its obligations as contemplated by the
Merger and Exchange Agreement at or prior to the Closing Date; (iii) there
shall not have been any material adverse change in the business, properties,
condition or the results of operations of the ATMI Group; (iv) the Company
shall have delivered the Exchange Consideration to the ADCS Holders; (v) the
Company shall have entered into an employment agreement with certain members
of the senior management of the ATMI Group; and (vi) the ADCS Holders and
Holdings shall have entered into a registration rights agreement as described
in the Merger and Exchange Agreement.
The obligation of each of the ATMI Group and the ADCS Group to consummate
the Reorganization is subject to certain additional conditions, including the
following: (i) the Merger and Exchange Agreement and the consummation of the
Merger shall have been duly approved and adopted by the stockholders of the
Company; (ii) no statute, rule or regulation shall have been enacted or
promulgated, and no order, decree, writ or injunction shall have been issued
and shall remain in effect, by any court or governmental or regulatory body,
agency or authority which restrains, enjoins or otherwise prohibits the
consummation of the Reorganization, and
101
<PAGE>
no action, suit or proceeding before any court or governmental or regulatory
body, agency or authority shall have been commenced with respect to the ADCS
Group, the ADCS Group's subsidiaries, the ADCS Holders, or the Company which
would have a material adverse effect; (iii) the ATMI Group and the ADCS Group
shall each have received a letter from Ernst & Young LLP regarding Ernst &
Young LLP's concurrence with the conclusions of management for the Company and
the ADCS Group as to the appropriateness of pooling-of-interests accounting
for the Reorganization under Accounting Principles Board Opinion No. 16; (iv)
the ATMI Group and the ADCS Group shall each have received an opinion from
Ernst & Young LLP to the effect that the Reorganization has been structured in
a manner which will be tax-free with respect to the ATMI Group and the
stockholders of the Company and the ADCS Holders; (v) the shares of Holdings
Common Stock shall have been authorized for listing on Nasdaq; (vi) all
consents, authorizations, orders and approvals of any regulatory body required
in connection with the execution, delivery and performance of the Merger and
Exchange Agreement shall have been obtained or made; (vii) all other consents,
approvals and waivers shall have been obtained and all notices shall have been
given as may be necessary to consummate the Reorganization; (viii) the Company
and/or the ADCS Group shall have entered into employment agreements with
certain members of the senior management of the ADCS Group as described in the
Merger and Exchange Agreement; (ix) each of the affiliates of the ADCS Group
and the Company shall have entered into an affiliate agreement as described in
the Merger and Exchange Agreement; (x) the ADCS Holders and Holdings shall
have entered into the Escrow Agreement as described in the Merger and Exchange
Agreement; (xi) the ADCS Holders, the Company and Holdings shall have entered
into the Indemnification Agreement as described in the Merger and Exchange
Agreement; (xii) the parties shall have obtained all third party and
governmental consents required as a result of or in connection with the
Reorganization, including with respect to ADCS-Korea; and (xiii) the ADCS
Group shall have used its best efforts to cause each employee of the ADCS
Group and the ADCS Group's subsidiaries to enter into an employee proprietary
information and inventions agreement as described in the Merger and Exchange
Agreement.
BUSINESS PENDING THE REORGANIZATION
The Merger and Exchange Agreement provides that, during the period from the
date of the Merger and Exchange Agreement to the Closing Date, each of the
ATMI Group and its subsidiaries and the ADCS Group and its subsidiaries: (i)
will conduct their respective businesses in the ordinary course and will use
their diligent efforts to preserve intact their business organization,
preserve their goodwill and the confidentiality of their business know-how,
keep available the services of their present key employees and those material
to the operations of their respective businesses and preserve their present
relationships with collaborators, licensors and others having business
relations with them; (ii) will conduct their respective businesses in the
usual and ordinary manner and will not change the character of their
respective businesses; (iii) except as provided in the Merger and Exchange
Agreement, will not pay any dividend or make any other distribution with
respect to or repurchase any of their respective securities; (iv) will use
substantially all of their respective assets in the ordinary course of
business and maintain substantially all of their respective assets in the same
condition as they were on April 7, 1997 (reasonable wear and tear, which are
not such as to affect adversely the operations of such business, excepted),
maintain insurance upon their respective assets and with respect to the
conduct of their respective businesses and give the other party prompt written
notice of any material damage to their respective property by fire or other
casualty; (v) will maintain their respective books, records and accounts in
the ordinary course consistent with past practice and will not make any
material changes in their respective accounting methods or practices; (vi)
will comply in all material respects with all laws applicable to the
respective entities, their assets and the conduct of their business; (vii)
will perform all of their respective material obligations under their
contracts and agreements without default; (viii) except in the ordinary course
and to the extent not material, will not make any loan to any person, give any
guarantee or indemnity with respect to a debt or liability of any person or
incur or otherwise become liable for any indebtedness or otherwise subject any
of their respective properties to any lien; (ix) will not sell, lease or
otherwise dispose of any of their respective assets except in the ordinary
course of business for a cash consideration which equals a fair value of any
of such assets; (x) except in the ordinary course of business consistent with
past practice, or as provided in the Merger and Exchange Agreement, will not
grant any severance or termination pay to any director, officer, employee,
partner or member of the respective entities, enter into any employment or
similar
102
<PAGE>
agreement with any such person (other than the employment agreements to be
entered into pursuant to the terms of the Merger and Exchange Agreement),
change any benefits payable under existing severance pay policies or
employment or other similar agreements, other than normal yearly adjustments,
or change any compensation or benefits payable to any person other than normal
yearly adjustments, other than promotions made in the ordinary course and
other than pursuant to any existing employee benefit plan; (xi) will use their
respective best efforts not to authorize any amendment to their respective
organizational documents or to authorize the merger or other combination of
any of the respective entities with any other entity, except as may be
necessary to effect certain acquisitions by the Company or to change the name
of any member of the ATMI Group (the ADCS Group has consented to the
Amendment); (xii) will not take any action which would jeopardize the
treatment of the Reorganization as a tax-free transaction or which would
prevent the Reorganization from being accounted for as a pooling of interests;
and (xiii) except in the ordinary course of business consistent with past
practice, will not enter into any new contract or agreement or amend,
terminate or assign any existing contract or agreement or make any material
capital investment or expenditure.
Under the Merger and Exchange Agreement, the ADCS Group has also agreed that
it: (i) will not authorize, amend the terms of, issue or grant options,
warrants or rights to purchase any securities of the ADCS Group or its
subsidiaries; (ii) will use its best efforts to cause the ADCS Holders not to
transfer any of the ADCS Interests, except as provided in the Merger and
Exchange Agreement; (iii) except in the ordinary course of business consistent
with past practice, will not grant any power of attorney with respect to its
business or assets or any of its subsidiaries' business or assets; and (iv)
will not make any payment in excess of $50,000, except for liabilities
incurred in the ordinary course of business and the payment of expenses
incurred in connection with the transaction contemplated thereby and as
provided in the Merger and Exchange Agreement. In addition, pursuant to the
Merger and Exchange Agreement, the ADCS Group and its subsidiaries have agreed
that they will not, and that they will use their best efforts to cause each
ADCS Holder not to, solicit or engage in negotiations with any person other
than the Company concerning any possible proposal regarding the acquisition of
the ADCS Interests, the ADCS Group or any of its subsidiaries or any merger or
consolidation thereof, or accept any such proposal.
In addition, under the Merger and Exchange Agreement, the ATMI Group has
also agreed that it: (i) will not grant to any other party registration rights
which are pari passu with or greater in priority than the registration rights
to be provided to the ADCS Holders in connection with the Reorganization (the
ADCS Group has consented to the registration rights granted with respect to
the Lawrence Acquisition); (ii) will not amend its stock option or other
similar equity-based incentive compensation plans to increase the number of
shares of stock issuable thereunder, nor issue shares of its capital stock
which would cause the number of its shares of capital stock to be more than
the number of shares that are issued and outstanding as of the date of the
Merger and Exchange Agreement, except (1) the ATMI Group may approve and issue
options under its existing stock option plans, (2) the ATMI Group may approve
a new stock option plan for up to 900,000 shares of Holdings Common Stock to
be effective if the Reorganization is consummated or of Company Common Stock
if the Reorganization is not consummated (subject to stockholder approval),
(3) pursuant to the exercise of outstanding options and warrants, and (4) in
connection with certain acquisitions made by the Company; and (iii) will not
make any payment nor will any of its subsidiaries make any payment in excess
of $100,000 except for liabilities incurred in the ordinary course of business
and the payment of expenses incurred in connection with the transactions
contemplated thereby.
TERMINATION
The Merger and Exchange Agreement may be terminated at any time prior to the
Closing, whether before or after approval of the Merger and Exchange Agreement
by the stockholders of the Company: (i) by written mutual consent of the
Company and the ADCS Group; (ii) by either the Company or the ADCS Group if
any court or governmental or regulatory agency, authority or body shall have
enacted or issued any statute, rule, regulation, ruling, writ or injunction or
taken any other action restraining or prohibiting the Reorganization and all
appeals therefrom shall have been exhausted; (iii) by either the Company or
the ADCS Group if the Reorganization has not been consummated on or before
October 15, 1997 (or such later date as may be determined under the Merger
103
<PAGE>
and Exchange Agreement) unless the failure to consummate the Reorganization by
such date is due to the breach of any representation or warranty or the
failure to perform or comply with any obligation under the Merger and Exchange
Agreement by the party seeking to terminate the Merger and Exchange Agreement;
(iv) by either the Company or the ADCS Group, for any reason, upon the payment
of $5 million to the non-terminating party (unless the Merger and Exchange
Agreement would otherwise permit termination without payment of such amount);
(v) by the Company if the ADCS Group materially breaches any representation,
warranty or covenant contained in the Merger and Exchange Agreement, which
breach is not cured within thirty business days; (vi) by the Company if any
ADCS Holder fails, refuses or is unable to contribute its ADCS Interests in
exchange for the Exchange Consideration, subject to certain conditions set
forth in the Merger and Exchange Agreement; (vii) by the Company if any
condition to closing specified in the Merger and Exchange Agreement is not
satisfied and such condition is not waived by the Company; (viii) by the
Company in certain circumstances if there is a material environmental
condition present at the sites of the ADCS Group; (ix) by the ADCS Group if
the ATMI Group materially breaches any representation, warranty or covenant
contained in the Merger and Exchange Agreement which breach is not cured
within thirty business days; (x) by the ADCS Group if the Company notifies the
ADCS Group of its intention to close on any acquisition having a value in
excess of $18 million to which the ADCS Group has reasonably objected; and
(xi) by the ADCS Group if any condition to closing specified in the Merger and
Exchange Agreement is not satisfied and such condition is not waived by the
ADCS Group.
In the event the Merger and Exchange Agreement is terminated by either party
in the event of a material breach of a representation, warranty or covenant by
the other party, which breach is not cured within thirty business days, the
non-terminating party is obligated to pay the terminating party a fee of $5
million within fifteen business days after the non-terminating party's receipt
of notice of termination. In the event the Company terminates the Merger and
Exchange Agreement because of the failure of an ADCS Holder to contribute its
ADCS Interests in exchange for the Exchange Consideration, the ADCS Group
shall pay a fee of $5 million to the Company within fifteen business days
after the ADCS Group's receipt of written notice of termination by the
Company, subject to certain conditions set forth in the Merger and Exchange
Agreement. The obligations of the Company and the ADCS Group to pay
termination fees shall survive any termination of the Merger and Exchange
Agreement.
If an event which shall give rise to the payment of the termination fee
pursuant to the Merger and Exchange Agreement occurs, the payment of any such
termination fee shall be the sole and exclusive remedy of the party receiving
such fee, except if the ADCS Group breaches their covenant not to engage in
negotiations regarding the acquisition of the ADCS Interests, the ADCS Group
or any of its subsidiaries, the ATMI Group may pursue any and all remedies
available to it at law or in equity.
INDEMNIFICATION AND ESCROW
On or prior to the Closing Date, the Company, Holdings and the ADCS Holders,
severally in accordance with their Pro Rata Portions, will enter into the
Indemnification Agreement. Pursuant to the terms of the Indemnification
Agreement, the Company and Holdings will indemnify and hold harmless each of
the ADCS Holders and their respective heirs, affiliates, general partners,
limited partners and each of their respective successors and assigns (the
"ADCS Indemnified Parties") against any and all losses arising out of or
relating to any breach of the representations, warranties, or covenants of the
Company, Holdings or Merger Subsidiary in the Merger and Exchange Agreement or
any document, certificate or agreement delivered pursuant to the Merger and
Exchange Agreement.
In addition, pursuant to the terms of the Indemnification Agreement, the
ADCS Holders will indemnify and hold harmless the Company, Holdings, their
subsidiaries, their affiliates (including the ADCS Group and its subsidiaries)
and their respective successors and assigns (the "ATMI Indemnified Parties")
against any and all losses arising out of and relating to (i) any breach of
the representations, warranties and covenants of the ADCS Group and its
subsidiaries contained in the Merger and Exchange Agreement or any document,
certificate or agreement delivered pursuant to the Merger and Exchange
Agreement and (ii) the following tax matters: (1) any previously unpaid income
taxes which may result from the ADCS Restructure in 1996; (2) depreciation on
tax
104
<PAGE>
returns filed with respect to fiscal year 1996 and the period in 1997 prior to
the Closing Date; (3) state sales tax paid with respect to fiscal year 1996
and the period in 1997 prior to the Closing Date to a state in which the ADCS
Group has not previously paid sales tax or franchise taxes; (4) disallowance
of any deductions for executive compensation; or (5) disallowance of any
deductions for travel or entertainment expenses taken on tax returns filed
with the respect to fiscal year 1996 and the period of 1997 prior to the
Closing Date. Notwithstanding the foregoing indemnification, the Company and
Holdings have agreed to bear the costs of certain proceedings involving the
taxing authorities through a trial court determination related to these tax
matters.
Furthermore, the Indemnification Agreement provides that each ADCS Holder
will severally indemnify the ATMI Indemnified Parties for losses arising from
breaches of such holder's representations, warranties and covenants contained
in the Certificate of Holder to be delivered by such ADCS Holder at Closing
and in any other certificate or agreement delivered to the ATMI Group in
connection with consummation of the transactions contemplated by the Merger
and Exchange Agreement.
The Indemnification Agreement limits the ATMI Group's liability for losses
to the aggregate value of the 750,000 shares of Holdings Common Stock which
the ADCS Holders are required to place in escrow as security for their
indemnification obligations (valued at the Exchange Average Closing Price).
Moreover, no ADCS Indemnified Party may seek recovery until the damages of all
of the ADCS Indemnified Parties are greater than $500,000, in which case the
indemnity shall apply to all of the damages of the ADCS Indemnified Parties.
The ADCS Holders, in the aggregate, shall not be liable for any damages in
excess of the aggregate value of the shares of Holdings Common Stock in the
escrow funds (valued at the Exchange Average Closing Price), and no ADCS
Holder shall be liable for any damages in excess of such holder's escrow fund
(as described below). Further, no ATMI Indemnified Party may seek recovery for
breaches of general representations and warranties by the ADCS Group or an
ADCS Holder until damages from such breaches are greater than $250,000 in the
aggregate, in which case the indemnity will apply to all of such damages, or
for damages resulting from the tax matters for which ADCS Holders are
providing indemnity until the damages related to such matters exceed $500,000,
in which case the indemnity will apply to all such damages.
Other than with respect to tax matters or fraud or intentional
misrepresentation, an indemnified party generally may not make any claim for
indemnification after the first anniversary date of the Closing Date, and no
such claim may be brought after the date of issuance of the first independent
audit report with respect to the financial statements of Holdings after the
Closing Date, if such claim is of a type expected to be encountered in the
course of an audit performed in accordance with generally accepted auditing
standards. The claims period for claims with respect to the tax matters
specified above or with respect to fraud or intentional misrepresentation will
extend for the statute of limitations applicable to the matters which are the
subject of such claims.
As security for the indemnification obligations of the ADCS Holders
described above and the purchase price adjustment discussed in "THE
REORGANIZATION--The Exchange" above, certificates representing 750,000 shares
of the Exchange Consideration will be deposited in escrow (the "Escrow
Shares"), with three separate escrow funds being established for each ADCS
Holder according to such Holder's Pro Rata Portions. An aggregate of 625,000
shares of the Exchange Consideration will be deposited in escrow and will be
available solely for claims arising under tax matter (1) discussed in the
second paragraph of this Section. An aggregate of 75,000 shares of the
Exchange Consideration will be deposited in escrow and will be available
solely for claims arising under tax matters (2) through (5) discussed in the
second paragraph of this Section. An aggregate of 50,000 shares of the
Exchange Consideration will be deposited in escrow and will be available
solely for (i) claims for indemnification other than with respect to tax
matters (1) through (5), (ii) claims against an ADCS Holder arising from
breaches of such holder's representations, warranties and covenants as
discussed in the third paragraph of this Section, provided that recourse will
be limited to the escrow fund of the breaching ADCS Holder, and (iii) the
return of shares pursuant to the purchase price adjustment discussed in "THE
REORGANIZATION--The Exchange." Each ADCS Holder's escrow fund will be the ATMI
Indemnified Parties' sole recourse for indemnification and security for the
return of shares pursuant to the purchase price adjustment referenced above.
105
<PAGE>
The Escrow Shares consisting of 50,000 shares of the Exchange Consideration
will be held in the escrow funds from the Closing Date until the later of: (i)
the first anniversary of the Closing Date; and (ii) the date on which all
claims regarding breaches of general representations and warranties by the
ADCS Group and the ADCS Holders are finally resolved and all amounts have been
paid in full from the escrow funds. The Escrow Shares consisting of 625,000
shares and 75,000 shares of the Exchange Consideration will be held in the
escrow funds from the Closing Date until the later of: (i) the first
anniversary of the Closing Date; and (ii) the expiration of the applicable
statute of limitations with respect to the tax matters for which the ADCS
Holders are providing indemnification (unless a claim for tax matters is
pending). Pursuant to the Escrow Agreement, a portion of the Escrow Shares
consisting of 625,000 shares and 75,000 shares of the Exchange Consideration
may be released earlier if Holdings determines that certain of the Escrow
Shares no longer are required as security for the indemnification obligations
of the ADCS Holders.
The ADCS Group believes that any exposure related to the tax matters (1) and
(2) through (5) would be immaterial, and the Company believes that any
successful challenge to tax matters (1) and (2) through (5) discussed above is
not probable. Further, the possible exposures, if any, related to both tax
issues are difficult to quantify. After intense negotiations, the parties
agreed to the allocation of the Escrow Shares described above. The allocation
was based on the Company's belief that, regardless of the probability that
liabilities arise, the potential exposure for tax matter (1) could range from
$0 to $20,000,000 and the potential exposure for tax matters (2) through (5)
could range from $0 to $2,000,000, inclusive of penalties and interest. The
current value of the Escrow Shares allocated to these tax matters provides
indemnity towards the upper ranges of these potential exposures.
While management of the Company believes that the indemnification provided
by the ADCS Holders will be adequate, because of the various limitations
discussed above, a possibility exists that the losses experienced by the
Company, Holdings and the other parties entitled to indemnification could
exceed the value of the shares held in escrow because the shares held in
escrow are insufficient in number or, due to market conditions and potential
stock price volatility, in value to adequately compensate the parties entitled
to indemnification for any losses which are the subject of the
indemnification. Furthermore, a possibility exists that the losses which are
the subject of the indemnification will be incurred during periods other than
those for which claims may be made with respect to such losses. Consequently,
losses for which there is insufficient indemnification could have a material
adverse effect on the Company, Holdings or the other parties entitled to
indemnification.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
The Company. In considering the recommendations of the Company Board of
Directors with respect to the Merger and Exchange Agreement and the
transactions contemplated thereby, stockholders of the Company should be aware
that certain executive officers of the Company have certain interests in the
Reorganization that are in addition to interests of stockholders of the
Company generally. In particular, upon consummation of the Reorganization, the
Company will enter into employment agreements with each of Eugene G. Banucci,
Daniel P. Sharkey and Peter S. Kirlin. See "THE REORGANIZATION--Employment
Agreements." See also "EQUITY OWNERSHIP OF CERTAIN PERSONS WITH INTERESTS IN
THE TRANSACTIONS."
The ADCS Group. Upon consummation of the Reorganization, assuming a price
per share of Holdings Common Stock of $31.00 (the closing price per share of
Company Common Stock on September 8, 1997) and no adjustment in the number of
shares of Holdings Common Stock to be distributed to the ADCS Holders, the
directors and executive officers of the ADCS Group will receive an aggregate
of approximately $143,762,500 in shares of Holdings Common Stock.
Individually, Stephen H. Siegele, Frederick H. Siegele, Frederick J. Siegele
and Robert M. Jackson, each an executive officer of the ADCS Group, will
receive approximately $115,959,400, $19,496,100, $5,594,500, and $2,712,500,
respectively, in shares of Holdings Common Stock. In addition, the Company or
the ADCS Group, as the Company may determine, will enter into employment
agreements with each of Stephen H. Siegele (promptly following the Closing
Date), Frederick H. Siegele and Frederick J. Siegele. See "THE
REORGANIZATION--Employment Agreements." Furthermore, promptly following the
Closing Date, Holdings has agreed to appoint Stephen H. Siegele as a Class III
Director of Holdings with a term of three years, and upon the expiration of
his initial three-year term, to the extent permitted by law, to nominate
Stephen H. Siegele to serve for an additional three-year term and to support
his nomination to the same extent and in the
106
<PAGE>
same manner as it supports other nominees on the slate of directors proposed
by Holdings, provided that at the time of such nomination, the Exchange
Consideration owned of record by the ADCS Holders represents in the aggregate
10% or more of the shares of Holdings Common Stock then outstanding. The ADCS
Holders will also be entitled to certain registration rights with respect to
the shares of Holdings Common Stock they receive in the Exchange. See "THE
REORGANIZATION--Registration Rights Agreement" and "OPERATIONS AND MANAGEMENT
AFTER THE TRANSACTIONS--Management." See also "THE EQUITY OWNERSHIP OF CERTAIN
PERSONS WITH INTERESTS IN THE TRANSACTIONS."
EMPLOYMENT AGREEMENTS
At the Effective Time or promptly thereafter in the case of Stephen H.
Siegele, the Company or the ADCS Group, as the Company may determine, will
enter into employment agreements with each of Stephen H. Siegele, Frederick H.
Siegele and Frederick J. Siegele, each of whom currently serves as an officer
of the ADCS Group (the "ADCS Officers"), and the Company will enter into
employment agreements with each of Eugene G. Banucci, Peter S. Kirlin and
Daniel P. Sharkey, each of whom currently serves as an officer of the Company
(the "Company Officers"). Pursuant to the agreements, Stephen H. Siegele will
act as President, Frederick H. Siegele will act as Chief Technical Officer,
and Frederick J. Siegele will act as General Counsel, each of the ADCS Group
after the Effective Time. Eugene G. Banucci will act as President, Chief
Executive Officer and Chairman of the Board, Peter S. Kirlin will act as
Executive Vice President, and Daniel P. Sharkey will act as Vice President,
Chief Financial Officer, and Treasurer, each of the Company after the
Effective Time. The agreements provide for annual salaries to Stephen H.
Siegele, Frederick H. Siegele and Frederick J. Siegele of $400,000, $150,000
and $160,000, respectively, and annual salaries to Eugene G. Banucci, Peter S.
Kirlin and Daniel P. Sharkey of $210,000, $150,000 and $130,000, respectively.
Salaries are subject to increase each year commencing on the first anniversary
of the agreement to take into account appropriate cost of living adjustments
and general compensation increases based on performance, in the discretion of
the Board of Directors of Holdings. Each employee will also be eligible to
receive additional compensation, including awards of performance bonuses at
levels commensurate with other employees of Holdings of equivalent position
and grants of employee stock options, in each case in the discretion of the
Compensation Committee of the Board of Directors of Holdings.
The employment agreements expire on the earliest to occur of (i) the second
anniversary of the Effective Time, (ii) the death of the employee, (iii) the
termination of the agreements due to the incapacity of the employee, (iv) the
termination of the agreements by the employer with or without cause or (v) the
termination of the agreements by the employee for just cause. Under the terms
of the agreements, if the employer terminates the agreements due to the
incapacity of the employee, terminates the employee without cause, or if the
employee terminates the agreement for just cause, the employer will pay the
employee his annual base salary then in effect for a period of 18 months after
termination in the case of Stephen H. Siegele and Eugene G. Banucci and for a
period of nine months after termination in the case of the other ADCS Officers
and Company Officers. The employer will also provide the employee during such
period with medical, dental, life and disability insurance benefits on the
same basis the employer would have provided the employee during such period
had he continued to be an employee of the employer.
The employment agreements restrict each employee from competing with the
employer during the term of the agreement and for a period of the later of 60
months from the Effective Time or 36 months after the termination of
employment in the case of Stephen H. Siegele and Eugene G. Banucci or 24
months after the termination of employment in the case of the other ADCS
Officers and Company Officers. In the event the Company or Holdings should
seek to enforce such non-competition provisions in a court, a court may, in
exercising its discretionary authority, determine not to enforce, or to limit
enforcement of, such provisions against an employee.
The employment agreements for the Company Officers also provide that any
termination associated with a change in control of Holdings (including
resignation by the employee for just cause such as a significant decrease in
the employee's duties or authority) would result in the acceleration of
options outstanding (and as may be
107
<PAGE>
subsequently granted) to them; provided that such acceleration of vesting
shall not occur if and to the extent that (i) Holdings' independent accountant
has advised the Board of Directors of Holdings that such acceleration could
prohibit the accounting treatment of the transaction which is a change in
control as a pooling of interests under Accounting Principles Board Opinion
No. 16 (or any successor opinion) and (ii) the Board of Directors of Holdings
intends to treat such transaction as a pooling of interests, in which case
options would continue to vest as permitted within the terms of the applicable
stock plans. In addition, the Company Officers would be entitled to any
bonuses under any bonus plans then in effect as if fully earned. Benefits
payable under the agreements upon a change in control may subject the employee
to an excise tax as "excess parachute payments" under Section 280G of the
Code. Holdings will reimburse the employee for all excise taxes paid, but the
reimbursement will constitute an excess parachute payment and will be subject
to further excise tax. Such further excise tax will trigger further
reimbursement by Holdings. Holdings will not be allowed to take a deduction
for federal income tax purposes for the excess parachute payments.
ACCOUNTING TREATMENT
Consummation of the Reorganization is conditioned upon the receipt by each
of the Company and the ADCS Group of a letter from Ernst & Young LLP regarding
Ernst & Young LLP's concurrence with the conclusions of management for the
Company and the ADCS Group, as to the appropriateness of pooling-of-interests
accounting for the Reorganization under Accounting Principles Board Opinion
No. 16 if closed and consummated in accordance with the Merger and Exchange
Agreement. The Company and the ADCS Group have agreed not to take any action
that would disqualify treatment of the Reorganization as a pooling of
interests for accounting purposes.
Under the pooling-of-interests method of accounting, the historical basis of
the assets and liabilities of the Company and the ADCS Group will be combined
at the Closing Date and carried forward at their previously recorded amounts,
the stockholders' equity accounts of the Company and the ADCS Group will be
combined on Holdings' balance sheet, and no goodwill or other intangible
assets will be created. Consolidated financial statements of Holdings issued
after the Reorganization will be restated retroactively to reflect the
consolidated operations of the Company and the ADCS Group as if the
Reorganization had taken place prior to the periods covered by such
consolidated financial statements.
The unaudited pro forma financial information contained in this Proxy
Statement/Prospectus has been prepared using the pooling-of-interests
accounting method to account for the Reorganization. See "SELECTED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA" and "UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The parties to the Reorganization have not sought and do not intend to seek
a ruling from the IRS as to the federal income tax consequences of the
Reorganization. Instead, the Company and the ADCS Group have obtained the
opinion of Ernst & Young LLP (the "Reorganization Tax Opinion") as to certain
of the expected federal income tax consequences of the Reorganization, a copy
of which is attached as an exhibit to the Registration Statement of which this
Proxy Statement/Prospectus forms a part. The Reorganization Tax Opinion is
based upon the Code, applicable Treasury Regulations thereunder, judicial
decisions, and current administrative rulings and practices, all as in effect
on the date of this Proxy Statement/Prospectus. The Reorganization Tax Opinion
is limited to the matters set forth therein and does not address any other
issues, including, but not limited to, any state, local, foreign, consolidated
return, employee benefit, and Code Section 382 issues related to the
limitations on the utilization of net operating loss carryforwards, or
alternative minimum tax consequences to the parties to the Reorganization.
Further, the Reorganization Tax Opinion does not address the qualification of
the Merger as a statutory merger under state law.
The Reorganization Tax Opinion assumes that Company Common Stock and the
ADCS Interests will be held as capital assets by the holders thereof
immediately prior to the Effective Time of the Reorganization and
108
<PAGE>
does not address the tax consequences that may be relevant to a particular
stockholder subject to special treatment under certain federal income tax
laws, such as dealers in securities, banks, insurance companies, tax-exempt
organizations, non-United States persons and shareholders who acquired shares
of Company Common Stock or acquired ADCS Interests pursuant to the exercise of
options or otherwise as compensation or through a tax-qualified retirement
plan.
The delivery of the Reorganization Tax Opinion was conditioned upon (i) the
receipt of certain representations from executive officers of the Company and
the ADCS Group, the ADCS Holders, and, if the Lawrence Acquisition is
consummated, the executive officers of LSL and the LSL Stockholders, and
certain other information, data, documentation and materials as deemed
necessary, none of which has been independently verified by Ernst & Young LLP,
and (ii) certain limitations set forth therein. The Reorganization Tax Opinion
will not be updated for any changes to the Code or authorities interpreting
the Code that may occur after the date of the issuance of such opinion and
assumes that the Reorganization will be consummated as described herein. The
Reorganization Tax Opinion is not binding on the IRS or any court, and the IRS
or a court may disagree with the conclusions expressed in the Reorganization
Tax Opinion.
HOLDERS OF COMPANY COMMON STOCK AND THE ADCS HOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
REORGANIZATION TO THEM, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL
AND FOREIGN INCOME AND OTHER TAX LAWS.
The Reorganization Tax Opinion, upon which the following discussion is
based, is limited to certain material United States federal income tax
consequences of the Reorganization which are as follows, whether or not the
Lawrence Acquisition is consummated:
The Merger. The Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Merger Subsidiary and Holdings
will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code. No gain or loss will be recognized by the Company,
Holdings or Merger Subsidiary as a result of the Merger. In addition, the
Merger will constitute a transfer to a controlled corporation within the
meaning of Section 351(a) of the Code. As a result, no gain or loss will be
recognized by a stockholder of the Company who receives solely shares of
Holdings Common Stock in exchange for Company Common Stock. The tax basis of
the shares of Holdings Common Stock received by a stockholder of the Company
will be the same as the tax basis of the shares of Company Common Stock
exchanged therefor. The holding period of the shares of Holdings Common Stock
received by a stockholder of the Company will include the period during which
the shares of Company Common Stock surrendered in exchange therefor were held,
provided that the shares of Company Common Stock are held as a capital asset
within the meaning of Section 1221 of the Code at the Effective Time.
The Exchange. The Exchange, taken together with the Merger, will constitute
a transfer to a controlled corporation within the meaning of Section 351(a) of
the Code, and the stockholders of the Company and ADCS Holders will each be a
person transferring property to Holdings within the meaning of Section 351(a)
of the Code. If the ADCS Holders transfer all of the ADCS Interests to
Holdings at the Effective Time in exchange for Holdings Common Stock, the
following consequences will occur. No gain or loss will be recognized to the
ADCS Holders upon the transfer of the ADCS Interests to Holdings solely in
exchange for Holdings Common Stock, except to the extent an ADCS Holder's
share of the respective entity's liabilities exceeds that holder's basis in
such ADCS Interests. No gain or loss will be recognized to Holdings on the
receipt of assets solely in exchange for Holdings Common Stock. The tax basis
of Holdings Common Stock received by each ADCS Holder that transferred its
interest to Holdings will be equal to the basis of the respective ADCS
Interest exchanged therefor, reduced by the holder's share of liabilities
assumed by the ADCS Group, and increased by any gain recognized by the holder
as described above. The holding period of the shares of Holdings Common Stock
received by the ADCS Holders will include the period during which the property
exchanged therefor was held, except that the holding period of a portion of
each share of Holdings Common Stock that was received by ADCS Holders in
exchange for their interests in Code Section 751 assets of the ADCS Group that
are neither
109
<PAGE>
capital assets nor Code Section 1231 assets begins on the day following the
date of the Exchange. An ADCS Holder who receives cash in lieu of a fractional
interest in a share of Holdings Common Stock will recognize gain in an amount
not in excess of the cash to be received. Such gain will be long term or short
term depending upon whether the holding period in the ADCS Interests is
greater than twelve months. No loss from the exchange will be recognized.
See "THE LAWRENCE ACQUISITION--Certain Federal Income Tax Consequences" for
a summary of the tax opinion related to certain material United States federal
income tax consequences if the Lawrence Acquisition is consummated.
RESALE OF HOLDINGS COMMON STOCK BY AFFILIATES
The shares of Holdings Common Stock to be issued to the stockholders of the
Company and to ADCS Holders in connection with the Reorganization have been
registered under the Securities Act. Holdings Common Stock received by the
stockholders of the Company and ADCS Holders upon consummation of the
Reorganization will be freely transferable under the Securities Act, except
for shares issued to any person who may be deemed an "Affiliate" (as defined
below) of Holdings, the Company or the ADCS Group within the meaning of Rule
145 under the Securities Act. "Affiliates" are generally defined as persons
who control, are controlled by, or are under common control with Holdings, the
Company or the ADCS Group at the time the Reorganization is submitted for vote
or consent (generally, directors and executive officers of the Company or the
ADCS Group and major holders of ADCS Interests or Company Common Stock).
Affiliates of the ADCS Group or the Company may not sell their shares of
Holdings Common Stock acquired in connection with the Reorganization, except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In
general, under Rule 145, for one year following the Closing Date, an Affiliate
(together with certain related persons) would be entitled to sell shares of
Holdings Common Stock acquired in connection with the Reorganization only
through unsolicited "brokers' transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144 under the Securities
Act. Additionally, the number of shares to be sold by an Affiliate (together
with certain related persons and certain persons acting in concert) during
such one-year period within any three-month period for purposes of Rule 145
may not exceed the greater of 1% of the outstanding shares of Holdings Common
Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would remain available to
Affiliates only if Holdings remained current with its periodic filings with
the SEC under the Exchange Act. Beginning one year after the Closing Date, an
Affiliate would be able to sell such Holdings Common Stock without such manner
of sale or volume limitations, provided that Holdings was current with its
Exchange Act filings and such Affiliate was not then an Affiliate of Holdings.
Beginning two years after the Closing Date, an Affiliate would be able to sell
such shares of Holdings Common Stock without any restrictions so long as such
Affiliate had not been an Affiliate of Holdings for at least three months
prior to the date of such sale. Affiliates of Holdings are subject to further
limitations and may not sell their shares of Holdings Common Stock except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 144 or another applicable
exemption from the registration requirements of the Securities Act. Rule 144
permits Affiliates to sell shares subject to the volume and manner-of-sale
provisions described above and subject to the availability of certain public
information about Holdings and the filing of certain notices of sale.
REGISTRATION RIGHTS AGREEMENT
On or prior to the Closing Date, Holdings will enter into a registration
rights agreement with the ADCS Holders (the "Registration Rights Agreement")
regarding the Exchange Consideration. The Registration Rights Agreement will
provide the following rights for any holder that may not dispose of all of
such holder's shares of Holdings Common Stock pursuant to Rule 144 within the
three-month period following such proposed registration: (1) one demand
registration, if requested by the holders of at least 70% of the registrable
shares, which right is exercisable between the first anniversary of the
Closing Date and the third anniversary of the Closing Date, covering up to 50%
of the registrable shares, less any shares previously sold; and (2)
"piggyback"
110
<PAGE>
registration rights, exercisable prior to the fifth anniversary of the Closing
Date, on registrations of shares by Holdings for its own account or the
account of other securityholders. Holdings will be required to use diligent
efforts to keep any such demand registration effective up to the third
anniversary of the Closing Date (subject to extension for any suspensions of
sales or delays in registration imposed by Holdings). Holdings shall be
permitted to require any such holders to delay any request for a demand
registration (i) if Holdings is then proposing to register securities for its
own account and pursues such proposed registration with diligence, provided
that the holders are offered certain "piggyback" rights in connection
therewith, or (ii) for a period of up to 60 days in any consecutive 12 month
period, if in the good faith judgment of the Board of Directors of Holdings
such registration would be seriously detrimental to Holdings and its
stockholders.
Holdings will be required to bear substantially all registration and selling
expenses (including certain fees of counsel to the selling stockholders but
excluding underwriting discounts and commissions relating to the registrable
shares) in connection with the registration of registrable shares in such
registrations. Holdings and the ADCS Holders will agree to indemnify the other
against certain liabilities, including liabilities under the Securities Act,
and to contribute to payments which the other may be required to make in
respect thereof. The registration rights will be transferable in limited
circumstances and may be amended or waived only with the written consent of
Holdings and the holders of at least 70% of the registrable shares initially
issued in the Reorganization.
NASDAQ LISTING
Holdings Common Stock, including the shares to be issued in the
Reorganization, has been approved for listing on Nasdaq upon notice of
issuance. Listing of Holdings Common Stock on Nasdaq is a condition of closing
under the Merger and Exchange Agreement. Holdings Common Stock will be listed
under the symbol "ATMI," which is the current symbol for Company Common Stock.
111
<PAGE>
THE LAWRENCE ACQUISITION
(PROPOSAL 3)
The description of the Lawrence Acquisition contained in this Proxy
Statement/Prospectus summarizes the material provisions of the Lawrence Merger
Agreement and is qualified in its entirety by reference to the Lawrence Merger
Agreement, the full text of which is attached hereto as Appendix E and is
incorporated herein by reference. All stockholders of the Company, the LSL
Stockholders and the ADCS Holders are urged to read Appendix E in its
entirety.
GENERAL
The Lawrence Acquisition will be effected through the merger of Lawrence
Merger Subsidiary with and into LSL, with LSL being the surviving corporation
and will become effective upon the filing of properly executed Articles of
Merger and a Plan of Merger with the Arizona Corporation Commission and a
Certificate of Merger with the Secretary of State of the State of Delaware
(the "Lawrence Effective Time"). If both Transactions are to be consummated,
immediately prior to the Lawrence Closing, the Company will have contributed
the shares it holds in Lawrence Merger Subsidiary to Holdings so that Lawrence
Merger Subsidiary becomes a wholly-owned subsidiary of Holdings. As a result
of the Lawrence Acquisition, LSL will become a wholly-owned subsidiary of the
Company if the Reorganization is not consummated or of Holdings if the
Reorganization is consummated.
TERMS OF THE LAWRENCE ACQUISITION
The Company incorporated Lawrence Merger Subsidiary under the laws of the
State of Delaware for the purposes of accomplishing the Lawrence Acquisition.
Pursuant to the Lawrence Merger Agreement, Lawrence Merger Subsidiary will
merge with and into LSL, with LSL being the surviving corporation and a
wholly-owned subsidiary of Holdings if the Reorganization is consummated or of
the Company if the Reorganization is not consummated. Prior to the Lawrence
Acquisition, and as a condition thereto, Lamonte H. Lawrence, the sole
stockholder of LSLMS, will contribute all of the issued and outstanding shares
of capital stock of LSLMS to LSL, with LSLMS becoming a wholly-owned
subsidiary of LSL. See "THE LAWRENCE ACQUISITION--Conditions to the Lawrence
Acquisition." In connection with the Lawrence Acquisition, the LSL Common
Stock will be converted into the right to receive (i) shares of Holdings
Common Stock, if the Reorganization is consummated, or (ii) shares of Company
Common Stock, if the Reorganization is not consummated. The aggregate number
of shares of Holdings Common Stock or Company Common Stock, as the case may
be, to be exchanged for the LSL Common Stock (the "Lawrence Acquisition
Consideration") will be equal to $78 million divided by the "Lawrence
Acquisition Average Closing Price" of Company Common Stock. The purchase price
may be adjusted as provided in the Lawrence Merger Agreement and as described
below. See "THE LAWRENCE ACQUISITION--Possible Adjustments to Purchase Price."
"Lawrence Acquisition Average Closing Price" means the average closing price
of Company Common Stock as reported by Nasdaq for the twenty trading days
preceding (and including) the third day prior to the date of the Annual
Meeting; provided that in the event that the Lawrence Acquisition Average
Closing Price is greater than $21.00 per share, the Lawrence Acquisition
Average Closing Price shall be deemed to be $21.00 per share; and in the event
the Lawrence Acquisition Average Closing Price is less than $17.00 per share,
the Lawrence Acquisition Average Closing Price shall be deemed to be $17.00
per share. The Lawrence Acquisition Consideration will be distributed among
the LSL Stockholders in proportion to their respective holdings of LSL Common
Stock immediately prior to the consummation of the Lawrence Acquisition.
Immediately following the Lawrence Effective Time, each LSL Stockholder will
be entitled to surrender his or its certificates representing LSL Common Stock
to the Company or Holdings, as the case may be, in exchange for his or its pro
rata share of the Lawrence Acquisition Consideration; provided that five
percent of the Lawrence Acquisition Consideration will be placed in escrow. If
the purchase price adjustment based upon any change in the combined net worth
of Lawrence results in the issuance of additional shares to the LSL
Stockholders, certificates representing five percent of the additional shares
of Holdings Common Stock or
112
<PAGE>
Company Common Stock, as the case may be, to be delivered to the LSL
Stockholders will also be deposited in escrow. All such shares shall be
allocated among the LSL Stockholders pro rata in accordance with their
respective holdings of LSL Common Stock and will be held and applied in
accordance with the terms of the Lawrence Merger Agreement and the Lawrence
Escrow Agreement. See "THE LAWRENCE ACQUISITION--Indemnification and Escrow."
Because the number of shares of Holdings Common Stock or Company Common
Stock, as the case may be, issuable to the LSL Stockholders will depend on the
Lawrence Acquisition Average Closing Price and possible adjustments to the
purchase price, there is no guarantee as to the number of shares of Holdings
Common Stock or Company Common Stock that the LSL Stockholders will receive.
Assuming no adjustments to the $78 million purchase price, the LSL
Stockholders can receive in the aggregate a maximum of 4,588,235 shares and a
minimum of 3,714,285 shares. The Lawrence Merger Agreement is subject to the
approval of the LSL Stockholders, and, consequently, the LSL Stockholders are
not bound to deliver their shares of LSL Common Stock and to consummate the
transaction.
The following table sets forth the number of shares of Holdings Common Stock
or Company Common Stock, as the case may be, to be issued upon conversion of
the LSL Common Stock held by the LSL Stockholders on a per share basis given
different possible values for the combined net worth of LSL and LSLMS as of
the Lawrence Effective Date and different Lawrence Acquisition Average Closing
Prices.
Number of Shares of Company Common Stock or Holdings Common Stock per Share of
LSL Common Stock(1)
<TABLE>
<CAPTION>
LSL/LSLMS COMBINED NET WORTH
---------------------------------------------
<S> <C> <C> <C>
$8,642,849(2) $7,500,000 $9,000,000
-------------- -------------- --------------
LAWRENCE ACQUISITION
AVERAGE CLOSING PRICE
$17.00........................ 448.235 441.513 450.336
$19.00........................ 401.053 395.538 402.932
$21.00........................ 362.857 357.415 364.558
</TABLE>
- --------
(1) Assumes an adjustment to the purchase price for payment prior to the
Lawrence Effective Time to a third party of $1,800,000 as a break-up fee
in connection with another transaction contemplated by LSL.
(2) Unaudited Combined Net Worth at December 31, 1996, as adjusted for
$2,000,000 settlement with Applied Materials, discussed herein.
As of June 30, 1997, the combined net worth for LSL and LSLMS was
$9,294,659. Furthermore, if the Lawrence Closing were to occur as of the date
of this Proxy Statement/Prospectus, the Lawrence Acquisition Average Closing
Price would be $21.00. Therefore, as of the date of this Proxy
Statement/Prospectus, the Company expects that 365.961 shares of Holdings
Common Stock or Company Common Stock, as the case may be, will be issued for
each share of LSL Common Stock, for an aggregate of 3,659,610 shares.
The stockholders of the Company and the LSL Stockholders may call a toll-
free telephone number established by the Company (1-888-566-0155) after the
last trading day ended three days prior to the date of the Annual Meeting to
learn the number of shares of Holdings Common Stock or Company Common Stock,
as the case may be, to be issued in exchange for each share of LSL Common
Stock and for all shares of LSL Common Stock in the aggregate.
POSSIBLE ADJUSTMENTS TO PURCHASE PRICE
The Lawrence Merger Agreement provides that the purchase price will be
reduced by the cost to LSL of any payment required to be made by LSL prior to
the Lawrence Effective Time to any third party in connection with any other
transaction contemplated by LSL, including any payment in the nature of a
required "break-up"
113
<PAGE>
fee, estimated by the Company to be approximately $1,800,000, which amount
shall be determined prior to the Lawrence Effective Time. The aggregate number
of shares of Holdings Common Stock or Company Common Stock, as the case may
be, to be issued to the LSL Stockholders in connection with the Lawrence
Acquisition shall be decreased by a number of shares equal to the dollar value
of such adjustment, divided by the Lawrence Acquisition Average Closing Price.
The Lawrence Merger Agreement further provides that the purchase price will
be adjusted after the Lawrence Effective Time based upon any change in the
combined net worth of Lawrence as shown on its unaudited December 31, 1996
financial statements (the "1996 Net Worth") and the combined net worth of
Lawrence as shown on its audited financial statements as of the Lawrence
Effective Time (the "Effective Time Net Worth"). The 1996 Net Worth was
$8,642,849, which amount reflected an adjustment for the $2,000,000 settlement
with Applied Materials, discussed herein. Neither the 1996 Net Worth nor the
Effective Time Net Worth will be adjusted to reflect the payment of the
$1,800,000 "break-up" fee discussed above, except that the Effective Time Net
Worth will be adjusted to reflect any tax savings to Lawrence resulting from
such payment. In the event that the 1996 Net Worth is greater than the
Effective Time Net Worth, the aggregate number of shares of Holdings Common
Stock or Company Common Stock, as the case may be, to be issued to the LSL
Stockholders in connection with the Lawrence Acquisition shall be decreased by
a number of shares equal to the dollar value of the reduction in net worth,
divided by the Lawrence Acquisition Average Closing Price. In the event that
the 1996 Net Worth is less than the Effective Time Net Worth, the aggregate
number of shares of Holdings Common Stock or Company Common Stock, as the case
may be, to be issued to the LSL Stockholders in connection with the Lawrence
Acquisition shall be increased by a number of shares equal to the dollar value
of the increase in net worth, divided by the Lawrence Acquisition Average
Closing Price. The Representative shall deliver to the Company no later than
60 days after the Lawrence Effective Time a combined balance sheet and
combined income statement for Lawrence for the period from January 1, 1997 to
the Lawrence Effective Time, audited by Price Waterhouse LLP (the "Lawrence
Effective Time Financial Statements"). The Lawrence Effective Time Financial
Statements shall be prepared in accordance with GAAP applied on a basis
consistent with past practice, subject to certain adjustments provided in the
Lawrence Merger Agreement. If the Company and the Representative do not
approve the Lawrence Effective Time Financial Statements within 60 days after
delivery to the Company, the parties shall submit the matter to a "Big Six"
accounting firm acceptable to the Company and the Representative for a final
and binding determination. If the adjustment is in favor of the LSL
Stockholders, 95% of the additional shares of Company Common Stock or Holdings
Common Stock, as the case may be, shall be issued to the LSL Stockholders pro
rata and five percent will be placed into the escrow fund described below,
within ten business days of determination. If the adjustment is in favor of
the Company, 100% of the shares of Company Common Stock or Holdings Common
Stock, as the case may be, to be returned to the Company shall be released to
the Company from the escrow fund described below. The escrow fund will be the
Company's sole recourse for the return of such shares.
RESULTS OF THE LAWRENCE ACQUISITION
After consummation of the Lawrence Acquisition, LSL will be a wholly-owned
operating subsidiary of Holdings if the Reorganization is consummated or of
the Company if the Reorganization is not consummated and will constitute part
of the Company's Epitronics division. No material disposition or restructuring
of either the Company or LSL or any material part thereof is contemplated as a
result of the Lawrence Acquisition. Assuming a Lawrence Acquisition Average
Closing Price of $17.00 and no adjustments to the $78 million purchase price,
the stockholders of the Company and the LSL Stockholders would own
approximately 65.8% and 34.2% respectively, of the approximately 13,404,690
shares of Company Common Stock that would be outstanding if the Lawrence
Acquisition is consummated but the Reorganization is not consummated. If the
Reorganization and the Lawrence Acquisition are both consummated and there is
no adjustment to the $78 million purchase price, the stockholders of the
Company, the ADCS Holders and the LSL Stockholders would own approximately
44.9%, 31.8% and 23.3% respectively, of the approximately 19,654,690 shares of
Holdings Common Stock that would be outstanding.
114
<PAGE>
BACKGROUND OF THE LAWRENCE ACQUISITION
Since its formation in 1986, the Company has been focused on the development
of new materials technologies for the manufacture of semiconductor chips. As
an element of its strategy, the Company has utilized a phased
commercialization plan to sequentially enter three market segments served by
its core CVD technology, namely, semiconductor environmental equipment,
semiconductor thin film materials and semiconductor thin film deposition
services. The first of these market segments was semiconductor environmental
equipment which is now represented by the Company's EcoSys subsidiary. The
Company first introduced environmental products in 1989. The Company then
began to build market critical mass through mergers and acquisitions,
including a merger with Vector in 1994 and the acquisition of the Guardian
combustion scrubber product line from Messer Griesheim Industries, Inc. in
1995. This strategy has allowed EcoSys to become one of the world's largest
suppliers of point-of-use environmental equipment for the semiconductor
industry, satisfying a key goal of the Company's strategy which is to become a
market leader in each of its served market segments.
As the Company's semiconductor thin film materials development programs
progressed, it created the NovaMOS division in 1992 to serve the semiconductor
CVD precursors market segment. Over the last five years, the NovaMOS business
has introduced several products for next-generation semiconductor devices. In
April 1997, the Company entered into the Merger and Exchange Agreement with
the ADCS Group.
The Company's third business, semiconductor thin film deposition services
(or "epi" services) grew from the Company's early efforts to develop epi
processes for novel semiconductor materials such as diamond and silicon
carbide. As that development effort progressed, the Company Board of Directors
and its management team began to consider ways to facilitate the rapid
commercialization of these new materials, including mergers and acquisitions.
After several reviews by the Company Board of Directors during 1992 and 1993
meetings, the Company Board of Directors established a process for identifying
acquisition/merger candidates in the epi services market segment and the
criteria for evaluating them. Included in the target company criteria were (1)
complementary epi products, (2) an existing distribution capability into the
semiconductor industry, (3) epi manufacturing capability, and (4) a quality
reputation among the target company's customers. These criteria are referred
to below as the "Epi Services Market Initial Criteria." The establishment of
the Epi Services Market Initial Criteria led to meetings and discussions with
a number of companies that were possible targets.
In December 1995, the Company acquired Epitronics Corporation, a
manufacturer of gallium arsenide epi products. At that time, the Company
combined all of its epi technology and products in its Epitronics division. In
a continuing effort to complete the Company's specialty epi products
portfolio, Dr. Eugene Banucci, Chief Executive Officer for the Company, had
informal discussions with the President of LSL, Mr. Lamonte H. Lawrence, on
August 13, 1996. These informal discussions were followed in November 1996
with the signing of a confidentiality agreement between LSL, the Company and
Alex. Brown, which LSL had retained as an advisor for the potential sale of
LSL. Shortly thereafter, the Company received from Alex. Brown a copy of a
document describing the business and prospects of LSL.
In December 1996 as part of its strategic long range planning process, the
management of the Company again reviewed mechanisms to accelerate the growth
of its Epitronics business and concluded that the acquisition of LSL was the
most compelling opportunity to do so. As opposed to every other target company
considered, LSL met all of the Epi Services Market Initial Criteria.
Therefore, in December 1996, the Company submitted to LSL and Alex. Brown a
preliminary bid for LSL, which allowed the Company to be qualified for
preliminary due diligence on LSL. The preliminary bid included a proposed
purchase price of $86 million, which was based on a multiple of the Company's
assumption of Lawrence's after-tax earnings for the twelve month period ended
September 30, 1996. At its December 18, 1996 meeting, the Company Board of
Directors appointed Mr. Mark Adley as the Board's outside director designee
for oversight of both due diligence and any subsequent negotiations.
During January and February 1997, representatives of the Company, including
Dr. Banucci, Dr. Duncan Brown and Mr. Daniel Sharkey met with representatives
of LSL on several occasions for due diligence purposes. At a special meeting
of the Company Board of Directors on February 10, 1997, the Company Board of
Directors reviewed both LSL's financial results as well as the status of
negotiations. At a formal Company Board of
115
<PAGE>
Directors meeting on March 7, 1997, the Company Board of Directors approved
the material terms of a merger agreement proposed by Dr. Banucci which was
subsequently submitted to Alex. Brown and LSL. This proposal included a
proposed purchase price of $80 million, which was reduced from the preliminary
bid made by the Company in December 1996 as a result of findings made by the
Company in conducting due diligence of Lawrence subsequent to the submission
of the preliminary bid. This led to a meeting in the offices of Alex. Brown in
New York, New York on March 26, 1997 attended by Dr. Banucci, Dr. Brown, Mr.
Sharkey and Mr. Frank Marco of Shipman & Goodwin LLP, legal counsel to the
Company, to discuss the details of a merger agreement.
The definitive Agreement and Plan of Merger among the Company, Holdings and
LSL was then negotiated during the period between March 26, 1997 and May 17,
1997 during which time further due diligence of LSL was conducted and audited
results as of and at December 31, 1996 of both companies were prepared. During
this period, the parties also discussed the amount of the Lawrence Acquisition
Consideration. In mid-April 1997, the parties agreed upon a purchase price of
$82 million, which was based on a multiple of Lawrence's unaudited earnings
before income taxes for the twelve month period ended December 31, 1996 and
arm's-length negotiations between the parties, subject to the completion of
further due diligence. At this time, Company Common Stock was trading at or
around $20.00 per share. Therefore, in order to provide price protection to
all parties by minimizing fluctuations in the number of shares of Holdings
Common Stock or Company Common Stock, as the case may be, to be issued as the
Lawrence Acquisition Consideration, the parties agreed to limit the Lawrence
Acquisition Average Closing Price to a range of $18.00 to $22.00 per share.
Upon the completion of due diligence by the Company in early May, and after
completion of further discussions between the parties, the parties agreed to a
purchase price of $78 million. At the time, Company Common Stock was trading
at or around $17.00 per share. As a result, the parties agreed to reduce the
range of the Lawrence Acquisition Average Closing Price to $17.00 to $21.00.
On May 8, 1997, Mr. Sharkey was authorized to proceed with the engagement of
an investment banking firm to render an opinion as to the fairness of the
Lawrence Acquisition Consideration to the Company from a financial point of
view. The firm of Hambrecht & Quist was engaged solely to render such an
opinion. At a special Company Board of Directors meeting on May 16, 1997
(which was adjourned several times on such date), representatives of Hambrecht
& Quist made a presentation regarding its fairness opinion, and subsequently
representatives of Hambrecht & Quist rendered its opinion to representatives
of the Company Board of Directors. The Company Board of Directors subsequently
voted unanimously to approve the Lawrence Acquisition, subject to completion
of negotiation of the definitive merger agreement and plan of merger. On May
17, 1997, LSL, the Company and Holdings signed a definitive merger agreement
which was announced prior to the opening of trading on May 19, 1997.
COMPANY'S REASONS FOR THE LAWRENCE ACQUISITION
The Company Board of Directors believes that the Lawrence Acquisition is in
the best interests of the stockholders of the Company and has unanimously
approved the Lawrence Merger Agreement. Prior to reaching its conclusions, the
Company Board of Directors received a presentation from, and reviewed the
Lawrence Acquisition with, the Company's management and its legal and
financial advisors. The Company Board of Directors believes that the following
are reasons for the stockholders of the Company to vote for approval of the
adoption of the Lawrence Merger Agreement and the Lawrence Acquisition:
. LSL is an epi services company focused on the supply of silicon epi
wafers to semiconductor company end-users. As such it manufactures and
distributes products complementary to but not competitive with the
Company's products (criteria 1 of the Epi Services Market Initial
Criteria);
. LSL has an independent distribution channel which sells its products to
a significant percentage of the world's semiconductor manufacturers
(criteria 2 of the Epi Services Market Initial Criteria);
. LSL has a state of the art manufacturing facility in Mesa, Arizona for
its epi wafers (criteria 3 of the Epi Services Market Initial Criteria);
. during due diligence, the Company determined that LSL had the highest
reputation for product quality and service among its customers (criteria
4 of the Epi Services Market Initial Criteria);
116
<PAGE>
. LSL is among the world leaders in market share for specialty epi wafers
and has an established operating model that has been quite profitable;
. the Company has new products in development that could make LSL's
current products even more attractive to semiconductor end-users;
. the lack of alternative acquisition candidates;
. the pooling-of-interests accounting treatment of the Lawrence
Acquisition;
. the likelihood of successful completion of the Lawrence Acquisition;
. the opinion of Hambrecht & Quist with respect to the fairness of the
Lawrence Acquisition Consideration to the Company from a financial point
of view, together with the overall analyses supporting that opinion (see
"THE LAWRENCE ACQUISITION--Fairness Opinion of Hambrecht & Quist"); and
. the Lawrence Acquisition will allow the Company's stockholders to
participate in the potential future growth of a company which has
substantially greater operations and business resources.
The Company Board of Directors also considered a number of potentially
negative factors in its deliberations concerning the Lawrence Acquisition,
including, but not limited to: (i) the risk that the potential benefits of the
Lawrence Acquisition (including opportunities for expansion) would not be
fully realized; (ii) the risks associated with expansion, including the need
for LSL to expand its management team; (iii) the potential difficulties of
integrating the operations of both the ADCS Group and Lawrence and managing
the growth of the Company related to the Transactions; (iv) the risks
associated with the high percentage ownership of Company Common Stock or
Holdings Common Stock by former LSL Stockholders, especially Lamonte H.
Lawrence; and (v) the substantial direct expenses of the Lawrence Acquisition.
The Company Board of Directors also considered that several of the
indicators within the individual analyses performed in connection with the
Hambrecht & Quist Opinion, as defined in and described in more detail under
"THE LAWRENCE ACQUISITION--Fairness Opinion of Hambrecht & Quist," do not
suggest a valuation of Lawrence which exceeds the Lawrence Acquisition
Consideration. Specifically, these are the Downside Case under the
Contribution Analysis, the Downside Case under the Pro Forma Lawrence
Acquisition Analysis, the range of multiples of enterprise value to the latest
twelve month revenue and the range of multiples of price per share to the
latest twelve month earnings per share under the Analysis of Publicly Traded
Comparable Companies and the range of multiples of enterprise value of
consideration offered in selected merger and acquisition transactions to the
latest twelve month revenue for the acquired companies under the Analysis of
Selected Merger and Acquisition Transactions. Nevertheless, the Company Board
of Directors considered that Hambrecht & Quist had informed the board that
Hambrecht & Quist's analyses must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, could create an
incomplete view of the process underlying the analyses Hambrecht & Quist
performed in connection with its opinion. See "THE LAWRENCE ACQUISITION--
Fairness Opinion of Hambrecht & Quist." Furthermore, the Hambrecht & Quist
Opinion was only one of a number of factors the Company Board of Directors
considered, as described above.
The Lawrence Acquisition and the future results of Holdings, the Company and
LSL are subject to risks and uncertainties, including those set forth in "RISK
FACTORS."
The Company Board of Directors also considered, among other matters (i)
information concerning LSL's business, prospects, financial performance and
results, including the financial statements as of and for the twelve-month
period ending December 31, 1996; (ii) current conditions in the semiconductor
industry and the size of LSL's market, including other providers of epi
services, as discussed in "BUSINESS OF LAWRENCE--Competition;" and (iii)
reports from management as to the results of their due diligence examination.
RECOMMENDATION OF THE COMPANY BOARD OF DIRECTORS
THE COMPANY BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THAT THE LAWRENCE MERGER
AGREEMENT IS FAIR AND REASONABLE AND IN THE BEST
117
<PAGE>
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE COMPANY BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF THE LAWRENCE MERGER
AGREEMENT.
LAWRENCE'S REASONS FOR THE LAWRENCE ACQUISITION; RECOMMENDATION OF LSL'S BOARD
OF DIRECTORS
The Board of Directors of LSL has approved the Lawrence Merger Agreement and
has determined that the terms of the Lawrence Merger Agreement are fair to and
in the best interests of LSL and the LSL Stockholders and recommends that the
LSL Stockholders vote for approval and adoption of the Lawrence Merger
Agreement and the transactions contemplated thereby. The Board of Directors of
LSL considered the following reasons, among others, in reaching its
conclusions to recommend approval of the Lawrence Acquisition:
. the Lawrence Acquisition will create a combined company with
significantly greater resources than those of Lawrence alone which is
expected to enable the combined company to compete more effectively with
other competitors having greater resources than Lawrence;
. the belief of the Board of Directors of LSL that the Company's technical
and management resources are of significant value and provide the
opportunity for significant economies of scale;
. the fact that the Lawrence Acquisition is expected to allow Lawrence and
the Company to cross-sell services to customers of the other;
. the Company's reputation in the semiconductor industry; and
. the fact that the Lawrence Acquisition will provide that LSL
Stockholders with the opportunity to receive, on a tax-free basis,
Company Common Stock or Holdings Common Stock, as the case may be, that
will enable them to participate in the opportunities for growth in the
combined company after the Lawrence Acquisition.
FAIRNESS OPINION OF HAMBRECHT & QUIST
The Company engaged Hambrecht & Quist as financial advisor in connection
with the Lawrence Acquisition solely to deliver a financial opinion letter in
connection with that acquisition. Hambrecht & Quist was selected by the
Company Board of Directors to provide such an opinion based on Hambrecht &
Quist's qualifications, expertise and reputation, as well as Hambrecht &
Quist's investment banking relationship and familiarity with the Company. The
consideration to be paid for the Lawrence Acquisition was determined through
negotiations between the Company and Lawrence, and not by Hambrecht & Quist.
Hambrecht & Quist rendered its oral opinion to the Company Board of Directors
on May 16, 1997, subsequently confirmed in writing as of the same date (the
"Hambrecht & Quist Opinion"), that, as of such date, the consideration to be
paid by the Company in the Lawrence Acquisition is fair to the Company from a
financial point of view. No limitations were placed on Hambrecht & Quist by
the Company with respect to the investigation made or the procedures followed
in preparing and rendering its opinion. Hambrecht & Quist was not requested
to, and did not, opine upon the fairness of the Exchange Consideration.
Hambrecht & Quist was retained as an independent financial advisor. Neither
Hambrecht & Quist nor any of its affiliates or representatives has any other
relationship with the Company or Lawrence or any of their affiliates.
THE FULL TEXT OF THE WRITTEN HAMBRECHT & QUIST OPINION, WHICH SETS FORTH,
AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED,
AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY HAMBRECHT & QUIST IN
RENDERING THE HAMBRECHT & QUIST OPINION, IS ATTACHED AS APPENDIX F TO THIS
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE HAMBRECHT & QUIST OPINION
CAREFULLY AND IN ITS ENTIRETY. THE HAMBRECHT & QUIST OPINION IS ADDRESSED TO
THE COMPANY BOARD OF DIRECTORS AND WAS WRITTEN FOR THE INFORMATION OF THE
COMPANY BOARD OF DIRECTORS IN CONNECTION WITH ITS EVALUATION OF THE LAWRENCE
ACQUISITION. THE HAMBRECHT & QUIST OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY OR LSL AS TO HOW TO VOTE
118
<PAGE>
WITH RESPECT TO THE LAWRENCE ACQUISITION, THE REORGANIZATION OR ANY OTHER
PROPOSAL, AND DOES NOT ADDRESS THE BUSINESS DECISION OF THE COMPANY BOARD OF
DIRECTORS TO ENGAGE IN THE TRANSACTIONS CONTEMPLATED BY THE LAWRENCE MERGER
AGREEMENT. HAMBRECHT & QUIST DID NOT EXPRESS ANY OPINION REGARDING THE EFFECT,
IF ANY, THE LAWRENCE ACQUISITION OR THE EXCHANGE OR BOTH MIGHT HAVE ON THE
MARKET PRICE OF COMPANY COMMON STOCK OR HOLDINGS COMMON STOCK, AS THE CASE MAY
BE.
In its review of the Lawrence Acquisition, and in arriving at its opinion,
Hambrecht & Quist, among other things: (i) reviewed the publicly available
consolidated financial statements of the Company for recent years and interim
periods to date and certain other relevant financial and operating data of the
Company made available to Hambrecht & Quist from published sources and from
the internal records of the Company; (ii) reviewed certain financial forecasts
and related assumptions for the Company obtained by Hambrecht & Quist from a
third party research report, and discussed such report with management of the
Company; (iii) discussed the business, financial condition and prospects of
the Company with certain of its officers; (iv) reviewed the consolidated
financial statements of Lawrence for recent years and interim periods to date
and certain other relevant financial and operating data of Lawrence, including
certain projected information, made available to Hambrecht & Quist from the
internal records of Lawrence, as well as certain projected information
relating to Lawrence provided by management of the Company; (v) discussed the
business, financial condition and prospects of Lawrence with certain of its
officers and officers of the Company; (vi) reviewed the recent reported prices
and trading activity for Company Common Stock and compared such information
and certain financial information for the Company with similar information for
certain other companies engaged in businesses Hambrecht & Quist considered
comparable to the business of the Company; (vii) reviewed certain financial
information for Lawrence, and compared this information with similar
information for certain other companies engaged in businesses Hambrecht &
Quist considered comparable to the business of Lawrence, including ratios
based on the recent reported common stock prices for these comparable
companies; (viii) reviewed the financial terms, to the extent publicly
available, of certain merger and acquisition transactions Hambrecht & Quist
deemed comparable to the Lawrence Acquisition; (ix) reviewed projected
operating and financial data regarding the ADCS Group supplied to Hambrecht &
Quist by management of the Company (the "ADCS Estimates"); (x) reviewed the
April 17, 1997 draft of the Lawrence Merger Agreement, provided to Hambrecht &
Quist by management of the Company, and discussed with management of the
Company certain changes to such draft; and (xi) performed such other analyses
and examinations and considered such other information, financial studies,
analyses and investigations and financial, economic and market data as it
deemed relevant.
Hambrecht & Quist assumed and relied upon the accuracy and completeness of
all of the information concerning the Company, the ADCS Group and Lawrence
considered in connection with its review of the Lawrence Acquisition, and did
not assume any responsibility for independent verification of such information
or any independent valuation or appraisal of any of the assets or liabilities
of the Company, the ADCS Group or Lawrence, nor did it conduct a physical
inspection of the properties and facilities of any of these companies. With
respect to the financial forecasts for Lawrence and the ADCS Estimates
provided by the management of the Company, the financial forecasts of Lawrence
provided by management of Lawrence, and the financial forecasts for the
Company obtained from a third party research report (which forecasts with
respect to the Company were adjusted by Hambrecht & Quist based upon its
discussions with, and with the consent of, the Company management) (as so
adjusted, the "Company Estimates"), Hambrecht & Quist also assumed, upon the
advice of management of the Company and with the consent of the Company Board
of Directors, that they were reasonably prepared and provided a reasonable
basis for the Hambrecht & Quist Opinion. Hambrecht & Quist also assumed that
neither the Company, the ADCS Group nor Lawrence was a party to any pending
transactions, including external financings, recapitalization or merger
discussions, other than the Lawrence Acquisition, the Exchange and those in
the ordinary course of conducting their respective businesses. The Hambrecht &
Quist Opinion is necessarily based upon market, economic, financial and other
conditions as they existed and could be evaluated as of the date of the
opinion and any subsequent change in such conditions would require a
reevaluation of such opinion. The Company has not requested, and Hambrecht &
Quist will not provide, an update of the Hambrecht & Quist Opinion. For
purposes of its opinion, Hambrecht & Quist assumed that the Lawrence
Acquisition will qualify as a tax-free reorganization under the Code and as a
pooling of interests for accounting purposes.
119
<PAGE>
The financial projections of the ADCS Group prepared by the management of
the Company and provided to Hambrecht & Quist (the "ADCS Group II
Projections") included the following (in thousands of dollars) for the years
ended December 31: (i) revenue of $26,100 in 1997 and $31,320 in 1998, (ii)
income from operations of $11,893 in 1997 and $14,966 in 1998 and (iii) net
income of $7,298 in 1997 and $9,288 in 1998.
The financial projections of Lawrence prepared by the management of Lawrence
and provided to Hambrecht & Quist (the "Lawrence I Projections") included the
following (in thousands of dollars) for the years ended December 31: (i)
revenue of $27,866 in 1997 and $32,400 in 1998, (ii) income from operations of
$11,185 in 1997 and $13,200 in 1998, and (iii) pretax income of $10,049 in
1997 and $11,904 in 1998.
The financial projections of Lawrence prepared by the management of the
Company and provided to Hambrecht & Quist (the "Lawrence II Projections")
included in the following (in thousands of dollars) for the years ended
December 31: (i) revenue of $24,554 in 1997 and $30,000 in 1998, (ii) income
from operations of $9,139 in 1997 and $12,220 in 1998, and (iii) pretax income
of $8,382 in 1997 and $11,624 in 1998.
The ADCS Group's actual results may differ materially from those included in
the ADCS Group II Projections. Lawrence's actual results may differ materially
from those included in the Lawrence I Projections and/or the Lawrence II
Projections. Important factors and assumptions that could cause the ADCS
Group's actual results to differ materially from those included in the ADCS
Group II Projections and Lawrence's actual results to differ materially from
those included in the Lawrence I Projections and/or the Lawrence II
Projections include, without limitation, the integration of operations
resulting from the consummation of the Reorganization and the Lawrence
Acquisition, the effects of general economic conditions, changes in the
pattern of semiconductor industry growth or the markets in which the ADCS
Group and Lawrence sell products, customer interest in the products of the
ADCS Group and Lawrence, product and market competition, delays or problems in
the development, commercialization and manufacture of the products of the ADCS
Group and Lawrence and technological changes affecting the ADCS Group's and
Lawrence's core technologies. Other factors and assumptions not identified
above were also involved in the derivation of the ADCS Group II Projections,
the Lawrence I Projections and the Lawrence II Projections, and the failure of
such other assumptions to be realized, as well as other factors, may also
cause actual results to differ materially from those projected. The Company,
the ADCS Group and Lawrence assume no obligation to update the ADCS Group II
Projections, the Lawrence I Projections or the Lawrence II Projections to
reflect actual results or changes in factors or assumptions affecting such
forward-looking statements. In light of the significant uncertainties inherent
in projections of any kind, inclusion of the ADCS Group II Projections, the
Lawrence I Projections and the Lawrence II Projections and the Lawrence II
Projections in the Proxy Statement/Prospectus should not be regarded as a
representation by the Company, the ADCS Group, Lawrence, Hambrecht & Quist or
any other person that the ADCS Group II Projections, the Lawrence I
Projections or the Lawrence II Projections will be achieved.
Stockholders of the Company, the ADCS Holders and the LSL Stockholders are
cautioned that any forward-looking information, including the ADCS Group II
Projections, the Lawrence I Projections and the Lawrence II Projections,
contained in this Proxy Statement/Prospectus, should not be regarded as fact
and should not be relied upon as an accurate representation of future results.
In addition, none of the ADCS Group II Projections, the Lawrence I Projections
and the Lawrence II Projections were prepared with a view to public disclosure
or compliance with the published guidelines of the SEC or the guidelines
established by the American Institute of Certified Public Accountants
regarding projections and forecasts. The Company does not, as a matter of
course, publicly disclose forward-looking information as to future revenues,
earnings or other financial information. The ADCS Group II Projections, the
Lawrence I Projections and the Lawrence II Projections are included in this
Proxy Statement/Prospectus only because such information was made available to
Hambrecht & Quist by the Company or Lawrence, as the case may be. The ADCS
Group did not review or otherwise participate in the preparation of the ADCS
Group II Projections, nor did it provide the Company with any information in
connection therewith, other than its historical financial statements. Lawrence
did not review or otherwise participate in the preparation of the Lawrence II
Projections, nor did it provide the Company with any information in connection
therewith, other than its historical financial statements. Moreover, none of
the ADCS Group II Projections, the Lawrence I Projections or the Lawrence II
Projections purport to present operations in accordance with generally
accepted accounting principles and have not been audited, compiled or
otherwise
120
<PAGE>
examined by Ernst & Young LLP, the Company's and the ADCS Group's independent
auditors, Price Waterhouse LLP, Lawrence's independent accountants, or by any
other independent auditors. The ADCS Group II Projections, the Lawrence I
Projections and the Lawrence II Projections were not prepared or otherwise
verified by Hambrecht & Quist.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
summary of the Hambrecht & Quist analyses set forth below does not purport to
be a complete description of the analyses Hambrecht & Quist performed in
connection with its opinion. In arriving at its opinion. Hambrecht & Quist did
not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Hambrecht & Quist believes that its
analyses and the summary set forth below must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, or
of the following summary, without considering all factors and analyses, could
create an incomplete view of the processes underlying the analyses Hambrecht &
Quist performed in connection with its opinion. In performing its analysis,
Hambrecht & Quist made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of the Company, the ADCS Group and Lawrence.
The analyses performed by Hambrecht & Quist (and summarized below) are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
acquired.
The following is a brief summary of certain financial analyses Hambrecht &
Quist performed in connection with its opinion:
Contribution Analysis
Hambrecht & Quist analyzed the contribution of each of the Company and
Lawrence to certain financial statement categories of the pro forma combined
company, both (i) assuming the Reorganization is consummated, and (ii)
assuming the Reorganization is not consummated, and in each case assuming no
revenue or expense adjustments to the combined company. The respective
contributions of the Company and Lawrence were compared to the respective pro
forma ownership percentages of the stockholders of the Company and the LSL
Stockholders in the pro forma combined company (both assuming the
Reorganization is consummated, and assuming the Reorganization is not
consummated). In performing this analysis, Hambrecht & Quist examined the
expected contributions to the combined company's revenue, gross profit,
operating income and pretax income for fiscal 1997 and 1998 by (i) the
Company, both assuming the Reorganization is not consummated, based on the
Company Estimates, and assuming the Reorganization is consummated, based on
the Company Estimates and additionally on the ADCS Estimates, and (ii)
Lawrence, based on estimates (a) provided by management of the Company (the
"Base Case"), (b) provided by management of Lawrence (the "Upside Case") and
(c) derived by Hambrecht & Quist by reducing the estimated Base Case revenue
and cost of goods sold by 25% and 12.5%, respectively (the "Downside Case").
Assuming the Reorganization has been consummated (and accordingly analyzing
the Company on a pro forma basis reflecting the Exchange), Hambrecht & Quist
observed that, upon the closing of the Lawrence Acquisition, the stockholders
of the Company (including the former ADCS Holders) and the LSL Stockholders
are expected to own approximately 76% and 24%, respectively, of the combined
company equity. In the Base Case, it was observed that, in fiscal 1997, the
Company and Lawrence would have contributed approximately 77% and 23%,
respectively, of the combined revenue, 79% and 21%, respectively, of the
combined gross profit, 67% and 33%, respectively, of the combined operating
income, and 70% and 30%, respectively, of the combined pretax income; and
that, in fiscal 1998, the Company and Lawrence would have contributed
approximately 80% and 20%, respectively, of the combined revenue, 81% and 19%,
respectively, of the combined gross profit, 70% and 30%, respectively, of the
combined operating income, and 72% and 28%, respectively, of the combined
pretax income. In the Upside Case, it was observed that, in fiscal 1997, the
Company and Lawrence would have
121
<PAGE>
contributed approximately 75% and 25%, respectively, of the combined revenue,
76% and 24%, respectively, of the combined gross profit, 63% and 37%,
respectively, of the combined operating income, and 66% and 34%, respectively,
of the combined pretax income; and that, in fiscal 1998, the Company and
Lawrence would have contributed approximately 78% and 22%, respectively, of
the combined revenue, 79% and 21%, respectively, of the combined gross profit,
69% and 31%, respectively, of the combined operating income, and 71% and 29%,
respectively, of the combined pretax income. In the Downside Case, it was
observed that, in fiscal 1997, the Company and Lawrence would have contributed
approximately 82% and 18%, respectively, of the combined revenue, 85% and 15%,
respectively, of the combined gross profit, 81% and 19%, respectively, of the
combined operating income, and 84% and 16%, respectively, of the combined
pretax income; and that, in fiscal 1998, the Company and Lawrence would have
contributed approximately 84% and 16%, respectively, of the combined revenue,
87% and 13%, respectively, of the combined gross profit, 82% and 18%,
respectively, of the combined operating income, and 84% and 16%, respectively,
of the combined pretax income.
Assuming the Reorganization is not consummated, Hambrecht & Quist observed
that, upon the closing of the Lawrence Acquisition, the stockholders of the
Company and the LSL Stockholders would be expected to own approximately 66%
and 34%, respectively, of the combined company equity. In the Base Case, it
was observed that, in fiscal 1997, the Company and Lawrence would have
contributed approximately 70% and 30%, respectively, of the combined revenue,
69% and 31%, respectively, of the combined gross profit, 43% and 57%,
respectively, of the combined operating income, and 47% and 53%, respectively,
of the combined pretax income; and that, in fiscal 1998, the Company and
Lawrence would have contributed approximately 74% and 26%, respectively, of
the combined revenue, 74% and 26%, respectively, of the combined gross profit,
53% and 47%, respectively, of the combined operating income, and 55% and 45%,
respectively, of the combined pretax income. In the Upside Case, it was
observed that, in fiscal 1997, the Company and Lawrence would have contributed
approximately 67% and 33%, respectively, of the combined revenue, 66% and 34%,
respectively, of the combined gross profit, 38% and 62%, respectively, of the
combined operating income, and 43% and 57%, respectively, of the combined
pretax income; and that in fiscal 1998, the Company and Lawrence would have
contributed approximately 73% and 27%, respectively, of the combined revenue,
71% and 29%, respectively, of the combined gross profit, 51% and 49%,
respectively, of the combined operating income, and 55% and 45%, respectively,
of the combined pretax income. In the Downside Case, it was observed that the
Company and Lawrence would have contributed approximately 76% and 24%,
respectively, of the combined revenue, 78% and 22%, respectively, of the
combined gross profit, 60% and 40%, respectively, of the combined operating
income, and 67% and 33%, respectively, of the combined pretax income; and
that, in fiscal 1998, the Company and Lawrence would have contributed
approximately 79% and 21%, respectively, of the combined revenue, 81% and 19%,
respectively, of the combined gross profit, 68% and 32%, respectively, of the
combined operating income, and 71% and 29%, respectively, of the combined
pretax income.
Pro Forma Lawrence Acquisition Analysis
Hambrecht & Quist analyzed the pro forma impact of the Lawrence Acquisition,
using (i) the Company Estimates, (ii) the ADCS Estimates, and (iii) the Base
Case, Upside Case and Downside Case estimates, respectively, for Lawrence, in
each case with no revenue or expense adjustments.
Assuming the Reorganization has been consummated (and accordingly analyzing
the Company on a pro forma basis reflecting the Exchange), this analysis
indicated that the earnings per share of the pro forma combined company
relative to the estimated earnings per share for the Company would be, in the
Base Case, accretive in fiscal 1997 and 1998 by approximately 14% and 11%,
respectively; in the Upside Case, accretive in fiscal 1997 and 1998 by
approximately 20% and 12%, respectively; and, in the Downside Case, dilutive
in both fiscal 1997 and 1998 by approximately 5% and 4%, respectively. The
actual results achieved by the combined company resulting from the Lawrence
Acquisition and the Exchange may vary from the projected results and
variations may be material.
Assuming the Reorganization is not consummated, this analysis indicated that
the earnings per share of the pro forma combined company relative to the
estimated earnings per share for the Company would be, in the
122
<PAGE>
Base Case, accretive in fiscal 1997 and 1998 by approximately 30% and 23%,
respectively; in the Upside Case, accretive in fiscal 1997 and 1998 by
approximately 43% and 24%, respectively; and, in the Downside Case, dilutive
in fiscal 1997 and 1998 by approximately 7% and 5%, respectively. The actual
results achieved by the combined company resulting from the Lawrence
Acquisition may vary from the projected results and variations may be
material.
Discounted Cash Flow Analysis
Hambrecht & Quist analyzed the theoretical valuation of Lawrence based on
the unleveraged discounted cash flow of the projected financial performance
estimates of Lawrence that were prepared by management of the Company.
However, because of the nature of Lawrence's business and the current market
valuations for technology companies generally, Hambrecht & Quist determined
that this analysis did not provide meaningful information in the context of
analyzing the fairness from a financial point of view of the Lawrence
Acquisition Consideration.
Analysis of Publicly Traded Comparable Companies
Hambrecht & Quist compared selected historical and projected financial
information of Lawrence to publicly traded companies that Hambrecht & Quist
deemed to be comparable to Lawrence. In this analysis, Hambrecht & Quist
examined the enterprise value (defined as market value plus debt less cash and
marketable securities) and determined the ratio of enterprise value to the
revenue, earnings before interest and taxes ("EBIT"), and earnings before
interest, taxes, depreciation and amortization ("EBITDA"), 1996 net income and
estimated 1997 net income of the comparable companies. Companies used in this
analysis included five semiconductor wafer processing companies, 11 analog
semiconductor manufacturers and two contract manufacturers. The foregoing
multiples were applied to historical financial results of Lawrence for the
twelve-month period ended December 31, 1996.
With respect to the semiconductor wafer processing companies (and in each
case excluding the high and low multiples for these companies), Hambrecht &
Quist determined that the range of multiples of enterprise value to the latest
twelve month ("LTM") revenue was 1.4x to 2.5x, which implied an equity value
range for Lawrence of approximately $16.7 million to $38.9 million; the range
of multiples of enterprise value to the LTM EBITDA was 9.5x to 32.1x, which
implied an equity value range for Lawrence of approximately $74.0 million to
$277.8 million; the multiple of enterprise value to the LTM EBIT was 21.9x,
which implied an equity value for Lawrence of approximately $145.8 million;
the range of multiples of price per share to the LTM earnings per share was
7.7x to 11.4x, which implied an equity value range for Lawrence of
approximately $30.2 million to $44.9 million; and the range of multiples of
price per share to the projected earnings per share for the twelve months
ending December 31, 1997 was 31.0x to 49.0x, which implied an equity value
range for Lawrence of approximately $161.3 million to $254.9 million.
Hambrecht & Quist determined that the median implied equity value range of
Lawrence implied by the foregoing analysis of the semiconductor wafer
processing companies was approximately $74.0 million to $145.8 million.
With respect to the analog semiconductor manufacturers (and in each case
excluding the high and low multiples for these companies), Hambrecht & Quist
determined that the range of multiples of enterprise value to the LTM revenue
was 1.4x to 8.9x, which implied an equity value range for Lawrence of
approximately $16.8 million to $169.4 million; the range of multiples of
enterprise value to the LTM EBITDA was 12.1x to 27.5x, which implied an equity
value range for Lawrence of approximately $97.7 million to $235.9 million; the
range of multiples of enterprise value to the LTM EBIT was 19.2x to 35.0x,
which implied an equity value range for Lawrence of approximately $126.2
million to $240.1 million; the range of multiples of price per share to the
LTM earnings per share for the analog semiconductor manufacturers was 26.9x to
51.1x, which implied an equity value range for Lawrence of approximately
$106.0 million to $201.5 million; and the range of multiples of price per
share to the projected earnings per share for the twelve months ending
December 31, 1997 was 22.6x to 32.7x, which implied an equity value range for
Lawrence of approximately $117.7 million to $170.1 million. Hambrecht & Quist
determined that the median implied equity value range of Lawrence implied by
the foregoing analysis of the analog semiconductor manufacturers was
approximately $106.0 million to $201.5 million.
123
<PAGE>
With respect to the contract manufacturers, Hambrecht & Quist determined
that the range of multiples of enterprise value to the LTM revenue was 0.8x to
2.6x, which implied an equity value range for Lawrence of approximately $4.8
million to $41.9 million; the range of multiples of enterprise value to the
LTM EBITDA was 6.1x to 18.9x, which implied an equity value range for Lawrence
of approximately $43.2 million to $158.7 million; the range of multiples of
enterprise value to the LTM EBIT was 10.8x to 22.9x, which implied an equity
value range for Lawrence of approximately $66.2 million to $152.8 million; the
range of multiples of price per share to the LTM earnings per share was 19.3x
to 35.0x, which implied an equity value range for Lawrence of approximately
$76.2 million to $138.0 million; and the range of multiples of price per share
to the projected earnings per share for the twelve months ending December 31,
1997 was 13.3x to 27.2x, which implied an equity value range for Lawrence of
approximately $69.2 million to $141.4 million. Hambrecht & Quist determined
that the median implied equity value range of Lawrence implied by the
foregoing analysis of the contract manufacturers was approximately $66.2
million to $141.4 million.
Analysis of Selected Merger and Acquisition Transactions
Hambrecht & Quist compared the proposed Lawrence Acquisition with selected
comparable merger and acquisition transactions. This analysis included 10
comparable mergers and acquisitions of both public and private semiconductor,
electronic component and related manufacturing companies announced since 1990.
In examining these transactions, Hambrecht & Quist analyzed certain income
statement and balance sheet statistics of the acquired companies relative to
the consideration offered. The foregoing multiples were applied to historical
financial results of Lawrence for the twelve-month period ended December 31,
1996. Multiples analyzed included consideration offered to the revenue,
EBITDA, EBIT and earnings for the LTM period for which data are available
prior to the announcement of the transactions, as well as to the book value as
of the date of the latest published financial statements prior to the
announcement of the transactions.
Hambrecht & Quist determined (excluding in each case the high and low
multiples) that the range of multiples of enterprise value of the
consideration offered to the LTM revenue for the acquired companies was 0.5x
to 2.1x, which implied an equity value range for Lawrence of approximately
$(1.0) million to $31.2 million; the range of multiples of enterprise value of
the consideration offered to the LTM EBITDA for the acquired companies was
7.4x to 16.7x, which implied an equity value range for Lawrence of
approximately $54.5 million to $139.2 million; the range of multiples of
enterprise value of the consideration offered to the LTM EBIT for the acquired
companies was 8.2x to 24.0x, which implied an equity value range for Lawrence
of approximately $47.1 million to $160.8 million; the range of multiples of
equity value of the consideration offered to the LTM earnings for the acquired
companies was 14.1x to 39.8x, which implied an equity value range for Lawrence
of approximately $55.7 million to $157.0 million; and the range of multiples
of equity value of the consideration offered to the book value as of the
latest period reported prior to the announcement of the transaction was 0.9x
to 10.0x, which implied an equity value range for Lawrence of approximately
$7.7 million to $84.6 million. Hambrecht & Quist determined that the median
implied equity value range of Lawrence implied by the foregoing analysis was
approximately $47.1 million to $139.2 million.
No company or transaction used in the above analyses is identical to the
Company or Lawrence or the Lawrence Acquisition. Accordingly, an analysis of
the results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the
public trading values of the companies or company to which they are compared.
The foregoing description of the Hambrecht & Quist Opinion is qualified in
its entirety by reference to the full text of such opinion, which is attached
as Appendix F to this Proxy Statement/Prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. Since the date of the Hambrecht & Quist Opinion, in the
124
<PAGE>
ordinary course of business, Hambrecht & Quist has begun to actively trade in
the securities of the Company for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to an engagement letter dated May 8, 1997, the Company agreed to
pay Hambrecht & Quist a fee equal to $175,000 in connection with its rendering
of a fairness opinion, of which $25,000 was payable as a retainer upon signing
of the engagement letter and $150,000 was payable upon delivery of the
Hambrecht & Quist Opinion. The Company also has agreed to reimburse Hambrecht
& Quist for its reasonable out-of-pocket expenses and to indemnify Hambrecht &
Quist against certain liabilities, including liabilities under the federal
securities laws or relating to or arising out of Hambrecht & Quist's
engagement as financial advisor. The fees payable to Hambrecht & Quist are not
dependent on the conclusions stated in the Hambrecht & Quist Opinion.
EFFECTIVE TIME OF THE LAWRENCE ACQUISITION
The Lawrence Acquisition will become effective upon the filing of Articles
of Merger and a Plan of Merger, executed in accordance with the relevant
provisions of the Arizona Business Corporation Act, as amended (the "ABCA")
with the Arizona Corporation Commission and the filing of a Certificate of
Merger, executed in accordance with the relevant provisions of the DGCL, with
the Secretary of State of the State of Delaware. Under the Lawrence Merger
Agreement, this filing is expected to be made as soon as reasonably
practicable after the satisfaction or waiver of all conditions to the Lawrence
Acquisition. The closing of the Lawrence Acquisition will occur on the third
business day (the "Lawrence Closing Date") after the day on which all of the
closing conditions to the Lawrence Acquisition shall have been satisfied or
waived, or such other date as the parties shall otherwise agree. In the event
that the Reorganization is approved by the Company's stockholders, it is
anticipated that the Reorganization and the Lawrence Acquisition will occur
simultaneously.
CONDITIONS TO THE LAWRENCE ACQUISITION
The obligation of Holdings or the Company to consummate the Lawrence
Acquisition is subject to, among others, the following conditions: (i)
Lawrence shall have satisfied all of the obligations under the Lawrence Merger
Agreement required to be performed by Lawrence at or prior to the Lawrence
Effective Time in all material respects; (ii) the representations and
warranties of Lawrence contained in the Lawrence Merger Agreement shall be
true and correct in all material respects when made and at and as of the
Lawrence Effective Time as if made at and as of such time, except as
contemplated by the Lawrence Merger Agreement; (iii) the Lawrence Merger
Agreement and the consummation of the Lawrence Acquisition shall have been
duly approved and adopted by the affirmative vote of the holders of at least
95% of the LSL Common Stock and shall have been duly approved and adopted by
the stockholders of the Company; (iv) Ernst & Young LLP, independent
accountants to the Company, shall have rendered its opinion, addressed to the
Company, in form and substance satisfactory to the Company, regarding such
firm's concurrence with the conclusions of management for the Company and
Lawrence as to the appropriateness of pooling-of-interests accounting for the
Lawrence Acquisition under Accounting Principles Board Opinion No. 16; (v)
Ernst & Young LLP shall have rendered its opinion to the Company to the effect
that the Lawrence Acquisition has been structured in a manner which will be
tax-free with respect to the Company and its stockholders and Lawrence and the
LSL Stockholders; (vi) the Registration Statement, of which this Proxy
Statement/Prospectus forms a part, shall have been declared effective under
the Securities Act and shall not be subject to any stop order, and all other
filings necessary under federal and state securities laws to permit the
issuance and delivery of the shares of Company Common Stock or Holdings Common
Stock, as the case may be, in compliance therewith shall have been made and
all authorizations in connection therewith shall have been obtained; (vii) the
property known as 550 West Juanita, Mesa, Arizona, which is owned by LSI and
leased to Lawrence, and an undeveloped parcel adjacent thereto which is owned
by LSI, shall be conveyed to Lawrence, subject to the liens and encumbrances
existing on the date of the Lawrence Merger Agreement, for an aggregate
consideration no greater than net book value; and (viii) the Company shall
have received satisfactory Phase I and, if applicable, Phase II environmental
site assessments of the Lawrence Facilities (as that term is defined in the
Lawrence Merger Agreement), and all permits necessary for the operation of
those facilities shall have been appropriately transferred, if required by
applicable law.
125
<PAGE>
Additionally, under the terms of the Lawrence Merger Agreement, at the
Lawrence Closing, Lawrence shall be required to deliver the following, among
other items, to the Company or Holdings, as applicable: (i) releases executed
by Lamonte H. Lawrence and each officer of Lawrence, releasing Lawrence from
any and all liabilities and obligations owed by Lawrence to him or her; (ii)
employment agreements with certain key employees of Lawrence and termination
of their existing employment agreements; (iii) evidence that Lamonte H.
Lawrence, the sole stockholder of LSLMS, has contributed all of the issued and
outstanding shares of capital stock of LSLMS to LSL, with LSLMS becoming a
wholly-owned subsidiary of LSL and that all consents and approvals necessary
or appropriate for such contribution have been obtained; (iv) evidence that
all loans between LSL, certain affiliated companies and Lamonte H. Lawrence
have been repaid or otherwise discharged in a manner satisfactory to the
Company; (v) releases of Lawrence from any obligations the principal benefit
of which accrues to certain affiliated companies or Lamonte H. Lawrence; and
(vi) an agreement and acknowledgment by each LSL Stockholder with respect to
his or its liabilities and obligations under the indemnification provisions of
the Lawrence Merger Agreement.
The obligation of Lawrence to consummate the Lawrence Acquisition is subject
to, among others, the following conditions: (i) the Company and Lawrence
Merger Subsidiary shall have satisfied all of the obligations under the
Lawrence Merger Agreement required to be performed by the Company and Lawrence
Merger Subsidiary at or prior to the Lawrence Effective Time in all material
respects; (ii) the representations and warranties of the Company and Lawrence
Merger Subsidiary contained in the Lawrence Merger Agreement shall be true and
correct in all material respects when made and at and as of the Lawrence
Effective Time as if made at and as of such time, except as contemplated by
the Lawrence Merger Agreement; (iii) Price Waterhouse LLP, independent
accountants to Lawrence, shall have rendered its opinion, addressed to
Lawrence and Lamonte H. Lawrence, in form and substance satisfactory to
Lawrence and Lamonte H. Lawrence, as to the appropriateness of pooling-of-
interests accounting for the Lawrence Acquisition under Accounting Principles
Board Opinion No. 16; (iv) the Company or Holdings, as applicable, shall have
delivered to the LSL Stockholders an executed Registration Rights Agreement
(see "THE LAWRENCE ACQUISITION--Registration Rights Agreement"); (v) promptly
following the Lawrence Effective Time, Lamonte H. Lawrence shall have been
appointed to serve as (1) a member of the class of directors elected for a
term not to exceed two years on Holdings' seven-member Board of Directors, if
the Reorganization is consummated, or (2) a member elected for a one year term
on the Company's six member Board of Directors, if the Reorganization is not
consummated; and (vi) if the Reorganization is consummated, (1) Holdings shall
own directly all of the issued and outstanding shares of capital stock of the
Company, (2) Holdings shall not have incurred any liabilities except as
provided in the Lawrence Merger Agreement, and (3) the issued and outstanding
capital stock of Holdings shall be substantially identical to that of the
Company as of the Lawrence Effective Time, subject only to changes therein
necessary to consummate the Reorganization.
The obligation of each of the Company and Lawrence to consummate the
Lawrence Acquisition is subject to certain additional conditions, including
the following: (i) no preliminary or permanent injunction or other order by or
before any federal, state or foreign court of competent jurisdiction which
prohibits the consummation of the Lawrence Acquisition shall have been issued
and remain in effect; (ii) no statute, rule, regulation, executive order,
stay, decree, or judgment shall have been enacted, entered, issued,
promulgated or enforced by or before any court or governmental authority which
prohibits or restricts the consummation of the Lawrence Acquisition; (iii)
other than filing of the Articles of Merger and Plan of Merger with the
Arizona Corporation Commission and a Certificate of Merger with the Secretary
of State of the State of Delaware, all authorizations, consents, orders or
approvals of, or declarations or filings with, and all expirations of waiting
periods imposed by, any governmental entity (all of the foregoing, "Consents")
which are necessary for the consummation of the Lawrence Acquisition, other
than Consents the failure to obtain which would have no material adverse
effect on the consummation of the Lawrence Acquisition or on the Company or
LSL, shall have been filed, occurred or been obtained and shall be in full
force and effect; and (iv) there shall not have been any material adverse
change in the general affairs, business, business prospects, properties,
management, condition (financial or otherwise) or results of operations of the
other party, whether or not arising from transactions in the ordinary course
of business, and the other party shall not have sustained any material loss or
interference with its business or properties from fire, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or any court or legislative or other governmental action, order or decree.
126
<PAGE>
BUSINESS PENDING THE LAWRENCE ACQUISITION
The Lawrence Merger Agreement provides that, during the period from the date
of the Lawrence Merger Agreement to the Lawrence Effective Time, Lawrence
will: (i) conduct its business in the ordinary and usual course of business
and consistent with past practices; (ii) not amend its Articles of
Incorporation or Bylaws; (iii) not split, combine or reclassify any shares of
its outstanding capital stock, declare, set aside or pay any dividend or other
distribution payable in cash, stock or property in respect of its capital
stock, or directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities; (iv) not authorize for
issuance, issue, sell, pledge, dispose of, encumber, deliver or agree or
commit to issue, sell, pledge, or deliver any additional shares of, or rights
of any kind to acquire any shares of, its capital stock of any class; (v) not
acquire, dispose of, transfer, lease or license any fixed or other substantial
assets other than in the ordinary course of business and consistent with past
practices; (vi) not incur, assume or prepay any material indebtedness,
liability or obligation or any other material liabilities or issue any debt
securities; (vii) not assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of any other person; (viii) not make any
material loans, advances or capital contributions to, or investments in, any
other person; (ix) maintain adequate insurance consistent with past practices
for its business; (x) not enter into any material transaction with any
officer, director, employee or any known relative thereof or any entity in
which such person has an interest, except the payment of rent, salaries, wages
and expense reimbursement in the ordinary course of business; (xi) not incur
any material obligation or liability except for normal trade and other
obligations incurred in the ordinary course of business consistent with past
practice or pursuant to contracts, agreements and leases incurred in the
ordinary course of business consistent with past practice, the performance of
which will not in the aggregate have a material adverse effect on Lawrence;
(xii) not mortgage, pledge, or subject to any lien or other encumbrance any of
its material assets; (xiii) not waive any material rights, except for waivers
or releases made in the ordinary course of business consistent with past
practice; or (xiv) not make any single capital expenditure in excess of
$100,000, or enter into any commitment therefor.
The Lawrence Merger Agreement further provides that, during the period from
the date of the Lawrence Merger Agreement to the Lawrence Effective Time,
Lawrence will not: (i) enter into, adopt or amend any employee benefit
programs as to increase the benefits thereunder; (ii) grant or become
obligated to grant any increase in the compensation or fringe benefits of
directors, officers or employees (including any such increase pursuant to any
employee benefit program) or any increase in the compensation payable or to
become payable to any officer, except for increases in compensation in the
ordinary course of business consistent with past practice, or enter into any
contract, commitment or arrangement to do any of the foregoing, except for
normal increases and non-stock benefit changes in the ordinary course of
business consistent with past practice; (iii) institute any new employee
benefit program; (iv) make any material change in any employee benefit program
arrangement or enter into any employment or similar agreement or arrangement
with any employee; or (v) enter into or renew any contract, agreement,
commitment or arrangement providing for the payment to any director, officer
or employee of compensation or benefits contingent, or the terms of which are
altered in favor of such individual, upon the occurrence of any of the
transactions contemplated by the Lawrence Merger Agreement.
Lawrence has also agreed to use reasonable efforts: (i) to maintain its
assets, to preserve intact its business organization, to keep available the
services of its present officers and key employees and to preserve the
goodwill of those having business relationships with it; and (ii) to prevent
any representation or warranty of Lawrence contained in the Lawrence Merger
Agreement from becoming materially untrue or incorrect in any material
respect. Notwithstanding all of the foregoing, Lawrence is permitted to: (i)
pay any judgment or settlement of pending legal claims, provided that the
Company's written consent is required for any settlement that imposes on
Lawrence any restrictions or limitations upon its ability to operate its
business consistent with past practice; (ii) repay any guarantors of its
obligations or pledgors of collateral to secure its obligations, to the extent
that such guarantors have paid any amount, or such pledgors have had such
collateral foreclosed upon, in connection with Lawrence's obligations; and
(iii) pay fiscal year-end cash bonuses to its employees in amounts consistent
with past practice and enter into staying bonus/severance agreements with the
employees in connection with the Lawrence Merger Agreement.
127
<PAGE>
Lawrence has further agreed that it will not, and will use best efforts to
cause each LSL Stockholder not to, solicit any active discussions or
negotiations with, or provide information to, any person, other than the
Company, concerning any proposal regarding the acquisition of Lawrence or any
part thereof or any merger or consolidation thereof, or accept any such
proposal (the "Lawrence Non-Solicitation Provision").
The Lawrence Merger Agreement provides that, during the period from the date
of the Lawrence Merger Agreement to the Lawrence Effective Time, the Company
will: (i) conduct its business in the ordinary and usual course of business
and consistent with past practices; (ii) not amend its Restated Certificate of
Incorporation or Restated Bylaws (Lawrence has consented to the Amendment);
(iii) except as permitted by the terms of the Lawrence Merger Agreement, not
split, combine or reclassify any shares of its outstanding capital stock,
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property in respect of its capital stock, or directly or indirectly
redeem, purchase or otherwise acquire any shares of its capital stock or other
securities; or (iv) except as permitted by the terms of the Lawrence Merger
Agreement, not authorize for issuance, issue, sell, pledge, dispose of,
encumber, deliver or agree or commit to issue, sell, pledge, or deliver any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class.
The Company has also agreed to use reasonable efforts: (i) to maintain its
assets, to preserve intact its business organization, to keep available the
services of its present officers and key employees and to preserve the
goodwill of those having business relationships with it; and (ii) to prevent
any representation or warranty of the Company contained in the Lawrence Merger
Agreement from becoming materially untrue or incorrect in any material
respect.
In addition, under the Lawrence Merger Agreement, the Company and Lawrence
will each use all reasonable efforts to: (i) take, or cause to be taken, all
actions reasonably necessary to comply with all legal requirements that may be
imposed on such party with respect to the Lawrence Acquisition and to
consummate the transactions contemplated by the Lawrence Merger Agreement; and
(ii) obtain, and to cooperate with the other party to obtain, any consent,
authorization, order or approval of, or any exemption by, any governmental
entity and any other public or private third party that is required to be
obtained or made by such party in connection with the Lawrence Merger
Agreement and the transactions contemplated thereby, subject to certain
limitations.
TERMINATION
The Lawrence Merger Agreement may be terminated and the Lawrence Acquisition
abandoned at any time prior to the Lawrence Effective Time, whether before or
after approval of the Lawrence Merger Agreement by the stockholders of the
Company: (i) by mutual written consent of the Company and Lawrence; (ii) by
either the Company or Lawrence, if the Lawrence Acquisition has not been
consummated by October 15, 1997, unless the failure of the Lawrence Effective
Time to occur by such date shall be due to the failure of the party seeking to
terminate the Lawrence Merger Agreement to perform or observe the covenants
and agreements of such party set forth therein; (iii) by the Company or
Lawrence, if there shall have been any material misrepresentation or material
breach of a material obligation of the other party and, if such breach is
curable, such default shall not have been remedied within 30 days after
receipt by the defaulting party of notice in writing from the other party
specifying such breach and requesting that it be remedied, provided, that such
30-day period shall be extended for so long as the other party shall be making
diligent attempts to cure such default, but not beyond an additional 30 days;
and (iv) by either the Company or Lawrence if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Lawrence Acquisition and
such order, decree, ruling or any other action shall have become final and
non-appealable.
In the event the Lawrence Merger Agreement is terminated as provided above,
the Lawrence Merger Agreement shall become void, and there will be no
liability on the part of any of the parties or their respective affiliates,
directors, officers or stockholders except: (i) as to those provisions
intended to survive the termination of the Lawrence Merger Agreement,
including those concerning public announcements and confidentiality; and
128
<PAGE>
(ii) in the case of a termination by either the Company or Lawrence because of
a material misrepresentation or a material breach of a material covenant by
the other party (subject to the 30-day notice and cure period described
above), the breaching party shall be liable to and shall pay to the
terminating party $5 million within 15 business days after the breaching
party's receipt of written notice of termination (the "Lawrence Termination
Payment"). The parties have agreed that such payments are the exclusive remedy
for termination of the Lawrence Merger Agreement, except in the case of a
breach by Lawrence of the Lawrence Non-Solicitation Provision. In the event of
a breach of the Lawrence Non-Solicitation Provision by Lawrence, the Company
may pursue any and all remedies available to it at law or in equity; provided,
however, that the amount of any monetary damages awarded to the Company in any
such action would be reduced by the amount of the Lawrence Termination Payment
received by the Company.
INDEMNIFICATION AND ESCROW
Under the terms of the Lawrence Merger Agreement, the Company will indemnify
and hold harmless each of the LSL Stockholders against any and all losses
arising out of (i) the conduct of the business or ownership of Lawrence after
the Lawrence Effective Time, and (ii) any breach of the representations,
warranties, or covenants of the Company contained in the Lawrence Merger
Agreement. Losses do not include any loss resulting from a diminution in the
value of Holdings Common Stock or Company Common Stock, as the case may be,
received in the Lawrence Acquisition. Further, the Company will indemnify and
hold harmless each of Lamonte H. Lawrence, LSI and LSRL against any and all
losses arising out of a breach by Lawrence after the Lawrence Effective Time
of an obligation guaranteed by Lamonte H. Lawrence, LSI or LSRL. The Company
has agreed to use reasonable efforts to obtain, prior to the Lawrence
Effective Time, the release of all such guarantees.
In addition, pursuant to the terms of the Lawrence Merger Agreement, the LSL
Stockholders will indemnify and hold harmless Lawrence, the Company, Lawrence
Merger Subsidiary, Holdings, and each of their officers, directors, employees,
agents, representatives and affiliates (the "Company Indemnified Parties")
against any and all losses arising out of any breach of the representations,
warranties and covenants of Lawrence contained in the Lawrence Merger
Agreement. Each LSL Stockholder will also severally indemnify the Company
Indemnified Parties for each LSL Stockholder's pro rata share of losses
arising from any breach of the representations, warranties and covenants of
LSL contained in the Lawrence Merger Agreement with respect to taxes and
environmental matters (the "Special Indemnities").
The Lawrence Merger Agreement sets forth certain limits on the parties'
indemnification obligations, such as deductibles that must be reached before a
claim may be made, time deadlines before which claims must be made, and
limitations on the amount of indemnification which may be paid. No LSL
Stockholder may seek recovery until the losses of all of the LSL Stockholders
are greater than $250,000, in which case the indemnity shall apply to all of
the losses in excess of $250,000. No Company Indemnified Party may seek
recovery until the losses of all of the Company Indemnified Parties, including
with respect to the Special Indemnities, are greater than $250,000, in which
case the indemnity shall apply to all of the losses in excess of $250,000.
Except with respect to the Special Indemnities, the LSL Stockholders, in the
aggregate, shall not be liable for any losses in excess of the aggregate value
of the shares of Holdings Common Stock or Company Common Stock, as the case
may be, in the escrow fund (as described below) valued at the Lawrence
Acquisition Average Closing Price. With respect to the Special Indemnities,
each LSL Stockholder shall be individually and personally liable for his or
its pro rata portion of any losses. The Company has agreed to use reasonable
efforts to collect any such losses from any available insurer or third party
indemnitors before collecting from the escrow fund or the LSL Stockholders and
to use reasonable efforts to collect from the escrow fund before collecting
from the LSL Stockholders, but the Company is not precluded from making a
claim against the LSL Stockholders or the escrow fund from the outset, other
than with respect to the Special Indemnities.
Other than with respect to the Special Indemnities and certain covenants, an
indemnified party generally may not make any claim for indemnification after
the first anniversary date of the Lawrence Closing Date, and no such claim may
be brought after the date of issuance of the first independent audit report
with respect to the
129
<PAGE>
financial statements of the Company or Holdings, as the case may be, after the
Lawrence Closing Date if such claim is of a type expected to be encountered in
the course of an audit performed in accordance with generally accepted
auditing standards. With respect to the Special Indemnities, the claims period
will extend for the statute of limitations applicable to the matters which are
the subject of such claims.
As security for the indemnification obligations of the LSL Stockholders
described above and the purchase price adjustment discussed in "THE LAWRENCE
ACQUISITION--Possible Adjustments to Purchase Price" above, certificates
representing five percent of the Lawrence Acquisition Consideration to be
delivered to the LSL Stockholders pursuant to the Lawrence Acquisition will be
deposited in escrow. If the purchase price adjustment based upon a change in
net worth results in an additional payment to the LSL Stockholders,
certificates representing five percent of the additional shares of Holdings
Common Stock or Company Common Stock, as the case may be, to be delivered to
the LSL Stockholders will also be deposited in escrow. The escrow fund will be
the Company Indemnified Parties' sole recourse for indemnification, other than
with respect to the Special Indemnities, and for the return of shares pursuant
to the purchase price adjustment referenced above. The escrow fund will be
required to remain in existence from the Lawrence Closing Date for a period of
one year. The Special Indemnities will survive the termination of the escrow
fund.
While management of the Company believes that the indemnification provided
by the LSL Stockholders will be adequate, because of the various limitations
discussed above, a possibility exists that the losses experienced by the
Company, Holdings and the other parties entitled to indemnification could
exceed the value of the shares held in escrow because the shares held in
escrow are insufficient in number or, due to market conditions and potential
stock price volatility, in value to adequately compensate the parties entitled
to indemnification for any losses which are the subject of the
indemnification. Furthermore, a possibility exists that the losses which are
the subject of the indemnification will be incurred during periods other than
those for which claims may be made with respect to such losses. Consequently,
losses for which there is insufficient indemnification could have a material
adverse effect on the Company, Holdings or the other parties entitled to
indemnification.
AGREEMENTS WITH LAMONTE H. LAWRENCE AND AFFILIATED ENTITIES
At the Lawrence Effective Time, LSL and LSI, a corporation wholly owned by
Lamonte H. Lawrence, will enter into a consulting agreement (the "Consulting
Agreement"). Pursuant to the Consulting Agreement, Mr. Lawrence's employment
by Lawrence shall terminate, Lawrence's obligations under any employment
agreement shall cease, and LSL shall retain LSI as an independent consultant
for a three-year period (the "Consulting Term") on an independent contractor
basis. Consulting services under the Consulting Agreement will be provided
exclusively by Mr. Lawrence. During each of the three twelve-month periods of
the Consulting Term, Mr. Lawrence will render consulting services as mutually
agreed by LSI and LSL. In consideration of the consulting services to be
provided, LSL will pay LSI a per diem of $2,880, but in no event will the
total fee payable to LSI total less than $250,000 for the first twelve-month
period. Such minimum was determined as approximately one-third of Mr.
Lawrence's compensation from LSL and LSLMS in 1996, as Mr. Lawrence, on behalf
of LSI, is expected to devote approximately one-third of his time during the
year subsequent to the Lawrence Acquisition to Lawrence-related matters. The
Company believes that the cash compensation to be paid to LSI pursuant to the
consulting agreement is equivalent to the fair value of the services to be
provided by LSI. The Company will permit LSI to become a participating
employer in the Company's health insurance program, but only for the benefit
of Mr. Lawrence. The Consulting Agreement may be terminated by LSI after one
year upon thirty days' written notice to LSL, may only be terminated by LSL
for cause and terminates automatically upon Mr. Lawrence's disability or
death.
At the Lawrence Effective Time, the Company, Lawrence Merger Subsidiary, LSL
and Lamonte H. Lawrence will enter into a noncompete agreement (the
"Noncompete Agreement"). Pursuant to the Noncompete Agreement, Lamonte H.
Lawrence will agree that, for a period of the later of five years from the
Lawrence Effective Time and three years from the expiration of the Consulting
Agreement, he will not, directly or indirectly, engage or participate in,
prepare or set up, assist or have any interest in any entity that engages in
any
130
<PAGE>
activities in competition with LSL, or, for a period of five years from the
consummation of the Lawrence Acquisition, directly or indirectly hire or
induce or encourage any employee or consultant who is then employed or
retained by the Company, LSL or any of their subsidiaries to leave the
employment of or terminate consultation with the Company, LSL or any of their
subsidiaries, without the prior written consent of the Company. The Noncompete
Agreement will not prohibit LSRL, of which Lamonte H. Lawrence is the sole
owner, from engaging in research and development, or the CVD of silicon wafers
using epitaxial processes, provided that LSRL shall be required to obtain the
written consent of the Company, which consent shall not be unreasonably
withheld, prior to processing of wafers for LSRL's customers in excess of 1000
wafers per specification.
STAYING AND SEVERANCE AGREEMENTS
The Company has agreed that at or prior to the Lawrence Effective Time, LSL
may enter into an agreement with each of sixteen employees of LSL, including
the LSL Key Employees, as defined below (the "LSL Employees"), providing
certain incentives for the LSL Employees to remain in the employ of LSL
following consummation of the Lawrence Acquisition (the "Staying and Severance
Agreements"). Each of the LSL Employees who enters into a Staying and
Severance Agreement shall be eligible to receive a bonus (the "Staying Bonus")
equal to 25% of the LSL Employee's base annual salary as of the Lawrence
Effective Time (the "Annual Salary") if the LSL Employee remains employed by
LSL on the date that is six months after the Lawrence Effective Time.
Additionally, the LSL Employees collectively shall be granted options to
purchase an aggregate of 72,000 shares of Company Common Stock, or, if the
Reorganization is consummated, Holdings Common Stock, at an exercise price
equal to 80% of the market value of Company Common Stock or Holdings Common
Stock, as the case may be, at the Lawrence Effective Time. The options will
vest over a five-year period and will be subject to the terms of the Company's
1995 Stock Plan (or any successor or additional plan adopted by the Company or
Holdings).
Pursuant to the Staying and Severance Agreements, in the event the LSL
Employee's employment with LSL is terminated by LSL without cause within one
year of the Lawrence Effective Time, LSL will be obligated to pay the LSL
Employee an amount equal to his or her Annual Salary, less the amount of any
Staying Bonus paid to the LSL Employee. Each of the Staying and Severance
Agreements terminates upon the resignation of the LSL Employee from his or her
employment with LSL or upon the LSL Employee's death or physical or mental
incapacity which makes it impossible for the LSL Employee substantially to
perform his or her duties with LSL. In the event of termination of a Staying
and Severance Agreement, the LSL Employee will have no rights to the payments
and options provided for therein.
EMPLOYMENT AGREEMENTS
At the Lawrence Effective Time, LSL will enter into employment agreements
with each of Gerald McReynolds, Tom Thompson and Barbara Freund, each of whom
is currently employed by LSL (the "LSL Key Employees"). Pursuant to the
agreements, Gerald McReynolds, Tom Thompson and Barbara Freund will act as
Chief Operating Officer, Chief Technical Officer and Chief Financial Officer,
respectively, of LSL after the Lawrence Effective Time. The starting annual
salaries of the LSL Key Employees will be determined prior to the Lawrence
Effective Time. Salaries are subject to increase each year commencing on the
first anniversary of the agreement to take into account appropriate cost of
living adjustments and general compensation increases based on performance, in
the discretion of the Board of Directors of LSL. Each LSL Key Employee will
also be entitled to vacation in accordance with LSL's vacation policy and all
other employee benefits generally available to employees of LSL, as the same
may be in effect from time to time.
The agreements expire on the third anniversary of the Lawrence Effective
Time, provided that employment may be terminated: (i) at any time immediately
for cause; (ii) at any time without cause, provided that LSL pay certain
severance benefits; or (iii) in the event of death or total disability. Under
the terms of the agreements, if LSL terminates the LSL Key Employee without
cause, or if the LSL Key Employee terminates the agreement for just cause, LSL
will pay the LSL Key Employee his or her base salary then in effect for a
period of six
131
<PAGE>
months. LSL will also provide the LSL Key Employee during such period with
medical, dental, life and disability insurance benefits on the same basis LSL
would have provided the LSL Key Employee during such period had the LSL Key
Employee continued to be an employee of LSL. Notwithstanding the foregoing, in
the event the severance payment under an employment agreement and the
severance payment under a Staying and Severance Agreement would both otherwise
be due and payable, the LSL Key Employee will be entitled to receive the
larger of the two amounts, but not both.
The agreements restrict each LSL Key Employee from competing with LSL during
the term of the agreement and for a period of 36 months after the termination
of the employment of the LSL Key Employee. In the event the Company, Holdings
or LSL should seek to enforce such non-competition provisions in court, the
court may, in exercising its discretionary authority, determine not to
enforce, or to limit enforcement of, such provisions against an LSL Key
Employee.
ACCOUNTING TREATMENT
Consummation of the Lawrence Acquisition is conditioned upon the receipt by
the Company from Ernst & Young LLP, and by Lawrence and Lamonte H. Lawrence
from Price Waterhouse LLP, regarding those firms' concurrence with the
conclusions of management for the Company and LSL as to the appropriateness of
pooling-of-interests accounting for the Lawrence Acquisition under Accounting
Principles Board Opinion No. 16 if closed and consummated in accordance with
the Lawrence Merger Agreement. The Company and Lawrence have agreed not to
take any action that would prevent the Lawrence Acquisition from being
accounted for as a pooling of interests.
Under the pooling-of-interests method of accounting, the historical basis of
the assets and liabilities of the Company (or Holdings, if the Reorganization
is consummated) and Lawrence will be combined at the Lawrence Closing Date and
carried forward at their previously recorded amounts, the stockholders' equity
accounts of the Company and Lawrence will be combined on the consolidated
balance sheet of the Company or Holdings, as the case may be, and no goodwill
or other intangible assets will be created. Consolidated financial statements
of the Company issued after the Lawrence Acquisition will be restated
retroactively to reflect the consolidated operations of the Company and
Lawrence as if the Lawrence Acquisition had taken place prior to the periods
covered by such consolidated financial statements.
The unaudited pro forma financial information contained in this Proxy
Statement/Prospectus has been prepared using the pooling-of-interests
accounting method to account for the Lawrence Acquisition. See "SELECTED PRO
FORMA CONDENSED COMBINED FINANCIAL DATA" and "UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The parties to the Lawrence Acquisition have not sought and do not intend to
seek a ruling from the IRS as to the federal income tax consequences of the
Lawrence Acquisition. Instead, the Company and Lawrence have obtained the
opinion of Ernst & Young LLP (the "Lawrence Acquisition Tax Opinion") as to
certain of the expected federal income tax consequences of the Lawrence
Acquisition, a copy of which is attached as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus forms a part. The Lawrence
Acquisition Tax Opinion is based upon the Code, applicable Treasury
Regulations thereunder, judicial decisions, and current administrative rulings
and practices, all as in effect on the date of this Proxy
Statement/Prospectus. The Lawrence Acquisition Tax Opinion is limited to the
matters set forth therein and does not address any other issues, including,
but not limited to, any state, local, foreign, consolidated return, employee
benefit, and Code Section 382 issues related to the limitations on the
utilization of net operating loss carryforwards, or alternative minimum tax
consequences to the parties to the Lawrence Acquisition. Further, the Lawrence
Acquisition Tax Opinion does not address the qualification of the Lawrence
Acquisition as a statutory merger under state law.
The Lawrence Acquisition Tax Opinion assumes that LSL Common Stock will be
held as capital assets by the holders thereof immediately prior to the
Lawrence Effective Time and does not address the tax consequences
132
<PAGE>
that may be relevant to a particular stockholder subject to special treatment
under certain federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations, non-United States persons and
shareholders who acquired shares of LSL Common Stock pursuant to the exercise
of options or otherwise as compensation or through a tax-qualified retirement
plan.
The delivery of the Lawrence Acquisition Tax Opinion was conditioned upon
the receipt of certain representations from executive officers of the Company
and LSL, and the holders of five percent or more of the LSL Common Stock, and
certain other information, data, documentation and materials as deemed
necessary, none of which has been independently verified by Ernst & Young LLP,
and certain limitations set forth therein. The Lawrence Acquisition Tax
Opinion will not be updated for any changes to the Code or authorities
interpreting the Code that may occur after the date of the issuance of such
opinion and assumes that the Lawrence Acquisition will be consummated as
described herein. The Lawrence Acquisition Tax Opinion is not binding on the
IRS or any court, and the IRS or a court may disagree with the conclusions
expressed in the Lawrence Acquisition Tax Opinion.
LSL STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE LAWRENCE ACQUISITION TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
The Lawrence Acquisition Tax Opinion, upon which the following discussion is
based, is limited to certain material United States federal income tax
consequences of the Lawrence Acquisition, which are as follows:
Certain Tax Consequences if the Reorganization is Consummated. The Lawrence
Acquisition will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and Holdings, Lawrence Merger Subsidiary and LSL will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code. In addition, the Lawrence Acquisition will constitute a transfer to a
controlled corporation within the meaning of Section 351(a) of the Code. As a
result, no gain or loss will be recognized by an LSL Stockholder who receives
solely shares of Holdings Common Stock in exchange for LSL Common Stock. The
tax basis of the shares of Holdings Common Stock will be the same as the tax
basis of the shares of LSL Common Stock exchanged therefor. The holding period
of the shares of Holdings Common Stock will include the period during which
the shares of LSL Common Stock surrendered in exchange therefor were held,
provided that the shares of LSL Common Stock are held as a capital asset
within the meaning of Section 1221 of the Code at the Lawrence Effective Time.
A holder of LSL Common Stock who receives cash in lieu of a fractional
interest in a share of Holdings Common Stock will recognize gain or loss,
which will be capital gain or loss, equal to the difference between the amount
of cash received and the ratable portion of the holder's tax basis in the
shares of LSL Common Stock being converted pursuant to the Lawrence
Acquisition that is allocated to such fractional interest. Such gain will be
long term or short term depending upon whether the holding period in the LSL
Common Stock is greater than twelve months.
Certain Tax Consequences if the Reorganization is Not Consummated. The
Lawrence Acquisition will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Company, Lawrence Merger Subsidiary, and
LSL will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code. No gain or loss will be recognized by an LSL Stockholder
who receives solely shares of Company Common Stock in exchange for LSL Common
Stock. The tax basis of the shares of Company Common Stock received by an LSL
Stockholder will be the same as the tax basis of the shares of LSL Common
Stock exchanged therefor. The holding period of the shares of Company Common
Stock received by an LSL Stockholder will include the period during which the
shares of LSL Common Stock surrendered in exchange therefor were held,
provided that the shares of LSL Common Stock are held as a capital asset
within the meaning of Section 1221 of the Code at the Lawrence Effective Time.
A holder of LSL Common Stock who receives cash in lieu of a fractional
interest in a share of Company Common Stock will recognize gain or loss, which
will be capital gain or loss, equal to the difference between the amount of
cash received and the ratable portion of the holder's tax basis in the shares
of LSL Common Stock being converted pursuant to the Lawrence Acquisition that
is allocated to such fractional interest. Such gain will be long term or short
term depending upon whether the holding period in the LSL Common Stock is
greater than twelve months.
133
<PAGE>
RESALE OF LAWRENCE ACQUISITION SHARES
The shares of Company Common Stock, or, in the event the Reorganization is
consummated, Holdings Common Stock, to be issued to the LSL Stockholders in
connection with the Lawrence Acquisition (the "Lawrence Acquisition Shares")
will not be registered under the Securities Act or other applicable securities
laws and may not be resold or otherwise transferred unless such shares are
registered or they are sold pursuant to Rule 144 under the Securities Act or
another exemption from registration under applicable law. In general, under
Rule 144, a person (or persons whose shares are aggregated), including a
person who may be deemed to be an "affiliate" (generally defined for purposes
of Rule 144 as a person who controls, is controlled by, or is under common
control with the issuer) of the Company or Holdings, as the case may be, is
entitled to sell, within any three-month period such number of Lawrence
Acquisition Shares that have been beneficially owned by such holder for at
least one year which does not exceed the greater of 1% of the outstanding
shares of Company Common Stock, or Holdings Common Stock, as the case may be,
or the average weekly trading volume of such stock during the four calendar
weeks preceding such sale. Sales of Lawrence Acquisition Shares under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company or Holdings,
as applicable. A person who is not an affiliate, has not been an affiliate
within three months prior to the sale and has beneficially owned the Lawrence
Acquisition Shares for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
REGISTRATION RIGHTS AGREEMENT
On or prior to the Lawrence Effective Time, the Company, or, in the event
the Reorganization is consummated, Holdings, will enter into a registration
rights agreement with the LSL Stockholders (the "Lawrence Registration Rights
Agreement") regarding the Lawrence Acquisition Shares. Pursuant to the
Lawrence Registration Rights Agreement, the Company or Holdings, as the case
may be, will register for resale once, during each three-month period in the
one-year period following the Lawrence Effective Time, a number of Lawrence
Acquisition Shares held by each holder that does not exceed one percent of the
then outstanding Company Common Stock or Holdings Common Stock, as the case
may be. Any holder that does not sell the full one percent in a given three-
month period may cumulate the number of shares not so sold and sell such
unsold shares in a subsequent three-month period. The Lawrence Registration
Rights Agreement will also provide the following rights for any holder that
may not dispose of all of such holder's Lawrence Acquisition Shares pursuant
to Rule 144 within the three-month period following such proposed
registration: (1) one demand registration, if requested by the holders of at
least 70% of the registrable shares, which right is exercisable between the
first anniversary of the Lawrence Effective Time and the third anniversary of
the Lawrence Effective Time; and (2) "piggyback" registration rights,
exercisable prior to the fifth anniversary of the Lawrence Effective Time, on
registrations of shares by the Company or Holdings, as the case may be, for
its own account or the account of other securityholders. The Company or
Holdings, as the case may be, will be required to use diligent efforts to keep
any such demand registration effective up to the third anniversary of the
Lawrence Effective Time (subject to extension for any suspensions of sales or
delays in registration imposed by the Company or Holdings). The Company or
Holdings, as the case may be, shall be permitted to delay the registration of
Lawrence Acquisition Shares during the one-year period following the Lawrence
Effective Time and to require any such holders to delay any request for a
demand registration (i) if the Company or Holdings is then proposing to
register securities for its own account and pursues such proposed registration
with diligence, provided that the holders are offered certain "piggyback"
rights in connection therewith, or (ii) for a period of up to 60 days in any
consecutive 12 month period, if in the good faith judgment of the Board of
Directors such registration would be seriously detrimental to the Company and
its stockholders, or Holdings and its stockholders, as the case may be.
The Company or Holdings will be required to bear substantially all
registration and selling expenses (including certain fees of counsel to the
selling stockholders but excluding underwriting discounts and commissions
relating to the registrable shares) in connection with the registration of
registrable shares in such registrations. The Company or Holdings and the LSL
Stockholders will agree to indemnify the other against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
which the other may be required to make in respect thereof. The registration
rights will be transferable in limited circumstances
134
<PAGE>
and may be amended or waived only with the written consent of the Company or
Holdings, as the case may be, and the holders of at least 70% of the Lawrence
Acquisition Shares.
NASDAQ LISTING
Holdings Common Stock, including the shares to be issued in the Lawrence
Acquisition, has been approved for listing on Nasdaq upon notice of issuance.
Listing of Holdings Common Stock on Nasdaq is a condition of consummation of
the Lawrence Acquisition. Holdings Common Stock will be listed under the
symbol "ATMI," which is the current symbol for Company Common Stock. If the
Reorganization is not consummated, the Company, whose shares are currently
listed on Nasdaq, will file a Notification Form for Listing of Additional
Shares with respect to the Lawrence Acquisition Consideration.
135
<PAGE>
EQUITY OWNERSHIP OF CERTAIN PERSONS WITH INTERESTS IN THE TRANSACTIONS
COMPANY COMMON STOCK
The following table sets forth certain information regarding (i) beneficial
ownership of Company Common Stock by (1) each director and executive officer
of the Company and (2) all directors and executive officers of the Company as
a group as of the Record Date, (ii) beneficial ownership of Holdings Common
Stock by such persons after consummation of the Reorganization only (assuming
all of the ADCS Holders participate in the Exchange, an Exchange Average
Closing Price of $14.00 per share and no adjustment in the number of shares of
Holdings Common Stock to be distributed to the ADCS Holders), (iii) beneficial
ownership of Company Common Stock by such persons after consummation of the
Lawrence Acquisition only (assuming a Lawrence Acquisition Average Closing
Price of $17.00 per share and no adjustment in the number of shares of Company
Common Stock to be issued to the LSL Stockholders), and (iv) beneficial
ownership of Holdings Common Stock by such persons after consummation of both
Transactions (following the assumptions made in (ii) and (iii) above). Except
as otherwise indicated, all shares are owned directly. Except as indicated by
footnote, and subject to community property laws where applicable, the persons
named in the table have sole voting and investment power with respect to all
shares of Company Common Stock shown as beneficially owned by them.
As the share exchange in the Merger will be on a one-for-one basis, the
number of shares of Company Common Stock beneficially owned will not change.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE AFTER THE
NUMBER PERCENTAGE AFTER THE LAWRENCE PERCENTAGE
OF BEFORE THE REORGANIZATION ACQUISITION AFTER THE
NAME POSITION HELD SHARES TRANSACTIONS ONLY ONLY TRANSACTIONS
---- ------------- ------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Eugene G. Banucci(1).... President, 309,682 3.5% 2.0% 2.3% 1.6%
Chief
Executive
Officer and
Chairman of
the Board
Peter S. Kirlin(2)...... Executive 54,234 * * * *
Vice
President
Daniel P. Sharkey(2).... Vice 74,375 * * * *
President,
Chief
Financial
Officer and
Treasurer
Duncan W. Brown(3)...... Vice 172,771 1.9% 1.1% 1.3% *
President and
Director
Ward C. Stevens(4)...... Vice 175,639 2.0% 1.2% 1.3% *
President and
Secretary
Nicholas J. Wood(2)..... Vice 14,400 * * * *
President-
Marketing
Mark A. Adley(5)........ Director 21,000 * * * *
Gary A. Andersen(2)..... Director 13,500 * * * *
John A. Armstrong(2).... Director 18,000 * * * *
Robert S. Hillas(6)..... Director 30,977 * * * *
Stephen H. Mahle(7)..... Director 4,600 * * * *
All directors and
executive officers as a
group
(11 persons)(8)........ 889,178 9.6% 5.7% 6.4% 4.4%
</TABLE>
136
<PAGE>
- --------
* Less than 1%
(1) Includes 103,975 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date and 5,659 shares either
owned by Dr. Banucci's spouse or issuable upon exercise of options within
60 days of the Record Date by Dr. Banucci's spouse. Dr. Banucci disclaims
beneficial ownership of the shares held by his spouse.
(2) Consists entirely of shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(3) Includes 69,637 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date and 4,634 shares either
owned or issuable upon exercise of options within 60 days of the Record
Date by Dr. Brown's spouse. Dr. Brown disclaims beneficial ownership of
the shares held by his spouse.
(4) Includes 71,600 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date, 5,537 shares either owned
or issuable upon exercise of options within 60 days of the Record Date by
Dr. Stevens' spouse and 4,580 shares owned by his children. Dr. Stevens
disclaims beneficial ownership of the shares held by his spouse and
children.
(5) Includes 18,000 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(6) Includes 11,250 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(7) Includes 4,500 shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(8) Includes 459,132 shares issuable to executive officers and directors
pursuant to options which are exercisable within 60 days of the Record
Date.
137
<PAGE>
ADCS INTERESTS
The following table sets forth certain information regarding (i) beneficial
ownership of the ADCS Interests by (1) each person known by the ADCS Group to
own beneficially more than five percent of the ADCS Interests, (2) each
director of ADCS Nevada, (3) each executive officer of the ADCS Group and (4)
all directors and executive officers of the ADCS Group as a group as of the
Record Date, and (ii) beneficial ownership of Holdings Common Stock by such
persons, assuming all of the ADCS Holders participate in the Exchange, an
Exchange Average Closing Price of $14.00 per share and no adjustment in the
number of shares of Holdings Common Stock to be distributed to the ADCS
Holders, (1) after consummation of the Reorganization only and (2) after
consummation of both Transactions (assuming a Lawrence Acquisition Average
Closing Price of $17.00 per share and no adjustments in the number of shares
of Holdings Common Stock to be issued to the LSL Stockholders). Except as
otherwise indicated, all interests are owned directly. Except as indicated by
footnote, and subject to community property laws where applicable, the persons
named in the table have sole voting and investment power with respect to all
the ADCS Interests shown as beneficially owned by them. The numbers have been
rounded to the nearest tenth or one-thousandth, as applicable.
<TABLE>
<CAPTION>
SHARES OF
ADCS NEVADA ADCS MANAGER ADCS HOLDINGS(2) AGGREGATE HOLDINGS PERCENTAGE
--------------- --------------- --------------------- PERCENTAGE COMMON STOCK AFTER THE PERCENTAGE
BENEFICIAL % % % OF ADCS AFTER THE REORGANIZATION AFTER THE
OWNER(1) SHARES INTEREST SHARES INTEREST UNITS INTEREST INTERESTS REORGANIZATION ONLY TRANSACTIONS
- ---------- ------ -------- ------ -------- -------- --------- ---------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen H.
Siegele........ 414.5 68.4% 414.5 68.4% 0.684(3) 0.684%(3) 68.4% 4,275,000 28.4% 21.8%
F.H.S.
Investments,
Ltd............ 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5% 718,750 4.8% 3.7%
Frederick H.
Siegele(4)..... 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5% 718,750 4.8% 3.7%
Bernard
McKeown........ 69.4 11.5% 69.4 11.5% 0.115 0.115% 11.5% 718,750 4.8% 3.7%
Frederick J.
Siegele........ 19.8 3.3% 19.8 3.3% 0.033 0.033% 3.3% 206,250 1.4% 1.0%
Robert M.
Jackson........ 9.9 1.6% 9.9 1.6% 0.016 0.016% 1.6% 100,000 * *
Curtis D.
Logan.......... * * * * * *
All directors
and executive
officers as a
group (five
persons)....... 513.6 84.8% 513.6 84.8% 0.848(3) 0.848%(3) 84.8% 5,300,000 35.2% 27.0%
</TABLE>
- --------
* Less than 1%
(1) Each named person's address is 6805 Capital of Texas Highway, Suite 330,
Austin, Texas 78731, other than Bernard McKeown, whose address is 12931
Drury Lane, Plymouth, MI 48170.
(2) The ADCS Holders collectively beneficially own one Unit, or 1%, of ADCS
Holdings. The remaining 99 Units, or 99% of the membership interests in
ADCS Holdings are held of record by ADCS Nevada, all of which is in turn
owned by the ADCS Holders. Only the one Unit, or 1% of the membership
interests in ADCS Holdings, collectively held directly by the ADCS Holders
will be exchanged for Holdings Common Stock. The 99 Units held of record
by ADCS Nevada will not be exchanged for Holdings Common Stock and will
remain held of record by ADCS Nevada as of the Closing Date.
(3) In addition to the 0.684 Units owned directly, Stephen H. Siegele may be
deemed the beneficial owner of the remaining 99 Units, or 99% of the
membership interests in ADCS Holdings. Stephen H. Siegele is the
beneficial owner of 68.4% of the Common Stock of ADCS Nevada and as such
may be deemed the beneficial owner of such remaining 99 Units, or 99% of
the membership interests in ADCS Holdings, which are held of record by
ADCS Nevada. Stephen H. Siegele disclaims beneficial ownership of all but
68.4% of 99%, or 67.7%, of the Units representing the membership interests
in ADCS Holdings. Only the one Unit, or 1% of the membership interests in
ADCS Holdings, collectively held directly by the ADCS Holders will be
exchanged for Holdings Common Stock. See Note (2) above.
(4) Frederick H. Siegele is the sole General Partner of F.H.S. Investments,
Ltd., a Texas limited partnership ("FHS"), and as such may be deemed a
beneficial owner of the shares held by FHS. However, Frederick H.
Siegele's general partnership interest only entitles him to a 1% interest
in FHS. The remaining 99% limited partnership interests in FHS are owned
as follows: (i) 33% by the Frederick J. Siegele Irrevocable Trust of which
Frederick J. Siegele is the sole beneficiary, (ii) 33% by the Stephen H.
Siegele Irrevocable Trust of which Stephen H. Siegele is the sole
beneficiary and (iii) 33% by the Stuart F. Siegele Irrevocable Trust of
which Stuart F. Siegele is the sole beneficiary. None of the limited
partners in FHS have or share
138
<PAGE>
any right to vote the ADCS Interests held by FHS or have or share any
investment power with respect to such ADCS Interests held by FHS.
Accordingly, each of such limited partners disclaims beneficial ownership of
the ADCS Interests held of record by FHS. Frederick H. Siegele disclaims
beneficial ownership of all but 1% the ADCS Interests held of record by FHS
which are attributable to him as a result of his 1% general partnership
interest.
139
<PAGE>
LSL COMMON STOCK
The following table sets forth certain information regarding (i) beneficial
ownership of LSL Common Stock by (1) each person known by Lawrence to own
beneficially any shares of LSL Common Stock and (2) all directors and
executive officers of Lawrence as a group as of the Record Date, (ii)
beneficial ownership of Company Common Stock by such persons after the
consummation of the Lawrence Acquisition only, and (iii) beneficial ownership
of Holdings Common Stock by such persons after the consummation of both
Transactions (assuming all of the ADCS Holders participate in the Exchange, an
Exchange Average Closing Price of $14.00 per share and no adjustment in the
number of shares of Holdings Common Stock to be distributed to the ADCS
Holders), assuming in the case of clause (ii) and (iii), a Lawrence
Acquisition Average Closing Price of $17.00 per share and no adjustment in the
number of shares of Company Common Stock or Holdings Common Stock, as the case
may be, to be issued to the LSL Stockholders. Except as otherwise indicated,
all shares are owned directly. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table have
sole voting and investment power with respect to all shares of LSL Common
Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF COMPANY OR
LSL HOLDINGS COMMON STOCK PERCENTAGE AFTER THE PERCENTAGE
----------------- AFTER THE LAWRENCE AFTER THE
BENEFICIAL OWNER SHARES % INTEREST LAWRENCE ACQUISITION ACQUISITION ONLY TRANSACTIONS
- ---------------- ------ ---------- --------------------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Lamonte H.
Lawrence(1)(2)......... 9,800 98.0% 4,496,470 33.5% 22.9%
The Arizona State
University
Foundation(3).......... 200 2.0% 91,765 * *
All directors and
executives officers as
a group (four
persons)(4)............ 9,800 98.0% 4,496,470 33.5% 22.9%
</TABLE>
- --------
(1) Regina Lawrence, who serves as director and Secretary of Lawrence, is the
wife of Lamonte H. Lawrence. Pursuant to California law, Regina Lawrence
holds a one-half community property interest in the 9,800 shares held of
record by Lamonte H. Lawrence. Regina Lawrence disclaims beneficial
ownership of such shares.
(2) The address for Lamonte H. Lawrence is c/o Lawrence Semiconductor
Laboratories, Inc., 550 West Juanita, Mesa, Arizona, 85210.
(3) The address of the Arizona State University Foundation is 707 South
College, Tempe, Arizona 85281.
(4) No officer or director of Lawrence owns any shares of LSL Common Stock,
except for the ownership indicated in this table for Lamonte H. Lawrence.
140
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF HOLDINGS
The authorized capital stock of Holdings consists of 30,000,000 shares of
Holdings Common Stock, par value $.01 per share, and 2,000,000 shares of
Preferred Stock, par value $.01 per share. The description of Holdings'
capital stock contained in this Proxy Statement/Prospectus summarizes the
material provisions of Holdings' Certificate of Incorporation and Bylaws and
is qualified in its entirety by reference to Holdings' Certificate of
Incorporation and Bylaws, the full text of which are attached hereto as
Appendix C and Appendix D, respectively, and are incorporated herein by
reference. All stockholders of the Company, the ADCS Holders and the LSL
Stockholders are urged to read Appendix C and Appendix D in their entirety.
COMMON STOCK
As of the Record Date, 100 shares of Holdings Common Stock were issued and
outstanding and held by the Company. In connection with the consummation of
the Reorganization, these shares will be cancelled. In addition, 900,000
shares of Holdings Common Stock are reserved for future grants under the
Holdings 1997 stock plan, which is to be effective upon consummation of the
Reorganization and which is identical to the 1997 Stock Plan, and 23,388
shares of Holdings Common Stock will be reserved for grants under the 1995
Stock Plan of the Company, which plan will be assumed by Holdings pursuant to
the Merger. Upon consummation of the Reorganization, there will be outstanding
options and warrants to purchase 1,336,986 shares of Holdings Common Stock
pursuant to Holdings' assumption of the Company's outstanding options and
warrants. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Holdings Common Stock are entitled to dividends
from funds legally available therefor, when, as and if declared by the Board
of Directors of Holdings and are entitled to share ratably in all of the
assets of Holdings available for distribution to holders of Holdings Common
Stock upon the liquidation, dissolution or winding up of the affairs of
Holdings. Holdings Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to Holdings Common Stock, and the outstanding shares of Holdings
Common Stock are, and the shares to be issued in the Transactions will be,
when issued pursuant to the Merger and Exchange Agreement and the Lawrence
Merger Agreement, as the case may be, fully paid and nonassessable.
Stockholders of Holdings are entitled to one vote for each share of Holdings
Common Stock held of record on matters submitted to a vote of stockholders.
The Holdings Common Stock does not have cumulative voting rights. As a result,
the holders of more than 50% of the shares of Holdings Common Stock voting for
the election of directors can elect all of the directors if they choose to do
so, and, in such event, the holders of the remaining shares of Holdings Common
Stock will not be able to elect any person or persons to the Board of
Directors of Holdings.
PREFERRED STOCK
The Board of Directors of Holdings is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to 2,000,000 shares of Preferred Stock in one or more series. Each
such series of Preferred Stock shall have such number of shares, designations,
powers, preferences, rights, qualifications, limitations and restrictions as
shall be determined by the Board of Directors of Holdings, which may include,
among others, dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and conversion rights, which in any case
could be superior to the rights associated with Holdings Common Stock.
The purpose of authorizing the Board of Directors of Holdings to issue
Preferred Stock and determine its rights and preferences is to eliminate
delays associated with a stockholder vote on specific issuances. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire, or could discourage a third party from
attempting to acquire, a majority of the outstanding voting stock of Holdings.
Holdings has no present plans to issue any shares of Preferred Stock.
141
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Classified Board of Directors. Holdings' Certificate of Incorporation and
Bylaws provide for the Board of Directors of Holdings to be divided into three
classes of directors: Class I, Class II and Class III, as nearly equal in
number as is reasonably possible. Other than the initial directors in Class I
and Class II who will serve for one-year terms and two-year terms,
respectively, each director is elected for a three-year term, with one class
of directors being elected at each annual meeting of stockholders. In the
event of any increase or decrease in the authorized number of directors,
directorships will be apportioned among the classes by the Board of Directors
of Holdings to ensure that no one class has more than one director more than
any other class, to the extent possible. Since only one third of the directors
of the classified Board of Directors are subject to election each year, it is
more difficult for the stockholders of Holdings to change the management of
Holdings than if the Board of Directors of Holdings were not classified. In
addition, the presence of a classified Board of Directors could make it more
difficult for a third party to acquire, or could discourage a third party from
attempting to acquire, control of Holdings and, therefore, may limit the price
that certain investors might be willing to pay in the future for shares of
Holdings Common Stock. See "OPERATIONS AND MANAGEMENT AFTER THE TRANSACTIONS--
Management."
Changes in Board of Directors. Holdings' Certificate of Incorporation and
Bylaws provide that vacancies on the Board of Directors of Holdings may be
filled by a vote of a majority of the Board of Directors of Holdings then in
office. Also, the Bylaws provide that any increase or decrease in the number
of directors requires the approval of a majority of the directors then in
office. These provisions of Holdings' Certificate of Incorporation and Bylaws
could make it more difficult for a third party to acquire, or could discourage
a third party from attempting to acquire, control of Holdings and, therefore,
may limit the price that certain investors might be willing to pay in the
future for shares of Holdings Common Stock.
Stockholder Action. Holdings' Certificate of Incorporation and Bylaws
provide that any action required or permitted to be taken by the stockholders
of Holdings may be taken only at a duly called annual or special meeting of
the stockholders and may not be taken by written consent. These provisions
could have the effect of delaying until the next annual stockholders' meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of Holdings, because special meetings of
stockholders may be called only by a majority of the Board of Directors of
Holdings or the Chairman of the Board. These provisions may also discourage
another person or entity from making a tender offer for Holdings Common Stock,
because such person or entity, even if it acquired a majority of the
outstanding voting securities of Holdings, would be able to take action as a
stockholder only at a duly called stockholders' meeting and not by written
consent.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Holdings' Certificate of Incorporation and Bylaws
establish an advance notice procedure with regard to the nomination, other
than by or at the direction of the Board of Directors of Holdings, of
candidates for election as directors (the "Holdings Nomination Procedure") and
with regard to other matters to be brought by stockholders before an annual
meeting of stockholders of Holdings (the "Holdings Business Procedure").
The Holdings Nomination Procedure requires that a stockholder give to the
Secretary of Holdings prior written notice, in proper form, of a planned
nomination for the Board of Directors of Holdings. The Holdings Bylaws specify
the requirements for the form and timing of that notice. If the Chairman of
the Board of Directors of Holdings determines that a person was not nominated
in accordance with the Holdings Nomination Procedure, such person will not be
eligible for election as a director.
Under the Holdings Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of Holdings. The Holdings Bylaws specify the
requirements for the form and timing of that notice. If the Chairman of the
Board of Directors of Holdings determines that the other business was not
properly brought before such meeting in accordance with the Holdings Business
Procedure, such business will not be conducted at such meeting.
142
<PAGE>
Although the Holdings Bylaws do not give the Board of Directors of Holdings
any power to approve or disapprove stockholder nominations for the election of
directors or of any other business desired by stockholders to be conducted at
an annual or any other meeting, the Holdings Bylaws (i) may have the effect of
precluding a nomination for the election of directors or precluding the
conduct of business at a particular annual meeting if the proper procedures
are not followed or (ii) may discourage or deter a third party from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of Holdings, even if the conduct of such
solicitation or such attempt might be beneficial to Holdings and its
stockholders. See "COMPARISON OF MATERIAL RIGHTS OF HOLDINGS STOCKHOLDERS AND
COMPANY STOCKHOLDERS--Advanced Notice Provisions for Stockholder Proposals and
Stockholder Nomination of Directors."
Delaware Takeover Statute. Upon the consummation of the Reorganization,
Holdings will be subject to Section 203 of the DGCL. Subject to certain
exceptions, this section prohibits certain publicly held Delaware corporations
from engaging in a "business combination" with an "interested stockholder" for
a period of three years following the date of the transaction in which the
person or entity became an interested stockholder, unless the business
combination is approved in a prescribed manner or certain other exemptions
apply. For purposes of Section 203, "business combination" is defined broadly
to include reorganizations, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is any person or entity who, together with affiliates and
associates, owns (or within the three immediately preceding years did own) 15%
or more of the corporation's voting stock.
Limitation on Liability and Indemnification of Directors. Holdings'
Certificate of Incorporation contains certain provisions permitted under the
DGCL relating to the liability of directors. To the extent permitted by the
DGCL, the provisions eliminate a director's personal liability for monetary
damages for a breach of fiduciary duty. The provisions also indemnify
directors and officers to the fullest extent permitted by the DGCL.
REGISTRATION RIGHTS
Upon consummation of the Reorganization, Holdings will have the obligations
related to registration of the shares of Holdings Common Stock representing
(i) the Exchange Consideration described under "THE REORGANIZATION--
Registration Rights Agreement" above and (ii) the Lawrence Acquisition
Consideration described under "THE LAWRENCE ACQUISITION--Registration Rights
Agreement" above. Holdings will also assume the registration obligations of
the Company described under "DESCRIPTION OF CAPITAL STOCK OF THE COMPANY--
Registration Rights" below.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Holdings Common Stock will be
BankBoston, N.A.
143
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 15,000,000 shares of
Company Common Stock, par value $.01 per share, and 1,000,000 shares of
Preferred Stock, par value $.01 per share.
COMMON STOCK
As of the Record Date, there were 8,816,455 shares of Company Common Stock
outstanding, held by approximately 203 stockholders of record. The Company has
reserved 17,923 shares of Company Common Stock for grants under the 1995 Stock
Plan of the Company, and as of the Record Date, there were outstanding options
and warrants to purchase 1,342,941 shares of Company Common Stock. Subject to
preferences that may be applicable to any outstanding Preferred Stock, holders
of Company Common Stock are entitled to dividends from funds legally available
therefor, when, as and if declared by the Company Board of Directors and are
entitled to share ratably in all of the assets of the Company available for
distribution to holders of Company Common Stock upon the liquidation,
dissolution or winding up of the affairs of the Company. The Company Common
Stock has no preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to Company
Common Stock, and the outstanding shares of Company Common Stock are, and the
shares to be issued in the Lawrence Acquisition in the event the
Reorganization is not consummated will be, when issued pursuant to the
Lawrence Merger Agreement, fully paid and nonassessable.
Stockholders of the Company are entitled to one vote for each share of
Company Common Stock held of record on matters submitted to a vote of
stockholders. The Company Common Stock does not have cumulative voting rights.
As a result, the holders of more than 50% of the shares of Company Common
Stock voting for the election of directors can elect all of the directors if
they choose to do so, and, in such event, the holders of the remaining shares
of Company Common Stock will not be able to elect any person or persons to the
Company Board of Directors.
PREFERRED STOCK
The Company Board of Directors is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to 1,000,000 shares of Preferred Stock in one or more series. Each
such series of Preferred Stock shall have such number of shares, designations,
powers, preferences, rights, qualifications, limitations and restrictions as
shall be determined by the Company Board of Directors, which may include,
among others, dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and conversion rights, which in any case
could be superior to the rights associated with Company Common Stock.
The purpose of authorizing the Company Board of Directors to issue Preferred
Stock and determine its rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire, or could discourage a third party from
attempting to acquire, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Changes in Board of Directors. The Company's Restated Certificate of
Incorporation, as amended, and Restated Bylaws provide that vacancies on the
Company Board of Directors may be filled by a vote of a majority of the
Company Board of Directors then in office. Also, the Restated Bylaws provide
that any increase or decrease in the number of directors requires the approval
of a majority of the directors then in office. These provisions of the
Company's Restated Certificate of Incorporation, as amended, and Restated
Bylaws could make it more difficult for a third party to acquire, or could
discourage a third party from attempting to acquire, control of the Company
and, therefore, may limit the price that certain investors might be willing to
pay in the future for shares of Company Common Stock.
144
<PAGE>
Stockholder Action. The Company's Restated Certificate of Incorporation, as
amended, and Restated Bylaws provide that any action required or permitted to
be taken by the stockholders of the Company may be taken only at a duly called
annual or special meeting of the stockholders and may not be taken by written
consent. These provisions could have the effect of delaying until the next
annual stockholders' meeting stockholder actions which are favored by the
holders of a majority of the outstanding voting securities of the Company,
because special meetings of stockholders may be called only by a majority of
the Company Board of Directors or the Chairman of the Board. These provisions
may also discourage another person or entity from making a tender offer for
Company Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder only at a duly called stockholders' meeting and
not by written consent.
Delaware Takeover Statute. The Company is subject to Section 203 of the
DGCL. Subject to certain exceptions, this section prohibits certain publicly
held Delaware corporations from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date of the
transaction in which the person or entity became an interested stockholder,
unless the business combination is approved in a prescribed manner or certain
other exemptions apply. For purposes of Section 203, "business combination" is
defined broadly to include reorganizations, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is any person or entity who, together with affiliates
and associates, owns (or within the three immediately preceding years did own)
15% or more of the corporation's voting stock.
Limitation on Liability and Indemnification of Directors. The Company's
Restated Certificate of Incorporation, as amended, contains certain provisions
permitted under the DGCL relating to the liability of directors. To the extent
permitted by the DGCL, the provisions eliminate a director's personal
liability for monetary damages for a breach of fiduciary duty. The provisions
also indemnify directors and officers to the fullest extent permitted by the
DGCL.
REGISTRATION RIGHTS
The holders of approximately 3,582,500 shares of Company Common Stock and
warrants to purchase approximately 181,250 shares of Company Common Stock are
entitled to certain rights with respect to the registration of such shares
under the Securities Act. If the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other security holders exercising registration rights, such holders are
entitled to notice of such registration and are entitled to include shares of
such Company Common Stock therein at the Company's expense, subject to certain
conditions and limitations, including the right of the underwriters of any
offering to limit the number of such shares included in such registration. In
addition, holders of approximately 3,562,500 shares of Company Common Stock
have the right to require the Company, on not more than two occasions, to file
a registration statement under the Securities Act at the Company's expense
with respect to such shares of Company Common Stock, and the Company is
required to use its best efforts to effect such registration, subject to
certain conditions and limitations. Further, such holders and the holders of
warrants to purchase approximately 131,250 shares of Company Common Stock may
require the Company to register all or a portion of their shares of Company
Common Stock on Form S-3, subject to certain conditions and limitations. Of
the 3,582,500 shares of Company Common Stock subject to registration rights,
an aggregate of 3,562,500 shares, other than any shares which may be held by
affiliates of the Company, are freely tradeable without registration under the
Securities Act. The Company believes, therefore, that the holders of such
shares are unlikely to exercise their registration rights with respect to such
shares. In addition, upon consummation of the Lawrence Acquisition, and if the
Reorganization is not consummated, the Company will have the obligations
related to registration of the shares of Company Common Stock representing the
Lawrence Acquisition Consideration described under "THE LAWRENCE ACQUISITION--
Registration Rights Agreement" above.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Company Common Stock is BankBoston,
N.A.
145
<PAGE>
COMPARISON OF MATERIAL RIGHTS OF HOLDINGS
STOCKHOLDERS AND COMPANY STOCKHOLDERS
Both the Company and Holdings are incorporated in Delaware. Upon
consummation of the Reorganization, Holdings Common Stock exchanged on a
share-for-share basis for Company Common Stock will provide the stockholders
of the Company who receive such Holdings Common Stock with essentially the
same rights they had as stockholders of the Company, except as described
below.
CLASSIFIED BOARD OF DIRECTORS
Unlike the Company's Restated Certificate of Incorporation, as amended, and
Restated Bylaws, Holdings' Certificate of Incorporation and Bylaws provide
that the Board of Directors of Holdings is to be divided into three classes:
Class I, Class II and Class III, as nearly equal in number as is reasonably
possible. Other than the initial directors in Class I and Class II who will
serve for one-year terms and two-year terms, respectively, each director is
elected for a three-year term, with one class of directors being elected at
each annual meeting of stockholders. In the event of any increase or decrease
in the authorized number of directors, directorships will be apportioned among
the classes by the Board of Directors of Holdings to ensure that no one class
has more than one director more than any other class, to the extent possible.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATION
OF DIRECTORS
Unlike the Company's Restated Certificate of Incorporation, as amended, and
Restated Bylaws, Holdings' Certificate of Incorporation and Bylaws provide
that nominations of persons for election to the Board of Directors of Holdings
and proposals of business to be considered by the stockholders may be made at
an annual meeting (i) if specified in the notice of meeting, (ii) by or at the
direction of the Board of Directors of Holdings, or (iii) by any stockholder
giving advanced and proper notice. Stockholders giving such notice must
provide written notice to the Secretary of Holdings, in most cases, not later
than the close of business on the 90th day prior to the first anniversary of
the preceding year's annual meeting setting forth certain information about
any person nominated for election as a director by such stockholder, a brief
description of any business desired to be brought by such stockholder before
the meeting, and the name and address of, and the number and class of shares
held by, such stockholder.
SPECIAL MEETINGS OF STOCKHOLDERS
The Company's Restated Bylaws provide that written notice of a special
meeting of stockholders of the Company must be given not less than 10 nor more
than 20 days before the date of such a meeting, whereas Holdings' Bylaws
provide that such written notice must be given not less than 10 nor more than
60 days before the date of such meeting.
Holdings' Bylaws additionally provide that nominations of persons for
election to the Board of Directors of Holdings may be made at a special
meeting of stockholders (i) by or at the direction of the Board of Directors
or (ii) provided that the Board of Directors has determined that directors
shall be elected at such special meeting, by a stockholder of Holdings if such
stockholder provides proper notice, in most cases, not earlier than the 90th
day prior to such special meeting nor later than the 60th day prior to such
special meeting.
OTHER VOTING RIGHTS
Except as otherwise expressly provided by law or by the respective
Certificate of Incorporation and Bylaws of Holdings and the Company, as
applicable, when a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or
represented by proxy shall decide any matter brought before such meeting. The
affirmative vote of at least 70% of the shares of the capital stock of
Holdings issued and outstanding and entitled to vote is required to adopt,
amend, alter or repeal Holdings' Bylaws.
146
<PAGE>
COMPARISON OF HOLDINGS COMMON STOCK AND THE ADCS INTERESTS
The following is a summary of material differences between the rights of
holders of Holdings Common Stock as compared to the rights of holders ADCS
Nevada Common Stock, ADCS Manager Common Stock and ADCS Holdings Membership
Interests, respectively. These summaries do not purport to be complete
statements of the rights of holders of Holdings Common Stock under the DGCL or
Holdings' Certificate of Incorporation and Bylaws, or a complete description
of the provisions referred to herein. These summaries are qualified in their
entirety by reference to, as applicable, the DGCL, the Nevada General
Corporation Law (the "NGCL"), the Delaware Limited Liability Company Act (the
"DLLCA") and the governing instruments of Holdings, ADCS Nevada, ADCS Manager,
and ADCS Holdings. The terms of Holdings Common Stock are described in greater
detail in "DESCRIPTION OF CAPITAL STOCK OF HOLDINGS."
HOLDINGS COMMON STOCK AND ADCS NEVADA COMMON STOCK
ADCS Nevada is incorporated in Nevada, and the rights of stockholders are
currently governed by the NGCL and the Articles of Incorporation and Bylaws of
ADCS Nevada. A single individual owns a majority of the ADCS Nevada Common
Stock, and, therefore, ADCS Nevada may be deemed effectively controlled by
such majority stockholder. This effective control must be considered in
evaluating the rights (especially rights based on percentage interests) of
holders of ADCS Nevada Common Stock. Upon consummation of the Exchange, the
ADCS Nevada stockholders electing to participate in the Exchange will become
Holdings stockholders, and their rights will be governed by the DGCL and
Holdings' Certificate of Incorporation and Bylaws.
Authorized Capital
ADCS Nevada's Articles of Incorporation provide that ADCS Nevada has
authority to issue 5,000 shares of ADCS Nevada Common Stock, of which 605.8308
shares were issued and outstanding as of the Record Date.
Holdings' Articles of Incorporation provide that Holdings has authority to
issue 30,000,000 shares of Holdings Common Stock, of which 100 shares were
issued and outstanding as of the Record Date.
Issuance of Senior Securities
ADCS Nevada's Articles of Incorporation do not specifically provide for the
issuance of preferred stock.
Holdings' Certificate of Incorporation provides for the potential issuance
of up to 2,000,000 shares of preferred stock with rights, preferences and
designations to be determined by the Board of Directors of Holdings. The
preferred stock would be senior to Holdings Common Stock.
Distributions
During the portion of 1996 in which it was an "S" corporation for federal
tax purposes, ADCS Nevada made distributions to the ADCS Nevada stockholders
with respect to tax payments required to be made by the ADCS Holders.
After the consummation of the Reorganization, Holdings is expected to retain
all cash from operations and does not expect to pay dividends on Holdings
Common Stock.
Board of Directors
ADCS Nevada's Bylaws provide that the number of directors which shall
constitute the whole board shall be not less than one nor more than seven.
Each director elected shall hold office until his or her successor is elected
and qualified.
Holdings' Certificate of Incorporation and Bylaws provide for the Board of
Directors of Holdings to be divided into three classes of directors: Class I,
Class II and Class III, as nearly equal in number as is reasonably
147
<PAGE>
possible. Other than the initial directors in Class I and Class II who will
serve for one-year terms and two-year terms, respectively, each director is
elected for a three-year term, with one class of directors being elected at
each annual meeting of stockholders. Holdings' Bylaws provide that the number
of directors shall be determined by a majority of the directors then in
office; provided however, that the number of directors shall not be less than
two nor more than fifteen. In the event of any increase or decrease in the
authorized number of directors, directorships will be apportioned among the
classes by the Board of Directors to ensure that no one class has more than
one director more than any other class, to the extent possible.
Removal of Directors
ADCS Nevada's Bylaws provide that any director or the entire Board of
Directors may be removed at any time, with or without cause, by the holders of
a majority of shares entitled to vote at an election of directors.
Under the DGCL, because the Board of Directors of Holdings is divided into
three classes of directors and Holdings' Certificate of Incorporation does not
otherwise provide, directors may only be removed for cause.
Liability of Management
ADCS Nevada's Articles of Incorporation provide that its officers,
directors, employees and agents shall be indemnified by the corporation to the
full extent permitted by the NGCL. ADCS Nevada's Articles of Incorporation
also provide that no director or officer shall be personally liable to the
corporation or its stockholders for damages for breach of fiduciary duty
except for (i) acts or omissions which involve intentional misconduct, fraud
or knowing violation of the law, or (ii) the payment of distributions in
violation of Nevada law.
Holdings' Certificate of Incorporation provides that, to the fullest extent
permitted by the DGCL, directors shall be indemnified by the corporation and
shall not be liable to the corporation or its stockholders for breach of
fiduciary duty as a director. Holdings' Bylaws provide that each person who is
or was an officer, director, employee or agent of the corporation, or is or
was serving at the request of Holdings as an officer, director, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified to the fullest extent permitted by the DGCL.
Amendment of Bylaws
ADCS Nevada's Bylaws may be amended by the Board of Directors or the
stockholders holding a majority of the voting shares of capital stock.
Holdings' Bylaws may be amended by the Board of Directors or by stockholders
holding 70% of the voting shares of capital stock.
Special Meetings of Stockholders
ADCS Nevada's Bylaws provide that a special meeting of stockholders may be
called by the President, at the written request of a majority of the Board of
Directors or at the written request of stockholders owning not less than 10%
of all shares issued, outstanding and entitled to vote at the meeting.
Holdings' Certificate of Incorporation and Bylaws provide that a special
meeting of stockholders may be called by the Chairman of the Board of
Directors (or, if none is designated, the President), and shall be called by
the President or Secretary at the request in writing of a majority of the
Board of Directors.
Stockholder Nominations and Proposals
ADCS Nevada's Bylaws do not contain any provisions with respect to
procedures which must be complied with in order for stockholders to nominate
directors or to propose action at stockholders' meetings.
148
<PAGE>
Holdings' Bylaws contain provisions permitting stockholders to nominate
directors and to propose action at a stockholders' meeting, only upon properly
given prior written notice to the Secretary of Holdings.
Action by Written Consent of Stockholders
ADCS Nevada's Bylaws permit the taking of action by written consent of the
stockholders, if signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize the
taking of such action at a meeting at which all shares entitled to vote
thereon were present and voted.
Holdings' Certificate of Incorporation and Bylaws provide that any action
required or permitted to be taken by the stockholders of the corporation must
be effected at a duly called annual or special meeting of such stockholders;
no action by the stockholders may be taken by written consent in lieu of a
meeting.
Liquidity
There is no trading market for the ADCS Nevada Common Stock.
Holdings Common Stock has been approved for listing on Nasdaq upon notice of
issuance. However, Holdings Common Stock received by the ADCS Holders may be
subject to certain securities laws restrictions as described in "THE
REORGANIZATION--Resale of Holdings Common Stock by Affiliates."
Transferability
The transferability of ADCS Nevada Common Stock is restricted by ADCS
Nevada's Bylaws, which incorporate the terms of a members and shareholders
agreement entered into by the holders of the ADCS Nevada Common Stock.
The Holdings Common Stock will be freely transferable (subject only to
securities laws restrictions as described in "THE REORGANIZATION--Resale of
Holdings Common Stock by Affiliates").
Compromise or Arrangement
ADCS Nevada's Articles of Incorporation and Bylaws do not specifically
provide for any forced compromise or arrangement.
Holdings' Certificate of Incorporation provides that whenever a compromise
or arrangement is proposed between the corporation and its creditors, its
stockholders or any class thereof, any court of equitable jurisdiction within
the State of Delaware may order a meeting of such creditors, stockholders or
class thereof. If a majority in number representing at least three-fourths in
value of the creditors, stockholders or class thereof agree to any compromise
or arrangement and to any reorganization of the corporation, such compromise
or arrangement and such reorganization shall, if sanctioned by the court to
which the application in respect thereto has been made, be binding on all the
creditors, stockholders or class thereof, as applicable.
Reporting Requirements
ADCS Nevada is not subject to the periodic reporting requirements of the
Exchange Act.
Holdings will be subject to the periodic reporting requirements of the
Exchange Act.
Takeover Statutes
ADCS Nevada is subject to Section 78.439 of the NGCL, which provides that,
subject to certain exceptions, ADCS Nevada may not engage in any "combination"
with any "interested stockholder" for a period of three years from the date
such person became an interested stockholder, unless the combination is
approved in a
149
<PAGE>
prescribed manner and certain other exceptions apply. For purposes of Section
78.439, "combination" is defined broadly to include reorganizations, asset
sales and other transactions resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is any person
or entity who, together with affiliates and associates, owns (or within the
three immediately preceding years did own) 10% or more of the corporation's
voting stock.
Upon the consummation of the Reorganization, Holdings will be subject to
Section 203 of the DGCL. Subject to certain exceptions, this section prohibits
certain publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date of the transaction in which the person or entity became an
interested stockholder, unless the business combination is approved in a
prescribed manner or certain other exemptions apply. For purposes of Section
203, "business combination" is defined broadly to include reorganizations,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is any person
or entity who, together with affiliates and associates, owns (or within the
three immediately preceding years did own) 15% or more of the corporation's
voting stock.
HOLDINGS COMMON STOCK AND ADCS MANAGER COMMON STOCK
Since Holdings and ADCS Manager are both incorporated in Delaware, the
material differences in the rights of holders of their stock arise from
various provisions of Holdings' Certificate of Incorporation and Bylaws and
ADCS Manager's Certificate of Incorporation and Bylaws. A single individual
owns a majority of the ADCS Manager Common Stock, and, therefore, ADCS Manager
may be deemed effectively controlled by such majority stockholder. This
effective control must be considered in evaluating the rights (especially
rights based on percentage interests) of holders of ADCS Manager Common Stock.
Upon consummation of the Exchange, the ADCS Manager stockholders electing to
participate in the Exchange will become Holdings stockholders, and their
rights will be governed by the DGCL and Holdings' Certificate of Incorporation
and Bylaws.
Authorized Capital
ADCS Manager's Certificate of Incorporation provides that ADCS Manager has
authority to issue 3,000 shares of ADCS Manager Common Stock, of which
605.8308 shares were issued and outstanding as of the Record Date.
Holdings' Certificate of Incorporation provides that Holdings has authority
to issue 30,000,000 shares of Holdings Common Stock, of which 100 shares were
issued and outstanding as of the Record Date.
Issuance of Senior Securities
ADCS Manager's Certificate of Incorporation does not specifically provide
for the issuance of preferred stock.
Holdings' Certificate of Incorporation provides for the potential issuance
of up to 2,000,000 shares of preferred stock with rights, preferences and
designations to be determined by the Board of Directors of Holdings. The
preferred stock would be senior to Holdings Common Stock.
Distributions
ADCS Manager has never paid dividends on its capital stock.
After the consummation of the Reorganization, Holdings is expected to retain
all cash from operations and does not expect to pay dividends on Holdings
Common Stock.
Board of Directors
ADCS Manager's Bylaws provide that the number of directors which shall
constitute the whole board shall be not less than one nor more than seven.
Each director elected shall hold office until his or her successor is elected
and qualified.
150
<PAGE>
Holdings' Certificate of Incorporation and Bylaws provide for the Board of
Directors of Holdings to be divided into three classes of directors: Class I,
Class II and Class III, as nearly equal in number as is reasonably possible.
Other than the initial directors in Class I and Class II who will serve for
one-year terms and two-year terms, respectively, each director is elected for
a three-year term, with one class of directors being elected at each annual
meeting of stockholders. Holdings' Bylaws provide that the number of directors
shall be determined by a majority of the directors then in office; provided
however, that the number of directors shall not be less than two nor more than
fifteen. In the event of any increase or decrease in the authorized number of
directors, directorships will be apportioned among the classes by the Board of
Directors to ensure that no one class has more than one director more than any
other class, to the extent possible.
Removal of Directors
ADCS Manager's Bylaws provide that any director or the entire Board of
Directors may be removed at any time, with or without cause, by the holders of
a majority of shares entitled to vote at an election of directors.
Under the DGCL, because the Board of Directors of Holdings is divided into
three classes of directors and Holdings' Certificate of Incorporation does not
otherwise provide, directors may only be removed for cause.
Liability of Management
ADCS Manager's Certificate of Incorporation does not provide for
indemnification of its officers, directors, employees or agents. ADCS
Manager's Bylaws provide that directors may be indemnified at the discretion
of the corporation.
Holdings' Certificate of Incorporation provides that, to the fullest extent
permitted by the DGCL, directors shall be indemnified by the corporation and
shall not be liable to the corporation or its stockholders for breach of
fiduciary duty as a director. Holdings' Bylaws provide that each person who is
or was an officer, director, employee or agent of the corporation, or is or
was serving at the request of Holdings as an officer, director, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified to the fullest extent permitted by the DGCL.
Amendment of Bylaws
ADCS Manager's Bylaws may be amended by the Board of Directors or the
stockholders holding a majority of the voting shares of capital stock.
Holdings' Bylaws may be amended by the Board of Directors or by stockholders
holding 70% of the voting shares of capital stock.
Special Meetings of Stockholders
ADCS Manager's Bylaws provide that a special meeting of stockholders may be
called by the President, at the written request of a majority of the Board of
Directors or at the written request of stockholders owning not less than 10%
of all shares issued and outstanding and entitled to vote at the meeting.
Holdings' Certificate of Incorporation and Bylaws provide that a special
meeting of stockholders may be called by the Chairman of the Board of
Directors (or, if none is designated, the President), and shall be called by
the President or Secretary at the request in writing of a majority of the
Board of Directors.
Stockholder Nominations and Proposals
ADCS Manager's Bylaws do not contain any provisions with respect to
procedures which must be complied with in order for stockholders to nominate
directors or to propose action at stockholders' meetings.
151
<PAGE>
Holdings' Bylaws contain provisions permitting stockholders to nominate
directors and to propose action at a stockholders' meeting, only upon properly
given prior written notice to the Secretary of Holdings.
Action by Written Consent of Stockholders
ADCS Manager's Bylaws permit the taking of action by written consent of the
stockholders, if signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize the
taking of such action at a meeting at which all shares entitled to vote
thereon were present and voted.
Holdings' Certificate of Incorporation and Bylaws provide that any action
required or permitted to be taken by the stockholders of the corporation must
be effected at a duly called annual or special meeting of such stockholders;
no action by the stockholders may be taken by written consent in lieu of a
meeting.
Liquidity
There is no trading market for the ADCS Manager Common Stock.
Holdings Common Stock has been approved for listing on Nasdaq upon notice of
issuance. However, Holdings Common Stock received by the ADCS Holders may be
subject to certain securities laws restrictions as described in "THE
REORGANIZATION--Resale of Holdings Common Stock by Affiliates."
Transferability
The transferability of ADCS Manager Common Stock is restricted by ADCS
Manager's Bylaws, which incorporate the terms of a members and shareholders
agreement entered into by the holders of the ADCS Manager Common Stock.
The Holdings Common Stock will be freely transferable (subject only to
securities laws restrictions as described in "THE REORGANIZATION--Resale of
Holdings Common Stock by Affiliates").
Compromise or Arrangement
ADCS Manager's Certificate of Incorporation and Bylaws do not specifically
provide for any forced compromise or arrangement.
Holdings' Certificate of Incorporation provides that whenever a compromise
or arrangement is proposed between the corporation and its creditors, its
stockholders or any class thereof, any court of equitable jurisdiction within
the State of Delaware may order a meeting of such creditors, stockholders or
class thereof. If a majority in number representing at least three-fourths in
value of the creditors, stockholders or class thereof agree to any compromise
or arrangement and to any reorganization of the corporation, such compromise
or arrangement and such reorganization shall, if sanctioned by the court to
which the application in respect thereto has been made, be binding on all the
creditors, stockholders or class thereof, as applicable.
Reporting Requirements
ADCS Manager is not subject to the periodic reporting requirements of the
Exchange Act.
Holdings will be subject to the periodic reporting requirements of the
Exchange Act.
Takeover Statutes
ADCS Manager, as a private corporation, is not subject to the business
combinations provisions of the DGCL which limit business transactions between
a company and an interested shareholder.
152
<PAGE>
Upon the consummation of the Reorganization, Holdings will be subject to
Section 203 of the DGCL. Subject to certain exceptions, this section prohibits
certain publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date of the transaction in which the person or entity became an
interested stockholder, unless the business combination is approved in a
prescribed manner or certain other exemptions apply. For purposes of Section
203, "business combination" is defined broadly to include reorganizations,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is any person
or entity who, together with affiliates and associates, owns (or within the
three immediately preceding years did own) 15% or more of the corporation's
voting stock.
HOLDINGS COMMON STOCK AND ADCS HOLDINGS MEMBERSHIP INTERESTS
ADCS Holdings is a Delaware limited liability company governed by the DLLCA
and by the Limited Liability Company Agreement of ADCS Holdings (the "ADCS
Holdings LLC Agreement"). The ADCS Holdings Membership Interests constitute
only one percent of the limited liability company units of ADCS Holdings. ADCS
Nevada is the manager of, and owns 99% of the limited liability company units
of, ADCS Holdings. In turn, a single individual owns a majority of the ADCS
Nevada Common Stock. Therefore, ADCS Holdings may be deemed effectively
controlled by such majority stockholder. This effective control by such
majority stockholder must be considered in evaluating the rights (especially
rights based on percentage interests) of holders of ADCS Holdings Membership
Interests.
Upon the consummation of the Exchange, the holders of ADCS Holdings
Membership Interests electing to participate in the Exchange will become
Holdings stockholders, and their rights will be governed by the DGCL and
Holdings' Certificate of Incorporation and Bylaws.
Term of Existence
The existence of ADCS Holdings shall terminate on December 31, 2050, unless
sooner terminated under certain circumstances.
Holdings' existence is perpetual unless earlier dissolved by the requisite
vote of its Board of Directors and stockholders.
Issuance of Senior Securities
The ADCS Holdings LLC Agreement does not specifically provide for the
issuance of securities senior to the ADCS Holdings Membership Interests.
However, the ADCS Holdings LLC Agreement could be amended to provide for the
issuance of securities senior to the ADCS Holdings Membership Interests with
the approval of those members owning at least a majority of the limited
liability company units of ADCS Holdings.
Holdings' Certificate of Incorporation provides for the potential issuance
of up to 2,000,000 shares of preferred stock with rights, preferences and
designations to be determined by the Board of Directors of Holdings. The
preferred stock would be senior to Holdings Common Stock.
Distributions
No distributions have been made to the holders of ADCS Holdings Membership
Interests.
After the consummation of the Reorganization, Holdings is expected to retain
all cash from operations and does not expect to pay dividends on Holdings
Common Stock.
Federal Tax Consequences
As a limited liability company under the Code, ADCS Holdings is not a
taxable entity, and holders of ADCS Holdings Membership Interests report and
pay taxes on their distributive share of income, gains, losses,
153
<PAGE>
deductions and credits of ADCS Holdings. A distribution by a limited liability
company to a member is generally not taxable to the member unless the
distribution exceeds the member's tax basis in his ADCS Holdings Membership
Interests or the amount such member has "at risk" in the limited liability
company.
As a Subchapter C corporation under the Code, any income of Holdings will be
subject to tax at the corporate level. Stockholders of Holdings will also be
subject to tax on any dividends paid (or deemed paid) by Holdings. Holdings
does not intend to pay dividends on Holdings Common Stock in the foreseeable
future.
Management
The ADCS Holdings LLC Agreement provides that, subject to certain
limitations, the management and control of the operations of ADCS Holdings
shall rest exclusively in the manager, ADCS Nevada. ADCS Nevada is given broad
powers under the ADCS Holdings LLC Agreement.
Holdings stockholders have no right, as such, to participate in the
management of Holdings except pursuant to their right to vote in the election
of members of the Board of Directors of Holdings and as set forth below under
"Voting Rights."
Removal of Management
The ADCS Holdings LLC Agreement provides that the members owning a majority
of the limited liability company units outstanding may remove the manager
without cause.
Under the DGCL, because the Board of Directors of Holdings is divided into
three classes of directors and Holdings' Certificate of Incorporation does not
otherwise provide, directors may only be removed for cause.
Liability of Management
The ADCS Holdings LLC Agreement provides that ADCS Holdings, at its sole
discretion, may indemnify the manager against all expenses, losses,
liabilities and damages the manager actually and reasonably incurs in
connection with the defense or settlement of any action arising out of or
relating to the conduct of ADCS Holdings' activities, except an action with
respect to which the manager is adjudged to be liable for breach of fiduciary
duty owed to ADCS Holdings or the ADCS Holdings members.
Holdings' Certificate of Incorporation provides that, to the fullest extent
permitted by the DGCL, directors shall be indemnified by the corporation and
shall not be liable to the corporation or its stockholders for breach of
fiduciary duty as a director. Holdings' Bylaws provide that each person who is
or was an officer, director, employee or agent of the corporation, or is or
was serving at the request of Holdings as an officer, director, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified to the fullest extent permitted by the DGCL.
Amendment of Governing Agreements
The ADCS Holdings LLC Agreement may only be amended with the approval of
those members owning at least a majority of the limited liability company
units of ADCS Holdings, except under certain enumerated conditions.
Holdings' Bylaws may be amended by the Board of Directors or by stockholders
holding 70% of the voting shares of capital stock.
Voting Rights
The voting rights of the ADCS Holdings members are described above under
"Amendment of Governing Agreements" and "Removal of Management."
154
<PAGE>
Holdings stockholders are entitled to vote on the election of directors and
on various other matters, including (i) amendments to Holdings' Certificate of
Incorporation; (ii) the sale of all or substantially all the assets of
Holdings; (iii) the involuntary dissolution of Holdings; and (iv) various
mergers and share exchanges.
Meetings
The ADCS Holdings LLC Agreement provides that meetings of the ADCS Holdings
members may be called by the manager or upon written request of any one or
more members who own, in the aggregate, 20% or more of the limited liability
company units of ADCS Holdings.
Holdings' Certificate of Incorporation and Bylaws provide for an annual
meeting of stockholders, and that a special meeting of stockholders may be
called by the Chairman of the Board of Directors (or, if none is designated,
the President), and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors of Holdings.
Nominations and Proposals
The ADCS Holdings LLC Agreement does not contain any provisions with respect
to procedures which must be complied with in order for members to nominate
managers or to propose action at members' meetings.
Holdings' Bylaws contain provisions permitting stockholders to nominate
directors and to propose action at a stockholders' meeting, only upon properly
given prior written notice to the Secretary of Holdings.
Action by Written Consent
The ADCS Holdings LLC Agreement permits the taking of action by written
consent of the members, if signed by the holders of outstanding limited
liability company units of ADCS Holdings having not less than the minimum
number of votes that would be necessary to authorize the taking of such action
at a meeting of members.
Holdings' Certificate of Incorporation and Bylaws provide that any action
required or permitted to be taken by the stockholders of the corporation must
be effected at a duly called annual or special meeting of such stockholders;
no action by the stockholders may be taken by written consent in lieu of a
meeting.
Liquidity
There is no trading market for the ADCS Holdings Membership Interests.
Holdings Common Stock has been approved for listing on Nasdaq upon notice of
issuance. However, Holdings Common Stock received by the ADCS Holders may be
subject to certain securities laws restrictions as described in "THE
REORGANIZATION--Resale of Holdings Common Stock by Affiliates."
Transferability
The transferability of ADCS Holdings Membership Interests is restricted by
the terms of a members and shareholders agreement entered into by the holders
of the ADCS Manager Common Stock.
The Holdings Common Stock will be freely transferable (subject only to
securities laws restrictions as described in "THE REORGANIZATION--Resale of
Holdings Common Stock by Affiliates").
Compromise or Arrangement
The ADCS Holdings LLC Agreement does not specifically provide for any forced
compromise or arrangement.
155
<PAGE>
Holdings' Certificate of Incorporation provides that whenever a compromise
or arrangement is proposed between the corporation and its creditors, its
stockholders or any class thereof, any court of equitable jurisdiction within
the State of Delaware may order a meeting of such creditors, stockholders or
class thereof. If a majority in number representing at least three-fourths in
value of the creditors, stockholders or class thereof agree to any compromise
or arrangement and to any reorganization of the corporation, such compromise
or arrangement and such reorganization shall, if sanctioned by the court to
which the application in respect thereto has been made, be binding on all the
creditors, stockholders or class thereof, as applicable.
Reporting Requirements
ADCS Holdings is not subject to the periodic reporting requirements of the
Exchange Act.
Holdings will be subject to the periodic reporting requirements of the
Exchange Act.
Takeover Statutes
ADCS Holdings, as a Delaware limited liability company, is not subject to
limitations imposed by the DLLCA, or by the ADCS Holdings LLC Agreement, on
business combinations between itself and its members.
Upon the consummation of the Reorganization, Holdings will be subject to
Section 203 of the DGCL. Subject to certain exceptions, this section prohibits
certain publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date of the transaction in which the person or entity became an
interested stockholder, unless the business combination is approved in a
prescribed manner or certain other exemptions apply. For purposes of Section
203, "business combination" is defined broadly to include reorganizations,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is any person
or entity who, together with affiliates and associates, owns (or within the
three immediately preceding years did own) 15% or more of the corporation's
voting stock.
COMPARISON OF HOLDINGS COMMON STOCK AND LSL COMMON STOCK
LSL is incorporated in Arizona, and the rights of holders of shares of LSL
Common Stock are currently governed by the ABCA and the LSL Articles of
Incorporation and Bylaws. Upon consummation of the Lawrence Acquisition and
assuming consummation of the Reorganization, holders of shares of LSL Common
Stock would become holders of shares of Holdings Common Stock and, as such,
their rights would be governed by the DGCL and the Holdings Certificate of
Incorporation and Bylaws. The following is a summary of material differences
between the rights of holders of LSL Common Stock as compared to the rights of
holders of Holdings Common Stock. The summary is qualified in its entirety by
reference to the DGCL, the ABCA and the full text of the respective governing
instruments of LSL and Holdings. The terms of Holdings Common Stock are
described in greater detail in "DESCRIPTION OF CAPITAL STOCK OF HOLDINGS." A
single individual owns a majority of the LSL Common Stock, and, therefore, LSL
may be deemed effectively controlled by such majority stockholder. This
effective control must be considered in evaluating the rights (especially
rights based on percentage interests) of holders of LSL Common Stock.
Authorized Capital
LSL's Articles of Incorporation provide that LSL has authority to issue
100,000 shares of LSL Common Stock, of which 10,000 were issued and
outstanding as of the Record Date.
Holdings' Certificate of Incorporation provides that Holdings has authority
to issue 30,000,000 shares of Holdings Common Stock, of which 100 shares were
issued and outstanding as of the Record Date.
156
<PAGE>
Issuance of Senior Securities
LSL's Articles of Incorporation do not specifically provide for the issuance
of preferred stock.
Holdings' Certificate of Incorporation provides for the potential issuance
of up to 2,000,000 shares of preferred stock with rights, preferences and
designations to be determined by the Board of Directors of Holdings. The
preferred stock would be senior to Holdings Common Stock.
Distributions
LSL has never paid cash dividends on its capital stock and currently intends
to retain all of its earnings for use in its business to finance future growth
and accordingly, does not anticipate paying cash dividends in the foreseeable
future.
After the consummation of the Reorganization and the Lawrence Acquisition,
Holdings is expected to retain all cash from operations and does not expect to
pay dividends on Holdings Common Stock.
Board of Directors
LSL's Bylaws provide that the number of directors which shall constitute the
whole board shall be not less than one nor more than seven. The LSL Bylaws
provide for the election of directors at the annual meeting of shareholders.
Each director elected shall hold office until the expiration of the term for
which the director was elected and until a successor has been elected. In the
case of vacancies and newly created directorships resulting from an increase
in the authorized number of directors, the affirmative vote of the majority of
the remaining directors then in office, or the sole director, shall fill in
the vacancy.
Holdings' Certificate of Incorporation and Bylaws provide for the Board of
Directors of Holdings to be divided into three classes of directors: Class I,
Class II and Class III, as nearly equal in number as is reasonably possible.
Other than the initial directors in Class I and Class II who will serve for
one-year terms and two-year terms, respectively, each director is elected for
a three-year term, with one class of directors being elected at each annual
meeting of stockholders. Holdings' Bylaws provide that the number of directors
shall be determined by a majority of the directors then in office; provided
however, that the number of directors shall not be less than two nor more than
fifteen. In the event of any increase or decrease in the authorized number of
directors, directorships will be apportioned among the classes by the Board of
Directors to ensure that no one class has more than one director more than any
other class, to the extent possible.
Removal of Directors
Under the ABCA, directors may be removed with or without cause by the
shareholders of the corporation and may also be removed by judicial proceeding
commenced either by the corporation or by shareholders holding at least 10% of
the outstanding shares of the corporation upon a court determination of
fraudulent conduct or intentional criminal conduct with respect to the
corporation and that removal is in the best interest of the corporation.
Under the DGCL, because the Board of Directors of Holdings is divided into
three classes of directors and Holdings' Certificate of Incorporation does not
otherwise provide, directors may only be removed for cause.
Liability of Management
LSL's Articles of Incorporation provide that its existing and former
directors, officers, employees and agents shall be indemnified by the
corporation against all expenses incurred by them which may arise in any legal
action brought or threatened against them on account of any action or omission
alleged to have been committed while acting within the scope of their duty to
LSL, provided, however, that LSL may refuse indemnification in the case where
the individual seeking indemnification (i) acted with gross negligence or with
fraudulent and criminal
157
<PAGE>
intent or (ii) unreasonably refused to permit LSL to defend him or her. LSL's
Articles of Incorporation also provide that no LSL director shall be
personally liable to LSL or its shareholders for monetary damages resulting
from a breach of fiduciary duty except for (i) a breach of director's duty of
loyalty, (ii) acts or omissions not in good faith, or which involve
intentional misconduct or a knowing violation of the law, (iii) the
authorization of the unlawful payment of a dividend or other distribution,
(iv) transactions from which the director derived a personal benefit, and (v)
the violation of Section 10-860 of the ABCA (Director's Conflicting Interest
Transactions).
Holdings' Certificate of Incorporation provides that, to the fullest extent
permitted by the DGCL, directors shall be indemnified by the corporation and
shall not be liable to the corporation or its stockholders for breach of
fiduciary duty as a director. Holdings' Bylaws provide that each person who is
or was an officer, director, employee or agent of the corporation, or is or
was serving at the request of Holdings as an officer, director, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified to the fullest extent permitted by the DGCL.
Amendment of Bylaws
LSL's Bylaws may be amended by the affirmative vote of a majority of the
outstanding shares entitled to vote or by the Board of Directors.
Holdings' Bylaws may be amended by the Board of Directors or stockholders
holding 70% of the voting shares of capital stock.
Special Meetings of Stockholders
LSL's Bylaws provide that a special meeting of stockholders for any purpose
or purposes may be called by the President and shall be called by the
President or Secretary at the written request of stockholders owning not less
than 10% of all shares issued and outstanding and entitled to vote at the
meeting.
Holdings' Certificate of Incorporation and Bylaws provide that a special
meeting of stockholders may be called by the Chairman of the Board of
Directors (or, if none is designated, the President) and shall be called by
the President or Secretary at the request in writing of a majority of the
Board of Directors of Holdings.
Stockholder Nominations and Proposals
LSL's Bylaws do not contain any provisions with respect to procedures which
must be complied with in order for shareholders to nominate directors or to
propose action at shareholders' meetings.
Holdings' Bylaws contain provisions permitting stockholders to nominate
directors and to propose action at a stockholders' meeting, only upon properly
given prior written notice to the Secretary of Holdings.
Action by Written Consent of Stockholders
Any action which may be taken at a meeting of shareholders of LSL may be
taken without a meeting and without prior notice if a consent in writing
setting forth the actions so taken is signed by the holders of all of the
outstanding shares entitled to vote with respect to the subject matter of the
action.
Holdings' Certificate of Incorporation and Bylaws provide that any action
required or permitted to be taken by the stockholders of the corporation must
be effected at a duly called annual or special meeting of such stockholders;
no action by the stockholders may be taken by written consent in lieu of a
meeting.
Liquidity
There is no trading market for LSL Common Stock.
158
<PAGE>
Holdings Common Stock has been approved for listing on Nasdaq upon notice of
issuance. However, shares of Holdings Common Stock received by the LSL
Stockholders will be subject to certain securities laws restrictions as
described in "THE LAWRENCE ACQUISITION--Resale of Lawrence Acquisition
Shares."
Transferability
There is no restriction on the transferability of LSL Common Stock, except
as may be imposed by applicable securities laws.
The shares of Holdings Common Stock received by the LSL Stockholders will be
subject to certain securities laws restrictions as described in "THE LAWRENCE
ACQUISITION--Resale of Lawrence Acquisition Shares."
Compromise or Arrangement
LSL's Articles of Incorporation and Bylaws do not specifically provide for
any forced compromise or arrangement.
Holdings' Certificate of Incorporation provides that whenever a compromise
or arrangement is proposed between the corporation and its creditors, its
stockholders or any class thereof, any court of equitable jurisdiction within
the State of Delaware may order a meeting of such creditors, stockholders or
class thereof. If a majority in number representing at least three-fourths in
value of the creditors, stockholders or class thereof agree to any compromise
or arrangement and to any reorganization of the corporation, such compromise
or arrangement and such reorganization shall, if sanctioned by the court to
which the application in respect thereto has been made, be binding on all the
creditors, stockholders or class thereof, as applicable.
Reporting Requirements
LSL is not subject to the periodic reporting requirements of the Exchange
Act.
Holdings will be subject to the periodic reporting requirements of the
Exchange Act.
Takeover Statutes
LSL, as a private corporation, is not subject to the business combinations
provisions of the ABCA which limit business transactions between a public
corporation and an interested shareholder.
Upon the consummation of the Reorganization, Holdings will be subject to
Section 203 of the DGCL. Subject to certain exceptions, this section prohibits
certain publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date of the transaction in which the person or entity became an
interested stockholder, unless the business combination is approved in a
prescribed manner or certain other exemptions apply. For purposes of Section
203, "business combination" is defined broadly to include reorganizations,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is any person
or entity who, together with affiliates and associates, owns (or within the
three immediately preceding years did own) 15% or more of the corporation's
voting stock.
COMPARISON OF COMPANY COMMON STOCK
AND LSL COMMON STOCK
Upon consummation of the Lawrence Acquisition and assuming the
Reorganization is not consummated, holders of shares of LSL Common Stock would
become holders of shares of Company Common Stock and, as such, their rights
would be governed by the DGCL and the Company's Restated Certificate of
Incorporation, as
159
<PAGE>
amended, and Restated Bylaws. The following is a summary of material
differences between the rights of holders of LSL Common Stock as compared to
the rights of holders of Company Common Stock. The summary is qualified in its
entirety by reference to the DGCL, the ABCA and the full text of the
respective governing instruments of LSL and the Company. The terms of Company
Common Stock are described in greater detail in "DESCRIPTION OF CAPITAL STOCK
OF THE COMPANY." A single individual owns a majority of the LSL Common Stock,
and, therefore, LSL may be deemed effectively controlled by such majority
stockholder. This effective control must be considered in evaluating the
rights (especially rights based on percentage interests) of holders of LSL
Common Stock.
Authorized Capital
LSL's Articles of Incorporation provide that LSL has authority to issue
100,000 shares of LSL Common Stock, of which 10,000 were issued and
outstanding as of the Record Date.
The Company's Restated Certificate of Incorporation, as amended, provides
that the Company has authority to issue 15,000,000 shares of Company Common
Stock, of which 8,816,455 shares were issued and outstanding as of the Record
Date.
Issuance of Senior Securities
The LSL Articles of Incorporation do not specifically provide for the
issuance of preferred stock.
The Company's Restated Certificate of Incorporation, as amended, provides
for the potential issuance of up to 1,000,000 shares of preferred stock with
rights, preferences and designations to be determined by the Board of
Directors of the Company. The preferred stock would be senior to Company
Common Stock.
Distributions
LSL has never paid cash dividends on its capital stock and currently intends
to retain all of its earnings for use in its business to finance future growth
and, accordingly, does not anticipate paying cash dividends in the foreseeable
future.
Since its formation, the Company has never paid dividends on its capital
stock and does not anticipate the payment of dividends in the foreseeable
future.
Board of Directors
LSL's Bylaws provide that the number of directors which shall constitute the
whole board shall be not less than one nor more than seven. The LSL Bylaws
provide for the election of directors at the annual meeting of shareholders.
Each director elected shall hold office until the expiration of the term for
which the director was elected and until a successor has been elected. In the
case of vacancies and newly created directorships resulting from an increase
in the authorized number of directors, the affirmative vote of the majority of
the remaining directors then in office, or the sole director, shall fill in
the vacancy.
The Company's Restated Bylaws provide that the number of directors which
shall constitute the whole board shall be not less than two nor more than
fifteen. The directors are elected at the annual meeting of stockholders, and
each director elected shall hold office until a successor is elected and
qualified. The Company's Restated Certificate of Incorporation, as amended,
and Restated Bylaws provide that vacancies on the Company Board of Directors
may be filled by a vote of a majority of the Company Board of Directors then
in office. Also, the Restated Bylaws provide that any increase or decrease in
the number of directors requires the approval of a majority of the directors
then in office.
Removal of Directors
Under the ABCA, directors may be removed with or without cause by the
shareholders of the corporation and may also be removed by judicial proceeding
commenced either by the corporation or by shareholders holding
160
<PAGE>
at least 10% of the outstanding shares of the corporation upon a court
determination of fraudulent conduct or intentional criminal conduct with
respect to the corporation and that removal is in the best interest of the
corporation.
The Company's Restated Bylaws provide that any director may be removed at
any time, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
Liability of Management
LSL's Articles of Incorporation provide that its existing and former
directors, officers, employees and agents shall be indemnified by the
corporation against all expenses incurred by them which may arise in any legal
action brought or threatened against them on account of any action or omission
alleged to have been committed while acting within the scope of their duty to
LSL, provided, however, that LSL may refuse indemnification in the case where
the individual seeking indemnification (i) acted with gross negligence or with
fraudulent and criminal intent or (ii) unreasonably refused to permit LSL to
defend him or her. LSL's Articles of Incorporation also provide that no LSL
director shall be personally liable to LSL or its shareholders for monetary
damages resulting from a breach of fiduciary duty except for (i) a breach of
director's duty of loyalty, (ii) acts or omissions not in good faith, or which
involve intentional misconduct or a knowing violation of the law, (iii) the
authorization of the unlawful payment of a dividend or other distribution,
(iv) transactions from which the director derived a personal benefit, and (v)
the violation of Section 10-860 of the ABCA (Director's Conflicting Interest
Transactions).
The Company's Restated Certificate of Incorporation, as amended, provides
that, to the fullest extent permitted by the DGCL, directors shall be
indemnified by the corporation and shall not be liable to the corporation or
its stockholders for breach of fiduciary duty as a director. The Company's
Restated Bylaws provide that each person who is or was an officer, director,
employee or agent of the corporation, or is or was serving at the request of
the Company as an officer, director, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified to
the fullest extent permitted by the DGCL.
Amendment of Bylaws
LSL's Bylaws may be amended by the affirmative vote of a majority of the
outstanding shares entitled to vote or by the Board of Directors.
The Company's Restated Bylaws may be amended by the affirmative vote of a
majority of the outstanding shares entitled to vote or by the Board of
Directors.
Special Meetings of Stockholders
LSL's Bylaws provide that a special meeting of stockholders for any purpose
or purposes may be called by the President and shall be called by the
President or Secretary at the written request of stockholders owning not less
than 10% of all shares issued and outstanding and entitled to vote at the
meeting.
The Company's Restated Certificate of Incorporation, as amended, and
Restated Bylaws provide that a special meeting of stockholders may be called
by the Chairman of the Board of Directors (or, if none is designated, the
President) and shall be called by the President or Secretary at the request in
writing of a majority of the Company Board of Directors.
Stockholder Nominations and Proposals
LSL's Bylaws do not contain any provisions with respect to procedures which
must be complied with in order for stockholders to nominate directors or to
propose action at stockholders' meetings.
161
<PAGE>
The Company's Restated Bylaws do not contain any provisions with respect to
procedures which must be complied with in order for stockholders to nominate
directors or to propose action at stockholders' meetings.
Action by Written Consent of Stockholders
Any action which may be taken at a meeting of shareholders of LSL may be
taken without a meeting and without prior notice if a consent in writing
setting forth the actions so taken is signed by the holders of all of the
outstanding shares entitled to vote with respect to the subject matter of the
action.
The Company's Restated Certificate of Incorporation, as amended, and
Restated Bylaws provide that any action required or permitted to be taken by
the stockholders of the Company may be taken only at a duly called annual or
special meeting of the stockholders and may not be taken by written consent.
Liquidity
There is no trading market for LSL Common Stock.
Company Common Stock is listed on Nasdaq. However, shares of Company Common
Stock received by the LSL Stockholders will be subject to certain securities
laws restrictions as described in "THE LAWRENCE ACQUISITION--Resale of
Lawrence Acquisition Shares."
Transferability
There is no restriction on the transferability of LSL Common Stock, except
as may be imposed by applicable securities laws.
The shares of Company Common Stock received by the LSL Stockholders will be
subject to certain securities laws restrictions on transfer as described in
"THE LAWRENCE ACQUISITION--Resale of Lawrence Acquisition Shares."
Compromise or Arrangement
LSL's Articles of Incorporation and Bylaws do not specifically provide for
any forced compromise or arrangement.
The Company's Restated Certificate of Incorporation, as amended, and
Restated Bylaws provide that whenever a compromise or arrangement is proposed
between the corporation and its creditors, its stockholders or any class
thereof, any court of equitable jurisdiction within the State of Delaware may
order a meeting of such creditors, stockholders or class thereof. If a
majority in number representing at least three-fourths in value of the
creditors, stockholders or class thereof agree to any compromise or
arrangement and to any reorganization of the corporation, such compromise or
arrangement and such reorganization shall, if sanctioned by the court to which
the application in respect thereto has been made, be binding on all the
creditors, stockholders or class thereof, as applicable.
Reporting Requirements
LSL is not subject to the periodic reporting requirements of the Exchange
Act.
The Company is subject to the periodic reporting requirements of the
Exchange Act.
Takeover Statutes
LSL, as a private corporation, is not subject to the business combinations
provisions of the ABCA which limit business transactions between a public
corporation and an interested shareholder.
162
<PAGE>
The Company is subject to Section 203 of the DGCL. Subject to certain
exceptions, this section prohibits certain publicly held Delaware corporations
from engaging in a "business combination" with an "interested stockholder" for
a period of three years following the date of the transaction in which the
person or entity became an interested stockholder, unless the business
combination is approved in a prescribed manner or certain other exemptions
apply. For purposes of Section 203, "business combination" is defined broadly
to include reorganizations, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is any person or entity who, together with affiliates and
associates, owns (or within the three immediately preceding years did own) 15%
or more of the corporation's voting stock.
163
<PAGE>
OPERATIONS AND MANAGEMENT
AFTER THE TRANSACTIONS
OPERATIONS
Upon the consummation of the Reorganization, the Company and the entities
comprising the ADCS Group will be wholly-owned direct or indirect subsidiaries
of Holdings. The NovaMOS division of the Company and the ADCS Group will be
operated together as a single division. The ADCS Group will be the
parent/umbrella organization for all of Holdings' ADCS Group companies, the
NovaMOS division (other than its NovaSource business) and such other companies
and capabilities as may hereafter be acquired, as the chief executive officers
of the ADCS Group and the ATMI Group together may decide. The ADCS Group,
NovaMOS and any such hereafter acquired companies or capabilities will become
subsidiaries or divisions of the ADCS Group and will form a part of the "New
ADCS." After consummation of the Reorganization, a five member advisory board
will be responsible for the management of the operations of the New ADCS.
Management of the Company will have the right to appoint three members of the
advisory board, and management of the ADCS Group will have the right to
appoint two members. Pursuant to the Merger and Exchange Agreement, the
chairman of the advisory board will be Stephen H. Siegele.
Mr. Stephen H. Siegele will also be appointed to the position of President
of New ADCS, in which role he will report directly to Dr. Eugene Banucci and
assume overall general management responsibilities for New ADCS. Dr. Dennis
Brestovansky, presently general manager of the NovaMOS division of the
Company, will report directly to Mr. Siegele and act as chief operating
officer for New ADCS. In this position, Dr. Brestovansky will have
responsibility for all manufacturing operations of New ADCS, which will be
combined within the Burnet, Texas facility, and the research and development
activities of New ADCS, which will be combined within the Company's Danbury,
Connecticut facility. Sales and marketing activities will be consolidated
primarily within the Austin, Texas headquarters of the ADCS Group.
Upon consummation of the Lawrence Acquisition, LSL will become a wholly-
owned subsidiary of Holdings if the Reorganization is consummated or of the
Company if the Reorganization is not consummated and will be integrated with
the Company's Epitronics division. The division will be headquartered within
the Mesa, Arizona facility of Lawrence, and Dr. Duncan Brown, the President of
Epitronics, will continue to serve as President of the division. The key
executives of Lawrence will report directly to Dr. Brown including Mr. Tom
Thompson, chief technical officer, Ms. Barbara Freund, chief financial
officer, and Mr. Gerald McReynolds, chief operating officer. Mr. Lamonte
Lawrence will act as chairman of an advisory board for the division, which
will also include Dr. Brown, Dr. Banucci and Mr. Daniel Sharkey.
MANAGEMENT
After the consummation of the Transactions, Holdings will be managed by a
board of directors consisting of seven members, of which five directors will
be Eugene G. Banucci, Ph.D., Mark A. Adley, John A. Armstrong, Ph.D., Robert
S. Hillas and Stephen H. Mahle, each of whom is a current director of the
Company. Pursuant to the Merger and Exchange Agreement, on the day after the
Closing Date, the Board of Directors of Holdings shall appoint Stephen H.
Siegele to fill one of the vacancies on the Board of Directors of Holdings.
Pursuant to the Lawrence Merger Agreement, on the day after the Lawrence
Closing Date, the Board of Directors shall appoint Lamonte H. Lawrence to fill
one of the vacancies on the Board of Directors of Holdings. Holdings'
Certificate of Incorporation and Bylaws provide for the board of directors to
be divided into three classes, with each class serving for a period of three
years. The first class, consisting of John A. Armstrong, Ph.D. and Robert S.
Hillas, will be elected for a term which expires in 1998. The second class,
consisting of Eugene G. Banucci, Ph.D., Mark A. Adley and Lamonte H. Lawrence,
will be elected for a term which expires in 1999. The third class, consisting
of Stephen H. Mahle and Stephen H. Siegele, will be elected for a term which
expires in 2000. The Audit Committee of the Board of Directors of Holdings
will consist of Mark A. Adley and Robert S. Hillas, and the Compensation
Committee will consist of John A. Armstrong and Stephen H. Mahle. The
executive officers of Holdings will be Eugene G. Banucci--President, Daniel P.
Sharkey--Treasurer and Secretary and Peter S. Kirlin--Vice President.
164
<PAGE>
If the Lawrence Acquisition is consummated without the Reorganization and
assuming their reelection by the stockholders of the Company, the Company will
be managed by a board of directors consisting of six members, of which five
directors will be Eugene G. Banucci, Ph.D., Mark A. Adley, John A. Armstrong,
Ph.D., Robert S. Hillas and Stephen H. Mahle, each of whom is a current
director of the Company. Pursuant to the Lawrence Merger Agreement, on the day
after the Closing Date, the Company Board of Directors shall appoint Lamonte
H. Lawrence to fill a vacancy of the Board of Directors of the Company. The
Audit Committee of the Board of Directors of the Company will consist of Mr.
Adley and Mr. Hillas, and the Compensation Committee will consist of Mr.
Armstrong and Mr. Mahle. The executive officers of the Company will be Eugene
G. Banucci-President, Chief Executive Officer and Chairman of the Board, Peter
S. Kirlin-Executive Vice President, Daniel P. Sharkey-Vice President, Chief
Financial Officer and Treasurer, Duncan W. Brown-Vice President, Ward C.
Stevens-Vice President-Administration and Nicholas J. Wood-Vice President-
Marketing.
165
<PAGE>
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
(PROPOSAL 4)
INCREASE IN AUTHORIZED SHARES OF COMPANY COMMON STOCK
The Company Board of Directors has unanimously approved and recommended that
the stockholders of the Company consider and approve an amendment to Article
IV of the Company's Restated Certificate of Incorporation, as amended (the
"Certificate"), that would increase the number of authorized shares of Company
Common Stock from 15,000,000 shares to 16,000,000 shares (the "Amendment").
The affirmative vote of a majority of shares of Company Common Stock
outstanding as of the Record Date is required to approve and adopt the
Amendment. Accordingly, abstentions and broker non-votes with respect to the
Amendment will have the effect of votes against the Amendment. If the
Reorganization is consummated, the Amendment will not become effective even if
approved by the stockholders of the Company.
The Company Board of Directors believes that it is in the best interests of
the Company and its stockholders to amend the Certificate to give effect to
the proposed Amendment if the Reorganization is not consummated to accommodate
the 1997 Stock Plan (if approved by the stockholders of the Company) and for
other corporate purposes. If the Amendment is approved, the additional
authorized shares of Company Common Stock will be available for issuance from
time to time for such purposes and consideration as the Company Board of
Directors may approve, and no further vote of the stockholders of the Company
will be sought unless such vote is required for a particular issuance by law
or the rules of any national securities exchange on which Company Common Stock
may then be listed or Nasdaq, as the case may be. The proposed increase in the
number of authorized shares of Company Common Stock has been recommended by
the Company Board of Directors to assure that an adequate supply of authorized
but unissued shares is available for the 1997 Stock Plan and certain potential
offerings, acquisitions and financings and for general corporate needs if the
Reorganization is not consummated. The Company Board of Directors considers
the proposed increase in the number of authorized shares desirable because it
will enable the Company to pursue opportunities which the Company Board of
Directors believes provide the Company with the potential for growth and
profit. It will give the Company Board of Directors the necessary flexibility
to issue shares of Company Common Stock in connection with stock dividends and
stock splits, acquisitions, financings, stock options and employee benefits,
and for other general corporate purposes without the expense and delay
incident to obtaining stockholder approval at the time of any such action.
Stockholders do not have preemptive rights to purchase additional shares of
Company Common Stock.
On the Record Date, there were 8,816,455 shares of Company Common Stock
issued and outstanding, and approximately 1,342,941 shares of Company Common
Stock were reserved for issuance upon exercise of outstanding options and
warrants.
If the Amendment is adopted, the amended portion of Article IV of the
Certificate, will provide as follows:
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of stock which the corporation has
authority to issue is SEVENTEEN Million (17,000,000), consisting of SIXTEEN
Million (16,000,000) shares of Common Stock, par value $0.01 per share (the
"Common Stock"), and One Million (1,000,000) shares of Preferred Stock with a
par value of $0.01 per share (the "Preferred Stock").
The only changes in Article IV which will be effected if the Amendment is
approved are the changes set forth in bold face type above. All other portions
of Article IV will remain unchanged.
POSSIBLE ANTI-TAKEOVER EFFECT
Although the Company Board of Directors has no present intention of issuing
additional shares for such purposes, the proposed increase in the number of
authorized shares of Company Common Stock could enable
166
<PAGE>
the Company Board of Directors to issue additional shares to render more
difficult or discourage an attempt by another person or entity to obtain
control of the Company. The issuance of additional shares of Company Common
Stock in a public or private sale, merger or similar transaction would
increase the number of outstanding shares and thereby could dilute the
proportionate interest of a party attempting to gain control of the Company.
In addition, the Company's Certificate provides the Company Board of Directors
with the authority to issue shares of the Company's preferred stock without
further stockholder approval and upon such terms and conditions, and having
such rights, privileges and preferences, as the Company Board of Directors may
determine, all of which could discourage or defeat a takeover attempt not
considered by the Company Board of Directors to be in the best interests of
the Company and its stockholders. The Company Board of Directors and
management have no knowledge of any current efforts to obtain control of the
Company, and the Amendment is not being proposed in response to any known
takeover attempt. See "DESCRIPTION OF CAPITAL STOCK OF THE COMPANY--Delaware
Law and Certain Charter and Bylaw Provisions."
THE COMPANY BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THE AMENDMENT IS
ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT.
167
<PAGE>
1997 STOCK PLAN
(PROPOSAL 5)
The Company Board of Directors has unanimously adopted and recommended that
the stockholders consider and approve the 1997 Stock Plan. To become
effective, the 1997 Stock Plan must be approved by the Company's stockholders.
Such approval at the Annual Meeting will require the affirmative vote of the
holders of a majority of the shares of Company Common Stock present in person
or represented by proxy and entitled to vote. Abstentions by holders of such
shares with respect to voting on the 1997 Stock Plan will have the effect of a
vote against the 1997 Stock Plan; broker non-votes with respect to voting on
the 1997 Stock Plan will have no effect on the outcome of the vote. If
approved, the 1997 Stock Plan will become effective only if the Reorganization
is not consummated and the Amendment is approved. If the Reorganization is
consummated, an identical plan of Holdings will become effective.
In June 1987, the Company adopted the 1987 Stock Plan, which was approved by
the Company's stockholders in July 1987 and which has been amended from time
to time (the "1987 Stock Plan"). As of the Record Date, 437,619 shares of
Company Common Stock had been issued pursuant to the exercise of options
granted under the 1987 Stock Plan, options to purchase an additional 645,191
shares were outstanding under the 1987 Stock Plan, and no shares were
available for future grants under the 1987 Stock Plan. In May, 1995, the
Company adopted the 1995 Stock Plan, which was approved by the Company's
stockholders in May 1995 (the "1995 Stock Plan"). As of the Record Date,
19,600 shares of Company Common Stock had been issued pursuant to the exercise
of options granted under the 1995 Stock Plan, options to purchase an
additional 495,500 shares were outstanding under the 1995 Stock Plan and
17,923 shares were available for future grants under the 1995 Stock Plan. To
assure that sufficient shares are available to provide stock-based incentives
to those employees, directors, officers and consultants of the Company and any
subsidiaries who will be responsible for the Company's future growth and
continued success, the Company Board of Directors has adopted the 1997 Stock
Plan. Following stockholder approval of the 1997 Stock Plan, or if stockholder
approval is not obtained, the Company may continue to grant awards under the
1995 Stock Plan in accordance with its terms.
THE COMPANY BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THE 1997 STOCK PLAN IS
ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE APPROVAL OF THE 1997 STOCK PLAN.
The following constitutes a brief discussion of the material features of the
1997 Stock Plan and is qualified in its entirety by reference to the 1997
Stock Plan, the full text of which is attached hereto as Appendix G and is
incorporated herein by reference. All stockholders of the Company, the ADCS
Holders and the LSL Stockholders are urged to read Appendix G in its entirety.
NATURE AND PURPOSE
The stated purpose of the 1997 Stock Plan is to secure for the Company and
any subsidiaries of the Company the benefits arising from capital stock
ownership and the receipt of capital stock-based incentives by those
employees, directors, officers and consultants of the Company and any
subsidiaries who will be responsible for the Company's future growth and
continued success.
The 1997 Stock Plan is designed to meet these objectives by granting stock
incentive awards to those persons whose performance or potential contribution
will benefit the Company. The 1997 Stock Plan empowers the Company to grant to
employees (including officers), directors and consultants of the Company and
its subsidiaries incentive and non-qualified stock options ("Options"), stock
appreciation rights ("SARs") and restricted stock awards ("Awards"). The 1997
Stock Plan also empowers the Company to grant to eligible individuals any
combination of any or all of these Options, SARs and Awards, subject to
certain limitations.
Persons to whom grants of Options, SARs and Awards are made are sometimes
referred to as "participants." References to "incentive stock options" are to
incentive stock options within the meaning of Section 422 of the Code.
168
<PAGE>
DURATION
The 1997 Stock Plan provides that it will terminate upon the earlier of (i)
the tenth anniversary of the date of approval of the 1997 Stock Plan by the
stockholders of the Company or (ii) the date on which all shares available for
issuance under the 1997 Stock Plan shall have been issued pursuant to Awards
and the exercise or cancellation of Options and SARs granted thereunder.
Options, SARs and Awards outstanding on the termination date of the 1997 Stock
Plan will continue to have full force and effect in accordance with the
provisions of the instruments evidencing the Options, SARs and Awards. The
Board of Directors may modify, amend, terminate or suspend the 1997 Stock Plan
from time to time or at any time without stockholder approval, including
amending the 1997 Stock Plan to increase the number of shares of Company
Common Stock subject to the 1997 Stock Plan. Any such modification, amendment,
termination or suspension of the 1997 Stock Plan will not impair the rights of
any person with respect to any Option, SAR or Award previously granted.
ADMINISTRATION
The 1997 Stock Plan may be administered by the Company Board of Directors,
or a Compensation Committee or other committee, appointed by the Company Board
of Directors and consisting of at least two directors, whose construction and
interpretation of the terms and provisions of the 1997 Stock Plan are final
and conclusive. The Company Board of Directors has delegated all of its powers
under the 1997 Stock Plan to the Company's Compensation Committee. Members of
the Compensation Committee serve at the discretion of the Company Board of
Directors. The Compensation Committee may in its sole discretion grant Options
and SARs, issue shares upon exercise of such Options and SARs, and grant
Awards, all as provided in the 1997 Stock Plan. The Compensation Committee has
the authority, subject to the express provisions of the 1997 Stock Plan, to
construe the 1997 Stock Plan and its related agreements, to prescribe, amend
and rescind the rules and regulations relating to the 1997 Stock Plan, to
determine the terms and provisions of the respective Option, SAR and Award
agreements, which need not be identical, and to make all other determinations
in the judgment of the Compensation Committee necessary or desirable for the
administration of the 1997 Stock Plan. The 1997 Stock Plan provides that if
Options, SARs and Awards are to be approved solely by a committee, the
committee members must be "outside directors" as that term is used in the
regulation related to Section 162(m) of the Code and "non-employee directors"
as that term is used in Rule 16b-3 under the Exchange Act.
SHARES SUBJECT TO THE 1997 STOCK PLAN
The stock to be offered under the 1997 Stock Plan consists of shares of
Company Common Stock. The last sale price for Company Common Stock on
September 8, 1997 as reported by Nasdaq was $31.00 per share. The maximum
number of shares of Company Common Stock in respect of which Options, SARs and
Awards may be granted pursuant to the provisions of the 1997 Stock Plan may
not exceed 900,000 (subject to adjustment for stock splits, stock dividends,
recapitalizations and the like). The shares may be either authorized and
unissued shares, treasury shares or shares purchased on the open market. If
the Company reacquires unvested shares issued pursuant to Awards under the
1997 Stock Plan, or if an Option or SAR expires or terminates without having
been exercised in full, the reacquired or unexercised shares will be available
for subsequent grant under the 1997 Stock Plan. Shares of Company Common Stock
issued pursuant to the 1997 Stock Plan may be subject to such restrictions on
transfer, repurchase rights or other restrictions as may be determined by the
Compensation Committee.
ELIGIBILITY
All employees (including officers) of the Company or any of its subsidiaries
are eligible to receive incentive stock options pursuant to the 1997 Stock
Plan. All employees (including officers), directors and consultants of the
Company or any of its subsidiaries are eligible to receive non-qualified
options, SARs, and Awards. As of the Record Date, approximately 233 persons
were eligible to participate in the 1997 Stock Plan.
The selection of participants in, and the nature and size of grants under,
the 1997 Stock Plan are wholly within the discretion of the Compensation
Committee. However, under the 1997 Stock Plan, the maximum
169
<PAGE>
number of shares with respect to which Options or SARs may be granted to any
employee shall be limited to 112,500 shares of Company Common Stock in any
calendar year. The Compensation Committee's designation of a participant in
any year does not require the Compensation Committee to designate such person
to receive a grant in any other year. With respect to the 1997 Stock Plan, the
Compensation Committee has made no determination regarding the selection of
particular participants to receive grants or the nature of any grants to be
made, and it is not determinable what, if any, grants the Compensation
Committee may have made under the 1997 Stock Plan had it been in effect in
1996. Except for options to purchase 22,500 shares of Company Common Stock at
an exercise price of $10.50 per share granted in 1996 to Steven M. Mahle, a
director of the Company, no grants to officers or directors were made under
the 1987 Stock Plan and the 1995 Stock Plan in 1996. However, the table below
shows the number of Options granted under the 1995 Stock Plan to such persons
or groups listed in such table during 1997 to date.
<TABLE>
<CAPTION>
NUMBERS OF OPTIONS
NAME AND POSITION GRANTED IN 1997(1)
----------------- ------------------
<S> <C>
Eugene G. Banucci, President Chief Executive Officer,
Chairman of the Board and Director........................ 25,000
Peter S. Kirlin, Executive Vice President.................. 20,000
Daniel P. Sharkey, Vice President, Chief Financial Officer
and Treasurer............................................. 15,000
Ward C. Stevens, Vice President and Secretary.............. 10,000
Nicholas J. Wood, Vice President--Marketing................ 15,000
All current executive officers as a group.................. 90,000
All current directors who are not executive officers, as a
group..................................................... 0
All current employees, including all current officers who
are not executive officers, as a group.................... 139,500
</TABLE>
- --------
(1) All such options were non-qualified options and become exercisable in 20%
increments on each of the five anniversary dates from the date of grant.
They were granted at exercise prices ranging from $16.88 to $24.75, the
fair market value on the dates of grant. They expire ten years from the
respective dates of grant.
OPTIONS AND SARS
Options
Options granted under the 1997 Stock Plan may be in the form of incentive
stock options or non-qualified stock options. Options may be granted under the
1997 Stock Plan on such terms and conditions not inconsistent with the
provisions of the 1997 Stock Plan and in such form as the Compensation
Committee may from time to time approve.
The Option exercise price per share of Company Common Stock purchasable
under an Option granted under the 1997 Stock Plan shall be determined by the
Compensation Committee at the time of grant. The exercise price of an
incentive stock option, however, shall not be less than the fair market value
of Company Common Stock on the date of grant or, in the case of an incentive
stock option to be granted to a participant owning stock having more than 10%
of the total combined voting power of all classes of stock of the Company or
any subsidiary, the exercise price per share shall be not less than 110% of
the fair market value of such stock on the date of grant. The exercise price
of a non-qualified stock option shall not be less than 50% of the fair market
value of Company Common Stock on the date of grant.
The term of each Option granted under the 1997 Stock Plan shall be fixed by
the Compensation Committee; however, the term of any Option may not exceed ten
years from the date of grant, except that the term of any incentive stock
option granted to a participant owning stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
subsidiary may not exceed five years.
An Option granted under the 1997 Stock Plan shall be exercisable at such
time or times and subject to such conditions as shall be determined by the
Compensation Committee at the date of grant and as set forth in the
170
<PAGE>
instrument evidencing the Option. With respect to incentive stock options, the
aggregate fair market value (determined as of the date of grant) of the number
of shares with respect to which such incentive stock options are exercisable
for the first time by a participant during any calendar year may not exceed
$100,000 or such other limit as may be established under Section 422 of the
Code.
An Option granted under the 1997 Stock Plan may be exercised as provided in
the instrument evidencing the option; however, no partial exercise of the
Option may be for less than ten shares. Payment of the exercise price may be
made with cash, with shares of Company Common Stock or with a combination of
cash and stock. The Compensation Committee may also permit participants to
simultaneously exercise options and sell the shares of Company Common Stock
thereby acquired, pursuant to a brokerage or similar arrangement, approved in
advance by the Compensation Committee, and to use the proceeds from such sale
as payment of the purchase price. The Compensation Committee may, in its
discretion, accelerate the date of exercise of any installments of any
Options, provided that no acceleration will be made that would violate the
annual vesting limitation contained in Section 422(d) of the Code with respect
to incentive stock options.
No shares of Company Common Stock will be issued under the 1997 Stock Plan
unless counsel for the Company is satisfied that such issuance will be in
compliance with applicable federal and state securities laws or any applicable
listing requirements of any national securities exchange on which Company
Common Stock is then listed. Any participant in the 1997 Stock Plan may be
required to represent and agree in writing that the stock acquired by the
participant is being acquired for investment.
Stock Appreciation Rights
Under the 1997 Stock Plan, an SAR may be granted in tandem with, in addition
to, or independent of any other grant. An SAR is the right to receive, without
payment, an amount equal to the excess, if any, of the fair market value of a
share of Company Common Stock on the date of exercise over the grant price of
such share, multiplied by the number of shares as to which the SARs shall have
been exercised. The Company will pay such amount to the holder in cash or in
shares of Company Common Stock or a combination thereof, as the Compensation
Committee may determine.
An SAR may be exercised by a participant in accordance with procedures
established by the Compensation Committee. The Compensation Committee may also
determine that an SAR shall be automatically exercised on one or more
specified dates.
Employment
An Option or SAR shall terminate if the participant ceases to be employed by
the Company or a subsidiary for any reason other than death, except that the
participant may (except as otherwise provided in the instrument evidencing the
Option or SAR) exercise within the three-month period following termination of
employment any unexpired portion of an Option or SAR that was otherwise
exercisable on the date of termination of employment. Except as otherwise
provided in the instrument evidencing the Option or SAR, if a participant dies
while an employee of the Company or a subsidiary, any Option or SAR granted to
such participant may be exercised by the participant's personal
representatives or heirs within six months of the participant's death to the
extent that the participant could have exercised the Option or SAR on the date
of his or her death.
Transferability
No Option or SAR granted under the 1997 Stock Plan, and no right or interest
therein, is assignable or transferable by a participant except by will or the
laws of descent and distribution or, with respect to non-qualified stock
options and SARs, to the extent the participant's agreement granting such non-
qualified stock option or SAR provides otherwise.
171
<PAGE>
AWARDS
The Compensation Committee may grant a participant an Award of shares of
Company Common Stock, on such terms and conditions and subject to such
restrictions as the Compensation Committee may determine. Such restrictions
may include restrictions on the pledging, sale, assignment, transfer or other
disposition of such shares and the requirement that the participant forfeit
all or a portion of such shares to the Company upon termination of employment.
Each participant receiving an Award may be required to enter into a stock
restriction agreement with the Company agreeing to such restrictions. Shares
issued pursuant to an Award are held by the participant as holder of record
for all purposes, including voting and receipt of dividends.
Transferability
Shares of Company Common Stock issued pursuant to an Award may not be sold,
assigned, transferred or otherwise disposed of, except, subject to the terms
of any stock restriction agreement, by will or the laws of descent and
distribution, and may not be pledged or hypothecated as collateral for a loan,
prior to the lapse of restrictions on such shares. Any attempt by the
participant to dispose of or encumber the shares issued pursuant to an Award
prior to the lapse of restrictions on such shares will cause the participant's
interest in such shares to terminate.
Employment
Except as otherwise provided in any stock restriction agreement, if prior to
the lapse of the restrictions on the stock the participant ceases to be an
employee of the Company or a subsidiary for any reason, all such shares which
remain subject to restrictions shall be forfeited to the Company.
CHANGE IN CONTROL
The 1997 Stock Plan provides that if (i) the Company is merged or
consolidated with another corporation and the Company is not the surviving
corporation, (ii) the property or stock of the Company is acquired by any
other corporation, or (iii) the Company is reorganized or liquidated, then the
Company Board of Directors, or the board of directors of any corporation
assuming the obligations of the Company, will, as to outstanding Options, SARs
and Awards, (1) make appropriate provision for the protection of any such
outstanding Options, SARs and Awards by the substitution on an equitable basis
of appropriate stock of the Company or of the merged, consolidated or
otherwise reorganized corporation which will be issuable or exercisable in
respect of the shares of Company Common Stock, (2) upon written notice to the
participants, provide that all unexercised Options and SARs must be exercised
within a specified number of days of the date of such notice or such Options
and SARs will be terminated, or (3) upon written notice to the participants,
provide that the Company or the merged, consolidated or otherwise reorganized
corporation shall have the right, upon the effective date of any such merger,
consolidation, sale of assets or reorganization, to purchase all Options, SARs
and Awards held by each participant and unexercised as of that date for an
amount and in the form determined pursuant to the 1997 Stock Plan.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code, and the existing regulations
thereunder, certain anticipated federal income tax consequences with respect
to the several types of grants are described below.
Grant of Options and SARs
A participant will not recognize any taxable income at the time an Option or
SAR is granted, and the Company will not be entitled to a federal income tax
deduction at that time.
Incentive Stock Options
No ordinary income will be recognized by a participant holding an incentive
stock option at the time of exercise. The excess of the fair market value of
the shares at the time of exercise over the aggregate option
172
<PAGE>
exercise price will be an adjustment to alternative minimum taxable income for
purposes of the federal "alternative minimum tax" at the date of exercise. If
the participant holds the shares for the greater of two years after the date
the option was granted or one year after the acquisition of such shares, the
difference between the amount realized upon disposition of the shares and the
aggregate option exercise price will constitute a long-term capital gain or
loss, as the case may be, and the Company will not be entitled to a federal
income tax deduction. If the shares are disposed of in a sale, exchange or
other "disqualifying disposition" (including the use of the shares to exercise
subsequent options) within two years after the date of grant or within one
year after the date of exercise, the participant will realize taxable ordinary
income in an amount equal to the excess of the fair market value of the shares
purchased at the time of exercise over the aggregate option exercise price,
and the Company will usually be entitled to a federal income tax deduction
equal to such amount. In addition, the participant will have a taxable capital
gain equal to the difference, if any, between: (i) the amount realized upon
disposition of the shares, and (ii) the sum of the aggregate option exercise
price plus the amount of ordinary income on which the participant was taxed.
Non-Qualified Stock Options
Taxable ordinary income will be recognized by the participant at the time of
exercise of a non-qualified stock option in an amount equal to the excess of
the fair market value of the shares purchased at the time of such exercise
over the aggregate option exercise price. The Company will usually be entitled
to a corresponding federal income tax deduction. At the time of a subsequent
sale of the shares, the participant will generally recognize a taxable capital
gain or loss based upon the difference between the aggregate selling price of
the shares and the aggregate fair market value of the shares at the time of
exercise.
Stock Appreciation Rights
Upon the exercise of an SAR, the participant will realize taxable ordinary
income on the amount of cash received and/or the then current fair market
value of the shares of Company Common Stock received, and the Company will
usually be entitled to a corresponding federal income tax deduction. The
participant's basis in any shares of Company Common Stock received will be
equal to the amount of ordinary income upon which the participant was taxed.
Upon any subsequent disposition, any gain or loss realized will be a capital
gain or loss.
In order for the full value of SARs to be deductible by the Company for
federal income tax purposes, the Company may intend for such SARs to be
treated as "qualified performance-based compensation," in which case, such
SARs granted shall be subject to additional requirements.
Awards
Unless a participant makes the election described below, a participant
receiving an Award will not recognize income, and the Company will not be
allowed a deduction, at the time of grant of such Award. While the
restrictions on the shares are in effect, a participant will recognize
compensation income equal to the amount of the dividends received, and the
Company will be allowed a deduction in a like amount. When the restrictions on
the shares are removed or lapse, the fair market value of the shares on the
date the restrictions are removed or lapse in excess of the amount, if any,
paid by the participant will be ordinary income to the participant and will be
allowed as a deduction for federal income tax purposes to the Company. Upon
disposition of the shares, the gain or loss recognized by the participant
shall be equal to the difference between the amount realized on such
disposition and the fair market value of the shares on the date the
restrictions were removed or lapsed. Such amount will be treated as capital
gain or loss, and the capital gain or loss will be short-term or long-term
depending upon the period of time the shares are held by the participant
following the removal or lapse of the restrictions. If the restrictions do not
lapse and the shares are forfeited by the participant and thus returned to the
Company, there will be no federal income tax consequences to either the
participant or the Company. If required by the Compensation Committee, no
participant shall make, in connection with a stock grant, the election
permitted under Section 83(b) of the Code. If permitted, by properly filing an
election pursuant to Section 83(b) of the Code with the IRS within 30 days
after the date of grant (assuming that the date of grant is the date the
173
<PAGE>
participant acquires a beneficial interest in the Award), a participant's
ordinary income and commencement of the holding period and the Company's
deduction will be determined as of the date of grant. In such a case, the
amount of ordinary income recognized by such a participant and deductible by
the Company will be equal to fair market value of the shares as of the date of
grant. If such election is made and a participant thereafter forfeits his or
her stock, no refund or deduction will be allowed for the amount previously
included in such participant's income. The 1997 Stock Plan permits the
Compensation Committee to restrict the ability of a participant to make the
Section 83(b) election.
Special Rules
To the extent a participant pays all or part of the option exercise price of
a non-qualified stock option by tendering shares of Company Common Stock owned
by the participant, the tax consequences described above apply except that the
number of shares received upon such exercise which is equal to the number of
shares surrendered in payment of the option exercise price shall have the same
tax basis and holding period as the shares surrendered. The additional shares
received upon such exercise shall have a tax basis equal to the amount of
ordinary income recognized on such exercise and a holding period which
commences on the date of exercise. To preserve the Company's deductions with
respect to the non-qualified options and SARs, the Compensation Committee may
be required to set the exercise or grant price for such non-qualified options
and SARs at the fair market value of a share of Company Common Stock on the
date of grant.
Withholding Taxes
Withholding taxes must be paid by the participant at the time of exercise of
any non-qualified stock option or SAR prior to the delivery of shares. In
respect of Awards and incentive stock options, withholding taxes must be paid
by the participant when income to the participant is recognized for tax
purposes.
Section 162(m)
Under Section 162(m) of the Code, the Company is not entitled to a federal
income tax deduction for compensation in excess of $1 million paid in any year
to its chief executive officer and its four other most highly compensated
executive officers, subject to certain exceptions. Compensation that qualifies
as "performance-based" under Section 162(m) is exempt from this limitation.
Options and SARs granted under the 1997 Stock Plan at an exercise price that
is not less than the fair market value of Company Common Stock on the date of
grant are designed to satisfy the requirements for the performance-based
exemption. However, Awards granted under the 1997 Stock Plan would not qualify
for the performance-based exemption under Section 162(m).
General
Because the tax consequences to a participant may vary depending upon the
participant's individual situation, and because such tax consequences are
subject to change due to changes in tax laws or regulations, each participant
should consult his or her personal tax advisor regarding the federal, and any
state, local or foreign, tax consequences to the participant.
174
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION
Holdings' Certificate of Incorporation provides that the personal liability
of the directors of Holdings shall be limited to the fullest extent permitted
by the provisions of Section 102(b)(7) of the DGCL. Section 102(b)(7) of the
DGCL generally provides that no director shall be liable personally to
Holdings or its stockholders for monetary damages for breach of fiduciary duty
as a director; however, the Certificate of Incorporation does not eliminate
the liability of a director for (i) any breach of the director's duty of
loyalty to Holdings or its stockholders; (ii) acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law;
(iii) acts or omissions in respect of certain unlawful dividend payments or
stock redemptions or repurchases; or (iv) any transaction from which such
director derives improper personal benefit. The effect of this provision is to
eliminate the rights of, Holdings and its stockholders (through stockholders'
derivative suits on behalf of Holdings) to recover monetary damages against a
director for breach of his or her fiduciary duty of care as a director
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i) through (iv) above. The
limitations summarized above, however, do not affect the ability of Holdings
and its stockholders to seek nonmonetary remedies, such as an injunction or
rescission, against a director for breach of his or her fiduciary duty.
In addition, the Certificate of Incorporation provides that Holdings shall,
to the fullest extent permitted by Section 145 of the DGCL, indemnify all
persons whom it may indemnify pursuant to Section 145 of the DGCL. Section 145
of the DGCL permits a company to indemnify an officer or director who was or
is a party or is threatened to be made a party to any proceeding because of
his or her position, if the officer or director acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of Holdings and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, or persons controlling Holdings pursuant to
the foregoing provisions, Holdings has been informed that in the opinion of
the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
The Company maintains insurance for officers and directors against certain
liabilities, including liabilities under the Securities Act. The effect of
this insurance is to indemnify any officer or director of the Company against
expenses, including, without limitation, attorneys' fees, judgments, fines and
amounts paid in settlement, incurred by an officer or director upon a
determination that such person acted in good faith. The premiums for such
insurance are paid by the Company. It is anticipated that Holdings will
maintain similar insurance.
LEGAL MATTERS
The validity of the shares of Holdings Common Stock to be issued to the
stockholders of the Company and to the ADCS Holders pursuant to the Merger and
Exchange Agreement if the Reorganization is consummated will be passed upon by
Shipman & Goodwin LLP, Hartford, Connecticut. As of the Record Date, 7,714
shares of Company Common Stock are beneficially owned by lawyers employed at
Shipman & Goodwin LLP.
EXPERTS
The consolidated financial statements of Advanced Technology Materials, Inc.
appearing in its Annual Report (Form 10-K) for the year ended December 31,
1996 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The combined financial statements of the ADCS Group at December 31, 1996 and
1995 and for each of the two years in the period ended December 31, 1996
included in this Proxy Statement/Prospectus, which is part of
175
<PAGE>
the Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The combined financial statements of Lawrence at December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996 included
in this Proxy Statement/Prospectus, which is part of the Registration
Statement, have been audited by Price Waterhouse LLP, independent accountants,
as set forth in their report appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
INDEPENDENT AUDITORS
The Company Board of Directors has selected Ernst & Young LLP as independent
auditors to audit the consolidated financial statements of the Company if the
Reorganization is not consummated for the fiscal year ending December 31,
1997. The Board of Directors of Holdings has selected Ernst & Young LLP to
audit the consolidated financial statements of Holdings if the Reorganization
is consummated for the fiscal year ending December 31, 1997. Representatives
of Ernst & Young LLP are expected to be present at the Annual Meeting, will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions from stockholders.
OTHER BUSINESS
The Company Board of Directors knows of no other business to be brought
before the Annual Meeting. If, however, any other business should properly
come before the Annual Meeting, the persons named in the accompanying proxy
will vote the proxy as in their discretion they may deem appropriate, unless
they are directed by the proxy to do otherwise.
STOCKHOLDER PROPOSALS FOR 1998
Any proposal intended to be presented by a stockholder at the 1998 Annual
Meeting of Stockholders of the Company or of Holdings if the Reorganization is
consummated must be presented to the Company or Holdings, as the case may be,
within a reasonable time prior to the solicitation related to the meeting.
Proposals should be addressed to Dean Hamilton, ATMI, 7 Commerce Drive,
Danbury, Connecticut 06810.
By order of the Board of Directors,
/s/ Ward C. Stevens
--------------------------
Ward C. Stevens
Secretary
Danbury, CT
September 10, 1997
176
<PAGE>
GLOSSARY
1997 STOCK PLAN. The Company's 1997 Stock Plan that will be voted on at the
Annual Meeting, and if approved, will reserve 900,000 shares of Company Common
Stock for grants of options, stock appreciation rights and restricted stock
awards.
ABCA. The Arizona Business Corporation Act, as amended.
ADCS GROUP. ADCS Nevada (including its predecessor in interest, ADCS
Illinois), ADCS Manager, ADCS Holdings, ADCS Operating and ADCS LP, together.
ADCS HOLDERS. The record and beneficial owners of ADCS Nevada Common Stock,
ADCS Manager Common Stock and ADCS Holdings Membership Interests.
ADCS HOLDINGS. Advanced Delivery & Chemical Systems Holdings, LLC, a
Delaware limited liability company.
ADCS HOLDINGS MEMBERSHIP INTERESTS. One percent of the membership interests
in ADCS Holdings held by the ADCS Holders.
ADCS ILLINOIS. Advanced Delivery & Chemical Systems, Inc. (later renamed
Advanced Delivery & Chemical Systems Illinois, Inc.), the Illinois corporation
formed in 1988 which was reorganized as the ADCS Group in 1996.
ADCS INTERESTS. All of the issued and outstanding shares of capital stock of
ADCS Nevada and ADCS Manager, and one percent of the membership interests in
ADCS Holdings.
ADCS-KOREA. ADCS-Korea Co., Ltd., an entity formed by the ADCS Group and
K.C. Tech. Co., Ltd. to manufacture, sell and distribute the ADCS Group's thin
film materials to the semiconductor and related industries in South Korea.
ADCS LP. Advanced Delivery & Chemical Systems, Ltd., a Texas limited
partnership.
ADCS MANAGER. Advanced Delivery & Chemical Systems Manager, Inc., a Delaware
corporation.
ADCS MANAGER COMMON STOCK. Common Stock of ADCS Manager, par value $1.00 per
share.
ADCS NEVADA. Advanced Delivery & Chemical Systems Nevada, Inc., a Nevada
corporation.
ADCS NEVADA COMMON STOCK. Common Stock of ADCS Nevada, par value $1.00 per
share.
ADCS OPERATING. Advanced Delivery & Chemical Systems Operating, LLC, a
Delaware limited liability company.
ADCS RESTRUCTURE. A series of transactions consummated by the ADCS Group
during 1996, intended to qualify it for tax-free treatment for federal income
tax purposes, in which each of the current members of the ADCS Group were
formed--two corporations, two limited liability companies and a limited
partnership.
ALEX. BROWN. Alex. Brown & Sons Incorporated, an investment banking firm
retained by the Company as financial advisor with respect to the
Reorganization.
AMENDMENT. The proposed amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase the number of authorized shares of
Company Common Stock from 15,000,000 shares to 16,000,000 shares which, even
if approved by the Company stockholders, will not become effective if the
Reorganization is consummated.
177
<PAGE>
ANNUAL MEETING. The annual meeting of stockholders of the Company, that will
be held at the Ethan Allen Inn, 21 Lake Avenue Extension, Danbury, Connecticut
06811, at 10:00 a.m., local time, on October 10, 1997 (together with all
adjournments and postponements thereof).
APPLIED MATERIALS. Applied Materials, Inc., a manufacturer of epitaxial
reactors.
ASM. Advanced Semiconductor Materials of America, Inc., a manufacturer of
epitaxial reactors.
ATMI GROUP. The Company, Holdings and Merger Subsidiary, together.
CLOSING. The consummation of the Reorganization.
CLOSING DATE. The date on which the Reorganization closes.
CODE. The Internal Revenue Code of 1986, as amended.
COMPANY. Advanced Technology Materials, Inc., a Delaware corporation.
COMPANY BOARD OF DIRECTORS. The board of directors of the Company.
COMPANY COMMON STOCK. Common Stock of the Company, par value $.01 per share.
CVD. Chemical vapor deposition, a process used to deposit thin films of very
pure materials. In CVD, a vapor containing the desired elements is introduced
into a reactor and by adding energy, the vapor releases the desired elements
and a thin film is deposited.
DGCL. The Delaware General Corporation Law, as amended.
DLLCA. The Delaware Limited Liability Company Act, as amended.
ECOSYS. ATMI EcoSys Corporation, a wholly-owned subsidiary of the Company,
which is engaged in the business of the manufacture, sale and service of
semiconductor environmental equipment.
EFFECTIVE TIME. The time that the Merger is consummated and a Certificate of
Merger is filed with the Secretary of State of the State of Delaware.
ESCROW AGREEMENT. The escrow agreement to be entered into by Holdings, the
ADCS Holders and State Street Bank and Trust Company, as escrow agent, on the
Closing Date.
EXCHANGE. The transaction, pursuant to the Merger and Exchange Agreement, in
which, simultaneous with the consummation of the Merger, the ADCS Holders will
transfer all of their ADCS Interests to Holdings in exchange for shares of
Holdings Common Stock.
EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
EXCHANGE AVERAGE CLOSING PRICE. The average closing price of Company Common
Stock as reported by Nasdaq for the twenty trading days ended five days prior
to the Annual Meeting; provided that if the Exchange Average Closing Price is
greater than $16.00 per share, the Exchange Average Closing Price shall be
deemed to be $16.00 per share, and provided that if the Exchange Average
Closing Price is less than $14.00 per share, the Exchange Average Closing
Price shall be deemed to be $14.00 per share.
EXCHANGE CONSIDERATION. As provided in the Merger and Exchange Agreement,
the number of shares of Holdings Common Stock to be exchanged for the ADCS
Interests.
GAAP. Generally accepted accounting principles.
178
<PAGE>
HAMBRECHT & QUIST. Hambrecht & Quist LLC, an investment banking firm
retained by the Company to render a fairness opinion with respect to the
Lawrence Acquisition.
HOLDINGS. ATMI Holdings, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company.
HOLDINGS COMMON STOCK. Common Stock of Holdings, par value $.01 per share.
INDEMNIFICATION AGREEMENT. The indemnification agreement to be entered into
by Holdings, the Company and the ADCS Holders on the Closing Date.
IRS. Internal Revenue Service.
K.C. TECH. K.C. Tech Co., Ltd., the holder of the 30% minority interest in
ADCS-Korea.
LAWRENCE. LSL and LSLMS, together.
LAWRENCE ACQUISITION. The transaction, pursuant to the Lawrence Merger
Agreement, in which Lawrence Merger Subsidiary will merge with and into LSL,
with LSL being the surviving corporation.
LAWRENCE ACQUISITION AVERAGE CLOSING PRICE. The average closing price of
Company Common Stock as reported by Nasdaq for the twenty trading days
preceding (and including) the third day prior to the date of the Annual
Meeting, provided that if the Lawrence Acquisition Average Closing Price is
greater than $21.00 per share, the Lawrence Acquisition Average Closing Price
shall be deemed to be $21.00 per share, and if the Lawrence Acquisition
Average Closing Price is less than $17.00 per share, the Lawrence Acquisition
Average Closing Price shall be deemed to be $17.00 per share.
LAWRENCE ACQUISITION CONSIDERATION. The aggregate number of shares of
Holdings Common Stock or Company Common Stock, as the case may be, to be
exchanged for the outstanding shares of LSL Common Stock.
LAWRENCE ACQUISITION SHARES. The shares of Company Common Stock or Holdings
Common Stock, as the case may be, to be issued to the LSL Stockholders in
connection with the Lawrence Acquisition.
LAWRENCE CLOSING. The consummation of the Lawrence Acquisition.
LAWRENCE CLOSING DATE. The third business day after the day on which all of
the closing conditions to the Lawrence Acquisition shall have been satisfied
or waived, or such other date as the parties shall otherwise agree.
LAWRENCE EFFECTIVE TIME. The time that the Lawrence Acquisition is
consummated and executed Articles of Merger and a Plan of Merger are filed
with the Arizona Corporation Commission and a Certificate of Merger is filed
with the Secretary of State of the State of Delaware.
LAWRENCE ESCROW AGREEMENT. The escrow agreement to be entered into by the
Company, LSL, Lawrence Merger Subsidiary, Holdings, Security Trust Company, as
escrow agent, and Lamonte H. Lawrence, as representative of the LSL
Stockholders.
LAWRENCE MERGER AGREEMENT. The Agreement and Plan of Merger, dated as of May
17, 1997, as amended by the First Amendment to Agreement and Plan of Merger,
dated as of June 6, 1997, and the Second Amendment to Agreement and Plan of
Merger, dated as of July 30, 1997, by and among the Company, Lawrence Merger
Subsidiary, Holdings, LSL and LSLMS.
LAWRENCE MERGER SUBSIDIARY. Welk Acquisition Corporation, a Delaware
corporation and currently a wholly-owned subsidiary of the Company.
179
<PAGE>
LAWRENCE NON-SOLICITATION PROVISION. Lawrence's agreement that it will not,
and will use its best efforts to cause each LSL Stockholder not to, solicit
any active discussions or negotiations with, or provide information to, any
person, other than the Company, concerning any proposal regarding the
acquisition of Lawrence or any part thereof or any merger or consolidation
thereof, or accept any such proposal.
LSI. Lawrence Semiconductor Investments, Inc., the sole shareholder of which
is Lamonte H. Lawrence.
LSL. Lawrence Semiconductor Laboratories, Inc., an Arizona corporation.
LSL COMMON STOCK. The shares of common stock of LSL.
LSL STOCKHOLDERS. Holders of LSL Common Stock.
LSLMS. Lawrence Semiconductor Laboratories Marketing and Sales, Inc., an
Arizona corporation.
LSRL. Lawrence Semiconductor Research Laboratories, Inc., the sole
shareholder of which is Lamonte H. Lawrence.
MERGER. The transaction, pursuant to the Merger and Exchange Agreement, in
which Merger Subsidiary will merge with and into the Company, with the Company
being the surviving corporation.
MERGER AND EXCHANGE AGREEMENT. The Agreement and Plan of Merger and
Exchange, dated as of April 7, 1997, by and among the Company, Holdings,
Merger Subsidiary, ADCS Nevada, ADCS Manager, ADCS Holdings, ADCS Operating
and ADCS LP.
MERGER SUBSIDIARY. Alamo Merger, Inc., a Delaware corporation and a wholly-
owned subsidiary of Holdings.
NASDAQ. The Nasdaq National Market, where Company Common Stock is quoted for
trading.
PRO RATA PORTION. Each ADCS Holder's relative pro rata ownership percentage
of the ADCS Interests taken as a whole entity.
RECORD DATE. September 10, 1997, the date fixed by the Company Board of
Directors for the determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting.
REGISTRATION STATEMENT. The Registration Statement, together with all
amendments and exhibits thereto, filed with the SEC on Form S-4 by Holdings
covering the shares of Holdings Common Stock to be issued in connection with
the Merger and the Exchange, as a result of which transactions the
stockholders of the Company and the ADCS Holders will become stockholders of
Holdings if the Reorganization is consummated.
REORGANIZATION. The Merger taken together with the Exchange.
REPRESENTATIVE. Lamonte H. Lawrence, as representative of the LSL
Stockholders in connection with the Lawrence Escrow Agreement.
SEC. The Securities and Exchange Commission.
SECURITIES ACT. The Securities Act of 1933, as amended.
TEOS. Tetraethylorthosilicate, a component of current semiconductor
technology.
TRANSACTIONS. The Reorganization and the Lawrence Acquisition, together.
180
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................... F-2
Unaudited Combined Financial Statements for the year ended December 31,
1994 and Audited Combined Financial Statements for the years ended
December 31, 1995 and 1996
Combined Balance Sheets................................................ F-3
Combined Statements of Operations...................................... F-4
Combined Statements of Stockholders' Equity............................ F-5
Combined Statements of Cash Flows...................................... F-6
Notes to Combined Financial Statements................................. F-7
Unaudited Combined Interim Financial Statements for the six months ended
June 30, 1996 and 1997
Combined Balance Sheet................................................. F-14
Combined Statements of Operations...................................... F-15
Combined Statements of Cash Flows...................................... F-16
Notes to Combined Interim Financial Statements (unaudited)............. F-17
</TABLE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
COMBINED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................ F-18
Audited Combined Financial Statements for the years ended December 31,
1994, 1995 and 1996
Combined Balance Sheets................................................ F-19
Combined Statements of Income and Retained Earnings.................... F-20
Combined Statements of Cash Flows...................................... F-21
Notes to Combined Financial Statements................................. F-22
Unaudited Combined Interim Financial Statements for the six months ended
June 30, 1996 and 1997
Combined Balance Sheet................................................. F-30
Combined Statements of Income and Retained Earnings.................... F-31
Combined Statements of Cash Flows...................................... F-32
Notes to Combined Interim Financial Statements (unaudited)............. F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Advanced Delivery & Chemical Systems and Affiliates
We have audited the accompanying combined balance sheets of Advanced
Delivery & Chemical Systems and Affiliates (the "ADCS Group") as of December
31, 1995 and 1996, and the related combined statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the ADCS Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the ADCS
Group at December 31, 1995 and 1996, and the combined results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements for 1994 were not audited by us, and,
accordingly, we do not express an opinion on them.
/s/ Ernst & Young LLP
Austin, Texas
May 9, 1997
F-2
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,564 $ 3,768
Accounts receivable, less allowance for doubtful accounts
of $0 and $28 at December 31, 1995 and 1996,
respectively.............................................. 2,410 2,690
Inventories................................................ 356 1,616
Prepaid expenses........................................... 228 43
Other current assets....................................... 52 32
------- -------
Total current assets......................................... 7,610 8,149
Property, plant and equipment, net........................... 2,499 4,185
Deferred tax asset........................................... 36 245
Other noncurrent assets...................................... 104 162
------- -------
Total assets................................................. $10,249 $12,741
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 796 $ 621
Income taxes payable....................................... 1,963 411
Accrued liabilities........................................ 7 17
Current portion of long-term debt.......................... 8 8
------- -------
Total current liabilities.................................... 2,774 1,057
Long-term debt............................................... 159 151
Other noncurrent liabilities................................. 5 21
Minority interest............................................ 535 545
------- -------
Total liabilities............................................ 3,473 1,774
Commitments and contingencies (Notes 7, 9, 10 and 12)
Stockholders' equity:
Common stock, 10,000 shares authorized; 605.8308 shares
issued and outstanding at December 31, 1995 and 1996...... 226 227
Cumulative translation adjustment.......................... (10) (55)
Retained earnings.......................................... 6,560 10,795
------- -------
Total stockholders' equity................................... 6,776 10,967
------- -------
Total liabilities and stockholders' equity................... $10,249 $12,741
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Sales:
Chemical................................... $ 6,610 $ 9,194 $ 11,834
Equipment.................................. 1,211 6,521 10,207
--------- --------- ---------
7,821 15,715 22,041
Cost of sales:
Chemical................................... 751 1,264 1,992
Equipment.................................. 1,055 3,596 4,575
--------- --------- ---------
1,806 4,860 6,567
Gross profit................................. 6,015 10,855 15,474
Selling and marketing expenses............... 1,895 2,425 1,542
General and administrative expenses.......... 644 2,982 4,823
Research and development expenses............ 566 1,491 2,212
--------- --------- ---------
Income from operations....................... 2,910 3,957 6,897
Other income (expense):
Interest income............................ 23 85 222
Interest expense........................... -- (31) (12)
Other income (expense)..................... -- (51) 18
Minority interest in net earnings of
consolidated subsidiaries................. 12 10 151
--------- --------- ---------
Income before income taxes................... 2,945 3,970 7,276
Income tax provision:
Current.................................... 970 1,425 1,458
Deferred................................... -- (36) (209)
--------- --------- ---------
970 1,389 1,249
--------- --------- ---------
Net income................................... $ 1,975 $ 2,581 $ 6,027
========= ========= =========
Net income per share (Notes 2, 7 and 12)..... $3,370.31 $4,296.87 $ --
--------- --------- ---------
Weighted average shares outstanding (Notes 2
and 12)..................................... 586.0000 600.6694 --
========= ========= =========
Unaudited pro forma information (Note 13)
Historical income before provision for
income taxes.............................. $ 6,027
Pro forma provision for income taxes "as
if" company were a C-corporation for all
of 1996................................... (1,483)
---------
Pro forma net income......................... $ 4,544
=========
Pro forma net income per share............... $7,500.44
=========
Weighted average shares outstanding.......... 605.8308
=========
</TABLE>
See accompanying notes.
F-4
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE TOTAL
--------------- TRANSLATION RETAINED STOCKHOLDERS'
SHARES AMOUNT ADJUSTMENT EARNINGS EQUITY
-------- ------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994
(unaudited).............. 586.0000 $155 -- $ 2,004 $ 2,159
Net income (unaudited).. -- -- -- 1,975 1,975
-------- ---- ---- ------- -------
Balance at December 31,
1994..................... 586.0000 155 -- 3,979 4,134
Additional shares
issued................. 19.8308 71 -- -- 71
Cumulative translation
adjustment............. -- -- $(10) -- (10)
Net income.............. -- -- -- 2,581 2,581
-------- ---- ---- ------- -------
Balance at December 31,
1995..................... 605.8308 226 (10) 6,560 6,776
Cumulative translation
adjustment............. -- -- (45) -- (45)
Net income.............. -- -- -- 6,027 6,027
Distributions........... -- -- -- (1,792) (1,792)
Other................... -- 1 -- -- 1
-------- ---- ---- ------- -------
Balance at December 31,
1996..................... 605.8308 $227 $(55) $10,795 $10,967
======== ==== ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................... $ 1,975 $ 2,581 $ 6,027
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 146 221 518
Loss on sale of property, plant and
equipment.................................... -- 50 --
Deferred income tax benefit................... -- (36) (209)
Minority interest in net earnings of
consolidated subsidiaries.................... (12) (10) (151)
Changes in assets and liabilities affected by
operations:
Accounts receivable......................... (596) (1,073) (280)
Inventories................................. (10) (333) (1,260)
Prepaid expenses............................ -- (228) 185
Other assets................................ (29) (27) (38)
Accounts payable............................ 209 444 (175)
Accrued liabilities......................... -- 7 10
Other liabilities........................... 5 -- 16
Income taxes payable........................ 627 1,134 (1,552)
------- ------- -------
Net cash provided by operating activities....... 2,315 2,730 3,091
INVESTING ACTIVITIES
Proceeds from sale of equipment................. -- 384 21
Purchases of equipment.......................... (1,052) (1,656) (2,225)
------- ------- -------
Net cash used in investing activities........... (1,052) (1,272) (2,204)
FINANCING ACTIVITIES
Issuance of stock............................... -- 71 --
Distributions to shareholders................... -- -- (1,792)
Proceeds from the issuance of a note............ 402 -- 127
Repayment of amounts borrowed................... -- (235) (135)
Cash contributed by minority partners........... 18 539 161
Other........................................... -- -- 1
------- ------- -------
Net cash (used in) provided by financing
activities..................................... 420 375 (1,638)
Effect of exchange rate changes on cash......... -- (10) (45)
------- ------- -------
Net change in cash and cash equivalents......... 1,683 1,823 (796)
Cash and cash equivalents, beginning of period.. 1,058 2,741 4,564
------- ------- -------
Cash and cash equivalents, end of period........ $ 2,741 $ 4,564 $ 3,768
======= ======= =======
Cash paid for income taxes...................... $ 343 $ 273 $ 3,010
======= ======= =======
Cash paid for interest.......................... $ -- $ 25 $ 12
======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS DESCRIPTION
Advanced Delivery & Chemical Systems, Inc. ("ADCS, Inc.") was incorporated
as an Illinois C-corporation on March 29, 1988 to manufacture and market
ultrahigh purity chemicals and their associated delivery equipment for the
semiconductor and related industries and currently sells its products
worldwide.
ADCS, Inc. changed its name to Advanced Chemical & Delivery Systems
Illinois, Inc. ("ADCS Illinois") on January 18, 1996. Effective April 1, 1996,
ADCS Illinois reorganized into the current business structure via a series of
transactions designed to be free of federal income tax consequences. The ADCS
reorganization ("ADCS Restructure") has been accounted for at historical cost
in a manner similar to a pooling of interests. Two new limited liability
companies and a new corporation were formed, ADCS Illinois converted into a
subchapter S-corporation, and operating assets were transferred into a limited
partnership. All of the combined entities are owned directly or indirectly by
the same stockholder group, and in the same proportionate share, as before the
reorganization. Effective June 1996, ADCS Illinois merged into the newly
formed Advanced Delivery & Chemical Systems Nevada Inc., a Nevada corporation
("ADCS Nevada").
Advanced Delivery & Chemical Systems and Affiliates (the "ADCS Group")
includes the combined financial statements of ADCS Nevada, Advanced Delivery &
Chemical Systems Holdings, LLC, Advanced Delivery & Chemical Systems Manager,
Inc. and Advanced Delivery & Chemical Systems Operating, LLC, which
collectively own 100% of Advanced Delivery & Chemical Systems, Ltd., the
operating entity, a Texas limited partnership. All significant intercompany
balances and transactions have been eliminated.
In 1996, the ADCS Group changed its fiscal year end to December 31. Thus,
these financial statements show results for each of the years in the two-year
period ended December 31, 1996.
The 1994 financial information in unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The ADCS Group recognizes chemical and equipment revenue upon shipment of
products to customers.
Cash and Cash Equivalents
The ADCS Group considers all liquid investments with original maturities of
three months or less to be cash equivalents.
Inventories
Inventories consist of chemicals and delivery equipment. Inventories are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out ("FIFO") method and market is based on net realizable value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated over the
estimated useful lives of the assets, ranging from 5 to 30 years, using the
straight-line method. Expenditures for maintenance and repairs are charged to
income as incurred; expenditures which increase the value or materially extend
the life of the related assets are capitalized.
F-7
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Currency Translation
Adjustments relating to the translation of foreign currency to U.S. dollars
are reported as a separate component of stockholders' equity. Gains or losses
resulting from foreign currency transactions are included in other income
(expense) and are immaterial.
Income Taxes
Effective April 1, 1996 the entities included in the combined financial
statements, except those discussed below, are organized as either limited
liability companies, limited partnerships or under Subchapter S of the federal
tax code. As such, the entities are not subject to U.S. Federal taxation;
instead, taxes are paid by the entities' equity holders.
As discussed in Note 7, ADCS Nevada's S-corporation status was terminated in
October 1996, resulting in ADCS Nevada's earnings being subject to federal
income taxation.
Cool Change Holdings, Inc. and ADCS Manager, Inc. are C-corporations and for
all periods presented were subject to federal income taxes. ADCS-Korea is a
chusik hoesa, and as such is subject to Korean corporate income tax (see Notes
3 and 7).
The ADCS Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted
rates in effect for the year in which the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which potentially expose the ADCS Group to
concentrations of credit risk, as defined by SFAS No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk," consist primarily
of cash and accounts receivable. Accounts receivable collectibility is
impacted by economic trends in the ADCS Group's markets. Essentially all of
the ADCS Group's sales are to customers in the semiconductor manufacturing
industry. The ADCS Group does not require collateral from its customers but
does assess the financial strength of its customers to reduce risk of loss.
Since inception, the ADCS Group has experienced minimal losses due to
uncollectible accounts receivable.
Fair Value of Financial Instruments
The ADCS Group's financial instruments as defined by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," include cash and cash
equivalents, accounts receivable, refundable deposits, accounts payable,
accrued expenses, long-term debt and a note payable. All financial instruments
are accounted for on a
F-8
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
historical cost basis which, due to the nature of these instruments,
approximates fair value at the balance sheet dates.
Per Share Data
Net income per share is computed using the treasury stock method based on
the weighted average number of common shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, which is required to be adopted for financial statements issued for
periods ending after December 15, 1997. At that time, the ADCS Group will be
required to change the method currently used to compute earnings per share and
to restate all periods. Under the new requirements, the presentation of
primary earnings per share is replaced with a presentation of basic earnings
per share, the calculation which excludes the dilutive effect of common stock
equivalents. The ADCS Group expects the impact of the adoption of SFAS No. 128
to be immaterial.
3. JOINT VENTURES AND INVESTMENTS
On May 8, 1995, the ADCS Group entered into a joint venture agreement with
K.C. Tech Co., Ltd., an unrelated corporation organized under the laws of the
Republic of Korea, whereby the ADCS Group obtained a 70% interest in a Korean
chusik hoesa, ADCS-Korea Co., Ltd. ("ADCS-Korea"). The purpose of the joint
venture is to manufacture, sell and distribute chemicals to the semiconductor
and related industries in Korea. The financial statements of ADCS-Korea have
been consolidated with those of the ADCS Group to reflect the exercise of
control and the extent of risk retained by the Company.
The combined financial statements also include the accounts of Cool Change
Holdings, Inc. ("CCH"), a charter boat business. As of December 31, 1995 and
1996 CCH is a 80% and 79%, respectively, owned subsidiary of the ADCS Group.
The ADCS Group owns a 12.053% interest in Atlantic Coast Polymers, Inc.
("ACP") common stock which is accounted for under the cost method. ACP
conducts business in the environmental remediation industry. The ADCS Group's
investment of $100,000 is recorded in other assets in the balance sheet. As
ACP is privately held, a fair market value is not readily determinable.
4. INVENTORIES
Inventories consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ------
<S> <C> <C>
Raw materials/component parts:
Chemicals................................................... $165 $ 261
Equipment................................................... 191 787
---- ------
356 1,048
---- ------
Finished goods:
Chemicals................................................... -- 266
Equipment................................................... -- 302
---- ------
-- 568
---- ------
$356 $1,616
==== ======
</TABLE>
F-9
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Land--Korea................................................. $ 791 $ 791
Buildings................................................... 211 225
Plant equipment............................................. 282 604
Plant--Korea................................................ -- 552
Machinery--Korea............................................ -- 257
Containers.................................................. 1,310 2,296
Furniture and fixtures...................................... 51 204
Leasehold improvements...................................... 17 28
Charter fishing vessel...................................... 198 196
Automobiles................................................. 171 157
------ ------
3,031 5,310
Less accumulated depreciation............................... 636 1,125
------ ------
2,395 4,185
Construction in progress--Korea............................. 104 --
------ ------
$2,499 $4,185
====== ======
</TABLE>
6. LONG-TERM DEBT
On January 25, 1994, CCH executed a $180,000, 7.5% fixed rate note payable
to a bank. The note requires 180 consecutive monthly payments in the amount of
$1,669 which commenced in February of 1994. The charter fishing vessel is held
as collateral and payment of the note is guaranteed by ADCS Nevada. The
scheduled maturities of the note subsequent to December 31, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
1997.................................................................. $ 8
1998.................................................................. 9
1999.................................................................. 10
2000.................................................................. 10
2001.................................................................. 11
Thereafter............................................................ 111
----
$159
====
</TABLE>
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the ADCS Group's deferred tax assets as of December 31, 1995 and 1996 are
as follows:
<TABLE>
<CAPTION>
1995 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax basis in excess of book basis for fixed and intangible
assets.................................................... $ 36 $ 239
Accruals................................................... -- 6
---- -----
Deferred tax asset........................................... $ 36 $ 245
==== =====
</TABLE>
F-10
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes for the years ended
December 31, 1994, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Federal...................................... $852 $1,270 $1,243
State........................................ 118 155 215
---- ------ ------
Total current.................................. 970 1,425 1,458
Deferred:
Federal...................................... -- (33) (202)
State........................................ -- (3) (7)
---- ------ ------
Total deferred................................. -- (36) (209)
---- ------ ------
Income tax provision........................... $970 $1,389 $1,249
==== ====== ======
</TABLE>
The reconciliation of income tax provisions computed at the U.S. federal
statutory rate to income tax expense for the years ended December 31, 1994,
1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----------- ------ -------
(UNAUDITED)
<S> <C> <C> <C>
Tax expense at U.S. statutory rate.......... $1,001 $1,350 $ 2,474
State income tax net of federal benefit..... 118 99 155
Income not subject to federal income
taxation................................... -- -- (1,483)
Foreign income taxed at different rates..... -- -- 79
Other....................................... (149) (60) 24
------ ------ -------
Income tax expense.......................... $ 970 $1,389 $ 1,249
====== ====== =======
</TABLE>
As discussed in Note 1, the stockholders of ADCS Nevada elected S-
corporation status effective April 1, 1996. In October 1996, as a result of a
transfer of shares to an ineligible S-corporation shareholder, the S status
was terminated. During the period that ADCS Nevada was an S-corporation, its
earnings were not subject to federal corporate income tax. The provision for
pro forma income taxes on net income using an effective tax rate of 37.5%
differs from the amounts computed by applying the applicable federal statutory
rates (34%) due to state and local taxes.
Korea has granted the ADCS Group a five year full income tax exemption from
the year in which ADCS-Korea has taxable income, and an additional three year
50% exemption. Since ADCS-Korea has not yet generated any taxable income, the
expiration date is not currently determinable.
The ADCS Group has identified and analyzed certain deductions taken in tax
returns and if such deductions are challenged, it believes that it has
meritorious defenses and would vigorously defend the deductions. Management
believes that if examined, the likelihood that any resulting adjustments would
be material to the combined financial statements is remote. As there have been
no challenges or judgments against the ADCS Group in connection with this
issue, no amounts are provided for in the financial statements.
F-11
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. RELATED PARTY TRANSACTIONS
Upon its relocation to Austin, Texas, the ADCS Group purchased the
president's house as part of his relocation package. The ADCS Group recorded a
loss of approximately $50,000 during the year ended December 31, 1996 upon the
sale of this house.
Atlantic Coast Polymers, Inc. is a privately held company managed by a
relative of the majority stockholder of the ADCS Group (see also Note 3).
9. COMMITMENTS AND CONTINGENCIES
The ADCS Group leases office space under noncancelable operating leases.
Future minimum lease payments under these leases subsequent to December 31,
1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................. $113
1998................................................................. 88
1999................................................................. 80
2000................................................................. 34
----
Total future minimum lease payments.................................. $315
====
</TABLE>
Total rent expense for the years ended December 31, 1995 and 1996 was
$90,000 and $122,000, respectively.
10. RISKS AND UNCERTAINTIES
The ADCS Group could experience a negative impact on its operations as a
result of technological advances within the semiconductor manufacturing
industry. Currently, the concentration of sales of one chemical contributes to
a significant portion of the ADCS Group's revenues. At the present time, the
aforementioned chemical is a critical component to the current technology
utilized in the industry. However, due to the industry's attempt to minimize
the size of microcomputer chips, this chemical is exposed to the risk of
obsolescence in the event a replacement chemical is developed.
The ADCS Group has a concentration of customers in the semiconductor and
semiconductor equipment manufacturing industries. They represent a total of
100% of year-end trade accounts receivable. A negative trend in this industry
could have a substantial effect on the ADCS Group. Furthermore, 34% of total
sales in each of the years ended December 31, 1995 and 1996 were to a single
customer. The same customer accounted for approximately 80% and 70% of total
equipment sales for the years ended December 31, 1995 and 1996, respectively.
Sales to this customer were less than 10% of total sales in 1994.
11. INDUSTRY AND GEOGRAPHIC INFORMATION
The ADCS Group operates in a single industry segment. The ADCS Group markets
its products in the United States and in foreign countries through sales
personnel and a foreign subsidiary. Export sales account for a significant
portion of the ADCS Group's total sales. Sales by geographic area are as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Domestic............................................ 64% 65% 57%
Asia-Pacific........................................ 30 28 34
Europe.............................................. 6 7 9
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
F-12
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
12. SUBSEQUENT EVENT
The ADCS Group has signed a definitive agreement with Advanced Technology
Materials, Inc. (ATMI) of Danbury, Connecticut to merge the companies via a
pooling of interests. The transaction is anticipated to be completed by the
third quarter of 1997, subject to ATMI shareholder approval and the
satisfaction of other customary conditions. The agreement provides for the
ADCS Group to become a subsidiary of a new holding company of ATMI.
Approximately 5.5 million common shares of the new ATMI holding company would
be exchanged for the interests in the ADCS Group, although the final number of
shares will not be determined until the date of shareholder approval.
13. PRO FORMA ADJUSTMENTS, UNAUDITED
The unaudited pro forma adjustments on the 1996 statement of income reflect
an adjustment to record a provision for income taxes on income as if ADCS
Nevada had not been an S-corporation for a portion of the year.
F-13
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
COMBINED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 3,342
Accounts receivable................................................. 3,010
Inventories......................................................... 2,315
Prepaid expenses.................................................... 134
Other current assets................................................ 668
-------
Total current assets.................................................. 9,469
Property, plant and equipment, net.................................... 4,615
Deferred tax asset.................................................... 274
Other noncurrent assets............................................... 159
-------
Total assets.......................................................... $14,517
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 1,014
Income taxes payable................................................ 108
Accrued liabilities................................................. 161
Current portion of long-term debt................................... 8
-------
Total current liabilities............................................. 1,291
Long-term debt........................................................ 150
Other noncurrent liabilities.......................................... 31
Minority interest..................................................... 572
-------
Total liabilities..................................................... 2,044
Commitments and contingencies
Stockholders' equity:
Common stock, 10,000 shares authorized; 605.8308 shares issued and
outstanding at June 30, 1997....................................... 227
Cumulative translation adjustment................................... (53)
Retained earnings................................................... 12,299
-------
Total stockholders' equity............................................ 12,473
-------
Total liabilities and stockholders' equity............................ $14,517
=======
</TABLE>
See accompanying notes.
F-14
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
--------------------
JUNE 30, JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
Sales:
Chemical............................................... $ 5,314 $ 6,550
Equipment.............................................. 5,674 3,891
--------- ---------
10,988 10,441
Cost of sales:
Chemical............................................... 865 1,017
Equipment.............................................. 2,551 2,818
--------- ---------
3,416 3,835
Gross profit............................................. 7,572 6,606
Selling and marketing expenses........................... 711 1,188
General and administrative expenses...................... 2,772 2,191
Research and development expenses........................ 1,105 996
--------- ---------
Income from operations................................... 2,984 2,231
Other income (expense):
Interest income........................................ 146 107
Interest expense....................................... (5) (3)
Other income (expense)................................. 10 17
Minority interest in net earnings of consolidated
subsidiaries.......................................... 64 (25)
--------- ---------
Income before income taxes............................... 3,199 2,327
Income tax provision:
Current................................................ 744 852
Deferred............................................... (106) (29)
--------- ---------
638 823
--------- ---------
Net income............................................... $ 2,561 $ 1,504
========= =========
Net income per share .................................... $4,227.25 $2,482.54
--------- ---------
Weighted average shares outstanding ..................... 605.8308 605.8308
========= =========
</TABLE>
See accompanying notes.
F-15
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
------------------
JUNE 30, JUNE 30,
1996 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 2,561 $1,504
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation............................................. 177 307
Deferred income tax benefit.............................. (106) (29)
Minority interest in net earnings of consolidated
subsidiaries............................................ (64) 25
Changes in assets and liabilities affected by operations:
Accounts receivable.................................... (698) (320)
Inventories............................................ (1,308) (699)
Prepaid expenses....................................... 129 (91)
Other assets........................................... (8) (633)
Accounts payable....................................... 441 393
Accrued liabilities.................................... 245 144
Other liabilities...................................... 5 10
Income taxes payable................................... (1,773) (303)
------- ------
Net cash (used in) provided by operating activities........ (399) 308
INVESTING ACTIVITIES
Proceeds from sale of equipment............................ -- 10
Purchases of equipment..................................... (949) (747)
------- ------
Net cash used in investing activities...................... (949) (737)
FINANCING ACTIVITIES
Proceeds from the issuance of a note....................... 127 --
Repayment of amounts borrowed.............................. (136) (1)
Cash contributed by minority partners...................... 182 2
Other 1 --
------- ------
Net cash provided by financing activities.................. 174 1
Effect of exchange rate changes on cash.................... (4) 2
------- ------
Net change in cash and cash equivalents.................... (1,178) (426)
Cash and cash equivalents, beginning of period............. 4,564 3,768
------- ------
Cash and cash equivalents, end of period................... $ 3,386 $3,342
======= ======
Cash paid for income taxes................................. $ 2,860 $1,155
======= ======
Cash paid for interest..................................... $ 6 $ 5
======= ======
</TABLE>
See accompanying notes.
F-16
<PAGE>
ADVANCED DELIVERY & CHEMICAL SYSTEMS AND AFFILIATES
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Advanced Delivery
& Chemical Systems and Affiliates (the "ADCS Group") have been prepared in
accordance with the instructions to Form 10-Q and Rule 10.01 of Regulation S-X
and do not include all of the financial information and disclosures required
by generally accepted accounting principles.
In the opinion of the ADCS Group's management, the financial information
contained herein has been prepared on the same basis as the audited Combined
Financial Statements contained in the ADCS Group's audited financial
statements for the year ended December 31, 1996, and includes adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the unaudited quarterly results set forth herein. The ADCS Group's quarterly
results have, in the past, been subject to fluctuation and, thus, the
operating results for any quarter are not necessarily indicative of results
for any future fiscal period.
2. INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
Raw materials/component parts:
Chemicals................................................. $ 283
Equipment................................................. 778
------
1,061
Finished goods:
Chemicals................................................. 611
Equipment................................................. 643
------
1,254
------
$2,315
======
</TABLE>
3. INCOME TAXES
The ADCS Group's income tax expense in 1997 relates primarily to federal
taxes on U.S. taxable income. The stockholders of ADCS Nevada elected S-
Corporation status effective April 1, 1996. In October 1996, as a result of a
transfer of shares to an ineligible S-Corporation shareholder, the S-
Corporation status was terminated. If ADCS Nevada had been a C-Corporation for
the entire six-month period ended June 30, 1996, the income tax provision
would have been $1,187,000, of which $1,293,000 would be current and
($106,000) deferred.
4. SUBSEQUENT EVENT
The ADCS Group has signed a definitive agreement with Advanced Technology
Materials, Inc. (ATMI) of Danbury, Connecticut to merge the companies via a
pooling of interests. The transaction is anticipated to be completed by the
third quarter of 1997, subject to ATMI shareholder approval and the
satisfaction of other customary conditions. The agreement provides for the
ADCS Group to become a subsidiary of a new holding company of ATMI.
Approximately 5.5 million common shares of the new ATMI holding company would
be exchanged for the interests in the ADCS Group, although the final number of
shares will not be determined until the date of shareholder approval.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Lawrence
Semiconductor Laboratories, Inc. and Affiliate
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and retained earnings and of cash flows present
fairly, in all material respects, the financial position of Lawrence
Semiconductor Laboratories, Inc. and Affiliate (Lawrence) at December 31, 1995
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Lawrence'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.
/s/ Price Waterhouse LLP
Phoenix, Arizona
May 17, 1997, except for the last paragraph
of Note 6 which is as of June 10, 1997, and
the last paragraph of Note 3 which is as of
July 29, 1997.
F-18
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 3,789,144 $ 4,369,370
Certificates of deposit.............................. -- 1,268,987
Accounts receivable.................................. 1,247,383 1,736,278
Due from related parties............................. 1,396,942 2,932,534
Inventories.......................................... 575,563 1,612,110
Other current assets................................. 33,571 142,384
----------- -----------
Total current assets................................... 7,042,603 12,061,663
Property and equipment, net............................ 11,448,201 18,372,531
Other assets........................................... 88,632 142,540
----------- -----------
Total assets........................................... $18,579,436 $30,576,734
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 988,125 $ 1,128,004
Accrued expenses..................................... 860,081 1,032,512
Accrued litigation settlement (See Note 10).......... -- 2,000,000
Current portion of capital lease obligations......... 959,067 1,836,941
Current portion of notes payable..................... 1,074,569 1,429,393
Deferred income taxes................................ -- 2,234,242
Income taxes payable................................. -- 255,480
----------- -----------
Total current liabilities.............................. 3,881,842 9,916,572
Capital lease obligations.............................. 3,139,546 5,427,475
Notes payable.......................................... 3,419,063 5,246,621
Deferred income taxes.................................. 2,694,489 1,873,160
----------- -----------
Total liabilities...................................... 13,134,940 22,463,828
----------- -----------
Commitments and contingencies (See Notes 7, 8 and 10)
Stockholders' equity:
Common stock, no par value, 1,100,000 shares
authorized, 20,000 shares issued and outstanding.... -- --
Additional paid-in capital........................... 60,000 60,000
Retained earnings.................................... 5,384,496 8,052,906
----------- -----------
Total stockholders' equity............................. 5,444,496 8,112,906
----------- -----------
Total liabilities and stockholders' equity............. $18,579,436 $30,576,734
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Net sales................................. $7,177,873 $14,408,800 $20,270,603
Cost of sales............................. 3,943,063 7,763,508 10,383,460
---------- ----------- -----------
Gross profit.............................. 3,234,810 6,645,292 9,887,143
Selling, general and administrative
expenses................................. 1,181,050 1,921,173 2,715,021
Litigation settlement (See Note 10)....... -- -- 2,000,000
---------- ----------- -----------
Income from operations.................... 2,053,760 4,724,119 5,172,122
Interest income........................... 27,819 139,567 303,098
Interest expense.......................... 691,166 1,053,667 1,137,658
Other income (expense).................... 167,671 (492,417) --
---------- ----------- -----------
Income before income taxes................ 1,558,084 3,317,602 4,337,562
Provision for income taxes................ 634,063 1,364,427 1,669,152
---------- ----------- -----------
Net income................................ 924,021 1,953,175 2,668,410
Retained earnings, beginning of year...... 2,507,300 3,431,321 5,384,496
---------- ----------- -----------
Retained earnings, end of year............ $3,431,321 $ 5,384,496 $ 8,052,906
========== =========== ===========
Pro forma net income per share
(unaudited).............................. $ 92.40 $ 195.32 $ 266.84
---------- ----------- -----------
Pro forma weighted average shares
outstanding (unaudited).................. 10,000 10,000 10,000
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:
Net income............................. $ 924,021 $ 1,953,175 $ 2,668,410
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation expense................. 1,100,484 1,549,044 1,863,921
Bad debt expense..................... -- 15,531 191,210
Deferred income taxes................ 626,293 1,196,417 1,412,913
Loss on sale/leaseback of equipment.. -- 492,417 --
Change in assets and liabilities:
Accounts receivable................ (404,067) (478,245) (680,105)
Due from related parties........... (204,496) (179,578) (926,181)
Inventories........................ (141,484) (18,232) (1,036,547)
Other current assets............... (57,664) 107,127 (108,813)
Other assets....................... 83,423 23,302 (53,908)
Accounts payable................... 418,965 301,113 139,879
Accrued expenses................... (107,139) 730,392 172,431
Accrued litigation settlement (See
Note 10).......................... -- -- 2,000,000
Income taxes payable............... -- -- 255,480
----------- ----------- -----------
Net cash from operating
activities...................... 2,238,336 5,692,463 5,898,690
----------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES:
Purchase of property and equipment..... (200,737) (1,067,770) (4,671,608)
Advances to shareholder on notes
receivable............................ (157,651) (256,598) (286,058)
Purchase of certificates of deposit.... -- -- (1,268,987)
----------- ----------- -----------
Net cash used in investing
activities...................... (358,388) (1,324,368) (6,226,653)
----------- ----------- -----------
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES:
Payments on capital lease obligations.. (838,247) (995,304) (1,274,193)
Payments on notes payable.............. (263,926) (1,191,366) (1,409,062)
Proceeds from borrowings............... -- 566,944 3,591,444
----------- ----------- -----------
Net cash from (used in) financing
activities...................... (1,102,173) (1,619,726) 908,189
----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 777,775 2,748,369 580,226
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.................................. 263,000 1,040,775 3,789,144
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
YEAR.................................. $ 1,040,775 $ 3,789,144 $ 4,369,370
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Income taxes paid.................... $ -- $ -- $ --
Interest paid........................ $ 691,166 $ 1,053,667 $ 1,137,658
Equipment acquired under capital
leases.............................. $ 2,615,235 $ 2,229,048 $ 4,439,996
Equipment acquired under notes
payable............................. $ 3,797,322 $ 1,584,658 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The accompanying combined financial statements include the accounts of
Lawrence Semiconductor Laboratories, Inc. and its affiliate, Lawrence
Semiconductor Laboratories Marketing and Sales, Inc., collectively referred to
as Lawrence, both of which are under common control. All significant
intercompany accounts and transactions have been eliminated. Lawrence
Semiconductor Laboratories, Inc. has 100,000 shares of no par value common
stock authorized, of which 10,000 shares were issued and outstanding during
all periods presented. Lawrence Semiconductor Laboratories Marketing and
Sales, Inc. has 1,000,000 shares of no par common stock authorized, of which
10,000 shares were issued and outstanding during all periods presented.
Lawrence is involved in the chemical vapor deposition of silicon wafers
using epitaxial processes to meet customer product specifications. Lawrence is
headquartered in Mesa, Arizona and has operations in Mesa and Tempe, Arizona.
On May 17, 1997, Lawrence entered into a merger agreement with Advanced
Technology Materials, Inc. (ATMI). Under the Lawrence Merger Agreement,
Lawrence's stockholders will exchange their common stock in Lawrence for
shares of ATMI or ATMI Holdings, Inc. common stock having a value equal to $80
million less the $2 million to be paid by Lawrence to settle the patent
litigation described in Note 10, as well as other adjustments defined in the
Lawrence Merger Agreement. The Lawrence Merger Agreement is subject to the
approval of both Lawrence stockholders and ATMI stockholders as well as other
customary conditions. The merger, which is expected to be tax-free to Lawrence
stockholders and to be accounted for as a pooling-of-interests, is expected to
close during the third quarter of 1997.
Prior to the consummation of and as a condition of the merger with ATMI, the
sole stockholder of Lawrence Semiconductor Laboratories Marketing and Sales,
Inc., who is also a 98% stockholder in Lawrence Semiconductor Laboratories,
Inc., will contribute all of the issued and outstanding shares of capital
stock of Lawrence Semiconductor Laboratories Marketing and Sales, Inc. to
Lawrence Semiconductor Laboratories, Inc., with Lawrence Semiconductor
Laboratories Marketing and Sales, Inc. becoming a wholly-owned subsidiary of
Lawrence Semiconductor Laboratories, Inc. The contribution will be accounted
for at historical cost in a manner similar to a pooling-of-interests. The
impact of the contribution on the accompanying financial statements is
expected to be insignificant. Unaudited pro forma net income per share in the
accompanying combined statements of income and retained earnings have been
based on the weighted average number of shares of Lawrence Semiconductor
Laboratories, Inc. outstanding during each period presented as if the
contribution of Lawrence Semiconductor Laboratories Marketing and Sales, Inc.
had occurred as of the beginning of each such period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Lawrence considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Inventories
Inventories, which consist primarily of manufacturing spare parts and
processing supplies, are stated at the lower of cost or market. Cost is
determined utilizing the first-in first-out method.
F-22
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Upon sale or retirement, cost and the related accumulated depreciation are
eliminated from the respective accounts, and any resulting gain or loss is
included in the results of operations. Depreciation expense is computed using
the straight-line method over estimated useful lives ranging from 5 to 10
years for machinery and equipment and 35 years for buildings.
Revenue Recognition
Lawrence recognizes revenue for epitaxial processing services at the time of
shipment to the customer. Accounts receivable as of December 31, 1995 and 1996
is shown net of an allowance for doubtful accounts of $15,531 and $191,210,
respectively.
Income Taxes
Lawrence Semiconductor Laboratories, Inc. utilizes a calendar year for
income tax reporting purposes while Lawrence Semiconductor Laboratories
Marketing and Sales, Inc. utilizes a fiscal year ending June 30. For financial
reporting purposes, the provision for income taxes has been prepared as if
both companies utilized a calendar year for income tax reporting purposes.
Lawrence recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in Lawrence's
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on differences between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
Financial Instruments
Financial instruments which potentially subject Lawrence to concentrations
of credit risk consist primarily of cash and cash equivalents, certificates of
deposit and trade accounts receivable. Accounts receivable are primarily with
large high technology customers. Lawrence reviews a customer's credit history
before extending credit and reviews each account based on specific credit risk
factors, historical trends and other information. The carrying value of
financial instruments approximates the related fair value because of the
relatively short maturity of these instruments. The carrying value of notes
payable and capital lease obligations approximates fair value as the related
interest rates approximate market rates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Manufacturing spare parts and processing supplies.... $405,994 $1,265,711
Wafers............................................... 85,932 182,254
Gases and chemicals.................................. 83,637 164,145
-------- ----------
$575,563 $1,612,110
======== ==========
</TABLE>
F-23
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. RELATED PARTY TRANSACTIONS
Due from related parties consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Notes receivable from shareholder................... $ 812,868 $1,098,926
Due from Lawrence Semiconductor Research
Laboratories, Inc.................................. 584,074 1,185,114
Due from Lawrence Semiconductor Investments, Inc.... -- 648,494
---------- ----------
$1,396,942 $2,932,534
========== ==========
</TABLE>
Notes receivable from shareholder represent advances which bear interest at
7% and are due upon demand. The balance at December 31, 1995 and 1996 includes
accrued interest of $69,589 and $125,647, respectively. Interest income on the
notes totaled $17,562, $31,598 and $56,058 during 1994, 1995 and 1996,
respectively.
Due from Lawrence Semiconductor Research Laboratories, Inc. (Research)
includes charges by Lawrence for use of its epitaxial reactors. Income from
such charges, which is included in net sales, totaled $204,496, $179,882 and
$255,280 in 1994, 1995 and 1996, respectively. The balance as of December 31,
1996 also includes $323,352 related to the transfer to Research of leasehold
improvements at net book value during 1996. All amounts are non-interest
bearing and are due upon demand.
Due from Lawrence Semiconductor Investments, Inc. includes the net amount of
non-interest bearing advances from Lawrence made during 1996. The amounts
outstanding are due upon demand.
During 1996, Lawrence leased an epitaxial reactor to Research. Monthly
payments required under the lease are equal to Lawrence's monthly debt service
requirements on Lawrence's note payable related to the reactor. Rental revenue
relating to this lease totaled $83,600 in 1996 and is reflected as a reduction
of cost of sales in the accompanying combined statement of income and retained
earnings.
Effective January 1, 1997, Lawrence entered into a non-exclusive royalty-
bearing license to use patented and non-patented technology owned by Research
in exchange for a royalty of five percent of gross revenues derived from the
sale of products by Lawrence using the licensed technology. The license
agreement, which was originally scheduled to expire on January 1, 2010, was
terminated July 29, 1997 effective retroactively to January 1, 1997. Lawrence
had not incurred obligations to Research under the license agreement.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Machinery and equipment........................ $13,496,925 $18,525,808
Building....................................... -- 4,169,519
Land........................................... 450,730 959,983
Leasehold improvements......................... 495,313 --
Office furniture and equipment................. 106,569 245,185
Construction in process........................ 1,093,652 243,742
----------- -----------
15,643,189 24,144,237
Less accumulated depreciation.................. (4,194,988) (5,771,706)
----------- -----------
$11,448,201 $18,372,531
=========== ===========
</TABLE>
F-24
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
totaled $1,100,484, $1,549,044 and $1,863,921, respectively.
5. CAPITAL LEASE OBLIGATIONS
Lawrence is obligated under capital leases for certain machinery and
equipment that expire at various dates during the next five years. Certain of
the capital lease obligations are personally guaranteed by Lawrence's primary
stockholder. The gross amount of machinery and equipment under capital leases
and the related accumulated depreciation at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Machinery and equipment.......................... $ 5,710,473 $10,150,469
Less: accumulated depreciation................... (1,649,602) (2,229,946)
----------- -----------
$ 4,060,871 $ 7,920,523
=========== ===========
</TABLE>
Future lease payments required under capital lease obligations at December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 2,390,355
1998.......................................................... 2,326,758
1999.......................................................... 1,923,517
2000.......................................................... 1,143,729
2001.......................................................... 519,866
-----------
Total lease payments.......................................... 8,304,225
Less amount representing interest............................. (1,039,809)
-----------
Present value of net capital lease payments................... 7,264,416
Less current portion.......................................... (1,836,941)
-----------
Long-term portion............................................. $ 5,427,475
===========
</TABLE>
Lawrence has commitments from two lessors to provide capital lease financing
totaling $7.3 million in 1997. The commitments require Lawrence to maintain
compliance with specified financial ratios.
In April 1995, Lawrence sold certain equipment, which was subject to capital
lease obligations, to a third party and then leased the equipment back from
the third party pursuant to a sixty-month operating lease. Lawrence recognized
a loss of $492,417 in 1995 as a result of this transaction.
F-25
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Note payable, interest at 9.2%, monthly principal and
interest payments of $28,428 through June 2003,
secured by related real property.................... $ -- $ 3,087,194
Note payable, interest at 7.3%, monthly interest only
payments of $3,068, balance due April 1998, secured
by related real property............................ -- 504,252
Note payable, interest at 7.3%, monthly interest only
payments of $3,449, balance due May 1997, secured by
related real property............................... 566,944 566,944
Note payable, interest at 10%, monthly principal and
interest payments of $22,624 through April 2000,
secured by related equipment........................ 951,559 766,906
Note payable, interest at 11.52%, monthly principal
and interest payments of $21,387 through November
1999, secured by related equipment.................. 806,058 633,293
Note payable, interest at 10.75%, monthly principal
and interest payments of $21,581 through February
1999, secured by related equipment.................. 692,479 498,576
Note payable, interest at 11.52%, monthly principal
and interest payments of $20,900 through November
1999, secured by equipment utilized by related party
(See Note 3)........................................ 787,673 618,849
Other notes payable, interest ranging from 10.2% to
12.42%, maturing April 1997 through May 2000,
secured by related equipment, repaid in 1996........ 688,919 --
----------- -----------
4,493,632 6,676,014
Less current portion............................... (1,074,569) (1,429,393)
----------- -----------
Long-term portion.................................. $ 3,419,063 $ 5,246,621
=========== ===========
</TABLE>
Annual principal maturities at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $1,429,393
1998............................................................ 1,464,673
1999............................................................ 802,604
2000............................................................ 167,075
2001............................................................ 85,970
Thereafter...................................................... 2,726,299
----------
$6,676,014
==========
</TABLE>
Certain of the notes payable contain covenants requiring Lawrence to
maintain compliance with debt to tangible net worth, debt service coverage and
current assets to current liabilities ratios as defined in the related
agreements. At December 31, 1996, Lawrence was not in compliance with the debt
(defined as all liabilities) to tangible net worth ratio of 3.0 to 1.0, and
such violation continued into 1997. Additionally, subsequent to December 31,
1996, Lawrence was not in compliance with the covenant requiring the
maintenance of a ratio of current assets to current liabilities of at least
1.2 to 1.0. On June 10, 1997, the lender agreed to waive these covenant
violations through September 30, 1997. Lawrence believes that it will be able
to maintain compliance with all specified ratios subsequent to September 30,
1997.
F-26
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. OPERATING LEASE COMMITMENTS
Lawrence is obligated under operating leases for certain manufacturing
equipment which expire in years 1997 through 2001. A summary of future minimum
rental payments required under these leases at December 31, 1996 is as
follows:
<TABLE>
<S> <C>
1997............................................................ $1,411,765
1998............................................................ 1,411,765
1999............................................................ 1,320,603
2000............................................................ 679,494
2001............................................................ 222,097
----------
$5,045,724
==========
</TABLE>
Rental expense under operating leases was $102,743, $492,134 and $1,310,092
during 1994, 1995 and 1996, respectively.
8. INCOME TAXES
The components of the provision for income taxes for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................... $ -- $ -- $ 255,480
State..................................... -- -- --
-------- ---------- ----------
$ -- $ -- $ 255,480
-------- ---------- ----------
Deferred:
Federal................................... $504,794 $1,124,665 $1,115,765
State..................................... 129,269 239,762 297,907
-------- ---------- ----------
634,063 1,364,427 1,413,672
-------- ---------- ----------
$634,063 $1,364,427 $1,669,152
======== ========== ==========
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Non-expiring alternative minimum tax and other
credits......................................... $ 71,676 $ 295,824
Net operating loss carryforwards................. 482,307 --
Accrued expenses................................. -- 923,713
---------- ----------
Deferred tax assets............................ 553,983 1,219,537
---------- ----------
Deferred tax liabilities:
Depreciation..................................... 548,269 1,135,823
Capital leases................................... 916,432 1,033,161
Intercompany charges............................. 1,783,771 3,157,955
---------- ----------
Deferred tax liabilities....................... 3,248,472 5,326,939
---------- ----------
Net deferred tax liabilities....................... $2,694,489 $4,107,402
========== ==========
</TABLE>
F-27
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES (CONTINUED)
The provision for income taxes reflected in the combined statement of income
and retained earnings for the years ended December 31 differs from the amounts
computed by applying the statutory federal tax rate to income before income
taxes as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Expected tax provision.................... $529,748 $1,127,985 $1,474,771
State taxes, net of federal tax benefit... 85,317 158,243 196,619
Other..................................... 18,998 78,199 (2,238)
-------- ---------- ----------
$634,063 $1,364,427 $1,669,152
======== ========== ==========
</TABLE>
Lawrence Semiconductor Laboratories, Inc. intends to file a request for a
change in accounting with the Internal Revenue Service relating to the timing
of intercompany charges made to Lawrence Semiconductor Laboratories Marketing
and Sales, Inc.
9. EMPLOYEE BENEFIT PLANS
Lawrence maintains a profit sharing plan for the benefit of eligible
employees. Contributions to the plan are made at the discretion of the Board
of Directors up to a maximum amount of 15% of eligible participants' total
annual compensation. Contribution expense under the plan was $60,812, $78,550
and $119,304 in 1994, 1995 and 1996, respectively.
Lawrence maintains a savings plan for the benefit of eligible employees.
Lawrence makes matching contributions equal to 50% of the first 3% of employee
pre-tax contributions. Contribution expense under the plan was $10,455,
$10,773 and $25,450, in 1994, 1995 and 1996, respectively.
In 1995, Lawrence established a money purchase plan for the benefit of
eligible employees. Contributions of 5% of participants' annual eligible
compensation are made to the plan. Contribution expense under the plan was
$60,267 and $82,877 in 1995 and 1996, respectively.
In 1996, Lawrence made a one-time contribution of $38,366 to a qualified
non-elective contribution plan for the benefit of eligible employees.
10. COMMITMENTS AND CONTINGENCIES
On May 15, 1997, Lawrence settled patent infringement litigation with
Applied Materials, an equipment manufacturer, relating to equipment used by
Lawrence that was purchased from another manufacturer. Under the terms of the
related settlement agreement, Lawrence agreed to pay Applied Materials
$2,000,000 and purchase chemical reactors from Applied Materials assuming
Lawrence's business conditions justify such purchases. Such conditions include
growth in customer requirements necessitating the addition of epitaxial
processing capacity, such chemical reactors meeting the requirements of
Lawrence and its customers and the chemical reactors being competitive in
terms of price and productivity with other acceptable market alternatives.
Although the agreement specifies annual chemical reactor purchase requirements
for years 1997 through 2002, such requirements are not cumulative in the event
business conditions do not warrant the required purchases in any given year.
Lawrence anticipates purchasing one chemical reactor from Applied Materials in
1997 at an approximate fair market value of $2,500,000 with installation
expected during the second half of the year. Lawrence accrued the $2 million
relating to this settlement in the accompanying financial statements for the
year ended December 31, 1996. Under patent regulations, once damages have been
assessed and a settlement reached, Lawrence will be entitled to use the
equipment without further infringement or claim for damages.
F-28
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On May 6, 1997, Lawrence entered into a letter agreement with an investor
relating to the potential recapitalization of Lawrence. Under terms of the
letter agreement, Lawrence agreed to reimburse the investor for out-of-pocket
expenses up to an aggregate maximum amount of $300,000 if a definitive
agreement was not negotiated between the parties within a specified period of
time. Lawrence also agreed to pay the investor a $1.5 million breakup fee if
Lawrence consummated a sale, as defined, with another party within one year
from the date of the letter agreement. The breakup fee will become payable by
Lawrence upon the consummation of the merger with ATMI described in Note 1.
In 1996, Lawrence entered into an agreement to purchase the majority of its
processing gases and chemicals from a supplier at established prices with
contract terms expiring from February 2001 to May 2006. Amounts purchased
under this agreement totaled $1,049,241 in 1996.
11. SIGNIFICANT CUSTOMERS
During 1996, three customers accounted for $4,826,000 or 24%, $2,937,000 or
14%, and $2,327,000 or 11% of total sales, respectively. No individual
customer accounted for more than 10% of total sales in 1994 or 1995.
F-29
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 1,816,456
Certificates of deposit.......................................... 1,085,841
Accounts receivable.............................................. 2,288,181
Due from related parties......................................... 4,060,142
Inventories...................................................... 1,659,471
Deferred merger costs............................................ 511,665
Other current assets............................................. 113,928
-----------
Total current assets............................................... 11,535,684
Property and equipment, net........................................ 21,755,284
Other assets....................................................... 142,540
-----------
Total assets....................................................... $33,433,508
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 1,903,686
Accrued expenses................................................. 962,791
Current portion of capital lease obligations..................... 3,486,568
Current portion of notes payable................................. 2,450,261
Deferred income taxes............................................ 2,806,354
-----------
Total current liabilities.......................................... 11,609,660
Capital lease obligations.......................................... 6,661,314
Notes payable...................................................... 3,806,122
Deferred income taxes.............................................. 2,061,753
-----------
Total liabilities.................................................. 24,138,849
-----------
Stockholders' equity:
Common stock, no par value, 1,100,000 shares authorized,
20,000 shares issued and outstanding............................ --
Additional paid-in capital....................................... 60,000
Retained earnings................................................ 9,234,659
-----------
Total stockholders' equity......................................... 9,294,659
-----------
Total liabilities and stockholders' equity......................... $33,433,508
===========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-30
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
Net sales............................................. $ 10,594,321 $ 9,495,414
Cost of sales......................................... 4,968,574 5,696,942
------------ -----------
Gross profit.......................................... 5,625,747 3,798,472
Selling, general and administrative expenses.......... 1,181,264 1,362,785
------------ -----------
Income from operations................................ 4,444,483 2,435,687
Interest income....................................... 92,376 117,880
Interest expense...................................... 470,202 616,586
------------ -----------
Income before income taxes............................ 4,066,657 1,936,981
Provision for income taxes............................ 1,564,850 755,228
------------ -----------
Net income............................................ 2,501,807 1,181,753
Retained earnings, beginning of period................ 5,384,496 8,052,906
------------ -----------
Retained earnings, end of period...................... $ 7,886,303 $ 9,234,659
============ ===========
Pro forma net income per share........................ $ 250.18 $ 118.18
------------ -----------
Pro forma weighted average shares outstanding......... 10,000 10,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-31
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income........................................ $ 2,501,807 $ 1,181,753
Adjustments to reconcile net income to net cash
from operating activities
Depreciation expense............................ 728,226 1,105,920
Deferred income taxes........................... 1,225,102 760,705
Change in assets and liabilities:
Accounts receivable........................... (705,889) (551,903)
Due from related parties...................... (533,531) (972,347)
Inventories................................... (375,588) (47,361)
Other current assets.......................... (100,564) (483,209)
Other assets.................................. (24,000) --
Accounts payable.............................. (127,325) 775,682
Accrued expenses.............................. 169,542 (69,721)
Accrued litigation settlement................. -- (2,000,000)
Income taxes payable.......................... -- (255,480)
------------ ------------
Net cash from operating activities.......... 2,757,780 (555,961)
------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment................ (2,614,901) (635,605)
Advances to shareholder on notes receivable....... (31,565) (155,261)
Net redemption (purchase) of certificates of
deposit.......................................... (666,372) 183,146
------------ ------------
Net cash used in investing activities....... (3,312,838) (607,720)
------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on capital lease obligations... (466,285) (969,602)
Principal payments on notes payable............... (522,344) (419,631)
Proceeds from borrowings.......................... 3,115,000 --
------------ ------------
Net cash used in financing activities....... 2,126,371 (1,389,233)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 1,571,313 (2,552,914)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 3,789,144 4,369,370
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 5,360,457 $ 1,816,456
============ ============
SUPPLEMENT DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid............................... $ -- $ 250,000
Interest paid................................... $ 470,201 $ 616,686
Equipment acquired under capital leases......... $ -- $ 3,853,068
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-32
<PAGE>
LAWRENCE SEMICONDUCTOR LABORATORIES, INC. AND AFFILIATE
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim financial data as of and for the six-month periods ended June
30, 1996 and 1997 are unaudited; however, in the opinion of management, such
interim data include all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the financial
position and results of operations for the interim periods. The interim data
are not necessarily indicative of the results of operations for the full year.
The interim combined financial statements should be read in conjunction with
the combined financial statements and notes thereto for the year ended
December 31, 1996 included herein.
2. DEFERRED MERGER COSTS
Deferred merger costs relate to the professional fees incurred in connection
with the pending merger of Lawrence and ATMI. Such costs have been deferred in
the accompanying combined balance sheet as of June 30, 1997 and will be
charged to expense upon consummation of the merger.
F-33
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND EXCHANGE
BY AND AMONG
ADVANCED TECHNOLOGY MATERIALS, INC.
ATMI HOLDINGS, INC.,
ALAMO MERGER, INC.
ADVANCED DELIVERY & CHEMICAL SYSTEMS NEVADA, INC.,
ADVANCED DELIVERY & CHEMICAL SYSTEMS HOLDINGS, LLC,
ADVANCED DELIVERY & CHEMICAL SYSTEMS OPERATING, LLC,
ADVANCED DELIVERY & CHEMICAL SYSTEMS MANAGER, INC.,
AND
ADVANCED DELIVERY & CHEMICAL SYSTEMS, LTD.
DATED AS OF APRIL 7, 1997
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER AND EXCHANGE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
TABLE OF CONTENTS...................................................... A-2
INDEX OF SCHEDULES AND EXHIBITS........................................ A-6
INDEX OF DEFINED TERMS................................................. A-7
ARTICLE I ATMI PLAN OF MERGER ..................................... A-10
1.1 Surviving Corporation................................... A-10
1.2 Certificate of Incorporation............................ A-10
1.3 By-laws................................................. A-10
1.4 Directors............................................... A-10
1.5 Officers................................................ A-10
1.6 Effective Time of the Merger............................ A-10
1.7 Additional Actions...................................... A-10
1.8 Merger Consideration.................................... A-10
1.9 Conversion of Shares.................................... A-11
1.10 Exchange Agent.......................................... A-11
1.11 Exchange of Certificates................................ A-11
1.12 ATMI Stock Options; Warrants............................ A-12
1.13 Closing of Stock Transfer Books......................... A-12
ARTICLE II EXCHANGE................................................ A-12
2.1 Exchange................................................ A-12
2.2 Additional Actions...................................... A-13
2.3 Exchange Consideration.................................. A-13
2.4 Escrow.................................................. A-14
2.5 Average Closing Price................................... A-14
2.6 Tax Treatment........................................... A-14
2.7 Accounting Treatment.................................... A-14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE ADCS GROUP........ A-14
3.1 Capitalization; Options, Warrants, Rights............... A-14
3.2 Ownership of Interests.................................. A-15
3.3 Organization, Good Standing and Power................... A-15
3.4 Organizational Documents................................ A-16
3.5 Authorizations.......................................... A-16
3.6 ADCS Commitments........................................ A-16
3.7 Restrictions; Burdensome Agreements..................... A-18
3.8 Condition of the Assets................................. A-18
3.9 Title; Absence of Liens and Encumbrances, Etc........... A-19
3.10 Government and Other Consents........................... A-19
3.11 Franchises, Permits, Licenses; Compliance with Applica-
ble Laws and Court Orders............................... A-19
3.12 Financial Statements ................................... A-20
3.13 Absence of Undisclosed Liabilities ..................... A-20
3.14 Absence of Certain Changes.............................. A-20
3.15 Indebtedness............................................ A-21
3.16 Accounts Receivable..................................... A-22
3.17 Supplies................................................ A-22
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.18 No Prebillings.......................................... A-22
3.19 Taxes................................................... A-22
3.20 Facilities.............................................. A-23
3.21 Insurance............................................... A-23
3.22 Books and Records....................................... A-23
3.23 Employees............................................... A-24
3.24 Employee Benefit Plans.................................. A-24
3.25 Litigation.............................................. A-26
3.26 Proprietary Rights...................................... A-26
3.27 Section 341(f)(2) Consent............................... A-27
3.28 Related Party Transactions.............................. A-27
3.29 Bank Accounts and Safe Deposit Arrangements............. A-28
3.30 Powers of Attorney...................................... A-28
3.31 Environmental Matters; Health and Safety................ A-28
3.32 Customers and Suppliers................................. A-30
3.33 Product and Service Warranties.......................... A-30
3.34 Hart-Scott-Rodino....................................... A-31
3.35 Stock Ownership......................................... A-31
3.36 Finders' Fees........................................... A-31
3.37 Information in Disclosure Documents and Registration
Statement............................................... A-31
3.38 Pooling................................................. A-31
3.39 Atlantic Coast Polymers, Inc............................ A-31
3.40 No Misrepresentation.................................... A-31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE ATMI GROUP........ A-31
4.1 Capitalization; Options, Warrants, Rights............... A-32
4.2 Organization; Good Standing; Power...................... A-32
4.3 Organizational Documents................................ A-32
4.4 Authorization........................................... A-33
4.5 SEC Compliance.......................................... A-33
4.6 ATMI Commitments........................................ A-33
4.7 Restrictions; Burdensome Agreements..................... A-34
4.8 Condition of the Assets................................. A-34
4.9 Title; Absence of Liens and Encumbrances, Etc........... A-35
4.10 Government and Other Consents........................... A-35
4.11 Franchises, Permits, Licenses; Compliance with Applica-
ble Laws and Court Orders............................... A-35
4.12 Financial Statements.................................... A-35
4.13 Absence of Undisclosed Liabilities...................... A-36
4.14 Absence of Certain Changes.............................. A-36
4.15 Indebtedness............................................ A-37
4.16 Accounts Receivable..................................... A-37
4.17 Supplies................................................ A-37
4.18 No Prebillings.......................................... A-37
4.19 Taxes................................................... A-38
4.20 Employees............................................... A-38
4.21 Employee Benefit Plans.................................. A-39
4.22 Litigation.............................................. A-41
4.23 Proprietary Rights...................................... A-41
4.24 Related Party Transactions.............................. A-42
4.25 Environmental Matters; Health and Safety................ A-42
4.26 Customers and Suppliers................................. A-43
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
4.27 Product and Service Warranties.......................... A-44
4.28 No Prior Activities..................................... A-44
4.29 Hart-Scott-Rodino....................................... A-44
4.30 Finders' Fees........................................... A-44
4.31 Information in Disclosure Documents and Registration
Statement............................................... A-44
4.32 Pooling................................................. A-45
4.33 Section 203 of the DGCL................................. A-45
4.34 No Misrepresentation.................................... A-45
ARTICLE V COVENANTS............................................... A-45
5.1 Access to Information................................... A-45
5.2 Interim Operations of ADCS Group........................ A-45
5.3 Interim Operation of ATMI Group......................... A-47
5.4 Notices of Certain Events............................... A-49
5.5 Other Acquisitions by ATMI.............................. A-49
5.6 No Public Disclosure.................................... A-50
5.7 No Negotiation.......................................... A-50
5.8 NovaMOS................................................. A-50
5.9 Election of Directors................................... A-50
5.10 HSR Act................................................. A-50
5.11 Preparation of S-4 and the Proxy Statement.............. A-50
5.12 Best Efforts; Cooperation............................... A-51
5.13 ATMI Stockholder Matters................................ A-51
5.14 Nasdaq Listing.......................................... A-51
5.15 Affiliates.............................................. A-51
5.16 Financial Statements and SEC Reports.................... A-51
5.17 Employee Benefits....................................... A-51
5.18 Tax Matters............................................. A-52
5.19 Supplements to Disclosure Schedules..................... A-52
5.20 Expenses................................................ A-52
5.21 Officer and Director Indemnity.......................... A-52
5.22 Exchange Act Section 16(b).............................. A-53
5.23 Environmental Report.................................... A-53
ARTICLE VI CONDITIONS PRECEDENT TO CLOSING......................... A-54
6.1 Conditions to the Obligations of the ATMI Group......... A-54
6.2 Conditions to the Obligations of the ADCS Group......... A-57
ARTICLE VII CLOSING................................................. A-60
7.1 Closing................................................. A-60
7.2 Simultaneous Closing.................................... A-60
ARTICLE VIII FURTHER ASSURANCES...................................... A-60
ARTICLE IX TERMINATION OF AGREEMENT................................ A-60
9.1 Termination............................................. A-60
9.2 Termination Payment..................................... A-61
9.3 Failure to Deliver Interests............................ A-61
9.4 Effect of Termination................................... A-61
9.5 Breach of Section 5.7................................... A-61
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE X MISCELLANEOUS.............................................. A-62
10.1 Right of Set-Off........................................... A-62
10.2 Benefits of this Agreement................................. A-62
10.3 Successors and Assigns..................................... A-62
10.4 Notices.................................................... A-62
10.5 Severability............................................... A-63
10.6 Pooling.................................................... A-63
10.7 Entire Agreement; Amendment................................ A-63
10.8 Waiver..................................................... A-63
10.9 Applicable Law............................................. A-63
10.10 Jurisdiction............................................... A-64
10.11 Counterparts............................................... A-64
10.12 Knowledge ................................................. A-64
</TABLE>
A-5
<PAGE>
INDEX OF SCHEDULES AND EXHIBITS
SCHEDULES
<TABLE>
<C> <S>
Schedule A Holders
Schedule 1.4 Directors of Surviving Corporation
Schedule 1.5 Officers of Surviving Corporation
Schedule 2.3(a) Exchange Consideration
ADCS Disclosure Schedule
ATMI Disclosure Schedule
Schedule 5.2 Permitted Pre-Closing Activities of ADCS
Schedule 5.3(p) Permitted Employment Agreements by ATMI
Schedule 5.8 Post-Closing Operations
Schedule 6.2(g) ATMI Assessment Opinion Patents
EXHIBITS
Exhibit A Form of Certificate of Merger
Exhibit B Form of Assignment of Membership Interests
Exhibit C Form of Registration Rights Agreement
Exhibit D-1 Form of Affiliates Agreement of ADCS
Exhibit D-2 Form of Affiliates Agreement of ATMI
Exhibit E Form of Proprietary Information and Inventions
Agreement
Exhibit F Form of Employment Agreements
Exhibit G Form of Escrow Agreement
Exhibit H Form of Indemnification Agreement
Exhibit I Form of Certificate of Holder
Exhibit J Form of Opinion of Counsel to ADCS
Exhibit K Form of Opinion of Patent Counsel to ADCS
Exhibit L Form of Releases
Exhibit M Form of Opinion of Counsel to ATMI
Exhibit N Form of Opinion of Patent Counsel to ATMI (General)
Exhibit O Form of Assessment Opinion of Patent Counsel to ATMI
</TABLE>
A-6
<PAGE>
INDEX OF DEFINED TERMS
The following index of defined terms is provided for convenience of reference
only:
<TABLE>
<CAPTION>
TERM LOCATION
---- --------
<C> <S>
ADCS Commitments Section 3.6(a)(i)
ADCS Controlled Group Section 3.24(e)(i)
ADCS Disclosure Schedule Introductory paragraph to Article
III
ADCS Financial Statements Section 3.12
ADCS Group Page A-9
ADCS Group Employee Benefit Plans Section 3.24(a)
ADCS Group Securities Section 3.1
ADCS Group Subsidiaries Section 3.1
ADCS Holdings Page A-9
ADCS LP Page A-9
ADCS Manager Page A-9
ADCS Material Adverse Effect Section 3.3(a)
ADCS Nevada Page A-9
ADCS Operating Page A-9
ADCS Organizational Documents Section 3.4
ADCS Premises Section 3.20
Additional Agreements Introductory paragraph to Article
III
Affiliates Agreements Section 5.15
Agreement Page A-9
ATMI Page A-9
ATMI Commitments Section 4.6(a)(i)
ATMI Common Stock Section 1.8
ATMI Controlled Group Section 4.21(e)(i)
ATMI Disclosure Schedule Introductory paragraph to Article
IV
ATMI Employee Benefit Plans Section 4.21(a)
ATMI Financial Statements Section 4.12
ATMI Group Page A-9
ATMI Group Securities Section 4.1
ATMI Group Subsidiaries Section 4.1
ATMI Identified Proprietary Rights Section 4.23(h)
ATMI Material Adverse Effect Section 4.2(a)
ATMI Organizational Documents Section 4.3
ATMI Premises Section 4.25(b)
ATMI SEC Documents Section 4.5
Average Closing Price Section 2.5
Balance Sheet Date Section 3.12
Burdensome Condition Section 6.1(n)
Capital Stock Recitals
Certificate of Merger Section 1.6
Closing Section 7.1
Closing Date Section 7.1
Code Recitals
Commitments Section 3.6(a)(i)
Coverage Section 5.17
Current ADCS Indemnitee Schedule 5.21
DGCL Section 1.1
Demand Date Section 2.3(b)
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
TERM LOCATION
---- --------
<C> <S>
Effective Time Section 1.6
Employment Agreement Section 6.1(f)(ii)
Environmental Conditions Section 3.31(a)(i)
Environmental Laws Section 3.31(a)(ii)
ERISA Section 3.24(b)
Escrow Agreement Section 6.1(f)(iv)
Exchange Recitals
Exchange Act Section 4.5
Exchange Agent Section 1.10
Exchange Consideration Section 2.3(a)
Hazardous Materials Section 3.31(a)(iii)
Holders Recitals
Holdings Page A-9
Holdings Common Stock Recitals
HSR Act Section 5.10
Indemnification Agreement Section 6.1(f)(v)
Interests Recitals
knowledge Section 10.12
Marks Section 3.26(c)
Material Environmental Condition Section 5.23
Membership Interests Recitals
Merger Recitals
Newco Page A-9
Notice (environmental) Section 3.31(a)(iv)
Organizational Chart Section 3.1
Outstanding ATMI Options Section 1.12
Outstanding ATMI Warrants Section 1.12
PBGC Section 3.24
Permit(s) Section 3.11
Pro Rata Portion Section 2.3(a)
Proposal Section 3.6(a)(ii)
Proprietary Information and Inventions
Agreements Section 6.1(f)(i)
Proprietary Rights Section 3.26(b)
Proxy Statement Section 3.37
Qualified Beneficiaries Section 5.17
Registration Rights Agreement Section 5.3(k)
Release Section 3.31(a)(v)
Reorganization Recitals
Returns Section 3.19(a)
S-4 Section 1.8
SEC Section 1.8
Section 16(b) Liability Section 5.22
Section 16(b) Matter Section 5.22
Securities Section 3.1
Securities Act Section 1.8
Site Remediation Measures Section 3.31(a)(vi)
Successor Welfare Plans Section 5.17
Surviving Corporation Section 1.1
Tax or Taxes Section 3.19(a)
Tax Opinion Section 6.1(j)
</TABLE>
A-8
<PAGE>
AGREEMENT AND PLAN OF MERGER
AND EXCHANGE
This AGREEMENT AND PLAN OF MERGER AND EXCHANGE ("Agreement") is made and
entered into as of the 7th day of April, 1997, by and among ADVANCED
TECHNOLOGY MATERIALS, INC., a Delaware corporation ("ATMI"), ATMI HOLDINGS,
INC., a Delaware corporation and wholly-owned subsidiary of ATMI ("Holdings"),
ALAMO MERGER, INC., a Delaware corporation and wholly-owned subsidiary of
Holdings ("Newco"), ADVANCED DELIVERY & CHEMICAL SYSTEMS NEVADA, INC., a
Nevada corporation ("ADCS Nevada"), ADVANCED DELIVERY & CHEMICAL SYSTEMS
MANAGER, INC., a Delaware corporation ("ADCS Manager"), ADVANCED DELIVERY &
CHEMICAL SYSTEMS HOLDINGS, LLC, a Delaware limited liability company ("ADCS
Holdings"), ADVANCED DELIVERY & CHEMICAL SYSTEMS OPERATING, LLC, a Delaware
limited liability company ("ADCS Operating") and ADVANCED DELIVERY & CHEMICAL
SYSTEMS, LTD., a Texas limited partnership ("ADCS LP"). ATMI, Holdings and
Newco are referred to herein as the "ATMI Group." ADCS Nevada, ADCS Manager,
ADCS Holdings, ADCS Operating and ADCS LP are referred to herein as the "ADCS
Group." As used herein, the terms the "ATMI Group" and the "ADCS Group" shall
refer to each member of such group, two or more members of such group, and all
members of such group collectively, unless the context requires otherwise.
W I T N E S S E T H:
This Agreement is made with reference to the following facts.
A. The persons listed on Schedule A hereto (collectively, the "Holders"),
are the record and beneficial owners of (i) all of the issued and outstanding
shares of capital stock of ADCS Nevada and ADCS Manager (the "Capital Stock")
and (ii)together with ADCS Nevada, all of the membership interests in ADCS
Holdings (the "Membership Interests," and together with the Capital Stock, the
"Interests").
B. The ATMI Group desires to acquire the ADCS Group by acquiring all of the
Holders' Interests.
C. The parties desire such transaction to be a tax-free transaction under
the Internal Revenue Code of 1986, as amended (the "Code"), and for such
transaction to be accounted for as a pooling of interests.
D. In order to provide for the tax-free treatment of such transaction and to
account for such transaction as a pooling of interests, the parties have
determined that such transaction must be effected in accordance with Section
351 of the Code, pursuant to which (i) Newco will be merged with and into ATMI
(the "Merger") with the stockholders of ATMI receiving shares in Holdings and
(ii) simultaneously therewith the Holders will transfer their Interests to
Holdings in exchange (the "Exchange" and together with the Merger, the
"Reorganization") for shares of Holdings common stock, par value $.01 per
share ("Holdings Common Stock"), all pursuant to the terms, conditions and
provisions of this Agreement.
E. The Board of Directors of ATMI, deeming it advisable and for the benefit
of its stockholders, has unanimously approved the Reorganization, upon and
subject to the terms, conditions and provisions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations and warranties and mutual covenants herein contained, the
parties hereto agree as follows:
A-9
<PAGE>
ARTICLE I
ATMI Plan of Merger
1.1. Surviving Corporation. In accordance with the provisions of this
Agreement and at the Effective Time (as hereinafter defined), Newco shall be
merged with and into ATMI, with ATMI being the surviving corporation in the
Merger (the "Surviving Corporation"). At the Effective Time, the separate
existence of Newco shall cease, and the Surviving Corporation shall continue
its corporate existence under the laws of the State of Delaware. The Merger
shall have the effects set forth in Section 259 of the Delaware General
Corporation Law (the "DGCL"). By virtue of the Merger, the Surviving
Corporation will become a wholly-owned subsidiary of Holdings.
1.2. Certificate of Incorporation. The Certificate of Incorporation of ATMI
as in effect at the Effective Time shall be the Certificate of Incorporation
of the Surviving Corporation until thereafter amended in accordance with its
terms and the DGCL. The authorized number and par value of shares of all
classes of capital stock of ATMI immediately prior to the Effective Time shall
be the authorized number and par value of shares of the classes of capital
stock of the Surviving Corporation from and after the Effective Time.
1.3. By-Laws. The By-Laws of ATMI as in effect at the Effective Time shall
be the By-Laws of the Surviving Corporation until thereafter amended as
provided by law.
1.4. Directors. From and after the Effective Time, the persons listed on
SCHEDULE 1.4 shall be the directors of the Surviving Corporation, all such
directors to hold office until their respective successors are duly elected
and qualified in the manner provided in the Certificate of Incorporation and
By-Laws of the Surviving Corporation, or as otherwise provided by law.
1.5. Officers. From and after the Effective Time, the persons listed on
SCHEDULE 1.5 shall be the officers of the Surviving Corporation, all such
officers to hold office until their respective successors are duly elected and
qualified in the manner provided in the Certificate of Incorporation and By-
Laws of the Surviving Corporation, or as otherwise provided by law.
1.6. Effective Time of the Merger. If all the conditions set forth in
Article VI have been fulfilled or waived in accordance with the terms thereof,
and this Agreement has not been terminated in accordance with Article IX, the
ATMI Group shall cause a Certificate of Merger in the form attached hereto as
Exhibit A (the "Certificate of Merger") to be properly executed and filed on
the Closing Date (as hereinafter defined), with the Secretary of State of the
State of Delaware. The Merger shall become effective upon the filing of an
executed Certificate of Merger and any and all required related certificates
with the Secretary of State of the State of Delaware (the date and time when
the Merger becomes effective is referred to as the "Effective Time").
1.7. Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other acts or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, its right, title or interest in or to any of the
rights, properties or assets of Newco or ATMI acquired or to be acquired by
reason of, or as a result of, the Merger, or otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors shall be authorized to execute and deliver, in the name and on
behalf of Newco and ATMI, all such deeds, bills of sale, assignments and
assurances and to do, in the name and on behalf of Newco or ATMI, all such
other acts and things necessary or desirable to vest, perfect or confirm any
and all right, title or interest in, to or under such rights, properties or
assets in the Surviving Corporation or otherwise to carry out the purposes of
this Agreement.
1.8. Merger Consideration. Each share of ATMI common stock, par value $.01
per share ("ATMI Common Stock") issued and outstanding on the Effective Time
shall be converted into the right to receive one (1) validly issued, fully
paid and non-assessable share of Holdings Common Stock, such shares of
Holdings Common Stock to be issued in accordance with the terms of this
Agreement and pursuant to a registration
A-10
<PAGE>
statement on Form S-4 (the "S-4") declared effective under the Securities Act
of 1933, as amended (the "Securities Act"), by the Securities and Exchange
Commission (the "SEC").
1.9. Conversion of Shares.
(a) At the Effective Time, each share of ATMI Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, automatically
be converted into and represent the right to receive one (1) validly issued,
fully paid and non-assessable share of Holdings Common Stock.
(b) At the Effective Time, each share of ATMI Common Stock held in ATMI's
treasury immediately prior to the Effective Time shall, by virtue of the
Merger, be canceled and returned to the status of authorized but unissued
capital stock of ATMI without payment of any consideration therefor.
(c) At the Effective Time, each share of common stock, par value $.01 per
share, of Newco issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
holder thereof, automatically be converted into and represent one (1) validly
issued, fully paid and non-assessable share of common stock, par value $.01
per share, of the Surviving Corporation, as such shares of common stock are
constituted immediately following the Effective Time.
(d) At the Effective Time, each share of common stock, par value $.01 per
share, of Holdings issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, automatically be canceled.
1.10. Exchange Agent. Boston EquiServe Limited Partnership, or such other
national or state bank as is selected by Holdings, shall act as the agent for
ATMI stockholders for purposes of mailing and receiving transmittal letters
and distributing consideration to holders of ATMI Common Stock (the "Exchange
Agent").
1.11. Exchange of Certificates.
(a) As promptly as practicable after the Effective Time, the Exchange Agent
shall mail or deliver to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of ATMI Common Stock whose shares were converted into the
right to receive Holdings Common Stock pursuant to Section 1.9 hereof and the
Certificate of Merger, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk, loss and title to such certificates
shall pass, only upon delivery of the certificates to the Exchange Agent and
shall be in such form and have such other provisions as Holdings may
reasonably specify) and (ii) instructions for use in effecting the surrender
of such certificates in exchange for a certificate representing Holdings
Common Stock. Upon surrender of a certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Holdings,
together with such letter of transmittal, duly executed, such agent shall
promptly deliver in accordance with the instructions properly contained in
such letter of transmittal a certificate for the number of shares of Holdings
Common Stock to which such holder is entitled pursuant to Section 1.9.
(b) At the Effective Time, each holder of an outstanding certificate or
certificates for shares of ATMI Common Stock shall cease to have any rights as
a stockholder of ATMI. Each such holder of an outstanding certificate or
certificates for shares of ATMI Common Stock converted in the Merger, upon
surrender of each such certificate to the Exchange Agent, shall receive
promptly in exchange for each such certificate the shares of Holdings Common
Stock to which such holder is entitled pursuant to Section 1.9 of this
Agreement. Pending such surrender and exchange, such holder's certificate or
certificates for shares of ATMI Common Stock shall be deemed for all corporate
purposes, by virtue of the Merger and without any action on the part of the
holder thereof, to evidence only the right to receive the shares of Holdings
Common Stock provided for under this Agreement. Unless and until any such
outstanding certificates for shares of ATMI Common Stock shall be so
surrendered, no dividend (cash or stock) payable to holders of record of
shares of Holdings Common Stock as of
A-11
<PAGE>
any date subsequent to the Effective Time shall be paid to the holder of any
such outstanding certificate, but upon such surrender of such outstanding
certificate there shall be paid to the record holder of the certificate for
shares of Holdings Common Stock issued in exchange therefor the amount of
dividends, if any, without interest and less any taxes which may have been
imposed thereon, that have theretofore become payable with respect to the
number of those shares of Holdings Common Stock represented by such
certificate issued upon such surrender and exchange.
1.12. ATMI Stock Options; Warrants. At or prior to the Effective Time,
Holdings, ATMI and Newco shall take all action necessary to cause the
assumption by Holdings as of the Effective Time of the options to purchase
ATMI Common Stock outstanding as of the Effective Time (the "Outstanding ATMI
Options") and warrants to purchase ATMI Common Stock outstanding as of the
Effective Time (the "Outstanding ATMI Warrants"). Each of the Outstanding ATMI
Options and the Outstanding ATMI Warrants shall be converted without any
action on the part of the holder thereof into an option or warrant, as the
case may be, to purchase shares of Holdings Common Stock as of the Effective
Time. The holder of an Outstanding ATMI Option or an Outstanding ATMI Warrant
shall be entitled to receive upon the exercise thereof one (1) share of
Holdings Common Stock for each share of ATMI Common Stock subject to such
warrant or option, determined immediately before the Effective Time. The
exercise price of each share of Holdings Common Stock subject to an
Outstanding ATMI Warrant or Outstanding ATMI Option shall be the exercise
price per share of ATMI Common at which such warrant or option is exercisable
immediately before the Effective Time. The assumption and substitution of the
Outstanding ATMI Warrants and Outstanding ATMI Options as provided herein
shall not give the holders of such warrants or options additional benefits
which they did not have immediately prior to the Effective Time or relieve the
holders of any obligations or restrictions applicable to their warrants or
options or the shares obtainable upon exercise of the warrants or options.
Holdings shall (i) reserve out of its authorized but unissued shares of
Holdings Common Stock sufficient shares to provide for the exercise of the
Outstanding ATMI Warrants and Outstanding ATMI Options and (ii) use all
reasonable efforts to register under the Securities Act, coincident with the
Effective Time, those shares of Holdings Common Stock to be issued upon the
exercise of the Outstanding ATMI Options, which registration shall be made on
such form as may be permitted under the Securities Act.
1.13. Closing of Stock Transfer Books. The stock transfer books of ATMI
shall be closed at the close of business on the business day immediately
preceding the Effective Time. In the event of a transfer of ownership of ATMI
Common Stock which is not registered in the transfer records of ATMI, the
shares of Holdings Common Stock and cash for fractional shares (if any) to be
issued in the Merger as provided herein may be delivered to a transferee, if
the certificate representing such ATMI Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by payment of any applicable stock transfer taxes.
ARTICLE II
Exchange
2.1. Exchange. The ADCS Group hereby agrees to use its best efforts to cause
the Holders on the Closing Date and simultaneously with the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware to
tender their Interests in exchange for the number of shares of Holdings Common
Stock determined in accordance with Section 2.3 below. The ADCS Group hereby
further agrees to use its best efforts, exercised in good faith, to cause the
Holders to have present at the Closing the original certificate or
certificates representing all of the issued and outstanding shares of capital
stock of each of ADCS Nevada and ADCS Manager and to cause the Holders and
their spouses, if their signatures be required, to execute and/or deliver (as
appropriate) to Holdings (i) either each of the original share certificates,
duly endorsed for transfer against delivery by Holdings of the Exchange
Consideration (as hereinafter defined) or, as permitted by Section 2.3(c)
below, irrevocable instructions to the Exchange Agent to issue that number of
shares of Holdings Common Stock to each respective Holder as determined
pursuant to Section 2.3 below, with all requisite transfer stamps, if any are
due, attached thereto, (ii) an assignment of the Membership Interests, the
form of which is attached hereto as
A-12
<PAGE>
EXHIBIT B, and (iii) all such other deeds, bills of sale, assignments and
assurances which Holdings deems reasonably necessary or desirable to vest,
perfect or confirm any and all right, title or interest in, to or under the
Interests.
2.2. Additional Actions. The ADCS Group hereby agrees to use its best
efforts to cause the Holders and their spouses, if signatures be required, to
execute and deliver at the Closing an agreement to the effect that if at any
time after the Effective Time Holdings shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other acts or things are
necessary or desirable to vest, perfect or confirm, of record or otherwise, in
Holdings, its right, title or interest in or to any of the Holders' Interests
acquired or to be acquired by reason of, or as a result of, the Exchange, or
otherwise to carry out the purposes of this Agreement, the Holders shall
execute and deliver all such deeds, bills of sale, assignments and assurances
and to do all such other acts and things reasonably necessary or desirable to
vest, perfect or confirm any and all right, title or interest in, to or under
the Interests or otherwise to carry out the purposes of this Agreement.
2.3. Exchange Consideration. (a) In exchange for the Interests of the
Holders and subject to the provisions of Section 2.3(b) below, at the Closing
Holdings will issue to the Holders the aggregate number of shares of Holdings
Common Stock (rounded up to the nearest whole number of shares) determined by
dividing Eighty-Seven Million Five Hundred Thousand Dollars ($87,500,000) by
the Average Closing Price (as hereinafter defined) of ATMI Common Stock (the
"Exchange Consideration"). The Exchange Consideration shall be deemed to be
allocated to each Holder as consideration for the exchange of the Holder's
Interests in the various ADCS Group entities, as set forth on SCHEDULE 2.3(a),
according to the Holders' relative pro rata ownership percentage of the
Interests in such ADCS Group entity, determined by the amount which each
Holder's respective ownership bears to the aggregate ownership of all of the
Holders in such entity. The pro rata portion of the aggregate Exchange
Consideration allocated to each Holder is referred to herein as the "Pro Rata
Portion."
(b) In the event that the combined book value of the ADCS Group and the ADCS
Group Subsidiaries (as hereinafter defined) determined as of the Closing Date
in accordance with generally accepted accounting principles is less than
$10,000,000 by an amount greater than $500,000, the number of shares of
Holdings Common Stock to be issued in accordance with Section 2.3(a) above
shall be decreased by a number of shares equal to (1) $10,000,000 less (2) the
book value as of Closing, divided by the Average Closing Price, and the
Holders shall, in the manner provided below and in the Escrow Agreement (as
hereinafter defined) return any excess shares of Holdings Common Stock to
Holdings. The shares of Holdings Common Stock delivered into escrow pursuant
to the Escrow Agreement (as hereinafter defined) shall stand as security for
the Holders' obligations under this Section 2.3(b). The determination of book
value will be made by Holdings no later than ninety (90) days after the
Closing Date, and written notice thereof shall be provided to the Holders and
the escrow agent under the Escrow Agreement. Such written notice shall
indicate a date (the "Demand Date"), no earlier than ten (10) business days
after the date on which such notice is received, on or after which Holdings
may make demand upon the escrow agent for such excess shares. If Holders
owning seventy percent (70%) or more of the Exchange Consideration notify
Holdings and the escrow agent in writing prior to the Demand Date that they do
not agree with such book value, the Demand Date will be postponed and such
Holders and Holdings will attempt to agree on the book value within sixty (60)
days after Holdings' determination thereof. If such Holders and Holdings are
unable to agree, then Ernst & Young LLP or such other nationally recognized
accounting firm acceptable to Holdings and the Holders owning seventy percent
(70%) or more of the Exchange Consideration shall make such determination
which shall be final and binding on all parties. The escrow agent is
authorized to rely without investigation and to release to Holdings the excess
shares upon (i) a demand made by Holdings after the Demand Date if Holders
owning seventy percent (70%) or more of the Exchange Consideration have not
notified the escrow agent in writing of an objection prior to the Demand Date,
(ii) a written determination from Ernst & Young LLP or such other nationally
recognized accounting firm, or (iii) any writing signed by Holdings and the
Holders owning seventy percent (70%) or more of the Exchange Consideration
(each of (i), (ii) and (iii) shall constitute an Adjustment Notice for
purposes of Section 4(b) of the Escrow Agreement).
A-13
<PAGE>
(c) The Exchange Consideration, the amount and calculation of which shall be
set forth on a certificate executed by each of the parties at the Closing,
will be allocated among the Holders according to their respective Pro Rata
Portions. Share certificates evidencing the Exchange Consideration shall be
delivered to the Holders at the Closing, if at all practicable; and if not,
then irrevocable instructions regarding the issuance of the Exchange
Consideration to each of the Holders shall be delivered to the Exchange Agent
at Closing with the certificates representing the Exchange Consideration to be
delivered as soon as practicable thereafter. No fractional shares of Holdings
Common Stock shall be issuable by Holdings to any Holder in connection with
the Exchange. In lieu of any such fractional shares, each Holder who would
otherwise have been entitled to receive a fraction of a share of Holdings
Common Stock shall be entitled to receive instead an amount in cash equal to
such fraction multiplied by the Average Closing Price.
2.4. Escrow. At the Effective Time, Holdings shall deliver to the escrow
agent or any successor escrow agent appointed pursuant to the Escrow
Agreement, certificates evidencing 750,000 shares of the Exchange
Consideration, such shares to be allocated among the Holders in accordance
with their respective Pro Rata Portions and to be held and applied in
accordance with the Indemnification Agreement and the Escrow Agreement.
Subject to the restrictions set forth in Section 5.3, if between the date
hereof and the Effective Time, the issued and outstanding shares of ATMI
Common Stock shall have been combined, split, reclassified or otherwise
changed into a different number of shares or a different class of shares, an
appropriate adjustment to the number of shares of Holdings Common Stock to be
delivered into escrow shall be made.
2.5. Average Closing Price. The term "Average Closing Price" shall mean the
average closing price of ATMI Common Stock on The Nasdaq National Market for
the twenty (20) trading days ended five (5) days prior to the date of ATMI's
meeting of stockholders to approve the Merger; provided that (i) in the event
that the Average Closing Price is greater than $16 per share, the Average
Closing Price shall be deemed to be $16 per share; and (ii) in the event that
the Average Closing Price is less than $14 per share, the Average Closing
Price shall be deemed to be $14 per share.
2.6. Tax Treatment. The parties intend and expect that (i) the Merger will
qualify as a reorganization within the meaning of Section 368 of the Code in a
transaction which is described in Section 351 of the Code, and (ii) that, as a
result of the simultaneous closing of the Merger and Exchange, the Holders
will be treated as having exchanged their Interests in a transaction which is
described in Section 351 of the Code.
2.7. Accounting Treatment. The parties intend and expect that the
Reorganization shall be accounted for as a pooling of interests.
ARTICLE III
Representations and Warranties of
the ADCS Group
The ADCS Group hereby jointly and severally represent and warrant to the
ATMI Group that, except as set forth in the ADCS DISCLOSURE SCHEDULE attached
hereto (which ADCS Disclosure Schedule makes explicit reference to the
particular subsection as to which exception is taken, which in each case shall
constitute the sole subsection as to which such exception shall apply, and the
statements in such ADCS Disclosure Schedule shall be deemed to be
representations and warranties), as supplemented pursuant to Section 5.19, and
acknowledge and confirm that the ATMI Group is relying upon such
representations and warranties in connection with the execution, delivery and
performance of this Agreement and the Additional Agreements to which the ATMI
Group is a party described in Section 6.1(f) below (the "Additional
Agreements") and the completion of the Reorganization, notwithstanding any
investigation made by the ATMI Group or on its behalf:
3.1. Capitalization; Options, Warrants, Rights. SCHEDULE 3.1 sets forth the
aggregate number of all of the shares of any class of stock, other securities
or other ownership interests (such types of securities are herein referred to
collectively as "Securities"), including the Capital Stock and the Membership
Interests, which the
A-14
<PAGE>
ADCS Group and each ADCS Group Subsidiary (as hereinafter defined) are
authorized to issue (the "ADCS Group Securities"), the aggregate number of all
of the ADCS Group Securities issued and outstanding and the record and
beneficial owners of all of the issued and outstanding ADCS Group Securities.
All Securities of the ADCS Group have been validly authorized and issued and
are fully paid and non-assessable, and have not been issued in violation of
any preemptive, first refusal or other subscription rights of any holder of
any ADCS Group Securities or any other person, and have been issued in
compliance with applicable foreign, federal and state securities laws. The
Capital Stock constitutes all of the issued and outstanding shares of capital
stock of ADCS Nevada and ADCS Manager. Except as set forth on SCHEDULE 3.1,
the Membership Interests constitute all of the membership interests of ADCS
Holdings. With respect to the ADCS Group and each ADCS Group Subsidiary, there
are no outstanding or existing (i) proxies, voting trusts, or other agreements
or understandings with respect to the voting of the ADCS Group Securities,
(ii) ADCS Group Securities convertible into or exchangeable for other ADCS
Group Securities, (iii) options, warrants or other rights to purchase or
subscribe for ADCS Group Securities (other than this Agreement) or ADCS Group
Securities convertible into or exchangeable for other ADCS Group Securities,
or (iv) agreements of any kind relating to the issuance or purchase of ADCS
Group Securities or ADCS Group Securities convertible into or exchangeable for
other ADCS Group Securities. No member of the ADCS Group holds or owns,
directly or indirectly, any Securities of any other corporation, or has any
direct or indirect equity or ownership interest in any association,
partnership, joint venture or other entity other than (i) through mutual funds
or other similar investment vehicles over which no investment discretion is
retained, (ii) publicly-traded Securities having a market value of $25,000 or
less per issuer, (iii) ADCS Group Securities and (iv) as identified on
SCHEDULE 3.1 (each corporation, association, partnership, joint venture or
other entity in which any member of the ADCS Group owns, directly or
indirectly, twenty percent (20%) or more of the issued and outstanding
Securities are referred to herein as the "ADCS Group Subsidiaries"). A true
and correct organizational chart for the ADCS Group and the ADCS Group
Subsidiaries, indicating ownership interests, is attached hereto as part of
SCHEDULE 3.1 (the "Organizational Chart").
3.2. Ownership of Interests. (a) A current list of the record holders of the
Capital Stock and the Membership Interests is set forth on SCHEDULE 3.1. Each
of such record holders is the record and beneficial owner of the number of
ADCS Group Securities shown on SCHEDULE 3.1, and such ADCS Group Securities
are, to the ADCS Group's knowledge, free and clear of all liens, pledges,
security interests, charges, claims and other encumbrances, and will be so
free and clear as of the Closing.
(b) Each of the ADCS Group is the record and beneficial owner of the number
of ADCS Group Securities shown on the Organizational Chart, free and clear of
all liens, pledges, security interests, charges, claims and other
encumbrances.
3.3. Organization, Good Standing and Power. (a) Each member of the ADCS
Group, each ADCS Group Subsidiary and each Holder which is an entity is a
corporation, limited partnership or limited liability company, as the case may
be, duly organized, validly existing and in good standing under the laws of
its state or country of organization, is authorized to do business as a
foreign corporation, foreign limited partnership or foreign limited liability
company, as the case may be, in the jurisdictions set forth on SCHEDULE 3.3
and is not required to be authorized to do business as a foreign corporation,
foreign limited partnership or foreign limited liability company, as the case
may be, in any other jurisdiction (within or without the United States) by
reason of the nature of the business now being conducted by it or the
properties owned or leased or operated by it in which the failure to be so
qualified would have a material adverse effect on the assets, liabilities,
results of operations, financial condition or business of the ADCS Group and
the ADCS Group Subsidiaries taken as a whole (an "ADCS Material Adverse
Effect").
(b) The ADCS Group, each ADCS Group Subsidiary and each Holder which is an
entity have the requisite power, corporate or otherwise, to own, lease and
operate its properties and carry on its business as it is now being conducted
by it, and has the power and authority, corporate or otherwise, to execute,
deliver and perform this Agreement and the Additional Agreements to which it
is a party and consummate the transactions contemplated hereby and thereby.
A-15
<PAGE>
(c) The ADCS Group and each ADCS Group Subsidiary conducts its business
under the trade names and other assumed names set forth on Schedule 3.3.
3.4. Organizational Documents. With respect to the ADCS Group, each ADCS
Group Subsidiary and each Holder which is an entity, the ADCS Group has
heretofore made available to the ATMI Group a complete and correct copy of (i)
each corporation's Certificate or Articles of Incorporation, as amended to
date, (ii) each corporation's By-Laws, as amended to date, (iii) each limited
liability company's Articles of Organization or similar instrument, as amended
to date, (iv) each limited liability company's Operating Agreement or similar
agreement, as amended to date, and (v) each limited partnership's certificate
of limited partnership and Limited Partnership Agreement, each as amended to
date (items (i) through (v) being referred to herein as the "ADCS
Organizational Documents"). Each of the foregoing are in full force and
effect, and none of the ADCS Group, any ADCS Group Subsidiary, any Holder or
to the ADCS Group's knowledge, any other party to the ADCS Organizational
Documents, is in violation of any of the provisions thereof. There are no
proceedings for the amendment or modification of or any other change in the
ADCS Organizational Documents. There are no proceedings for the dissolution or
liquidation of the ADCS Group, any ADCS Group Subsidiary or any Holder which
is an entity or, to its knowledge, threatening the existence of the ADCS
Group, any ADCS Group Subsidiary or any Holder which is an entity. The ADCS
Group has made available to the ATMI Group the minute books and stock records
of each member of the ADCS Group and each ADCS Group Subsidiary.
3.5. Authorizations. The ADCS Group has taken all action, corporate or
otherwise, necessary to authorize the execution, delivery and performance of
this Agreement and, as applicable, the Additional Agreements to which it is a
party. Such execution, delivery and performance and the other transactions
contemplated hereby do not and will not violate, result in any default,
acceleration or loss of any material benefit under, permit any third party to
rescind any term or provision of, or conflict with any terms of, the ADCS
Organizational Documents, any law, lien, order, award, judgment, decree,
Permit (as hereinafter defined), or any material agreements or contracts to
which the ADCS Group, any ADCS Group Subsidiary or any Holder is a party or is
subject or by which the ADCS Group, any ADCS Group Subsidiary or any Holder or
their assets is bound or result in the creation of any lien, charge or
encumbrance upon any of the assets, real, personal or mixed, tangible or
intangible, of the ADCS Group, any ADCS Group Subsidiary or any Holder or upon
the Interests. Each of this Agreement and the Additional Agreements to which
the ADCS Group is a party when executed will constitute its legal, valid and
binding obligation, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent transfer and other
similar laws affecting the enforceability of creditors' rights generally.
3.6. ADCS Commitments.
(a) Definitions. The following definitions shall apply for purposes of this
Section 3.6:
(i) "ADCS Commitments" means all of the current written or oral leases,
agreements, contracts, instruments, indentures, notes and other documents
("Commitments") to which the ADCS Group or any ADCS Group Subsidiary is a
party other than the ADCS Group Employee Benefit Plans (as hereinafter
defined). Not included in the definition of ADCS Commitments are
discussions, negotiations or Proposals (as defined below) between ADCS
Group representatives and third parties.
(ii) "Proposal" means all of the current written offers, quotes or
proposals presented by the ADCS Group or any ADCS Group Subsidiary, which
written offer, quote, or proposal has not yet: (1) expired, (2) been
rejected, or (3) resulted in the execution of an ADCS Commitment.
(b) Schedule of ADCS Commitments and Proposals. SCHEDULE 3.6 hereto sets
forth a list of the following:
(i) any ADCS Commitments creating or evidencing rights to purchase ADCS
Group Securities;
(ii) any ADCS Commitments among stockholders, members, partners, or other
persons or entities holding ADCS Group Securities with respect to such ADCS
Group Securities;
A-16
<PAGE>
(iii) any ADCS Commitments, not including purchase orders placed by any
member of the ADCS Group, creating or evidencing indebtedness in excess of
$50,000.00 for money borrowed by the ADCS Group or any ADCS Group
Subsidiary;
(iv) any ADCS Commitments mortgaging, pledging, granting, or creating a
lien or security interest or other encumbrance on any real or personal
property of the ADCS Group or any ADCS Group Subsidiary;
(v) any ADCS Commitments creating or evidencing any guaranty by the ADCS
Group or any ADCS Group Subsidiary of payment or performance by any other
party involving in excess of $50,000.00;
(vi) any ADCS Commitments pursuant to which the ADCS Group or any ADCS
Group Subsidiary reasonably expects to receive aggregate payments in excess
of $250,000 in calendar year 1997;
(vii) any ADCS Commitments with any dealer, sales representative, broker
or other distributor, jobber, advertiser or sales agency;
(viii) any ADCS Commitments involving an obligation to pay in excess of
$100,000.00 to or from the ADCS Group or any ADCS Group Subsidiary for the
furnishing or purchase of machinery, equipment, goods or services;
(ix) any ADCS Commitments (including private placement brochures)
relating to the future sale or repurchase of ADCS Group Securities;
(x) any ADCS Commitments to register under the Securities Act any ADCS
Group Securities;
(xi) any ADCS Commitments involving a sharing of profits or expenses,
including, but not limited to, any joint venture agreements;
(xii) any ADCS Commitments limiting the freedom of the ADCS Group or any
ADCS Group Subsidiary to engage in any line of business;
(xiii) any ADCS Commitments limiting the freedom of the ADCS Group or any
ADCS Group Subsidiary to operate in any geographic area;
(xiv) any ADCS Commitments limiting the freedom of the ADCS Group or any
ADCS Group Subsidiary to compete with any party;
(xv) any ADCS Commitments limiting the freedom of the ADCS Group or any
ADCS Group Subsidiary to disclose or use any information material to the
operation of the business of the ADCS Group or any ADCS Group Subsidiary;
(xvi) any collective bargaining agreements;
(xvii) any ADCS Commitments containing any unpaid severance liabilities
or obligations involving in excess of $5,000.00;
(xviii) any fidelity or surety bond or completion bond involving in
excess of $10,000.00;
(xix) any ADCS Commitments relating to capital expenditures involving
future obligations in excess of $100,000.00;
(xx) any ADCS Commitments for construction of physical facilities
involving in excess of $100,000.00;
(xxi) any ADCS Commitments providing for disposition of any line of
business, material assets or ADCS Group Securities;
(xxii) any ADCS Commitments providing for acquisition of any line of
business, material assets or Securities of any other business, which
Securities have a fair market value in excess of $50,000;
(xxiii) any ADCS Commitments providing for merger or consolidation
(including letters of intent) with any other business;
A-17
<PAGE>
(xxiv) any ADCS Commitments pertaining to maintenance or support of
products, services or supplies; and
(xxv) any Proposals to enter into any future ADCS Commitments which, if
currently in effect would be described under this Section 3.6(b)(i),
(b)(ii), (b)(ix), (b)(xi), (b)(xii), (b)(xiii), (b)(xiv), (b)(xxi),
(b)(xxii) or (b)(xxiii) as an ADCS Commitment or which involve transactions
not in the ordinary course of business.
(c) The ADCS Group and each ADCS Group Subsidiary have complied in all
material respects with and are not in material default under any of the ADCS
Commitments.
(d) Neither the ADCS Group nor any ADCS Group Subsidiary has granted or been
granted any waiver or forbearance with respect to any ADCS Commitment with any
customer or with any lender that in either case is in excess of $50,000.00.
(e) Neither the ADCS Group nor any ADCS Group Subsidiary has granted or been
granted any waiver or forbearance with respect to any ADCS Commitments to
provide goods or services to customers that produced aggregate payments in the
year ending December 31, 1996 of at least $250,000.00 to the ADCS Group or any
ADCS Group Subsidiary.
(f) The ADCS Commitments listed on Schedule 3.6 are valid and are in full
force and effect as to the ADCS Group or an ADCS Group Subsidiary, as the case
may be (and, to the knowledge of the ADCS Group, the other parties thereto).
(g) Except as otherwise noted and reserved against in the ADCS Financial
Statements (as hereinafter defined), none of the ADCS Commitments listed on
Schedule 3.6 could reasonably be expected to result in the successful
assertion or claim of any material liability against the ADCS Group or any
ADCS Group Subsidiary in excess of that anticipated by the ADCS Commitment.
(h) To the ADCS Group's knowledge, no event has occurred, or could
reasonably be expected to occur, that (after notice and lapse of time, or
both) would become a breach or default under any ADCS Commitment (other than
termination as the result of the expiration, absent a default, of the term of
the ADCS Commitment).
(i) True copies of all written ADCS Commitments and reasonably accurate
descriptions of all oral ADCS Commitments, including any amendments thereto
and modifications thereof, have been made available to the ATMI Group.
3.7. Restrictions; Burdensome Agreements. None of the ADCS Group, any ADCS
Group Subsidiary or any Holder is a party to any contract, commitment or
agreement (including the ADCS Commitments), and none of the ADCS Group, any
ADCS Group Subsidiary or any Holder or any of their respective properties and
assets is subject to or bound or affected by any charter, by-law, operating
agreement, limited partnership agreement, or other organizational restriction,
or any order, judgment, decree, law, statute, ordinance, rule, regulation,
Permit or other restriction of any kind or character, which would (i) prevent
the ADCS Group from entering into this Agreement and the Additional Agreements
to which it is a party or prevent the ADCS Group or any Holder from
consummating the transactions contemplated hereby and thereby, or (ii) have an
ADCS Material Adverse Effect and has not been disclosed in a Schedule hereto.
3.8. Condition of the Assets. Except as would not have an ADCS Material
Adverse Effect, the tangible assets of the ADCS Group and each ADCS Group
Subsidiary, including real, personal and mixed, material to the operation of
its business are in good condition and repair, ordinary wear and tear
excepted, and suitable for the uses intended. The assets of the ADCS Group and
each ADCS Group Subsidiary are operated in conformity in all material respects
with all applicable laws, ordinances, regulations, orders, Permits and other
requirements relating thereto adopted or currently in effect. Schedule 3.8
sets forth a list of each asset (other than intangible assets listed on
Schedule 3.26 and other than as set forth on Schedule 3.20) having a book
value in excess of $50,000, indicating whether each such asset is owned or
leased by the ADCS Group or any ADCS Group
A-18
<PAGE>
Subsidiary, and setting forth where each such asset is located. Since the
Balance Sheet Date (as hereinafter defined), neither the ADCS Group nor any
ADCS Group Subsidiary has, except in the ordinary course of business, acquired
or sold or otherwise disposed of any of its assets. Schedule 3.8 also includes
a list of each lease under which the ADCS Group or any ADCS Group Subsidiary
leases an asset (other than leased real property) having replacement cost of
$50,000 or more. The leases and other agreements or instruments under which
the ADCS Group or any ADCS Group Subsidiary holds, leases, subleases or is
entitled to the use of any of the assets having a replacement cost of $50,000
or more are in full force and effect, and all rentals, royalties or other
payments payable thereunder have been duly paid or provided for by adequate
reserves. No default or event of default by the ADCS Group or any ADCS Group
Subsidiary exists, and no event which, with notice or lapse of time or both,
would constitute a default by the ADCS Group or any ADCS Group Subsidiary, has
occurred and is continuing, under terms or provisions, express or implied, of
any lease, agreement or other instrument or under the terms or provisions of
any agreement to which any of its assets is subject which leases, agreements
or other instruments individually or in the aggregate involve assets having a
book value of $50,000 or more, nor has the ADCS Group or any ADCS Group
Subsidiary received notice of any claim of such default.
3.9. Title; Absence of Liens and Encumbrances, Etc. Each member of the ADCS
Group and each ADCS Group Subsidiary has good, valid, and marketable title to
its assets, free and clear of all mortgages, security interests, claims,
liens, charges, title defects, encumbrances, restrictions on use or transfer
or other defects. Except for Securities representing an interest in a member
of the ADCS Group or an ADCS Group Subsidiary and except as set forth on
Schedule 3.9 hereto, ADCS LP has good, valid and marketable title to all of
the tangible assets owned by the ADCS Group.
3.10. Government and Other Consents. No consent, authorization or approval
of, exemption by, or filing with any governmental, public or self-regulatory
body or authority or other party is required in connection with the execution,
delivery and performance by the ADCS Group of this Agreement, the Additional
Agreements to which it is a party or any of the instruments or agreements
required to be executed and delivered pursuant to this Agreement or any
Additional Agreement, or the consummation of the Exchange, except under any
applicable federal and state securities laws and the HSR Act (as hereinafter
defined).
3.11. Franchises, Permits, Licenses; Compliance with Applicable Laws and
Court Orders. Except for intellectual property matters covered by Section
3.26, the ADCS Group and each ADCS Group Subsidiary have all requisite
franchises, permits, licenses, authorizations, variances, orders and approvals
of governmental or administrative authorities (each a "Permit" and together
the "Permits") necessary to own, lease or operate its properties or necessary
for the conduct of its business as currently conducted, other than those the
absence of which would not result in an ADCS Material Adverse Effect. All such
Permits are in full force and effect, and there is no condition, nor has any
event occurred, which constitutes or with the giving of notice, or passage of
time, or both, would constitute a violation of the terms of any Permit, and to
the knowledge of the ADCS Group, no suspension or cancellation of any of them
is pending or threatened. Neither the execution of this Agreement or the
Additional Agreements to which any of the ADCS Group is a party nor the
consummation of the transactions contemplated hereby or thereby would
constitute a violation of the terms of any such Permit or grounds for the
termination of any such Permit. Schedule 3.11 contains a complete list of all
such Permits and any outstanding applications for Permits to which the ADCS
Group or any ADCS Group Subsidiary is a party. No application for a Permit
filed by or on behalf of the ADCS Group or any ADCS Group Subsidiary, or in
connection with a facility operated by the ADCS Group or any ADCS Group
Subsidiary, within the last five (5) years has been denied, other than the
denial of Permits which individually or in the aggregate did not or does not
have an ADCS Material Adverse Effect. The ADCS Group and each ADCS Group
Subsidiary have, in the operation of its business, duly complied with all
applicable laws, rules, regulations, Permits and orders of federal, state,
local and foreign governments, except where the failure to comply did not or
does not have an ADCS Material Adverse Effect. Neither the ADCS Group nor any
ADCS Group Subsidiary is in default, and no event has occurred that with
notice or the passage of time or both would constitute such a default, with
respect to any order, judgment, writ, injunction, decree, award, Permit, rule
or regulation of any court, governmental or regulatory body or arbitrator
which restrains or limits in any material respect the operation of the
business of, or
A-19
<PAGE>
the use of the assets of, the ADCS Group and ADCS Group Subsidiaries taken as
a whole. To the knowledge of the ADCS Group, no officer, director, member or
partner of the ADCS Group would be unable to give the representation that none
of the events or circumstances described in Rule 262 of Regulation A under the
Securities Act have occurred.
3.12. Financial Statements. The ADCS Group has made available to the ATMI
Group financial information respecting the ADCS Group, a copy of which is
annexed hereto as Schedule 3.12, as follows: (i) audited consolidated balance
sheet at March 31, 1996 and audited combined balance sheet at December 31,
1996, and (ii) audited consolidated financial statements of the ADCS Group for
the year ended March 31, 1996, and audited combined financial statements for
the nine (9) months ended December 31, 1996 (the "Balance Sheet Date") (the
financial statements referred to in clauses (i) and (ii) collectively called
the "ADCS Financial Statements"). The ADCS Financial Statements fairly present
the financial position and results of operations of the ADCS Group for the
periods then ended and the financial position of the ADCS Group at the dates
thereof in accordance with generally accepted accounting principles (subject
to normal year-end adjustments for unaudited interim financial statements, if
any). The ADCS Group and each ADCS Group Subsidiary has maintained its books
of account in accordance with applicable laws, rules and regulations of
government authorities and with generally accepted accounting principles
consistently applied, and such books of account are and, during the period
covered by the ADCS Financial Statements were, correct and complete in all
material respects, fairly and accurately reflect or reflected the income,
expenses, assets and liabilities of the ADCS Group, including the nature
thereof and the transactions giving rise thereto, and provide or provided a
fair and accurate basis for the preparation of the ADCS Financial Statements.
3.13. Absence of Undisclosed Liabilities. Neither the ADCS Group nor any
ADCS Group Subsidiary has any liabilities or obligations, either absolute,
accrued, contingent or otherwise, which individually or in the aggregate would
have an ADCS Material Adverse Effect, and which (i) have not been reflected in
the ADCS Financial Statements, (ii) have not been described in this Agreement
or in any of the Schedules hereto, or (iii) have been incurred since the
Balance Sheet Date other than in the ordinary course of its business
consistent with past practices.
3.14. Absence of Certain Changes. Since the Balance Sheet Date there has not
been, except as described in Schedule 3.14 hereto:
(a) any material adverse change in the business, financial condition, assets
or liabilities, results of operations, or prospects of the ADCS Group and the
ADCS Group Subsidiaries taken as a whole other than changes in the ordinary
course of business, which changes have not in the aggregate been, and do not,
to the ADCS Group's knowledge, threaten to become, materially adverse to the
business, financial condition, assets or liabilities, results of operations,
or prospects of the ADCS Group and the ADCS Group Subsidiaries taken as a
whole;
(b) any damage, destruction or loss in excess of $25,000 (whether or not
covered by insurance) adversely affecting any of the assets or business of the
ADCS Group or any ADCS Group Subsidiary;
(c) any ADCS Commitment or liability undertaken or incurred by the ADCS
Group or any ADCS Group Subsidiary (whether absolute, accrued, contingent or
otherwise and whether due or to become due), or any transaction entered into
by the ADCS Group or any ADCS Group Subsidiary which is material to the ADCS
Group and the ADCS Group Subsidiaries taken as a whole, other than items
incurred or entered into in the ordinary course of business and consistent
with past practices of the ADCS Group or any ADCS Group Subsidiary;
(d) any payment, discharge or satisfaction of any claim, lien, encumbrance
or liability of the ADCS Group or any ADCS Group Subsidiary outside the
ordinary course of business in excess of $5,000 individually or $50,000 in the
aggregate;
A-20
<PAGE>
(e) any sale, transfer, conveyance, assignment, lease, license, pledge,
mortgage or other disposition or encumbrance by the ADCS Group or any ADCS
Group Subsidiary of any asset of the ADCS Group or any ADCS Group Subsidiary
having a value more than $20,000 individually or $50,000 in the aggregate,
except in the ordinary course of business and consistent with past practices
of the ADCS Group or any ADCS Group Subsidiary;
(f) any modification, amendment, cancellation, termination, revocation,
rescission, or waiver of any rights with value to the ADCS Group or any ADCS
Group Subsidiary in excess of $20,000 pursuant to any ADCS Commitments;
(g) any material change in the accounting methods or practices followed by
the ADCS Group or any ADCS Group Subsidiary or any change in the depreciation
or amortization policies or rates theretofore adopted and applied;
(h) any (i) grant of any severance or termination pay to any director,
officer, employee, partner or member of the ADCS Group or any ADCS Group
Subsidiary in excess of $25,000, (ii) entering into of any employment,
severance, management, consulting, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer, employee, partner or member of the ADCS Group or any ADCS Group
Subsidiary, except for employment agreements entered into in the ordinary
course of business (which agreements do not involve any Holder or which
individually or in the aggregate are not material to the financial condition
or results of operations of the ADCS Group and the ADCS Group Subsidiaries
taken as a whole), (iii) change in benefits payable under existing severance
or termination pay policies or employment, severance, management, consulting
or other similar agreements, other than normal yearly adjustments, or (iv)
change in compensation, bonus or other benefits payable to any director,
officer, employee, partner or member of the ADCS Group or any ADCS Group
Subsidiary, other than normal yearly adjustments, and other than any increase
pursuant to any ADCS Group Employee Benefit Plan, the formulae or commission
rates of which have not been amended or changed;
(i) declared, paid or set aside for payment by the ADCS Group or any ADCS
Group Subsidiary any dividend or other distribution in respect of ADCS Group
Securities, or redeemed, purchased or otherwise acquired any of their
respective ADCS Group Securities;
(j) issued, authorized for issuance, or entered into any commitment to issue
any Security, bond, note or other debt obligation of the ADCS Group or any
ADCS Group Subsidiary;
(k) any transaction or payments between (i) any Holder or any related party
or entity and (ii) the ADCS Group or any ADCS Group Subsidiary not in the
ordinary course of business;
(l) the termination, whether voluntary or involuntary, of any material
employee of the ADCS Group or any ADCS Group Subsidiary or of any material
relationship between the ADCS Group or any ADCS Group Subsidiary and a
consultant; or
(m) any agreement or understanding entered into by the ADCS Group or any
ADCS Group Subsidiary whether in writing or otherwise, for the ADCS Group, any
ADCS Group Subsidiary or, to the ADCS Group's knowledge, any Holder to take
any of the actions specified in this Section 3.14.
3.15. Indebtedness. Neither the ADCS Group nor any ADCS Group Subsidiary has
any obligation for money borrowed or under any guarantee nor any agreement or
arrangement to borrow money or to enter into any such guarantee, and as of the
Closing Date, neither the ADCS Group nor any ADCS Group Subsidiary will have
any obligation for money borrowed nor any agreement or arrangement to borrow
money, and neither the ADCS Group nor any ADCS Group Subsidiary will have any
guarantee outstanding nor any agreement or commitment to enter into any such
guarantee.
A-21
<PAGE>
3.16. Accounts Receivable. No amounts in excess of $10,000 individually or
$50,000 in the aggregate included in the accounts receivable of the ADCS Group
or any ADCS Group Subsidiary in the ADCS Financial Statements have been
released or are, or are currently expected to be, regarded under generally
accepted accounting principles as unrecoverable in whole or in part except to
the extent there shall have been an appropriate bad debt reserve therefor.
Such receivables are not, to the knowledge of the ADCS Group, subject to any
counterclaim, refusal to pay or setoff not reflected in the reserves set forth
on the ADCS Financial Statements. Schedule 3.16 hereto sets forth a list of
all accounts receivable of the ADCS Group or any ADCS Group Subsidiary as of
the close of business on the Balance Sheet Date, none of which, to the ADCS
Group's knowledge, is owing from a debtor that has become bankrupt or
insolvent or has been pledged to any third party.
3.17. Supplies. The supplies of the ADCS Group and the ADCS Group
Subsidiaries taken as a whole consist of a quality and quantity generally
adequate for and usable in the ordinary course of business consistent with
past practice.
3.18. No Prebillings. Neither the ADCS Group nor any ADCS Group Subsidiary
has prebilled or received payment, and the ADCS Group and the ADCS Group
Subsidiaries will not prebill or receive payment, from any of its accounts for
goods to be delivered or for services to be rendered or for expenses to be
incurred subsequent to the Closing Date, except in the ordinary course of
business and consistent with past practices of the ADCS Group or any ADCS
Group Subsidiary.
3.19. Taxes.
(a) All returns, reports, information statements, and other forms or
documentation (the "Returns") related to Taxes (as hereinafter defined)
required to be filed or maintained on or before the Closing Date with respect
to the business, activities or assets of the ADCS Group or any ADCS Group
Subsidiary, have been filed or maintained, or will be filed or maintained on
or before the Closing Date, in accordance with all applicable laws (after
taking into account extensions duly obtained), and no penalties or other
charges are due or could reasonably be expected to become due with respect to
the late filing of any Return. All Returns are or will be accurate and
complete in all material respects and properly reflect the Taxes due for the
periods covered thereby. All Taxes due and payable, whether or not called for
by the Returns, and all Taxes properly allocable to periods ending on or
before the Closing Date have been paid, adequately provided for in the ADCS
Financial Statements or any ADCS Group Subsidiary's financial statements, or
properly protested or will be so paid, reserved for or protested by the
Closing Date, and the ADCS Group and each ADCS Group Subsidiary have
maintained all required records with respect to Taxes. All Taxes required to
be withheld or collected by the ADCS Group or any ADCS Group Subsidiary have
been duly withheld or collected and have been paid over to the appropriate
governmental authorities, or are held in separate bank accounts established
exclusively for such purpose. Except as set forth on Schedule 3.19 hereto, no
audit or investigation of any Return is pending or, to the knowledge of the
ADCS Group, threatened. Schedule 3.19 hereto sets forth the status of any
audit that is pending, including the amounts of any deficiencies and additions
to Tax indicated on any notices of proposed deficiency or statutory notices of
deficiency that may have been issued in connection therewith and all of such
deficiencies or additions to Tax have been paid. There are no requests for
rulings pending before any taxing authority. Schedule 3.19 sets forth the
states in which the ADCS Group or any ADCS Group Subsidiary has filed Returns
relating to Taxes for the taxable years ended March 31, 1994 through March 31,
1996. Neither the ADCS Group nor any ADCS Group Subsidiary has executed or
filed with the Internal Revenue Service or any other domestic or foreign
taxing authority any agreement extending the period for assessment or
collection of any Taxes, and neither the ADCS Group nor any ADCS Group
Subsidiary has waived any law or regulation fixing the period for assessment
or collection of Taxes. Neither the ADCS Group nor any ADCS Group Subsidiary
is a party to any pending action or proceeding by any domestic or foreign
governmental authority for assessment or collection of Taxes, and no claim for
assessment or collection of Taxes has been asserted or threatened against the
ADCS Group or any ADCS Group Subsidiary for which provision has not been made
in the ADCS Financial Statements or any ADCS Group Subsidiary's financial
statements. There are no tax liens upon any of the properties or assets of the
ADCS Group or any ADCS Group Subsidiary other than liens for Taxes not yet due
and payable. True and complete
A-22
<PAGE>
copies of the income tax returns of the ADCS Group and each ADCS Group
Subsidiary for the three (3) fiscal years ended in 1994 through 1996, as filed
with the Internal Revenue Service and all other domestic or foreign taxing
authorities, have previously been made available to the ATMI Group.
As used herein, "Taxes" (or "Tax" where the context requires) shall mean all
federal, state, county, local, foreign and other taxes (including, without
limitation, income, profits, premium, estimated, excise, stamp, sales, use,
occupancy, gross receipts, franchise, ad valorem, value added, severance,
capital levy, production, transfer, gains, withholding, employment, social
security, workers' compensation, unemployment compensation, payroll-related
and property taxes (real and personal), imposts, custom duties and other
governmental charges and assessments of whatever kind), whether or not
measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest or penalties with respect thereto.
(b) No sales, use or other transfer or conveyance taxes are or will become
payable by the ADCS Group or the ATMI Group solely as a consequence of the
Exchange, other than taxes based upon the net income of the parties.
3.20. Facilities. SCHEDULE 3.20 hereto sets forth a list of all of the real
property and all of the buildings, warehouses and storage facilities owned,
leased or operated by the ADCS Group or any ADCS Group Subsidiary during the
last five (5) years (the "ADCS Premises"), indicating where such property or
facility is located, whether such property is owned, leased, occupied and/or
operated by the ADCS Group or any ADCS Group Subsidiary and the date of
acquisition or occupancy thereof. The leases and other agreements or
instruments under which the ADCS Group or any ADCS Group Subsidiary holds,
leases, subleases, occupies or is entitled to the use of the ADCS Premises are
in full force and effect, and all rentals, royalties or other payments payable
thereunder prior to the date hereof have been duly paid. Neither the ADCS
Group nor any ADCS Group Subsidiary is in default in any material respect, and
no event has occurred that with notice or the passage of time or both would
constitute such a default, with respect to any such leases and other such
agreements or instruments. The current use by the ADCS Group or any ADCS Group
Subsidiary and, to the knowledge of the ADCS Group, by any third party, of the
ADCS Premises complies in all material respects with all applicable zoning
laws and building and use restrictions. Neither the ADCS Group nor any ADCS
Group Subsidiary has received a notice of violation of any applicable law,
ordinance, regulation, order, Permit or requirement (other than Environmental
Laws which are addressed in Section 3.31) relating to its operations or the
ADCS Premises, nor has the ADCS Group or any ADCS Group Subsidiary failed to
comply in any material respect with any provision or condition of any such
lease, agreement or other instrument with respect to the ADCS Premises. All
buildings, plants, and structures owned by the ADCS Group or any ADCS Group
Subsidiary lie wholly within the boundaries of the real property owned by it
and do not encroach upon the property of, or otherwise materially conflict
with the property rights of, any other person.
3.21. Insurance. Schedule 3.21 sets forth a list of the policies of
insurance and fidelity or surety bonds carried by the ADCS Group and the ADCS
Group Subsidiaries. Neither the ADCS Group nor any ADCS Group Subsidiary has
failed to present or to give any notice with respect to any material claim
under any insurance policy in due and timely fashion, and all insurance
premiums due and payable by the ADCS Group or any ADCS Group Subsidiary in
connection with the policies set forth on Schedule 3.21 prior to the Closing
Date have been or will be paid. There are no outstanding written requirements
or material written recommendations by any insurance company that issued a
policy with respect to any of the properties and assets of the ADCS Group or
any ADCS Group Subsidiary, by any Board of Fire Underwriters or other body
exercising similar functions or by any governmental authority requiring or
recommending any repairs or other work to be done on or with respect to any of
the properties and assets of the ADCS Group or any ADCS Group Subsidiary or
requiring or recommending any equipment or facilities to be installed on or in
connection with any of the assets. The unemployment insurance ratings and
contributions of the ADCS Group and each ADCS Group Subsidiary are also set
forth on Schedule 3.21.
3.22. Books and Records. The books of account and other financial and
corporate records of the ADCS Group and each ADCS Group Subsidiary are
complete and accurate in all material respects and are maintained
A-23
<PAGE>
in accordance with good business practices. The minute books of the ADCS Group
and each ADCS Group Subsidiary as previously made available to the ATMI Group
and its counsel, contain accurate records of all meetings and accurately
reflect all other action of the stockholders, directors, partners and members
(and committees thereof) of the ADCS Group and each ADCS Group Subsidiary.
3.23. Employees. SCHEDULE 3.23 contains a true and complete list of all of
the officers and directors, partners and members of the ADCS Group and the
ADCS Group Subsidiaries, specifying their office or title, and a true and
complete list of all the employees of the ADCS Group and each ADCS Group
Subsidiary as of the date hereof. Neither the ADCS Group nor any ADCS Group
Subsidiary has any written or oral contract of employment with any employee of
the ADCS Group or any ADCS Group Subsidiary, and neither the ADCS Group nor
any ADCS Group Subsidiary is a party to or subject to any collective
bargaining agreement nor has been a party to or subject to any collective
bargaining agreement or collective bargaining plan during the last five (5)
years. Neither the ADCS Group nor any ADCS Group Subsidiary is a party to any
pending nor, to the ADCS Group's knowledge, threatened labor dispute affecting
the ADCS Group or any ADCS Group Subsidiary. The ADCS Group and each ADCS
Group Subsidiary have complied in all material respects with all applicable
foreign, federal, state and local laws, ordinances, rules and regulations and
requirements relating to the employment of labor, including, but not limited
to, the provisions thereof relative to wages, hours, collective bargaining,
drug testing, personnel policies and practices, payment of Social Security,
unemployment and withholding taxes, and ensuring equality of opportunity for
employment and advancement of minorities and women. To the knowledge of the
ADCS Group, neither the ADCS Group nor any ADCS Group Subsidiary is liable for
any arrears of wages or any taxes or penalties for failure to comply with any
of the foregoing. None of the ADCS Group or any ADCS Group Subsidiary has
received notice from any employee listed on Schedule 3.23 as earning an annual
base salary in excess of $40,000 that such employee is terminating his or her
employment with the ADCS Group or any ADCS Group Subsidiary, nor to the
knowledge of the ADCS Group does any such employee intend to terminate his or
her employment with the ADCS Group or any ADCS Group Subsidiary.
3.24. Employee Benefit Plans.
(a) SCHEDULE 3.24 sets forth a list of every stock option, stock purchase,
stock appreciation right, bonus, incentive, deferred or current compensation,
excess benefits, profit sharing, pension, thrift, savings, retirement,
severance, sickness, accident, medical, disability, hospitalization, vacation,
insurance or other plan or agreement which provides benefits to or for or on
behalf of any one or more employees of the ADCS Group or any ADCS Group
Subsidiary (including former employees) or their beneficiaries (collectively,
"ADCS Group Employee Benefit Plans"). The ADCS Group has made available to the
ATMI Group true, correct and complete copies of all ADCS Group Employee
Benefit Plans, as in effect on the date of this Agreement, all written
descriptions or summaries thereof, all trust agreements or other funding
arrangements (including insurance or group annuity contracts) relating
thereto, all amendments thereto and all determination letters issued by the
Internal Revenue Service with respect to such ADCS Group Employee Benefit
Plans.
(b) No employee benefit plan (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) exists
which covers or is maintained for the benefit of any of the employees of the
ADCS Group or any ADCS Group Subsidiary or to which the ADCS Group or any ADCS
Group Subsidiary or any Holder is required to make contributions on account of
any employees of the ADCS Group or any ADCS Group Subsidiary.
(c) There are no actions, suits or claims pending (other than routine claims
for benefits) or, to the knowledge of the ADCS Group, threatened against any
ADCS Group Employee Benefit Plan, nor, to the knowledge of the ADCS Group,
does any basis therefor exist. Each ADCS Group Employee Benefit Plan is in
compliance in all material respects with all applicable requirements of ERISA
and the Code and their regulations, and other applicable laws and regulations
and has been administered in all material respects in accordance with its
terms and with applicable legal requirements.
A-24
<PAGE>
(d) With respect to each ADCS Group Employee Benefit Plan,
(i) the ADCS Group and each ADCS Group Subsidiary have performed or
caused to be performed all obligations required to be performed under such
ADCS Group Employee Benefit Plan (including, but not limited to, the making
when due of all contributions required by the terms of such plan, by law,
or by any collective bargaining agreement, or otherwise);
(ii) the ADCS Group and each ADCS Group Subsidiary have complied in
timely fashion with the terms of each ADCS Group Employee Benefit Plan and
with all requirements of all laws, rules and regulations (including, but
not limited to, ERISA and the Code) which are applicable to each ADCS Group
Employee Benefit Plan and each ERISA Plan, including, but not limited to,
(1) the filing when due of all required returns, reports and other
documents, and
(2) compliance with all rules concerning notifications and
disclosures to participants and beneficiaries under each such plan;
(iii) neither the ADCS Group nor any ADCS Group Subsidiary has engaged in
any "prohibited transaction" within the meaning of Section 4975 of the Code
or Section 406 of ERISA nor has committed any breach of fiduciary
responsibility under ERISA (or has any knowledge that any other person has
engaged in any such prohibited transaction or committed any such breach)
which could subject the ATMI Group and/or the Surviving Corporation to an
excise tax or other liability under ERISA or the Code; and
(iv) neither the ADCS Group nor any ADCS Group Subsidiary is in default
under or in violation of (and has no knowledge of any default or violation
by any other person of) the terms of any ADCS Group Employee Benefit Plan.
(e) Except as set forth on SCHEDULE 3.24,
(i) no employee pension benefit plan (as defined in Section 3(2)(A) of
ERISA) which is sponsored by any member of the "controlled group" (as
defined in Section 4001(a)(14) of ERISA) which includes the ADCS Group, any
ADCS Group Subsidiary or any Holder (the "ADCS Controlled Group") has been
terminated since September 2, 1974;
(ii) no proceeding has been initiated to terminate any such employee
pension benefit plan;
(iii) there has been no "reportable event" (within the meaning of Section
4043(c) of ERISA) with respect to any such employee pension benefit plan,
other than those with respect to which the requirement of thirty (30) days'
notice, whether in advance of the event or following the event, to the
Pension Benefit Guaranty Corporation ("PBGC") has been waived by
regulation;
(iv) no excise or other taxes (or interest or penalties with respect
thereto) are due or owing with respect to any such employee pension benefit
plan because of any failure to comply with the minimum funding standards of
ERISA or for failing to comply with any other applicable requirement under
ERISA or the Code;
(v) all contributions to any such employee pension benefit plan have been
made within the time provided by law;
(vi) at no time during the last five (5) years has the ADCS Group or any
ADCS Group Subsidiary or any member of the ADCS Controlled Group been a
party to, or been required to make any contribution to, a "Multiemployer
Plan" (as defined in Section 3(37) of ERISA), nor has the ADCS Group or any
ADCS Group Subsidiary or any member of the ADCS Controlled Group made a
complete or partial withdrawal from a Multiemployer Plan as a result of
which any withdrawal liability has been or will be incurred by any of them;
(vii) neither the ADCS Group or any ADCS Group Subsidiary nor any member
of the ADCS Controlled Group has incurred any liability to the PBGC other
than for the payment of annual premiums (and no such premium payments are
currently due and owing); and
A-25
<PAGE>
(viii) neither the ADCS Group or any ADCS Group Subsidiary nor any member
of the ADCS Controlled Group has entered into any transaction within the
past five (5) years the purpose of which is to evade liability under Title
IV of ERISA.
(f) No ADCS Group Employee Benefit Plan (other than one which is an employee
pension benefit plan within the meaning of Section 3(2)(A) of ERISA) provides
benefits (including, without limitation, death, health or medical benefits,
whether or not insured) with respect to current or former employees of the
ADCS Group or any ADCS Group Subsidiary beyond their retirement or other
termination of service with the ADCS Group or any ADCS Group Subsidiary, other
than (i) coverage mandated by applicable law, (ii) deferred compensation
benefits which have been accrued as liabilities on the books of the ADCS Group
or any ADCS Group Subsidiary, (iii) benefits the full cost of which is borne
by the current or former employees (or their beneficiaries), (iv) benefits
which have already been satisfied in full or (v) death benefits under any
pension plan to the extent set forth in Schedule 3.24 hereto.
3.25. Litigation. There is no action, suit or proceeding pending and of
which it has been served notice or, to the ADCS Group's knowledge, threatened,
by or against the ADCS Group, any ADCS Group Subsidiary, its respective
business or assets, or, to the ADCS Group's knowledge, any Holder relating to
or affecting the Interests, at law, in equity, by way of arbitration or before
any governmental department, commission, board or agency. To the ADCS Group's
knowledge, there are no existing facts or conditions which reasonably would be
expected to give rise to any charge, claim, litigation, proceeding, or
investigation by any third party which could reasonably be expected to
materially adversely affect its business, the ADCS Group or any ADCS Group
Subsidiary, nor are there any facts or conditions which could reasonably be
expected to give rise to any order of condemnation, appropriation or other
taking of any of the assets. There is no litigation, action, suit,
investigation or proceeding pending and of which it has been served notice or,
to the knowledge of the ADCS Group, threatened, before any court, agency or
other governmental body against the ADCS Group, any ADCS Group Subsidiary or
any Holder (or any corporation or entity affiliated with the ADCS Group, any
ADCS Group Subsidiary or any Holder) which seeks to enjoin or prohibit or
otherwise challenge the transactions contemplated hereby or contemplated by
the Additional Agreements. SCHEDULE 3.25 sets forth each action, suit or
proceeding against the ADCS Group, any ADCS Group Subsidiary, its respective
business or assets, or any Holder relating to or affecting the Interests, at
law, in equity, by way of arbitration or before any governmental department,
commission, board or agency, which has been dismissed or settled or in which a
judgment has been rendered, in each case within the past five (5) years, and
the disposition thereof. The ADCS Group has made available to ATMI true and
correct copies of each settlement agreement and release, if any, in connection
with any matter discussed in the prior sentence, each of which constitutes a
legal, valid and binding obligation of the parties thereto, and no party
thereto is in default of any of its obligations thereunder. There is no order,
judgment, decree or settlement agreement against or involving the ADCS Group,
any ADCS Group Subsidiary or any Holder involving any ongoing liabilities or
restrictions which, in the case of a Holder, would adversely affect the
ability of the Holder to transfer the Interests.
3.26. Proprietary Rights. (a) SCHEDULE 3.26 sets forth a true, correct and
complete list of all foreign and domestic Marks (as hereinafter defined),
patents and applications for patents, and registered copyrights, and
applications therefor, owned by the ADCS Group or any ADCS Group Subsidiary or
in which the ADCS Group or any ADCS Group Subsidiary has any rights or
licenses. The ADCS Group has made available to the ATMI Group copies of all
agreements of the ADCS Group or any ADCS Group Subsidiary with each officer,
employee or consultant of the ADCS Group or any ADCS Group Subsidiary
providing the ADCS Group or any ADCS Group Subsidiary with secrets and
inventions developed or used by the ADCS Group or any ADCS Group Subsidiary.
All of such agreements so described are valid, enforceable and legally
binding.
(b) The ADCS Group and each ADCS Group Subsidiary own or possess or have the
right to obtain licenses or other rights to use all patents, patent
applications, trade secrets, copyrights, inventions, drawings, designs,
proprietary know-how or information, or other rights with respect thereto
(collectively referred to as "Proprietary Rights"), which it has determined
are used in its business, and it believes the same are sufficient
A-26
<PAGE>
to conduct its business as it has been and is now being conducted. The ADCS
Group is not aware of any existing Proprietary Rights that the ADCS Group and
the ADCS Group Subsidiaries do not already own or possess or will be able to
obtain a license under, which Proprietary Rights would be necessary for the
ADCS Group or any ADCS Group Subsidiary to conduct its business.
(c) To the ADCS Group's knowledge, the operations of the ADCS Group and each
ADCS Group Subsidiary do not conflict with or infringe upon, and no one has
asserted to the ADCS Group or any ADCS Group Subsidiary that such operations
conflict with or infringe upon, any Proprietary Rights or any trademarks,
trade names, or service marks (collectively referred to as "Marks"), Marks
owned, possessed or used by any third party. There are no claims, disputes,
actions, proceedings, suits or appeals pending against the ADCS Group, any
ADCS Group Subsidiary or any Holder with respect to any Proprietary Rights or
Marks, and none has been threatened against the ADCS Group or any ADCS Group
Subsidiary. To the ADCS Group's knowledge, there are no facts or alleged facts
which would reasonably serve as a basis for any claim that the ADCS Group or
any ADCS Group Subsidiary does not have the right to use, free of any rights
or claims of others, all Proprietary Rights and Marks in the development,
manufacture, use, sale or other disposition of any or all products or services
presently being used, furnished or sold in the conduct of its business as it
has been and is now being conducted. Neither the ADCS Group nor any ADCS Group
Subsidiary has violated the terms of any confidentiality agreement or
nondisclosure agreement entered into in favor of any third party.
(d) There are no inter parties proceedings before any patent or trademark
authority to which the ADCS Group or any ADCS Group Subsidiary is a party.
(e) The ADCS Group and each ADCS Group Subsidiary have taken all other
measures they deem reasonable to maintain the confidentiality of the processes
and formulae, research and development results and other know-how, the value
of which to the ADCS Group or any ADCS Group Subsidiary is contingent upon
maintenance of the confidentiality thereof.
(f) Each employee and officer of the ADCS Group or any ADCS Group Subsidiary
is a party to a confidential non-disclosure agreement with the ADCS Group or
such ADCS Group Subsidiary (the form of which has been made available to the
ATMI Group). No employee of the ADCS Group or any ADCS Group Subsidiary is in
violation of any material term of any employment contract, proprietary
information and inventions agreement, confidentiality agreement, non-
competition agreement, or any other contract or agreement relating to the
relationship of any such employee with the ADCS Group or any ADCS Group
Subsidiary, or any previous employer.
(g) The Proprietary Rights and Marks are free of any unresolved ownership
disputes with respect to any third party. To the ADCS Group's knowledge there
is no unauthorized use, infringement or misappropriation of any of such
Proprietary Rights or Marks by any third party, including any employee or
former employee of the ADCS Group or any ADCS Group Subsidiary.
(h) Other than as part of transactions identified in SCHEDULE 3.26, the ADCS
Group has not burdened the Proprietary Rights with any liens, security
interests, financing agreements, or other encumbrances.
3.27. Section 341(f)(2) Consent. At no time has the ADCS Group or any ADCS
Group Subsidiary, or any predecessor, consented under Section 341(f)(1) of the
Code, or agreed under Section 341(f)(3) of the Code, to have the provisions of
Section 341(f)(2) of the Code apply to any sale of its capital stock.
3.28. Related Party Transactions. SCHEDULE 3.28 sets forth the amounts and
other essential terms of indebtedness or other obligations, liabilities or
commitments (contingent or otherwise) of the ADCS Group or any ADCS Group
Subsidiary to or from any Holder or any other present officer, director,
partner, member or stockholder or any person related to, controlling,
controlled by or under common control with any of the foregoing (other than
for employment services performed within the past month the payment for which
is not yet due), and all other transactions between such persons and the ADCS
Group or any ADCS Group Subsidiary,
A-27
<PAGE>
except for transactions which through consolidation are eliminated in the ADCS
Group Financial Statements. Without limiting the generality of the foregoing,
as of the date hereof, none of the Holders or any other present officer,
director, partner, member or stockholder or any person related to,
controlling, controlled by or under common control with any of the foregoing
(a) has any material direct or indirect interest in any entity which does
business with the ADCS Group or any ADCS Group Subsidiary, (b) has any direct
or indirect interest in any property, asset or right which is used by the ADCS
Group or any ADCS Group Subsidiary in the conduct of its business, or (c) has
any contractual relationship with the ADCS Group or any ADCS Group Subsidiary
other than such relationships which occur from being an employee, officer,
director, etc.
3.29. Bank Accounts and Safe Deposit Arrangements. SCHEDULE 3.29 sets forth
a complete list of (i) the name and address of each bank and brokerage firm
with which the ADCS Group or any ADCS Group Subsidiary has any accounts, safe
deposit boxes, lock boxes or vaults, (ii) the account numbers relating
thereto, and (iii) the names of all persons authorized to deal with such
accounts or to have access to such boxes or vaults.
3.30. Powers of Attorney. No person has any power of attorney to act on
behalf of the ADCS Group or any ADCS Group Subsidiary in connection with any
of its properties or business affairs other than such powers to so act as
normally pertain to the officers of such entity.
3.31. Environmental Matters; Health and Safety.
(a) Definitions. The following definitions shall apply for purposes of this
Section 3.31:
(i) "Environmental Conditions" means circumstances with respect to soil,
surface waters, groundwaters, stream sediment and air, both on-site and
off-site of the real property either owned or leased by a party or on which
a party operates or operated its business during the last ten (10) years,
that could require remedial action and/or that would reasonably be expected
to result in claims and/or demands by and/or liabilities to third parties,
including, but not limited to governmental entities.
(ii) "Environmental Laws" means any and all foreign, federal, state,
local or municipal laws, regulations, ordinances, rules, orders,
guidelines, policies or requirements of any governmental authority
regulating or imposing standards of liability or standards of conduct
(including common law) concerning air, water, solid waste, Hazardous
Materials (including, but not limited to, the transfer of facilities
involved in the generation, storage, handling, transportation and/or
disposal of Hazardous Materials), worker and community right-to-know,
hazard communication, noise, radioactive material, resource protection,
inland wetlands and watercourses and health protection. Such laws include,
but are not limited to, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Superfund Amendments and Reauthorization Act, the Occupational Safety and
Health Act, the Hazardous Materials Transportation Act, the Toxic
Substances Control Act, the Federal Insecticide Fungicide and Rodenticide
Act, the Clean Water Act, the Clean Air Act, and the Safe Drinking Water
Act, all as amended and effective on the date hereof, and the regulations,
rules and orders promulgated or issued thereunder. Environmental Laws also
include any or all environmental permits, approvals, consents,
stipulations, licenses, registrations, certificates and authorizations
which are required by law, ordinance or regulation and any and all
environmental regulatory compliance requirements applicable to a party's
business and/or a party or, to the party's knowledge, its predecessor(s) in
interest as of or prior to the Closing.
(iii) "Hazardous Materials" means any petroleum, petroleum products, fuel
oil, explosives, reactive materials, ignitable materials, corrosive
materials, hazardous chemicals, hazardous wastes, hazardous substances,
extremely hazardous substances, toxic substances, toxic chemicals,
radioactive materials, infectious materials and any other element,
compound, mixture, solution or substance that may pose a present or
potential hazard to human health or the environment, or as otherwise
defined in or regulated by Environmental Laws.
A-28
<PAGE>
(iv) "Notice" means any summons, citation, directive, order, claim,
litigation, pleading, investigation, proceeding, judgment, letter or any
other written or oral communication (if such oral communication is made to
a manager, officer or employee responsible for environmental compliance
matters) from the United States Environmental Protection Agency, California
Environmental Protection Agency, Texas Natural Resources Conservation
Commission, Connecticut Department of Environmental Protection or any other
foreign, federal, state or local agency or authority, or any other entity
or any individual, concerning any intentional or unintentional act or
omission that constitutes or may constitute a violation of an Environmental
Law and shall expressly include the imposition of any lien pursuant to any
Environmental Laws.
(v) "Release" means releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, ejecting, escaping, leaching, disposing,
seeping, infiltrating, draining or dumping. This term shall be interpreted
to include both the present and past tense, as appropriate.
(vi) "Site Remediation Measures" means any efforts of any foreign,
federal, state or local government, or a party, their contractors,
subcontractors, or agents, that are made, designed, initiated, or
maintained as required by Environmental Laws or Commitments entered into by
a party in order to ensure that Environmental Conditions are consistent
with Environmental Laws or Commitments entered into by a party, including,
site investigation, site monitoring, containment, clean-up, transport,
removal, disposal, restoration and other remedial efforts of any kind.
(b) Environmental Representations and Warranties. Except as may be found to
the contrary in the Phase II environmental site assessment referred to in
Section 5.23 below:
(i) Compliance. The ADCS Group and each ADCS Group Subsidiary and, to the
ADCS Group's knowledge, its predecessor(s) in interest, have been and are
in compliance with and have no liability or obligation arising under any
Environmental Law, and neither the ADCS Group nor any ADCS Group Subsidiary
has received any Notice from any applicable governmental agency seeking any
information or alleging any violation of such Environmental Laws. No Site
Remediation Measure is necessary or required under Environmental Law or any
ADCS Commitment for its business or the ADCS Premises, nor are there any
Environmental Conditions on the ADCS Premises. No capital improvements,
alterations or repairs to the ADCS Premises are necessary or required to
bring such facility into compliance with all Environmental Laws now in
effect.
(ii) Hazardous Materials/Underground Tanks. None of the ADCS Group, any
ADCS Group Subsidiary or any Holder and, to the ADCS Group's knowledge,
their predecessor(s) in interest, has caused or permitted any use of its
business or the ADCS Premises to generate, manufacture, refine, transport,
treat, store, handle, dispose, transfer, produce or process any Hazardous
Materials or solid waste, except in compliance with all Environmental Laws,
and has not caused or permitted and has no knowledge of the Release of any
such Hazardous Materials on-site or off-site of the ADCS Premises,
resulting, or that could in the future result in an Environmental Condition
requiring Site Remediation Measures. The ADCS Premises and all principal
items and machinery and equipment used in the ADCS Group's business comply
with all applicable Environmental Laws. The ADCS Premises do not contain
any asbestos requiring removal now or in the course of any remodeling that
may occur in the future, or other Hazardous Materials, and, except for
chemicals and raw materials used, and wastes generated in connection with,
the manufacture of the ADCS Group's products, which in each case are
located on the ADCS Premises in the ordinary course of business, no such
materials are located on, in or under the ADCS Premises. Any and all
underground and aboveground tanks at the ADCS Premises are in compliance
with any and all Environmental Laws, and such Environmental Laws do not
mandate the removal or retrofitting of such tanks for a period of five (5)
years after the Closing. The removal of any tank has been carried out in
compliance with all applicable Environmental Laws.
(iii) There are no outstanding or, to the ADCS Group's knowledge,
threatened actions, claims, proceedings, determinations or judgments by any
party, including but not limited to any governmental
A-29
<PAGE>
authority, whether foreign, federal, state, local or any agency thereof,
against or involving the ADCS Group, any ADCS Group Subsidiary or any
Holder, or to the ADCS Group's knowledge, against or involving the ADCS
Group's or any ADCS Group Subsidiary's predecessor(s) in interest in any
manner arising under the Environmental Laws or alleging or involving
personal injury or property damage as a result of a violation of any
Environmental Law or otherwise involving Environmental Conditions. Attached
hereto as SCHEDULE 3.31 is a list of all such actions, claims, proceedings,
determinations and judgments issued within the past ten (10) years by any
party against the ADCS Group, any ADCS Group Subsidiary or any Holder as it
relates to the ADCS Group or the ADCS Group Subsidiaries and, to the ADCS
Group's knowledge, against any predecessor(s) in interest.
(iv) The ADCS Group and each ADCS Group Subsidiary and, to the ADCS
Group's knowledge, their predecessor(s) in interest, have complied with all
notice, recordkeeping and reporting requirements imposed by any
governmental authority and any informational requests or demands arising
under any Environmental Laws. None of the ADCS Group, any ADCS Group
Subsidiary or any Holder, nor, to the ADCS Group's knowledge, the ADCS
Group's or any ADCS Group Subsidiary's predecessor(s) in interest, is
liable for any penalties, fines, or forfeitures or is subject to any
restrictions on the conduct of its business for failure to comply with any
of the foregoing.
(v) Schedule 3.31 lists all of the ADCS Premises, the date of acquisition
or leasing thereof, the person or entity from whom the ADCS Premises were
acquired or leased, the operations conducted thereon and, to the ADCS
Group's knowledge, the operations conducted prior to the acquisition or
leasing thereof.
3.32. Customers and Suppliers. SCHEDULE 3.32 sets forth a list of (i) all of
the customers of the ADCS Group or any ADCS Group Subsidiary as of the date
hereof, but not including customers from whom the ADCS Group or any ADCS Group
Subsidiary in the aggregate has received less than $250,000 in gross receipts
during the immediately preceding twelve-month period, and (ii) the ten (10)
largest suppliers of the ADCS Group and the ADCS Group Subsidiaries taken as a
whole in terms of purchases made during the 1995 and 1996 fiscal years.
Neither the ADCS Group nor any ADCS Group Subsidiary has received any notice
or has any knowledge that any customer listed for the 1996 fiscal year (1) has
ceased, or currently intends to cease, to use the products, goods or services
of the business of the ADCS Group or of any ADCS Group Subsidiary; (2) has
substantially reduced, or currently intends to substantially reduce, the use
of products, goods or services of the business of the ADCS Group or of any
ADCS Group Subsidiary; or (3) other than in the ordinary course of business
and to an extent which is not reasonably likely to have an ADCS Material
Adverse Effect, has sought, or is seeking, to reduce the price it will pay for
products, goods or services of the business of the ADCS Group or of any ADCS
Group Subsidiary. Neither the ADCS Group nor any ADCS Group Subsidiary has
received any notice or has any knowledge that any such supplier will not sell
raw materials, supplies, merchandise and other goods to the ADCS Group or any
ADCS Group Subsidiary at any time after the Closing Date on terms and
conditions similar to those used in the current sales to the business, subject
to general and customary price increases and unforeseeable supply or demand
changes.
3.33. Product and Service Warranties. To the knowledge of the ADCS Group:
(a) All products sold and all services rendered by the ADCS Group and each
ADCS Group Subsidiary have been in conformity in all material respects with
all applicable ADCS Commitments and all expressed warranties, and no material
liability exists or will arise for replacement or damage in connection with
such sales or for services not rendered in all material respects in accordance
therewith.
(b) There is adequate provision in the ADCS Financial Statements for
liabilities and obligations for damaged, defective or returned goods, or for
replacement of goods or for allowances with respect to goods sold or services
rendered by or on behalf of the ADCS Group or any ADCS Group Subsidiary.
(c) Neither the ADCS Group nor any ADCS Group Subsidiary has any pattern of
claims or actions based upon allegations of the same or similar product defect
for any of its products.
A-30
<PAGE>
(d) There has not been any material product recall, rework or retrofit
relating to any line of product manufactured, shipped or sold by the ADCS
Group or any ADCS Group Subsidiary, nor to the knowledge of the ADCS Group is
there any basis for any such product recall, rework or retrofit.
3.34. Hart-Scott-Rodino. The "total assets" and the "annual net sales" of
the "ultimate parent entity" (as such terms are used within the meaning of
Section 7A.(a)(2)(A) of the Hart-Scott-Rodino Antitrust Improvements Act of
1976) of the ADCS Group are less than $100,000,000.
3.35. Stock Ownership. Other than through mutual funds or other similar
investment vehicles over which no investment discretion is retained, none of
the ADCS Group, any ADCS Group Subsidiary or any Holder owns any ATMI Group
Securities issued by ATMI and has no warrants, options or other rights to
purchase or otherwise acquire or convert any obligations into ATMI Group
Securities.
3.36. Finders' Fees. There is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of
the ADCS Group, any ADCS Group Subsidiary or any Holder who might be entitled
to any fee or commission from the ATMI Group or any other person upon
consummation of the transactions contemplated by this Agreement.
3.37. Information in Disclosure Documents and Registration Statement. None
of the information made available or to be made available by the ADCS Group
for inclusion or incorporation by reference in (i) the S-4 will, at the time
such registration statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading, and (ii) the proxy statement relating to the meeting of ATMI's
stockholders to be held in connection with the Merger (the "Proxy Statement")
will, at the date mailed to stockholders and at the time of the meeting of
stockholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
3.38. Pooling. To its knowledge, the ADCS Group has not taken, or failed to
take, any action that would jeopardize the treatment of the Reorganization as
a "pooling of interests" for accounting purposes.
3.39. Atlantic Coast Polymers, Inc. ADCS Nevada is the record and beneficial
owner of the number of Securities of Atlantic Coast Polymers, Inc. shown on
SCHEDULE 3.39, which Securities owned by ADCS Nevada represent less than
twenty percent (20%) of the issued and outstanding voting Securities of
Atlantic Coast Polymers, Inc. and which Securities owned by ADCS Nevada have
been fully paid and are nonassessable. Neither the ADCS Group nor any ADCS
Group Subsidiary is liable, directly or indirectly, whether as co-maker,
guarantor, surety or otherwise, for any of the liabilities or obligations of
Atlantic Coast Polymers, Inc.
3.40. No Misrepresentation. Neither this Agreement nor any certificate or
Schedule or other information furnished pursuant to this Agreement by or on
behalf of the ADCS Group or any ADCS Group Subsidiary contains any untrue
statement of a material fact or, when this Agreement and such certificates,
Schedules and other information are taken in their entirety, omits to state a
material fact required to be stated herein or therein necessary to make the
statements contained herein or therein not misleading.
ARTICLE IV
Representations and Warranties of the ATMI Group
The ATMI Group hereby jointly and severally represent and warrant to the
ADCS Group that, except as set forth in the ATMI DISCLOSURE SCHEDULE attached
hereto (which ATMI Disclosure Schedule makes explicit reference to the
particular subsection as to which exception is taken, which in each case shall
constitute the sole subsection as to which such exception shall apply, and the
statements in such ATMI Disclosure Schedule shall
A-31
<PAGE>
be deemed to be representations and warranties), as supplemented pursuant to
Section 5.19, and acknowledge and confirm that the ADCS Group is relying upon
such representations and warranties in connection with the execution, delivery
and performance of this Agreement and the Additional Agreements to which it is
a party, notwithstanding any investigation made by the ADCS Group or on its
behalf:
4.1. Capitalization; Options, Warrants, Rights. SCHEDULE 4.1 sets forth the
aggregate number of all of the Securities which the ATMI Group and each ATMI
Group Subsidiary (as hereinafter defined) are authorized to issue (the "ATMI
Group Securities") and the aggregate number of all of the ATMI Group
Securities issued and outstanding. All ATMI Group Securities have been validly
authorized and issued and are fully paid and nonassessable, and have not been
issued in violation of any preemptive, first refusal or other subscription
rights of any holder of any ATMI Group Securities or any other person, and
have been issued in compliance with applicable foreign, federal and state
securities laws. With respect to the ATMI Group, there are no outstanding or
existing (i) proxies, voting trusts, or other agreements or understandings
with respect to the voting of the ATMI Group Securities known to the ATMI
Group, (ii) ATMI Group Securities convertible into or exchangeable for other
ATMI Group Securities, (iii) options, warrants or other rights to purchase or
subscribe for ATMI Group Securities (other than this Agreement) or ATMI Group
Securities convertible into or exchangeable for other ATMI Group Securities,
or (iv) agreements of any kind relating to the issuance or purchase of ATMI
Group Securities or Securities convertible into or exchangeable for other ATMI
Group Securities. No member of the ATMI Group holds or owns, directly or
indirectly, any Securities of any other corporation, or has any direct or
indirect equity or ownership interest in any association, partnership, joint
venture or other entity other than (i) through mutual funds or other similar
investment vehicles over which no investment discretion is retained, (ii)
publicly-traded Securities having a market value of $25,000 or less per
issuer, (iii) ATMI Group Securities and (iv) as identified on SCHEDULE 4.1
(each corporation, association, partnership, joint venture or other entity in
which any member of the ATMI Group owns, directly or indirectly, twenty
percent (20%) or more of the issued and outstanding Securities are referred to
herein as the "ATMI Group Subsidiaries").
4.2. Organization; Good Standing; Power. (a) Each of the ATMI Group and each
of the ATMI Group Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation, is
authorized to do business as a foreign corporation in the jurisdictions set
forth on SCHEDULE 4.2 and is not required to be authorized to do business as a
foreign corporation in any other jurisdiction (within or without the United
States) by reason of the nature of the business now being conducted by it or
the properties owned or leased or operated by it in which the failure to be so
qualified would have a material adverse effect on the assets, liabilities,
results of operations, financial condition or business of the ATMI Group and
the ATMI Group Subsidiaries taken as a whole (an "ATMI Material Adverse
Effect").
(b) Each of the ATMI Group has the requisite corporate power and authority
to own, lease and operate its properties and carry on its business as is now
being conducted by it, and to execute, deliver and perform this Agreement and
the Additional Agreements to which it is a party and consummate the
transactions contemplated hereby and thereby.
(c) The ATMI Group and each ATMI Group Subsidiary conducts its business
under the trade names and other assumed names set forth on SCHEDULE 4.2, if
any.
4.3. Organizational Documents. With respect to the ATMI Group and each ATMI
Group Subsidiary, the ATMI Group has heretofore made available to the ADCS
Group a complete and correct copy of (i) each corporation's Certificate or
Articles of Incorporation, as amended to date, and (ii) each corporation's By-
Laws, as amended to date (items (i) and (ii) being referred to herein as the
"ATMI Organizational Documents"). Each of the foregoing are in full force and
effect, and none of the ATMI Group, any ATMI Group Subsidiary or to the ATMI
Group's knowledge, any other party to the ATMI Organizational Documents, is in
violation of any of the provisions thereof. There are no proceedings for the
amendment or modification of or any other change in the ATMI Organizational
Documents. There are no proceedings for the dissolution or liquidation of the
ATMI Group or any ATMI Group Subsidiary or, to the knowledge of the ATMI
Group, threatening the existence of the ATMI
A-32
<PAGE>
Group or any ATMI Group Subsidiary. The ATMI Group has made available to the
ADCS Group the minute books and stock records of each member of the ATMI Group
and ATMI Group Subsidiary.
4.4. Authorization. Except for the vote of ATMI stockholders contemplated
hereby, the ATMI Group has taken all corporate action necessary to authorize
the execution, delivery and performance of this Agreement and, as applicable,
the Additional Agreements to which it is a party. Such execution, delivery and
performance and the other transactions contemplated hereby do not and will not
violate, result in any default, acceleration or loss of any material benefit
under, permit any third party to rescind any term or provision of, or conflict
with any terms of, the ATMI Organizational Documents, any law, lien, order,
award, judgment, decree, Permit, or any material agreements or contracts to
which the ATMI Group or any ATMI Group Subsidiary is a party or is subject or
by which the ATMI Group or any ATMI Group Subsidiary or their assets is bound
or result in the creation of any lien, charge or encumbrance upon any of the
assets, real, personal or mixed, tangible or intangible, of the ATMI Group, or
any ATMI Group Subsidiary. This Agreement and each of the Additional
Agreements to which any of the ATMI Group is a party when executed will
constitute the legal, valid and binding obligation of the ATMI Group,
enforceable against the ATMI Group in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent transfer and other similar laws
affecting the enforceability of creditors' rights generally.
4.5. SEC Compliance. Since November 23, 1993, ATMI has filed all forms,
reports and documents (including all exhibits required to be filed therewith)
with the SEC (the "ATMI SEC Documents") required to be filed by it pursuant to
the federal securities laws and the SEC rules and regulations thereunder. As
of their respective filing dates, the ATMI SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or the Securities Act or the rules and
regulations promulgated under either, and none of the ATMI SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, except to the extent corrected by a subsequently filed
ATMI SEC Document. ATMI has made available to the ADCS Group copies of all of
the ATMI SEC Documents.
4.6. ATMI Commitments
(a) Definitions. The following definition shall apply for purposes of this
Section 4.6:
(i) "ATMI Commitments" means all of the Commitments to which the ATMI
Group or any ATMI Group Subsidiary is a party other than the ATMI Group
Employee Benefit Plans (as hereinafter defined).
(b) Schedule of ATMI Commitments and Proposals. SCHEDULE 4.6 hereto sets
forth a list of the following:
(i) any ATMI Commitments, not including purchase orders placed by any
member of the ATMI Group, creating or evidencing indebtedness in excess of
$100,000.00 for money borrowed by the ATMI Group or any ATMI Group
Subsidiary;
(ii) any material ATMI Commitments mortgaging, pledging, granting, or
creating a lien or security interest or other encumbrance on any real or
personal property of the ATMI Group or any ATMI Group Subsidiary;
(iii) any ATMI Commitments creating or evidencing any guaranty by the
ATMI Group or any ATMI Group Subsidiary of payment or performance by any
other party involving in excess of $100,000.00;
(iv) any ATMI Commitments involving a sharing of profits or expenses,
including, but not limited to, any joint venture agreements;
(v) any ATMI Commitments limiting the freedom of the ATMI Group or any
ATMI Group Subsidiary to engage in any line of business;
(vi) any ATMI Commitments limiting the freedom of the ATMI Group or any
ATMI Group Subsidiary to operate in any geographic area;
A-33
<PAGE>
(vii) any ATMI Commitments limiting the freedom of the ATMI Group or any
ATMI Group Subsidiary to compete with any party;
(viii) any ATMI Commitments limiting the freedom of the ATMI Group or any
ATMI Group Subsidiary to disclose or use any information material to the
operation of the business of the ATMI Group or any ATMI Group Subsidiary;
(ix) any ATMI Commitments for construction of physical facilities
involving in excess of $100,000.00;
(x) any ATMI Commitments providing for disposition of any line of
business, material assets or ATMI Group Securities;
(xi) any ATMI Commitments providing for acquisition of any line of
business, material assets or Securities of any other business, which
Securities have a fair market value in excess of $50,000; and
(xii) any ATMI Commitments providing for merger or consolidation
(including letters of intent) with any other business.
(c) The ATMI Group and each ATMI Group Subsidiary have complied in all
material respects with and are not in material default under any of the ATMI
Commitments.
(d) Neither the ATMI Group nor any ATMI Group Subsidiary has granted or been
granted any waiver or forbearance with respect to any ATMI Commitments to
provide goods or services to customers that produced aggregate payments in the
year ending December 31, 1996 of at least $250,000.00 to the ATMI Group or any
ATMI Group Subsidiary.
(e) The ATMI Commitments listed on Schedule 4.6 are valid and are in full
force and effect as to the ATMI Group or an ATMI Group Subsidiary, as the case
may be (and, to the knowledge of the ATMI Group, the other parties thereto).
4.7. Restrictions; Burdensome Agreements. None of the ATMI Group or any ATMI
Group Subsidiary is a party to any contract, commitment or agreement
(including the ATMI Commitments), and none of the ATMI Group or any ATMI Group
Subsidiary or any of their respective properties and assets is subject to or
bound or affected by any charter, by-law, operating agreement, limited
partnership agreement, or other organizational restriction, or any order,
judgment, decree, law, statute, ordinance, rule, regulation, Permit or other
restriction of any kind or character, which would (i) prevent the ATMI Group
from entering into this Agreement and the Additional Agreements to which it is
a party or prevent the ATMI Group from consummating the transactions
contemplated hereby and thereby, or (ii) have an ATMI Material Adverse Effect
that has not been disclosed in a Schedule hereto.
4.8. Condition of the Assets. Except as would not have an ATMI Material
Adverse Effect, the tangible assets of the ATMI Group and each ATMI Group
Subsidiary, including real, personal and mixed, material to the operation of
its business are in good condition and repair, ordinary wear and tear
excepted, and suitable for the uses intended. The assets of the ATMI Group and
each ATMI Group Subsidiary are operated in conformity in all material respects
with all applicable laws, ordinances, regulations, orders, Permits and other
requirements relating thereto adopted or currently in effect. SCHEDULE 4.8
sets forth a list of each asset (other than intangible assets listed on
SCHEDULE 4.23 and other than as set forth on SCHEDULE 4.25) having a book
value in excess of $50,000, indicating whether each such asset is owned or
leased by the ATMI Group or any ATMI Group Subsidiary, and setting forth where
each such asset is located. Since December 31, 1996, neither the ATMI Group
nor any ATMI Group Subsidiary has, except in the ordinary course of business,
acquired or sold or otherwise disposed of any of its assets. SCHEDULE 4.8 also
includes a list of each lease under which the ATMI Group or any ATMI Group
Subsidiary leases an asset (other than leased real property) having a
replacement cost of $50,000 or more. The leases and other agreements or
instruments under which the ATMI Group or any ATMI Group Subsidiary holds,
leases, subleases or is entitled to the use of any of the assets having a
replacement cost of $50,000 or more are in full force and effect, and all
rentals, royalties or other payments payable
A-34
<PAGE>
thereunder have been duly paid or provided for by adequate reserves. No
default or event of default by the ATMI Group or any ATMI Group Subsidiary
exists, and no event which, with notice or lapse of time or both, would
constitute a default by the ATMI Group or any ATMI Group Subsidiary, has
occurred and is continuing, under terms or provisions, express or implied, of
any such lease, agreement or other instrument or under the terms or provisions
of any agreement to which any of its assets is subject, which lease,
agreements or other instruments individually or in the aggregate involve
assets having a book value of $50,000 or more, nor has the ATMI Group received
notice of any claim of such default.
4.9. Title; Absence of Liens and Encumbrances, Etc. The ATMI Group and each
ATMI Group Subsidiary have good, valid, and marketable title to its assets,
free and clear of all mortgages, security interests, claims, liens, charges,
title defects, encumbrances, restrictions on use or transfer or other defects.
4.10. Government and Other Consents. No consent, authorization or approval
of, exemption by, or filing with any governmental, public or self-regulatory
body or authority or other party is required in connection with the execution,
delivery and performance by the ATMI Group of this Agreement, the Additional
Agreements to which it is a party or any of the instruments or agreements
required to be executed and delivered pursuant to this Agreement or any
Additional Agreement, or the consummation of the Exchange, except under any
applicable federal and state securities laws, the HSR Act and the rules and
regulations of the NASD.
4.11. Franchises, Permits, Licenses; Compliance with Applicable Laws and
Court Orders. Except for intellectual property matters covered by Section
4.23, the ATMI Group and each ATMI Group Subsidiary have all Permits necessary
to own, lease or operate its properties or necessary for the conduct of its
business as currently conducted, other than those the absence of which would
not result in an ATMI Material Adverse Effect. All such Permits are in full
force and effect, and there is no condition, nor has any event occurred, which
constitutes or with the giving of notice, or passage of time, or both, would
constitute a violation of the terms of any Permit, and to the knowledge of the
ATMI Group, no suspension or cancellation of any of them is pending or
threatened. Neither the execution of this Agreement or the Additional
Agreements to which any of the ATMI Group is a party nor the consummation of
the transactions contemplated hereby or thereby would constitute a violation
of the terms of any such Permit or grounds for the termination of any such
Permit. No application for a Permit filed by or on behalf of the ATMI Group or
any ATMI Group Subsidiary, or in connection with a facility operated by the
ATMI Group or any ATMI Group Subsidiary, within the last five (5) years has
been denied, other than the denial of Permits which individually or in the
aggregate did not or does not have an ATMI Material Adverse Effect. The ATMI
Group and each ATMI Group Subsidiary have, in the operation of its business,
duly complied with all applicable laws, rules, regulations, Permits and orders
of federal, state, local and foreign governments, except where the failure to
comply did not or does not have an ATMI Material Adverse Effect. Neither the
ATMI Group nor any ATMI Group Subsidiary is in default, and no event has
occurred that with notice or the passage of time or both would constitute such
a default, with respect to any order, judgment, writ, injunction, decree,
award, Permit, rule or regulation of any court, governmental or regulatory
body or arbitrator which restrains or limits in any material respect the
operation of the business of, or the use of the assets of, the ATMI Group and
the ATMI Group Subsidiaries taken as a whole. To the knowledge of the ATMI
Group, no officer, director, member or partner of the ATMI Group would be
unable to give the representation that none of the events or circumstances
described in Rule 262 of Regulation A under the Securities Act have occurred.
4.12. Financial Statements. The (i) audited consolidated balance sheets of
ATMI and its subsidiaries at December 31, 1994 and 1995 and the statements of
operations and changes in stockholders' equity and cash flows for the years
ended December 31, 1994 and 1995, and (ii) the unaudited consolidated balance
sheet at September 30, 1996 and the statement of operations and cash flows for
the nine months then ended and the unaudited consolidated statement of
operations for the three months ended September 30, 1996, included in the ATMI
SEC Documents (the "ATMI Financial Statements") fairly present the financial
position and results of operations of the ATMI Group as for the periods then
ended and the financial position of the ATMI Group at the dates thereof in
accordance with generally accepted accounting principles (subject to normal
year-end adjustments for unaudited interim financial statements, if any). ATMI
has maintained its books of account in accordance with applicable laws, rules
and regulations of government authorities and with generally accepted
A-35
<PAGE>
accounting principles consistently applied, and such books of account are and,
during the period covered by the ATMI Financial Statements were, correct and
complete in all material respects, fairly and accurately reflect or reflected
the income, expenses, assets and liabilities of ATMI, including the nature
thereof and the transactions giving rise thereto, and provide or provided a
fair and accurate basis for the preparation of the ATMI Financial Statements.
4.13. Absence of Undisclosed Liabilities. Neither the ATMI Group nor any
ATMI Group Subsidiary has any liabilities or obligations, either absolute,
accrued, contingent or otherwise, which individually or in the aggregate would
have an ATMI Material Adverse Effect and which (i) have not been reflected in
the ATMI Financial Statements, (ii) have not been described in this Agreement
or in any of the Schedules hereto, or (iii) have been incurred since December
31, 1996, other than in the ordinary course of its business consistent with
past practices.
4.14. Absence of Certain Changes. Since December 31, 1996 there has not
been, except as described in SCHEDULE 4.14 hereto:
(a) any material adverse change in the business, financial condition, assets
or liabilities, results of operations, or prospects of the ATMI Group and the
ATMI Group Subsidiaries taken as a whole other than changes in the ordinary
course of business, which changes have not in the aggregate been, and do not,
to the ATMI Group's knowledge, threaten to become, materially adverse to the
business, financial condition, assets or liabilities, results of operations,
or prospects of the ATMI Group and the ATMI Group Subsidiaries taken as a
whole;
(b) any damage, destruction or loss in excess of $25,000 (whether or not
covered by insurance) adversely affecting any of the assets or business of the
ATMI Group or any ATMI Group Subsidiary;
(c) any ATMI Commitment or liability undertaken or incurred by the ATMI
Group or any ATMI Group Subsidiary (whether absolute, accrued, contingent or
otherwise and whether due or to become due), or any transaction entered into
by the ATMI Group or any ATMI Group Subsidiary which is material to the ATMI
Group and the ATMI Group Subsidiaries taken as a whole, other than items
incurred or entered into in the ordinary course of business and consistent
with past practices of the ATMI Group or any ATMI Group Subsidiary;
(d) any payment, discharge or satisfaction of any claim, lien, encumbrance
or liability of the ATMI Group or any ATMI Group Subsidiary outside the
ordinary course of business in excess of $5,000 individually or $50,000 in the
aggregate;
(e) any sale, transfer, conveyance, assignment, lease, license, pledge,
mortgage or other disposition or encumbrance by the ATMI Group or any ATMI
Group Subsidiary of any asset of the ATMI Group or any ATMI Group Subsidiary
having a value more than $20,000 individually or $50,000 in the aggregate,
except in the ordinary course of business and consistent with past practices
of the ATMI Group or any ATMI Group Subsidiary;
(f) any modification, amendment, cancellation, termination, revocation,
rescission, or waiver of any rights with value to the ATMI Group or any ATMI
Group Subsidiary in excess of $20,000 pursuant to any ATMI Commitments;
(g) any material change in the accounting methods or practices followed by
the ATMI Group or any ATMI Group Subsidiary or any change in the depreciation
or amortization policies or rates theretofore adopted and applied;
(h) any (i) grant of any severance or termination pay to any director,
officer, employee, partner or member of the ATMI Group or any ATMI Group
Subsidiary in excess of $25,000, (ii) entering into of any employment,
severance, management, consulting, deferred compensation or other similar
agreement (or any amendment to any
A-36
<PAGE>
such existing agreement) with any director, officer, employee, partner or
member of the ATMI Group or any ATMI Group Subsidiary, except for employment
agreements entered into in the ordinary course of business (which agreements
individually or in the aggregate are not material to the financial condition
or results of operations of the ATMI Group and the ATMI Group Subsidiaries
taken as a whole), (iii) change in benefits payable under existing severance
or termination pay policies or employment, severance, management, consulting
or other similar agreements, other than normal yearly adjustments, or (iv)
change in compensation, bonus or other benefits payable to any director,
officer, employee, partner or member of the ATMI Group or any ATMI Group
Subsidiary, other than normal yearly adjustments, and other than any increase
pursuant to any ATMI Group Employee Benefit Plan, the formulae or commission
rates of which have not been amended or changed;
(i) declared, paid or set aside for payment by the ATMI Group or any ATMI
Group Subsidiary any dividend or other distribution in respect of ATMI Group
Securities, or redeemed, purchased or otherwise acquired any of their
respective ATMI Group Securities;
(j) issued, authorized for issuance, or entered into any commitment to issue
any Security, bond, note or other debt obligation of the ATMI Group or any
ATMI Group Subsidiary;
(k) any transaction or payments between (i) any stockholder or any related
party or entity and (ii) the ATMI Group or any ATMI Group Subsidiary not in
the ordinary course of business, other than indebtedness which by its terms
does not require payment of principal or interest at any time after December
31, 1997;
(l) the termination, whether voluntary or involuntary, of any material
employee of the ATMI Group or any ATMI Group Subsidiary or of any material
relationship between the ATMI Group or any ATMI Group Subsidiary and a
consultant; or
(m) any agreement or understanding entered into by the ATMI Group or any
ATMI Group Subsidiary whether in writing or otherwise, for the ATMI Group or
any ATMI Group Subsidiary to take any of the actions specified in this Section
4.14.
4.15. Indebtedness. Neither the ATMI Group nor any ATMI Group Subsidiary has
any obligation for money borrowed or under any guarantee nor any agreement or
arrangement to borrow money or to enter into any such guarantee, and as of the
Closing Date, neither the ATMI Group nor any ATMI Group Subsidiary will have
any obligation for money borrowed nor any agreement or arrangement to borrow
money, and neither the ATMI Group nor any ATMI Group Subsidiary will have any
guarantee outstanding nor any agreement or commitment to enter into any such
guarantee, which with respect to any of the above is material to the ATMI
Group and the ATMI Group Subsidiaries taken as a whole.
4.16. Accounts Receivable. No amounts in excess of $10,000 individually or
$50,000 in the aggregate included in the accounts receivable of the ATMI Group
or any ATMI Group Subsidiary in the ATMI Financial Statements have been
released or are, or are currently expected to be, regarded under generally
accepted accounting principles as unrecoverable in whole or in part except to
the extent there shall have been an appropriate bad debt reserve therefor.
Such receivables are not, to the knowledge of the ATMI Group, subject to any
counterclaim, refusal to pay or setoff not reflected in the reserves set forth
on the ATMI Financial Statements. SCHEDULE 4.16 hereto sets forth a list of
all accounts receivable of the ATMI Group or any ATMI Group Subsidiary as of
the close of business on December 31, 1996, none of which, to the ATMI Group's
knowledge, is owing from a debtor that has become bankrupt or insolvent or has
been pledged to any third party.
4.17. Supplies. The supplies of the ATMI Group and the ATMI Group
Subsidiaries taken as a whole consist of a quality and quantity generally
adequate for and usable in the ordinary course of business consistent with
past practice.
4.18. No Prebillings. Neither the ATMI Group nor any ATMI Group Subsidiary
has prebilled or received payment in amounts greater than $20,000 individually
or $50,000 in the aggregate, and the ATMI Group and the
A-37
<PAGE>
ATMI Group Subsidiaries will not prebill or receive payment in such amounts,
from any of its accounts for goods to be delivered or for services to be
rendered or for expenses to be incurred subsequent to the Closing Date, except
in connection with any government contract and except in the ordinary course
of business and consistent with past practices of the ATMI Group or any ATMI
Group Subsidiary.
4.19. Taxes.
(a) All Returns related to Taxes required to be filed or maintained on or
before the Closing Date with respect to the business, activities or assets of
the ATMI Group or any ATMI Group Subsidiary, have been filed or maintained, or
will be filed or maintained on or before the Closing Date, in accordance with
all applicable laws (after taking into account extensions duly obtained), and
no penalties or other charges are due or could reasonably be expected to
become due with respect to the late filing of any Return. All Returns are or
will be accurate and complete in all material respects and properly reflect
the Taxes due for the periods covered thereby. All Taxes due and payable,
whether or not called for by the Returns, and all Taxes properly allocable to
periods ending on or before the Closing Date have been paid, adequately
provided for in the ATMI Financial Statements or any ATMI Group Subsidiary's
financial statements, or properly protested or will be so paid, reserved for
or protested by the Closing Date, and the ATMI Group and each ATMI Group
Subsidiary have maintained all required records with respect to Taxes. All
Taxes required to be withheld or collected by the ATMI Group or any ATMI Group
Subsidiary have been duly withheld or collected and have been paid over to the
appropriate governmental authorities, or are held in separate bank accounts
established exclusively for such purpose. Except as set forth on SCHEDULE 4.19
hereto, no audit or investigation of any Return is pending or, to the
knowledge of the ATMI Group, threatened. SCHEDULE 4.19 hereto sets forth the
status of any audit that is pending, including the amounts of any deficiencies
and additions to Tax indicated on any notices of proposed deficiency or
statutory notices of deficiency that may have been issued in connection
therewith and all of such deficiencies or additions to Tax have been paid.
There are no requests for rulings pending before any taxing authority.
SCHEDULE 4.19 sets forth the states in which the ATMI Group or any ATMI Group
Subsidiary has filed Returns relating to Taxes for the taxable years ended
December 31, 1993 through December 31, 1995. Neither the ATMI Group nor any
ATMI Group Subsidiary has executed or filed with the Internal Revenue Service
or any other domestic or foreign taxing authority any agreement extending the
period for assessment or collection of any Taxes, and neither the ATMI Group
nor any ATMI Group Subsidiary has waived any law or regulation fixing the
period for assessment or collection of Taxes. Neither the ATMI Group nor any
ATMI Group Subsidiary is a party to any pending action or proceeding by any
domestic or foreign governmental authority for assessment or collection of
Taxes, and no claim for assessment or collection of Taxes has been asserted or
threatened against the ATMI Group or any ATMI Group Subsidiary for which
provision has not been made in the ATMI Financial Statements or any ATMI Group
Subsidiary's financial statements. There are no tax liens upon any of the
properties or assets of the ATMI Group or any ATMI Group Subsidiary other than
liens for Taxes not yet due and payable. True and complete copies of the
income tax returns of the ATMI Group and each ATMI Group Subsidiary for the
three (3) fiscal years ended in 1993 through 1995, as filed with the Internal
Revenue Service and all other domestic or foreign taxing authorities, have
previously been made available to the ATMI Group.
(b) No sales, use or other transfer or conveyance taxes are or will become
payable by the ADCS Group or the ATMI Group solely as a consequence of the
Merger, Exchange or Reorganization, other than taxes based upon the net income
of the parties.
4.20. Employees. SCHEDULE 4.20 contains a true and complete list of all of
the officers and directors, partners and members of the ATMI Group and ATMI
Group Subsidiaries, specifying their office or title, and a true and complete
list of all the employees of the ATMI Group and each ATMI Group Subsidiary as
of the date hereof. Neither the ATMI Group nor any ATMI Group Subsidiary has
any written or oral contract of employment with any employee of the ATMI Group
or any ATMI Group Subsidiary, and neither the ATMI Group nor any ATMI Group
Subsidiary is a party to or subject to any collective bargaining agreement nor
has been a party to or subject to any collective bargaining agreement or
collective bargaining plan during the last five (5) years. Neither the ATMI
Group nor any ATMI Group Subsidiary is a party to any pending nor, to the ATMI
Group's knowledge, threatened labor dispute affecting the ATMI Group or any
ATMI Group Subsidiary.
A-38
<PAGE>
The ATMI Group and each ATMI Group Subsidiary have complied in all material
respects with all applicable foreign, federal, state and local laws,
ordinances, rules and regulations and requirements relating to the employment
of labor, including, but not limited to, the provisions thereof relative to
wages, hours, collective bargaining, drug testing, personnel policies and
practices, payment of Social Security, unemployment and withholding taxes, and
ensuring equality of opportunity for employment and advancement of minorities
and women. To the knowledge of the ATMI Group, neither the ATMI Group nor any
ATMI Group Subsidiary is liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. None of the ATMI
Group or any ATMI Group Subsidiary has received notice from any employee
listed on SCHEDULE 4.20 as earning an annual base salary in excess of $40,000
that such employee is terminating his or her employment with the ATMI Group or
any ATMI Group Subsidiary, nor to the knowledge of the ATMI Group does any
such employee intend to terminate his or her employment with the ATMI Group or
any ATMI Group Subsidiary.
4.21. Employee Benefit Plans.
(a) SCHEDULE 4.21 sets forth a list of every stock option, stock purchase,
stock appreciation right, bonus, incentive, deferred or current compensation,
excess benefits, profit sharing, pension, thrift, savings, retirement,
severance, sickness, accident, medical, disability, hospitalization, vacation,
insurance or other plan or agreement which provides benefits to or for or on
behalf of any one or more employees of the ATMI Group or any ATMI Group
Subsidiary (including former employees) or their beneficiaries (collectively,
"ATMI Employee Benefit Plans"). The ATMI Group has made available to the ADCS
Group true, correct and complete copies of all ATMI Employee Benefit Plans, as
in effect on the date of this Agreement, all written descriptions or summaries
thereof, all trust agreements or other funding arrangements (including
insurance or group annuity contracts) relating thereto, all amendments thereto
and all determination letters issued by the Internal Revenue Service with
respect to such ATMI Employee Benefit Plans.
(b) No employee benefit plan (within the meaning of Section 3(3) of ERISA)
exists which covers or is maintained for the benefit of any of the employees
of the ATMI Group or any ATMI Group Subsidiary or to which the ATMI Group or
any ATMI Group Subsidiary is required to make contributions on account of any
employees of the ATMI Group or any ATMI Group Subsidiary.
(c) There are no actions, suits or claims pending (other than routine claims
for benefits) or, to the knowledge of the ATMI Group, threatened against any
ATMI Employee Benefit Plan, nor, to the knowledge of the ATMI Group, does any
basis therefor exist. Each ATMI Employee Benefit Plan is in compliance in all
material respects with all applicable requirements of ERISA and the Code and
their regulations, and other applicable laws and regulations and has been
administered in all material respects in accordance with its terms and with
applicable legal requirements.
(d) With respect to each ATMI Employee Benefit Plan,
(i) the ATMI Group and each ATMI Group Subsidiary have performed or
caused to be performed all obligations required to be performed under such
ATMI Employee Benefit Plan (including, but not limited to, the making when
due of all contributions required by the terms of such plan, by law, or by
any collective bargaining agreement, or otherwise);
(ii) the ATMI Group and each ATMI Group Subsidiary have complied in
timely fashion with the terms of each ATMI Employee Benefit Plan and with
all requirements of all laws, rules and regulations (including, but not
limited to, ERISA and the Code) which are applicable to each ATMI Employee
Benefit Plan and each ERISA Plan, including, but not limited to,
(1) the filing when due of all required returns, reports and other
documents, and
(2) compliance with all rules concerning notifications and
disclosures to participants and beneficiaries under each such plan;
A-39
<PAGE>
(iii) neither the ATMI Group nor any ATMI Group Subsidiary has engaged in
any "prohibited transaction" within the meaning of Section 4975 of the Code
or Section 406 of ERISA nor has committed any breach of fiduciary
responsibility under ERISA (or has any knowledge that any other person has
engaged in any such prohibited transaction or committed any such breach)
which could subject the ADCS Group and/or the Surviving Corporation to an
excise tax or other liability under ERISA or the Code; and
(iv) neither the ATMI Group nor any ATMI Group Subsidiary is in default
under or in violation of (and has no knowledge of any default or violation
by any other person of) the terms of any ATMI Employee Benefit Plan.
(e) Except as set forth on SCHEDULE 4.21,
(i) no employee pension benefit plan (as defined in Section 3(2)(A) of
ERISA) which is sponsored by any member of the "controlled group" (as
defined in Section 4001(a)(14) of ERISA) which includes the ATMI Group or
any ATMI Group Subsidiary (the "ATMI Controlled Group") has been terminated
since September 2, 1974;
(ii) no proceeding has been initiated to terminate any such employee
pension benefit plan;
(iii) there has been no "reportable event" (within the meaning of Section
4043(c) of ERISA) with respect to any such employee pension benefit plan,
other than those with respect to which the requirement of thirty (30) days'
notice, whether in advance of the event or following the event, to the PBGC
has been waived by regulation;
(iv) no excise or other taxes (or interest or penalties with respect
thereto) are due or owing with respect to any such employee pension benefit
plan because of any failure to comply with the minimum funding standards of
ERISA or for failing to comply with any other applicable requirement under
ERISA or the Code;
(v) all contributions to any such employee pension benefit plan have been
made within the time provided by law;
(vi) at no time during the last five (5) years has the ATMI Group or any
ATMI Group Subsidiary or any member of the ATMI Controlled Group been a
party to, or been required to make any contribution to, a "Multiemployer
Plan" (as defined in Section 3(37) of ERISA), nor has the ATMI Group or any
ATMI Group Subsidiary or any member of the ATMI Controlled Group made a
complete or partial withdrawal from a Multiemployer Plan as a result of
which any withdrawal liability has been or will be incurred by any of them;
(vii) neither the ATMI Group or any ATMI Group Subsidiary nor any member
of the ATMI Controlled Group has incurred any liability to the PBGC other
than for the payment of annual premiums (and no such premium payments are
currently due and owing); and
(viii) neither the ATMI Group or any ATMI Group Subsidiary nor any member
of the ATMI Controlled Group has entered into any transaction within the
past five (5) years the purpose of which is to evade liability under Title
IV of ERISA.
(f) No ATMI Employee Benefit Plan (other than one which is an employee
pension benefit plan within the meaning of Section 3(2)(A) of ERISA) provides
benefits (including, without limitation, death, health or medical benefits,
whether or not insured) with respect to current or former employees of the
ATMI Group or any ATMI Group Subsidiary beyond their retirement or other
termination of service with the ATMI Group or any ATMI Group Subsidiary, other
than (i) coverage mandated by applicable law, (ii) deferred compensation
benefits which have been accrued as liabilities on the books of the ATMI Group
or any ATMI Group Subsidiary, (iii) benefits the full cost of which is borne
by the current or former employees (or their beneficiaries), (iv) benefits
which have already been satisfied in full or (v) death benefits under any
pension plan to the extent set forth in SCHEDULE 4.21 hereto.
A-40
<PAGE>
4.22. Litigation. There is no action, suit or proceeding pending and of
which it has been served notice or, to the ATMI Group's knowledge, threatened,
by or against the ATMI Group or any ATMI Group Subsidiary relating to or
affecting its business or assets, at law, in equity, by way of arbitration or
before any governmental department, commission, board or agency. To the ATMI
Group's knowledge, there are no existing facts or conditions which reasonably
would be expected to give rise to any charge, claim, litigation, proceeding,
or investigation by any third party which could reasonably be expected to
materially adversely affect its business, the ATMI Group or any ATMI Group
Subsidiary, nor are there any facts or conditions which could reasonably be
expected to give rise to any order of condemnation, appropriation or other
taking of any of the assets. There is no litigation, action, suit,
investigation or proceeding pending and of which it has been served notice or,
to the knowledge of the ATMI Group, threatened, before any court, agency or
other governmental body against the ATMI Group or any ATMI Group Subsidiary
(or any corporation or entity affiliated with the ADCS Group or any ATMI Group
Subsidiary) which seeks to enjoin or prohibit or otherwise challenge the
transactions contemplated hereby or contemplated by the Additional Agreements.
Schedule 4.22 sets forth each action, suit or proceeding against the ATMI
Group or any ATMI Group Subsidiary relating to or affecting its business or
assets, at law, in equity, by way of arbitration or before any governmental
department, commission, board or agency, which has been dismissed or settled
or in which a judgment has been rendered, in each case within the past five
(5) years, and the disposition thereof. The ATMI Group has made available to
ATMI true and correct copies of each settlement agreement and release, if any,
in connection with any matter discussed in the prior sentence, each of which
constitutes a legal, valid and binding obligation of the parties thereto, and
no party thereto is in default of any of its obligations thereunder. There is
no order, judgment, decree or settlement agreement against or involving the
ATMI Group or any ATMI Group Subsidiary involving any ongoing liabilities or
restrictions.
4.23. Proprietary Rights. (a) SCHEDULE 4.23 sets forth a true, correct and
complete list of all foreign and domestic patents and applications for
patents, Marks, and registered copyrights, and applications therefor, owned by
the ATMI Group or any ATMI Group Subsidiary or in which the ATMI Group or any
ATMI Group Subsidiary has any rights or licenses. The ATMI Group has made
available to the ADCS Group copies of all agreements of the ATMI Group or any
ATMI Group Subsidiary with each officer, employee or consultant of the ATMI
Group or any ATMI Group Subsidiary providing the ATMI Group or any ATMI Group
Subsidiary with secrets and inventions developed or used by the ATMI Group or
any ATMI Group Subsidiary. All of such agreements so described are valid,
enforceable and legally binding.
(b) The ATMI Group and each ATMI Group Subsidiary own or possess or have the
right to obtain licenses or other rights to use all Proprietary Rights which
it has determined are used in its business, and it believes the same are
sufficient to conduct its business as it has been and is now being conducted.
The ATMI Group is not aware of any existing Proprietary Rights that the ATMI
Group and the ATMI Group Subsidiaries do not already own or possess or will be
able to obtain a license under, which Proprietary Rights would be necessary
for the ATMI Group or any ATMI Group Subsidiary to conduct its business.
(c) To the ATMI Group's knowledge, the operations of the ATMI Group and each
ATMI Group Subsidiary do not conflict with or infringe upon, and no one has
asserted to the ATMI Group or any ATMI Group Subsidiary that such operations
conflict with or infringe upon, any Proprietary Rights any Marks owned,
possessed or used by any third party. There are no claims, disputes, actions,
proceedings, suits or appeals pending against the ATMI Group or any ATMI Group
Subsidiary with respect to any Proprietary Rights or Marks, and none has been
threatened against the ATMI Group or any ATMI Group Subsidiary. To the ATMI
Group's knowledge, there are no facts or alleged facts which would reasonably
serve as a basis for any claim that the ATMI Group or any ATMI Group
Subsidiary does not have the right to use, free of any rights or claims of
others, all Proprietary Rights and Marks in the development, manufacture, use,
sale or other disposition of any or all products or services presently being
used, furnished or sold in the conduct of its business as it has been and is
now being conducted. Neither the ATMI Group nor any ATMI Group Subsidiary has
violated the terms of any confidentiality agreement or nondisclosure agreement
entered into in favor of any third party.
A-41
<PAGE>
(d) There are no inter parties proceedings before any patent or trademark
authority to which the ATMI Group or any ATMI Group Subsidiary is a party.
(e) The ATMI Group and each ATMI Group Subsidiary have taken all other
measures it deems reasonable to maintain the confidentiality of the processes
and formulae, research and development results and other know-how, the value
of which to the ATMI Group or any ATMI Group Subsidiary is contingent upon
maintenance of the confidentiality thereof.
(f) Each employee and officer of the ATMI Group or any ATMI Group Subsidiary
is a party to a confidential non-disclosure agreement with the ATMI Group or
such ATMI Group Subsidiary (the form of which has been made available to the
ADCS Group). No employee of the ATMI Group or any ATMI Group Subsidiary is in
violation of any material term of any employment contract, proprietary
information and inventions agreement, confidentiality agreement, non-
competition agreement, or any other contract or agreement relating to the
relationship of any such employee with the ATMI Group or any ATMI Group
Subsidiary, or any previous employer.
(g) The Proprietary Rights and Marks are free of any unresolved ownership
disputes with respect to any third party. To the ATMI Group's knowledge there
is no unauthorized use, infringement or misappropriation of any of such
Proprietary Rights or Marks by any third party, including any employee or
former employee of the ATMI Group or any ATMI Group Subsidiary.
(h) Other than as part of transactions identified in SCHEDULE 4.23, the ATMI
Group has not licensed, granted rights under, waived, released, discharged,
dedicated, disclaimed or otherwise relinquished any of the Proprietary Rights
identified on SCHEDULE 4.23(H) (the "ATMI Identified Proprietary Rights") to
third parties; has not burdened the Proprietary Rights with any liens,
security interests, financing agreements, or other encumbrances; and to the
ATMI Group's knowledge is not prevented in any manner, as by estoppel, laches,
inequitable conduct, or otherwise, from enforcing any of the ATMI Identified
Proprietary Rights, which prevention would individually or in the aggregate
have an ATMI Material Adverse Effect.
4.24. Related Party Transactions. SCHEDULE 4.24 sets forth the amounts and
other essential terms of indebtedness (which by its terms requires payment of
principal or interest at any time after December 31, 1997) or other
obligations, liabilities or commitments (contingent or otherwise) of the ATMI
Group or any ATMI Group Subsidiary to or from any present officer, director,
partner, member or stockholder or any person related to, controlling,
controlled by or under common control with any of the foregoing (other than
for employment services performed within the past month the payment for which
is not yet due), and all other transactions between such persons and the ATMI
Group or any ATMI Group Subsidiary, except for transactions which through
consolidation are eliminated in the ATMI Group Financial Statements. Without
limiting the generality of the foregoing, as of the date hereof, none of the
present officers, directors, partners, members or stockholders or any person
related to, controlling, controlled by or under common control with any of the
foregoing (a) has any material direct or indirect interest in any entity which
does business with the ATMI Group or any ATMI Group Subsidiary, (b) has any
direct or indirect interest in any property, asset or right which is used by
the ATMI Group or any ATMI Group Subsidiary in the conduct of its business, or
(c) has any contractual relationship with the ATMI Group or any ATMI Group
Subsidiary other than such relationships which occur from being an employee,
officer, director, etc.
4.25. Environmental Matters; Health and Safety.
(a) Definitions. The definitions set forth in Section 3.31 shall apply for
purposes of this Section 4.25.
(b) Environmental Representations and Warranties. SCHEDULE 4.25 hereto sets
forth a list of all of the real property and all of the buildings, warehouses
and storage facilities owned, leased or operated by the ATMI Group or any ATMI
Group Subsidiary during the last five (5) years (the "ATMI Premises"),
indicating where such
A-42
<PAGE>
property or facility is located, whether such property is owned, leased and/or
operated by the ATMI Group or any ATMI Group Subsidiary and the date of
acquisition or occupancy thereof.
(i) Compliance. The ATMI Group and each ATMI Group Subsidiary and, to the
ATMI Group's knowledge, its predecessor(s) in interest, have been and are
in compliance with and have no liability or obligation arising under any
Environmental Law, and neither the ATMI Group nor any ATMI Group Subsidiary
has received any Notice from any applicable governmental agency seeking any
information or alleging any violation of such Environmental Laws. No Site
Remediation Measure is necessary or required under Environmental Law or any
ATMI Commitment for its business or the ATMI Premises, nor are there any
Environmental Conditions on the ATMI Premises. No capital improvements,
alterations or repairs to the ATMI Premises are necessary or required to
bring such facility into compliance with all Environmental Laws now in
effect or enacted or promulgated but not yet in effect.
(ii) Hazardous Materials/Underground Tanks. None of the ATMI Group or any
ATMI Group Subsidiary and, to the ATMI Group's knowledge, their
predecessor(s) in interest, has caused or permitted any use of its business
or ATMI Premises to generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce or process any Hazardous Materials or
solid waste, except in compliance with all Environmental Laws, and has not
caused or permitted and has no knowledge of the Release of any such
Hazardous Materials on-site or off-site of the ATMI Premises resulting or
that could in the future result in an Environmental Condition requiring
Site Remediation Measures. The ATMI Premises and all principal items and
machinery and equipment used in the ATMI Group's business comply with all
applicable Environmental Laws. The ATMI Premises do not contain any
asbestos requiring removal now or in the course of any remodeling that may
occur in the future, or other Hazardous Materials, and, except for
chemicals and raw materials used, and wastes generated in connection with,
the manufacture of the ATMI Group's products, which in each case are
located on the ATMI Premises in the ordinary course of business, no such
materials are located on, in or under the ATMI Premises. Any and all
underground and aboveground tanks at the ATMI Premises are in compliance
with any and all Environmental Laws, and such Environmental Laws do not
mandate the removal or retrofitting of such tanks for a period of five (5)
years after the Closing. The removal of any tank has been carried out in
compliance with all applicable Environmental Laws.
(iii) There are no outstanding or, to the ATMI Group's knowledge,
threatened actions, claims, proceedings, determinations or judgments by any
party, including but not limited to any governmental authority, whether
foreign, federal, state, local or any agency thereof, against or involving
the ATMI Group or any ATMI Group Subsidiary, or to the ATMI Group's
knowledge, against or involving the ATMI Group's or any ATMI Group
Subsidiary's predecessor(s) in interest in any manner arising under the
Environmental Laws or alleging or involving personal injury or property
damage as a result of a violation of any Environmental Law or otherwise
involving Environmental Conditions. Attached hereto as SCHEDULE 4.25 is a
list of all such actions, claims, proceedings, determinations and judgments
issued within the past ten (10) years by any party against the ATMI Group
or any ATMI Group Subsidiary and, to the ATMI Group's knowledge, against
any predecessor(s) in interest.
(iv) The ATMI Group and each ATMI Group Subsidiary and, to the ATMI
Group's knowledge, their predecessor(s) in interest, have complied with all
notice, recordkeeping and reporting requirements imposed by any
governmental authority and any informational requests or demands arising
under any Environmental Laws. None of the ATMI Group or any ATMI Group
Subsidiary, nor, to the ATMI Group's knowledge, the ATMI Group's or any
ATMI Group Subsidiary's predecessor(s) in interest, is liable for any
penalties, fines, or forfeitures or is subject to any restrictions on the
conduct of its business for failure to comply with any of the foregoing.
4.26. Customers and Suppliers. Neither the ATMI Group nor any ATMI Group
Subsidiary has received any notice or has any knowledge that any customer from
whom the ATMI Group or any ATMI Group Subsidiary in the aggregate has received
more than $250,000 in gross receipts during the immediately preceding twelve-
month period (1) has ceased, or currently intends to cease, to use the
products, goods or services of the business
A-43
<PAGE>
of the ATMI Group or of any ATMI Group Subsidiary, (2) has substantially
reduced, or currently intends to substantially reduce, the use of products,
goods or services of the business of the ATMI Group or of any ATMI Group
Subsidiary, or (3) other than in the ordinary course of business and to an
extent which is not reasonably likely to have an ATMI Material Adverse Effect,
has sought, or is seeking, to reduce the price it will pay for products, goods
or services of the business of the ATMI Group or of any ATMI Group Subsidiary.
Neither the ATMI Group nor any ATMI Group Subsidiary has received any notice
or has any knowledge that any of the ten (10) largest suppliers of the ATMI
Group and the ATMI Group Subsidiaries taken as a whole in terms of purchases
made during the 1995 and 1996 fiscal years will not sell raw materials,
supplies, merchandise and other goods to the business of the ATMI Group or of
any ATMI Group Subsidiary at any time after the Closing Date on terms and
conditions similar to those used in the current sales to the business, subject
to general and customary price increases and unforeseeable supply or demand
changes.
4.27. Product and Service Warranties. To the knowledge of the ATMI Group:
(a) All products sold and all services rendered by the ATMI Group and each
ATMI Group Subsidiary have been in conformity in all material respects with
all applicable ATMI Commitments and all expressed warranties, and no material
liability exists or will arise for replacement or damage in connection with
such sales or for services not rendered in all material respects in accordance
therewith.
(b) There is adequate provision in the ATMI Financial Statements for
liabilities and obligations for damaged, defective or returned goods, or for
replacement of goods or for allowances with respect to goods sold or services
rendered by or on behalf of the ATMI Group or any ATMI Group Subsidiary.
(c) Neither the ATMI Group nor any ATMI Group Subsidiary has any pattern of
claims or actions based upon allegations of the same or similar product defect
for any of its products.
(d) There has not been any material product recall, rework or retrofit
relating to any line of product manufactured, shipped or sold by the ATMI
Group or any ATMI Group Subsidiary, nor to the knowledge of the ATMI Group is
there any basis for any such product recall, rework or retrofit.
4.28. No Prior Activities. Holdings and Newco were formed solely for the
purpose of engaging in the transactions contemplated by this Agreement. As of
the date hereof and the Effective Time, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated by this Agreement and except for this Agreement and
any other agreements or arrangements contemplated by this Agreement, neither
Holdings nor Newco has nor will have incurred, directly or indirectly, through
any subsidiary or affiliate (other than its parent), any obligations or
liabilities or engaged in any business activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person.
4.29. Hart-Scott-Rodino. The "total assets" and the "annual net sales" of
the "ultimate parent entity" (as such terms are used within the meaning of
Section 7A.(a)(2)(A) of the Hart-Scott-Rodino Antitrust Improvements Act of
1976) of the ATMI Group are less than $100,000,000.
4.30. Finders' Fees. There is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of
the ATMI Group or any ATMI Group Subsidiary who might be entitled to any fee
or commission from the ADCS Group or any other person upon consummation of the
transactions contemplated by this Agreement.
4.31. Information in Disclosure Documents and Registration Statement. None
of the information made available or to be made available by the ATMI Group
for inclusion or incorporation by reference in (i) any registration statement
filed in connection with this Agreement will, at the time such registration
statement is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements
A-44
<PAGE>
therein, in light of the circumstances under which they are made, not
misleading and (ii) the Proxy Statement will, at the date mailed to
stockholders and at the time of the meeting of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder, and any registration statement will comply
as to form in all material respects with the provisions of the Securities Act
and the rules and regulations thereunder, except that no representation is
made by the ATMI Group with respect to statements made therein based on
information made available by the ADCS Group, any ADCS Group Subsidiary or any
Holder for inclusion in any registration statement or the Proxy Statement.
4.32. Pooling. To its knowledge, the ATMI Group has not taken, or failed to
take, any action that would jeopardize the treatment of the Reorganization as
a "pooling of interests" for accounting purposes.
4.33. Section 203 of the DGCL. The Exchange by the Holders of each of their
Interests for their Pro Rata Portion of the Exchange Consideration has been
approved by the Board of Directors of Holdings for the purposes of Section 203
of the DGCL.
4.34. No Misrepresentation. Neither this Agreement nor any certificate or
Schedule or other information furnished pursuant to this Agreement by or on
behalf of the ATMI Group or any ATMI Group Subsidiary contains any untrue
statement of a material fact or, when this Agreement and such certificates,
Schedules and other information are taken in their entirety, omits to state a
material fact required to be stated herein or therein necessary to make the
statements contained herein or therein not misleading.
ARTICLE V
Covenants
5.1. Access to Information. From the date hereof to the Closing Date, each
party will (i) afford to the officers, independent certified public
accountants, legal counsel and other representatives of the other parties,
during normal business hours, reasonable access to its properties, books,
records and personnel in order that each party may have full opportunity to
make such investigation as it reasonably desires to make in connection with
the transactions contemplated herein; (ii) confer with representatives of the
other parties; (iii) furnish to the other parties, either orally or by means
of such records, documents, and memoranda as are available or reasonably
capable of preparation, such information as the other parties may reasonably
request; and (iv) furnish to the other parties' auditors all consents and
authority that they may reasonably request in connection with any examination
of each party by the other parties. The rights pursuant to this Section 5.1
shall be subject to the provisions of the Confidentiality Agreement dated
October 22, 1996 between ADCS LP and ATMI, which Confidentiality Agreement
shall be binding on each of the ADCS Group and each of the ATMI Group and
shall survive the execution and delivery of and the termination of, this
Agreement.
5.2. Interim Operations of ADCS Group. Except as set forth on Schedule 5.2
and as provided in Section 5.21, the ADCS Group hereby covenants and agrees
that between the date hereof and the Closing, and unless the ATMI Group
otherwise consents in advance in writing:
(a) The ADCS Group and each ADCS Group Subsidiary shall conduct its business
in the ordinary course and in accordance with its past practices, and use its
diligent efforts to (i) preserve its business organization intact, (ii)
preserve its goodwill and the confidentiality of its business know-how, (iii)
keep available to the ADCS Group and each ADCS Group Subsidiary the services
of its present key employees and those material to the operation of its
respective business, and (iv) preserve the present relationships between the
ADCS Group or
A-45
<PAGE>
any ADCS Group Subsidiary and its collaborators, licensors and others having
business relations with the ADCS Group or any ADCS Group Subsidiary.
(b) The ADCS Group and each ADCS Group Subsidiary shall conduct its business
only in the usual and ordinary manner and shall not change the character of
its business.
(c) Neither the ADCS Group nor any ADCS Group Subsidiary shall authorize,
amend the terms of, issue or contract for the issuance of or grant options,
warrants or rights to purchase any ADCS Group Securities.
(d) The ADCS Group shall use its best efforts to cause the Holders not to
transfer any of the Interests, other than transfers to family members and
trusts for their benefit or involuntary transfers, which in any event do not
adversely affect the pooling of interests treatment of the Reorganization. The
ADCS Group will give ATMI prompt written notice of any such transfer. Each
such permitted transferee shall be deemed a "Holder" for all purposes of this
Agreement.
(e) Neither the ADCS Group nor any ADCS Group Subsidiary shall pay any
dividend or make any other distribution with respect to or repurchase or agree
to repurchase any ADCS Group Securities.
(f) The ADCS Group and each ADCS Group Subsidiary shall (i) use and operate
substantially all of its assets in the ordinary course of business in
accordance with past practices and maintain substantially all of its assets in
substantially the same condition as they are now (reasonable wear and tear,
which are not such as to adversely affect the operation of such business,
excepted); (ii) maintain insurance upon all of its assets and with respect to
the conduct of its business, all such insurance to be comparable in amount,
scope and coverage to that in effect on the date of this Agreement; and (iii)
give ATMI prompt written notice of any material damage to its properties by
fire or other casualty.
(g) The ADCS Group and each ADCS Group Subsidiary shall maintain its books,
records and accounts in the ordinary course consistent with past practice, on
a basis consistent with prior periods, and shall not make any material changes
in the accounting methods or practices followed by the ADCS Group or any ADCS
Group Subsidiary or any change in the depreciation or amortization policies or
rates theretofore adopted or applied.
(h) The ADCS Group and each ADCS Group Subsidiary shall duly comply in all
material respects with all laws applicable to it, its assets and the conduct
of its business.
(i) The ADCS Group and each ADCS Group Subsidiary shall perform all of its
material obligations under the ADCS Commitments without default.
(j) Except in the ordinary course of business consistent with past practice,
neither the ADCS Group nor any ADCS Group Subsidiary shall grant any power of
attorney with respect to its business or assets.
(k) Except in the ordinary course of business consistent with past practice,
neither the ADCS Group nor any ADCS Group Subsidiary shall enter into any new
ADCS Commitments, or cancel, amend, modify adversely, assign, encumber or
terminate any of the ADCS Commitments or make any material capital investment,
expenditure or improvement or enter into any agreement therefor, which in any
event would be material to the ADCS Group and the ADCS Group Subsidiaries
taken as a whole.
(l) Except in the ordinary course of business and to the extent not material
to the ADCS Group and the ADCS Group Subsidiaries taken as a whole, neither
the ADCS Group nor any ADCS Group Subsidiary shall (i) make any loan, or
otherwise extend credit to any person, firm or corporation, except in the
ordinary course of business and consistent with the past practices of the ADCS
Group or any ADCS Group Subsidiary, (ii) give any guarantee or indemnity, or
make any other similar commitment with respect to a debt or other liability of
any person, firm or corporation, or (iii) (excluding transactions among the
ADCS Group and the ADCS Group
A-46
<PAGE>
Subsidiaries) create, incur or otherwise become liable for any indebtedness
(other than interest and fees assessed on the outstanding portion of such
indebtedness), or otherwise subject any of its property or assets to any lien,
security interests, encumbrance or charge.
(m) Neither the ADCS Group nor any ADCS Group Subsidiary shall make any
payment in excess of $50,000, except for payment of liabilities incurred in
the ordinary course of business, and the payment of the fees and expenses of
its attorneys and accountants incurred in connection with the transactions
contemplated hereby.
(n) Neither the ADCS Group nor any ADCS Group Subsidiary shall sell, lease
or otherwise dispose of any of the assets, except in the ordinary course of
business for a cash consideration which equals a fair value at the time of the
sale of any of the assets.
(o) Except in the ordinary course of business consistent with past practice,
neither the ADCS Group nor any ADCS Group Subsidiary shall (i) grant any
severance or termination pay to any director, officer, employee, partner or
member of the ADCS Group or any ADCS Group Subsidiary; (ii) enter into any
employment, severance, management, consulting, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer, employee, partner or member of the ADCS Group or any ADCS
Group Subsidiary; (iii) change benefits payable under existing severance or
termination pay policies or employment, severance, management, consulting or
other similar agreements other than normal yearly adjustments; or (iv) change
compensation, bonus or other benefits payable to director, officer, employee,
partner or member of the ADCS Group or any ADCS Group Subsidiary, other than
normal yearly adjustments, other than promotions made in the ordinary course
and other than any increase pursuant to any ADCS Employee Benefit Plan, the
formulae or commission rates of which have not been amended or changed.
(p) The ADCS Group will use its best efforts not to authorize or permit (i)
the ADCS Organizational Documents to be amended; (ii) the merger,
consolidation or other combination of the ADCS Group or any ADCS Group
Subsidiary with any other entity; or (iii) the ADCS Group or any ADCS Group
Subsidiary to organize a subsidiary.
(q) The ADCS Group shall not take any action which would jeopardize the
treatment of the Reorganization as a tax-free transaction or which would
prevent the Reorganization from being accounted for as a pooling of interests.
5.3. Interim Operation of the ATMI Group. The ATMI Group hereby covenants
and agrees that between the date hereof and the Closing, and unless the ADCS
Group otherwise consents in advance in writing:
(a) The ATMI Group and each ATMI Group Subsidiary shall conduct its business
in the ordinary course and in accordance with its past practices, and use its
diligent efforts to (i) preserve its business organization intact, (ii)
preserve its goodwill and the confidentiality of its business know-how, (iii)
keep available to the ATMI Group and each ATMI Group Subsidiary the services
of its present key employees and those material to the operation of its
respective business, and (iv) preserve the present relationships between the
ATMI Group or any ATMI Group Subsidiary and its collaborators, licensors and
others having business relations with the ATMI Group or any ATMI Group
Subsidiary.
(b) The ATMI Group and each ATMI Group Subsidiary shall conduct its business
only in the usual and ordinary manner and shall not change the character of
its business.
(c) Neither the ATMI Group nor any ATMI Group Subsidiary shall pay any
dividend or make any other distribution with respect to or repurchase or agree
to repurchase any ATMI Group Securities.
(d) The ATMI Group and each ATMI Group Subsidiary shall (i) use and operate
substantially all of its assets in the ordinary course of business in
accordance with past practices and maintain substantially all of its
A-47
<PAGE>
assets in substantially the same condition as they are now (reasonable wear
and tear, which are not such as to adversely affect the operation of such
business, excepted); (ii) maintain insurance upon the assets and with respect
to the conduct of its business, all such insurance to be comparable in amount,
scope and coverage to that in effect on the date of this Agreement; and (iii)
give the ADCS Group prompt written notice of any material damage to its
properties by fire or other casualty.
(e) The ATMI Group and each ATMI Group Subsidiary shall maintain its books,
records and accounts in the ordinary course consistent with past practice, on
a basis consistent with prior periods, and shall not make any material changes
in the accounting methods or practices followed by the ATMI Group or any ATMI
Group Subsidiary or any change in the depreciation or amortization policies or
rates theretofore adopted or applied.
(f) The ATMI Group and each ATMI Group Subsidiary shall duly comply in all
material respects with all laws applicable to it, its assets and the conduct
of its business.
(g) The ATMI Group and each ATMI Group Subsidiary shall perform all of its
material obligations under the ATMI Commitments without default.
(h) Neither the ATMI Group nor any ATMI Group Subsidiary shall sell, lease
or otherwise dispose of any of the assets, except in the ordinary course of
business for a cash consideration which equals a fair value at the time of the
sale of any of the assets.
(i) The ATMI Group will use its best efforts not to authorize or permit with
respect to ATMI, and will not authorize or permit with respect to any ATMI
Subsidiary, (i) the ATMI Organizational Documents to be amended, or (ii) the
merger, consolidation or other combination of the ATMI Group or any ATMI Group
Subsidiary with any other entity, except as may be necessary to effect any
acquisitions made by ATMI, subject to its obligations under Section 5.5, or to
change the name of any member of the ATMI Group.
(j) The ATMI Group shall not take any action which would jeopardize the
treatment of the Reorganization as a tax-free transaction or which would
prevent the Reorganization from being accounted for as a pooling of interests.
(k) The ATMI Group shall not grant to any other party piggyback or demand
registration rights which are pari passu or greater in priority than the
registration rights to be provided pursuant to the Registration Rights
Agreement attached hereto as EXHIBIT C (the "Registration Rights Agreement").
(l) The ATMI Group will not amend its stock option, stock purchase or other
similar equity-based incentive compensation plans to increase the number of
shares of stock issuable thereunder, nor issue shares of its capital stock
which would cause the number of its shares of capital stock to be more than
the number of shares that are issued and outstanding as of the date hereof,
except (i) the ATMI Group may approve and issue options under ATMI's existing
stock option plans, (ii) the ATMI Group may approve a new stock option plan
for up to 900,000 shares of Holdings Common Stock, (iii) pursuant to the
exercise of Outstanding ATMI Options, Outstanding ATMI Warrants and options
hereafter issued under (i) above, and (iv) in connection with acquisitions
made by ATMI, subject to its obligations under Section 5.5.
(m) Except in the ordinary course of business consistent with past practice,
neither the ATMI Group nor any ATMI Group Subsidiary shall enter into any new
ATMI Commitments, or cancel, amend, modify adversely, assign, encumber or
terminate any of the ATMI Commitments or make any material capital investment,
expenditure or improvement or enter into any agreement therefor, which in any
event would be material to the ATMI Group and the ATMI Group Subsidiaries
taken as a whole.
(n) Except in the ordinary course of business and to the extent not material
to the ATMI Group and the ATMI Group Subsidiaries taken as a whole, neither
the ATMI Group nor any ATMI Group Subsidiary shall
A-48
<PAGE>
(i) make any loan, or otherwise extend credit to any person, firm or
corporation, except in the ordinary course of business and consistent with the
past practices of the ATMI Group or any ATMI Group Subsidiary, (ii) give any
guarantee or indemnity, or make any other similar commitment with respect to a
debt or other liability of any person, firm or corporation, or (iii)
(excluding transactions among the ATMI Group and the ATMI Group Subsidiaries)
create, incur or otherwise become liable for any indebtedness (other than
interest and fees assessed on the outstanding portion of such indebtedness),
or otherwise subject any of its property or assets to any lien, security
interests, encumbrance or charge.
(o) Neither the ATMI Group nor any ATMI Group Subsidiary shall make any
payment in excess of $100,000, except for payment of liabilities incurred in
the ordinary course of business, and the payment of the fees and expenses of
its attorneys and accountants incurred in connection with the transactions
contemplated hereby.
(p) Except in the ordinary course of business consistent with past practice,
neither the ATMI Group nor any ATMI Group Subsidiary shall (i) grant any
severance or termination pay to any director, officer, employee, partner or
member of the ATMI Group or any ATMI Group Subsidiary; (ii) except as
described in Schedule 5.3(p), enter into any employment, severance,
management, consulting, deferred compensation or other similar agreement (or
any amendment to any such existing agreement) with any director, officer,
employee, partner or member of the ATMI Group or any ATMI Group Subsidiary;
(iii) change benefits payable under existing severance or termination pay
policies or employment, severance, management, consulting or other similar
agreements other than normal yearly adjustments; or (iv) change compensation,
bonus or other benefits payable to director, officer, employee, partner or
member of the ATMI Group or any ATMI Group Subsidiary, other than normal
yearly adjustments, other than promotions made in the ordinary course and
other than any increase pursuant to any ATMI Employee Benefit Plan, the
formulae or commission rates of which have not been amended or changed.
5.4. Notices of Certain Events. From the date hereof to and including the
Closing Date, the ADCS Group and the ATMI Group covenant and agree to notify
the other of (i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement; (ii) any notice or other
communication from any foreign or domestic governmental authority in
connection with the transactions contemplated by this Agreement; and (iii) any
matter arising and discovered after the date of this Agreement that, if
existing or known on the date of this Agreement, would have been required to
be disclosed pursuant to this Agreement, or that constitutes a breach or
prospective breach of this Agreement by the notifying party or its affiliates.
5.5. Other Acquisitions by ATMI. From and after the date hereof to the
Effective Time or the termination of this Agreement in accordance with Article
IX, without first giving the ADCS Group notice thereof, ATMI will not enter
into a definitive agreement with respect to any acquisition having a value in
excess of $18,000,000 (including the value of (i) cash, stock and assets
transferred as consideration in any acquisition, whether by way of merger,
purchase or exchange or otherwise; (ii) options, warrants or convertible
securities issued or assumed in connection with such acquisition; and (iii)
any debt or other liability issued or assumed in connection with such
acquisition). The information contained in such notice shall be subject to the
restrictions set forth in Sections 5.1 and 5.6. The ADCS Group shall have the
right within ten (10) business days after notice is given by ATMI to notify
ATMI that the ADCS Group objects to such acquisition and indicating the
reasonable basis for such objection. Failure of the ADCS Group to give notice
within such 10-day period shall waive the ADCS Group's right to object. Within
five (5) business days after ATMI's receipt of the ADCS Group's notice of
objection, ATMI shall notify the ADCS Group of ATMI's intention to either
terminate or proceed with such acquisition. If ATMI indicates its intention to
proceed with such acquisition, the ADCS Group shall have the right,
exercisable within five (5) business days after its receipt of ATMI's notice
of its intent to proceed, to terminate this Agreement pursuant to Section
9.1(d)(ii) without any liability on the part of any party hereto.
A-49
<PAGE>
5.6. No Public Disclosure. The ADCS Group understands that ATMI is a public
company, and that until the transactions contemplated by this Agreement are
made public, the ADCS Group and the Holders and those whom they advise of this
transaction (which shall only be on a "need to know basis") may be privy to
material inside information; accordingly, the ADCS Group understands, and the
ADCS Group has apprised those of its officers, members, partners and agents
who know of the potential transaction, of the need for confidentiality and the
potential consequences of any trading in the ATMI Group Securities. No public
announcements shall be made concerning the negotiations between the parties,
this Agreement or the transactions contemplated herein, without the prior
mutual consent of the ADCS Group and ATMI, except as may be required by law or
the rules or regulations of The Nasdaq National Market; provided that ATMI
shall use its best efforts to obtain ADCS' mutual consent to the timing and
content of any such announcements. The parties agree that, to the maximum
extent feasible, they will advise and confer with each other prior to the
issuance of any reports, statements or releases pertaining to this Agreement
or the transactions contemplated herein. In addition, the parties agree to
respond to all inquiries with respect to the Reorganization by stating that it
is their policy not to comment on such matters.
5.7. No Negotiation. The ADCS Group and each ADCS Group Subsidiary will not,
and the ADCS Group will use best efforts to cause each Holder not to, directly
or indirectly, solicit, discuss, or engage in negotiations with, or provide
information to, any person, other than ATMI, concerning any possible proposal
regarding the acquisition of the Interests, the ADCS Group or any ADCS Group
Subsidiary or any part thereof, or any merger or consolidation thereof, or
accept any such proposal.
5.8. NovaMOS. Following the Closing, the NovaMOS division and the ADCS Group
shall be operated as set forth on SCHEDULE 5.8.
5.9. Election of Directors. Holdings shall, as of the Closing Date, have a
vacancy on its six (6) person Board of Directors for the class of directors
elected for a three-year term and shall, on the day after the Closing Date,
appoint Stephen H. Siegele to fill such vacancy. To the extent permitted by
applicable law, Holdings shall cause the Board of Directors to nominate
Stephen H. Siegele or his designee to serve for an additional three-year term
and to support his or her nomination to the same extent and in the same manner
as it supports other nominees on the slate of directors proposed by Holdings,
provided that at the time of such nomination by the Board the Exchange
Consideration owned of record by the Holders represents in the aggregate ten
percent (10%) or more of the shares of Holdings Common Stock then outstanding.
5.10. HSR Act. In the event that the parties determine that the proposed
transactions are subject to a waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the ADCS Group
and the ATMI Group shall promptly file or cause to be filed on behalf of
itself and any other acquired or acquiring persons under the HSR Act,
Premerger Notification and Report Forms with respect to the transactions
contemplated herein, respond to any requests for additional information and
documents and provide the necessary information and make the necessary filings
under the HSR Act. The Closing Date shall be reasonably extended as necessary
to allow the period specified in the HSR Act and any extensions thereof to
expire prior to such date. The ATMI Group shall pay all applicable HSR filing
fees of the ADCS Group, the Holders and their respective affiliates.
5.11. Preparation of S-4 and the Proxy Statement. The ATMI Group shall
prepare and file as promptly as practicable after the execution of this
Agreement with the SEC a confidential preliminary Proxy Statement with respect
to the Reorganization which complies in form with applicable requirements of
the SEC. As promptly as practicable after the receipt of any comment letter
from the staff of the SEC, ADCS and ATMI shall cooperate in the response to
any such comment letter, or, in any event and if no such letter is received,
shall use all reasonable efforts to cause the S-4 to become effective as soon
thereafter as practicable. The ATMI Group shall use its best efforts to have
the S-4 declared effective under the Securities Act as promptly as practicable
after such filing. The ATMI Group shall take any action (other than qualifying
to do business in any jurisdiction in which it is not now so qualified)
required to be taken under any applicable state securities laws in connection
A-50
<PAGE>
with the issuance of Holdings Common Stock in the Reorganization, and the ADCS
Group shall furnish all information concerning the ADCS Group and the Holders
as may be reasonably requested in connection with any such action.
5.12. Best Efforts; Cooperation. The ADCS Group will use its best efforts to
cause the Holders to tender their Interests at the Closing and to cause the
other conditions of Closing to be met by it, and ATMI will use its best
efforts to cause the other conditions of Closing to be met by it.
5.13. ATMI Stockholder Matters. ATMI shall call a meeting of its
stockholders for the purpose of voting upon matters relating to this Agreement
and the Reorganization to be held as soon as practicable after the SEC
declares the S-4 effective. ATMI will use reasonable best efforts to hold its
stockholders' meeting as promptly as practicable thereafter and will, through
its Board of Directors, recommend to its stockholders approval of this
Agreement, the Reorganization and the other transactions contemplated hereby
or thereby and will use its reasonable best efforts to cause its stockholders
to approve the Merger. In addition, the ATMI Group may retain a nationally-
recognized proxy solicitation firm if the ATMI Group in consultation with the
ADCS Group deems such action to be necessary in order to receive the approval
of ATMI stockholders with respect to the transactions contemplated hereby.
5.14. Nasdaq Listing. ATMI and Holdings will make such filings as are
necessary with the NASD and The Nasdaq National Market regarding the
transactions contemplated hereby and will use their best efforts to cause the
shares of Holdings Common Stock to be issued in the Reorganization to be
approved for listing on The Nasdaq National Market, subject to official notice
of issuance, prior to the Effective Time.
5.15. Affiliates. The ATMI Group and the ADCS Group shall deliver to
Holdings a letter identifying all persons who are, at the time the
Reorganization is effected, "affiliates" of either the ATMI Group or the ADCS
Group. The ATMI Group and the ADCS Group shall cause each person who is
identified as an "affiliate" in such letter to deliver to Holdings on or prior
to the Effective Time an Affiliates Agreement, in the form attached hereto as
EXHIBIT D-1 with respect to affiliates of ADCS and EXHIBIT D-2 with respect to
affiliates of ATMI (the "Affiliates Agreements").
5.16. Financial Statements and SEC Reports. From and after the date hereof
until the Effective Time, each party hereto shall deliver to the other, as
soon as available but in no event later than forty-five (45) days after the
end of each fiscal quarter, a consolidated balance sheet as of the last day of
such fiscal period and a consolidated statement of income, stockholders'
equity and cash flows of such party and its subsidiaries for the fiscal period
then ended, prepared in accordance with general accounting principles, with
such exceptions as are noted on such financial statements, and in the case of
ATMI, the requirements of Form 10-Q or Form 10-K, as the case may be, under
the Exchange Act. From and after the date hereof until the Effective Time,
ATMI shall deliver to the ADCS Group as soon as available all forms, reports
and other documents filed by the ATMI Group or its affiliates with the SEC,
and each party shall otherwise keep the other apprised of any material
development with respect to its business or financial condition.
5.17. Employee Benefits. (a) As of Closing Date, ATMI or Holdings shall
provide all employees of the ADCS Group and each ADCS Group ERISA Affiliate
and their dependents, and all qualified beneficiaries (as defined in Section
4980B(g)(1) of the Code) entitled to receive continuation coverage under COBRA
as of the Closing Date (the "Qualified Beneficiaries") with coverage under one
or more ATMI Benefit Plans (the "Successor Welfare Plans"), including, without
limitation, health care coverage ("Coverage"), which meets at least the
following requirements: (i) service with the ADCS Group and each ADCS Group
ERISA Affiliate prior to the Closing Date shall be credited against all
service and waiting period requirements under the Successor Welfare Plans for
those employees of the ADCS Group and each ADCS Group ERISA Affiliate (and
their eligible dependents) that received coverage from the ADCS Group or an
ADCS-Group ERISA Affiliate as of the Closing Date, (ii) the Successor Welfare
Plans shall not provide for any pre-existing condition exclusion for those
employees of the ADCS Group and each ADCS Group ERISA Affiliate (and their
eligible dependents) and
A-51
<PAGE>
Qualified Beneficiaries that were entitled to coverage from the ADCS Group or
an ADCS Group ERISA Affiliate as of the Closing Date, and (iii) the
deductibles in effect under the Successor Welfare Plans for the plan year in
which the Closing Date occurs shall be reduced by any amounts applied towards
the deductibles under the ADCS Group Benefit Plans for the plan year in which
the Closing Date occurs provided such individuals submit evidence to ATMI
sufficient to demonstrate the amount so applied against any applicable
deductibles in effect under any ADCS Group Benefit Plan, provided ATMI or
Holdings shall only be obligated to provide Coverage to such employees,
dependents and qualified beneficiaries to the extent ATMI or Holdings sponsors
the same type of Group Benefit Plans that the ADCS Group did as of the Closing
Date.
(b) ATMI covenants that the service of each employee of the ADCS Group and
each ADCS Group ERISA Affiliate prior to the Closing Date shall be credited as
service under the ATMI 401(k) Plan for all purposes (including without
limitation, eligibility and vesting) for those employees of the ADCS Group and
each ADCS Group ERISA Affiliate that were participants in any 401(k) plan
maintained by the ADCS Group or an ADCS Group ERISA Affiliate as of the
Closing Date.
(c) The parties recognize that the ADCS Group's forms of compensation of its
employees, consultants and directors have differed from ATMI's, including, but
not limited to, in the payment of cash versus equity-based compensation. ATMI
will use reasonable efforts prior to Closing to obtain the ADCS Group's
agreement to the amount and types of compensation to be paid to employees of
the ADCS Group commencing as of the Closing. Nothing herein shall confer any
rights upon any such employees.
5.18. Tax Matters. Each of the parties agrees to prepare and file any and
all tax returns, reports and other filings regarding the tax treatment of the
Reorganization in a manner which is consistent in all respects with the intent
and expectation set forth in Section 2.6 above. Each of the parties further
agrees to use reasonable efforts not to do any act or thing, before or at any
time after the Reorganization, which would cause the Reorganization not to be
a transaction described in Section 351 of the Code. The ATMI Group agrees that
it will not take any tax position contrary to, or in conflict with, any tax
position taken in good faith prior to the Closing by a member of the ADCS
Group, any ADCS Group Subsidiary, or any predecessor in interest to any of the
foregoing, or any Holder.
5.19. Supplements to Disclosure Schedules. Without limiting the parties'
obligations under Section 5.4, from time to time prior to the Closing, the
ATMI Group and the ADCS Group will promptly supplement or amend the respective
disclosure schedules which they have delivered pursuant to this Agreement with
respect to any matter hereafter arising which, if existing or occurring at the
date of this Agreement, would have been required to be set forth or described
in any such disclosure schedule or which is necessary to correct any
information in any such disclosure schedule which has been rendered inaccurate
thereby. No supplement or amendment to any such disclosure schedule shall have
any effect for the purpose of determining satisfaction of the conditions set
forth in Sections 6.l(a) or 6.2(a) of this Agreement.
5.20. Expenses. In the event the Reorganization is consummated, the
reasonable legal and accounting costs (for all of which an estimate shall be
given to the ATMI Group on the date hereof) will be borne by the ATMI Group;
otherwise, in the event the Reorganization is not consummated, each party will
bear its own costs and expenses. Whether or not the transaction is
consummated, the ATMI Group shall pay all SEC registration, HSR and other
applicable governmental filing fees incurred in connection with the
negotiation, preparation and execution of this Agreement and the performance
of any of the obligations contemplated hereby or thereby.
5.21. Officer and Director Indemnity. (a) Simultaneously with the Closing,
the ADCS Organizational Documents shall be amended to the extent necessary to
provide the same level of indemnification for the current directors and
officers and employees of the ADCS Group (each, a "Current ADCS Indemnitee")
as the bylaws of ATMI provide on the date hereof for directors, officers and
employees of ATMI. Holdings will not permit the ADCS Organizational Documents
to be amended to affect adversely the provisions concerning indemnification
for a Current ADCS Indemnitee; provided, however, that Holdings reserves the
right to liquidate, dissolve,
A-52
<PAGE>
consolidate, reorganize or merge any entity within the ADCS Group so long as
any successor(s) expressly assumes and agrees to perform the obligations of
indemnity set forth in such ADCS Organizational Documents in the same manner
and to the same extent that the predecessor entity would be required to
perform if no such succession had taken place, and each Current ADCS
Indemnitee shall be entitled to enforce such obligations of indemnity against
any such successor(s) to the same extent and with the same force and effect as
if such successor was originally a party hereto.
(b) Holdings agrees that in the event that the ATMI Organizational Documents
are at any time amended so that the provisions therein relating to the
indemnification of directors, officers or employees of the ATMI Group are less
favorable than those currently contained therein, that Holdings will first
agree with any Current ADCS Indemnitee, who at any time is or becomes a
director, officer or employee of Holdings, ATMI, or any subsidiary thereof, to
provide for rights to indemnification no less favorable than those in effect
on the date hereof.
5.22. Exchange Act Section 16(b). The ATMI Group shall take no position
inconsistent with the positions taken by any Holders with respect to a
"Section 16(b) Matter" after the date hereof that will or may, directly or
indirectly, whether taken alone or together with other facts or events, result
in a Holder or any affiliate of a Holder having "Section 16(b) Liability." As
used herein, the following terms shall have the respective meanings set forth
below:
"Section 16(b) Liability" means liability under Section 16(b) of the
Exchange Act with respect to or as a consequence, directly or indirectly,
of (i) a Holder's or Holder's affiliate's acquisition (or deemed
acquisition) of "beneficial ownership" of, or a "pecuniary interest" or
"indirect pecuniary interest" in, any of the Exchange Consideration that
shall have been acquired (or deemed to have been acquired) pursuant to this
Agreement; or (ii) any dispute with respect to the date on which any Holder
becomes subject to Section 16 of the Exchange Act, if at all, pursuant to
this Agreement.
"Section 16(b) Matter" means each matter or series of matters (including,
without limitation, a proposed transaction or series of transactions
involving any stock or other non-cash dividend, split-up, reverse split-up,
reclassification, recapitalization, reorganization, combination,
subdivision, conversion, exchange of shares or acquisition, merger or other
similar such transaction), which, directly or indirectly, as a result of
the taking of such action by Holdings, its Board of Directors or
stockholders or any governmental authority having jurisdiction thereover,
or the conclusion of any such matter will or may, directly or indirectly,
whether taken alone or together with other facts or events, result in
Section 16(b) Liability.
5.23. Environmental Report. The ATMI Group has at its expense ordered from
GZA GeoEnvironmental, Inc. a Phase II environmental site assessment of the
ADCS manufacturing site in Burnet, Texas. The ATMI Group will use reasonable
efforts to have the assessment completed no later than April 28, 1997. Within
ten (10) days after its receipt thereof, the ATMI Group shall deliver to ADCS
Nevada a copy of the assessment, together with a written statement from ATMI
stating whether or not (i) the assessment indicates an Environmental Condition
which ATMI in good faith has determined could have an ADCS Material Adverse
Effect (a "Material Environmental Condition"), and (ii) the ATMI Group intends
to terminate this Agreement as a result of such Material Environmental
Condition. If the ATMI Group states its intention to terminate this Agreement
as a result of a Material Environmental Condition, this Agreement will
terminate on the thirtieth (30th) day after ADCS Nevada's receipt of such
notice unless within such 30-day period the ADCS Group successfully remediates
such Material Environmental Condition or the parties agree otherwise. If this
Agreement is terminated pursuant to this Section 5.23, the ATMI Group shall
not be entitled to a termination payment under Section 9.2. If this Agreement
is not terminated pursuant to this Section 5.23, then the results of such
Phase II site assessment shall be deemed to be incorporated into the ADCS
Disclosure Schedule as of the date on which this Agreement is executed.
A-53
<PAGE>
ARTICLE VI
Conditions Precedent to Closing
6.1. Conditions to the Obligations of the ATMI Group. The obligation of the
ATMI Group to consummate the Merger, the Exchange and the other transactions
contemplated hereby shall be subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions (any of which may be waived
in writing by the ATMI Group in its sole discretion):
(a) Representations and Warranties True. The representations and warranties
of the ADCS Group and the Holders which are contained in this Agreement, or
contained in any Schedule, certificate or other instrument or document
delivered or to be delivered pursuant to this Agreement, shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of the Closing Date, except
for the effect of any activities or transactions which may have taken place
after the date of this Agreement expressly permitted by this Agreement,
incident to carrying out this Agreement, or consented to in writing by ATMI.
At the Closing, the ADCS Group shall have delivered to the ATMI Group a
certificate confirming the foregoing (signed on behalf of the ADCS Group by
the President, General Partner, authorized member, etc., as appropriate).
(b) Performance. The ADCS Group shall have performed and complied in all
material respects with all of the obligations under this Agreement which are
required to be performed or complied with by it on or prior to the Closing
Date. At the Closing, the ADCS Group shall have delivered to the ATMI Group a
certificate confirming the foregoing (signed on behalf of the ADCS Group by
the President, General Partner, authorized member, etc., as appropriate).
(c) Stockholder Approval. This Agreement and the consummation of the
transactions contemplated herein shall have been duly approved and adopted by
the stockholders of ATMI in accordance with the DGCL and the ATMI
Organizational Documents.
(d) Absence of Litigation. No statute, rule or regulation shall have been
enacted or promulgated, and no order, decree, writ or injunction shall have
been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory
body, agency or authority shall have been commenced with respect to the
transactions contemplated hereby or with respect to the ADCS Group, any ADCS
Group Subsidiary or any Holder not set forth in a Schedule hereto which, in
the reasonable judgment of the ATMI Group, would have a material adverse
effect on the transactions contemplated hereby or an ADCS Material Adverse
Effect.
(e) Pooling of Interests. The ATMI Group shall have received a letter dated
as of the Effective Time from Ernst & Young LLP, independent accountants to
the ADCS Group and the ATMI Group, regarding the appropriateness of pooling of
interest accounting for the Reorganization under Accounting Principles Board
Opinion No. 16.
(f) Additional Agreements. The ADCS Group and the Holders shall have
delivered (or cause to be delivered) duly executed counterparts of the
following agreements:
(i) Proprietary Information and Inventions Agreements. The ADCS Group
shall have used best efforts to cause each employee of the ADCS Group and
each ADCS Group Subsidiary to have entered into ATMI's customary Employee
Proprietary Information and Inventions Agreements (the "Proprietary
Information and Inventions Agreements") with ATMI and/or the ADCS Group, as
ATMI may determine, a copy of which is attached hereto as EXHIBIT E.
A-54
<PAGE>
(ii) Employment Agreements. Each of Stephen H. Siegele, Frederick H.
Siegele, and Frederick J. Siegele shall have entered into an Employment
Agreement (each an "Employment Agreement") with ATMI and/or the ADCS Group,
as ATMI may determine, substantially in the form(s) of EXHIBIT F.
(iii) Affiliate Agreement. Each of the affiliates of the ADCS Group and
ATMI shall have entered into an Affiliate Agreement in the form of EXHIBIT
D-1 or EXHIBIT D-2, as appropriate.
(iv) Escrow Agreement. Each of the Holders and the escrow agent
thereunder shall have entered into the Escrow Agreement (the "Escrow
Agreement") substantially in the form of EXHIBIT G.
(v) Indemnification Agreement. Each of the Holders and the ATMI Group
shall have entered into the Indemnification Agreement (the "Indemnification
Agreement") substantially in the form of EXHIBIT H.
(vi) Representations and Warranties of Holders. Each Holder shall have
executed and delivered to the ATMI Group a Certificate of Holder in the
form attached hereto as EXHIBIT I making each of the representations and
warranties contained therein with respect to such Holder, but only as to
that Holder.
(g) Opinions of Counsel. (i) Brobeck, Phleger & Harrison LLP, counsel to the
ADCS Group, the ADCS Group Subsidiaries and the Holders, shall have delivered
to the ATMI Group an opinion substantially in the form of Exhibit J; and (ii)
Lyon & Lyon, patent counsel to the ADCS Group, shall have delivered to the
ATMI Group an opinion substantially in the form of EXHIBIT K;
(h) Fairness Opinion. Alex. Brown & Sons Incorporated, financial advisers to
ATMI, shall have delivered an opinion to the Board of Directors of ATMI to the
effect that the Exchange Consideration payable pursuant to the Reorganization
is fair from a financial point of view to ATMI.
(i) Comfort Letter. Ernst & Young LLP, independent accountants to the ADCS
Group and the ATMI Group, shall have delivered a "comfort" letter, addressed
to the ADCS Group and the ATMI Group and dated as of the effective date of the
S-4 and the Closing Date, in such form and substance as is customary in
connection with such transactions and is satisfactory to the ADCS Group and
the ATMI Group.
(j) Tax Opinion. Ernst & Young LLP, independent accountants to the ADCS
Group and the ATMI Group, shall have delivered an opinion letter, addressed to
the ADCS Group and the ATMI Group and dated as of the Closing Date, to the
effect that the Reorganization has been structured in a manner which is tax-
free with respect to the ATMI Group and its stockholders and the Holders (the
"Tax Opinion").
(k) Delivery of Certificates and Assignment. In exchange for the Exchange
Consideration, the Holders shall have delivered (i) each of the original share
certificates evidencing the Capital Stock, duly endorsed for transfer with all
requisite transfer stamps, if any are due, attached thereto, (ii) an
assignment of the Membership Interests, the form of which is attached hereto
as EXHIBIT B, and (iii) all such other deeds, bills of sale, assignments and
assurances which Holdings deems reasonably necessary or desirable to vest,
perfect or confirm any and all right, title or interest in, to or under the
Interests or otherwise to carry out the purposes of this Agreement. Each of
the foregoing shall also be executed and delivered by each Holder's spouse, if
required.
(l) Securities Law Compliance. The S-4 registering the issuance and delivery
of the shares of Holdings Common Stock pursuant to the Merger shall have been
declared effective in accordance with the provisions of the Securities Act,
and no stop order suspending the effectiveness of the S-4 shall have been
issued by the SEC. All other filings necessary under federal and state
securities laws to permit the issuance and delivery of the shares of Holdings
Common Stock pursuant to the Merger and of the Exchange Consideration in
compliance with such laws shall have been made, and any authorizations in
connection therewith from all applicable securities regulatory authorities
shall have been obtained.
(m) Nasdaq Listing. Holdings Common Stock shall have been, at the Effective
Time, authorized for listing on The Nasdaq National Market.
A-55
<PAGE>
(n) Consents and Approvals. The ADCS Group shall have obtained all consents
and approvals and waivers and given such notices as may be reasonably
necessary to complete properly the restructuring undertaken by the ADCS Group
in 1996. The ADCS Group shall have obtained all consents and approvals
and waivers and given such notices as may be necessary to consummate the
transactions contemplated hereby and by the Additional Agreements to which it
is a party, including but not limited to (i) requisite stockholder, partner,
member, etc. approval or notification and (ii) the consent to the transactions
contemplated hereby of the parties to all Commitments under which the ADCS
Group, any ADCS Group Subsidiary or any Holder would otherwise be in default
in any material respect as a result of the transactions contemplated hereby,
other than Commitments which ATMI agrees are not material to the ADCS Group or
any ADCS Group Subsidiary's business or prospects. All consents,
authorizations, orders or approvals of, and filings or registrations with, any
federal, state, local or foreign governmental commission, board or other
regulatory body which are required for or in connection with the execution,
delivery and performance of this Agreement and the Additional Agreements by
the ADCS Group, any ADCS Group Subsidiary and the Holders and the consummation
of the transactions contemplated hereby and thereby, and in order to permit or
enable its business to be conducted after the Closing, shall have been duly
obtained or made, except filings under state securities laws, if any, which
may be made in the time period permitted by law. It is understood that none of
such approvals shall be deemed to have been received if any such approval is
subject to satisfaction of or compliance with a Burdensome Condition.
"Burdensome Condition" shall mean the imposition of a material restriction on
the ATMI Group's or the ADCS Group's ability to operate its business following
the Effective Time or requiring the ATMI Group or the ADCS Group to dispose of
a material amount of its assets following the Effective Time. Either the ATMI
Group or the ADCS Group may, but is not obligated to, seek the removal or
otherwise satisfactorily resolve the Burdensome Condition.
(o) No Material Adverse Changes. There shall not have been a material
adverse change in the general affairs, business, prospects, properties,
management, condition (financial or otherwise) or results of operations of the
ADCS Group or any ADCS Group Subsidiary, whether or not arising from
transactions in the ordinary course of business, and neither the ADCS Group
nor any ADCS Group Subsidiary shall have sustained any material loss or
interference with its business or properties from fire, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or any court or legislative or other governmental action, order or decree.
(p) Delivery by the ADCS Group. The ADCS Group shall deliver or cause to be
delivered to ATMI:
(i) With respect to the ADCS Group, each ADCS Group Subsidiary and each
Holder which is an entity, a complete and correct copy of (i) each
corporation's Certificate or Articles of Incorporation, as amended to date,
certified by the Secretary of State of its state or country of
incorporation, (ii) each corporation's By-Laws, as amended to date,
certified by the Secretary or an Assistant Secretary of the respective
corporation, (iii) each limited liability company's Articles of
Organization or similar instrument, as amended to date, certified by the
Secretary of State of its state of organization, (iv) each limited
liability company's Operating Agreement or similar agreement, as amended to
date, certified by a member or manager of the respective limited liability
company, (v) each limited partnership's certificate of limited partnership,
as amended to date, certified by the Secretary of State of the State of
Texas, and (vi) ADCS LP's Limited Partnership Agreement, as amended to
date, certified by its general partner, and the original corporate stock
ledgers, corporate seal and minute book(s) of the ADCS Group.
(ii) Long form certificates of good standing or legal existence, as
appropriate, as of a recent date issued by (i) the Secretary of State of
the state in which each of the ADCS Group and each ADCS Group Subsidiary is
organized to the effect that each is in good standing under the laws of
such state, and (ii) the Secretary of State of each state in which that the
ADCS Group or any ADCS Group Subsidiary is authorized to transact business
as a foreign corporation, foreign limited liability company or foreign
limited partnership to the effect that the ADCS Group or any ADCS Group
Subsidiary is duly qualified as a foreign entity in such state.
A-56
<PAGE>
(iii) Certificates issued as of a recent date by the Tax authorities of
the state of organization and of each state in which the ADCS Group or any
ADCS Group Subsidiary is authorized to transact business as to the status
of the ADCS Group and each ADCS Group Subsidiary's Tax liabilities
(including, but not limited to, sales tax).
(iv) Releases substantially in the form of EXHIBIT L hereto, executed by
each Holder.
(v) Written evidence satisfactory to ATMI that all prior outstanding
options to purchase any Securities of the ADCS Group or any ADCS Group
Subsidiary, if any, have been properly terminated.
(vi) Such other certificates and representations as are reasonably
requested by Ernst & Young LLP in order to render the Tax Opinion.
(vii) Such further instruments or documents as the ATMI Group or their
counsel may reasonably request to assure the full and effective completion
of the Reorganization and to assure the effective completion of the
transactions contemplated hereby.
(q) Termination of Certain Agreements. The following agreements shall have
been terminated with no further liability thereunder: (i) that certain
Members' and Shareholders' Agreement dated January 16, 1996; (ii) that certain
Agreement Regarding Stock Ownership and Distribution dated July 1, 1993; and
(iii) that certain Shareholders' Agreement dated on or about September, 1992.
(r) ADCS-Korea. The parties shall have obtained all third party and
governmental consents with respect to ADCS-Korea required as a result of, or
in connection with, the Reorganization. The parties shall cooperate in
obtaining and shall use best efforts to obtain such consents.
6.2. Conditions to the Obligations of the ADCS Group. The obligation of the
ADCS Group to consummate the Exchange and the other transactions contemplated
by this Agreement shall be subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions (any of which may be waived
in writing by the ADCS Group in its sole discretion):
(a) Representations and Warranties True. The representations and warranties
of the ATMI Group contained in this Agreement, or contained in any Schedule,
certificate or other instrument or document delivered or to be delivered
pursuant to this Agreement, shall be true and correct in all material respects
on and as of the Closing Date as though such representations and warranties
were made on and as of the Closing Date, except for the effect of any
activities or transactions which may have taken place after the date of this
Agreement expressly permitted by this Agreement, incident to carrying out this
Agreement, or consented to in writing by the ADCS Group. At the Closing, each
of the ATMI Group shall have delivered to the ADCS Group a certificate (signed
on its behalf by its President and its Chief Financial Officer) confirming the
foregoing.
(b) Performance. The ATMI Group shall have performed and complied in all
material respects with all of the obligations under this Agreement which are
required to be performed or complied with by it on or prior to the Closing
Date. At the Closing, each of the ATMI Group shall have delivered to the ADCS
Group a certificate (signed on its behalf by its President and its Chief
Financial Officer) confirming the foregoing.
(c) Stockholder Approval. This Agreement and the consummation of the
transaction contemplated herein shall have been duly approved and adopted by
the stockholders of ATMI in accordance with the DGCL and the ATMI
Organizational Documents.
(d) Absence of Litigation. No statute, rule or regulation shall have been
enacted or promulgated, and no order, decree, writ or injunction shall have
been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory
body, agency or authority shall have been commenced with respect to the
transactions contemplated
A-57
<PAGE>
hereby or with respect to the ATMI Group which, in the reasonable judgment of
the ADCS Group, would have a material adverse effect on the transactions
contemplated hereby or an ATMI Material Adverse Effect.
(e) Pooling of Interests. The ADCS Group shall have received a letter dated
as of the Effective Time from Ernst & Young LLP, independent accountants to
the ADCS Group and the ATMI Group, regarding the appropriateness of pooling of
interest accounting for the Reorganization under Accounting Principles Board
Opinion No. 16.
(f) Additional Agreements. The ATMI Group shall have executed and delivered
(and shall have agreed to cause Holdings to execute and deliver immediately
following the Effective Time, as applicable) counterparts of the following
documents:
(i) The Certificate of Merger.
(ii) The Proprietary Information and Inventions Agreements.
(iii) The Employment Agreements.
(iv) Affiliate Agreements in the form attached as Exhibit D-2.
(v) The Registration Rights Agreement.
(vi) The Escrow Agreement.
(vii) The Indemnification Agreement.
(viii) An employment agreement with each of Eugene G. Banucci, Chief
Executive Officer of ATMI, Daniel P. Sharkey, Chief Financial Officer of
ATMI, and Peter S. Kirlin, Executive Vice President of ATMI, which shall be
in the form of EXHIBIT F and contain the additional terms set forth on
SCHEDULE 5.3(P).
(g) Opinions of Counsel. (i) Shipman & Goodwin LLP, counsel to the ATMI
Group shall have delivered to the ADCS Group an opinion substantially in the
form of EXHIBIT M; and (ii) Intellectual Property/Technology Law, patent
counsel to the ATMI Group, shall have delivered to the ADCS Group (A) an
opinion substantially in the form of EXHIBIT N and (B) an assessment opinion
in the form of EXHIBIT O with respect to each of the patents listed on
SCHEDULE 6.2(G).
(h) Comfort Letter. Ernst & Young LLP, independent accountants to the ADCS
Group and the ATMI Group, shall have delivered a "comfort" letter, addressed
to the ADCS Group and the ATMI Group and dated the Closing Date, in such form
and substance as is customary in connection with such transactions and is
satisfactory to the ADCS Group and the ATMI Group.
(i) Tax Opinion. Ernst & Young LLP, independent accountants to the ADCS
Group and the ATMI Group, shall have rendered the Tax Opinion.
(j) Securities Law Compliance. All filings necessary under federal and state
securities laws to permit the issuance and delivery of the Exchange
Consideration in compliance therewith shall have been made, and any
authorizations in connection therewith from all applicable securities
regulatory authorities shall have been obtained.
(k) Nasdaq Listing. Holdings Common Stock, including that constituting the
Exchange Consideration, shall have been, at the Effective Time, authorized for
listing on The Nasdaq National Market.
(l) Consents and Approvals. The ATMI Group shall have obtained all consents
and approvals and waivers and given such notices as may be necessary to
consummate the transactions contemplated hereby and by the Additional
Agreements to which it is a party, including but not limited to (i) requisite
stockholder, partner, member, etc. approval or notification and (ii) the
consent to the transactions contemplated hereby of the parties to all
commitments under which the ATMI Group or any ATMI Group Subsidiary would
otherwise be in default
A-58
<PAGE>
in any material respect as a result of the transactions contemplated hereby,
other than commitments which the ADCS Group agrees are not material to the
ATMI Group or any ATMI Group Subsidiary's business or prospects. All consents,
authorizations, orders or approvals of, and filings or registrations with, any
federal, state, local or foreign governmental commission, board or other
regulatory body which are required for or in connection with the execution,
delivery and performance of this Agreement and the Additional Agreements by
the ADCS Group and any ADCS Group Subsidiary and the consummation of the
transactions contemplated hereby and thereby, and in order to permit or enable
its business to be conducted after the Closing, shall have been duly obtained
or made, except filings under state securities laws, if any, which may be made
in the time period permitted by law. It is understood that none of such
approvals shall be deemed to have been received if any such approval is
subject to satisfaction of or compliance with a Burdensome Condition. Either
the ATMI Group or the ADCS Group may, but is not obligated to, seek the
removal or otherwise satisfactorily resolve the Burdensome Condition.
(m) No Material Adverse Changes. There shall not have been a material
adverse change in the general affairs, business, prospects, properties,
management, condition (financial or otherwise) or results of operations (other
than volatility in the market price of the ATMI Common Stock) of the ATMI
Group whether or not arising from transactions in the ordinary course of
business, and neither the ATMI Group nor any ADCS Group Subsidiary shall have
sustained any material loss or interference with its business or properties
from fire, explosion, flood, or other casualty, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree.
(n) Delivery by the ATMI Group. The ATMI Group shall deliver or cause to be
delivered to the ADCS Group:
(i) With respect to the ATMI Group and each ATMI Group Subsidiary, a
complete and correct copy of (i) each corporation's Certificate or Articles
of Incorporation, as amended to date, certified by the Secretary of State
of its state or country of incorporation, and (ii) each corporation's By-
Laws, as amended to date, certified by the Secretary or an Assistant
Secretary of the respective corporation.
(ii) Long form certificates of good standing or legal existence, as
appropriate, as of a recent date issued by (i) the Secretary of State of
the state in which each of the ATMI Group and each ADCS Group Subsidiary is
organized to the effect that each is in good standing under the laws of
such state, and (ii) the Secretary of State of each state in which that the
ATMI Group or any ADCS Group Subsidiary is authorized to transact business
as a foreign corporation, foreign limited liability company or foreign
limited partnership to the effect that the ADCS Group or any ADCS Group
Subsidiary is duly qualified as a foreign entity in such state.
(iii) Certificates issued as of a recent date by the Tax authorities of
the state of organization and of each state in which the ATMI Group or any
ADCS Group Subsidiary is authorized to transact business as to the status
of the ATMI Group and each ADCS Group Subsidiary's Tax liabilities
(including, but not limited to, sales tax).
(iv) Such other certificates and representations as are reasonably
requested by Ernst & Young LLP in order to render the Tax Opinion.
(v) Such further instruments or documents as the ADCS Group or their
counsel may reasonably request to assure the full and effective completion
of the Reorganization and to assure the effective completion of the
transactions contemplated hereby.
(o) Shares of Exchange Consideration. Subject to the deposit into escrow of
shares of Holdings Common Stock contemplated under the Indemnification
Agreement and the Escrow Agreement, at the Closing, ATMI shall have delivered
to the Holders the Exchange Consideration issuable to the Holders pursuant to
Section 2.3 hereof or irrevocable instruction letters as described in Section
2.1.
(p) ADCS-Korea. Holdings shall have delivered the commitments, if any,
required with respect to the ADCS Korea joint venture upon the change in
control of ADCS Nevada effected at the Closing.
A-59
<PAGE>
ARTICLE VII
Closing
7.1. Closing. The closing of transactions contemplated hereby (the
"Closing") shall occur at the offices of Shipman & Goodwin LLP, One American
Row, Hartford, Connecticut 06103, as soon as reasonably practicable following
the meeting of ATMI's stockholders described in Section 5.13 and in any event
within three (3) business days after the satisfaction or waiver of the other
conditions set forth in Article VI. The date on which the Closing occurs shall
be referred to as the "Closing Date".
7.2. Simultaneous Closing. All actions to be taken on the Closing Date shall
be deemed to occur simultaneously and in no event shall be deemed to occur
unless and until all such events have occurred; provided, that the election of
Stephen H. Siegele as a director of Holdings shall not, and shall not be
deemed to, occur prior to the Closing.
ARTICLE VIII
Further Assurances
The parties agree that they will execute or furnish such documents and
further assurances to each other or to proper authorities as may be necessary
for the full implementation and consummation of this Agreement and the
Additional Agreements. This Article VIII shall survive the Closing.
ARTICLE IX
Termination of Agreement
9.1. Termination. This Agreement may be terminated at any time prior to the
Closing, notwithstanding the approval of this Agreement by the stockholders of
ATMI:
(a) by the mutual written consent of ATMI and the ADCS Group;
(b) by either ATMI or the ADCS Group:
(i) if any court or governmental or regulatory agency, authority or body
shall have enacted, promulgated or issued any statute, rule, regulation,
ruling, writ or injunction, or taken any other action, restraining,
enjoining or otherwise prohibiting the transactions contemplated hereby and
all appeals and means of appeal therefrom have been exhausted;
(ii) if the Closing shall not have occurred on or before the later of (A)
August 31, 1997, subject to extension pursuant to Section 9.3 hereof, and
(B) the expiration of any cure period provided herein; provided, however,
that the right to terminate this Agreement pursuant to this Section
9.1(b)(ii) shall not be available to any party whose (or whose
affiliate(s)') breach of any representation or warranty or failure to
perform or comply with any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before
such date; or
(iii) for any reason, upon the payment of $5,000,000 to the non-
terminating party (unless any other provision of the Agreement would permit
termination without payment of such amount);
(c) by ATMI (provided it has met its obligations under Section 5.12):
(i) in the event of a material breach of a representation or warranty as
of the date when made (or, in the case of the Phase II environmental site
assessment referred to in Section 5.23 above, when deemed to be made), or
covenant by the ADCS Group (subject to written notice and a thirty business
day cure period);
A-60
<PAGE>
(ii) subject to Section 9.3 hereof, if any Holder fails, refuses or is
unable to contribute its Interests in exchange for the Exchange
Consideration;
(iii) if any condition to Closing specified in Section 6.1 shall not be
satisfied and such condition is not waived by the ATMI Group in its
discretion; or
(iv) pursuant to Section 5.23 above; or
(d) by the ADCS Group (provided it has met its obligations under Section
5.12):
(i) in the event of a material breach of a representation or warranty as
of the date when made, or covenant by the ATMI Group (subject to written
notice and a thirty business day cure period);
(ii) pursuant to Section 5.5 above; or
(iii) if any condition to Closing specified in Section 6.2 shall not be
satisfied and such condition is not waived by the ADCS Group in its
discretion.
9.2. Termination Payment. No party shall be entitled to a termination
payment unless otherwise specified herein. In the event that either the ATMI
Group or the ADCS Group shall terminate this Agreement pursuant to subsection
(b)(iii), the terminating party shall be liable to and shall pay to the non-
terminating party by wire transfer the sum of $5,000,000 in full satisfaction
of all claims within fifteen (15) business days after the non-terminating
party's receipt of written notice of termination. In the event that (i) the
ADCS Group shall terminate this Agreement pursuant to subsection (d)(i) above
or (ii) ATMI shall terminate this Agreement pursuant to subsection (c)(i)
above (other than with respect to a breach of Section 5.7, which breach shall
be governed by Section 9.5 below), then the non-terminating party shall be
liable to and shall pay to the terminating party by wire transfer the sum of
$5,000,000 in full satisfaction of all claims within fifteen (15) business
days after receipt of written notice of termination by the terminating party.
In the event that ATMI shall terminate this Agreement pursuant to subsection
(c)(ii) (other than with respect to a failure, refusal or inability to
contribute described in Section 9.3), the ADCS Group shall be liable to and
shall pay to ATMI by wire transfer the sum of $5,000,000 in full satisfaction
of all claims within fifteen (15) business days after the ADCS Group's receipt
of written notice of termination by ATMI. It is agreed that the payments due
hereunder are the exclusive remedy for termination of this Agreement.
9.3. Failure to Deliver Interests. If any Holder fails, refuses or is unable
to contribute its Interests in exchange for the Exchange Consideration as a
direct result of any reason beyond Holder's control and of which Holder had no
knowledge as of the date of this Agreement, including, but not limited to,
Holder's death, disability, bankruptcy, divorce or separation, legal
proceeding, act of any governmental authority, or act of God, the ATMI Group
shall have the option, after giving notice, to (A) terminate this Agreement,
in which event no termination payment as described in Section 9.2 will be due,
(B) extend the Closing Date for a period of up to ninety (90) days, or (C)
close on the Merger and on the Exchange with those Holders who have tendered
their Interests, provided that the Merger and Exchange will qualify as a
pooling of interests transaction. In the event the Closing Date is extended
pursuant to clause (B) above, the ADCS Group will continue to use its best
efforts during such 90-day period to cause the Holders to tender their
Interests at the Closing. In the event the Closing occurs pursuant to clause
(C) above, the tendering Holders will agree at the Closing to use their best
efforts for a period of one (1) year after the Closing to cause the non-
tendering Holders to tender the Interests.
9.4. Effect of Termination. In the event of termination of this Agreement,
this Agreement shall forthwith become void and there shall be no liability on
the part of any of the parties hereto or their respective affiliates,
directors, officers, stockholders, general partners, limited partners, and
members, except for Section 5.6, Section 9.2 and the last sentence of Section
5.1, which shall remain in full force and effect.
9.5. Breach of Section 5.7. In the event of a breach by the ADCS Group or
any ADCS Group Subsidiary of Section 5.7 (subject to written notice and a
thirty business day cure period), the ATMI Group may pursue any and all
remedies available to it at law or in equity. Recovery by the ATMI Group of a
termination payment under Section 9.2 shall not bar any such action for breach
of Section 5.7, but the amount of any monetary damages awarded to the ATMI
Group in such action shall be reduced by the termination payment actually
received by the ATMI Group.
A-61
<PAGE>
ARTICLE X
Miscellaneous
10.1. Right of Set-Off. Any party to this Agreement shall be entitled to
set-off against any amounts due to another party under the terms of this
Agreement or under any Additional Agreement, any amounts due from such other
party under the terms of this Agreement.
10.2. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any benefits to any person (including, without limiting the
generality of the foregoing, any present or former employee of the ADCS Group
or any ADCS Group Subsidiary) or corporation or other entity, other than the
ADCS Group, the Holders, ATMI, Holdings, Newco and the Surviving Corporation,
except for persons entitled to the protections afforded by Section 5.21; and
this Agreement shall be for the sole and exclusive benefit of the ADCS Group,
the Holders, and the ATMI Group. The obligations of the ADCS Group and the
obligations of the ATMI Group shall be joint and several.
10.3. Successors and Assigns. This Agreement may not be assigned by any
party without the prior written consent of all of the parties hereto. This
Agreement shall bind and inure to the benefit of the parties hereto and their
respective heirs, administrators, executors, successors and permitted assigns.
10.4. Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (if sent during regular business hours, otherwise on the
next business day) (with written confirmation of receipt), provided that a
copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by certified mail or a nationally
recognized overnight delivery service (receipt requested), in each case to the
appropriate addresses and facsimile numbers set forth below (or to such other
addresses and facsimile numbers as a party may designate by notice to the
other parties):
If to the ATMI Group:
Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, CT 06810-4169
Facsimile No. (203) 792-8040
Attention Eugene Banucci
with copies to:
Frank J. Marco, Esq.
Shipman & Goodwin LLP
One American Row
Hartford, CT 06103-2819
Facsimile No. (860) 251-5900
If to the ADCS Group:
Advanced Delivery & Chemical Systems Nevada, Inc.
6805 Capital of Texas Highway, Suite 330
Austin, TX 78731
Facsimile No. (512) 418-1909
Attention Stephen H. Siegele
A-62
<PAGE>
with copies to:
Carmelo M. Gordian, Esq.
Brobeck, Phleger & Harrison LLP
301 Congress Avenue
Suite 1200
Austin, TX 78701
Facsimile No. (512) 477-5813
By its inclusion herein as a recipient of copies of notices, the parties
acknowledge and agree that notwithstanding the fact that Brobeck, Phleger &
Harrison LLP represented the ADCS Group (which effective as of the Closing
shall be wholly owned by Holdings) in connection with the transactions
contemplated by the Exchange Agreement, Brobeck, Phleger & Harrison LLP shall
be permitted (A) to represent the Holders and their respective heirs,
executors, administrators, affiliates, successors and assigns in connection
with any and all matters which may arise out of or in connection with this
Agreement, the Escrow Agreement or any of the other Additional Agreements; and
(B) that upon receipt of appropriate conflict waiver letters, if any be
required, and subject to applicable ethical obligations of attorneys, shall be
entitled to represent any of the other parties to this Agreement, the Escrow
Agreement or the Additional Agreements on any other matters which any such
party may request; provided, however, that the foregoing consent and waiver
are applicable only to any conflict which may arise out of the matters
referred to above.
10.5. Severability. In the event any covenant, condition or other provision
of this Agreement is held to be invalid or unenforceable by a final judgment
of a court of competent jurisdiction, then such covenant, condition or other
provision shall be automatically terminated and performance thereof waived,
and such invalidity or unenforceability shall in no way affect any of the
other covenants, conditions or provisions hereof, and the parties hereto shall
negotiate in good faith to agree to such amendments, modifications or
supplements of or to this Agreement or such other appropriate actions as, to
the maximum extent practicable, shall implement and give effect to the
intentions of the parties as reflected herein.
10.6 Pooling. If any provision of this Agreement or the application of any
such provisions to any person or circumstance precludes the use of "pooling of
interests" accounting treatment in connection with the Reorganization, then
provided the parties mutually agree (A) such provision shall be of no force
and effect to the extent and solely to the extent necessary to preserve such
accounting treatment for the Reorganization; (B) such invalidity or
unenforceability shall in no way affect any of the other provisions hereof;
and (C) the parties hereto shall negotiate in good faith to agree to such
amendments, modifications or supplements of or to this Agreement or such other
appropriate actions in order, to the maximum extent practicable, for the
Reorganization to be treated as a "pooling of interests" for accounting
purposes.
10.7. Entire Agreement; Amendment. This Agreement, the Schedules, the
Exhibits, the Additional Agreements and the Confidentiality Agreement dated
October 22, 1996 between ADCS LP and ATMI contain all of the terms agreed upon
by the parties with respect to the subject matter hereof, and there are no
representations or understandings between the parties except as provided
herein. Without limiting the generality of the foregoing, this Agreement
specifically supersedes the letter of intent dated January 10, 1997 between
ATMI and ADCS Nevada, ADCS Manager and ADCS Holdings. This Agreement may not
be amended or modified in any way except by a written amendment to this
Agreement duly executed by ATMI and ADCS Nevada.
10.8. Waiver. No waiver of a breach of, or default under, any provision of
this Agreement shall be deemed a waiver of such provision or of any subsequent
breach or default of the same or similar nature or of any other provision or
condition of this Agreement.
10.9. Applicable Law. This Agreement shall be governed by and construed
(both as to validity and performance) and enforced in accordance with the laws
of the State of Delaware applicable to agreements made and to be performed
wholly within such jurisdiction.
A-63
<PAGE>
10.10. Jurisdiction. Each party hereby irrevocably: (1) agrees that any
suit, action, or other legal proceeding arising out of this Agreement or out
of any of the transactions contemplated hereby or thereby, may be brought in
any New York state court or United States federal court located in the
southern district of New York; (2) consents to the jurisdiction of each such
court in any such suit, action, or legal proceeding; (3) waives any objection
which such party may have to the laying of venue of any such suit, action, or
legal proceeding in any of such courts; and (4) agrees that New York state is
the most convenient forum for litigation of any such suit, action, or legal
proceeding.
10.11. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument, but all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
10.12 Knowledge. As used herein, "knowledge" means knowledge of the
executive management of the ADCS Group or the ATMI Group, as the case may be,
after making reasonable inquiry of the knowledge of officers or senior
management employees having responsibility for those operations or
transactions to which such representation and warranty relates. An individual
will be deemed to have "knowledge" of a particular fact or other matter if:
(i) such individual is actually aware of such fact or other matter; or
(ii) a reasonably prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of making
reasonable inquiry of the knowledge of other officers or employees having
general responsibility for those operations or transactions to which such
representation and warranty relates.
[SIGNATURE PAGES FOLLOW.]
A-64
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of
Merger and Exchange to be executed as of the date first written above.
Advanced Technology Materials, Inc.
By: /s/ Eugene G. Banucci
---------------------------------
Eugene G. Banucci
Chief Executive Officer
ATMI Holdings, Inc.
By: /s/ Eugene G. Banucci
---------------------------------
Eugene G. Banucci
President
Alamo Merger, Inc.
By: /s/ Daniel P. Sharkey
---------------------------------
Daniel P. Sharkey
President
Advanced Delivery & Chemical Systems
Nevada, Inc.
By: /s/ Stephen H. Siegele
---------------------------------
Stephen H. Siegele
President
Advanced Delivery & Chemical Systems
Manager, Inc.
By: /s/ Stephen H. Siegele
---------------------------------
Stephen H. Siegele
President
A-65
<PAGE>
Advanced Delivery & Chemical Systems
Holdings, LLC
By: Advanced Delivery & Chemical
Systems Nevada, Inc., Its
Manager
By: /s/ Stephen H. Siegele
---------------------------------
Stephen H. Siegele
President
Advanced Delivery & Chemical Systems
Operating, LLC
By: Advanced Delivery &
ChemicalSystems Manager, Inc.,
Its Manager
By: /s/ Stephen H. Siegele
---------------------------------
Stephen H. Siegele
President
Advanced Delivery & Chemical
Systems, Ltd.
By: Advanced Delivery & Chemical
Systems Operating, LLC, Its
General Partner
By: Advanced Delivery & Chemical
Systems Manager, Inc., Its
Manager
By: /s/ Stephen H. Siegele
---------------------------------
Stephen H. Siegele
President
A-66
<PAGE>
APPENDIX B
OPINION OF ALEX. BROWN & SONS INCORPORATED
April 7, 1997
Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, CT 06810
Dear Sirs:
Advanced Technology Materials, Inc., a Delaware corporation ("ATMI" or the
"Company"), ATMI Holdings, Inc., a Delaware corporation and wholly-owned
subsidiary of ATMI ("Holdings"), Alamo Merger, Inc., a Delaware corporation
and wholly-owned subsidiary of Holdings ("Newco"), Advanced Delivery &
Chemical Systems, Nevada, Inc., a Nevada corporation ("ADCS Nevada"), Advanced
Delivery & Chemical Systems Manager, Inc., a Delaware corporation ("ADCS
Manager"), Advanced Delivery & Chemical Systems Holdings, LLC, a Delaware
limited liability company ("ADCS Holdings"), Advanced Delivery & Chemical
Systems Operating, LLC, a Delaware limited liability company ("ADCS
Operating") and Advanced Delivery & Chemical Systems, Ltd., a Texas limited
partnership ("ADCS LP") (ADCS Nevada, ADCS Manager, ADCS Holdings, ADCS
Operating and ADCS LP collectively, the "Target") have entered into an
Agreement and Plan of Merger and Exchange dated as of April 7, 1997 (the
"Agreement"). Pursuant to the Agreement, the implementation of which is
contingent on stockholder approval by ATMI's stockholders, Newco will be
merged with and into ATMI (the "Merger") with the stockholders of ATMI
receiving shares in Holdings and simultaneously therewith the holders of all
outstanding shares of capital stock of ADCS Nevada and ADCS Manager and all of
the membership interests in ADCS Holdings will exchange such shares and
interests (the "Exchange" and together with the Merger, the "Reorganization")
for an aggregate value of $87,500,000 in Holdings common stock, subject to
adjustment under certain circumstances, (the "Exchange Consideration"). We
have assumed, with your consent, that the Reorganization will qualify for
pooling-of-interests accounting treatment. You have requested our opinion as
to whether the Exchange Consideration payable pursuant to the Agreement is
fair, from a financial point of view, to the Company.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. Alex. Brown regularly publishes research reports regarding the
technology industry and the businesses and securities of publicly owned
companies in the technology industry. In the ordinary course of business,
Alex. Brown may actively trade the securities of the Company for our own
account and the account of our customers and, accordingly, may at any time
hold a long or short position in securities of the Company.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning the Company and Target
and certain internal analyses and other information furnished to us by the
Company and Target. We have also held discussions with the members of the
senior managements of the Company and Target regarding the businesses and
prospects of their respective companies and the joint prospects of a combined
company. In addition, we have (i) reviewed the reported prices and trading
activity for the common stock of the Company, (ii) compared certain financial
and stock market information for the Company and Target with similar
information for certain other companies whose securities are publicly traded,
(iii) reviewed the financial terms of certain recent business combinations,
(iv) reviewed the terms of the Agreement, and (v) performed such other studies
and analyses and considered such other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the
B-1
<PAGE>
prospects of the Company and Target, we have assumed that such information
reflects the best currently available judgments and estimates of the
managements of the Company and Target as to the likely future financial
performances of their respective companies and of the combined entity. In
addition, Alex. Brown did not rely on any appraisal of the assets of the
Company and Target. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
We have been retained by the Board of Directors of the Company as financial
advisor solely for the purpose of rendering this opinion and accordingly, we
have not been requested to and have not provided any other services in
connection with the Reorganization.
Our opinion expressed herein was prepared for the use of the Board of
Directors of the Company and does not constitute a recommendation to the
Company's stockholders as to how they should vote at the stockholders' meeting
in connection with the Reorganization. We hereby consent, however, to the
inclusion of this opinion in its entirety as an exhibit to any proxy or
registration statement required to be distributed in connection with the
Reorganization.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Consideration payable pursuant to the
Agreement is fair, from a financial point of view, to the Company.
Very truly yours,
Alex. Brown & Sons Incorporated
/s/ Alex. Brown & Sons,
By: Incorporated
---------------------------------
B-2
<PAGE>
APPENDIX C
CERTIFICATE OF INCORPORATION
OF
ATMI HOLDINGS, INC.
Under Section 102 of the General Corporation Law
of the State of Delaware
ARTICLE I
Name
The name of the corporation is: ATMI HOLDINGS, INC.
ARTICLE II
Registered Office and Agent
The address of the corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The corporation's registered agent at such address is
The Corporation Trust Company.
ARTICLE III
Purpose
The purpose for which the corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
ARTICLE IV
Capital Stock
The total number of shares of all classes of stock which the corporation has
authority to issue is Thirty-Two Million (32,000,000), consisting of Thirty
Million (30,000,000) shares of Common Stock, par value $0.01 per share (the
"Common Stock"), and Two Million (2,000,000) shares of Preferred Stock with a
par value of $0.01 per share (the "Preferred Stock").
I. COMMON STOCK
1. Voting Rights. The holders of shares of Common Stock shall be entitled to
one vote for each share so held with respect to each matter voted on by the
shareholders of the corporation. There will be no cumulative voting.
2. Liquidation Rights. Subject to the prior and superior rights of the
Preferred Stock, upon any liquidation, dissolution or winding up of the
affairs of the corporation, the holders of Common Stock shall be entitled to
receive all remaining assets of the corporation. Such assets shall be
distributed ratably among the holders of Common Stock on the basis of the
number of shares of the Common Stock held by each of them.
C-1
<PAGE>
3. Dividends. Dividends may be paid on the Common Stock as and when declared
by the board of directors of the corporation (the "Board of Directors"),
subject, however, to the prior and superior rights of the holders of any then
outstanding Preferred Stock.
II. PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by
the Board of Directors as hereinafter provided. Any shares of Preferred Stock
which may be redeemed, purchased or acquired by the corporation may be
reissued except as otherwise provided by law or this certificate of
incorporation, as amended. Different series of Preferred Stock shall not be
construed to constitute different classes of shares for the purposes of voting
by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time to
time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing
for the issue of the shares thereof, to determine and fix such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, including without limitation thereof,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or be junior to the Preferred Stock
of any other series to the extent permitted by law. Except as otherwise
provided in this certificate of incorporation, no vote of the holders of the
Preferred Stock or Common Stock shall be a prerequisite to the designation or
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this certificate of incorporation, the right
to have such vote being expressly waived by all present and future holders of
the capital stock of the corporation. Within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series of Preferred Stock, the
Board of Directors is authorized to increase (but not above the total number
of authorized shares of Preferred Stock) or decrease (but not below the number
of shares of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
ARTICLE V
Board of Directors
Section 1 Management. The business and affairs of the corporation shall be
managed by the Board of Directors.
Section 2 No Ballot. The directors need not be elected by written ballot
unless the bylaws of the corporation shall so provide.
Section 3 Number and Classes of Directors. The number of directors shall be
fixed from time to time by the Board of Directors in accordance with the
bylaws of the corporation. The Board of Directors shall be divided into three
classes: Class I, Class II and Class III, as nearly equal in number as
reasonably possible. No one class shall have more than one director more than
any other class. Each director shall serve for a term ending on the date of
the third succeeding annual meeting of the stockholders or special meeting in
lieu thereof following the annual meeting at which such director was elected
and until such director's successor is duly elected and qualified; provided,
however, that each initial director in Class I shall serve for a term ending
on the date of the annual meeting or any special meeting in lieu thereof next
following the end of the corporation's 1997 fiscal year; each initial director
in Class II shall serve for a term ending on the date of the annual meeting or
any special
C-2
<PAGE>
meeting in lieu thereof next following the end of the corporation's 1998
fiscal year; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting or any special meeting in lieu
thereof next following the end of the corporation's 1999 fiscal year.
Section 4 Allocation of Directors in Classes. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of
which he or she is a member until the expiration of such director's current
term or such director's prior death, retirement, removal or resignation and
(ii) the newly created or eliminated directorships resulting from such
increase or decrease shall if reasonably possible be apportioned by the Board
of Directors among the three classes of directors so as to ensure that no one
class has more than one director more than any other class. To the extent
reasonably possible, consistent with the foregoing, any newly created
directorships shall be added to those classes whose terms of office are to
expire at the latest dates following such allocation and newly eliminated
directorships shall be subtracted from those classes whose terms of office are
to expire at the earliest dates following such allocation, unless otherwise
provided for from time to time by resolution adopted by a majority of the
directors then in office, although less than a quorum. No decrease in the
number of directors constituting the full Board of Directors shall decrease
the term of an incumbent director.
Section 5 Indemnification and Liability. To the fullest extent permitted by
Delaware General Corporation Law as the same exists or may hereafter be
amended, a director of this corporation shall be indemnified by the
corporation and shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
No amendment, modification or repeal of this Section 5 or of any applicable
law shall limit, negate, impair or otherwise adversely affect any right or
defense available to any director or former director of the corporation with
respect to any action or failure to act occurring prior to such amendment,
modification or repeal.
Section 6 Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or as
otherwise prescribed by statute or this certificate of incorporation. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled.
Section 7 Rights of Preferred Stockholders. The provisions of this Article V
are subject to the rights of the holders of any series of Preferred Stock from
time to time outstanding.
ARTICLE VI
Meetings of Stockholders and Books
Section 1 Place. Meetings of the stockholders may be held within or without
the State of Delaware, as the bylaws may provide.
Section 2 Action and Call. Any action required or permitted to be taken by
the stockholders of the corporation must be effected at a duly called annual
or special meeting of such stockholders; no action by the stockholders may be
taken by written consent in lieu of a meeting. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by this certificate of incorporation, may be called by the Chairman
of the Board (or, if none is designated, the president) and shall be called by
the president or secretary at the request in writing of (a) a majority of the
entire Board of Directors then in office or (b) the Chairman of the Board.
Such request shall state the purpose or purposes of the proposed meeting and
business transacted at any special meeting shall be limited to matters
relating to such stated purpose or purposes.
Section 3 Director Nominations and Other Business. Advance notice of
stockholder nominations for the election of directors and other business to be
brought by stockholders before any meeting of stockholders shall be given in
the manner provided in the bylaws of the corporation.
C-3
<PAGE>
Section 4 Books. The books of the corporation may be kept (subject to any
provision contained in the Delaware statutes) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the bylaws of the corporation.
ARTICLE VII
Bylaws
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized to
adopt, amend, alter or repeal the bylaws of the corporation. The stockholders
holding at least seventy percent (70%) of the shares of capital stock of the
corporation issued and outstanding and entitled to vote shall, acting as a
single class, also have the power to adopt, amend, alter or repeal the bylaws
of the corporation, subject to any additional vote required by law, this
certificate of incorporation or the bylaws.
ARTICLE VIII
Perpetual Existence
The corporation is to have perpetual existence.
ARTICLE IX
Compromise or Arrangement
Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under (S)291 of Title
8 of the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for this corporation under (S)279 of Title
8 of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this corporation, as the
case may be, and also on this corporation.
ARTICLE X
Amendments and Repeal
The corporation reserves the right to amend, alter, change, or repeal any
provision contained in this certificate of incorporation, in the manner now or
hereafter prescribed by the laws of the State of Delaware, and all rights
herein conferred are granted subject to this reservation.
C-4
<PAGE>
ARTICLE XI
Incorporator
The name and address of the sole incorporator is as follows:
Donna L. Brooks
Shipman & Goodwin LLP
One American Row
Hartford, Connecticut 06103-2819
I, THE UNDERSIGNED, being the incorporator hereinafter named, for the
purpose of forming a corporation pursuant to the General Corporation Laws of
the State of Delaware, do make, file and record this Certificate hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true, and accordingly have hereunto set my hand this 7th day of
April, 1997.
/s/ Donna L. Brooks
-------------------------------------
Donna L. Brooks, Incorporator
C-5
<PAGE>
APPENDIX D
ATMI HOLDINGS, INC.
BYLAWS
EFFECTIVE AS OF APRIL 7, 1997
ARTICLE I
Offices
1.1 Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2 Other Offices. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
of the corporation (the "Board of Directors") may from time to time determine
or the business of the corporation may require.
ARTICLE II
Meetings of Stockholders
2.1 Place of Meetings. All meetings of the stockholders for the election of
directors shall be held in Danbury, Connecticut, at such place as may be fixed
from time to time by the Board of Directors, or at such other place either
within or without the State of Delaware as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
2.2 Annual Meeting. Annual meetings of stockholders shall be held on the
first Tuesday of May or on such other date (neither of which dates shall be a
legal holiday in the place where the meeting is to be held) and at such time
as shall be designated from time to time by the Board of Directors and stated
in the notice of the meeting, at which the stockholders shall elect, by a
plurality vote, directors to succeed those whose terms are expiring, and
transact such other business as may properly be brought before the meeting.
2.3 Annual Meeting Notice. Written notice of the annual meeting stating the
place, date and time of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than 10 nor more than 60 days before
the date of the meeting.
2.4 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
the shares held by each of them.
2.5 Special Meetings. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by law or the certificate of
incorporation, as amended and restated from time to time (the "Certificate
D-1
<PAGE>
of Incorporation"), may be called by the Chairman of the Board (or, if none is
designated, the president) and shall be called by the president or secretary
at the request in writing of (a) a majority of the entire Board of Directors
then in office or (b) the Chairman of the Board (or, if none is designated,
the President). Such request shall state the purpose or purposes of the
proposed meeting.
2.6 Notice of Special Meeting. Written notice of a special meeting stating
the place, date and time of the meeting and the purpose or purposes for which
the meeting is called, shall be given not less than 10 nor more than 60 days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
2.7 Purposes of Special Meetings. Business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice.
2.8 Quorum; Adjournments. Except as otherwise provided by law, the
Certificate of Incorporation or these bylaws, the holders of a majority of the
shares of stock issued and outstanding and entitled to vote, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.9 Controlling Vote. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any matter brought before such meeting,
unless the matter is one upon which by express provision of law, the
Certificate of Incorporation or these bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of
such matter.
2.10 Voting and Proxies. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at any meeting of the stockholders be
entitled to one vote in person or by written proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted or acted upon after three years from the date of its execution,
unless the proxy provides for a longer period.
2.11 Action at Meeting. Any action required or permitted to be taken by the
stockholders of the corporation must be effected at a duly called annual or
special meeting of such stockholders; no action by the stockholders may be
taken by written consent in lieu of a meeting.
2.12 Notice of Stockholder Business and Nominations.
A. Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) if specified in the corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the corporation who was a stockholder of record at the time of
giving of notice provided for in this Section 2.12, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in this
Section 2.12.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to Section 2.12 (A)(1)(c), the
stockholder must have given timely notice thereof in writing to the secretary
of the corporation, and such other business must otherwise be a proper matter
for stockholder action. To be timely, a stockholder's notice shall be
delivered to the secretary at the principal executive offices of the
corporation not later than the close of business on the sixtieth (60th) day
nor earlier than the close of business on
D-2
<PAGE>
the ninetieth (90th) day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of
the annual meeting is more than thirty (30) days before or more than sixty
(60) days after such an anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not later than the close
of business on the later of the sixtieth (60th) day prior to such annual
meeting or the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner and (ii) the class and
number of shares of the corporation that are owned beneficially and held of
record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of Section 2.12(A)(2) to
the contrary, in the event that the number of directors to be elected to the
Board of Directors of the corporation is increased and there is no public
announcement by the corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least seventy (70)
days prior to the first anniversary of the preceding year's annual meeting
(or, if the annual meeting is held more than thirty (30) days before or sixty
(60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section 2.12
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the secretary
at the principal executive office of the corporation not later than the close
of business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
B. Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section. In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be) for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 2.12 (A)(2) shall be delivered to the
secretary at the principal executive offices of the corporation not earlier
than the ninetieth (90th) day prior to such special meeting nor later than the
close of business on the later of the sixtieth (60th) day prior to such
special meeting, or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
C. General.
(1) Only such persons who are nominated in accordance with the procedures
set forth in this Section 2.12 shall be eligible to serve as directors, and
only such business as shall have been brought before the meeting in accordance
with the procedures set forth in this Section 2.12 shall be conducted at a
meeting of stockholders. Except as otherwise provided by law or these bylaws,
the chairman of the meeting shall have the power and duty to determine whether
a nomination or any business proposed to be brought before the meeting was
made or
D-3
<PAGE>
proposed, as the case may be, in accordance with the procedures set forth in
this Section 2.12 and, if any proposed nomination or business is not in
compliance herewith to declare that such defective proposal or nomination
shall be disregarded.
(2) For purposes of this Section 2.12, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 2.12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 2.12 shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
ARTICLE III
Directors
3.1 Number; Election and Qualification. The number of directors which shall
constitute the whole Board of Directors shall be not less than two (2) nor
more than fifteen (15). Thereafter, within the limits above specified, the
number of directors shall be increased or decreased upon the approval of a
majority of the directors then in office. The directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 3.6, and
each director elected shall hold office until his or her successor is elected
and qualified. Directors need not be stockholders.
3.2 Classes of Directors. The Board of Directors shall be divided into three
classes, Class I, Class II and Class III, as nearly equal in number as
reasonably possible. No one class shall have more than one director more than
any other class.
3.3 Terms in Office. Each director shall serve for a term ending on the date
of the third succeeding annual meeting following the annual meeting at which
such director was elected; provided, however, that each initial director in
Class I shall serve for a term ending on the date of the annual meeting or any
special meeting in lieu thereof next following the end of the corporation's
1997 fiscal year; each initial director in Class II shall serve for a term
ending on the date of the annual meeting or any special meeting in lieu
thereof next following the end of the corporation's 1998 fiscal year; and each
initial director in Class III shall serve for a term ending on the date of the
annual meeting or any special meeting in lieu thereof next following the end
of the corporation's 1999 fiscal year.
3.4 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as director of the class of which he or she is a
member until the expiration of such director's current term or such director's
prior death, retirement, removal or resignation and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors,
subject to Section 3.2 and the following sentence. To the extent reasonably
possible, consistent with the foregoing, any newly created directorships shall
be added to those classes whose terms of office are to expire at the latest
dates following such allocation and newly eliminated directorships shall be
subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. No decrease in the number of directors
constituting the full Board of Directors shall shorten the term of an
incumbent director.
D-4
<PAGE>
3.5 Tenure. Notwithstanding any provisions to the contrary contained herein,
each director shall hold office until his or her successor is elected and
qualified, or until his or her earlier death, retirement, resignation or
removal.
3.6 Filling of Vacancies. Except as otherwise prescribed by law, vacancies
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office, and a director chosen to fill a position
resulting from an increase in the number of directors shall hold office until
the next annual meeting of stockholders at which directors of the class to
which such position belongs are to be elected and until his or her successor
is elected and qualified, or until his or her earlier death, resignation or
removal. If there are no directors in office, then an election of directors
may be held in the manner provided by law.
3.7 Powers of the Board. The business of the corporation shall be managed by
or under the direction of a Board of Directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
law, the Certificate of Incorporation or these bylaws directed or required to
be exercised or done by the stockholders. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law or the Certificate of Incorporation, may exercise the powers of the full
Board of Directors until the vacancy is filled.
3.8 Place of Meetings. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware.
3.9 Resignation. Any director may resign by delivering his or her written
resignation to the corporation at its principal office or to the Chairman of
the Board, if any, the president or secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some other event.
3.10 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time
be determined by the Board of Directors.
3.11 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board, if any, the president or the secretary on
five days' notice to each director, either personally or by mail or by
telegram or by facsimile; special meetings shall be called by the Chairman of
the Board, if any, the president or the secretary in like manner and on like
notice on the written request of two or more directors (or one director if the
Board of Directors consists of only one or two directors). A notice or waiver
of notice of a meeting of the Board of Directors need not specify the purposes
of the meeting.
3.12 Quorum; Action at Meeting. At all meetings of the Board of Directors or
of any committee thereof, a majority of the directors of the full Board of
Directors or committee, as the case may be, shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors or any committee thereof, as the case may be, except as a different
vote may be otherwise specifically provided by law, the Certificate of
Incorporation or these bylaws. If a quorum shall not be present at any meeting
of the Board of Directors or committee, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
3.13 Action by Written Consent. Unless otherwise restricted by the
Certificate of Incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
D-5
<PAGE>
3.14 Meetings by Telephone Conference Call. Unless otherwise restricted by
the Certificate of Incorporation or these bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
3.15 Committees.
(a) The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. Such committee or
committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors.
(b) The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
(c) Any such committee, to the extent provided in the resolution of the
Board of Directors and subject to provisions of law, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending these bylaws; and, unless the
resolution or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
3.16 Minutes of Committee Meetings. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
3.17 Compensation of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these bylaws, the Board of Directors shall
have the authority to fix the compensation of directors and to make grants and
awards to directors under any stock option or other benefit plans in which
directors may participate. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
Notices
4.1 Notices. Whenever, under the provisions of law, the Certificate of
Incorporation or these bylaws, notice is required to be given to any director
or stockholder, it shall not be construed to mean personal notice, but such
notice may be given in writing, by mail, addressed to such director or
stockholder, at such person's address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or facsimile.
4.2 Waiver of Notice. Whenever any notice is required to be given under the
provisions of law, the Certificate of Incorporation or these bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
D-6
<PAGE>
ARTICLE V
Officers
5.1 Election of Officers. The officers of the corporation shall be chosen by
the Board of Directors at its first meeting after each annual meeting of the
stockholders and shall be a president, a secretary and a treasurer. Any number
of offices may be held by the same person, unless the Certificate of
Incorporation or these bylaws otherwise provide.
5.2 Other Officers. The Board of Directors may also appoint a Chairman of
the Board, one or more vice presidents, one or more assistant secretaries and
assistant treasurers and such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors. The Chairman of the Board, if any, shall be elected from
the members of the Board of Directors.
5.3 Salaries of Officers. The salaries of all officers and agents of the
corporation shall be determined from time to time by the Board of Directors.
5.4 Successors. The officers of the corporation shall hold office until
their successors are chosen and qualified. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
5.5 Chairman of the Board. If provided by the Board of Directors, the
Chairman of the Board shall be the chief executive officer of the corporation.
The Chairman of the Board shall preside at all meetings of the stockholders
and the Board of Directors, and, if designated as the chief executive officer
of the corporation, shall have general and active management of the business
of the corporation and shall see that all orders and resolutions of the Board
of Directors are carried into effect. The Chairman of the Board may execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent
of the corporation.
5.6 President. Unless otherwise provided by the Board of Directors, the
president shall be the chief executive officer of the corporation. In the
absence of the Chairman of the Board or in the event of the Chairman of the
Board's inability or refusal to act, the president shall preside at all
meetings of the stockholders and the Board of Directors, shall have general
and active management of the business of the corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
The president may execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the corporation.
5.7 Vice President. In the absence of the president or in the event of the
president's inability or refusal to act, the vice president (or in the event
there be more than one vice president, the vice presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the president. The vice president shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
5.8 Secretary. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. The secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board
of Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or president, under whose supervision the secretary shall
be. The secretary shall have custody of the corporate seal
D-7
<PAGE>
of the corporation and shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
signature of the secretary or by the signature of such assistant secretary.
The Board of Directors may give general authority to any other officer to
affix the seal of the corporation and to attest the affixing by such officer's
signature.
5.9 Assistant Secretary. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of the
secretary's inability or refusal to act, perform the duties and exercise the
powers of the secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
5.10 Treasurer.
(a) Corporate Accounts. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
(b) Disbursements. The treasurer shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors,
at its regular meetings, or when the Board of Directors so requires, an
account of all transactions as treasurer and of the financial condition of the
corporation.
(c) Bond of the Treasurer. If required by the Board of Directors, the
treasurer shall give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory
to the Board of Directors for the faithful performance of the duties of the
office and for the restoration to the corporation, in case of death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the treasurer's
possession or under the treasurer's control belonging to the corporation.
5.11 Assistant Treasurer. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the treasurer or in the event of the
treasurer's inability or refusal to act, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
Certificates of Stock
6.1 Certificate. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
chairman or vice chairman of the Board of Directors, or the president or a
vice president and the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by such holder in the corporation.
6.2 Stock Legends. Every certificate for shares of stock which are subject
to any restriction on transfer pursuant to the Certificate of Incorporation,
these bylaws or any agreement to which the corporation is a party, shall have
conspicuously noted on the face or back of the certificate either the full
text of the restriction or a statement of the existence of such restriction
and a statement that the corporation will furnish a copy thereof to the holder
of such certificate upon written request and without charge. Every certificate
issued when the corporation is authorized to issue more than one class or
series of stock shall set forth on its face or back either the full text of
the preferences, voting powers, qualifications and special and relative rights
of the shares of each class and series authorized to be issued or a statement
of the existence of such preferences, powers, qualifications
D-8
<PAGE>
and rights and a statement that the corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge.
6.3 Signatures on Certificates. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same
effect as if such person were such officer, transfer agent or registrar at the
date of issue.
6.4 Lost Certificates. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing
such issuance of a new certificate or certificates, the Board of Directors
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or
certificates, or the owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against
the corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.
6.5 Transfer of Stock. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
6.6 Fixed Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
6.7 Registered Stockholders. The corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE VII
General Provisions
7.1 Dividends. Dividends upon the capital stock of the corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
7.2 Reserves to Meet Contingencies. Before payment of any dividend, there
may be set aside, out of any funds of the corporation available for dividends,
such sum or sums as the directors from time to time, in their absolute
discretion, deem proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall deem
D-9
<PAGE>
conducive to the interest of the corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
7.3 Checks. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
7.4 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
7.5 Corporate Seal. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Seal" and
"Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
Indemnification
Each person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the
corporation to the full extent permitted or authorized by the General
Corporation Law of the State of Delaware. The corporation may, but shall not
be obligated to, maintain insurance, at its expense, for its benefit in
respect of such indemnification and that of any such person whether or not the
corporation would otherwise have the power to indemnify such person.
ARTICLE IX
Amendments
9.1 By the Board of Directors. Except as is otherwise set forth in these
bylaws, these bylaws may be altered, amended or repealed, or new bylaws may be
adopted, by the affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a quorum is
present.
9.2 By the Stockholders. Except as otherwise set forth in the Certificate of
Incorporation or these bylaws, these bylaws may be altered, amended or
repealed or new bylaws may be adopted by the affirmative vote of at least
seventy percent (70%) of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote at any regular meeting of
stockholders, or at any special meeting of stockholders, acting as a single
class, provided notice of such alteration, amendment, repeal or adoption of
new bylaws shall have been stated in the notice of such special meeting.
D-10
<PAGE>
APPENDIX E
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is dated as of May 17, 1997, by and among
ADVANCED TECHNOLOGY MATERIALS, INC., a Delaware corporation ("Buyer"), WELK
ACQUISITION CORPORATION, a Delaware corporation and a wholly-owned subsidiary
of Buyer ("Buyer Sub"), ATMI HOLDINGS, INC., a Delaware corporation and
wholly-owned subsidiary of Buyer ("Holdings") LAWRENCE SEMICONDUCTOR
LABORATORIES, INC., an Arizona corporation ("LSL"), and LAWRENCE SEMICONDUCTOR
LABORATORIES MARKETING AND SALES, INC., an Arizona corporation ("LSLMS"); LSL
and LSLMS are referred to collectively as "Lawrence"; and all of the parties
are referred to collectively as the "Companies". Buyer Sub and Lawrence are
referred to collectively as the "Constituent Corporations" and individually as
a "Constituent Corporation."
Buyer and Holdings are parties to that certain Agreement and Plan of Merger
and Exchange dated April 7, 1997, by and among Buyer, Holdings, Advanced
Delivery & Chemical Systems Nevada, Inc., Advanced Delivery & Chemical Systems
Manager, Inc., Advanced Delivery & Chemical Systems Holdings, LLC, Advanced
Delivery & Chemical Systems Operating, LLC, and Advanced Delivery & Chemical
Systems, Ltd. (the "ADCS Merger Agreement").
In connection with the closing of the transactions contemplated by the ADCS
Merger Agreement, inter alia (i) all of the outstanding shares of Buyer common
stock, par value $.01 per share("Buyer Common Stock") will be converted into
the right to receive a like number of shares of Holdings common stock, par
value $.01 per share ("Holdings Common Stock"), and (ii) Buyer will become a
wholly-owned subsidiary of Holdings.
The respective Boards of Directors of the Companies deem it advisable and in
the best interests of their respective shareholders that Buyer acquire
Lawrence by the merger of Buyer Sub with and into Lawrence upon the terms and
subject to the conditions set forth in this Agreement (the "Merger").
The parties desire the Merger to be a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, and for such transaction to be
accounted for as a pooling of interests.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE I
The Merger
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (defined below) of the Merger, Buyer Sub shall be merged
with and into Lawrence, with Lawrence being the surviving corporation in such
Merger (the "Surviving Corporation"). The separate existence of Buyer Sub
shall thereupon cease. The Merger shall have the effects set forth in Section
10-1106 of the Arizona Business Corporation Act (the "ABCA") and Section 259
of the Delaware General Corporation Law (the "DGCL"). Immediately following
the Effective Time, the Surviving Corporation shall be a wholly-owned
subsidiary of Buyer.
1.2 Effective Time of the Merger. The Merger shall become effective upon the
completion of the filing of properly executed Articles of Merger and a Plan of
Merger with the Arizona Corporation Commission and the Secretary of State of
the State of Delaware, which filing shall be made on the Closing Date (defined
below) after satisfaction of the conditions set forth in Article VIII. When
used in this Agreement, the term "Effective Time" shall mean the date and time
at which such Articles of Merger and Plan of Merger are accepted as filed.
E-1
<PAGE>
ARTICLE II
Buyer and the Surviving Corporation
2.1 Articles of Incorporation of the Surviving Corporation. The Articles of
Incorporation of the Surviving Corporation shall be the Articles of
Incorporation of Lawrence, as amended in connection with the Merger to read in
its entirety (other than with respect to the name of the corporation) as the
Certificate of Incorporation of Buyer Sub in effect immediately prior to the
Effective Time, with such changes as Buyer may determine are necessary or
proper to comply with Arizona law, until thereafter amended as provided by
law.
2.2 Bylaws of the Surviving Corporation. The Bylaws of the Surviving
Corporation shall be the Bylaws of Lawrence, as amended in connection with the
Merger to read in their entirety (other than with respect to the name of the
corporation) as the Bylaws of Buyer Sub in effect immediately prior to the
Effective Time, with such changes as Buyer may determine are necessary or
proper to comply with Arizona law, until thereafter amended as provided by
law.
2.3 Directors and Officers of the Surviving Corporation.
(a) The directors of Buyer Sub at the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in the Articles of Incorporation and
Bylaws of the Surviving Corporation, or as otherwise provided by law.
(b) The officers of Buyer Sub at the Effective Time shall be the initial
officers of the Surviving Corporation and shall hold office from the Effective
Time until removed or until their respective successors are duly elected or
appointed and qualified in the manner provided in the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise
provided by law.
ARTICLE III
Exchange of Shares
3.1 Disposition of Buyer Sub Shares; Lawrence Treasury Shares. At the
Effective Time, by virtue of the Merger and without any action on the part of
the holder thereof:
(a) The shares of Buyer Sub common stock which shall be outstanding
immediately prior to the Effective Time shall be converted into a number of
shares of common stock of the Surviving Corporation equal to the number of
shares of common stock of Buyer Sub then outstanding.
(b) Each share of common stock of Lawrence ("Lawrence Share") held in the
treasury of Lawrence, if any, or by any subsidiary of Lawrence and each such
Lawrence Share held by Buyer or any subsidiary of Buyer immediately prior to
the Effective Time shall be canceled and retired and cease to exist, and no
consideration shall be given in exchange therefor.
3.2 Exchange of Lawrence Shares.
(a) Each Lawrence Share outstanding immediately prior to the Effective Time
(other than Lawrence Shares canceled as set forth in Subsection 3.1(b) above,
if any) shall, at the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive in shares of Buyer Common Stock, valued at the Average Closing Price
(defined in Section 3.9 below), an amount equal to that described in Section
3.4 below divided by the number of Lawrence Shares outstanding immediately
prior to the Effective Time (subject to adjustment as provided in Sections 3.4
and 3.5 and subject to reduction as provided in Article X and the Escrow
Agreement), ninety-five percent (95%) of which amount prior to adjustment and
reduction, if any (the "Preliminary Purchase Price Shares"), shall be issued
to the holder thereof upon the
E-2
<PAGE>
surrender of the certificate formerly representing such Lawrence Share in
accordance with this Section 3.2, and five percent (5%) of which amount prior
to adjustment and reduction, if any (the "Indemnification Escrow Shares"),
shall be held by the escrow agent (the "Escrow Agent") as provided for in
Subsection 10.1(c) hereof.
(b) Immediately following the Effective Time, each record holder (a
"Shareholder") of any certificate or certificates which, immediately prior to
the Effective Time, represented outstanding Lawrence Shares (the
"Certificates") whose Lawrence Shares were converted into the right to receive
a portion of the Purchase Price (defined below) shall be entitled to surrender
his or its Certificates to Buyer for cancellation in exchange for the
Shareholder's pro rata share of the Preliminary Purchase Price Shares, and
Buyer hereby agrees to cause such Shareholder's pro rata share of the
Preliminary Purchase Price Shares to be issued to such person at such time. If
any Shareholder shall fail to surrender his or its Certificates promptly
following the Effective Time, Buyer shall send to such Shareholder notice of
the Merger and instructions for use in effecting the surrender of the
Certificates in exchange for the Shareholder's pro rata share of the Purchase
Price and the holder of such Certificates shall be entitled to receive in
exchange therefor solely the Shareholder's pro rata share of the Purchase
Price less any applicable stock transfer taxes, and such Certificates shall
forthwith be canceled. No interest shall be paid or accrued for the benefit of
holders of the Certificates on the consideration payable upon the surrender of
the Certificates. It shall be a condition of exchange that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer.
(c) From and after the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the Lawrence Shares which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
exchange, they shall be canceled and exchanged for a pro rata share of the
Preliminary Purchase Price Shares in accordance with the procedures set forth
in this Section and Section 3.4.
(d) At or prior to the Effective Time of the Merger, Buyer shall deliver
irrevocably to the Escrow Agent certificates evidencing the Indemnification
Escrow Shares, together with appropriate stock powers executed by each
Shareholder. As provided in Article X hereof, the Indemnification Escrow
Shares shall be held in escrow (the "Indemnification Escrow") by the Escrow
Agent. Income, dividends and earnings therefrom shall become funds of the
Indemnification Escrow to be disbursed as provided in Article X of this
Agreement and in the Escrow Agreement.
(e) Notwithstanding the foregoing, any Lawrence Shares issued and
outstanding immediately prior to the Effective Time which are held by
Shareholders who have not voted such shares in favor of the Merger and who
have complied with all other relevant provisions of Chapter 13 of the ABCA
(the "Dissenting Shares") shall not be converted into shares of Buyer Common
Stock in the manner contemplated by Section 3.2(a) above, and the rights of
holders of the Dissenting Shares shall be governed by the provisions of
Chapter 13 of the ABCA; provided, however, that Shareholders that own in the
aggregate no greater than five percent (5%) of the issued and outstanding
Lawrence Shares who have not voted such shares in favor of the Merger (the
"Electing Shares") may elect, in lieu of following the provisions of Chapter
13 of the ABCA, to receive from Buyer the Average Closing Price for each share
of Buyer Common Stock to which such Shareholder would have been entitled had
such Shareholder voted in favor of the Merger. Lawrence agrees to notify its
Shareholders in writing prior to the time the Merger is submitted to them for
a vote at any Shareholders' meeting or otherwise, of the foregoing election.
To be effective, such election must be made in writing to Lawrence and Buyer
within five (5) days of the date of such Shareholder meeting or other
submission for a vote.
(f) Notwithstanding the foregoing, if the closing of the transactions
contemplated by the ADCS Merger Agreement shall occur on or before the
Effective Time, in lieu of Buyer Common Stock each Lawrence Share shall be
converted into the right to receive Holdings Common Stock in the same ratio as
such Lawrence Shares would have been converted into shares of Buyer Common
Stock. In such event, all references to "Buyer Common Stock" in this Agreement
(other than in Article IV) shall be deemed to be references to "Holdings
Common Stock," unless the context clearly requires otherwise. The parties
shall modify the ancillary agreements to be entered into as of the Effective
Time as appropriate to reflect such change.
E-3
<PAGE>
3.3 No Further Rights in Lawrence Shares. All shares of Buyer Common Stock
received by any Shareholder pursuant to this Agreement shall be deemed to have
been delivered and received in full satisfaction of all rights pertaining to
such Shareholder's Lawrence Shares. At the Effective Time, the holders of
certificates representing outstanding Lawrence Shares shall cease to have any
rights with respect to such shares (other than such rights as they may have as
dissenting shareholders under the ABCA), and their sole right shall be to
receive their pro rata share of the Purchase Price. Dissenting shareholders
shall have the rights accorded by the ABCA.
3.4 The Purchase Price. The aggregate merger consideration for all
outstanding Lawrence Shares shall be that number of shares of Buyer Common
Stock, valued at the Average Closing Price, having a value equal to Eighty
Million Dollars ($80,000,000) (the "Closing Price") plus an amount (the
Adjustment Amount, defined in Subsection 3.4(g) below), which may be a
positive or a negative number, as determined below, minus the amount of Two
Million Dollars ($2,000,000) required to be paid by LSL to Applied Materials,
Inc. ("Applied") pursuant to LSL's settlement of its litigation with Applied
(as described in Section 5.7 and Schedule 5.7), minus any amounts owed to LSL
by any related parties as set forth in Schedule 5.26 and minus the cost to LSL
of any payment required to be made by LSL prior to the Effective Time to any
third party in connection with any other transaction contemplated by LSL,
including any payment in the nature of a required "break-up" fee (the
"Specified Amount"), subject to further reduction as provided in Article X and
the Escrow Agreement ("Purchase Price").
(a) Within sixty (60) days after the Effective Time, the Representative
(defined in Subsection 3.6(a)(xix) below) shall cause to be delivered to Buyer
a combined balance sheet of Lawrence as of the close of business at the
Effective Time without inclusion of Lawrence Semiconductor Research
Laboratories, Inc. ("LSRL") or Lawrence Semiconductor Investments, Inc.
("LSI") (the "Effective Time Balance Sheet") together with the related
combined statements of income, shareholders' equity and cash flows for the
time period from January 1, 1997 to the Effective Time (the "Related Effective
Time Statements") audited by Lawrence's current independent accountants, which
audit shall include a physical inventory that representatives of Buyer may
observe. The Effective Time Balance Sheet and the Related Effective Time
Statements shall be prepared in accordance with generally accepted accounting
principles applied on a basis consistent with past practice, and the Effective
Time Balance Sheet shall fairly present the assets and liabilities and
financial condition of Lawrence at the Effective Time, including the tax
savings to LSL as a result of the payment of the Specified Amount, but not
including the actual amount of the Specified Amount. The reasonable cost of
the audit pursuant to this Subsection 3.4(a) shall be borne by the Surviving
Corporation. After the Effective Time, Buyer agrees to give the Representative
and Lawrence's current accountants reasonable access to Lawrence's books and
records and to make available to such parties such employees of Lawrence and
the Surviving Corporation as may be reasonably necessary in connection with
the preparation of the Effective Time Balance Sheet.
(b) The Effective Time Balance Sheet shall become final and binding on
Lawrence and Buyer thirty (30) days after its delivery to Buyer, unless Buyer
or Representative gives written notice to the other of his or its disagreement
with respect to any item included in such Effective Time Balance Sheet. During
said thirty (30) day period, Representative, Buyer and Buyer's representatives
shall be given reasonable access to all of the working papers of Lawrence's
current independent accountants for the purpose of its review of the Effective
Time Balance Sheet. The party making the objection shall notify the other
party in writing by the end of such thirty (30) day period of any objection it
may have to the Effective Time Balance Sheet, which objection shall identify
the basis of such objection and any adjustments to the Effective Time Balance
Sheet that it proposes be made (the "Proposed Adjustments").
(c) If written notice of objections to the Effective Time Balance Sheet is
given within the period specified in Subsection 3.4(b) above, the party
receiving the notice shall notify the party proposing the Proposed Adjustment
of his or its approval or disapproval of the Proposed Adjustments to the
Effective Time Balance Sheet contained in such written objection within thirty
(30) days of his or its receipt of such written objection. If the party
receiving the notice shall fail to notify the party proposing the Proposed
Adjustments in writing of his or its disapproval of the Proposed Adjustments
within said thirty (30) day period, such Proposed Adjustments shall be made to
the Effective Time Balance Sheet, and the Effective Time Balance Sheet, as so
adjusted, shall
E-4
<PAGE>
be final and binding upon all parties. If Representative and Buyer cannot
reach agreement with respect to the Proposed Adjustments and the objections
thereto within thirty (30) days of the date of receipt of the notice of the
Proposed Adjustments (or such longer period as may be acceptable to Buyer and
Representative), Buyer and Representative shall submit the Proposed
Adjustments in dispute to the Arbitrating Accountants (defined in Subsection
3.4(f) below) for resolution. The Arbitrating Accountants shall have no
authority (i) to decide any issues related to the Effective Time Balance Sheet
other than those issues expressly referred to them for arbitration pursuant to
the terms hereof, or (ii) to determine that any disputed Proposed Adjustment
shall be made in excess (negative or positive) of the amount originally
proposed by Buyer or Representative.
(d) If the parties submit a dispute to the Arbitrating Accountants, the
parties shall instruct the Arbitrating Accountants to resolve the disputed
Proposed Adjustments within thirty (30) business days after such Proposed
Adjustments are submitted to them, and such resolution shall be final and
binding upon all parties hereto. Upon such resolution, the adjustments to the
Effective Time Balance Sheet determined by the Arbitrating Accountants shall
be made and the Effective Time Balance Sheet, as so adjusted, shall be final
and binding upon all parties.
(e) The fees and expenses of the Arbitrating Accountants shall be paid by
Buyer; provided that the portion of such fees and expenses equal to the lesser
of (i) 100% or (ii) the percentage obtained by dividing (i) the aggregate
dollar amount of the adjustments to the Effective Time Balance Sheet
determined under Subsection 3.4(d) by (ii) the aggregate dollar amount of the
disputed Proposed Adjustments shall be reimbursed to Buyer from the
Indemnification Escrow. Representative shall have the right to retain legal
counsel of its choosing with regard to any dispute over the Adjustment Amount
(defined in Subsection 3.4(g) below), including Polese, Pietzsch, Williams &
Nolan, P.A., and the costs and expenses of such representation shall be paid
from the Adjustment Amount if that amount is a positive number and sufficient
to so pay the costs and expenses, or otherwise from the Indemnification
Escrow.
(f) The "Arbitrating Accountants" shall be a "Big Six" accounting firm that
is mutually agreed to by Buyer and Representative.
(g) Upon the Effective Time Balance Sheet (including any adjustments)
becoming final and binding on all parties as set forth above, the Adjustment
Amount shall be determined by the Buyer. The "Adjustment Amount" shall equal
the difference between (x) the Net Worth (defined below) as shown on the
Effective Time Balance Sheet and (y) the Net Worth as shown on Lawrence's
unaudited balance sheet at December 31, 1996 without inclusion of LSRL or LSI.
"Net Worth" shall equal the amount by which assets exceed liabilities. Buyer
and Representative shall provide notice to the Shareholders of the Adjustment
Amount and final Purchase Price within two (2) business days of such amounts
becoming final.
3.5 Adjustment of Purchase Price. If the Adjustment Amount is a positive
number, ninety-five percent (95%) of such amount shall be paid by Buyer to
Shareholders pro rata in shares of Buyer Common Stock valued at the Average
Closing Price and five percent (5%) to Escrow Agent (the "Escrow Adjustment")
by delivering appropriate certificates evidencing such shares within ten (10)
business days of determination. If the Adjustment Amount is a negative number,
it shall be paid to Buyer in shares of Buyer Common Stock valued at the
Average Closing Price from the Indemnification Escrow within ten (10) business
days of receipt of notice of determination.
3.6 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Shipman & Goodwin LLP, One
American Row, Hartford, Connecticut 06103, at 9:00 a.m., local time, on the
third business day after the day on which all of the conditions set forth in
Article VIII hereof are satisfied or waived, or such other date, time and
place as the Companies shall otherwise agree (the "Closing Date").
(a) At the Closing, Lawrence shall deliver to Buyer the following:
(i) Resolutions. Copies of resolutions of the Board of Directors of
Lawrence certified by a Secretary, Assistant Secretary or other appropriate
officer of Lawrence, plus certified copies of its Articles of
E-5
<PAGE>
Incorporation and Bylaws, as amended to date, authorizing the execution,
delivery and performance of this Agreement and the transactions
contemplated hereby and copies of resolutions of the Shareholders of
Lawrence (or written consent in lieu thereof), certified by a Secretary,
Assistant Secretary or other appropriate officer of Lawrence, authorizing
the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
(ii) Certificates, other than those held by any dissenting shareholder,
duly endorsed in blank or accompanied by appropriate stock powers.
(iii) Resignations of certain officers and all directors of Lawrence
effective as of the Effective Time, which Buyer shall request in writing
prior to the Closing.
(iv) Opinion of Polese, Pietzsch, Williams & Nolan, P.A. in a form
reasonably acceptable to Buyer.
(v) The Noncompete Agreement called for by Section 7.7.
(vi) The Consulting Agreement called for by Section 7.8.
(vii) Tax clearances from the Department of Economic Security and the
Arizona Department of Revenue, and all other jurisdictions in which
Lawrence has filed tax returns in the past three (3) years.
(viii) A certificate of good standing from the Arizona Corporation
Commission.
(ix) [Intentionally left blank]
(x) Releases substantially in the form of Exhibit 3.6(a)(x) hereto,
executed by Lamonte H. Lawrence and each other officer of Lawrence,
releasing Lawrence from any and all liabilities and obligations owed by
Lawrence to him, including but not limited to those owed to him in his
capacity as a director, officer, Shareholder and/or employee of Lawrence.
(xi) Written evidence satisfactory to Buyer that the Shareholders and
Lawrence have obtained all necessary governmental or other approvals for
the Merger and the other transactions contemplated hereby.
(xii) Written evidence satisfactory to Buyer that all prior outstanding
options to purchase any capital stock of Lawrence have been properly
terminated.
(xiii) Each of the affiliates of Lawrence and Buyer shall have entered
into an Affiliate Agreement substantially in the form of Exhibit
3.6(a)(xiii)-A (the "Affiliate Agreements"), and Tommy L. Thompson, Gerald
W. McReynolds, and Barbara C. Freund shall have entered into Employment
Agreements with the Surviving Corporation substantially in the form of
Exhibit 3.6(a)(xiii)-B (the "Employment Agreements"). The existing
employment agreements listed on Schedule 5.8(b) shall have been terminated
effective as of the Closing.
(xiv) Written evidence satisfactory to Buyer that Lawrence and LSLMS have
been merged in accordance with applicable law, with Lawrence as the
surviving corporation, and that all consents and approvals necessary or
appropriate for such merger have been obtained.
(xv) Written evidence satisfactory to Buyer that Lawrence has been
reincorporated in Arizona in accordance with applicable law, and that all
consents and approvals necessary or appropriate for such reincorporation
have been obtained.
(xvi) A written amendment to the sublease of the Tempe facility which
causes the economic terms of such sublease to reflect accurately Lawrence's
current and intended future use of the Tempe facility, together with the
written consent of LSRL as sublessor to the Merger.
(xvii) (A) All amounts currently outstanding under that certain Agreement
by and among Lawrence, LSRL and LSLMS dated December 31, 1993 shall have
been repaid in full or otherwise discharged in a manner satisfactory to
Buyer, and such Agreement terminated with no further liability thereunder;
(B) all other amounts currently outstanding by and among Lawrence, LSRL,
LSLMS and LSI shall have been repaid in full or otherwise discharged in a
manner satisfactory to Buyer; and (c) all amounts currently outstanding and
owed by Lamonte H. Lawrence to Lawrence and LSLMS or from Lawrence and
LSLMS to Lamonte H. Lawrence shall have been repaid in full or otherwise
discharged in a manner satisfactory to Buyer. In lieu of repayment of the
net amount contemplated by this Subsection 3.6(a)(xvii) in cash, the
E-6
<PAGE>
amounts may be satisfied by reducing the Purchase Price, as contemplated by
the second "minus" clause in the first paragraph of this Section 3.4.
(xviii) Written releases of Lawrence and LSLMS from all further
obligations under those agreements, instruments, documents, etc. identified
prior to Closing by Buyer to which Lawrence and/or LSLMS are parties or
which either or both has guaranteed but which provide the principal benefit
to LSRL, LSI or Lamonte H. Lawrence.
(xix) Each Shareholder shall have executed and delivered an agreement and
acknowledgment with respect to his or its liabilities and obligations under
Article X, in form and substance satisfactory to Buyer and its counsel.
(xx) Each Shareholder shall have executed and delivered an irrevocable
power of attorney coupled with an interest constituting and appointing
Lamonte H. Lawrence (the "Representative") as his or its true and lawful
agent and attorney-in-fact to enter into any agreement in connection with
the transactions contemplated by this Agreement and the Escrow Agreement,
to exercise all or any of the powers, authority and discretion conferred on
him under any such agreement, to waive any terms and conditions of any such
agreement, to give and receive notices on his or its behalf and to be his
or its exclusive representative with respect to any matter, suit, claim,
action or proceeding arising with respect to any transaction contemplated
by any such agreement, including, without limitation, the defense,
settlement or compromise of any claim, action or proceeding for which Buyer
or any Indemnitee (defined in Subsection 10.1(b) below) may be entitled to
indemnification, and the Representative shall have agreed to act as, and to
undertake the duties and responsibilities of, such agent and attorney-in-
fact. The Representative shall not be liable for any action taken or not
taken by him in connection with his obligations under such power of
attorney (i) with the consent of Shareholders who, as of the date of this
Agreement, own a majority in number of the outstanding Lawrence Shares, or
(ii) in the absence of his own gross negligence or willful misconduct. If
the Representative is unable or unwilling to serve in such capacity, his
successor shall be named by those persons holding a majority of the
outstanding Lawrence Shares as of the Effective Time who shall serve and
exercise the powers of the Representative.
(xxi) Such further instruments or documents as Buyer or Buyer Sub or
their counsel may reasonably request to assure the full and effective
completion of the Merger and to assure the effective carrying out of the
transactions contemplated hereby.
(b) At the Closing, Buyer shall deliver to Shareholders certificates
evidencing the Preliminary Purchase Price Shares in accordance with Section
3.2 hereof.
(c) At the Closing, Buyer shall deliver to Escrow Agent certificates
evidencing the Indemnification Escrow Shares, in accordance with Section 3.2
hereof.
(d) At the Closing, Buyer shall deliver to Lawrence the following:
(i) Copies of resolutions of Buyer and Buyer Sub certified by a
Secretary, Assistant Secretary or other appropriate officer of Buyer and
Buyer Sub, authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby.
(ii) Opinion of Buyer's outside general counsel in a form reasonably
acceptable to Lawrence.
(iii) The Noncompete Agreement called for by Section 7.7.
(iv) The Consulting Agreement called for by Section 7.8.
(e) At the Closing, Buyer shall deliver to the Shareholders an executed
Registration Rights Agreement, in the form of Exhibit 3.6(e). If Section
3.2(f) shall apply, in lieu of the foregoing, Holdings shall deliver to the
Shareholders an executed Registration Rights Agreement, in the form of Exhibit
3.6(e) but substituting Holdings for Buyer as a party thereto.
E-7
<PAGE>
3.7 Supplementary Actions. If, at any time after the Effective Time, any
further assignments or assurances in law or any other things are necessary or
desirable to vest or to perfect or confirm of record in the Surviving
Corporation the title to any property or rights of either Constituent
Corporation, or otherwise to carry out the provisions of this Agreement, the
officers and directors of the Surviving Corporation are hereby authorized and
empowered on behalf of the Constituent Corporations, in the name of and on
behalf of either Constituent Corporation as appropriate, to execute and
deliver any and all things necessary or proper to vest or to perfect or
confirm title to such property or rights in the Surviving Corporation and
otherwise to carry out the purposes and provisions of this Agreement.
3.8 No Fractional Securities. No fractional shares of Buyer Common Stock
shall be issuable by Buyer to any Shareholder in connection with the Merger.
In lieu of any such fractional shares, each Shareholder who would otherwise
have been entitled to receive a fraction of a share of Buyer Common Stock
shall be entitled to receive instead an amount in cash equal to such fraction
multiplied by the Average Closing Price.
3.9 Average Closing Price.
(a) The term "Average Closing Price" shall mean the average closing price of
Buyer Common Stock on The Nasdaq National Market for each of the twenty (20)
trading days preceding (and including) the third trading day prior to the date
of Buyer's meeting of stockholders to approve the Merger; provided that (i) in
the event that the Average Closing Price is greater than $21 per share, the
Average Closing Price shall be deemed to be $21 per share; and (ii) in the
event that the Average Closing Price is less than $17 per share, the Average
Closing Price shall be deemed to be $17 per share.
(b) All per share prices or amounts referred to in this Agreement shall be
appropriately adjusted to reflect the effect of any stock splits, stock
dividends, or similar transactions.
3.10 Tax and Accounting Treatment. The parties intend that the Merger will
be treated as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended, and a pooling of interests for
accounting purposes.
ARTICLE IV
Representations and Warranties of Buyer
4.1 Certain Definitions.
As used in Articles IV and V, the following terms shall have the following
meanings:
(a) The term "Material Adverse Effect" with respect to any party hereto
means any change or changes in, or effect or effects on, such party or any of
its subsidiaries that, individually or in the aggregate (i) is materially
adverse to the business, assets, or financial condition of such party and its
subsidiaries taken as a whole or (ii) may materially and adversely affect the
ability of such party to (A) operate or conduct its business substantially in
the manner in which it is currently operated or conducted or (B) substantially
perform its obligations hereunder and consummate the transactions contemplated
hereby.
(b) The word "subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, of
which such party or any other subsidiary of such party is a general partner
(excluding partnerships the general partnership interests of which held by
such party or any subsidiary of such party do not have a majority of the
voting interests in such partnership) or of which at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporations or other organizations is directly
or indirectly owned or controlled by such party and/or by any one or more of
the subsidiaries, excluding in the case of Lawrence, LSRL and LSI.
E-8
<PAGE>
(c) The term "Knowledge" with respect to Lawrence shall mean the actual
knowledge of any of the persons set forth on Schedule 4.1(c) and with respect
to Buyer shall mean the actual knowledge of Buyer's CEO and CFO, in each case
after conducting reasonable inquiry.
4.2 Buyer's and Buyer Sub's Representations and Warranties. Buyer and Buyer
Sub each represents and warrants to Lawrence as follows and acknowledges that
Lawrence is relying upon such representations and warranties in connection
with the execution, delivery, and performance of this Agreement and the
completion of the Merger, notwithstanding any investigation made by Lawrence
or on its own behalf.
(a) Each of Buyer and Buyer Sub is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to carry on its business as it is
now being conducted or presently proposed to be conducted and to own all of
its properties and assets.
(b) Each of Buyer and Buyer Sub has the corporate power to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement by Buyer and Buyer Sub and the consummation by each
of Buyer and Buyer Sub of the transactions contemplated hereby have been duly
authorized by the respective Boards of Directors of Buyer and Buyer Sub, and
this Agreement and each of the transactions contemplated hereby has been
approved by Buyer as the sole stockholder of Buyer Sub. No other corporate
proceedings on the part of either Buyer or Buyer Sub are necessary to approve
this Agreement or the transactions contemplated hereby, other than the
approval of Buyer's stockholders and this Agreement constitutes the valid and
binding obligation of Buyer and Buyer Sub, enforceable against each in
accordance with its terms.
(c) Except as set forth on Schedule 4.2(c) and except for applicable
requirements of state or foreign laws relating to takeovers, federal and state
securities or blue sky laws, filings with the Nasdaq Stock Market, Inc. and
filing of Agreement of Merger under the ABCA and the DGCL, no filing with, and
no permit, authorization, consent or approval of, any public body or authority
is necessary for the consummation by Buyer or Buyer Sub of the transactions
contemplated by this Agreement. Except as set forth on Schedule 4.2(c),
neither the execution and delivery of this Agreement by Buyer or Buyer Sub,
nor the consummation by Buyer or Buyer Sub of the transactions contemplated
hereby, nor compliance by Buyer or Buyer Sub with any of the provisions
hereof, will (i) result in any breach of the Certificate of Incorporation or
Bylaws of Buyer or Buyer Sub, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which Buyer or any of its subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Buyer, any
of its subsidiaries or any of their properties or assets, except in the case
of clauses (ii) and (iii) for violations, breaches or defaults that would not
have a Material Adverse Effect.
(d) Buyer agrees that, for a period of at least one year following the
Closing Date, the benefits provided under all Employee Benefit Programs
(defined in Subsection 5.9(a) below), with respect to participants who are
employed on the Closing Date, will be substantially similar to those provided
immediately prior to the Closing Date, provided that substantially similar
plans were provided by Buyer to its employees prior to the Effective Time.
(e) Since November 23, 1993, Buyer has filed all forms, reports and
documents with the Securities and Exchange Commission ("SEC") required to be
filed by it pursuant to the federal securities laws and the rules and
regulations of the SEC (the "SEC Documents"). As of their respective filing
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") or
the Securities Act of 1933 (the "Securities Act"), and none of the SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading, except to the extent corrected by a
subsequently filed SEC Document.
E-9
<PAGE>
(f) The authorized shares of capital stock of Buyer are as set forth in its
Annual Report on Form 10-K for the fiscal year ended December 31, 1996. All
the issued and outstanding shares of Buyer Common Stock are and, upon
consummation of the transaction contemplated by this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable. As of May 15, 1997,
Buyer had 8,804,820 shares of Common Stock outstanding, outstanding options to
purchase 1,142,806 shares of Buyer Common Stock under its option plans and
25,443 options available for issuance under such plans, and outstanding
warrants to purchase 161,250 shares of Buyer Common Stock.
(g) The audited consolidated balance sheets of Buyer and its subsidiaries at
December 31, 1994, 1995, and 1996 and the statements of operations and changes
in stockholders' equity and cash flows for the years ended December 31, 1994,
1995, and 1996, included in the SEC Documents (the "Buyer Financial
Statements") fairly present the financial position and results of operations
of Buyer and its subsidiaries as for the periods then ended and the financial
position of Buyer and its subsidiaries at the dates thereof in accordance with
generally accepted accounting principles. Buyer has maintained its books of
account in accordance with applicable laws, rules and regulations of
government authorities and with generally accepted accounting principles
consistently applied, and such books of account are and, during the period
covered by the Buyer Financial Statements, were correct and complete in all
material respects, fairly and accurately reflect or reflected the income,
expenses, assets and liabilities of Buyer, including the nature thereof and
the transactions giving rise thereto, and provide or provided a fair and
accurate basis for the preparation of the Buyer Financial Statements
(h) Except as set forth in Schedule 4.2(h), neither the Buyer nor any
subsidiary has, nor at the Closing will have, any liabilities or obligations,
either absolute, accrued, contingent or otherwise, which individually or in
the aggregate are material to the financial condition and business of the
Buyer or any subsidiary and which (i) have not been reflected in the Buyer
Financial Statements, (ii) have not been described in this Agreement or in any
of the Schedules hereto, or (iii) have been incurred since December 31, 1996,
other than in the ordinary course of its business consistent with past
practices.
(i) None of the information supplied or to be supplied by Buyer for
inclusion or incorporation by reference in (i) any registration statement
filed in connection with this Agreement will, at the time such registration
statement is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made,
not misleading and (ii) any proxy statement will, at the date mailed to
stockholders and at the times of the meetings of Buyer's stockholders to be
held in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Any proxy statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder, and any registration
statement will comply as to form in all material respects with the provisions
of the Securities Act and the rules and regulations thereunder, except that no
representation is made by Buyer with respect to statements made therein based
on information supplied by Lawrence or any Shareholder for inclusion in any
registration statement or proxy statement.
(j) Neither this Agreement nor any certificate or Schedule or other
information furnished by or on behalf of Buyer pursuant to this Agreement
contains any untrue statement of a material fact or, when this Agreement and
such certificates, Schedules and other information are taken in their
entirety, omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
(k) Holdings was formed solely for the purpose of engaging in the
transactions contemplated by the ADCS Merger Agreement and this Agreement. As
of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by the ADCS Merger Agreement and this Agreement,
Holdings does not have and will not have incurred any obligations or
liabilities or engaged in any business activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person.
E-10
<PAGE>
ARTICLE V
Representations and Warranties of Lawrence
Lawrence represents and warrants to Buyer and Buyer Sub as follows and
acknowledges and confirms that Buyer and Buyer Sub are relying upon such
representations and warranties in connection with the execution, delivery and
performance of this Agreement and the completion of the Merger,
notwithstanding any investigation made by Buyer or Buyer Sub or on their
behalf:
5.1 Organization; Permits. Lawrence is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to carry on its business as it is
now being conducted and to own all of its properties and assets. True and
complete copies of the Articles of Incorporation and Bylaws of Lawrence with
all amendments and restatements thereto through the date hereof have been
provided to Buyer prior to the date hereof. Lawrence is duly qualified as a
foreign corporation to do business, and is in good standing in each
jurisdiction where the character of its properties owned or held under lease
or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified will not have a Material Adverse Effect.
Lawrence has all business licenses, permits and approvals necessary to conduct
its business as presently conducted, except where the failure to have such
permit or approval does not have a Material Adverse Effect. Lawrence conducts
its business under the trade names and other assumed names set forth on
Schedule 5.1.
5.2 Capitalization; Shareholders. As of the date hereof, the authorized
capital stock of Lawrence, the number and class of Lawrence Shares which are
issued and outstanding, and all persons having record or beneficial ownership
of shares of the capital stock of Lawrence or having any right to purchase,
acquire or obtain any of the capital stock of Lawrence are as set forth on
Schedule 5.2. Schedule 5.2 also sets forth the foregoing information on a pro
forma basis taking into account the merger of Lawrence and LSLMS. All of the
issued and outstanding Lawrence Shares are validly issued, fully paid and
nonassessable and not subject to any lien, charge or encumbrance, and were
issued in compliance with applicable federal and state securities laws.
Lawrence is not, and prior to the Effective Time will not become, a party to
or subject to any contract or obligation wherein any person has a right or
option to purchase or acquire any rights in any additional capital stock or
other equity securities of Lawrence or any of its subsidiaries, including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan. Lawrence does not hold or own, directly or indirectly,
any capital stock of any other corporation, or have any direct or indirect
equity or ownership interest in any association, partnership, joint venture or
other entity. To Lawrence's Knowledge, no officer, director, or Shareholder of
Lawrence would be unable to give the representation that none of the events or
circumstances described in Rule 262 of Regulation A under the Securities Act
have occurred.
5.3 Authority Relative to this Agreement. Lawrence has the corporate power
to enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement by Lawrence and the consummation by
Lawrence of the transactions contemplated hereby have been duly authorized by
the Board of Directors of Lawrence, and no other corporate proceedings on the
part of Lawrence are necessary to approve this Agreement or the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of Lawrence, enforceable against it in accordance with the
Agreement's terms.
5.4 Consents and Approvals; No Violations. Except as set forth on Schedule
5.4 and except for applicable requirements of state or foreign laws relating
to takeovers, state securities or blue sky laws, and filing of Agreement of
Merger under the ABCA and the DGCL, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Lawrence of the transactions contemplated by
this Agreement. Except as set forth on Schedule 5.4, neither the execution and
delivery of this Agreement by Lawrence, nor the consummation by Lawrence of
the transactions contemplated hereby, nor compliance by Lawrence with any of
the provisions hereof, will (i) result in any breach of the Articles of
Incorporation or Bylaws of Lawrence, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration)
E-11
<PAGE>
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which Lawrence is a party or by which it or any of its properties or assets
may be bound or (iii) violate any order, writ, injunction, decree, statute,
rule, regulation or permit applicable to Lawrence or any of its properties or
assets, except in the case of clauses (ii) and (iii) for violations, breaches
or defaults that would not have a Material Adverse Effect.
5.5 Financial Statements. Lawrence has furnished to Buyer Lawrence's audited
combined financial statements (combined balance sheets, combined statements of
income, combined statements of shareholders' equity and combined statements of
cash flows) at and for each of the twelve-month periods ended December 31,
1993, December 31, 1994, December 31, 1995, and December 31, 1996, and the
three-month period ended March 31, 1997, all restated so as to exclude LSRL
and LSI (collectively, the "Lawrence Financial Statements"). Except as set
forth on Schedule 5.5, each of the balance sheets (including the related
notes) included in the Lawrence Financial Statements fairly presents in all
material respects the financial position of Lawrence as of the respective
dates thereof, and the other related statements (including the related notes)
included therein fairly present in all material respects the results of
operations and cash flows of Lawrence for the respective periods or as of the
respective dates set forth therein, all in conformity with generally accepted
accounting principles consistently applied during the periods involved, except
as otherwise noted therein and subject, in the case of the interim financial
statements, to normal year-end adjustments and any other adjustments described
therein and the absence of any notes thereto.
5.6 Absence of Certain Changes or Events. Other than as permitted under
Section 6.1 and except as set forth on Schedule 5.6, since December 31, 1996
and through the date hereof, Lawrence has not suffered a Material Adverse
Effect and Lawrence has not (i) declared any dividend or made any payment or
other distribution in respect of any shares of its capital stock, (ii)
acquired or disposed of any shares of its capital stock or granted any
options, warrants or other rights to acquire or convert any obligation into
any shares of its capital stock, (iii) entered into any material transaction
with any officer, director, employee or any known relative thereof or any
entity in which such person has an interest, except the payment of rent,
salaries, wages and expense reimbursement in the ordinary course of business,
(iv) incurred any material obligation or liability (contingent or otherwise),
except for (A) this Agreement, (B) normal trade and other obligations incurred
in the ordinary course of business consistent with past practice and (C)
obligations under contracts, agreements and leases incurred in the ordinary
course of business consistent with past practice, the performance of which has
not and will not, individually or in the aggregate, have a Material Adverse
Effect on Lawrence, (v) discharged or satisfied any material lien or other
encumbrance or paid any material obligation or liability (fixed or
contingent), except in the ordinary course of business or as contemplated by
this Agreement, (vi) mortgaged, pledged or subjected to any lien or other
encumbrance any of its material assets (whether tangible or intangible), (vii)
sold, assigned, transferred, conveyed, leased or otherwise disposed of or
agreed to sell, lease or otherwise dispose of any of its material assets
except for sales of inventory or other assets for fair consideration in the
ordinary course of business or as contemplated by this Agreement, (viii)
canceled or compromised any material debt or claim, except in the ordinary
course of business, (ix) waived or released any material rights, except for
waivers or releases made in the ordinary course of business consistent with
past practice, (x) made any single capital expenditure in excess of One
Hundred Thousand Dollars ($100,000), or entered into any commitment therefor,
or (xi) suffered any material casualty loss or damage, whether or not covered
by insurance, or any adverse ruling, judgment or award, whether or not amounts
were reserved on Lawrence's books, which would have a Material Adverse Effect
on Lawrence.
5.7 Litigation. Except as set forth on Schedule 5.7, as of the date of this
Agreement, (a) there is no action, suit, judicial or administrative
proceeding, arbitration or investigation pending or, to Lawrence's Knowledge,
threatened against or involving Lawrence, or any of its properties or rights,
before any court, arbitrator, or administrative or governmental body; (b)
there is no judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Lawrence; and (c) Lawrence is not in violation of any term
of any judgments, decrees, injunctions or orders outstanding against it. An
action, suit, proceeding, arbitration or investigation shall be considered
"threatened" for purposes of this
E-12
<PAGE>
Article V if Lawrence has received written notice or otherwise has Knowledge
that such event may be commenced. Except as set forth on Schedule 5.7, to
Lawrence's Knowledge there are no existing facts or conditions which
reasonably would be expected to give rise to any charge, claim, litigation,
proceeding, or investigation.
5.8 Contracts.
(a) Set forth on Schedule 5.8(a) is a list of all contracts, instruments,
mortgages, notes, security agreements, leases, agreements or understandings to
which Lawrence is a party and which are material to the business of Lawrence
or which exceed $50,000. Each of the contracts, instruments, mortgages, notes,
security agreements, leases, agreements or understandings to which Lawrence is
a party that relates to or affects the assets or operations of Lawrence or to
which Lawrence or its assets or operations may be bound or subject is a valid
and binding obligation of Lawrence and, to Lawrence's Knowledge, of the other
parties thereto and is in full force and effect, except for where the failure
to be in full force and effect would not individually or in the aggregate have
a Material Adverse Effect. Except to the extent that the consummation of the
transactions contemplated by this Agreement may require the consent of third
parties as identified on Schedule 5.4, there are no existing defaults by
Lawrence thereunder or, to the Knowledge of Lawrence, by any other party
thereto, which defaults, individually or in the aggregate, would have a
Material Adverse Effect; and no event of default has occurred, and no event,
condition or occurrence exists, that (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute a
default by Lawrence thereunder which default would, individually or in the
aggregate, have a Material Adverse Effect.
(b) Except as set forth on Schedule 5.8(b), as of the date of this
Agreement, Lawrence is not a party to any oral or written (i) consulting
agreement not terminable on sixty (60) days or less notice involving the
payment of more than Fifty Thousand Dollars ($50,000) per annum, (ii) joint
venture agreement, (iii) noncompetition or similar agreement that restricts
Lawrence from engaging in a line of business, (iv) agreement with any
executive officer or other employee of Lawrence the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction involving Lawrence of the nature contemplated by this
Agreement and which provides for the payment of in excess of Fifty Thousand
Dollars ($50,000), (v) agreement with respect to any executive officer of
Lawrence or any subsidiary providing any term of employment or compensation
guaranty in excess of Fifty Thousand Dollars ($50,000) per annum, (vi)
agreement or plan, including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement, (vii) (A)
any agreement providing for disposition of any line of business, material
assets or securities of Lawrence, (B) any agreement with respect to the
acquisition of any line of business, material assets or securities of any
other business, or (C) any agreement of merger or consolidation or letter of
intent with respect to the foregoing, or (viii) any agreement to indemnify any
other party with respect to an adverse environmental condition.
5.9 Employee Benefit Plans.
(a) Schedule 5.9(a) lists each "employee benefit plan" (within the meaning
of section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) that is maintained or otherwise contributed to by Lawrence
for the benefit of its employees (including, without limitation, pension,
profit sharing, stock bonus, medical reimbursement, life insurance, disability
and severance pay plans) (collectively, "Company Plans") and all other
employee benefit plans providing for deferred compensation, bonuses, stock
options, employee insurance coverage or any similar compensation or welfare
benefit plan (collectively, "Benefit Arrangements" and, together with Company
Plans, collectively referred to as "Employee Benefit Programs").
(b) With respect to each of the Company Plans, Lawrence has made available
to Buyer a current, accurate and complete copy (or, to the extent no such copy
exists, an accurate description) thereof (including all existing
E-13
<PAGE>
amendments thereto that shall become effective at a later date) and, to the
extent applicable, (i) any related trust agreement, annuity contract or other
funding instrument; and (ii) any summary plan description.
(c) (i) Each of the Employee Benefit Programs has been established and
administered in compliance with any applicable provisions of ERISA, the
Internal Revenue Code of 1986, as amended (the "Code"), and the terms of all
documents relating to such programs; (ii) each Company Plan that is intended
to be qualified within the meaning of section 401(a) of the Code has received
a favorable determination letter as to its qualification; (iii) as of the date
of this Agreement, no "reportable event" (as such term is used in section 4043
of ERISA) other than an event of a type as to which the Pension Benefit
Guaranty Corporation has waived the reporting requirements, "prohibited
transaction" (as such term is used in section 4975 of the Code or section 406
of ERISA) or "accumulated funding deficiency" (as such term is used in section
412 or 4971 of the Code) has heretofore occurred with respect to any Company
Plan; and (iv) there are no pending or, to Lawrence's Knowledge, threatened,
actions, claims or lawsuits which have been asserted or instituted against the
Employee Benefit Programs, the assets of any of the trusts under such plans or
the plan sponsor or the plan administrator, or against any fiduciary of the
Employee Benefit Programs with respect to the operation of such plans (other
than routine benefit claims).
(d) Lawrence does not maintain or contribute to any "multiemployer plan" (as
such term is defined in section 3(37) of ERISA) and has not incurred any
material liability that remains unsatisfied with respect to any such plans.
(e) No Employee Benefit Program (other than one which is an employee pension
benefit plan within the meaning of Section 3(2)(A) of ERISA) provides benefits
(including, without limitation, death, health or medical benefits, whether or
not insured) with respect to current or former employees of Lawrence beyond
their retirement or other termination of service with Lawrence, other than (a)
coverage mandated by applicable law, (b) deferred compensation benefits which
have been accrued as liabilities on the books of Lawrence, (c) benefits the
full cost of which is borne by the current or former employees (or their
beneficiaries), or (d) benefits which have already been satisfied in full.
5.10 Regulatory Authority Matters.
(a) Except as set forth in Schedule 5.10(a), Lawrence is, and the products
sold by Lawrence are, in compliance in all material respects with all
applicable statutes, rules, regulations, standards, guides or orders
administered or issued by any federal, state or local agency or governmental
body having regulatory authority over such products (the "Regulatory
Agencies").
(b) Except as set forth in Schedule 5.10(b), Lawrence has not received from
the Regulatory Agencies, and has no Knowledge of any facts that would furnish
any reasonable basis for, any notice of adverse findings, regulatory letters,
warning letters or other similar communications from the Regulatory Agencies,
and there have been no seizures conducted or threatened by the Regulatory
Agencies, and no recalls, field notifications or alerts conducted, requested
or threatened by the Regulatory Agencies relating to the products sold by
Lawrence or any of its subsidiaries.
(c) Except as set forth on Schedule 5.10(c), Lawrence is not aware of any
facts which are reasonably likely to cause (i) the denial, withdrawal, recall
or suspension of any products sold or intended to be sold by Lawrence or any
of its subsidiaries, or (ii) a change in the marketing classification or
labeling of any such products, or (iii) a termination or suspension of
marketing of any such products.
(d) Except as set forth on Schedule 5.10(d), none of the products
manufactured, marketed or sold by Lawrence has been recalled or subject to a
field notification (whether voluntarily or otherwise), and Lawrence has not
received notice (whether completed or pending) of any proceeding seeking
recall, suspension or seizure of any products sold or proposed to be sold by
Lawrence or any of its subsidiaries.
E-14
<PAGE>
5.11 Intellectual Property.
(a) Schedule 5.11(a) contains an accurate and complete list of (i) all
patents, applications for patents, registrations of trademarks (including
service marks) and applications therefor, registrations of copyrights and
applications therefor that are owned by Lawrence and that are part of the
business of Lawrence as presently conducted; (ii) all other intellectual
property rights that are owned by Lawrence and that are material to the
conduct of business as presently conducted; (iii) all unexpired licenses
relating to such of Lawrence's intellectual property rights that have been
granted to or by Lawrence and that are material to the conduct of the business
of Lawrence as presently conducted, but excluding end-user licenses granted to
Lawrence relating to standard "off-the-shelf" personal computer software that
is generally available on commercially reasonable terms from vendors that are
unaffiliated with Lawrence, including software made available from such
vendors on a "shrink wrap license" basis ("Non-Scheduled Licenses"); and (iv)
all other agreements relating to intellectual property rights that are
material to the conduct of the business of Lawrence as presently conducted,
but excluding the Non-Scheduled Licenses (collectively, items (i)-(iv) are
referred to as "Lawrence Intellectual Property Rights").
(b) Lawrence owns and has the right to use, and license others to use, all
Lawrence Intellectual Property Rights that are material to the conduct of the
business of Lawrence as presently conducted, and such ownership and right to
use, and license of others to use, are free and clear of, and without
liability under, all liens and security interests of third parties. Such
ownership and right to use, and license of others to use, are free and clear
of, and without liability under, all claims and rights of third parties that,
if determined to be legally protectable, could have a Material Adverse Effect.
(c) Lawrence has taken reasonable steps sufficient to safeguard and maintain
the secrecy and confidentiality of, and its proprietary rights in, the
unpatented know-how, technology, proprietary processes, formulae, and other
information that is material to the conduct of the business of Lawrence as
presently conducted. Without limiting the generality of the foregoing,
Lawrence has obtained confidentiality and inventions assignment agreements
from all of Lawrence's past and present employees and independent contractors
involved in the creation or development of Lawrence Intellectual Property
Rights including, without limitation, from all employees and contractors who
are inventors, authors, creators or developers of Lawrence Intellectual
Property Rights that are material to the conduct of the business as presently
conducted. Schedule 5.11(c) lists all nondisclosure agreements to which
Lawrence is a party or by which it is bound.
(d) Except as set forth on Schedule 5.11(d) and except for payments made
with respect to patents and patent applications, there are no royalties,
honoraria, fees or other payments payable by Lawrence to any person by reason
of the ownership, use, license, sale or disposition of any Lawrence
Intellectual Property Right.
(e) Except as set forth on Schedule 5.11(e), Lawrence has not received
notice that Lawrence is infringing in the conduct of the business upon the
right or claimed right of any other party with respect to any Lawrence
Intellectual Property Rights, nor does Lawrence have any Knowledge of any
alleged or claimed infringement by any product or process manufactured, used,
sold or under development by or for Lawrence in the conduct of the business of
Lawrence as presently conducted.
(f) For purposes of this Section 5.11, "use" with respect to intellectual
property rights includes make, reproduce, display or perform (publicly or
otherwise), prepare derivative works based on, sell, distribute, disclose and
otherwise exploit such intellectual property rights and products incorporating
or subject to such intellectual property rights. No reference in this Section
5.11 to Lawrence's right to use the Lawrence Intellectual Property Rights
shall be construed as a representation or warranty as to the validity of an
issued patent included in the Lawrence Intellectual Property Rights.
(g) To Lawrence's Knowledge, the Lawrence Intellectual Property Rights are
free of any unresolved ownership disputes with respect to any third party, and
there is no unauthorized use, infringement or misappropriation of any of such
Lawrence Intellectual Property Rights by any third party, including any
employee or former employee of Lawrence.
E-15
<PAGE>
5.12 Owned Property; Lawrence Facilities.
(a) Schedule 5.12(a) sets forth, by address, owner and usage, all real
property owned by Lawrence.
(b) Schedule 5.12(b) sets forth, by address, owner and usage, all material
real property agreements (including any amendments thereto) (the "Real
Property Leases") pursuant to which Lawrence leases, subleases or otherwise
occupies or leased, sublet or otherwise occupied during the past five (5)
years any plants, offices, manufacturing facilities, warehouses, improvements,
administration buildings and all other real property (the "Lawrence
Facilities"). There are no defaults or events which, with the passage of time,
would constitute a default under the Real Property Leases, except in either
instance for defaults which individually or in the aggregate would not have a
Material Adverse Effect on Lawrence.
(c) Lawrence owns, leases or has the right to use all material fixtures,
furniture, improvements, machinery or equipment necessary to conduct its
business as currently conducted (the "Equipment Leases"). There are no
defaults or events which, with the passage of time, would constitute a default
under the Equipment Leases, except in either instance for defaults which
individually or in the aggregate would not have a Material Adverse Effect on
Lawrence.
5.13 Compliance With Legislation Regulating Environmental Quality.
(a) For the purposes of this Agreement, the term "Environmental Laws" shall
mean all federal, foreign, state and local environmental protection,
occupational, health and safety or similar laws, ordinances, restrictions,
licenses, rules, regulations and permit conditions, including but not limited
to the Federal Water Pollution Control Act, Resource Conservation & Recovery
Act, Safe Drinking Water Act, Toxic Substances Control Act, Clean Air Act,
Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right to Know or other United States or
foreign, federal, state, province, or local laws of similar effect, each as
amended as of the Effective Time, and the term "Hazardous Materials" shall
mean any hazardous or toxic substances, wastes or materials, including without
limitation petroleum or petroleum products, defined as such or regulated by
any applicable Environmental Law or governmental agencies.
(b) Except as set forth on Schedule 5.13(b), (i) Lawrence has not received
any written notices, directives, violation reports, actions or claims from or
by (A) any local, state, federal or foreign governmental agency concerning
Environmental Laws or (B) any person alleging that, in connection with
Hazardous Materials, conditions at any of the Lawrence Facilities or
Lawrence's acts or omissions have resulted in or caused or threatened to
result in or cause injury or death to any person or damage to any property,
including without limitation, damage to natural resources and, to Lawrence's
Knowledge, no such notices, directives, violation reports, actions, claims or
allegations exist; (ii) the Lawrence Facilities and the business operated by
Lawrence are in compliance with all applicable state, federal, foreign and
local Environmental Laws, except where any noncompliance with Environmental
Laws would not have a Material Adverse Effect on Lawrence; (iii) no
underground storage tanks have been installed by Lawrence and to Lawrence's
Knowledge none either are or have been located at any of the Lawrence
Facilities; and (iv) to Lawrence's Knowledge, no friable asbestos or PCBs have
been located at any of the Lawrence Facilities.
(c) Except as set forth on Schedule 5.13(c), (i) there has been no spill,
discharge, release, cleanup of or contamination by any Hazardous Materials
used, generated, treated, stored, disposed of or handled by Lawrence; and (ii)
Lawrence holds all necessary permits, licenses, approvals and consents to
conduct its business as currently being conducted and is not in violation of
any condition of any such permit, license or consent.
5.14 Violations; Condemnation. Except as set forth on Schedule 5.14,
Lawrence has not received, with respect to any Lawrence Facility, any written
or oral notice of default or any written or oral notice of noncompliance with
respect to applicable state, federal or local laws or regulations relating to
zoning, building, fire, use restriction or safety or health codes which have
not been remedied in all respects, and noncompliance
E-16
<PAGE>
with which could have a Material Adverse Effect. Lawrence has received no
written or oral notice of any pending or threatened condemnation or other
governmental taking of any of the Lawrence Facilities.
5.15 Taxes.
(a) Except as set forth on Schedule 5.15(a), (i) all Returns (defined in
Subsection 5.15(b) below) in respect of Taxes (defined in Subsection 5.15(b)
below) required to be filed with respect to Lawrence (including any
consolidated federal income tax return and any state Tax return that includes
Lawrence or any of its related companies on a consolidated, combined or
unitary basis) have been timely filed, none of such Returns contains, or is
required to contain, a disclosure statement under section 6661 or 6662 of the
Code or any similar provision of state, local or foreign law, and no extension
of time within which to file any such Return has been requested, which Return
has not since been timely filed; (ii) all Taxes whether or not shown on such
Returns have been timely paid and all payments of estimated Taxes required to
be made with respect to Lawrence under section 6655 of the Code or any
comparable provision of state, local or foreign law have been made; (iii) all
such Returns are true, correct and complete in all material respects; (iv) no
adjustment relating to any of such Returns has been proposed formally or
informally by any Tax authority; (v) there are no outstanding subpoenas or
requests for information with respect to any Returns of Lawrence or the Taxes
reflected on such Returns; (vi) there are no pending or to Lawrence's
Knowledge threatened actions or proceedings for the assessment or collection
of Taxes against Lawrence or any corporation that was included in the filing
of a Return with Lawrence on a consolidated, combined or unitary basis; (vii)
no consent under section 341(f) of the Code has been filed with respect to
Lawrence; (viii) there are no Tax liens on any assets of Lawrence except liens
for Taxes not yet due and payable or being contested in good faith by
appropriate proceedings for which adequate reserves have been established;
(ix) no acceleration of the vesting schedule for any property that is
nonvested within the meaning of the regulations under section 83 of the Code
will occur in connection with the transactions contemplated by this Agreement;
(x) Lawrence is not now nor has it at any time been subject to any accumulated
earnings tax or personal holding company tax; (xi) Lawrence owes no amounts
pursuant to any written or unwritten Tax sharing agreement or arrangement and
will not have any liability after the date hereof in respect of any written or
unwritten Tax sharing agreement or arrangement executed or agreed to prior to
the date hereof; (xii) all Taxes required to be withheld, collected or
deposited by Lawrence have been timely withheld, collected or deposited and,
to the extent required, have been paid to the relevant Tax authority; (xiii)
any adjustment of Taxes of Lawrence made by the IRS that is required to be
reported to any state, local or foreign Tax authority has been so reported and
any additional Tax due as a result thereof has been paid in full; (xiv) there
are no outstanding waivers or agreements extending the statute of limitations
for any period with respect to any Tax to which Lawrence may be subject; (xv)
to Lawrence's Knowledge there are no requests for rulings or information
currently outstanding that could affect the Taxes of Lawrence, or any similar
matters pending with respect to any Tax authority; (xvi) no Tax authority has
proposed reassessments of any property owned or leased by Lawrence that could
increase the amount of any Tax to which Lawrence would be subject; (xvii) no
power of attorney that is currently in force has been granted with respect to
any matter relating to Taxes that could affect Lawrence and (xviii) with
respect to each Return that has been examined by the relevant Tax authority,
such examination is closed and final without any adjustment having been made
to such Return (including adjustments not affecting the amount of Tax due with
respect to such Return).
(b) For purposes of this Agreement, "Tax" or "Taxes" shall mean any and all
taxes, charges, fees, levies, and other governmental assessments and
impositions of any kind, payable to any federal, state, local or foreign
governmental entity or taxing authority or agency, including, without
limitation, (i) income, franchise, profits, gross receipts, minimum,
alternative minimum, estimated, ad valorem, value added, sales, use, service,
real or personal property, capital stock, license, payroll, withholding,
disability, employment, social security, workers compensation, unemployment
compensation, utility, severance, production, excise, stamp, occupation,
premiums, windfall profits, transfer and gains taxes, (ii) customs duties,
imposts, charges, levies or other similar assessments of any kind, and (iii)
interest, penalties and additions to tax imposed with respect thereto; and
"Returns" shall mean any and all returns, reports, and information statements
with respect to Taxes required to be filed with the Internal Revenue Service
or any other governmental entity or Tax authority or agency, whether domestic
or
E-17
<PAGE>
foreign including, without limitation, consolidated, combined and unitary tax
returns. For the purposes of this Section 5.15, references to Lawrence shall
include former subsidiaries of Lawrence identified on Schedule 5.15(b), if
any, for the periods during which any such corporations were owned, directly
or indirectly, by Lawrence.
5.16 Product Liability Matters. Except as set forth on Schedule 5.16, as of
the date of this Agreement, Lawrence has not submitted to its product
liability insurance carriers any claims with respect to potential product
liability of Lawrence which claims could have a Material Adverse Effect on
Lawrence, nor does it know of any such claims which should have been submitted
to its product liability insurance carriers. Buyer has previously been
afforded access to all files containing, or been furnished with copies of, all
pleadings, claims, complaints and relevant documents in connection with the
foregoing. Neither Lawrence nor, to Lawrence's Knowledge, any employee or
agent of Lawrence, has made any untrue statement of a material fact or omitted
to state a material fact in connection with obtaining or renewing any
insurance policy providing product liability coverage in respect of the
products of Lawrence which could reasonably result in the loss of any material
portion of such coverage, and Lawrence has not received any written or oral
notice from any insurance company stating that any insurance policy of
Lawrence may not provide coverage up to the limits of such policy for any
liability, loss or damage which may be incurred or suffered by Lawrence in
connection with product liability claims other than the possible lack of
coverage for punitive damages and claims for deductible amounts.
5.17 No Undisclosed Liabilities. Except as set forth on Schedule 5.17 and
except to the extent specifically reflected or reserved against in the
Consolidated Balance Sheet of Lawrence as of December 31, 1996, Lawrence does
not have any material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise.
5.18 Construction of Certain Provisions. It is understood and agreed that
any dollar amount specified in the foregoing representations and warranties or
the inclusion of any specific items on the Schedules hereto is not intended to
imply that higher or lower amounts, or that the items that have been so
included, are or are not material, and neither party shall use the fact of the
setting of such amounts or the fact of the inclusion of any such items on the
Schedules hereto in any dispute or controversy between the parties on whether
any obligation, item or matter not described herein or included on a Schedule
hereto is or is not material for purposes of this Agreement.
5.19 Condition of the Assets. The assets of Lawrence, including real,
personal and mixed, tangible and intangible, necessary or useful to the
operation of its business (the "Assets") are in good condition and repair,
ordinary wear and tear excepted, and suitable for the uses intended. The
Assets comply with and are operated in conformity with all applicable laws,
ordinances, regulations, orders, permits and other requirements relating
thereto adopted or currently in effect. The leases and other agreements or
instruments under which Lawrence holds, leases, subleases or is entitled to
the use of any of the Assets are in full force and effect, and all rentals,
royalties or other payments payable thereunder have been duly paid or provided
for by adequate reserves. No default or event of default by Lawrence exists,
and no event which, with notice or lapse of time or both, would constitute a
default by Lawrence, has occurred and is continuing, under the terms or
provisions of any such lease, agreement or other instrument or under the terms
or provisions of any agreement to which any of such Assets is subject, nor has
Lawrence received notice of any claim of such default.
5.20 Title; Absence of Liens and Encumbrances, Etc. Except as set forth on
Schedule 5.20 and except for the restrictions imposed under the terms of its
capital and operating leases, Lawrence has good, valid, and marketable title
to the Assets, free and clear of all mortgages, security interests, claims,
liens (except inchoate construction liens), charges, title defects,
encumbrances, restrictions on use or transfer or other defects.
5.21 Indebtedness. Except as set forth on Schedule 5.21, Lawrence does not
have any obligation for money borrowed or under any guarantee nor any
agreement or arrangement to borrow money or to enter into any such guarantee,
and as of the Closing Date, except as set forth on Schedule 5.21, Lawrence
will not have
E-18
<PAGE>
any obligation for money borrowed nor any agreement or arrangement to borrow
money, and Lawrence will not have any guarantee outstanding nor any agreement
or commitment to enter into any such guarantee.
5.22 Accounts Receivable. No amount included in the accounts receivable of
Lawrence in the Lawrence Financial Statements has been released for an amount
less than the value at which it was included or is or will be regarded as
unrecoverable in whole or in part except to the extent there shall have been
an appropriate bad debt reserve therefor. Such receivables are not, to
Lawrence's Knowledge, subject to any counterclaim, refusal to pay or setoff
not reflected in the reserves set forth on the Lawrence Financial Statements.
Schedule 5.22 hereto sets forth a list of all accounts receivable of Lawrence
as of the close of business on December 31, 1996, none of which are owing from
a debtor that, to Lawrence's Knowledge, has become bankrupt or insolvent or
have been pledged to any third party.
5.23 No Sales or Conveyance Tax Due. No sales, use or other transfer or
conveyance taxes are or will become payable by any of the parties to this
Agreement as a consequence of the execution, delivery or performance of this
Agreement or any of the ancillary agreements, other than taxes based upon the
net income of the parties.
5.24 Books and Records. Lawrence has maintained its books of account in
accordance with applicable laws, rules and regulations and with generally
accepted accounting principles consistently applied, and such books of account
are and, during the period covered by the Lawrence Financial Statements, were
correct and complete in all material respects, fairly and accurately reflect
or reflected the income, expenses, assets and liabilities of Lawrence,
including the nature thereof and the transactions giving rise thereto, and
provide or provided a fair and accurate basis for the preparation of the
Lawrence Financial Statements. The minute books of Lawrence, as previously
made available to Buyer and its counsel, contain accurate records of all
meetings and accurately reflect all other corporate action of the Shareholder
and directors (and committees thereof) of Lawrence.
5.25 Employees. Schedule 5.25 sets forth a list of the names, employment
status, location of employment, and rates of compensation (including salaries,
wages, commissions and bonuses) of all employees of Lawrence. Except as
described on Schedule 5.25, Lawrence has no written or oral contract of
employment with any employee of Lawrence, and Lawrence is not a party to or
subject to any collective bargaining agreement nor has been a party to or
subject to any collective bargaining agreement or collective bargaining plan
during the last five (5) years. Except as described on Schedule 5.25, Lawrence
is not a party to any pending nor, to Lawrence's Knowledge, threatened labor
dispute affecting the business of Lawrence. Lawrence has complied in all
material respects with all applicable foreign, federal, state and local laws,
ordinances, rules and regulations and requirements relating to the employment
of labor, including, but not limited to, the provisions thereof relative to
wages, hours, collective bargaining, drug testing, personnel policies and
practices, payment of Social Security, unemployment and withholding taxes, and
ensuring equality of opportunity for employment and advancement of minorities
and women. To Lawrence's Knowledge, Lawrence is not liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the
foregoing. At the Closing Date, all employees will be terminable at will by
Lawrence and will be free to become the employees of Buyer, the Surviving
Corporation or an affiliate or subsidiary of Buyer. Lawrence has not received
notice from any employee listed on Schedule 5.25 as earning an annual base
salary in excess of $40,000 that such employee is terminating his or her
employment with Lawrence, nor to Lawrence's Knowledge, does any such employee
intend to terminate his or her employment with Lawrence.
5.26 Related Party Transactions. Schedule 5.26 sets forth the amounts and
other essential terms of indebtedness or other obligations, liabilities or
commitments (contingent or otherwise) of Lawrence to or from any Shareholder
or any other present officer, or director, or any person related to,
controlling, controlled by or under common control with any of the foregoing
(other than for employment services performed within the past month the
payment for which is not yet due), and all other transactions between such
persons and Lawrence. Without limiting the generality of the foregoing, as of
the date hereof, none of the Shareholders or any other present officer, or
director, or any person related to, controlling, controlled by or under common
control with
E-19
<PAGE>
any of the foregoing (i) has any material direct or indirect interest in any
entity which does business with Lawrence, (ii) has any direct or indirect
interest in any property, asset or right which is used by Lawrence in the
conduct of its business, or (iii) has any contractual relationship with
Lawrence other than such relationships which occur from being an employee,
officer, director, etc.
5.27 Hart-Scott-Rodino. The "total assets" and the "annual net sales" of the
"ultimate parent entity" of Lawrence (as such terms are used within the
meaning of Section 7A.(a)(2)(A) of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976) are shown on Schedule 5.27.
5.28 Customers and Suppliers. Except as set forth in Schedule 5.28, Lawrence
has not received any notice or has any Knowledge that any customer from whom
Lawrence received more than $50,000 in gross receipts during the 1995 or 1996
fiscal years (i) has ceased, or will cease, to use the products, goods or
services of its business, (ii) has substantially reduced, or will
substantially reduce, the use of products, goods or services of its business
or (iii) has sought, or is seeking, to reduce the price it will pay for
products, goods or services of its business. Lawrence has not received any
notice or has any Knowledge that any supplier from whom Lawrence purchased
more than $50,000 in goods during the 1995 or 1996 fiscal years will not sell
raw materials, supplies, merchandise and other goods to Lawrence at any time
after the Closing Date on terms and conditions similar to those used in the
current sales to Lawrence, subject to general and customary price increases
and unforeseeable supply or demand changes.
5.29 Stock Ownership. Other than through mutual funds or other similar
investment vehicles over which no investment discretion is retained, none of
Lawrence or any Shareholder owns any securities issued by Buyer and has no
warrants, options or other rights to purchase or otherwise acquire or convert
any obligations into securities issued by Buyer.
5.30 Insurance. All of the Assets are covered by such fire, casualty,
product liability, environmental liability and other insurance policies issued
by reputable companies as are customarily obtained to cover comparable
properties and assets by businesses in the region in which such Assets are
located, in amounts, scope and coverage which are reasonable in light of
existing conditions. Schedule 5.30 sets forth a list of the policies of
insurance and fidelity or surety bonds carried by Lawrence, including, but not
limited to, fire, flood, liability, workers' compensation, officers' life, and
directors' and officers' liability insurance policies. Lawrence has not failed
to give any notice or present any material claim under any insurance policy in
due and timely fashion, and all insurance premiums due and payable by Lawrence
in connection with the policies set forth on Schedule 5.30 prior to the
Closing Date have been or will be paid. There are no outstanding written
requirements or written recommendations by any insurance company that issued a
policy with respect to any of the properties and assets of Lawrence by any
Board of Fire Underwriters or other body exercising similar functions or by
any governmental authority requiring or recommending any repairs or other work
to be done on or with respect to any of the properties or Assets of Lawrence
or requiring or recommending any equipment or facilities to be installed on or
in connection with any of the properties or Assets. The unemployment insurance
ratings and contributions of Lawrence are also set forth on Schedule 5.30.
5.31 Information in Disclosure Documents and Registration Statement. None of
the information supplied or to be supplied by Lawrence for inclusion or
incorporation by reference in (i) any registration statement filed in
connection with this Agreement will, at the time such registration statement
is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made,
not misleading, and (ii) any proxy statement relating to the meeting of
Buyer's stockholders to be held in connection with the Merger will, at the
date mailed to stockholders and at the time of the meeting of stockholders to
be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
E-20
<PAGE>
5.32 No Misrepresentation. Neither this Agreement nor any certificate or
Schedule or other information furnished by or on behalf of Lawrence or any
Shareholder pursuant to this Agreement contains any untrue statement of a
material fact or, when this Agreement and such certificates, Schedules and
other information are taken in their entirety, omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
ARTICLE VI
Conduct of Business Pending the Merger
6.1 Conduct of Business Pending the Merger. Lawrence agrees that, except as
expressly contemplated by this Agreement, during the period from the date of
this Agreement and continuing until the Effective Time:
(a) The business of Lawrence shall be conducted only in the ordinary and
usual course of business and consistent with past practices;
(b) Lawrence shall not (i) amend its Articles of Incorporation or Bylaws; or
(ii) split, combine or reclassify any shares of its outstanding capital stock,
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property in respect of its capital stock, or directly or indirectly
redeem, purchase or otherwise acquire any shares of its capital stock or other
securities;
(c) Lawrence shall not (i) authorize for issuance, issue, sell, pledge,
dispose of, encumber, deliver or agree or commit to issue, sell, pledge, or
deliver any additional shares of, or rights of any kind to acquire any shares
of, its capital stock of any class (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase or
otherwise), (ii) acquire, dispose of, transfer, lease, or license, any fixed
or other substantial assets other than in the ordinary course of business and
consistent with past practices; (iii) incur, assume or prepay any material
indebtedness, liability or obligation or any other material liabilities or
issue any debt securities; (iv) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person; (v) make any material loans, advances or
capital contributions to, or investments in, any other person; (vi) fail to
maintain adequate insurance consistent with past practices for its business;
(vii) take any action described in items (i) through (x) of Section 5.6
without the consent of the Buyer; or (viii) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(d) Lawrence shall use reasonable efforts to maintain the Assets, to
preserve intact its business organization, to keep available the services of
its present officers and key employees, and to preserve the goodwill of those
having business relationships with it; provided, however, that no breach of
this covenant shall be deemed to have occurred as a result of any matter
arising out of the transactions contemplated by this Agreement or the public
announcement thereof;
(e) Lawrence shall use all reasonable efforts to prevent any representation
or warranty of Lawrence herein from becoming materially untrue or incorrect in
any material respect; and
(f) Notwithstanding anything to the contrary in subsections (a) through (e)
above, Lawrence shall be permitted to take the following actions: (i) pay any
judgment or settlement of pending legal claims (including penalties, fees, or
taxes related thereto) provided that Lawrence will not without Buyer's written
consent enter into any settlement which imposes upon Lawrence any restrictions
or limitations on its ability to operate its business consistent with past
practice; (ii) repay any guarantors of Lawrence's obligations or pledgors of
collateral to secure Lawrence's obligations (including collateral pledged to
secure letters of credit relating to such obligations) if and to the extent
such guarantors pay any amount under the guaranty, or such pledgors have such
collateral foreclosed upon, in connection with any of Lawrence's obligations,
on behalf of Lawrence, and (iii) pay compensation as permitted under Section
6.2 below.
E-21
<PAGE>
6.2 Compensation Plans. During the period from the date of this Agreement
and continuing until the Effective Time, Lawrence agrees that it will not,
without the prior written consent of Buyer (except as required by applicable
law or pursuant to existing contractual arrangements or other plans or
commitments as otherwise disclosed in writing pursuant hereto) (a) enter into,
adopt or amend any Employee Benefit Programs as to increase the benefits
thereunder, (b) grant or become obligated to grant any increase in the
compensation or fringe benefits of directors, officers or employees (including
any such increase pursuant to any Employee Benefit Program) or any increase in
the compensation payable or to become payable to any officer, except for
increases in compensation in the ordinary course of business consistent with
past practice, or enter into any contract, commitment or arrangement to do any
of the foregoing, except for normal increases and non-stock benefit changes in
the ordinary course of business consistent with past practice, (c) institute
any new Employee Benefit Program, (d) make any material change in any Employee
Benefit Program arrangement or enter into any employment or similar agreement
or arrangement with any employee, or (e) enter into or renew any contract,
agreement, commitment or arrangement providing for the payment to any
director, officer or employee of compensation or benefits contingent, or the
terms of which are altered in favor of such individual, upon the occurrence of
any of the transactions contemplated by this Agreement. Notwithstanding
anything to the contrary in this Section 6.2, Lawrence shall be permitted to
(i) pay fiscal year-end cash bonuses to its employees in amounts consistent
with past practice and (ii) enter into staying bonus/severance agreements with
the employees (the "Designated Employees") listed on Exhibit "A-1" in the form
attached as Exhibit "A-2."
6.3 Legal Conditions to Merger. Each of Lawrence and Buyer shall use all
reasonable efforts (a) to take, or cause to be taken, all actions reasonably
necessary to comply promptly with all legal requirements which may be imposed
on such party or its subsidiaries with respect to the Merger and to consummate
the transactions contemplated by this Agreement, and (b) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any governmental entity and or any other
public or private third party which is required to be obtained or made by such
party or any of its subsidiaries in connection with the Merger and the
transactions contemplated by this Agreement; provided, however, that a party
shall not be obligated to take any action pursuant to the foregoing if the
taking of such action or such compliance or the obtaining of such consent,
authorization, order, approval or exemption would, in Buyer's reasonable
opinion, result in the imposition of a condition or restriction on such party
or on the Surviving Corporation of the type referred to in Section 8.1; and
provided further that neither party shall be obligated to take any action to
obtain any third party consent where a failure to obtain such consent would
not in Buyer's reasonable opinion have a Material Adverse Effect. Each party
will cooperate with and promptly furnish information to the other in
connection with any such burden suffered by, or requirement imposed upon,
either of them in connection with the foregoing.
ARTICLE VII
Additional Agreements
7.1 Access and Information. Lawrence shall afford to Buyer and to Buyer's
financial advisors, legal counsel, accountants, consultants and other
representatives reasonable access during normal business hours throughout the
period from the date hereof to the Effective Time to all of its books,
records, properties, facilities, personnel, commitments and records (including
but not limited to tax returns) and, during such period, shall furnish
promptly to Buyer all information concerning its business, properties and
personnel as Buyer may reasonably request.
7.2 Pooling. None of Lawrence, Buyer and Buyer Sub shall take any action
which would jeopardize the treatment of the Merger as a tax-free
reorganization or which would prevent the Merger from being accounted for as a
pooling of interests.
7.3 Public Announcements. Lawrence understands that Buyer is a public
company, and that until the transactions contemplated by this Agreement are
made public, Lawrence and the Shareholders and those whom
E-22
<PAGE>
they advise of this transaction (which shall only be on a "need to know
basis") may be privy to material inside information; accordingly, Lawrence
understands, and Lawrence has apprized those of its officers, directors and
employees who know of the potential transaction, of the need for
confidentiality and the potential consequences of any trading in Buyer Common
Stock. No public announcements shall be made concerning the negotiations
between the parties, this Agreement or the transactions contemplated herein,
without the prior mutual consent of Lawrence and Buyer, except as may be
required by law or the rules or regulations of The Nasdaq Stock Market. The
parties agree that, to the maximum extent feasible, they will advise and
confer with each other prior to the issuance of any reports, statements or
releases pertaining to this Agreement or the transactions contemplated herein.
In addition, the parties agree to respond to all inquiries with respect to the
Merger by stating that it is their policy not to comment on such matters.
7.4 Additional Agreements.
(a) Subject to the terms and conditions hereof, each of the parties hereto
agrees to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using all
reasonable efforts to obtain all necessary waivers, consents and approvals,
and to effect all necessary registrations and filings. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and/or directors of
the Companies shall take all such necessary action.
(b) Subject to the terms and conditions hereof, Buyer and Lawrence will
cooperate with each other and use all reasonable efforts to prepare all
necessary documentation to effect promptly all necessary filings and to obtain
all necessary permits, consents, approvals, orders and authorizations of or
any exemptions by, all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement.
(c) Each party will keep the other party apprized of the status of any
inquiries made of such party by any governmental agency or authority or
members of their respective staffs with respect to this Agreement or the
transactions contemplated herein.
7.5 Confidentiality. All confidential information disclosed by any party to
this Agreement to any other party to this Agreement in connection with the
transactions contemplated hereby shall be kept confidential by such other
party and shall not be used by such other party otherwise than as herein
contemplated, except to the extent that (a) it is or becomes generally
available to the public other than as a result of a wrongful disclosure by a
party receiving such confidential information hereunder, (b) it was readily
available to the party receiving such information on a non-confidential basis
prior to its disclosure hereunder, (c) it was already lawfully in the
receiving party's possession prior to its disclosure hereunder, (d) it becomes
available to the receiving party on a non-confidential basis from a source
other than the disclosing party hereunder without violation of such source's
confidentiality agreement with the disclosing party or its representatives or
of legal, fiduciary or ethical constraints on disclosure of such information,
(e) it may be required by law, or (f) such duty as to confidentiality is
waived by the other party. Such obligation as to confidentiality and non-use
shall survive the termination of this Agreement for any reason. This Section
7.5 shall survive termination hereof or consummation of the transactions
hereunder, and shall replace any prior confidentiality agreements, including
the Confidentiality Agreement dated October 23, 1996, entered into by Lawrence
and Buyer.
7.6 Guarantees. Buyer shall cooperate with Lawrence and use Buyer's
reasonable efforts to obtain, prior to the Effective Time, the release of all
guarantees listed on Schedule 7.6 ("Guarantees") provided by individuals, LSI
or LSRL on behalf of Lawrence relating to Lawrence's bank financings or other
indebtedness (the "Releases"), provided that no modification to, or amendment
of, the terms of any such bank financing or other indebtedness shall be made
in connection with obtaining a Release without Buyer's prior written consent.
In the event that the parties are unable to obtain the release of any of the
Guarantees, the Buyer shall indemnify the guarantors against any losses
incurred by them under such Guarantees as a result of a default by Lawrence of
its obligations as provided in Section 10.3.
E-23
<PAGE>
7.7 Noncompete Agreement. At the Effective Time, Lamonte H. Lawrence shall
enter into a Noncompete Agreement in the form attached hereto as Exhibit "B."
7.8 Consulting Agreement. At the Effective Time, the Surviving Corporation
shall enter into Consulting Agreement with LSI in the form attached hereto as
Exhibit "C."
7.9 Notices of Certain Events. From the date hereof to and including the
Closing Date, Lawrence and Buyer covenant and agree to notify the other of (i)
any notice or other communication from any person alleging that the consent of
such person is or may be required in connection with the transactions
contemplated by this Agreement; (ii) any notice or other communication from
any foreign or domestic governmental authority in connection with the
transactions contemplated by this Agreement; and (iii) any matter arising and
discovered after the date of this Agreement that, if existing or known on the
date of this Agreement, would have been required to be disclosed pursuant to
this Agreement, or that constitutes a breach or prospective breach of this
Agreement by the notifying party or its affiliates.
7.10 No Solicitation. Lawrence will not, and Lawrence will use best efforts
to cause each Shareholder not to, directly or indirectly, solicit any active
discussions or negotiations with, or provide information to, any person, other
than Buyer, concerning any possible proposal regarding the acquisition of
Lawrence or any part thereof, or any merger or consolidation thereof or accept
any such proposal.
7.11 Preparation of S-4 and the Proxy Statement. Buyer shall prepare and
file as promptly as practicable after the execution of this Agreement with the
SEC a proxy statement and a registration statement on Form S-4 (in which the
proxy statement will be included as a prospectus) (the "S-4"). Buyer shall use
its best efforts to have the S-4 declared effective under the Securities Act
as promptly as practicable after such filing. Buyer shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not
now so qualified) required to be taken under any applicable state securities
laws in connection with the issuance of Buyer Common Stock in the Merger, and
Lawrence shall furnish all information concerning Lawrence and the
Shareholders as may be reasonably requested in connection with any such
action.
7.12 Nasdaq Listing. Buyer will make such filings as are necessary with The
Nasdaq Stock Market regarding the transactions contemplated hereby, including
filing a Notification Form for Listing of Additional Shares with respect to
the shares of Buyer Common Stock to be issued in the Merger.
7.13 Qualified Retirement Plan. The Lawrence Profit Sharing Plan and Trust
(the "Plan and Trust") shall be continued by Lawrence for at least twelve
months from the Effective Time (the "Continuation Period") with respect to the
Lawrence employees at the Effective Time (except for LSRL employees), and the
Lawrence employees shall continue to participate in the Plan and Trust during
such time. After the Continuation Period, neither Lawrence nor Buyer will have
any obligation to continue the Plan and Trust. At Buyer's discretion, after
the Continuation Period Lawrence may continue the Plan and Trust, freeze it,
terminate it, or merge it into any other qualified plan in which Buyer's
employees are eligible to participate. At the Effective Time, LSRL employees
shall cease to participate in the Plan and Trust. After the Continuation
Period, Lawrence employees shall be eligible to participate in Buyer's 401(k)
plan, except to the extent Buyer has elected to continue the Plan and Trust
beyond the Continuation Period in which case the Lawrence employees will
remain eligible under the Plan and Trust. When Lawrence employees do become
eligible to participate in Buyer's 401(k) plan, they shall be given credit for
their service with Lawrence toward eligibility requirements and vesting in
Buyer's 401(k) plan.
7.14 Name. It is Buyer's current intention that the Surviving Corporation
will continue to do business under the name "Lawrence Semiconductor
Laboratories, Inc." following the Closing.
7.15 Conduct of Buyer's Business Pending the Merger. Buyer agrees that,
except as expressly contemplated by this Agreement, and except as may be
necessary or required in connection with the
E-24
<PAGE>
consummation of the transaction contemplated by the ADCS Merger Agreement,
during the period from the date of this Agreement and continuing until the
Effective Time:
(a) The business of Buyer shall be conducted only in the ordinary and usual
course of business and consistent with past practices;
(b) Buyer shall not (i) amend its Articles of Incorporation or Bylaws; or
(ii) split, combine or reclassify any shares of its outstanding capital stock,
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property in respect of its capital stock, or directly or indirectly
redeem, purchase or otherwise acquire any shares of its capital stock or other
securities;
(c) Buyer shall not authorize for issuance, issue, sell, pledge, dispose of,
encumber, deliver or agree or commit to issue, sell, pledge, or deliver any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise), provided, however, that Buyer may do any of the foregoing if the
value of the consideration per Share received by Buyer in such transaction is
greater than the greater of (i) $17 and (ii) the closing price of Buyer Common
Stock on the Nasdaq National Market on the trading day immediately preceding
the date of the consummation of such transaction. Notwithstanding the
foregoing, Buyer may grant additional options under its existing option plans
consistent with past practice, and may also issue additional shares upon the
exercise of outstanding options and warrants.
(d) Buyer shall use reasonable efforts to maintain its assets, to preserve
intact its business organization, to keep available the services of its
present officers and key employees, and to preserve the goodwill of those
having business relationships with it; provided, however, that no breach of
this covenant shall be deemed to have occurred as a result of any matter
arising out of the transactions contemplated by this Agreement or the public
announcement thereof;
(e) Buyer shall use all reasonable efforts to prevent any representation or
warranty of Buyer herein from becoming materially untrue or incorrect in any
material respect; and
(f) Notwithstanding anything to the contrary in subsections (a) through (e)
above, Buyer shall be permitted to take the following actions: (i) pay any
judgment or settlement of pending legal claims (including penalties, fees, or
taxes related thereto) provided that Buyer will not without Lawrence's written
consent enter into any settlement which imposes upon Buyer any restrictions or
limitations on its ability to operate its business consistent with past
practice; and (ii) repay any guarantors of Buyer's obligations or pledgors of
collateral to secure Buyer's obligations (including collateral pledged to
secure letters of credit relating to such obligations) if and to the extent
such guarantors pay any amount under the guaranty, or such pledgors have such
collateral foreclosed upon, in connection with any of Buyer's obligations, on
behalf of Buyer.
ARTICLE VIII
Conditions to Consummation of the Merger
8.1 Conditions to Both Lawrence's and Buyer's Obligation to Effect the
Merger. The respective obligations of Lawrence and Buyer to effect the
transactions contemplated in this Agreement shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions,
which may be waived by mutual agreement: (a) no preliminary or permanent
injunction or other order by or before any federal, state or foreign court of
competent jurisdiction which prohibits the consummation of the Merger shall
have been issued and remain in effect; and (b) no statute, rule, regulation,
executive order, stay, decree, or judgment shall have been enacted, entered,
issued, promulgated or enforced by or before any court or governmental
authority which prohibits or restricts the consummation of the Merger. Other
than the filing of Articles of Merger and Plan of Merger with the Arizona
Corporation Commission and the Secretary of State of the State of Delaware,
all authorizations, consents, orders or approvals of, or declarations or
filings with, and all expirations of waiting
E-25
<PAGE>
periods imposed by, any governmental entity (all of the foregoing, "Consents")
which are necessary for the consummation of the Merger, other than Consents
the failure to obtain which would have no Material Adverse Effect on the
consummation of the Merger or on the Surviving Corporation, Buyer and their
subsidiaries shall have been filed, occurred or been obtained (all such
permits, approvals, filings and consents and the lapse of all such waiting
periods being referred to as the "Requisite Regulatory Approvals"), and all
such Requisite Regulatory Approvals shall be in full force and effect.
8.2 Conditions to Obligation of Each Company to Effect the Merger.
(a) The obligation of Lawrence to effect the Merger shall be further subject
to the following conditions: (i) Buyer and Buyer Sub shall satisfy all of the
obligations under this Agreement required to be performed by Buyer and Buyer
Sub at or prior to the Effective Time in all material respects, (ii) the
representations and warranties of Buyer and Buyer Sub contained in this
Agreement shall be true and correct in all material respects when made and at
and as of the Effective Time as if made at and as of such time, except as
contemplated by this Agreement, and (iii) Lamonte H. Lawrence shall have been
elected to serve as a member of Buyer's six (6) person Board of Directors,
effective immediately following the Closing Date, provided that if Section
3.2(f) shall apply, in lieu of the foregoing, Lamonte H. Lawrence shall have
been elected to serve as a member of the class of directors elected for a term
not to exceed two (2) years on Holdings' seven (7) person Board of Directors.
These conditions may be waived by Lawrence. Further, if and to the extent
Holdings is formed on or prior to the Effective Time, and Section 3.2(f) is
applicable, then at the Effective Time: (i) Holdings shall own directly all of
the issued and outstanding capital stock of Buyer; (ii) Holdings shall not
have incurred any liabilities of any nature whatsoever, except for the
liabilities described in Section 4.2(k); and (iii) the authorized, issued and
outstanding capital stock of Holdings shall be substantially identical to that
of the Buyer as of the Effective Time, subject only to changes therein
necessary to consummate the transactions contemplated by the ACDS Merger
Agreement, and (iv) evidence reasonably satisfactory to Lawrence that all
conditions to Lawrence's obligations hereunder have been satisfied in all
material respects.
(b) The obligation of Buyer to effect the Merger shall be further subject to
the following conditions: (i) Lawrence shall satisfy all of the obligations
under this Agreement required to be performed by Lawrence at or prior to the
Effective Time in all material respects, (ii) the representations and
warranties of Lawrence contained in this Agreement shall be true and correct
in all material respects when made and at and as of the Effective Time as if
made at and as of such time, except as contemplated by this Agreement, and
(iii) evidence reasonably satisfactory to Buyer that all conditions to Buyer's
obligations hereunder have been satisfied in all material respects. These
conditions may be waived by Buyer.
8.3 Additional Conditions to Obligations of Buyer. The obligation of Buyer
to effect the Merger shall be further subject to the following conditions:
(a) This Agreement and the consummation of the Merger shall have been duly
approved and adopted by the affirmative vote of the holders of at least 95% of
the voting securities of Lawrence. This Agreement and the consummation of the
Merger shall have been duly approved and adopted by the stockholders of Buyer
in accordance with the DGCL and its charter.
(b) Ernst & Young LLP, independent accountants to Buyer, shall have rendered
its opinion(s), addressed to Buyer, in form and substance satisfactory to
Buyer as to the appropriateness of pooling of interest accounting for the
Merger under Accounting Principles Board Opinion No. 16 and Ernst & Young
shall have rendered its opinion to Buyer to the effect that the Merger has
been structured in a manner which is tax-free with respect to Buyer and its
stockholders and Lawrence and the Shareholders.
(c) Lawrence shall have delivered (or cause to be delivered) duly executed
counterparts of Employee Proprietary Information and Inventions Agreements
with Buyer and the Surviving Corporation substantially in the form of Exhibit
8.3(d) duly executed by each employee of Lawrence.
E-26
<PAGE>
(d) The share certificates representing all of the issued and outstanding
Lawrence Shares as of the Closing Date (other than Dissenting Shares), in each
case duly endorsed in blank, shall have been surrendered for cancellation.
(e) The S-4 registering the issuance and delivery of the shares of Buyer
Common Stock shall have been declared effective in accordance with the
provisions of the Securities Act, and no stop order suspending the
effectiveness of the S-4 shall have been issued by the SEC. All other filings
necessary under federal and state securities laws to permit the issuance and
delivery of the shares of Buyer Common Stock in compliance therewith shall
have been made, and any authorizations in connection therewith from all
applicable securities regulatory authorities shall have been obtained.
(f) There shall not have been a material adverse change in the general
affairs, business, business prospects, properties, management, condition
(financial or otherwise) or results of operations of Lawrence, whether or not
arising from transactions in the ordinary course of business, and Lawrence
shall not have sustained any material loss or interference with its business
or properties from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree.
(g) The Mesa real estate (both the developed and undeveloped parcels) shall
have been reconveyed to Lawrence from LSI, subject to the liens and
encumbrances existing on the date hereof, for an aggregate consideration no
greater than net book value.
(h) Buyer shall have received satisfactory Phase I and, if, applicable,
Phase II environmental site assessments of the Lawrence Facilities, and all
permits necessary for the operation of those facilities shall have been
appropriately transferred, if required by applicable law.
(i) That certain litigation currently pending in the United States District
Court, Northern District of California, San Jose Division, captioned Applied
Materials, Inc. v. Lawrence Semiconductor, Inc. (C-96 20591 EAI) shall have
been dismissed with prejudice.
8.4 Additional Conditions to Obligations of Lawrence. The obligation of
Lawrence to effect the Merger shall be further subject to the following
conditions:
(a) There shall not have been a material adverse change in the general
affairs, business, business prospects, properties, management, condition
(financial or otherwise) or results of operations of Buyer, whether or not
arising from transactions in the ordinary course of business, and Buyer shall
not have sustained any material loss or interference with its business or
properties from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree.
(b) Price Waterhouse, LLP, independent accountants to Lawrence, shall have
rendered its opinion(s) addressed to Lawrence and Lamonte H. Lawrence, and
dated the Closing Date, in form and substance satisfactory to Lawrence as to
the appropriateness of pooling interest accounting for the Merger under
Accounting Principles Board Opinion No. 16.
ARTICLE IX
Termination, Amendment and Waiver
9.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby abandoned at any time prior to the Effective Time:
(a) By mutual written consent of Buyer and Lawrence.
E-27
<PAGE>
(b) By Buyer or Lawrence if the Merger shall not have been consummated
within one hundred twenty (120) days of the date hereof, unless the failure of
the Effective Time to occur by such date shall be due to the failure of the
party seeking to terminate this Agreement to perform or observe the covenants
and agreements of such party set forth herein.
(c) By Buyer or Lawrence if there shall have been any material
misrepresentation or material breach of a material obligation of the other
and, if such breach is curable, such default shall have not been remedied
within thirty (30) days after receipt by the defaulting party of notice in
writing from the other party specifying such breach and requesting that it be
remedied; provided, that such thirty-day period shall be extended for so long
as the other party shall be making diligent attempts to cure such default, but
not beyond an additional thirty (30) days.
(d) By Buyer or Lawrence, if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting any Merger and such order, decree, ruling or any other
action shall have become final and non-appealable.
9.2 Termination; Termination Payment. In the event of termination of this
Agreement, this Agreement shall forthwith become void and there shall be no
liability on the part of any of the parties hereto or their respective
affiliates, directors, officers, or stockholders, except as provided below and
except for those obligations intended to survive termination. In the event
that either the Buyer or Lawrence shall terminate this Agreement because of a
material misrepresentation or a material breach of a material covenant by the
other party (subject to the 30-day notice and cure period provided in Section
9.1(c)), the breaching party shall be liable to and shall pay to the
terminating party by wire transfer the sum of $5,000,000 in full satisfaction
of all claims within fifteen (15) business days after the breaching party's
receipt of written notice of termination. It is agreed that the payments due
hereunder are the exclusive remedy for termination of this Agreement.
Notwithstanding the foregoing, in the event of a breach by Lawrence of Section
7.10, the Buyer may pursue any and all remedies available to it at law or in
equity. Recovery by the Buyer of a termination payment under this Section 9.2
shall not bar any such action for breach of Section 7.10, but the amount of
any monetary damages awarded to the Buyer in such action shall be reduced by
the termination payment actually received by the Buyer.
9.3 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4 Waiver. At any time prior to the Effective Time, the parties hereto may
(a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Such waiver shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE X
Survival of Representations and Warranties: Indemnification
10.1 Survival: Indemnification.
(a) No representations, warranties or agreements contained herein shall
survive beyond the Effective Time except that (i) the representations,
warranties and agreements contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.7,
5.13, 5.15, 7.3, 7.4, 7.5, 7.6, 9.2, 9.3, 9.4, 11.1, 11.2, 11.5, 11.6, 11.7,
11.8, 11.9 and 11.10 and Article X hereof shall survive beyond the Effective
Time for the period of the applicable statute of limitations and (ii) the
other representations and warranties of Buyer and Lawrence in this Agreement
shall survive beyond the Effective Time
E-28
<PAGE>
for one (1) year (the end of such one-year period, the "Termination Date")
solely for the purpose of the Indemnification Escrow as described below.
(b) Through the Indemnification Escrow described below, the Surviving
Corporation, Buyer, Buyer Sub, Holdings and each of their officers, directors,
employees, agents, representatives and affiliates (collectively, the
"Indemnitees" and, individually, each an "Indemnitee") (subject to the terms
and conditions below) will be entitled to be indemnified and held harmless by
the Shareholders against and in respect of any claims, damages, losses, costs,
expenses, liabilities (absolute, accrued, contingent or otherwise), and
reasonable legal fees and expenses (collectively, "Losses") incurred or
suffered by any Indemnitee, directly or indirectly, caused by or arising out
of or related to any untruth, inaccuracy, error in, or breach of, any
representation or warranty (when made or deemed to be made) or covenant of
Lawrence contained in this Agreement. The rights of Indemnitees to
indemnification under this Subsection 10.1(b) shall be limited to, and
satisfied solely out of and to the extent of, the Indemnification Escrow as it
may be reduced or increased pursuant to Subsections 3.2(d), 3.4(e), 3.5 this
Section 10.1 and the Escrow Agreement, and any Loss shall be reduced by any
amounts actually received by the Indemnitee under applicable insurance
policies, if any. All indemnification requests of Indemnitees hereunder shall
be made by or through Buyer.
(c) By voting to approve this Agreement or by surrendering his or its
Certificate(s) evidencing Lawrence Shares at Closing, each Shareholder, other
than Shareholders who have perfected dissenter rights under the ABCA,
acknowledges and agrees that (i) the consideration to which such Shareholder
is entitled hereunder is subject to adjustment as contemplated in Articles III
and X, (ii) the Indemnification Escrow Shares and the Escrow Adjustment shall
be placed in the Indemnification Escrow provided for in an Escrow Agreement to
be entered into, as of the Effective Time, in the form of Exhibit "D" attached
hereto and (iii) the Escrow Agent shall be, and is hereby, authorized from
time to time to transfer all or any portion of the amounts so deposited in
satisfaction of the indemnity obligation and as otherwise provided pursuant to
Articles III and X and as contemplated in the Escrow Agreement. Except as
provided in Section 10.5, the Indemnitees agree to look solely to the
Indemnification Escrow for recourse in the event of a breach of any
representation or warranty or covenant of Lawrence contained in this Agreement
and will not look directly to any Shareholder or Shareholders for any
indemnification hereunder.
(d) If any Indemnitee shall have any liquidated claim of indemnification
pursuant to Subsection 10.1(b), it shall promptly request that Buyer give
written notice thereof to the Representative and the Escrow Agent, including a
brief description of the facts upon which such claim is based and the amount
thereof. Any Indemnitee may also request that Buyer provide written notice to
the Representative and the Escrow Agent of any unliquidated claim of
indemnification pursuant to Subsection 10.1(b), including a brief description
of the facts upon which such claim is based and a demand for a reserve amount
to be created in respect of such claim. Any claim made by any Indemnitee for
Losses that are unliquidated shall not be paid, but shares of Buyer Common
Stock valued at the Average Closing Price equal to such claim shall be held in
the Indemnification Escrow until such Losses are fully liquidated.
Notwithstanding the foregoing, no amount will be delivered to an Indemnitee
pursuant to a written claim notice (with respect to either a liquidated or
unliquidated claim) pursuant to Subsection 10.1(b) above and Section 10.5
below unless, and then only to the extent that, the aggregate amount of Losses
sustained by Indemnitees as a group and as to which written claim notices have
been given exceeds Two Hundred Fifty Thousand Dollars ($250,000) (taking into
account any reduction of prior noticed claims resulting from the dispute
resolution procedures of Section 10.2 below).
(e) If the Representative shall notify the Escrow Agent in writing (within
thirty (30) days of delivery to the Escrow Agent by Buyer of a written notice
of claim for indemnification) of his objection to a claim of indemnification
or a demand for the creation of a reserve against the Indemnification Escrow
for any unliquidated claim (or the amount thereof), the Escrow Agent shall
hold the disputed amount of funds in the Indemnification Escrow until the
rights of the Shareholders and the Indemnitees with respect thereto have been
agreed upon between the Representative and the claiming Indemnitee. In the
event such an agreement is reached, the claiming Indemnitee shall request
Buyer to provide to the Escrow Agent a written notice signed by the
Representative in the form specified in the Escrow Agreement. If no such
agreement has been reached, either the Indemnitee or
E-29
<PAGE>
the Representative may, not earlier than thirty (30) days after the date of
the initial claim notice, submit the dispute to confidential, binding
arbitration in New York, New York before a panel of three arbitrators, one
each to be selected by Buyer and the Representative, and the third to be
selected by the other two arbitrators, pursuant to the procedures and rules
for commercial arbitration of the American Arbitration Association. The Escrow
Agent may rely on the order or other determination of such arbitrators. If
such arbitrators shall determine that any part of the Indemnification Escrow
is to be delivered to an Indemnitee or is to be set aside in a reserve for any
unliquidated claim, the Escrow Agent shall promptly following receipt of a
copy of such determination establish such reserve or deliver to such
Indemnitee the lesser of (i) the amount of the claim or claims as awarded to
the Indemnitee to be satisfied, subject to the limitation set forth in
Subsection 10.1(d) or (ii) the entire amount remaining in the Indemnification
Escrow. Any disputed amounts not awarded to the Indemnitee shall promptly be
transferred to the unreserved portion of the Indemnification Escrow. Buyer and
the Representative shall bear their respective costs and expenses of any such
arbitration. Buyer expressly acknowledges that Polese, Pietzsch, Williams &
Nolan, P.A. can continue to represent Representative in any such dispute and
hereby waives any conflict of interest which might otherwise exist.
(f) Promptly after the Termination Date, the Escrow Agent shall distribute
to the Shareholders on a pro rata basis all remaining unreserved amounts in
the Indemnification Escrow, less an amount equal to the dollar amount of all
claims pursuant to Subsection 10.1(c) that are still in process and (i) that
are then-payable liquidated claims, (ii) for which a reserve established
pursuant to Subsection 10.1(d) then exists, or (iii) that are still in the
process of resolution pursuant to this Section 10.1. No new claims may be
brought under this Section 10.1 after the Termination Date.
(g) After the Termination Date, (i) as each matter referred to in Subsection
10.1(f) is resolved or otherwise concluded and (ii) as each undisputed
unliquidated claim which remains unliquidated as of the Termination Date is
liquidated, the Escrow Agent shall distribute to the Shareholders their
respective pro rata portion of the Escrow Fund (as defined in Exhibit D) then
determined by the Escrow Agent to be free of any rights of any Indemnitee and,
when all such matters are resolved and such claims are liquidated, the
obligations under Subsection 10.1(b) hereof shall terminate. The
Indemnification Escrow shall be terminated when all of the Escrow Fund in the
Indemnification Escrow shall have been disbursed by the Escrow Agent in
accordance with the provisions hereof and the Escrow Agreement.
(h) In taking any action whatsoever hereunder, the Representative shall be
protected in relying upon any notice, paper or other document reasonably
believed by him to be genuine, or upon any evidence reasonably deemed by him
to be sufficient. The Representative may consult with counsel in connection
with his duties hereunder and shall be fully protected in any act taken,
suffered or permitted by him in good faith or in accordance with the advice of
counsel. The Representative shall not be liable to the Shareholders for the
performance of any act or the failure to act so long as he acted or failed to
act in good faith within what he reasonably believed to be the scope of his
authority and for a purpose which he reasonably believed to be in the best
interests of the Shareholders.
10.2 Procedure. In the event that, at any time or from time to time after
the Effective Time, a person indemnified under Section 10.1 or 10.3 (an
"Indemnified Party") shall sustain a loss of any nature whatsoever against
which such Indemnified Party is indemnified under this Agreement, such
Indemnified Party shall notify the party hereto obligated to provide such
indemnification (the "Indemnitor") of any such loss so sustained. If
Indemnitor is Buyer, Indemnitor shall within thirty (30) days after
transmittal of such notice pay to such Indemnified Party the amount of such
loss so sustained, subject to the right to contest any claim. If Indemnitor is
the Shareholders, payment shall be governed by the Escrow Agreement. The
Indemnified Party shall promptly notify the Indemnitor of the existence of any
claim, demand, or other matter involving liabilities to third parties to which
the Indemnitor's indemnification obligations would apply and shall give the
Indemnitor (acting through the Representative if Indemnitor is the Escrow
Agent) a reasonable opportunity to defend the same or prosecute such action to
conclusion or settlement satisfactory to the Indemnified Party at Indemnitor's
own expense and with counsel of Indemnitor's selection (who shall be approved
by Indemnified Party, which approval shall not be unreasonably withheld);
provided that the Indemnified Party shall at all times also have the right to
fully
E-30
<PAGE>
participate in the defense at its own expense. If the Indemnitor shall, within
a reasonable time after said notice, fail to defend, the Indemnified Party
shall have the right, but not the obligation, to undertake the defense of, and
to compromise or settle (exercising reasonable business judgment) the claim or
other matter on behalf, for the account, and at the risk and expense of
Indemnitor. Except as provided in the preceding sentence, the Indemnified
Party shall not compromise or settle the claim or other matter without the
prior written consent of the Indemnitor. If the claim is one that cannot by
its nature be defended solely by the Indemnitor, the Indemnified Party shall
make available all information and assistance that the Indemnitor may
reasonably request; provided that any associated expenses shall be paid by the
Indemnitor. If the Losses relate to a Loss or demand asserted by a third
party, the Indemnified Party and Indemnitor shall jointly control the defense
and settlement thereof and any settlement shall require the prior written
consent of both parties, which consent shall not be unreasonably withheld.
10.3 Buyer's Indemnification. Buyer agrees to indemnify and hold
Shareholders harmless from and against any and all Losses which may accrue or
be sustained by Shareholders arising out of or as a result of (a) the conduct
of the business or ownership of Lawrence or the Surviving Corporation after
the Effective Time, or (b) any of the warranties, representations or covenants
of Buyer contained in this Agreement being incorrect, untrue or breached. The
term "Losses" for purposes of this Section 10.3 shall not include any loss
resulting from a diminution in the value of Buyer Common Stock received in the
Merger. Buyer also agrees to indemnify and hold Lamonte H. Lawrence, LSI and
LSRL harmless from and against any and all losses which may accrue or be
sustained by Lamonte H. Lawrence, LSI and/or LSRL arising out of or as a
result of the parties' inability to obtain the Releases of all of the
Guarantees and a breach by Lawrence of the guaranteed obligation.
Notwithstanding the foregoing, no amount will be paid pursuant to a written
claim notice for indemnification pursuant to this Section 10.3 (with respect
to either a liquidated or unliquidated claim) unless, and then only to the
extent that, the aggregate amount of Losses sustained by Shareholders, Lamonte
H. Lawrence, LSI, or LSRL as a group and as to which written claim notices
have been given by any of Shareholders, Lamonte H. Lawrence, LSI and/or LSRL
to Buyer exceeds Two Hundred Fifty Thousand Dollars ($250,000).
10.4 Contest; Challenge. If Indemnitor contests or challenges any claim or
action asserted against Indemnified Party referred to in this Article, it
shall do so at its own cost and expense, holding Indemnified Party harmless
from all costs, fees, expenses, debts, liabilities and charges in connection
with such contest; shall diligently defend against any such claim; and shall
hold Indemnified Party's business and assets free and harmless from any
attachment, execution, judgment, lien or other legal process.
10.5 Special Indemnity.
(a) By voting to approve this Agreement or by surrendering his or its
Certificate(s) evidencing Lawrence Shares at Closing, each Shareholder, other
than Shareholders who have perfected dissenter rights under applicable law,
severally and not jointly, agrees to defend and indemnify the Indemnitees
against and hold each of them harmless from each Shareholder's Pro Rata
Portion (defined below) of any and all Losses which any such Indemnitee may
suffer or incur by reason of the inaccuracy or breach of any of the
representations, warranties and covenants of Lawrence contained in Section
5.13 or Section 5.15 of this Agreement or any documents, certificates or
agreements delivered pursuant hereto. The right of Indemnitees to
indemnification under this Section 10.5 shall apply only to those claims for
indemnification, notice of which is given pursuant to this Agreement to the
Shareholders on or before the running of the applicable statute of
limitations; provided that such limitations shall not apply to any claim
resulting from fraud or intentional misrepresentation. As used herein, "Pro
Rata Portion" shall mean with respect to each Shareholder his or its
percentage ownership of Lawrence after the merger of Lawrence and LSLMS and
immediately prior to the Effective Time.
(b) Each Shareholder, other than Shareholders who have perfected dissenter
rights under applicable law, acknowledges and agrees that its obligations
under this Section 10.5 are recourse obligations enforceable against it
personally. Each Shareholder waives any right to require Indemnitees to (i)
proceed against any person or entity including any other Shareholder, (ii)
proceed against or exhaust any collateral or security or any part thereof, or
(iii) pursue any other remedy in its power, and waives any defense arising by
reason of any inability
E-31
<PAGE>
of any other obligor to pay or any defense based on bankruptcy or insolvency
or other similar limitations on creditors' remedies with respect to any other
person. Indemnitees agree to use their reasonable efforts to collect any
Losses from any available insurer or third party indemnitors before collecting
from the Shareholders or the Escrow Fund, and to use their reasonable efforts
to collect from the Escrow Fund before collecting from the Shareholders;
however, nothing in the foregoing clauses shall preclude any claiming party
from filing a claim against either the Shareholders or the Escrow Fund from
the outset. If any amounts are recovered from an insurer or third party after
payment to an Indemnitee of all Losses suffered or incurred by it, such
Indemnitee shall promptly pay over to the indemnifying party the excess amount
so recovered. Any claims against the Escrow Fund shall be subject to the
procedures set forth in Section 10.2.
(c) Notwithstanding anything to the contrary in this Article X, including
without limitation any provision of Section 10.2, the Representative shall
have sole and complete power and authority (i) to settle any matter which is
the subject of a claim for indemnification pursuant to this Section 10.5 which
can be settled solely with the payment of money (ii) to conduct and settle any
litigation which is the subject of a claim for indemnification pursuant to
this Section 10.5 which can be settled solely with the payment of money, and
(iii) to control and direct, subject to Buyer's approval, which shall not be
unreasonably withheld or delayed, any and all remediation or other clean-up or
mitigation of any environmental condition which is the subject of a claim for
indemnification pursuant to this Section 10.5.
10.6 Waiver. Each Shareholder irrevocably, knowingly and voluntarily waives
any claim which such Shareholder now has or may hereafter have against
Indemnitees, the Escrow Fund, and any collateral or security whatsoever now or
hereafter held by Indemnitees, arising out of or resulting from payment or
demand for payment of Losses, whether such claim is characterized as a claim
for contribution, indemnification, subrogation or otherwise; provided that the
foregoing shall not limit the Shareholders' ability to challenge the propriety
of any claim for Losses made by Indemnitee(s).
10.7 Average Closing Price. To the extent that the Indemnitees make a claim
against the Escrow Fund pursuant to the Escrow Agreement, and such claim is
paid in shares of Buyer Common Stock, then for purposes of such payment, the
shares of Buyer Common Stock shall be valued at the Average Closing Price.
10.8 Reduction of Losses. The amount of any Losses for which indemnification
is provided under this Article X shall be reduced to take account of any net
tax benefit realized arising from the incurrence or payment of any such Losses
or from the receipt of any such indemnification payment and shall be reduced
by the insurance proceeds received and any other amount, if any, recovered
from third parties by an Indemnitee (or any of their affiliated entities) with
respect to any Losses. The Indemnified Party shall be obligated to use
commercially reasonable efforts to prosecute diligently and in good faith
claims under any applicable insurance policies (including, without limitation,
any applicable insurance policies maintained by either of the Companies or the
Surviving Corporation) and against other third parties who may be responsible
for Losses prior to collecting indemnification for such Losses under this
Article X. If any Indemnitee (or any of their affiliated entities) shall have
received any payment pursuant to this Article X with respect to any Loss and
shall subsequently have received insurance proceeds or other amounts with
respect to such Loss, then such Indemnitee (or its affiliated entities) shall
promptly pay over to the Representative (for distribution pro rata to the
Shareholders) the amount so recovered but not in excess of the amount
previously so paid by the Shareholders.
10.9 Remedies. The sole and exclusive remedy of any party to this Agreement
for any claim arising under this Agreement against any other party hereto
shall be the indemnification provided in this Article X, and each party agrees
that it will not pursue any other remedy, except that either party may seek
specific performance or injunctive relief.
E-32
<PAGE>
ARTICLE XI
General Provisions
11.1 Brokers. Lawrence represents and warrants to Buyer and Buyer Sub that,
except for Lawrence's financial advisor, Alex. Brown & Sons Incorporated, no
broker, finder or financial advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Lawrence. Buyer represents and warrants to Lawrence that no broker, finder or
financial advisor is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Buyer.
11.2 Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally or by facsimile or mailed by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Lawrence, to:
Lawrence Semiconductor Laboratories, Inc.
2300 West Huntington Drive
Tempe, Arizona 85282
Attention: Lamonte H. Lawrence, President
Facsimile Number: (602) 464-7421
with a copy to:
Polese, Pietzsch, Williams & Nolan, P.A.
2702 North Third Street, Suite 3000
Phoenix, Arizona 85004-4607
Attention: Michael E. Pietzsch, Esq.
Michael J. Tucker, Esq.
Facsimile Number: (602) 279-5107
(b) If to Buyer, or Buyer Sub or Holdings, to:
Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, CT 06810
Attention: Daniel P. Sharkey, VP
Facsimile Number: (203) 792-8040
with a copy to:
Shipman & Goodwin LLP
One American Row
Hartford, CT 06103
Attention: Frank J. Marco, Esq.
Facsimile Number: (860) 251-5900
and
(c) If to the Representative, to:
Lamonte H. Lawrence
100 Sir Francis Drake Blvd.
Ross, California 94957
Facsimile Number: (415) 456-0949
E-33
<PAGE>
with a copy to:
Polese, Pietzsch, Williams & Nolan, P.A.
2702 North Third Street, Suite 3000
Phoenix, Arizona 85004-4607
Attention: Michael E. Pietzsch, Esq.
Facsimile Number: (602) 279-5107
All such notices shall be deemed received on the date of delivery (if
delivered personally or by facsimile) or on the date shown on the return
receipt (if delivered by mail).
11.3 Descriptive Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.4 Entire Agreement; Assignment. This Agreement (including the Schedules,
Exhibits and other documents and instruments referred to herein) constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them, with
respect to the subject matter hereof, and shall not be assigned by operation
of law or otherwise.
11.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
provisions thereof relating to conflicts of law.
11.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
11.7 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
11.8 Investigation. The respective representations and warranties of Buyer
or Lawrence contained herein or in the certificates or other documents
delivered prior to the Effective Time shall not be deemed waived or otherwise
affected by any investigation made by the other.
11.9 Consents. For purposes of any provision of this Agreement requiring,
permitting or providing for the consent of any party, the written consent of
the Chief Executive Officer of such party shall be sufficient to constitute
such consent.
11.10 Jurisdiction. Each party hereby irrevocably: (1) agrees that any suit,
action, or other legal proceeding arising out of this Agreement or out of any
of the transactions contemplated hereby or thereby, may be brought in any New
York court or United States federal court located in the County of New York;
(2) consents to the jurisdiction of each such court in any such suit, action,
or legal proceeding; (3) waives any objection which such party may have to the
laying of venue of any such suit, action, or legal proceeding in any of such
courts; and (4) agrees that New York is the most convenient forum for
litigation of any such suit, action, or legal proceeding.
E-34
<PAGE>
IN WITNESS WHEREOF, each of Buyer, Buyer Sub and Lawrence has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
Advanced Technology Materials, Inc.,
a Delaware corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: Vice President, Chief
Financial Officer
Welk Acquisition Corporation, a
Delaware corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: President
ATMI Holdings, Inc., a Delaware
corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: Treasurer
Lawrence Semiconductor Laboratories,
Inc., an Arizona corporation
By: /s/ Lamonte H. Lawrence
---------------------------------
Name: Lamonte H. Lawrence
Title: Chief Executive Officer
Lawrence Semiconductor Laboratories
Marketing and Sales, Inc., an
Arizona corporation
By: /s/ Lamonte H. Lawrence
---------------------------------
Name: Lamonte H. Lawrence
Title: Chief Executive Officer
E-35
<PAGE>
EXHIBITS
<TABLE>
<S> <C> <C>
3.6(a)(xiii)-A Affiliate Agreement Section 3.6(a)(xiii)-A
3.6(a)(xiii)-B Employment Agreement Section 3.6(a)(xiii)-B
3.6(a)(x) Release Section 3.6(a)(x)
3.6(e) Registration Rights Agreement Section 3.6(e)
A-1 Designated Employees Section 6.2
A-2 Staying Bonus and Severance Agreement Section 6.2
B Noncompete Agreement--Lamonte H. Lawrence Section 7.8
C Consulting Agreement--Lamonte H. Lawrence Section 7.9
8.3(d) Proprietary Information and Inventions Agreement Section 8.3(d)
D Escrow Agreement Subsection 10.1(c)
</TABLE>
E-36
<PAGE>
SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
NUMBER CONTENTS
-------- --------
<C> <S>
4.1(c) Persons whose knowledge constitute the "Knowledge" of Lawrence
4.2(c) Filings, permits, authorizations, consents and approvals required for
Buyer and/or Buyer Sub to consummate transaction
4.2(h) Material liabilities of Buyer
5.1 Trade names and assumed names
5.2 Authorized capital stock, number and class of issued and outstanding
stock, identity of owners of capital stock, and identity of anyone
with a right to acquire any capital stock; pro forma following merger
5.4 Filings, permits, authorizations, consents and approvals required for
Lawrence to consummate transaction
5.5 Material errors in Lawrence financial statements
5.6 Material adverse changes and other specified information occurring
since date of unaudited financial statement
5.7 Litigation; expected litigation
5.8(a) Contracts and other instruments
5.8(b) Consulting agreements and other contracts with certain provisions
5.9(a) Employee benefits programs
5.10(a) Known non-compliance of products with laws, statutes, etc.
5.10(b) Notices received from regulatory agencies regarding possible
violations, or facts that might lead to such
5.10(c) Facts that might lead to recall of products, termination of marketing
of products, etc.
5.10(d) Recalls of products
5.11(a) Patents, applications for patents, registration of trademarks, other
intellectual property
5.11(c) Nondisclosure agreements to which Lawrence is a party or bound
5.11(d) Royalties, fees or other payments owed by reason of any intellectual
property
5.11(e) Notices of infringement
5.12(b) Property agreements (leases, etc.)
5.13(b) Environmental notices received, existence of USTs, asbestos, etc.
5.13(c) Environmental incidents
5.14 Notices of violations of city codes, condemnation actions, etc.
5.15(a) Tax information
5.15(b) Subsidiaries
5.16 Product liability insurance claims
5.17 Other material liabilities
5.20 Mortgages, liens, etc.
5.21 Debts
5.22 Accounts Receivable
5.25 Employee Names
5.26 Related Parties; Transactions
5.27 Hart-Scott-Rodino
5.28 Customers
5.30 Insurance; Unemployment insurance ratings
7.6 Guarantees
8.3(d) Proprietary Information and Inventions Agreements
</TABLE>
E-37
<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER is dated as of June 6,
1997, by and among ADVANCED TECHNOLOGY MATERIALS, INC., a Delaware corporation
("Buyer"), WELK ACQUISITION CORPORATION, a Delaware corporation and a wholly-
owned subsidiary of Buyer ("Buyer Sub"), ATMI HOLDINGS, INC., a Delaware
corporation and wholly-owned subsidiary of Buyer ("Holdings") LAWRENCE
SEMICONDUCTOR LABORATORIES, INC., an Arizona corporation ("LSL"), and LAWRENCE
SEMICONDUCTOR LABORATORIES MARKETING AND SALES, INC., an Arizona corporation
("LSLMS"; LSL and LSLMS are referred to collectively as "Lawrence"); and all
of the parties are referred to collectively as the "Companies." Buyer Sub and
Lawrence are referred to collectively as the "Constituent Corporations" and
individually as a "Constituent Corporation."
The Companies are parties to that certain Agreement and Plan of Merger dated
May 17, 1997 (the "Merger Agreement"), and wish to amend the Merger Agreement
in order to permit the following: (i) the possible transfer by Buyer of the
issued and outstanding shares of capital stock of Buyer Sub to Holdings, (ii)
the transfer by Lamonte H. Lawrence of the issued and outstanding shares of
capital stock of LSLMS to LSL, and (iii) the adoption by Holdings or Buyer, as
appropriate, of a stock option plan for 900,000 shares of common stock. The
Companies also wish to amend the Merger Agreement in order to eliminate any
offset of the intercompany indebtedness against the purchase price.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, the parties agree as
follows:
1. Capitalized terms not otherwise defined herein shall have the meanings
provided in the Merger Agreement.
2. Section 1.1 is hereby amended to insert the following at the end of the
final sentence: "unless Buyer elects in its discretion to contribute prior to
the Effective Time all of the issued and outstanding shares of capital stock
of Buyer Sub to Holdings, in which case the Surviving Corporation shall be a
wholly-owned subsidiary of Holdings."
3. Section 3.1(b) is hereby amended and restated to read in its entirety as
follows: "Each share of common stock of LSL ("Lawrence Share") held in the
treasury of LSL, if any, or by any subsidiary of Lawrence and each such
Lawrence Share held by Buyer or any subsidiary of Buyer immediately prior to
the Effective Time shall be canceled and retired and cease to exist, and no
consideration shall be given in exchange therefor."
4. Section 3.4 is hereby amended to delete the following from the first
paragraph: "minus any amounts owed to LSL by any related parties as set forth
in Schedule 5.26."
5. Section 3.6(a)(xiv) is hereby amended and restated to read in its
entirety as follows: "Written evidence satisfactory to Buyer that Lamonte H.
Lawrence, the sole stockholder of LSLMS, has contributed immediately prior to
the Effective Time all of the issued and outstanding shares of capital stock
of LSLMS to LSL, with LSLMS becoming a wholly-owned subsidiary of LSL and that
all consents and approvals necessary or appropriate for such contribution have
been obtained."
6. Section 3.6(a)(xvii) is hereby amended to delete the final sentence.
7. Section 4.2(k) is hereby amended to insert the following as a new final
sentence: "Notwithstanding the foregoing, Buyer may elect in its discretion to
contribute prior to the Effective Time all of the issued and outstanding
shares of capital stock of Buyer Sub to Holdings, in which case the Surviving
Corporation shall become a wholly-owned subsidiary of Holdings."
8. Section 5.2 is hereby amended to delete the second sentence.
9. Section 6.1(f) is hereby amended to insert the following as subsection
(iv): "(iv) Lamonte H. Lawrence, the sole stockholder of LSLMS, may contribute
all of the issued and outstanding shares of capital stock of LSLMS to LSL,
with LSLMS becoming a wholly-owned subsidiary of LSL."
E-38
<PAGE>
10. Section 7.15(f) is hereby amended to insert the following as subsections
(iii) and (iv): "(iii) Buyer may in its discretion contribute prior to the
Effective Time all of the issued and outstanding shares of capital stock of
Buyer Sub to Holdings, in which case the Surviving Corporation shall be a
wholly-owned subsidiary of Holdings; and (iv) (A) Buyer may approve a new
stock option plan for up to 900,000 shares of Buyer Common Stock, if the
closing of the transactions contemplated by the ADCS Merger Agreement shall
not have occurred on or before the Effective Time, or (B) Holdings may
increase the authorized number of shares of Holdings Common Stock available in
its existing stock option plan from 750,000 to 900,000, if the closing of the
transactions contemplated by the ADCS Merger Agreement shall have occurred on
or before the Effective Time."
11. The final sentence of Section 10.5(a) is hereby amended and restated to
read in its entirety as follows: "As used herein, "Pro Rata Portion" shall
mean with respect to each Shareholder his or its percentage ownership of LSL
immediately prior to the Effective Time."
12. Except as modified herein, the Agreement as originally executed and
previously amended is hereby ratified and affirmed and acknowledged to be the
legal, valid and binding obligations of each of the parties hereto.
13. This Amendment shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the provisions thereof
relating to conflicts of law.
14. This Amendment may be executed in two or more counterparts, each of
which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
IN WITNESS WHEREOF, each of Buyer, Buyer Sub, Holdings and Lawrence has
caused this Amendment to be executed on its behalf by its officers thereunto
duly authorized, all as of the date first above written.
Advanced Technology Materials, Inc.,
a Delaware corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: Vice President, Chief
Financial Officer
Welk Acquisition Corporation, a
Delaware corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: President
E-39
<PAGE>
ATMI Holdings, Inc., a Delaware
corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: Treasurer
Lawrence Semiconductor Laboratories,
Inc., an Arizona corporation
By: /s/ Lamonte H. Lawrence
---------------------------------
Name: Lamonte H. Lawrence
Title: Chief Executive Officer
Lawrence Semiconductor Laboratories
Marketing and Sales, Inc., an
Arizona corporation
By: /s/ Lamonte H. Lawrence
---------------------------------
Name: Lamonte H. Lawrence
Title: Chief Executive Officer
E-40
<PAGE>
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER is dated as of July
30, 1997, by and among ADVANCED TECHNOLOGY MATERIALS, INC., a Delaware
corporation ("Buyer"), WELK ACQUISITION CORPORATION, a Delaware corporation
and a wholly-owned subsidiary of Buyer ("Buyer Sub"), ATMI HOLDINGS, INC., a
Delaware corporation and wholly-owned subsidiary of Buyer ("Holdings")
LAWRENCE SEMICONDUCTOR LABORATORIES, INC., an Arizona corporation ("LSL"), and
LAWRENCE SEMICONDUCTOR LABORATORIES MARKETING AND SALES, INC., an Arizona
corporation ("LSLMS"; LSL and LSLMS are referred to collectively as
"Lawrence"); and all of the parties are referred to collectively as the
"Companies." Buyer Sub and Lawrence are referred to collectively as the
"Constituent Corporations" and individually as a "Constituent Corporation."
The Companies are parties to that certain Agreement and Plan of Merger dated
May 17, 1997, as amended by First Amendment to Agreement and Plan of Merger
dated June 6, 1997 (as amended, the "Merger Agreement"), and wish to amend
further the Merger Agreement in order to limit the time period in which
certain claims for indemnification may be made.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, the parties agree as
follows:
1. Capitalized terms not otherwise defined herein shall have the meanings
provided in the Merger Agreement.
2. Section 10.1(f) is hereby amended to insert the following as a new final
sentence: "Notwithstanding the foregoing or anything in this Agreement to the
contrary, no claim seeking indemnification from the Shareholders or the
Indemnification Escrow may be brought after the date of issuance of the first
independent audit report with respect to the financial statements of Buyer (or
Holdings, if the closing of the transactions contemplated by the ADCS Merger
Agreement shall occur on or before the Effective Time) after the Effective
Time if such claim is of a type expected to be encountered in the course of an
audit performed in accordance with generally accepted auditing standards."
3. Section 10.3 is hereby amended to insert the following as a new final
sentence: "Notwithstanding the foregoing or anything in this Agreement to the
contrary, no claim seeking indemnification from Buyer may be brought after the
date of issuance of the first independent audit report with respect to the
financial statements of Buyer (or Holdings, if the closing of the transactions
contemplated by the ADCS Merger Agreement shall occur on or before the
Effective Time) after the Effective Time if such claim is of a type expected
to be encountered in the course of an audit performed in accordance with
generally accepted auditing standards."
4. Section 5(d) of the form of Escrow Agreement attached to the Merger
Agreement as Exhibit D is hereby amended to insert the following as a new
final sentence: "Notwithstanding the foregoing or anything in this Agreement
to the contrary, no claim seeking indemnification from the Shareholders or the
Indemnification Escrow may be brought after the date of issuance of the first
independent audit report with respect to the financial statements of Buyer (or
Holdings, if the closing of the transactions contemplated by the ADCS Merger
Agreement shall occur on or before the Effective Time) after the Effective
Time if such claim is of a type expected to be encountered in the course of an
audit performed in accordance with generally accepted auditing standards."
5. Except as modified herein, the Agreement as originally executed and
previously amended is hereby ratified and affirmed and acknowledged to be the
legal, valid and binding obligations of each of the parties hereto.
6. This Amendment shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the provisions thereof
relating to conflicts of law.
7. This Amendment may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and
the same agreement.
E-41
<PAGE>
IN WITNESS WHEREOF, each of Buyer, Buyer Sub, Holdings and Lawrence has
caused this Amendment to be executed on its behalf by its officers thereunto
duly authorized, all as of the date first above written.
Advanced Technology Materials, Inc.,
a Delaware corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: Vice President, Chief
Financial Officer
Welk Acquisition Corporation, a
Delaware corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: President
ATMI Holdings, Inc., a Delaware
corporation
By: /s/ Daniel P. Sharkey
---------------------------------
Name: Daniel P. Sharkey
Title: Treasurer
Lawrence Semiconductor Laboratories,
Inc., an Arizona corporation
By: /s/ Lamonte H. Lawrence
---------------------------------
Name: Lamonte H. Lawrence
Title: Chief Executive Officer
Lawrence Semiconductor Laboratories
Marketing and Sales, Inc., an
Arizona corporation
By: /s/ Lamonte H. Lawrence
---------------------------------
Name: Lamonte H. Lawrence
Title: Chief Executive Officer
E-42
<PAGE>
APPENDIX F
OPINION OF HAMBRECHT & QUIST LLC
May 16, 1997
CONFIDENTIAL
The Board of Directors
Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, Connecticut 06810
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Advanced Technology Materials, Inc. ("ATMI") of the consideration to
be paid by ATMI in connection with the proposed acquisition by ATMI of
Lawrence Semiconductor Laboratories, Inc. and Lawrence Semiconductor
Laboratories Marketing and Sales, Inc. (collectively, "Lawrence") (the
"Proposed Transaction") under the terms of the Agreement and Plan of Merger to
be dated as of May 17, 1997 among ATMI, ATMI Holdings, Inc. ("Holdings"), a
newly-formed corporation that is currently a wholly-owned subsidiary of ATMI,
an additional wholly-owned acquisition subsidiary of ATMI, and Lawrence,
including the related Exhibits and Schedules thereto, a draft of which has
been provided to us by management of ATMI (the "Agreement"). Pursuant to the
Proposed Transaction, as provided in the Agreement and as further described to
us by management of ATMI, the holders of common stock of Lawrence, upon
consummation of the Proposed Transaction, will receive common stock of ATMI or
Holdings, in either case having a value equal to $78,000,000 (calculated, and
subject to adjustment, as described more fully in the Agreement). We have
assumed, with your consent, that the Proposed Transaction will be treated as a
tax-free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended, and as a pooling of interests for accounting purposes.
We also understand from management of ATMI that ATMI, Holdings and a wholly-
owned acquisition subsidiary of Holdings are parties to an Agreement and Plan
of Merger and Exchange dated as of April 7, 1997, related to the proposed
acquisition by ATMI of Advanced Delivery & Chemical Systems Nevada, Inc. and
related entities (collectively, "ADCS"). The proposed acquisition of ADCS by
ATMI (the "ADCS Acquisition") is not conditioned upon the approval or
completion of the Proposed Transaction, and the Proposed Transaction is not
conditioned upon the approval or completion of the ADCS Acquisition. We have
not been requested to provide our opinion as to the fairness from a financial
point of view to ATMI of the ADCS Acquisition.
Hambrecht & Quist LLC, as part of its investment banking services, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, strategic transactions, corporate
restructurings, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for corporate and
other purposes. We have been asked to render our opinion to the Board of
Directors of ATMI in connection with the Proposed Transaction, and we will
receive a fee for this service. In connection with our review of the Proposed
Transaction, and in arriving at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
ATMI for recent years and interim periods to date and certain other
relevant financial and operating data of ATMI made available to us from
published sources and from the internal records of ATMI;
(ii) reviewed certain financial forecasts and related assumptions for
ATMI obtained by us from a third party research report, and discussed such
report with management of ATMI;
(iii) discussed the business, financial condition and prospects of ATMI
with certain of its officers;
F-1
<PAGE>
(iv) reviewed the consolidated financial statements of Lawrence for
recent years and interim periods to date and certain other relevant
financial and operating data of Lawrence, including certain projections,
made available to us from the internal records of Lawrence, as well as
certain projected information relating to Lawrence provided by ATMI
management;
(v) discussed the business, financial condition and prospects of Lawrence
with certain of its officers and officers of ATMI;
(vi) reviewed the recent reported prices and trading activity for the
common stock of ATMI and compared such information and certain financial
information for ATMI with similar information for certain other companies
engaged in businesses we consider comparable to the business of ATMI;
(vii) reviewed certain financial information for Lawrence, and compared
this information with similar information for certain other companies
engaged in businesses we consider comparable to the business of Lawrence,
including ratios based on the recent reported common stock prices for these
comparable companies;
(viii) reviewed the financial terms, to the extent publicly available, of
certain merger and acquisition transactions we deemed comparable to the
Proposed Transaction;
(ix) reviewed projected operating and financial data regarding ADCS
supplied to us by ATMI management;
(x) reviewed the April 17, 1997 draft of the Agreement provided to us by
management of ATMI, and discussed with management of ATMI certain changes
to such draft; and
(xi) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning ATMI, ADCS or Lawrence
considered in connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for independent verification of such
information or any independent valuation or appraisal of any of the assets or
liabilities of ATMI, ADCS or Lawrence, nor have we conducted a physical
inspection of the properties and facilities of any of these companies. With
respect to the financial forecasts for Lawrence and ADCS provided by
management of ATMI, the financial forecasts for Lawrence provided by
management of Lawrence, and the financial forecasts for ATMI obtained by us
from a third party research report (which forecasts with respect to ATMI were
adjusted by us based upon our discussions with, and with the consent of,
management of ATMI), we have assumed, upon the advice of management of ATMI
and with your consent, that they have been reasonably prepared and provide a
reasonable basis for our opinion. For purposes of this opinion, we have
assumed that neither ATMI, ADCS nor Lawrence is a party to any pending
transactions, including external financings, recapitalizations or merger
discussions, other than the Proposed Transaction, the ADCS Acquisition and
those activities undertaken in the ordinary course of conducting their
respective businesses. Our opinion is necessarily based upon market, economic,
financial and other conditions as they exist and can be evaluated as of the
date of this letter and any change in such conditions would require a
reevaluation of this opinion.
It is understood that this letter is for the information of the Board of
Directors of ATMI in connection with its evaluation of the Proposed
Transaction and may not be used for any other purpose without our prior
written consent; provided, however, that this letter may be summarized and
reproduced in full in the Proxy Statement/Prospectus to be used in connection
with the Proposed Transaction. This letter does not constitute a
recommendation to any stockholder as to how such stockholder should vote on
the Proposed Transaction or the ADCS Acquisition. We express no opinion
regarding the effect, if any, the Proposed Transaction or the ADCS Acquisition
or both may have on the market price of ATMI common stock.
F-2
<PAGE>
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be paid by ATMI in the Proposed Transaction is fair to
the Company from a financial point of view.
Very truly yours,
Hambrecht & Quist LLC
By: /s/ Paul B. Cleveland
---------------------------------
Paul B. Cleveland
Managing Director
F-3
<PAGE>
APPENDIX G
ADVANCED TECHNOLOGY MATERIALS, INC.
1997 STOCK PLAN
SECTION 1. PURPOSE
The purpose of the 1997 Stock Plan (the "Plan") is to secure for Advanced
Technology Materials, Inc. (the "Company"), its parent (if any) and any
subsidiaries of the Company (collectively the "Related Companies") the
benefits arising from capital stock ownership and the receipt of capital
stock-based incentives by those employees, directors, officers and consultants
of the Company and any Related Companies who will be responsible for the
Company's future growth and continued success.
The Plan will provide a means whereby (a) employees of the Company and any
Related Companies may purchase stock in the Company pursuant to options which
qualify as "incentive stock options" ("Incentive Stock Options") under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), (b)
directors, employees and consultants of the Company and any Related Companies
may purchase stock in the Company pursuant to options granted hereunder which
do not qualify as Incentive Stock Options ("Non-Qualified Option" or "Non-
Qualified Options"); (c) directors, employees and consultants of the Company
and any Related Companies may be awarded stock in the Company ("Awards"); and
(d) directors, employees and consultants of the Company and any Related
Companies may receive stock appreciation rights ("SARs"). Both Incentive Stock
Options and Non-Qualified Options are referred to hereafter individually as an
"Option" and collectively as "Options." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation" as those
terms are defined in Section 424 of the Code. Options, Awards and SARs are
referred to hereafter individually as a "Plan Benefit" and collectively as
"Plan Benefits." Directors, employees and consultants of the Company and any
Related Companies are referred to herein as "Participants."
SECTION 2. ADMINISTRATION
2.1 Board of Directors and the Committee. The Plan will be administered by
the Board of Directors of the Company whose construction and interpretation of
the terms and provisions hereof shall be final and conclusive. Any director to
whom a Plan Benefit is awarded shall be ineligible to vote upon his or her
Plan Benefit, but Plan Benefits may be granted to any such director by a vote
of the remainder of the directors, except as limited below. The Board of
Directors may in its sole discretion grant Options, issue shares upon exercise
of such Options, grant Awards and grant SARs all as provided in the Plan. The
Board of Directors shall have authority, subject to the express provisions of
the Plan, to construe the Plan and its related agreements, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms
and provisions of the respective Option, Award and SAR agreements, which need
not be identical, and to make all other determinations in the judgment of the
Board of Directors necessary or desirable for the administration of the Plan.
The Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any related agreement in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and it shall be the sole and final judge of such expediency. No director shall
be liable for any action or determination made in good faith. The Board of
Directors may delegate any or all of its powers under the Plan to a
Compensation Committee or other Committee (the "Committee") appointed by the
Board of Directors consisting of at least two members of the Board of
Directors. If Plan Benefits are to be approved solely by a Committee, the
members of the Committee shall at all times be: (i) "outside directors" as
that term is defined in Treas. Reg. (S)1.162-27(e)(3) (or any successor
regulation); and (ii) "non-employee directors" within the meaning of Rule 16b-
3 (or any successor rule) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as such terms are interpreted from time to time.
If the Committee is so appointed, all references to the Board of Directors
herein shall mean and relate to such Committee, unless the context otherwise
requires.
G-1
<PAGE>
2.2 Compliance with Section 162(m) of the Code. Section 162(m) of the Code
generally limits the tax deductibility to publicly held companies of
compensation in excess of $1,000,000 paid to certain "covered employees"
("Covered Employees"). It is the Company's intention to preserve the
deductibility of such compensation to the extent it is reasonably practicable
and to the extent it is consistent with the Company's compensation objectives.
For purposes of this Plan, Covered Employees of the Company shall be those
employees of the Company described in Section 162(m)(3) of the Code.
SECTION 3. ELIGIBILITY
3.1 Incentive Stock Options. Participants who are employees shall be
eligible to receive Incentive Stock Options pursuant to the Plan; provided
that no person shall be granted any Incentive Stock Option under the Plan who,
at the time such Option is granted, owns, directly or indirectly, Common Stock
of the Company possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of its Related Companies, unless the
requirements of Section 6.6(b) hereof are satisfied. In determining whether
this 10% threshold has been reached, the stock attribution rules of Section
424(d) of the Code shall apply. Directors who are not regular employees are
not eligible to receive Incentive Stock Options.
3.2 Non-Qualified Options, Awards and SARs. Non-Qualified Options, Awards
and SARs may be granted to any Participant.
3.3 Generally. The Board of Directors may take into consideration a
Participant's individual circumstances in determining whether to grant an
Incentive Stock Option, a Non-Qualified Option, an Award or an SAR. Granting
of any Option, Award or SAR for any Participant shall neither entitle that
Participant to, nor disqualify that Participant from, participation in any
other grant of Plan Benefits.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment as provided in Sections 9 and 10 hereof, the stock to
be offered under the Plan shall consist of shares of the Company's Common
Stock, $.01 par value, and the maximum number of shares which will be reserved
for issuance, and in respect of which Plan Benefits may be granted pursuant to
the provisions of the Plan, shall not exceed in the aggregate 900,000 shares.
Such shares may be authorized and unissued shares, treasury shares or shares
purchased on the open market. If an Option or SAR granted hereunder shall
expire or terminate for any reason without having been exercised in full, or
if the Company shall reacquire any unvested shares issued pursuant to Awards,
the unpurchased shares subject thereto and any unvested shares so reacquired
shall again be available for subsequent grants of Plan Benefits under the
Plan. Stock issued pursuant to the Plan may be subject to such restrictions on
transfer, repurchase rights or other restrictions as shall be determined by
the Board of Directors.
SECTION 5. GRANTING OF OPTIONS, SARS AND AWARDS
Plan Benefits may be granted under the Plan at any time after October 10,
1997 (the date of approval of the Plan by the stockholders of the Company) and
prior to October 10, 2007; provided, however, that nothing in the Plan shall
be construed to obligate the Company to grant Plan Benefits to a Participant
or anyone claiming under or through a Participant. The date of grant of Plan
Benefits under the Plan will be the date specified by the Board of Directors
at the time the Board of Directors grants such Plan Benefits; provided,
however, that such date shall not be prior to the date on which the Board of
Directors takes such action. The Board of Directors shall have the right, with
the consent of a Participant, to convert an Incentive Stock Option granted
under the Plan to a Non-Qualified Option pursuant to Section 6.7. Plan
Benefits may be granted alone or in addition to other grants under the Plan.
G-2
<PAGE>
SECTION 6. SPECIAL PROVISIONS APPLICABLE TO OPTIONS AND SARS
6.1 Purchase Price and Shares Subject to Options and SARs.
(a) The purchase price per share of Common Stock deliverable upon the
exercise of an Option shall be determined by the Board of Directors;
provided, however, that (i) in the case of an Incentive Stock Option, the
exercise price shall not be less than 100% of the fair market value of such
Common Stock on the day the Option is granted (except as modified in
Section 6.6(b) hereof), and (ii) in the case of a Non-Qualified Option, the
exercise price shall not be less than 50% of the fair market value on the
day such Option is granted.
(b) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of
the Company in an amount equal to the exercise price of such Options, (ii)
shares of Common Stock of the Company owned by the Participant having a
fair market value equal in amount to the exercise price of the Options
being exercised, or (iii) any combination of (i) and (ii). The fair market
value of any shares of the Company's Common Stock which may be delivered
upon exercise of an Option shall be determined by the Board of Directors.
The Board of Directors may also permit Participants, either on a selective
or aggregate basis, to simultaneously exercise Options and sell the shares
of Common Stock thereby acquired, pursuant to a brokerage or similar
arrangement, approved in advance by the Board of Directors, and to use the
proceeds from such sale as payment of the purchase price of such shares.
(c) If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as
of the last business day for which the prices or quotes discussed in this
sentence are available prior to the date such Option is granted (the
"Determination Date") and shall mean (i) the average (on the Determination
Date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if such
Common Stock is then traded on a national securities exchange; (ii) the
last reported sale price (on the Determination Date) of the Common Stock on
The Nasdaq Stock Market if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of
bid prices) last quoted (on the Determination Date) by an established
quotation service for over-the-counter securities, if the Common Stock is
not reported on The Nasdaq Stock Market. However, if the Common Stock is
not publicly traded at the time an Option is granted under the Plan, "fair
market value" shall be deemed to be the fair value of the Common Stock as
determined by the Board of Directors after taking into consideration all
factors which it deems appropriate, including, without limitation, recent
sale and offer prices of the Common Stock in private transactions
negotiated at arm's length.
(d) The maximum number of shares with respect to which Options or SARs
may be granted to any employee, including any transactions contemplated by
Treas. Reg. (S)1.162(e)(2)(vi), shall be limited to 112,500 shares in any
calendar year.
6.2 Duration of Options and SARs. Subject to Section 6.6(b) hereof, each
Option and SAR and all rights thereunder shall be expressed to expire on such
date as the Board of Directors may determine, but in no event later than ten
years from the day on which the Option or SAR is granted and shall be subject
to earlier termination as provided herein.
6.3 Exercise of Options and SARs.
(a) Subject to Section 6.6(b) hereof, each Option and SAR granted under
the Plan shall be exercisable at such time or times and during such period
as shall be set forth in the instrument evidencing such Option or SAR. To
the extent that an Option or SAR is not exercised by a Participant when it
becomes initially exercisable, it shall not expire but shall be carried
forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be for less than
ten (10) full shares of Common Stock (or its equivalent).
G-3
<PAGE>
(b) The Board of Directors shall have the right to accelerate the date of
exercise of any installments of any Option or SAR; provided that the Board
of Directors shall not accelerate the exercise date of any installment of
any Option granted to a Participant as an Incentive Stock Option (and not
previously converted into a Non-Qualified Option pursuant to Section 6.7)
if such acceleration would violate the annual vesting limitation contained
in Section 422(d)(1) of the Code, which provides generally that the
aggregate fair market value (determined at the time the Option is granted)
of the stock with respect to which Incentive Stock Options granted to any
Participant are exercisable for the first time by such Participant during
any calendar year (under all plans of the Company and any Related
Companies) shall not exceed $100,000.
6.4 Nontransferability of Options and SARs. No Option or SAR granted under
the Plan shall be assignable or transferable by the Participant, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution or, with respect to Non-Qualified Options and SARs, unless the
Participant's non-qualified stock option agreement granting such options (the
"Non-Qualified Stock Option Agreement") or the Participant's SAR agreement
granting such SARs (the "SAR Agreement") provides otherwise. Unless otherwise
provided by the Non-Qualified Stock Option Agreement or the SAR Agreement, as
applicable, during the life of the Participant, the Option or SAR shall be
exercisable only by the Participant. If any Participant should attempt to
dispose of or encumber the Participant's Options or SARs, other than in
accordance with the applicable terms of a Non-Qualified Stock Option Agreement
or SAR Agreement, the Participant's interest in such Options or SARs shall
terminate.
6.5 Effect of Termination of Employment or Death on Options and SARs.
(a) Except as otherwise provided in the instrument evidencing the Plan
Benefit, if a Participant ceases to be employed by the Company or a Related
Company for any reason, including retirement but other than death, any
Option or SAR granted to such Participant under the Plan shall immediately
terminate; provided, however, that, except as otherwise provided in the
instrument evidencing the Plan Benefit, any portion of such Option or SAR
which was otherwise exercisable on the date of termination of the
Participant's employment may be exercised within the three-month period
following the date on which the Participant ceased to be so employed, but
in no event after the expiration of the exercise period. Except as
otherwise provided in the instrument evidencing the Plan Benefit, any such
exercise may be made only to the extent of the number of shares subject to
the Option or SAR which were purchasable or exercisable on the date of such
termination of employment. If the Participant dies during such three-month
period, the Option or SAR shall be exercisable by the Participant's
personal representatives, heirs or legatees to the same extent and during
the same period that the Participant could have exercised the Option or SAR
on the date of his or her death, except as otherwise provided in the
instrument evidencing the Plan Benefit.
(b) Except as otherwise provided in the instrument evidencing the Plan
Benefit, if the Participant dies while an employee of the Company or any
Related Company, any Option or SAR granted to such Participant under the
Plan shall be exercisable by the Participant's personal representatives,
heirs or legatees, for the purchase of or exercise relative to that number
of shares and to the same extent that the Participant could have exercised
the Option or SAR on the date of his or her death. Except as otherwise
provided in the instrument evidencing the Plan Benefit, the Option or SAR
or any unexercised portion thereof shall terminate unless so exercised
prior to the earlier of the expiration of six months from the date of such
death or the expiration of the exercise period.
6.6 Designation of Incentive Stock Options; Limitations. Options granted
under the Plan which are intended to be Incentive Stock Options qualifying
under Section 422 of the Code shall be designated as Incentive Stock Options
and shall be subject to the following additional terms and conditions:
(a) Dollar Limitation. The aggregate fair market value (determined at the
time the option is granted) of the Common Stock for which Incentive Stock
Options are exercisable for the first time during any calendar year by any
person under the Plan (and all other incentive stock option plans of the
Company and any Related Companies) shall not exceed $100,000. In the event
that Section 422(d)(1) of the Code is amended to alter the limitation set
forth therein so that following such amendment such limitation shall differ
from the limitation set forth in this Section 6.6(a), the limitation of
this Section 6.6(a) shall be automatically adjusted accordingly.
G-4
<PAGE>
(b) 10% Stockholder. If any Participant to whom an Incentive Stock Option
is to be granted pursuant to the provisions of the Plan is on the date of
grant the owner of stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Related
Companies, then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) The option price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market
value of one share of Common Stock on the date of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
In determining whether the 10% threshold has been reached, the stock
attribution rules of Section 424(d) of the Code shall apply.
(c) Except as modified by the preceding provisions of this Section 6.6,
all of the provisions of the Plan shall be applicable to Incentive Stock
Options granted hereunder.
6.7 Conversion of Incentive Stock Options into Non-Qualified Options;
Termination of Incentive Stock Options. The Board of Directors, at the written
request of any Participant, may in its discretion take such actions as may be
necessary to convert such Participant's Incentive Stock Options (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such Incentive Stock Options, regardless of whether the
Participant is an employee of the Company or a Related Company at the time of
such conversion. Such actions may include, but not be limited to, extending
the exercise period or reducing the exercise price of the appropriate
installments of such Options. At the time of such conversion, the Board of
Directors (with the consent of the Participant) may impose such conditions on
the exercise of the resulting Non-Qualified Options as the Board of Directors
in its discretion may determine, provided that such conditions shall not be
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
Participant the right to have such Participant's Incentive Stock Options
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Board of Directors takes appropriate action. The Board of
Directors, with the consent of the Participant, may also terminate any portion
of any Incentive Stock Option that has not been exercised at the time of such
termination.
6.8 Stock Appreciation Rights. An SAR is the right to receive, without
payment, an amount equal to the excess, if any, of the fair market value of a
share of Common Stock on the date of exercise over the grant price, which
amount will be multiplied by the number of shares with respect to which the
SARs shall have been exercised. The grant of SARs under the Plan shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the express terms of
the Plan, as the Board of Directors shall deem desirable:
(a) Grant. SARs may be granted in tandem with, in addition to or
completely independent of any Plan Benefit.
(b) Grant Price. The grant price of an SAR may be the fair market value
of a share of Common Stock on the date of grant or such other price as the
Board of Directors may determine.
(c) Exercise. An SAR may be exercised by a Participant in accordance with
procedures established by the Board of Directors or as otherwise provided
in any agreement evidencing any SARs. The Board of Directors may provide
that an SAR shall be automatically exercised on one or more specified
dates.
(d) Form of Payment. Payment upon exercise of an SAR may be made in cash,
in shares of Common Stock or any combination thereof, as the Board of
Directors shall determine.
(e) Fair Market Value. Fair market value shall be determined in
accordance with Section 6.1(c) with the "Determination Date" being
determined by reference to the date of grant or the date of exercise of an
SAR, as applicable.
6.9 Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to any shares covered by an Option or SAR until the
date of issue of a stock certificate to the Participant for such shares.
G-5
<PAGE>
Except as otherwise expressly provided in the Plan, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
6.10 Special Provisions Applicable to Non-Qualified Options and SARs Granted
to Covered Employees. In order for the full value of Non-Qualified Options and
SARs granted to Covered Employees to be deductible by the Company for federal
income tax purposes, the Company may intend for such Non-Qualified Options and
SARs to be treated as "qualified performance-based compensation" as described
in Treas. Reg. (S)1.162-27(e) (or any successor regulation). In such case,
Non-Qualified Options and SARs granted to Covered Employees shall be subject
to the following additional requirements:
(a) such options and rights shall be granted only by the Committee; and
(b) the exercise price of such Options and the grant price of such SARs
granted shall in no event be less than the fair market value of the Common
Stock as of the date of grant of such Options or SARs.
SECTION 7. SPECIAL PROVISIONS APPLICABLE TO AWARDS
7.1 Grants of Awards. The Board of Directors may grant a Participant an
Award subject to such terms and conditions as the Board of Directors deems
appropriate, including, without limitation, restrictions on the pledging,
sale, assignment, transfer or other disposition of such shares and the
requirement that the Participant forfeit all or a portion of such shares back
to the Company upon termination of employment.
7.2 Conditions. Approvals of Awards may be subject to the following
conditions:
(a) Each Participant receiving an Award shall enter into an agreement (a
"Stock Restriction Agreement") with the Company, if required by the Board
of Directors, in a form specified by the Board of Directors agreeing to
such terms and conditions of the Award as the Board of Directors deems
appropriate.
(b) Shares issued and transferred to a Participant pursuant to an Award
may, if required by the Board of Directors, be deposited with the Treasurer
or other officer of the Company designated by the Board of Directors to be
held until the lapse of the restrictions upon such shares, and the
Participant shall execute and deliver to the Company stock powers enabling
the Company to exercise its rights hereunder.
(c) Certificates for shares issued pursuant to an Award shall, if the
Company shall deem it advisable, bear a legend to the effect that they are
issued subject to specified restrictions.
(d) Certificates representing the shares issued pursuant to an Award
shall be registered in the name of the Participant and shall be owned by
such Participant. Such Participant shall be the holder of record of such
shares for all purposes, including voting and receipt of dividends paid
with respect to such shares.
(e) If required by the Board of Directors, no Participant receiving an
Award shall make, in connection with such Award, the election permitted
under Section 83(b) of the Code.
7.3 Nontransferability. Shares issued pursuant to an Award may not be sold,
assigned, transferred, alienated, commuted, anticipated, or otherwise disposed
of (except, subject to the provisions of such Participant's Stock Restriction
Agreement, by will or the laws of descent and distribution), or pledged or
hypothecated as collateral for a loan or as security for the performance of
any obligation, or be otherwise encumbered, and are not subject to attachment,
garnishment, execution or other legal or equitable process, prior to the lapse
of restrictions on such shares, and any attempt at action in contravention of
this Section shall be null and void. If any Participant should attempt to
dispose of or encumber the Participant's shares issued pursuant to an Award
prior to the lapse of the restrictions imposed on such shares, the
Participant's interest in such shares shall terminate.
7.4 Effect of Termination of Employment or Death on Awards. Except as
otherwise provided in the instrument evidencing the Awards, if, prior to the
lapse of restrictions applicable to Awards, the Participant ceases to be an
employee of the Company or the Related Companies for any reason, Awards to
such Participant, as to which restrictions have not lapsed, shall be forfeited
to the Company, effective on the date of the
G-6
<PAGE>
Participant's termination of employment. The Board of Directors shall have the
sole power to decide in each case to what extent leaves of absence shall be
deemed a termination of employment.
SECTION 8. REQUIREMENTS OF LAW
8.1 Violations of Law. No shares shall be issued and delivered upon exercise
of any Option or the making of any Award or the payment of any SAR unless and
until, in the opinion of counsel for the Company, any applicable registration
requirements of the Securities Act of 1933, any applicable listing
requirements of any national securities exchange on which stock of the same
class is then listed, and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery, shall have been
fully complied with. Each Participant may, by accepting Plan Benefits, be
required to represent and agree in writing, for himself or herself and for his
or her transferees by will or the laws of descent and distribution, that the
stock acquired by him, her or them is being acquired for investment. The
requirement for any such representation may be waived at any time by the Board
of Directors.
8.2 Compliance with Rule 16b-3. The intent of this Plan is to qualify for
the exemption provided by Rule 16b-3 under the Exchange Act. To the extent any
provision of the Plan does not comply with the requirements of Rule 16b-3, it
shall be deemed inoperative to the extent permitted by law and deemed
advisable by the Board of Directors and shall not affect the validity of the
Plan. In the event Rule 16b-3 is revised or replaced, the Board of Directors
may exercise discretion to modify this Plan in any respect necessary to
satisfy the requirements of the revised exemption or its replacement.
SECTION 9. RECAPITALIZATION
In the event that dividends are payable in Common Stock of the Company or in
the event there are splits, sub-divisions or combinations of shares of Common
Stock of the Company, the number of shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number of
shares deliverable upon the exercise thereafter of any Option previously
granted shall be increased or decreased proportionately, as the case may be,
without change in the aggregate purchase price, and the number of shares to
which granted SARs relate shall be increased or decreased proportionately, as
the case may be, and the grant price of such SARs shall be decreased or
increased proportionately, as the case may be.
SECTION 10. REORGANIZATION
If the Company is merged, consolidated with another corporation and the
Company is not the Surviving Corporation, or the property or stock of the
Company is acquired by any other corporation or in the case of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company hereunder, shall, as to outstanding Plan Benefits, (i) make
appropriate provision for the protection of any such outstanding Plan Benefits
by the substitution on an equitable basis of appropriate stock of the Company
or of the merged, consolidated or otherwise reorganized corporation which will
be issuable in respect of the shares of Common Stock of the Company; provided
only that the excess of the aggregate fair market value of the shares subject
to the Plan Benefits immediately after such substitution over the purchase or
grant price thereof is not more than the excess of the aggregate fair market
value of the shares subject to such Plan Benefits immediately before such
substitution over the purchase or grant price thereof, (ii) upon written
notice to the Participants, provide that all unexercised Plan Benefits must be
exercised within a specified number of days of the date of such notice or such
Plan Benefits will be terminated, or (iii) upon written notice to the
Participants, provide that the Company or the merged, consolidated or
otherwise reorganized corporation shall have the right, upon the effective
date of any such merger, consolidation, sale of assets or reorganization, to
purchase all Plan Benefits held by each Participant and unexercised as of that
date at an amount equal to the aggregate fair market value on such date of the
shares subject to the Plan Benefits held by such Participant over the
aggregate purchase or grant price therefor, such amount to be paid in cash or,
if stock of the merged, consolidated or otherwise reorganized corporation is
issuable in respect of the shares of the Common Stock of the Company, then, in
the discretion of the Board of Directors, in stock of such merged,
G-7
<PAGE>
consolidated or otherwise reorganized corporation equal in fair market value
to the aforesaid amount. In any such case the Board of Directors shall, in
good faith, determine fair market value and may, in its discretion, advance
the lapse of any waiting or installment periods and exercise dates.
SECTION 11. NO SPECIAL EMPLOYMENT RIGHTS
Nothing contained in the Plan or in any Plan Benefit documentation shall
confer upon any Participant receiving a grant of any Plan Benefit any right
with respect to the continuation of his or her employment by the Company (or
any Related Company) or interfere in any way with the right of the Company (or
any Related Company), subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or to
increase or decrease the compensation of the Participant from the rate in
existence at the time of the grant of any Plan Benefit. Whether an authorized
leave of absence or absence in military or government service shall constitute
termination of employment shall be determined by the Board of Directors, in
accordance with any applicable laws.
SECTION 12. AMENDMENT OF THE PLAN
The Board of Directors may at any time and from time to time suspend or
terminate all or any portion of the Plan or modify or amend the Plan in any
respect. The termination or any modification or amendment of the Plan shall
not, without the consent of a Participant, affect the Participant's rights
under any Plan Benefit previously granted. With the consent of the affected
Participant, the Board of Directors may amend outstanding agreements relating
to any Plan Benefit in a manner not inconsistent with the Plan. The Board of
Directors hereby reserves the right to amend or modify the terms and
provisions of the Plan and of any outstanding Options to the extent necessary
to qualify any or all Options under the Plan for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code, provided,
however, that the consent of a Participant is required if such amendment or
modification would cause unfavorable income tax treatment for such
Participant.
SECTION 13. WITHHOLDING
The Company's obligation to deliver shares of stock upon the exercise of any
Option or SAR or the granting of an Award and to make payment upon exercise of
any SAR shall be subject to the satisfaction by the Participant of all
applicable federal, state and local income and employment tax withholding
requirements.
SECTION 14. EFFECTIVE DATE AND DURATION OF THE PLAN
14.1 Effective Date. The Plan shall become effective as of October 10, 1997
(the date of approval of the Plan by the stockholders of the Company).
14.2 Duration. Unless sooner terminated in accordance with Section 10
hereof, the Plan shall terminate upon the earlier of (i) the tenth anniversary
of the effective date or (ii) the date on which all shares available for
issuance under the Plan shall have been issued pursuant to any Awards or the
exercise or cancellation of Options and SARs granted hereunder. If the date of
termination is determined under (i) above, then Plan Benefits outstanding on
such date shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such Plan Benefits.
SECTION 15. GOVERNING LAW
The Plan and all actions taken thereunder shall be governed by the laws of
the State of Delaware.
G-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that the personal
liability of the directors of the Registrant shall be limited to the fullest
extent permitted by the provisions of Section 102(b)(7) of the General
Corporation Law of the State of Delaware (the "DGCL"). Section 102(b)(7) of
the DGCL generally provides that no director shall be liable personally to the
Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director; however, the Certificate of Incorporation does not
eliminate the liability of a director for (i) any breach of the director's
duty of loyalty to the Registrant or its stockholders; (ii) acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) acts or omissions in respect of certain unlawful
dividend payments or stock redemptions or repurchases; or (iv) any transaction
from which such director derives improper personal benefit. The effect of this
provision is to eliminate the rights of the Registrant and its stockholders
(through stockholders' derivatives suits on behalf of the Registrant) to
recover monetary damages against a director for breach of his or her fiduciary
duty of care as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described in clauses (i)
through (iv) above. The limitations summarized above, however, do not affect
the ability of the Registrant or its stockholders to seek nonmonetary
remedies, such as injunction or rescission, against a director for breach of
his or her fiduciary duty. Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act") may be
permitted to directors, officers, or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission (the "Commission"), such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
In addition, the Certificate of Incorporation of the Registrant provides
that the Registrant shall, to the fullest extent permitted by Section 145 of
the DGCL, indemnify all persons whom it may indemnify pursuant to Section 145
of the DGCL. Section 145 of the DGCL permits a company to indemnify an officer
or director who was or is a party or is threatened to be made a party to any
proceeding because of his or her position, if the officer or director acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
Advanced Technology Materials, Inc. ("ATMI") maintains insurance for
officers and directors against certain liabilities, including liabilities
under the Securities Act. The effect of this insurance is to indemnify any
officer or director of ATMI against expenses, including, without limitation,
attorneys' fees, judgments, fines and amounts paid in settlement, incurred by
an officer or director upon a determination that such person acted in good
faith. The premiums for such insurance are paid by ATMI. It is anticipated
that the Registrant will maintain similar insurance.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed as a part of this registration
statement or incorporated by reference herein:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.01 Agreement and Plan of Merger and Exchange by and among ATMI, the
Registrant, Alamo Merger, Inc., Advanced Delivery & Chemical
Systems Nevada, Inc., Advanced Delivery & Chemical Systems
Manager, Inc., Advanced Delivery & Chemical Systems Holdings,
LLC, Advanced Delivery & Chemical Systems Operating, LLC and
Advanced Delivery & Chemical Systems, Ltd. dated as of April 7,
1997, attached to this registration statement as Appendix A to
the Proxy Statement/Prospectus and incorporated by reference
herein. List of exhibits and schedules to Agreement and Plan of
Merger and Exchange.
2.02 Agreement and Plan of Merger by and among ATMI, the Registrant,
Welk Acquisition Corporation, Lawrence Semiconductor
Laboratories, Inc. and Lawrence Semiconductor Laboratories
Marketing and Sales, Inc. dated as of May 17, 1997, as amended by
First Amendment to Agreement Plan of Merger dated as of June 6,
1997 and Second Amendment to Agreement and Plan of Merger dated
as of July 30, 1997, attached to this registration statement as
Appendix E to the Proxy Statement/Prospectus and incorporated by
reference herein. List of exhibits and schedules to Agreement and
Plan of Merger.
3.01 Certificate of Incorporation of the Registrant, attached to this
registration statement as Appendix C to the Proxy
Statement/Prospectus and incorporated by reference herein.
3.02 Bylaws of the Registrant, attached to this registration statement
as Appendix D to the Proxy Statement/Prospectus and incorporated
by reference herein.
4.01 Specimen of the Registrant's Common Stock Certificate.
5.01 Opinion and Consent of Shipman & Goodwin LLP as to the legality of
the shares to be registered.
8.01 Opinion of Ernst & Young LLP as to certain federal income tax
consequences of the Transactions.
23.01 Consent of Ernst & Young LLP.
23.02 Consent of Price Waterhouse LLP.
23.03 Consent of Shipman & Goodwin LLP, included in opinion filed as
Exhibit 5.01.
24.01 Power of Attorney of Registrant, included in the signature page of
this registration statement.
99.01 Proxy of Advanced Technology Materials, Inc.
</TABLE>
- --------
(b) Not required.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and, therefore, have been
omitted.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in
II-2
<PAGE>
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-
3 and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1993 may be permitted to the directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other
II-3
<PAGE>
equally prompt means. This included information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO REQUIREMENTS OF THE SECURITIES ACT OF 1933, ATMI HOLDINGS, INC.
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DANBURY, STATE OF
CONNECTICUT, ON SEPTEMBER 10, 1997.
ATMI Holdings, Inc.
By: /s/ Eugene G. Banucci
---------------------------------
Eugene G. Banucci,
President and Director
POWER OF ATTORNEY
Know All Persons by These Presents, that each person whose signature appears
below constitutes and appoints Eugene G. Banucci and Daniel P. Sharkey, and
each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file same,
with all exhibits thereto, and other documents in connection therewith, with
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, of their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
----------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Eugene G. Banucci President and September 10, 1997
- ------------------------------------- Director (principal
EUGENE G. BANUCCI executive officer)
/s/ Daniel P. Sharkey Treasurer, Secretary September 10, 1997
- ------------------------------------- and Director
DANIEL P. SHARKEY (principal
financial and
accounting officer)
/s/ Peter S. Kirlin Director September 10, 1997
- -------------------------------------
PETER S. KIRLIN
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
----------- ----------- ----
<C> <S> <C>
2.01 Agreement and Plan of Merger and Exchange by and among
ATMI, the Registrant, Alamo Merger, Inc., Advanced
Delivery & Chemical Systems Nevada, Inc., Advanced
Delivery & Chemical Systems Manager, Inc., Advanced
Delivery & Chemical Systems Holdings, LLC, Advanced
Delivery & Chemical Systems Operating, LLC and Advanced
Delivery & Chemical Systems, Ltd. dated as of April 7,
1997, attached to this registration statement as Appendix
A to the Proxy Statement/Prospectus and incorporated by
reference herein. List of exhibits and schedules to
Agreement and Plan of Merger and Exchange.
2.02 Agreement and Plan of Merger by and among ATMI, the
Registrant, Welk Acquisition Corporation, Lawrence
Semiconductor Laboratories, Inc. and Lawrence
Semiconductor Laboratories Marketing and Sales, Inc. dated
as of May 17, 1997, as amended by First Amendment to
Agreement Plan of Merger dated as of June 6, 1997 and
Second Amendment to Agreement and Plan of Merger dated as
of July 30, 1997, attached to this registration statement
as Appendix E to the Proxy Statement/Prospectus and
incorporated by reference herein. List of exhibits and
schedules to Agreement and Plan of Merger.
3.01 Certificate of Incorporation of the Registrant, attached to
this registration statement as Appendix C to the Proxy
Statement/Prospectus and incorporated by reference herein.
3.02 Bylaws of the Registrant, attached to this registration
statement as Appendix D to the Proxy Statement/Prospectus
and incorporated by reference herein.
4.01 Specimen of the Registrant's Common Stock Certificate.
5.01 Opinion and Consent of Shipman & Goodwin LLP as to the
legality of the shares to be registered.
8.01 Opinion of Ernst & Young LLP as to certain federal income
tax consequences of the Transactions.
23.01 Consent of Ernst & Young LLP.
23.02 Consent of Price Waterhouse LLP.
23.03 Consent of Shipman & Goodwin LLP, included in opinion filed
as Exhibit 5.01.
24.01 Power of Attorney of Registrant, included in the signature
page of this registration statement.
99.01 Proxy of Advanced Technology Materials, Inc.
</TABLE>
<PAGE>
EXHIBIT 2.01
The following schedules and exhibits have been omitted from the Agreement and
Plan of Merger and Exchange attached to this registration statement as Appendix
A to the Proxy Statement/Prospectus and incorporated herein by reference:
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule A Holders
Schedule 1.4 Directors of Surviving Corporation
Schedule 1.5 Officers of Surviving Corporation
Schedule 2.3(a) Exchange Consideration
ADCS Disclosure Schedule
ATMI Disclosure Schedule
Schedule 5.2 Permitted Pre-Closing Activities of ADCS
Schedule 5.3(p) Permitted Employment Agreements by ATMI
Schedule 5.8 Post-Closing Operations
Schedule 6.2(g) ATMI Assessment Opinion Patents
EXHIBITS
Exhibit A Form of Certificate of Merger
Exhibit B Form of Assignment of Membership Interests
Exhibit C Form of Registration Rights Agreement
Exhibit D-1 Form of Affiliates Agreement of ADCS
Exhibit D-2 Form of Affiliates Agreement of ATMI
Exhibit E Form of Proprietary Information and Inventions
Agreement
Exhibit F Form of Employment Agreements
Exhibit G Form of Escrow Agreement
Exhibit H Form of Indemnification Agreement
Exhibit I Form of Certificate of Holder
Exhibit J Form of Opinion of Counsel to ADCS
Exhibit K Form of Opinion of Patent Counsel to ADCS
Exhibit L Form of Releases
Exhibit M Form of Opinion of Counsel to ATMI
Exhibit N Form of Opinion of Patent Counsel to ATMI (General)
Exhibit O Form of Assessment Opinion of Patent Counsel to
ATMI
</TABLE>
The Registrant agrees to furnish supplementally a copy of any omitted schedule
or exhibit to the Securities and Exchange Commission upon request.
<PAGE>
EXHIBIT 2.02
The following schedules and exhibits have been omitted from the Agreement and
Plan of Merger and Exchange attached to this registration statement as Appendix
A to the Proxy Statement/Prospectus and incorporated herein by reference:
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 4.1(c) Persons whose knowledge constitute the "Knowledge"
of Lawrence
Schedule 4.2(c) Filings, permits, authorizations, consents and
approvals required for Buyer and/or Buyer Sub to
consummate transaction
Schedule 4.2(h) Material liabilities of Buyer
Schedule 5.1 Trade names and assumed names
Schedule 5.2 Authorized capital stock, number and class of
issued and outstanding stock, identity of owners
of capital stock, and identity of anyone with a
right to acquire any capital stock; pro forma
following merger
Schedule 5.4 Filings, permits, authorizations, consents and
approvals required for Lawrence to consummate
transaction
Schedule 5.5 Material errors in Lawrence financial statements
Schedule 5.6 Material adverse changes and other specified
information occurring since date of unaudited
financial statement
Schedule 5.7 Litigation; expected litigation
Schedule 5.8(a) Contracts and other instruments
Schedule 5.8(b) Consulting agreements and other contracts with
certain provisions
Schedule 5.9(a) Employee benefits programs
Schedule 5.10(a) Known non-compliance of products with laws,
statutes, etc.
Schedule 5.10(b) Notices received from regulatory agencies
regarding possible violations, or facts that might
lead to such
Schedule 5.10(c) Facts that might lead to recall of products,
termination of marketing of products, etc.
Schedule 5.10(d) Recalls of products
Schedule 5.11(a) Patents, applications for patents, registration of
trademarks, other intellectual property
Schedule 5.11(c) Nondisclosure agreements to which Lawrence is a
party or bound
Schedule 5.11(d) Royalties, fees or other payments owed by reason
of any intellectual property
Schedule 5.11(e) Notices of infringement
Schedule 5.12(b) Property agreements (leases, etc.)
Schedule 5.13(b) Environmental notices received, existence of USTs,
asbestos, etc.
Schedule 5.13(c) Environmental incidents
Schedule 5.14 Notices of violations of city codes, condemnation
actions, etc.
Schedule 5.15(a) Tax information
Schedule 5.15(b) Subsidiaries
Schedule 5.16 Product liability insurance claims
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Schedule 5.17 Other material liabilities
Schedule 5.20 Mortgages, liens, etc.
Schedule 5.21 Debts
Schedule 5.22 Accounts Receivable
Schedule 5.25 Employee Names
Schedule 5.26 Related Parties; Transactions
Schedule 5.27 Hart-Scott-Rodino
Schedule 5.28 Customers
Schedule 5.30 Insurance; Unemployment insurance ratings
Schedule 7.6 Guarantees
Schedule 8.3(d) Proprietary Information and Inventions Agreements
EXHIBITS
Exhibit 3.6(a)(xiii)-A Affiliate Agreement
Exhibit 3.6(a)(xiii)-B Employment Agreement
Exhibit 3.6(a)(x) Release
Exhibit 3.6(e) Registration Rights Agreement
Exhibit A-1 Designated Employees
Exhibit A-2 Staying Bonus and Severance Agreement
Exhibit B Noncompete Agreement -- Lamonte H. Lawrence
Exhibit C Consulting Agreement -- Lamonte H. Lawrence
Exhibit 8.3(d) Proprietary Information and Inventions Agreement
Exhibit D Escrow Agreement
</TABLE>
The Registrant agrees to furnish supplementally a copy of any omitted schedule
or exhibit to the Securities and Exchange Commission upon request.
<PAGE>
EXHIBIT 4.01
NUMBER SHARES
DPS
COMMON STOCK PAR VALUE $.01
ATMI, INC.
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR
BOSTON, MASSACHUSETTS OR NEW YORK, NEW YORK CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
ATMI, INC. transferable in person or by duly authorized attorney upon surrender
of this Certificate properly endorsed. This Certificate and the shares
represented hereby are subject to all the terms, conditions of the Certificate
of Incorporation and all Amendments thereto and Supplements thereof. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar
WITNESS the corporate seal of the Corporation and the signatures of its duly
authorized officers.
CERTIFICATE OF STOCK
Dated:
COUNTERSIGNED AND REGISTERED: [SEAL]
BankBoston, N.A. PRESIDENT
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE TREASURER
<PAGE>
ATMI, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with
right of survivorship
and not as tenants in
common
UNIF GIFT MIN ACT -_______________Custodian ______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act______________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------------
-------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
shares
- ------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:
--------------------
------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.01
Shipman & Goodwin LLP One American Row
Counselors at Law Hartford, CT 06103-2819
Tel: (860)251-5000
September 10, 1997
ATMI Holdings, Inc.
7 Commerce Drive
Danbury, Connecticut 06810
Ladies and Gentlemen:
We have served as counsel for ATMI Holdings, Inc., a Delaware corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to the Company's Registration
Statement on Form S-4 (the "Registration Statement"), of up to 15,250,000 shares
of the authorized but unissued common stock, par value $.01 per share, of the
Company (the "Shares"), to be issued pursuant to that certain Merger and
Exchange Agreement, dated as of April 7, 1997, by and among the Company,
Advanced Technology Materials, Inc., a Delaware corporation, Alamo Merger, Inc.,
a Delaware corporation, Advanced Delivery & Chemical Systems Nevada, Inc., a
Nevada corporation, Advanced Delivery & Chemical Systems Manager, Inc., a
Delaware corporation, Advanced Delivery & Chemical Systems Holdings, LLC, a
Delaware limited liability company, and Advanced Delivery & Chemical Systems,
Ltd., a Texas limited partnership (the "Merger and Exchange Agreement").
As counsel to the Company, we have examined the Registration Statement,
including the Proxy Statement/Prospectus contained therein, and such other
documents as we have deemed necessary or appropriate in order to express the
opinion set forth below. In connection with our opinion hereinafter given, we
have examined and relied upon originals, or copies, certified or otherwise,
identified to our satisfaction, of such agreements, documents, certificates and
other statements of government officials, corporate officers and representatives
and other documents as we have deemed relevant and necessary as a basis for such
opinion. In such examination, we have assumed the genuineness of all signatures
and the authenticity of all documents submitted to us as originals and the
conformity with the original documents of documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that when (i) the Registration
Statement shall have become effective under the Securities Act, and (ii) the
Shares shall have been issued and delivered in the manner and on the terms set
forth in the Merger and Exchange Agreement, the Shares will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Proxy Statement/Prospectus included in the Registration
Statement. In giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Securities and Exchange
Commission.
Very truly yours,
/s/ Shipman & Goodwin LLP
<PAGE>
EXHIBIT 8.01
ERNST & YOUNG LLP 1111 Summer Street Phone: 203-326-8200
Stamford, CT 06905 Fax: 203-358-9644
September 10, 1997
Advanced Technology Materials, Inc.
ATMI Holdings, Inc.
Alamo Merger, Inc.
Welk Acquisition Corporation
Advanced Delivery & Chemical Systems Nevada, Inc.
Advanced Delivery & Chemical Systems Manager, Inc.
Advanced Delivery & Chemical Systems Holdings, LLC
Advanced Delivery & Chemical Systems Operating, LLC
Advanced Delivery & Chemical Systems, Ltd.
Lawrence Semiconductor Laboratories, Inc.
Lawrence Semiconductor Laboratories Marketing and Sales, Inc.
This letter provides our opinion concerning certain material United States
federal income tax consequences which will arise from consummation of the merger
("the Merger") and exchange ("the Exchange") (collectively, "the
Reorganization") set forth in the Agreement and Plan of Merger and Exchange
dated as of April 7, 1997, as amended ("the Reorganization Agreement"), by and
among Advanced Technology Materials, Inc. ("the Company"), ATMI Holdings, Inc.,
a wholly-owned subsidiary of the Company ("Holdings"), Alamo Merger, Inc., a
wholly-owned subsidiary of Holdings ("Merger Subsidiary"), Advanced Delivery &
Chemical Systems Nevada, Inc. ("ADCS Nevada"), Advanced Delivery & Chemical
Systems Manager, Inc. ("ADCS Manager"), Advanced Delivery & Chemical Systems
Holdings, LLC ("ADCS Holdings"), Advanced Delivery & Chemical Systems Operating,
LLC ("ADCS Operating"), and Advanced Delivery & Chemical Systems, Ltd. ("ADCS
LP"). The Company, Holdings, and Merger Subsidiary are referred to as "the ATMI
Group." ADCS Nevada, ADCS Manager, ADCS Holdings, ADCS Operating, and ADCS LP
are referred to as "the ADCS Group", and the record and beneficial owners of all
of the issued and outstanding shares of capital stock of ADCS Nevada and ADCS
Manager and one percent of the membership interests in ADCS Holdings "the ADCS
Interests" are referred to as "the ADCS Holders."
<PAGE>
In addition, this letter provides our opinion concerning certain material United
States federal income tax consequences which will arise from consummation of the
merger ("the Lawrence Acquisition") set forth in the Agreement and Plan of
Merger dated as of May 17, 1997, as amended ("the Lawrence Merger Agreement"),
by and among the Company, Welk Acquisition Corporation, currently a wholly-owned
subsidiary of the Company ("Lawrence Merger Subsidiary"), Holdings, Lawrence
Semiconductor Laboratories, Inc. ("LSL"), and Lawrence Semiconductor
Laboratories Marketing and Sales, Inc. ("LSLMS").
In rendering these opinions, we have relied upon the Reorganization Agreement,
the Lawrence Merger Agreement, and the Statements of Facts and Representations
received from the Company, the ADCS Group, the ADCS Holders, LSL, and the LSL
stockholders (collectively, "the Documents"). Any defined terms used herein and
not otherwise defined herein have the meaning set forth in the Documents, or the
Form S-4 referenced below.
You have represented to us that the Documents provide an accurate and complete
description of the facts and circumstances concerning the Reorganization and the
Lawrence Acquisition, and that the copies provided to us are accurate and the
signatures genuine. We have made no independent determination regarding such
facts and circumstances and, therefore, have relied upon the Documents with
regard thereto for purposes of this letter.
We consent to the reference to our firm and to the use of this opinion in the
Registration Statement (Form S-4) and related Proxy Statement/Prospectus of the
Company and Holdings for the registration of shares of Holdings Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Based upon the information contained in the Documents, we are of the opinion
that the following federal income tax consequences will result from the Merger:
(1) The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Company, Merger Subsidiary and
Holdings will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code.
(2) No gain or loss will be recognized by the Company, Holdings or Merger
Subsidiary as a result of the Merger.
(3) The Merger will also constitute a transfer of property to a controlled
corporation within the meaning of Section 351(a) of the Code.
<PAGE>
(4) No gain or loss will be recognized by a stockholder of the Company who
receives solely shares of Holdings Common Stock in exchange for Company
Common Stock.
(5) The tax basis of the shares of Holdings Common Stock received by a
stockholder of the Company will be the same as the tax basis of the shares
of Company Common Stock exchanged therefor.
(6) The holding period of the shares of Holdings Common Stock received by a
stockholder of the Company will include the period during which the shares
of Company Common Stock surrendered in exchange therefor were held,
provided that the shares of Company Common Stock are held as a capital
asset within the meaning of Section 1221 of the Code at the Effective
Time.
Based upon the information contained in the Documents, we are of the opinion
that the following federal income tax consequences will result from the
Exchange:
(7) The Exchange, taken together with the Merger, will constitute a transfer
to a controlled corporation within the meaning of Section 351(a) of the
Code, and the stockholders of the Company and the ADCS Holders will each
be a "person" transferring property to Holdings within the meaning of
Section 351(a) of the Code. If the ADCS Holders transfer all of the ADCS
Interests to Holdings at the Effective Time in exchange for Holdings
Common Stock in accordance with the Reorganization Agreement, the
following additional federal income tax consequences as set forth in (8)
through (12), below, will occur.
(8) No gain or loss will be recognized to the ADCS Holders upon the transfer
of the ADCS Interests to Holdings solely in exchange for Holdings Common
Stock, except to the extent an ADCS Holder's share of the respective
entity's liabilities exceeds that holder's basis in such ADCS Interests.
(9) No gain or loss will be recognized to Holdings on the receipt of the ADCS
Interests solely in exchange for Holdings Common Stock.
(10) The tax basis of Holdings Common Stock received by each ADCS Holder that
transferred its ADCS Interests to Holdings will be equal to the basis of
the respective ADCS Interests exchanged therefor, reduced by the holder's
share of liabilities assumed by the ADCS Group, and increased by any gain
recognized by the holder as described above.
<PAGE>
(11) The holding period of the shares of Holdings Common Stock received by the
ADCS Holders will include the period during which the ADCS Interests
exchanged therefor were held, except that the holding period of a portion
of each share of Holdings Common Stock that was received by ADCS Holders
in exchange for their interests in Code Section 751 assets of the ADCS
Group that are neither capital assets nor Code Section 1231 assets begins
on the day following the date of the Exchange.
(12) An ADCS Holder who receives cash in lieu of a fractional interest in a
share of Holdings Common Stock will recognize capital gain equal to the
cash to be received. Such gain will be long term or short term depending
upon whether the holding period of the ADCS Interests is greater than
twelve months. No loss from the exchange will be recognized.
Based upon the information contained in the Documents, we are of the opinion
that the following federal income tax consequences will result from the Lawrence
Acquisition if the Reorganization is consummated:
(13) The Lawrence Acquisition will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and Holdings, Lawrence Merger
Subsidiary and LSL will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(14) The Lawrence Acquisition will constitute a transfer of property to a
controlled corporation within the meaning of Section 351(a) of the Code.
(15) No gain or loss will be recognized by an LSL Stockholder who receives
solely shares of Holdings Common Stock in exchange for LSL Common Stock.
(16) The tax basis of the shares of Holdings Common Stock will be the same as
the tax basis of the shares of LSL Common Stock exchanged therefor.
(17) The holding period of the shares of Holdings Common Stock will include the
period during which the shares of LSL Common Stock surrendered in exchange
therefor were held, provided that the shares of LSL Common Stock are held
as a capital asset within the meaning of Section 1221 of the Code at the
Lawrence Effective Time.
<PAGE>
(18) A holder of LSL Common Stock who receives cash in lieu of a fractional
interest in a share of Holdings Common Stock will recognize gain or loss,
which will be capital gain or loss, equal to the difference between the
amount of cash received and the ratable portion of the holder's tax basis
in the shares of LSL Common Stock being converted pursuant to the Lawrence
Acquisition that is allocated to such fractional interest. Such gain will
be long term or short term depending upon whether the holding period of
the LSL Common Stock is greater than twelve months.
Based upon the information contained in the Documents, we are of the opinion
that the following federal income tax consequences will result from the Lawrence
Acquisition if the Reorganization is not consummated:
(19) The Lawrence Acquisition will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Lawrence Merger
Subsidiary, and LSL will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(20) No gain or loss will be recognized by an LSL Stockholder who receives
solely shares of Company Common Stock in exchange for LSL Common Stock.
(21) The tax basis of the shares of Company Common Stock received by an LSL
Stockholder will be the same as the tax basis of the shares of LSL Common
Stock exchanged therefor.
(22) The holding period of the shares of Company Common Stock received by an
LSL Stockholder will include the period during which the shares of LSL
Common Stock surrendered in exchange therefor were held, provided that the
shares of LSL Common Stock are held as a capital asset within the meaning
of Section 1221 of the Code at the Lawrence Effective Time.
(23) A holder of LSL Common Stock who receives cash in lieu of a fractional
interest in a share of Company Common Stock will recognize gain or loss,
which will be capital gain or loss, equal to the difference between the
amount of cash received and the ratable portion of the holder's tax basis
in the shares of LSL Common Stock being converted pursuant to the Lawrence
Acquisition that is allocated to such fractional interest. Such gain will
be long term or short term depending upon whether the holding period of
the LSL Common Stock is greater than twelve months.
<PAGE>
SCOPE OF OPINION
The scope of this opinion is expressly limited solely to the federal income tax
issues specifically addressed in (1) through (23) in the section entitled
"CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES", above. Specifically,
our opinion has not been requested, and we have made no determination nor
expressed any opinion on any other issues, including, but not limited to, any
state and local, foreign, consolidated return, employee benefit, and Section 382
issues, or alternative minimum tax consequences to the parties to this
transaction. Further, no opinion is expressed as to the qualification of the
Merger or the Lawrence Acquisition as a statutory merger under state law.
Our opinion, as stated above, is based upon our analysis of the Internal Revenue
Code of 1986, as amended, the Treasury Regulations, current case law, and
published Internal Revenue Service ("IRS") authorities in effect as of the date
of this letter. The foregoing are subject to change, and such change may be
retroactively effective. No assurance can be provided as to the effect of any
such change upon our opinion. In addition, our opinion is based on the
information contained in the Documents. Any change in the Documents may affect
our opinion, perhaps in an adverse manner. We have undertaken no obligation to
update this opinion for changes in facts or law occurring subsequent to the date
hereof.
This letter represents our views as to the interpretation of existing law and is
not binding on the IRS or the courts.
Very truly yours,
/s/ Ernst & Young LLP
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Proxy Statement/Prospectus of
Advanced Technology Materials, Inc. and ATMI Holdings, Inc. for the registration
of 15,250,000 shares of ATMI Holdings, Inc. common stock and to the
incorporation by reference therein of our report dated February 14, 1997, with
respect to the consolidated financial statements and schedule of Advanced
Technology Materials, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1996, filed with the Securities and Exchange Commission.
We also consent to the use of our report dated May 9, 1997, with respect to the
combined financial statements of Advanced Delivery & Chemical Systems and
Affiliates at December 31, 1995 and 1996 and for each of the two years in the
period ended December 31, 1996 included in the Proxy Statement/Prospectus of
Advanced Technology Materials, Inc. and ATMI Holdings, Inc.
/s/ Ernst & Young LLP
Stamford, Connecticut
September 10, 1997
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement/Prospectus constituting part
of this Registration Statement on Form S-4 of ATMI Holdings, Inc. of our report
dated May 17, 1997, except for the last paragraph of Note 6 which is as of June
10, 1997, and the last paragraph of Note 3 which is as of July 29, 1997 relating
to the combined financial statements of Lawrence Semiconductor Laboratories,
Inc. and Affiliate which appears in such Proxy Statement/Prospectus. We also
consent to the reference to us under the heading "Experts" in such Proxy
Statement/Prospectus.
/s/ Price Waterhouse LLP
Phoenix, Arizona
September 8, 1997
<PAGE>
EXHIBIT 99.01
PROXY
DETACH HERE
ADVANCED TECHNOLOGY MATERIALS, INC.
Proxy for the Annual Meeting of Stockholders
to be held October 10, 1997
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all proxies, hereby appoint(s) Eugene G. Banucci
and Daniel P. Sharkey, and each of them, with full power of substitution, as
proxies to represent and vote as designated herein, all shares of stock of
Advanced Technology Materials, Inc. (the "Company") which the undersigned would
be entitled to vote if personally present at the Annual Meeting of Stockholders
of the Company to be held at the Ethan Allen Inn, 21 Lake Avenue Extension,
Danbury, Connecticut 06811, on October 10, 1997 at 10:00 a.m., local time, and
at any adjournment thereof.
In their discretion, the proxies are authorized to vote upon such other
matters as properly may come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder(s). If no direction is given, this proxy
will be voted FOR Proposals 1, 2, 3, 4 and 5. The undersigned may revoke this
proxy at any time before it is voted by executing and delivering to the Company
a proxy bearing a later date, by delivering a written notice to the Secretary of
the Company stating that the proxy is revoked, or by voting in person at the
meeting.
-----------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
-----------
<PAGE>
PROPOSALS 2-5
CERTAIN CAPITALIZED TERMS USED IN THIS PROXY
ARE DEFINED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS
2. To approve the Merger and Exchange Agreement, pursuant to which (i)
Holdings' subsidiary, Alamo Merger, Inc., will be merged with and into the
Company, with the Company being the surviving corporation; (ii) the Company
will become a wholly-owned subsidiary of Holdings; (iii) the stockholders
of the Company will receive shares of Holdings Common Stock and (iv) the
holders of (1) all of the issued and outstanding shares of capital stock of
ADCS Nevada and ADCS Manager, and (2) a portion of the membership interests
in ADCS Holdings will transfer into such shares and interests to Holdings
in exchange for shares of Holdings Common Stock (the "Reorganization").
3. To approve the Lawrence Merger Agreement, pursuant to which Welk
Acquisition Corporation will be merged with and into LSL, with LSL being
the surviving corporation and becoming a wholly-owned subsidiary of
Holdings if the Reorganization is consummated or of the Company if the
Reorganization is not consummated.
4. To approve an amendment to the Company's Restated Certificate of
Incorporation as amended, to increase the number of authorized shares of
Company Common Stock from 15,000,000 shares to 16,000,000 shares. Even if
such amendment is approved by the Stockholders of the Company, the
amendment will not become effective if the Reorganization is consummated.
5. To approve the 1997 Stock Plan of the Company, under which an aggregate of
900,000 shares of Company Common Stock will be reserved for issuance. Even
if the 1997 Stock Plan is approved by the stockholders of the Company, the
1997 Stock Plan will become effective only if the Reorganization is not
consummated and the Stockholders of the Company approve the amendment to
the Company's Restated Certificate of Incorporation (Proposal 4 above).
DETACH HERE
[X] Please mark
votes as in
this sample
The Board of Directors unanimously recommends a vote FOR Proposals 2, 3, 4
and 5.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. To elect directors.
Nominees: Mark A. Adley, John A. Armstrong Proposal 2. [_] [_] [_]
Eugene G. Banucci, Robert S. Hillas, and Stephen H. Mahle
FOR WITHHELD Proposal 3. [_] [_] [_]
[_] [_]
Proposal 4. [_] [_] [_]
[_]
----------------------------------------------
For all nominees except as noted above Proposal 5. [_] [_] [_]
SEE ABOVE FOR EXPLANATION OF PROPOSALS 2-5
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [_]
Sign as name appears on stock certificate. Joint owners must both sign.
Attorney, executor, administrator, trustee or guardian must give title. A
corporation or partnership must sign in its name by an authorized person.
Signature: Date Signature: Date
</TABLE>
