<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ATMI, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3559 06-1481060
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
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)
---------------
EUGENE G. BANUCCI, PH.D.
CHIEF EXECUTIVE OFFICER
ATMI, 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)
---------------
COPIES TO:
DONNA L. BROOKS, ESQ. JOHN A. BURGESS, ESQ.
SHIPMAN & GOODWIN LLP HALE AND DORR LLP
ONE AMERICAN ROW 60 STATE STREET
HARTFORD, CONNECTICUT 06103 BOSTON, MASSACHUSETTS 02109
TELEPHONE NO.: (860) 251-5000 TELEPHONE NO.: (617) 526-6000
FACSIMILE NO.: (860) 251-5999 FACSIMILE NO.: (617) 526-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01.................. 4,600,000 $29.0315 $133,544,900.00 $39,395.75
</TABLE>
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(1) Includes up to 600,000 shares of Common Stock which the Underwriters have
the option to purchase from the Selling Stockholders to cover over-
allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 based on the
average of the high and low prices reported on the Nasdaq National Market
on February 12, 1998.
---------------
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 20, 1998
PROSPECTUS
4,000,000 SHARES
ATMI, INC.
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by ATMI, Inc. ("ATMI" or the "Company") and 2,000,000 shares are
being sold by the Selling Stockholders. The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders. See "Principal
and Selling Stockholders."
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol ATMI. On February 18, 1998, the last reported sale price of the Common
Stock was $29.25 per share. See "Price Range of Common Stock."
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
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Total (3)....................... $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $540,000.
(3) The Selling Stockholders have granted to the Underwriters a 30-day option
to purchase up to 600,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Selling Stockholders will
be $ , $ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be made
available for delivery on or about , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
ADVEST, INC.
NEEDHAM & COMPANY, INC.
, 1998
<PAGE>
ADCS Semiconductor
CVD Materials and Environmental
Delivery Systems Equipment
ECOSYS
[Photograph of CVD Reactor]
Gas Delivery Epitronics
Systems An ATMI Company
SDS CVD Thin Film
Safe Delivery Source Services
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M OF
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Prospective investors should consider
carefully the information under "Risk Factors."
THE COMPANY
ATMI is a leading supplier of thin film materials, equipment and services
used worldwide in the manufacture of semiconductor devices. The Company targets
high growth consumable and equipment markets within the semiconductor industry
with proprietary and patented products based on chemical vapor deposition
("CVD") technology. The Company currently provides: (i) a broad range of
ultrahigh purity thin film materials and related delivery systems; (ii) a full
line of point-of-use semiconductor environmental equipment and services; and
(iii) specialty epitaxial thin film deposition services. Over the last three
years, the Company has achieved a leadership position in each of its target
markets by providing a more complete line of products than its competitors.
ATMI's strategy is to continue its growth through product line expansion in
each of its existing markets and to leverage its core technology to create new
high growth businesses. The Company's customers include most of the leading
semiconductor manufacturers in the world.
The semiconductor industry has grown substantially in recent years as
semiconductor devices have enabled a wide variety of consumer and industrial
products, especially computing, networking and communications equipment.
Fueling this growth are advances in device performance and reduced costs that
have been made possible by innovations in the fabrication processes, equipment
and the materials used in manufacturing advanced semiconductor devices. A
primary element of semiconductor manufacturing includes the deposition of thin
films of a variety of materials on a wafer substrate, usually made of silicon.
For many processes, particularly for the deposition of semiconducting and
insulating thin films, CVD has emerged as the optimal method of deposition. As
a result, sales of CVD reactors and related CVD process consumables, equipment
and services have experienced rapid growth.
ATMI has capitalized on the growth of the semiconductor industry in general,
and CVD processing in particular, by providing leading edge products and
services in each of its target markets. The Company's ADCS division develops
and markets ultrahigh purity thin film materials and proprietary delivery
systems. ADCS is also the developer of the "Safe Delivery System," or SDS,
which stores dangerous gases as solids in cylinders, providing increased safety
and substantially greater operating efficiencies. The Company believes its
EcoSys division is the only provider of point-of-use environmental equipment
offering all of the key technologies for semiconductor effluent abatement. The
Company's Epitronics division is a world leader in specialty epitaxial
services, providing high quality processing of silicon and next-generation III-
V and wide bandgap wafers. ADCS, EcoSys and Epitronics accounted for
approximately 44%, 28% and 28%, respectively, of the Company's revenues for the
nine months ended September 30, 1997. The Company's business mix consists
predominantly of consumables and services which track "wafer starts," or the
volume of silicon wafers processed into fully functional semiconductor devices.
Consequently, ATMI believes that its overall business is less volatile than
that of a typical semiconductor capital equipment supplier.
The Company's objective is to achieve and enhance leadership positions in
each of the markets it serves. Key elements of the Company's strategy include
leveraging its substantial investment in patented CVD thin film technology,
expanding product offerings in combination with tactical acquisitions to
provide "one-stop shopping" capabilities in existing markets and targeting high
growth semiconductor markets that require products consumed in the production
process. ATMI aims to accelerate the introduction of new products through
strategic development alliances and collaborative marketing efforts with
leading semiconductor manufacturers, such as IBM, Lucent Technologies, Micron
Technology, Siemens and Texas Instruments.
ATMI is a holding company which performs executive, financial and
administrative functions for its subsidiaries. ATMI was incorporated in
Delaware in April 1997 and is the successor registrant to Advanced
3
<PAGE>
Technology Materials, Inc. ("ATM"), which was incorporated in Connecticut in
1986 and reincorporated in Delaware in 1987 and which is now a wholly-owned
subsidiary of ATMI. As used in this Prospectus, "ATMI" and the "Company" mean
either ATMI, Inc. itself or ATMI, Inc. and its consolidated subsidiaries,
including its predecessor registrant, ATM, as the context may indicate. The
Company's executive offices are located at 7 Commerce Drive, Danbury,
Connecticut 06810, and its telephone number is (203) 794-1100.
RECENT DEVELOPMENTS
In October 1997, ATMI acquired Advanced Delivery & Chemical Systems Nevada,
Inc. and its affiliates (collectively, the "ADCS Group"), a manufacturer and
distributor of ultrahigh purity semiconductor thin film materials and related
delivery systems, in exchange for 5,468,747 shares of Common Stock. The
operations of the ADCS Group have been combined with the Company's NovaMOS
business to create the ADCS division. Also in October 1997, ATMI acquired
Lawrence Semiconductor Laboratories, Inc. and its affiliate (collectively,
"LSL"), a provider of silicon epitaxial thin film deposition services, in
exchange for 3,671,349 shares of Common Stock. The operations of LSL have been
combined with the Company's Epitronics division, which now offers a wide
spectrum of epitaxial services. Both transactions were accounted for as
poolings of interest.
On February 11, 1998, the Company announced its financial results for the
three months and the fiscal year ended December 31, 1997. Total revenues
increased 31% to $28.3 million in the three months ended December 31, 1997 from
$21.6 million in the three months ended December 31, 1996. Net income,
exclusive of non-recurring transaction costs related to the acquisitions of the
ADCS Group and LSL, increased 59% to $4.3 million, or $0.23 per share on a
diluted basis, in the three months ended December 31, 1997 from $2.7 million,
or $0.14 per share on a diluted basis, in the three months ended December 31,
1996.
Total revenues in 1997 increased 15% to $101.9 million from $88.7 million in
1996. The increase was impacted by a decline in revenues during the first half
of 1997 at the ADCS Group and LSL. Net income for 1997, excluding non-recurring
charges, increased 15% to $13.4 million, or $0.72 per share on a diluted basis,
compared to $11.7 million, excluding non-recurring charges, or $0.63 per share
on a diluted basis, in 1996.
On February 20, 1998, the Company announced that it had entered into a
definitive merger agreement with NOW Technologies, Inc. ("NOW Technologies")
pursuant to which NOW Technologies would become a wholly-owned subsidiary of
the Company. The closing of the merger agreement is subject to the approval of
the shareholders of NOW Technologies and appropriate government agencies and to
the satisfaction of other customary conditions. While the exact number of
shares of Common Stock to be issued by the Company to the shareholders of NOW
Technologies will not be determined until the third trading day prior to the
closing, the number of shares to be issued will range from 1.35 million to 1.86
million. The merger is intended to be treated as a tax-free reorganization and
to be accounted for as a pooling of interests. NOW Technologies is a
manufacturer and distributor of semiconductor materials packaging systems,
particularly for advanced photoresist materials. For the twelve months ended
December 31, 1997, NOW Technologies had total revenues of approximately $15.0
million. There can be no assurance that this transaction will be completed.
Advanced Technology Materials(R) (logo), Novapure(R), Vector Technology(R),
Vector(TM) (logo), Guardian(R), Phoenix(TM), ReCAT(R), EpiGrade(R), Sparta(R),
SCRAM(R), EcoSys(TM), EcoSys(TM) (logo), Epitronics(TM), NovaSource(TM),
VaporSource(TM), SDS(R), NovaMOS(TM), Emosyn(TM), COCKTAIL(TM), ADCS(R),
ADCS(R) DESIGN, MINIBULK(R), SKINNIBULK(R), APC(TM), ULTRAPUR(TM), MARS(TM),
DOUBLE DISTILLATION(TM) and COYOTE CLEAN(TM) and certain other product and
business names used herein are trademarks of the Company. This Prospectus also
includes trademarks of companies other than the Company.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.... 2,000,000 shares
Common Stock offered by the Selling
Stockholders.......................... 2,000,000 shares
Common Stock to be outstanding after
the offering.......................... 20,149,676 shares (1)
Use of proceeds........................ General corporate purposes and working
capital, including potential
acquisitions, capital expenditures and
research and development.
Nasdaq National Market symbol.......... ATMI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Product revenues...... $11,304 $16,998 $27,537 $51,460 $78,815 $59,597 $66,427
Contract revenues..... 4,888 6,070 7,223 8,712 9,846 7,479 7,121
------- ------- ------- ------- ------- ------- -------
Total revenues........ 16,192 23,068 34,760 60,172 88,661 67,076 73,548
Operating income...... 15 2,134 3,732 8,866 15,002 13,402 13,051
Net income (loss)..... $ (241) $ 1,050 $ 5,535 (2) $ 5,088 $12,017 (3) $10,562 (3) $ 9,113
Net income (loss) per
share............. $ (0.02) $ 0.07 $ 0.33 (2) $ 0.30 $ 0.65 (3) $ 0.57 (3) $ 0.49
Weighted average
shares outstanding.. 14,097 14,561 16,693 17,171 18,456 18,460 18,730
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED (4)
-------- ---------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................................... $ 40,109 $ 95,144
Total assets......................................... 107,541 162,576
Long-term obligations, less current portion.......... 18,249 18,249
Total stockholders' equity........................... 65,072 120,107
</TABLE>
- --------------------
(1) Based on the number of shares of Common Stock outstanding at December 31,
1997. Excludes: (i) 2,015,739 shares of Common Stock reserved for issuance
under the Company's stock plans, of which 1,428,936 shares of Common Stock
are issuable upon exercise of options outstanding as of December 31, 1997
at a weighted average exercise price of $11.97 per share; and (ii) 50,000
shares of Common Stock issuable upon exercise of warrants outstanding as of
December 31, 1997 at a weighted average exercise price of $11.45 per share.
(2) Net income and net income per share in 1994 include a non-recurring gain of
approximately $3.6 million, or $0.22 per share, related to the
restructuring of a joint venture and costs incurred in the acquisition of
Vector Technical Group, Inc. ("Vector").
(3) Net income and net income per share in 1996 include the effect of the ADCS
Group's treatment as an S-Corporation for a portion of the year. If the
ADCS Group had been taxed as a C-Corporation for all of 1996, the Company's
net income and net income per share would have been approximately $9.0
million and $0.49, respectively, for the nine months ended September 30,
1996 and approximately $10.5 million and $0.57, respectively, for the year
ended December 31, 1996. Net income and net income per share in 1996 also
include the effect of a one-time charge of $2.0 million ($1.2 million, net
of taxes) accrued in connection with patent litigation involving LSL, which
resulted in a settlement payment in May 1997.
(4) As adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $29.25 per
share and the anticipated application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
--------------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting." All
information in this Prospectus also reflects the consolidated financial
position and operating results for the Company, the ADCS Group and LSL for all
periods presented in this Prospectus.
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of Common Stock offered hereby.
Potential Fluctuations in Quarterly Results. The Company's quarterly
operating results have varied significantly as a result of a number of
factors, including the timing of significant orders from, and shipments to,
customers, the timing and market acceptance of new products, the timing and
amount of bonus and incentive payment to employees, the effect of taxes and
the impact of various non-recurring expenses. The Company expects that its
operating results will fluctuate in the future as a result of these and other
factors including the demand for semiconductors in general, cyclicality in the
market for semiconductor manufacturing equipment, the Company's product mix,
the Company's success in developing, introducing and shipping new products and
the level of competition encountered in its markets. The Company's operating
results for any quarter, therefore, are not necessarily indicative of results
for any future period. Due to the foregoing factors, it is possible that in
future quarters the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Common Stock would likely be materially adversely affected. In addition, 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 also
adversely affect the market price of the Company's Common Stock. See "Price
Range of Common Stock" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Associated with Acquisitions. In October 1997, the Company acquired
through pooling-of-interests transactions all of the issued and outstanding
securities of the ADCS Group and LSL. There can be no assurance that the
Company will be able to integrate successfully the information technology
infrastructure, administration, management and service operations of the
Company, ATM, the ADCS Group and LSL in general, or integrate the operations
of the Company's former NovaMOS division and the ADCS Group or the operations
of LSL into 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 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 the Company. The completion of
the integration of the operations of the ADCS Group and LSL will require the
dedication of management resources and temporarily distract attention from the
day-to-day business of the Company, which could materially adversely affect
the Company's business, operating results and financial condition. There can
be no assurance that the Company will not incur additional charges in
subsequent quarters to reflect costs associated with the acquisitions.
If appropriate opportunities present themselves, the Company intends to
acquire other businesses, technology or product lines that the Company
believes are strategic, although the Company currently has no understandings,
commitments or agreements with respect to any acquisition other than the
proposed acquisition of NOW Technologies. There can be no assurance that the
Company will be able to successfully identify, negotiate or finance such
acquisitions, or to integrate such acquisitions with its current business. The
process of integrating an acquired business, technology or product into the
Company may result in unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise
6
<PAGE>
be available for ongoing development of the Company's business. Moreover,
there can be no assurance that the anticipated benefits of any acquisition
will be realized. Acquisitions could result in potentially dilutive issuances
of equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect the Company's business, operating results
and financial condition. Any such future growth and any acquisitions of other
businesses, technologies or products may require the Company to obtain
additional equity or debt financing, which may not be available or may be
dilutive.
Risks Associated with Expansion of Operations and Management of Growth. The
Company has recently experienced a period of rapid growth and intends to
continue to expand its business. Because of the level of scientific and
management expertise necessary to support continued growth, the Company's
future success will depend in part upon its ability to attract and retain
highly skilled scientific, technical, managerial and marketing personnel.
Competition for such personnel in the semiconductor industry is intense, and
the companies with which the Company competes are often larger and more
established than the Company. Therefore, there can be no assurance that the
Company will be successful in attracting and retaining qualified personnel. In
addition, 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 information
technology infrastructure, 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. 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. See "Business--
Businesses and Products" and "Management."
Dependence on the Semiconductor Market. Substantially all of the Company's
sales are to customers in the worldwide semiconductor industry. The Company's
results of operations, therefore, are materially dependent upon economic and
business conditions in the semiconductor industry. The semiconductor industry
has experienced significant growth in recent years; however, historically, the
semiconductor industry, and the semiconductor equipment industry in
particular, have been highly cyclical and have experienced periods of
overcapacity at various times, resulting in significantly reduced demand for
semiconductor materials, capital equipment and wafer processing services.
Should an industry downturn occur, it would adversely affect the Company's
business, operating results and financial condition. Furthermore, the Company
must continue to maintain a satisfactory level of research and development
expenditures and to invest in service and sales activities, even in periods of
reduced demand. See "Business--Industry Background."
Dependence on Sales Outside the United States; Risks Associated with Markets
Outside the United States. In the years ended December 31, 1994, 1995, 1996
and the nine months ended September 30, 1997, sales outside the United States
accounted for 25.1%, 25.5%, 28.9% and 25.1%, respectively, of the Company's
revenues. The Company anticipates that, in the future, sales outside the
United States will continue to account for a significant percentage of its
revenues. A significant portion of the Company's revenues will therefore be
subject to risks associated with sales in markets outside the United States,
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
Company's intellectual property outside the United States, 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 Company's future
sales outside the United States and, consequently, the Company's business,
operating results and financial condition. Although the Company's sales to
date have been predominantly denominated in U.S. dollars, the value of the
U.S. dollar in relation to other currencies may also adversely affect the
Company's sales to customers outside the United States. In addition, expenses
and revenues of ADCS-Korea Co., Ltd. ("ADCS-Korea") are denominated in South
Korean currency and hence are exposed to risks customarily associated with
currency fluctuations. Any significant volatility in South Korean currency, as
it relates to invested capital in ADCS-Korea, could have a material adverse
impact on the Company's stockholders' equity as reflected in currency
7
<PAGE>
translation adjustments in the Company's financial statements. The Company
does not hedge its exposure with respect to such fluctuations. To the extent
that the Company expands its international operations or changes its pricing
practices to denominate prices in other currencies, the Company will be
exposed to increased risks of currency fluctuations. Certain of the Company's
divisions conduct a material portion of their activities in Asia, including
South Korea, Taiwan and Japan, and there can be no assurance that volatile
economic conditions in the region or of those countries, or instability in the
currency of such countries or in such countries' capital markets, would not
have a material adverse effect on the Company's business, operating results
and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Operations Outside the United
States" and "Business--Customers, Sales and Marketing."
Dependence on Particular Customers. A significant portion of the Company's
revenues has been derived from particular customers. For the years ended
December 31, 1994, 1995, 1996 and the nine months ended September 30, 1997,
sales to the Company's five top customers totaled approximately 20.2%, 26.0%,
23.8% and 19.0%, respectively, of all sales during the period. The Company'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 the Company'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
purchase the Company's products or utilize its services at the same levels as
in the past. There can be no assurance that the Company's major customers will
not secure alternative sources for products or services. A reduction in, or
discontinuance of, these customers' purchases from the Company would have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Customers, Sales and Marketing."
Rapid Technological Change and Competing Technologies. Semiconductor
technology is characterized by rapid change. With such rapid changes likely to
occur in the development of new semiconducting materials and processes, the
future success of the Company will depend in large part upon its ability to
keep pace with such advances. There can be no assurance that the Company will
be able to develop technologies in response to such changes. The Company is
evaluating a number of new opportunities to commercialize its core technology
including the commercialization of smart card devices employing the Company's
advanced dielectric materials technology. There can be no assurance that any
such opportunities will lead to commercial products or that any such products
will be introduced on a timely basis or be competitive. There can also be no
assurance that the Company's current products or 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
markets the Company serves. In addition, certain of the Company's current
technologies face competition from other existing technologies. There can be
no assurance that existing or newly-developed technologies or materials will
not become superior to or more cost-effective than the Company's current
technologies and products. There also can be no assurance that the Company
will develop successful technologies and products in response to future
demands of the industry. See "Business--Businesses and Products."
Competition. The markets for semiconductor thin film materials and delivery
systems, environmental equipment and epitaxial deposition services are
intensely competitive. There are a number of domestic and international
companies engaged in commercial activities in the markets 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. To remain
competitive, the Company must continue to invest in and focus upon research
and development and product and process innovation. There can be no assurance
that the Company will be successful in such efforts. The Company believes that
its ability to compete successfully depends on a number of factors including
price, technical capabilities, quality, customers service and the ability to
provide full market-basket solutions to customers that are increasingly
seeking to streamline their vendor relationships. There can be no assurance
that the Company will be able to compete successfully in the future. See
"Business--Competition."
8
<PAGE>
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 other countries, there can be
no assurance concerning the degree of protection offered by these patents or
the likelihood that pending patents will be issued. There can be no assurance
that competitors both within and outside the United States, 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. Outside the United States, the expenses associated
with such proceedings can be prohibitive. In addition, there is an inherent
unpredictability in obtaining and enforcing patents outside the United States.
An adverse outcome in the defense of a patent suit could subject the Company
to significant liabilities to third parties or require the Company to license
rights from third parties or 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. If the Company is unable to maintain the proprietary nature of its
technologies, the Company's business could be materially adversely affected.
See "Business--Patents and Proprietary Rights."
Limited Indemnification. The former securityholders of the ADCS Group and
LSL have agreed to indemnify the Company and certain of its subsidiaries and
affiliates from and against certain losses arising out of breaches of
representations and warranties made by the respective securityholders and for
certain tax matters. As security for these obligations, the former
securityholders of the ADCS Group and LSL have delivered into escrow certain
shares of the Company's Common Stock they received in connection with the
acquisitions by the Company of the ADCS Group and LSL. The Company and the
former securityholders of the ADCS Group have divergent views on any potential
exposures related to the various tax matters for which there will be
indemnification. The former securityholders of the ADCS Group believe 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 $22.0 million depending on the tax matter. The current value of the
shares escrowed by the former securityholders of the ADCS Group 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 and its operating results and
financial condition. 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
adequately compensate the Company 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's business, operating results and financial
condition. See "Certain Transactions."
Risks Associated with New Product Development and Commercialization. The
Company believes that its future success will depend, in part, upon its
ability to enhance its existing products and processes and to develop and
commercialize new products and processes. The Company expects to continue to
make significant investment in research and development. There can be no
assurance that the Company will be able to improve its existing products and
process technologies or to develop and market new products and technologies.
9
<PAGE>
Further, there can be no assurance that the Company's development of new or
enhanced products will be cost-effective or introduced in a timely manner or
accepted in the marketplace. Failure by the Company to develop or introduce
enhanced and new products and processes in a timely manner may have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Businesses and Products."
Risks Associated with Manufacturing Operations. The manufacture of
semiconductors and related materials and equipment involves highly complex
manufacturing processes. The Company has established manufacturing facilities
for many of its products, including semiconductor environmental equipment,
thin film materials, 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. Any prolonged disruption in
the Company's manufacturing operations, whether due to technical or labor
difficulties, delay or inability to obtain sufficient quantities of certain
production input or equipment, destruction or damage to any facility or other
reasons, could have a material adverse effect on the Company's business,
operating results and financial condition. The Company is dependent upon a
limited number of suppliers to provide it with sufficient quantities of
certain materials and equipment used in its processes. There can be no
assurance that the Company can obtain the quantities of materials and
equipment it requires. To be financially successful, the Company must
manufacture its products in commercial quantities, at acceptable costs and on
a timely basis and, accordingly, may be required to expand certain of 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 certain of its products, and it may incur significant start-
up costs and unforeseen expenses in connection with attempts to manufacture
these products and expand its facilities. See "Business--Manufacturing."
Product Liability Risk; Limited Insurance Coverage. The manufacture and sale
of the Company's products, which include thin film and other toxic materials,
involve the risk of product liability claims. In addition, a failure of one of
the Company's products at a customer site could interrupt the business
operations of such customer. There can be no assurance that the Company's
existing insurance coverage limits are adequate to protect the Company from
any liabilities that it might incur in connection with the manufacture and
sale of its products. A successful product liability claim or series of
product liability claims brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, operating results and financial condition.
Environmental Regulations. The Company uses, generates and discharges toxic,
volatile or otherwise hazardous chemicals and wastes in its manufacturing,
processing and research and development 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, or is seeking to obtain, all the permits necessary to
conduct its business. However, the failure to comply with present or future
laws, rules or regulations or the failure of the Company to obtain the permits
it is currently seeking could result in fines or other liabilities 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 any of its premises, the various premises,
particularly the premises in Danbury, Connecticut, 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 to recover its response costs
and/or require future remedial measures 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
10
<PAGE>
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 laws, rules or
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. See
"Business--Environmental Regulation."
Concentration of Ownership. Upon completion of this offering, the executive
officers and directors of the Company as a group will beneficially own
approximately 31.9% of the outstanding shares of the Company's Common Stock.
Individually, Stephen H. Siegele, a director of the Company and the former
principal securityholder of the ADCS Group, and Lamonte H. Lawrence, a
director of the Company and the former principal stockholder of LSL, will
beneficially own approximately 15.0% and 13.0% of the outstanding shares of
the Company's Common Stock, respectively. As a result of their stock
ownership, the current executive officers and directors of the Company as a
group, and each of Mr. Siegele and Mr. Lawrence individually, are 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 the Company
and, therefore, may limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. See "Principal and
Selling Stockholders."
Lack of Dividends. The Company has never declared or paid any cash dividends
on its capital stock. The Company currently intends to retain all available
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future. Certain financing agreements of the
Company's subsidiaries contain limitations or prohibitions on the payment of
dividends without the lender's consent or in conjunction with a subsidiary's
failure to comply with various financial covenants. See "Divided Policy."
Risks Associated with the Control of Use of Proceeds by the Board of
Directors and Management. Of the Company's approximately $55.0 million in net
proceeds from this offering, the Company expects to use substantially all the
proceeds for unspecified general corporate purposes and working capital,
including potential acquisitions. Accordingly, management and the Board of
Directors will have complete discretion as to the application of substantially
all of the funds raised in this offering by the Company. See "Use of
Proceeds."
Anti-Takeover Effect of Certain Charter and Bylaw Provisions; Possible
Issuance of Preferred Stock. The Company's 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. These provisions could
limit the price that certain investors might be willing to pay in the future
for shares of the Company's Common Stock. 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 Board of Directors may determine. The rights of the
holders of the Company's Common Stock 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. The Company has no 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 attempting to
acquire, a majority of the outstanding voting stock of the Company. See
"Description of Capital Stock--Preferred Stock" and "--Delaware Law and
Certain Charter and Bylaw Provisions."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $29.25 per share are estimated to be $55,035,000, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
The Company intends to use the net proceeds from this offering for general
corporate purposes and working capital, including potential acquisitions in
order to expand the Company's product and services offerings, capital
expenditures and the funding of research, development and commercialization
programs. The principal reasons for this offering are to increase the
Company's equity capital and to broaden the public market for the Company's
Common Stock, which the Company believes will help facilitate future access to
capital. There can be no assurance that any acquisitions will be made, and the
Company has no present understandings, agreements or commitments with respect
to any acquisition that would utilize any of the net proceeds from this
offering. Pending such uses, the Company intends to invest the net proceeds of
the offering in investment-grade, interest-bearing instruments.
PRICE RANGE OF COMMON STOCK
The Common Stock of ATMI has traded on the Nasdaq National Market under the
symbol ATMI since October 13, 1997, and prior thereto the Common Stock of ATM,
the Company's predecessor, was traded on the Nasdaq National Market from
November 1993 under the same symbol. The following table sets forth for the
periods indicated the high and low sales price for the Common Stock as
reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1996
1st Quarter................................................. $12.75 $ 9.63
2nd Quarter................................................. 15.88 10.38
3rd Quarter................................................. 13.88 10.75
4th Quarter................................................. 18.50 12.25
FISCAL YEAR ENDED DECEMBER 31, 1997
1st Quarter................................................. 22.00 16.00
2nd Quarter................................................. 29.75 15.75
3rd Quarter................................................. 39.25 25.00
4th Quarter................................................. 42.25 18.13
FISCAL YEAR ENDED DECEMBER 31, 1998
1st Quarter (through February 18, 1998)..................... 30.50 20.00
</TABLE>
On February 18, 1998, the last reported sale price of the Common Stock on
the Nasdaq National Market was $29.25 per share. As of December 31, 1997,
there were approximately 200 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all available earnings for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future. Certain financing agreements of the Company's subsidiaries
contain limitations or prohibitions on the payment of dividends without the
lender's consent or in conjunction with a subsidiary's failure to comply with
various financial covenants.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis and (ii) as adjusted to reflect the
sale by the Company of the 2,000,000 shares of Common Stock offered hereby at
an assumed public offering price of $29.25 per share and the application of
the estimated net proceeds therefrom. This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------
ACTUAL AS ADJUSTED
------------ ---------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
Total long-term liabilities, less current por-
tion......................................... $ 18,249 $ 18,249
============ =============
Minority interest............................. 578 578
------------ -------------
Stockholders' equity:
Preferred Stock, par value $0.01: 2,000,000
shares authorized; no shares issued or
outstanding................................ -- --
Common Stock, par value $0.01: 30,000,000
shares authorized; 17,935,973 shares issued
and outstanding; 19,935,973 shares issued
and outstanding, as adjusted (1)........... 179 199
Additional paid-in capital.................. 37,924 92,939
Cumulative translation adjustment........... (62) (62)
Retained earnings........................... 27,031 27,031
------------ -------------
Total stockholders' equity................ 65,072 120,107
------------ -------------
Total capitalization.................... $ 83,899 $ 138,934
============ =============
</TABLE>
- ---------------------
(1) Based on the number of shares outstanding at September 30, 1997. Excludes:
(i) 1,135,491 shares of Common Stock issuable upon exercise of outstanding
options at a weighted average exercise price of $8.18 per share; and (ii)
161,250 shares of Common Stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $11.34 per share. See
Note 9 of Notes to Consolidated Financial Statements.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of operations data for the
years ended December 31, 1994, 1995 and 1996 and the balance sheet data as of
December 31, 1995 and 1996 are derived from the audited consolidated financial
statements of the Company. The statements of operations data for the years
ended December 31, 1992 and 1993 and the nine-month periods ended September
30, 1996 and 1997 and the balance sheet data as of December 31, 1992, 1993 and
1994 and September 30, 1997 are derived from unaudited consolidated financial
statements. The unaudited consolidated financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the nine-month
period ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1997. The data
set forth below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Product revenues....... $11,304 $16,998 $27,537 $51,460 $78,815 $59,597 $66,427
Contract revenues...... 4,888 6,070 7,223 8,712 9,846 7,479 7,121
------- ------- ------- ------- ------- ------- -------
Total revenues......... 16,192 23,068 34,760 60,172 88,661 67,076 73,548
Cost of revenues....... 9,601 12,655 17,739 29,723 41,231 30,866 35,442
------- ------- ------- ------- ------- ------- -------
Gross profit........... 6,591 10,413 17,021 30,449 47,430 36,210 38,106
Operating expenses:
Research and
development......... 1,260 1,864 3,981 5,697 9,838 6,927 7,863
Selling, general and
administrative...... 5,316 6,415 9,308 15,886 22,590(1) 15,881 17,192
------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 6,576 8,279 13,289 21,583 32,428 22,808 25,055
------- ------- ------- ------- ------- ------- -------
Operating income....... 15 2,134 3,732 8,866 15,002 13,402 13,051
Interest income
(expense), net........ (80) (338) (250) (357) 4 (27) (108)
Other income
(expense), net........ 14 123 3,769 (543) 18 0 0
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
minority interest..... (51) 1,919 7,251 7,966 15,024 13,375 12,943
Income taxes........... 570 1,138 1,728 2,888 3,158 2,942 3,782
------- ------- ------- ------- ------- ------- -------
Income (loss) before
minority interest..... (621) 781 5,523 5,078 11,866 10,433 9,161
Minority interest...... 380 269 12 10 151 129 (48)
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $ (241) $ 1,050 $ 5,535(2) $ 5,088 $12,017(3) $10,562(3) $ 9,113
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share................. $ (0.02) $ 0.07 $ 0.33(2) $ 0.30 $ 0.65(3) $ 0.57(3) $ 0.49
======= ======= ======= ======= ======= ======= =======
Weighted average
shares outstanding.... 14,097 14,561 16,693 17,171 18,456 18,460 18,730
<CAPTION>
DECEMBER 31,
--------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities............ $ 5,749 $14,765 $16,474 $33,818 $30,812 $ 23,135
Working capital........ 6,133 15,404 17,124 34,221 36,586 40,109
Total assets........... 17,766 29,518 40,995 78,590 93,191 107,541
Long-term obligations,
less current
portion............... 4,396 2,446 8,020 14,815 17,723 18,249
Minority interest...... 3,447 3,179 6 535 545 578
Total stockholders'
equity (deficiency)... (3,314) 16,825 22,410 45,118 55,473 65,072
</TABLE>
- ---------------------
(1) Selling, general and administrative expenses in 1996 include the effect of
a one-time charge of $2.0 million ($1.2 million, net of taxes) accrued in
connection with patent litigation involving LSL, which resulted in a
settlement payment in May 1997.
(2) Net income and net income per share in 1994 include a non-recurring gain
of approximately $3.6 million, or $0.22 per share, related to the
restructuring of a joint venture and costs incurred in the acquisition of
Vector.
(3) Net income and net income per share in 1996 include the effect of the ADCS
Group's treatment as an S-Corporation for a portion of the year. If the
ADCS Group had been taxed as a C-Corporation for all of 1996, the
Company's net income and net income per share would have been
approximately $9.0 million and $0.49, respectively, for the nine months
ended September 30, 1996 and approximately $10.5 million and $0.57,
respectively, for the year ended December 31, 1996.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. When used in this Prospectus, the words
"anticipate," "plan," "believe," "estimate," "expect" and similar expressions
as they relate to the Company or its management are intended to identify such
forward-looking statements. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. Factors that could cause
or contribute to such differences include those discussed in "Risk Factors,"
as well as those discussed elsewhere herein.
OVERVIEW
ATMI was incorporated in Delaware in 1997 and is the successor registrant to
ATM, which was incorporated in Connecticut in 1986 and reincorporated in
Delaware in 1987. The Company is a leading supplier of specialty thin film
materials and delivery systems, point-of-use environmental equipment and
epitaxial processing services for the semiconductor industry. Product revenues
include revenues from the sale of consumable thin film materials and materials
delivery systems, environmental equipment, consumable resins for effluent
abatement and processed epitaxial wafers. Product revenues are recognized upon
the shipment of those products. The Company also derives revenues from
contract research and development activities related to high performance
semiconductor materials and devices and from royalties generated under various
license agreements. Contract revenues are recognized using a percentage-of-
completion method based upon costs incurred and estimated future costs.
A substantial majority of ATMI's revenues track "wafer starts" within the
semiconductor industry, or the volume of silicon wafers processed into fully
functional semiconductor devices. These include revenues derived from the sale
of speciality thin film materials that are used in CVD processes and the
delivery systems for these materials. Manufacturers seek to replenish these
consumable materials on a continuing basis. Furthermore, once the Company's
specialty materials are qualified for a specific process, the Company's
customers typically source materials from the Company for the lifetime of the
process, generating a recurring revenue stream. Similarly, the Company derives
a recurring revenue stream from the sale of resins that are used in certain of
its environmental equipment products. Additionally, the Company's epitaxial
wafer processing services revenues are directly tied to the number of wafers
processed for the Company's customers. A smaller portion of ATMI's revenues,
principally those derived from environmental equipment sales, track new
semiconductor plant construction. For the nine months ended September 30,
1997, approximately 75% of the Company's product revenues were from product
lines that were primarily related to "wafer starts," while approximately 25%
of the Company's product revenues were from product lines that were primarily
related to "fab starts," or new plant construction. Because a minority of its
revenues are tied to fab starts, the Company believes that its overall
business is less volatile than that of a typical semiconductor equipment
supplier.
The Company's products are based primarily on proprietary and patented CVD
technologies used in the manufacture of semiconductor devices. The Company's
strategy has been to use these technologies to develop and, in conjunction
with industry collaborators, sequentially introduce products into high growth
markets of the semiconductor industry. Using this phased commercialization
strategy, the Company has been able to develop its core CVD technologies and
establish businesses to support further commercialization of its products. The
Company has also used a targeted acquisition strategy to assist in building
critical mass and market position in each of the markets it serves.
15
<PAGE>
ADCS comprises the thin film materials and related delivery system products
of the Company and contributed approximately 44% of consolidated revenues for
the nine months ended September 30, 1997. The Company entered the thin film
materials market in February 1992 with a strategy targeting advanced materials
for next-generation devices. As those next-generation markets were evolving
and ATMI's new thin film materials were nearing commercialization, the Company
sought to accelerate this commercialization by acquiring another supplier
currently serving this market with established products and strong
distribution and manufacturing capabilities. In October 1997, the Company
acquired the ADCS Group and combined the Company's thin film materials and
delivery systems business with the business of the ADCS Group.
EcoSys manufactures, sells and services point-of-use semiconductor
environmental equipment and generated approximately 28% of the Company's
consolidated revenues in the nine months ended September 30, 1997. The Company
entered the semiconductor environmental equipment market in 1989 with the
introduction of its Novapure dry chemical scrubber. This product was
originally designed pursuant to a contract with the Environmental Protection
Agency. In 1991, this product and several others resulting from early stage
research and development efforts at the Company were contributed to Novapure
Corporation ("Novapure"), a joint venture with Millipore Corporation
("Millipore"). In 1994, the Company acquired Vector, a manufacturer of liquid
and combustion semiconductor environmental equipment. In conjunction with the
sale of certain product lines of Novapure to Millipore in 1994, the Company
formed EcoSys by combining the retained rights to the effluent treatment
product line of Novapure with Vector's product lines. In 1995, the Company
acquired the Guardian Systems product line of combustion semiconductor
environmental equipment to further broaden EcoSys' product offerings.
Epitronics provides end-use customers with thin film epitaxial services
covering a variety of materials in the semiconductor industry and generated
approximately 28% of the Company's consolidated revenues for the nine months
ended September 30, 1997. The Company's development of epitaxial processes
began in 1987, centered around novel wide bandgap semiconductor materials such
as silicon carbide. Through discussions with its customers and development
collaborators, the Company recognized that an opportunity existed to create a
materials company that could offer epitaxial services for a wide spectrum of
semiconductor materials. To complement its silicon carbide and gallium nitride
epitaxial thin film technology, the Company acquired Epitronics Corporation, a
Phoenix, Arizona-based processor of III-V epitaxial wafers for the wireless
and optoelectronics markets in December 1995. The Company integrated the
operations of Epitronics Corporation with its Diamond Electronics division in
1996, under the more widely recognized Epitronics name. In October 1997, ATMI
acquired LSL, a Mesa, Arizona-based provider of silicon epitaxial wafer
processing services. ATMI has integrated the operations of LSL with
Epitronics, which now offers a wide spectrum of epitaxial services.
The acquisitions of Vector, the ADCS Group and LSL have been accounted for
as pooling-of-interests transactions. As a result, the Consolidated Financial
Statements of the Company have been restated to include the results of Vector,
the ADCS Group and LSL for all periods presented.
On February 20, 1998, the Company announced that it had entered into a
definitive merger agreement with NOW Technologies pursuant to which NOW
Technologies would become a wholly-owned subsidiary of the Company. While the
exact number of shares of Common Stock to be issued by the Company to the
shareholders of NOW Technologies will not be determined until the third
trading day prior to the closing, the number of shares to be issued will range
from 1.35 million to 1.86 million. The merger is intended to be treated as a
tax-free reorganization and to be accounted for as a pooling of interests. For
the twelve months ended December 31, 1997, NOW Technologies had total revenues
of approximately $15.0 million. There can be no assurance that this
transaction will be completed.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of income expressed as a percentage
of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------
NINE MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Product revenues......................... 79.2% 85.5% 88.9% 88.8% 90.3%
Contract revenues........................ 20.8 14.5 11.1 11.2 9.7
----- ----- ----- ------ ------
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues......................... 51.0 49.4 46.5 46.0 48.2
----- ----- ----- ------ ------
Gross profit............................. 49.0 50.6 53.5 54.0 51.8
Operating expenses:
Research and development................ 11.5 9.5 11.1 10.3 10.7
Selling, general and administrative..... 26.8 26.4 25.5 23.7 23.4
----- ----- ----- ------ ------
Total operating expenses............... 38.2 35.9 36.6 34.0 34.1
----- ----- ----- ------ ------
Operating income......................... 10.7 14.7 16.9 19.9 17.7
Interest income (expense), net........... (0.7) (0.6) -- -- (0.1)
Other income (expense), net.............. 10.8 (0.9) -- -- --
----- ----- ----- ------ ------
Income before income taxes and minority
interest................................ 20.9 13.2 16.9 20.0 17.6
Income taxes............................. 5.0 4.8 3.6 4.4 5.1
----- ----- ----- ------ ------
Income before minority interest.......... 15.9 8.4 13.4 15.6 12.5
Minority interest........................ -- -- 0.2 0.2 (0.1)
----- ----- ----- ------ ------
Net income............................... 15.9% 8.5% 13.6% 15.7% 12.4%
===== ===== ===== ====== ======
</TABLE>
RECENT RESULTS OF OPERATIONS
On February 11, 1998, the Company announced its financial results for the
three months and the fiscal year ended December 31, 1997. Total revenues
increased 31% to $28.3 million in the three months ended December 31, 1997
from $21.6 million in the three months ended December 31, 1996. Product
revenues increased 37% to $26.3 million in the three months ended December 31,
1997 from $19.2 million in the corresponding period in 1996, while contract
revenues declined to 7.1% of total revenues in the three months ended December
31, 1997 from 11.0% in the corresponding period in 1996. Increased sales of
the SDS product line were the primary driver of the revenue increase for the
three months ended December 31, 1997 when compared to the corresponding period
in 1996.
Net income, exclusive of non-recurring transaction costs related to the
acquisitions of the ADCS Group and LSL, increased 59% to $4.3 million, or
$0.23 per share on a diluted basis, in the three months ended December 31,
1997 from $2.7 million, or $0.14 per share on a diluted basis, in the three
months ended December 31, 1996.
Total revenues in 1997 increased 15% to $101.9 million from $88.7 million in
1996. The increase was impacted by a decline in revenues during the first half
of 1997 at the ADCS Group and LSL. Net income for 1997, excluding non-
recurring charges, increased 15% to $13.4 million, or $0.72 per share on a
diluted basis, compared to $11.7 million, excluding non-recurring charges, or
$0.63 per share on a diluted basis, in 1996.
In the three months ended December 31, 1997, the Company recognized a $9.0
million non-recurring charge related to the costs of completing the ADCS Group
and LSL acquisitions. Inclusive of this charge, the
Company had a net loss of $4.7 million, or $0.25 per share on a diluted basis,
for the three months ended December 31, 1997, and net income of $4.4 million,
or $0.24 per share on a diluted basis, for 1997. The
17
<PAGE>
Company also recognized a $2.0 million one-time charge in the three months
ended December 31, 1996 related to a litigation settlement that LSL incurred
prior to its acquisition by the Company. Including this charge, the Company
had earnings of $1.5 million and $12.0 million for the three months and fiscal
year ended December 31, 1996, respectively, or $0.08 and $0.65 per share on a
diluted basis, respectively.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues. Total revenues increased 10% to $73.5 million in the nine months
ended September 30, 1997 from $67.1 million in the nine months ended September
30, 1996. Product revenues increased 11% to $66.4 million in the nine months
ended September 30, 1997 from $59.6 million in the corresponding period in
1996.
ADCS revenues increased 36% in the nine months ended September 30, 1997 when
compared to the nine months ended September 30, 1996. This growth was
primarily attributable to a substantial increase in SDS product sales as well
as the conversion of SDS revenues in the fourth quarter of 1996 from a royalty
stream to a product revenue stream. ADCS thin film materials revenues
increased 22% in the nine months ended September 30, 1997 when compared to the
nine months ended September 30, 1996. This materials revenue growth included
sales to new customers as well as increased sales to existing accounts.
Partially offsetting the materials revenue growth was a 14% decrease in
materials delivery equipment sales when comparing the two periods. This
decrease was attributable to a shift away from an OEM distribution channel to
a direct sales channel where, particularly in the second quarter of 1997, the
OEM equipment orders slowed in advance of any increase in end-user orders.
EcoSys revenues increased 3% in the nine months ended September 30, 1997
when compared to the nine months ended September 30, 1996. The increase was
attributable to a slight increase in equipment sales and continued growth in
sales of consumable resins, despite a decline in the overall semiconductor
equipment market in the first half of 1997.
Epitronics revenues decreased 4% in the nine months ended September 30, 1997
when compared to the nine months ended September 30, 1996. Growth in the
smaller gallium arsenide and wide bandgap product lines was offset by a
decrease in silicon epitaxial services revenues. The decrease in silicon epi
revenues was primarily a result of production downtime associated with the
relocation of manufacturing equipment to the Company's new Mesa, Arizona
facility, which was completed in July 1997. Additionally, a diversion of
management's attention during early 1997 related to the negotiation and sale
of the silicon epi business to ATMI had a slight negative effect on revenue
growth during that period.
Contract revenues decreased 5% to $7.1 million, or 9.7% of total revenues,
in the nine months ended September 30, 1997 from $7.5 million, or 11.2% of
total revenues, in the nine months ended September 30, 1996. The decline in
the 1997 period resulted from a general decrease in government funding of the
Company's contract research activities, reflecting the completion of certain
contract research programs and the Company's decision to focus on research
relating to specific, commercially relevant efforts.
Gross Profit. Cost of revenues is comprised of material, labor and overhead
in differing proportions, depending on the business unit within the Company.
EcoSys' cost of revenues consists primarily of material costs, while ADCS'
costs have a higher relative labor content and Epitronics' costs consist
primarily of indirect costs of maintaining an epi facility. Additionally,
contract revenue costs consist of direct labor and material and indirect costs
associated with the performance of government contracted research activity.
Gross profit increased 5% to $38.1 million in the nine months ended
September 30, 1997 from $36.2 million in the nine months ended September 30,
1996. Gross margin decreased to 51.8% of revenues in the nine months ended
September 30, 1997 from 54.0% of revenues in the nine months ended September
30, 1996. Gross margin on product revenues decreased to 55.6% in the nine
months ended September 30, 1997
from 58.9% in the nine months ended September 30, 1996. The decrease of
product margins was primarily attributable to lower margins in the silicon epi
business due to the relocation of manufacturing equipment
18
<PAGE>
during the first half of 1997 and duplicate facility costs during that period.
Additionally, margin decreases were caused by lower selling prices to end-user
customers of ADCS and the fact that the SDS revenue stream was a smaller but
higher margin royalty stream in the 1996 period. Margin decreases were
partially offset by the improved margin profile of the overall product mix of
EcoSys in 1997. Gross margin on contract revenues increased to 16.1% in the
nine months ended September 30, 1997 from 15.3% in the nine months ended
September 30, 1996. Contract margins varied slightly when comparing the nine
month periods due to different fee arrangements and indirect cost absorption.
Research and Development Expenses. Research and development expenses consist
of personnel and other indirect costs for internally funded product
development. These expenses are complemented by the externally funded research
activities relating to contract revenues. Research and development expenses
increased 14% to $7.9 million in the nine months ended September 30, 1997 from
$6.9 million in the nine months ended September 30, 1996. The increase was
primarily due to increased staffing for several development efforts pertaining
to certain of the Company's advanced thin film technology and related
applications. As a percentage of revenues, research and development expenses
increased to 10.7% in the nine months ended September 30, 1997 from 10.3% in
the nine months ended September 30, 1996. The percentage of research and
development expenses to revenues is expected to remain relatively constant in
the foreseeable future.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 8% to $17.2 million in the nine months ended
September 30, 1997 from $15.9 million in the nine months ended September 30,
1996. The increase was primarily due to increased corporate administrative
costs, increased commissions on higher product revenues and increased product
marketing activity. As a percentage of revenues, these expenses decreased to
23.4% in the nine months ended September 30, 1997 from 23.7% in the nine
months ended September 30, 1996. The percentage of selling, general and
administrative expenses to revenue should decrease marginally as the Company
achieves further critical mass in its businesses.
Interest Income (Expense), Net. Interest income is primarily derived from
interest earned on the Company's cash, cash equivalents and marketable
securities. Interest income increased 12% in the nine months ended September
30, 1997 compared to the nine months ended September 30, 1996 due to a slight
increase in the average invested cash balances when comparing those periods.
Interest expense increased 19% when comparing the two periods due to larger
debt balances outstanding during the nine months ended September 30, 1997.
Income Taxes. ATMI's income tax expense related to federal and state taxes
on income generated, partially offset by the utilization of loss carryforwards
and available state tax credits. Income tax expense increased 29% to $3.8
million in the nine months ended September 30, 1997 from $2.9 million in the
nine months ended September 30, 1996. The effective income tax rate in the
1997 nine-month period of 29.2% was higher than the 22.0% in the 1996 nine-
month period because the 1996 period included six months during which the ADCS
Group received the benefit of being treated as an S-Corporation. Additionally,
the Company had more operating loss carryforwards to use in the 1996 period
than in the most recent nine-month period. The Company expects the effective
tax rate to approach fully taxed rates in 1998.
Minority Interest. Minority interest represents the 30% interest held by
K.C. Tech Co., Ltd. ("K.C. Tech") in the operations of ADCS-Korea, a South
Korean chusik hoesa, which is a joint venture established to manufacture, sell
and distribute chemicals to the semiconductor and related industries in South
Korea.
Earnings Per Share. Earnings per share decreased to $0.49 in the nine months
ended September 30, 1997 from $0.57 in the nine months ended September 30,
1996. The decrease in earnings per share is primarily attributable to the ADCS
Group's being taxed as an S-Corporation for a portion of 1996. Additional
United States federal corporate income tax of $1.5 million would have been
incurred if the ADCS Group had
19
<PAGE>
been taxed as a C-Corporation for the nine months ended September 30, 1996,
and the pro forma consolidated net income and net income per share for ATMI
for the nine months ended September 30, 1996 would have been $9.0 million and
$0.49, respectively. On a pro forma basis, using new computations pursuant to
Financial Accounting Standards Board Statement No. 128 ("FAS 128"), diluted
earnings per share decreased to $0.49 in the nine months ended September 30,
1997 from $0.57 in the nine months ended September 30, 1996. Basic earnings
per share under FAS 128 decreased to $0.53 in the nine months ended September
30, 1997 from $0.61 in the nine months ended September 30, 1996.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenues. Total revenues increased 47% to $88.7 million in 1996 from $60.2
million in 1995, and increased 73% in 1995 from $34.8 million in 1994. Product
sales increased 53% to $78.8 million in 1996 from $51.5 million in 1995, and
increased 87% in 1995 from $27.5 million in 1994. Commercial product revenues
have grown at a significantly faster rate than contract revenues such that
product revenues comprised 88.9% of total revenues in 1996 compared to 85.5%
in 1995 and 79.2% in 1994.
Over the three-year period, ADCS revenues have grown at a rate in excess of
the growth rate of the semiconductor industry. Sales of materials and delivery
systems increased 42% in 1996 from 1995, and increased 90% in 1995 when
compared to 1994. This growth was primarily due to market share gains in
Europe and Asia along with increased sales to existing customers. Increased
acceptance of the Company's delivery and refill hardware systems also
generated revenue growth over this period.
The SDS product line began to have a significant impact on the Company's
revenue growth in 1996. The revenue from this product line changed in late
1996 from a royalty stream to a product revenue stream. As a result, sales of
this product represented 4.7% of total revenues in 1996, up from 1.5% of total
revenues in 1995.
By leveraging its technology leadership and full service philosophy in the
market for semiconductor environmental equipment, EcoSys increased market
share in the face of a declining overall capital equipment market in 1996. The
December 1995 acquisition of the Guardian product line, which was accounted
for as a purchase transaction, was also responsible for a portion of the
revenue growth in 1996. Sales of effluent gas treatment products increased 48%
in 1996 when compared to 1995 and 70% in 1995 when compared to 1994.
Epitronics revenues have grown significantly, driven primarily by increased
customer demand for the silicon processing services of the Company. Epitronics
revenues increased 50% in 1996 when compared to 1995, and increased 90% in
1995 when compared to 1994.
General increases in government funding of ATMI research resulted in the
growth of contract revenues. Government funding increased 13% to $9.8 million
in 1996 from $8.7 million in 1995, and increased 21% in 1995 from $7.2 million
in 1994. The increased research funding in 1996 was primarily focused on
materials development, device processing and device design activities within
ADCS and Epitronics. The 1995 growth was primarily related to increased
funding of substrate fabrication and materials development projects.
Gross Profit. Gross profit increased 56% to $47.4 million in 1996 from $30.4
million in 1995, and increased 79% in 1995 from $17.0 million in 1994. Gross
margin improved to 53.5% of revenues in 1996 from 50.6% of revenues in 1995,
and from 49.0% of revenues in 1994. ATMI's sales mix continued to shift toward
greater volumes of high-margin products. Gross margin on product revenues
increased 57% to $45.9 million in 1996 from $29.2 million in 1995, and
increased 83% in 1995 from $15.9 million in 1994. Product gross margin
improved to 58.3% of product revenues in 1996, up from 56.8% of product
revenues in 1995, which represented a slight decrease from 57.9% of product
revenues in 1994. The improved product margins in 1996 were attributable
primarily to higher margins on epitaxial processing due to efficiencies gained
with increased volume and to the significant increases in royalties in
connection with SDS product line growth. The slight decline in gross margin in
1995 when compared to 1994 was principally due to the growth of the equipment
20
<PAGE>
component of ADCS' business in 1995 as a percentage of its overall business,
which yields lower margins than sales of thin film materials.
Gross profit on contract revenues increased 23% to $1.5 million in 1996 from
approximately $1.2 million in 1995, and increased 14% in 1995 from $1.1
million in 1994. Gross margin on contract revenues over the last three years
has remained relatively stable. Gross margin on contract revenues increased to
15.3% in 1996 from 14.0% in 1995, which was a decrease from 14.8% in 1994.
Contract margins can vary from year to year based on the mix of cost-type,
fixed-price and cost sharing arrangements. Additionally, different fee
arrangements and indirect cost absorption can result in some margin
variability.
Research and Development Expenses. Research and development expenses
increased 73% to $9.8 million in 1996 from $5.7 million in 1995, and increased
43% in 1995 from $4.0 million in 1994. The 1996 increase was primarily due to
expansion of product development efforts within EcoSys and ADCS and increased
spending to expand and protect the SDS technology portfolio. Research and
development expenses as a percentage of revenues increased to 11.1% in 1996,
compared with 9.5% in 1995, which was a decrease from 11.5% in 1994. The 1995
increase related principally to EcoSys product development and an increase in
bonus compensation compared with bonuses paid in 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 42% to $22.6 million in 1996 from $15.9
million in 1995, and increased 71% in 1995 from $9.3 million in 1994. ATMI's
variable selling costs grew in 1996 in line with the Company's revenue growth.
ATMI also added administrative staff in 1996 to support revenue growth and
incurred increased costs related to the businesses acquired in 1995. Selling,
general and administrative expenses in 1996 also reflected a one-time charge
of $2.0 million accrued in connection with patent litigation involving LSL,
which resulted in a settlement payment in May 1997. The increase in 1995 was
also due to variable selling cost increases and also to the expansion of the
Company's marketing staff. Selling, general and administrative expenses as a
percentage of revenues decreased to 25.5% in 1996, compared with 26.4% in 1995
and 26.8% in 1994.
Interest Income (Expense), Net. Interest income increased 70% to $1.6
million in 1996 from $1.0 million in 1995, and increased 74% in 1995 from
$600,000 in 1994. The Company's invested cash balances throughout 1996 were
significantly higher than in 1995 due to the Company's public offering of
common stock in October 1995. Interest expense increased 24% to $1.6 million
in 1996 from $1.3 million in 1995 and was primarily attributable to increased
borrowings under capital lease commitments at Epitronics as well as the
mortgage on the Mesa, Arizona facility. Interest expense increased 64% in 1995
from $800,000 in 1994 due to the issuance of notes in conjunction with the
acquisition of the Guardian product line and increased borrowings under term
loans for improvements at the Company's Danbury, Connecticut facility.
Other Income (Expense), Net. Other income in 1994 resulted from the
restructuring of Novapure and a related sale of assets for a $4.6 million
gain. This gain was partially offset by transaction and consolidation expenses
of $1.0 million for restructuring Novapure, acquiring Vector, and combining
Vector and Novapure into EcoSys.
Income Taxes. ATMI's income tax expense related to United States federal and
state taxes on income generated, partially offset by the utilization of loss
carryforwards and available state tax credits. Income tax expense increased 9%
to $3.2 million in 1996 from $2.9 million in 1995, and increased 67% in 1995
from $1.7 million in 1994. The effective income tax rate decreased to 21.0% in
1996 from 36.3% in 1995 and from 23.8% in 1994. The decline in 1996 was the
result of the ADCS Group's being taxed as an S-Corporation for a portion of
1996, while the lower rate in 1994 related to utilization of loss
carryforwards.
Minority Interest. Minority interest represents K.C. Tech's 30% interest in
the operations of ADCS-Korea.
21
<PAGE>
Earnings Per Share. Earnings per share increased 116% to $0.65 in 1996 from
$0.30 per share in 1995, and increased 200% in 1995 from $0.10 in 1994,
exclusive of the non-recurring gain recognized in 1994 of $0.23 per share. The
1996 earnings, adjusted on a pro forma basis to treat the ADCS Group as a
C-Corporation for all of 1996, would have been $0.57 per share or $10.5
million. On a pro forma basis, using new computations pursuant to FAS 128,
diluted earnings per share increased 117% to $0.65 in 1996 from $0.30 per
share in 1995, and increased 200% in 1995 from $0.10 in 1994, exclusive of the
non-recurring gain recognized in 1994 of $0.23 per share. Basic earnings per
share under FAS 128 increased 119% to $0.70 in 1996 from $0.32 per share in
1995, and increased 191% in 1995 from $0.11 in 1994, exclusive of the non-
recurring gain recognized in 1994 of $0.25 per share.
22
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
financial information for the seven quarters ended September 30, 1997, as well
as such data expressed as a percentage of the Company's total revenues for the
periods indicated. In the opinion of the Company's management, this
information has been prepared on the same basis as the audited Consolidated
Financial Statements appearing elsewhere in this Prospectus and includes
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the unaudited quarterly results set forth herein.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
-------------------------------------- ---------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product revenues........ $18,702 $20,623 $20,272 $19,218 $19,895 $21,239 $25,293
Contract revenues....... 2,483 2,212 2,784 2,367 2,618 2,282 2,221
------- ------- ------- ------- ------- ------- -------
Total revenues.......... 21,185 22,835 23,056 21,585 22,513 23,521 27,514
Cost of revenues........ 8,713 11,207 10,946 10,365 11,487 11,414 12,541
------- ------- ------- ------- ------- ------- -------
Gross profit............ 12,472 11,628 12,110 11,220 11,026 12,107 14,973
Operating expenses:
Research and
development........... 2,835 2,318 1,774 2,911 2,465 2,643 2,755
Selling, general and
administrative........ 5,274 5,310 5,297 6,709(1) 5,155 5,776 6,261
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 8,109 7,628 7,071 9,620 7,620 8,419 9,016
------- ------- ------- ------- ------- ------- -------
Operating income........ 4,363 4,000 5,039 1,600 3,406 3,688 5,957
Interest income
(expense), net......... 7 43 (87) 41 16 (60) (64)
Other income (expense),
net.................... 10 0 0 8 (5) 22 (17)
------- ------- ------- ------- ------- ------- -------
Income before income
taxes and minority
interest............... 4,380 4,043 4,952 1,649 3,417 3,650 5,876
Income taxes............ 1,518 796 627 217 920 990 1,872
------- ------- ------- ------- ------- ------- -------
Income before minority
interest............... 2,862 3,247 4,325 1,432 2,497 2,660 4,004
Minority interest....... 53 11 65 22 19 (44) (23)
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 2,915 $ 3,258 $ 4,390 $ 1,454 $ 2,516 $ 2,616 $ 3,981
======= ======= ======= ======= ======= ======= =======
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product revenues........ 88.3% 90.3% 87.9% 89.0% 88.4% 90.3% 91.9%
Contract revenues....... 11.7 9.7 12.1 11.0 11.6 9.7 8.1
------- ------- ------- ------- ------- ------- -------
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues........ 41.1 49.1 47.5 48.0 51.0 48.5 45.6
------- ------- ------- ------- ------- ------- -------
Gross profit............ 58.9 50.9 52.5 52.0 49.0 51.5 54.4
Operating expenses:
Research and
development........... 13.4 10.2 7.7 13.5 10.9 11.2 10.0
Selling, general and
administrative........ 24.9 23.3 23.0 31.1(1) 22.9 24.6 22.8
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 38.3 33.4 30.7 44.6 33.8 35.8 32.8
------- ------- ------- ------- ------- ------- -------
Operating income........ 20.6 17.5 21.9 7.4 15.1 15.7 21.7
Interest income
(expense), net......... 0.0 0.2 (0.4) 0.2 0.1 (0.3) (0.2)
Other income (expense),
net.................... 0.0 0.0 0.0 0.0 0.0 0.1 (0.1)
------- ------- ------- ------- ------- ------- -------
Income before income
taxes and minority
interest............... 20.7 17.7 21.5 7.6 15.2 15.5 21.4
Income taxes............ 7.2 3.5 2.7 1.0 4.1 4.2 6.8
------- ------- ------- ------- ------- ------- -------
Income before minority
interest............... 13.5 14.2 18.8 6.6 11.1 11.3 14.6
Minority interest....... 0.3 0.1 0.3 0.1 0.1 (0.2) (0.1)
------- ------- ------- ------- ------- ------- -------
Net income.............. 13.8% 14.3% 19.0% 6.7% 11.2% 11.1% 14.5%
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------------
(1) Results for the quarter ended December 31, 1996 include the effect of a
one-time charge of $2.0 million ($1.2 million, net of taxes) accrued in
connection with patent litigation involving LSL, which resulted in a
settlement payment in May 1997.
23
<PAGE>
The Company'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. The Company expects to
experience similar, or perhaps even more substantial, fluctuations in the
future. These fluctuations can be caused by a variety of factors which, in the
past, have included the timing of significant orders from, and shipments to,
customers, the timing and market acceptance of new products, the timing and
amount of bonus and incentive payments to employees, the effect of taxes and
the impact of various non-recurring expenses. There can be no assurance as to
any future levels of revenues, losses or profits. The Company believes there
is no seasonal nature to its business.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its activities through the sale of equity,
external research and development funding, various lease and debt instruments
and operations. The Company's working capital increased to $40.1 million at
September 30, 1997 from $36.6 million at December 31, 1996 and $34.2 million
at December 31, 1995.
For the nine months ended September 30, 1997, operations provided cash of
approximately $0.3 million. Working capital increases, most notably in
accounts receivable, inventory and other assets, including $6.6 million of
transaction costs incurred in conjunction with the reorganization of the
Company and the acquisitions of the ADCS Group and LSL, resulted in
significant uses of cash during the nine months ended September 30, 1997. The
transaction costs have been expensed in the fourth quarter of 1997 as part of
a one-time, non-recurring charge of approximately $9.0 million. Net cash
generated from operations in 1996 of approximately $13.2 million was due
principally to the increased profitability of the Company for the year. In
1995, ATMI generated net cash from operations of $7.2 million, primarily due
to the profitability of operations, which was offset by a significant increase
in accounts receivable because of end-of-the-year product shipments. In 1994,
$3.2 million in net cash was generated by operating activities, primarily due
to the profitability of operations.
The Company's investing activities included capital expenditures of $5.6
million, $11.6 million, $6.3 million and $3.0 million in the nine months ended
September 30, 1997 and the years 1996, 1995 and 1994, respectively. The 1997
expenditures included both the installation of SDS manufacturing capacity in
the Danbury, Connecticut facility and an increase in epitaxial capacity in
Epitronics' Arizona facilities. In addition, the Company anticipates the
purchase of a reactor for $2.5 million in 1998. Capital expenditures for 1996
included final construction of Epitronics' manufacturing facility in Mesa,
Arizona, as well as manufacturing expansion for EcoSys and ADCS-Korea, and
laboratory construction for customer application work for EcoSys. Capital
expenditures in 1995 and 1994 were for renovations and leasehold improvements
to the Company's Danbury and San Jose, California facilities, upgrades to the
Company's information systems and purchases of laboratory equipment.
Among other investing activities for 1996, ATMI sold $3.6 million in
marketable securities and made a $4.0 million payment in connection with the
1995 acquisition of the Guardian product line. During 1995, ATMI made a $1.0
million investment in Candescent Technologies Corporation (formerly Silicon
Video Corporation) in conjunction with a joint development program, and
purchased $11.2 million of marketable securities with the proceeds received
from the 1995 public offering of common stock. When the Company restructured
Novapure and sold a portion of its assets in 1994, ATMI received net proceeds
of approximately $2.5 million.
ATMI has financed a significant portion of its capital equipment purchases,
particularly the silicon epitaxial capacity currently in place, through
capital leases. Approximately $9.5 million of capital lease obligations was
outstanding as of September 30, 1997. Financial institutions have also
provided collateral-based loans for other equipment purchases, and
approximately $7.5 million of notes payable to commercial banks was
outstanding as of September 30, 1997. In addition, the State of Connecticut
has extended loans of $1.8 million to assist in the renovation of the
Company's Danbury facility. At September 30, 1997,
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$20.8 million of loans and financing remained outstanding. Finally, at
September 30, 1997, approximately $2.0 million remained outstanding on a
promissory note related to the Company's 1995 acquisition of the Guardian
systems product line. Management believes that its debt service obligations
can be adequately satisfied by cash flows from operations.
ATMI believes the proceeds from the sale of Common Stock offered hereby, in
combination with existing cash balances, marketable securities, existing
sources of liquidity and anticipated funds from operations, including those of
the newly acquired businesses, will satisfy its projected working capital and
other cash requirements through at least the end of 1998. However, ATMI
believes the level of financing resources available to it is an important
competitive factor in its industry and may seek additional capital prior to
the end of that period. Additionally, ATMI considers, on a continuing basis,
potential acquisitions of technologies and businesses complementary to its
current business. Other than the proposed acquisition of NOW Technologies,
there are no present understandings, commitments or agreements with respect to
any such acquisition. However, any such transaction may affect ATMI's future
capital needs.
OPERATIONS OUTSIDE THE UNITED STATES
In the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997, sales outside the United States, including Asia and
Europe, accounted for 25.1%, 25.5%, 28.9%, and 25.1%, respectively, of the
Company's revenues. The Company anticipates its sales outside the United
States will continue to account for significant percentage of its revenues. In
addition, the Company has entered into a joint venture agreement with K.C.
Tech pursuant to which it has a 70% interest in ADCS-Korea, a South Korean
chusik hoesa, which manufactures, sells and distributes thin film materials to
the semiconductor and related industries in South Korea.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000" problem
is pervasive and complex, as virtually every computer operation will be
affected in the same way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test its systems for year 2000 compliance. It is
anticipated that all reprogramming efforts will be complete by December 31,
1998, allowing adequate time for testing. This process includes obtaining
confirmations from the Company's primary vendors that plans are being
developed or are already in place to address processing of transactions in the
year 2000. However, there can be no assurance that the systems of other
companies on which the Company's systems rely also will be converted in a
timely fashion or that any such failure to convert by another company would
not have an adverse effect on the Company's systems. Management is in the
process of completing its assessment of the year 2000 compliance costs.
However, based on currently available information (excluding the possible
impact of vendor systems which management currently is not in a position to
evaluate), management does not believe that these costs will have a material
effect on the Company's earnings.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are not historical are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"). These forward-
looking statements represent the Company's present expectations or beliefs
concerning future events. The Company cautions that such statements are
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements including those
factors identified in "Risk Factors." Results actually achieved thus may
differ materially from expected results included in these statements.
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BUSINESS
INTRODUCTION
ATMI is a leading supplier of thin film materials, equipment and services
used worldwide in the manufacture of semiconductor devices. The Company
targets high growth consumable and equipment markets within the semiconductor
industry with proprietary and patented products based on chemical vapor
deposition ("CVD") technology. The Company currently provides: (i) a broad
range of ultrahigh purity thin film materials and related delivery systems;
(ii) a full line of point-of-use semiconductor environmental equipment and
services; and (iii) specialty epitaxial thin film deposition services. Over
the last three years, the Company has achieved a leadership position in each
of its target markets by providing a more complete line of products than its
competitors. ATMI's strategy is to continue its growth through product line
expansion in each of its existing markets and to leverage its core technology
to create new high growth businesses. The Company's customers include most of
the leading semiconductor manufacturers in the world.
ATMI has capitalized on the growth of the semiconductor industry in general,
and CVD processing in particular, by providing leading edge products and
services in each of its target markets. The Company's ADCS division develops
and markets ultrahigh purity thin film materials and proprietary delivery
systems. ADCS is also the developer of the "Safe Delivery System," or SDS,
which stores dangerous gases as solids in cylinders, providing increased
safety and substantially greater operating efficiencies. The Company believes
its EcoSys division is the only provider of point-of-use environmental
equipment offering all of the key technologies for semiconductor effluent
abatement. The Company's Epitronics division is a world leader in specialty
epitaxial services, providing high quality processing of silicon and next-
generation III-V and wide bandgap wafers. ADCS, EcoSys and Epitronics
accounted for approximately 44%, 28% and 28%, respectively, of the Company's
revenues for the nine months ended September 30, 1997. The Company's business
mix consists predominantly of consumables and services which track wafer
starts, or the volume of silicon wafers processed into fully functional
semiconductor devices. Consequently, ATMI believes that its overall business
is less volatile than that of a typical semiconductor capital equipment
supplier.
INDUSTRY BACKGROUND
The semiconductor industry has grown substantially in recent years as
semiconductor devices have proliferated in a wide variety of consumer and
industrial products, especially in computing, networking and communications
equipment. According to VLSI Research Inc., the semiconductor industry
achieved worldwide sales in 1996 of $138 billion and is estimated to achieve
worldwide sales of over $343 billion in 2001. This increase in demand for
semiconductor devices has been fueled by the ability of semiconductor
manufacturers to deliver products with consistently enhanced performance
characteristics and functionality, improved reliability, increased memory
capacity and reduced size, weight, power consumption and cost. These advances
have been made possible by innovations in the fabrication processes, equipment
and the materials used in manufacturing advanced semiconductor devices. At the
same time, as the construction and management of fabrication facilities has
become more complex, semiconductor manufacturers have sought to streamline
their vendor relationships and reduce the number of vendors upon which they
rely, which in turn has driven significant consolidation among the providers
of semiconductor capital equipment and materials and materials delivery
systems.
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 etch. During deposition,
several layers of conducting, semiconducting or insulating thin films are
formed on a wafer. Precise and reliable control of the deposition of these
films is vital to the ultimate performance of an individual device. The
initial method of thin film deposition was physical vapor deposition ("PVD"),
which has in recent years been largely supplanted by CVD for the deposition of
semiconducting and insulating thin films. In the CVD process, wafers are
placed in a sophisticated reaction chamber (a "reactor"), and a specially
designed gas or vaporized liquid material is introduced. Simultaneously, a
form of energy (e.g., heat or plasma) is added to
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the reactor to cause the decomposition of the material being introduced. As a
result of this decomposition, a thin film of material is deposited on the
surface of the wafer.
The advantages of CVD include 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 ability to coat
large areas. These advantages have led to rapid growth in sales of reactors
and related CVD process consumables and equipment. Consumables and related
equipment include the raw materials used in the CVD process and the delivery
systems required to transport the materials around a semiconductor plant and
to a reactor. Related equipment also includes specially designed environmental
equipment that is used to abate the toxic or otherwise hazardous effluent from
CVD reactors.
In addition to deposition on patterned wafers, CVD thin film processes are
used to prepare bare wafers prior to the fabrication of integrated circuits to
provide the wafer surfaces with the desired uniformity of electrical and
physical properties. Such CVD thin film deposition is referred to as epitaxial
deposition, and such wafers when processed are referred to as epitaxial, or
"epi," wafers. The complexity, sensitivity and capital intensive nature of the
CVD processes used for epitaxy have created a market for epitaxial thin film
deposition services, or essentially contract manufacture of epi wafers using
CVD processes.
Materials and Delivery Systems
The market for semiconductor thin film consumables has expanded with the
growth of the market for semiconductor devices. The design of new thin film
deposition materials and equipment to transport these materials around a
semiconductor plant and to reactors has experienced ongoing innovation driven
by the demand for expanding semiconductor device capabilities and
corresponding decreases in circuit dimensions. Safe and effective thin film
deposition requires dedicated systems designed to deliver and vaporize
precursor materials for deposition in reactors without contamination or
inadvertent release of toxic gases. Tetraethylorthosilicate ("TEOS") is a
principal liquid precursor material used in the deposition of silicon dioxide
layers, which generally serve as insulators between the conductive layers in a
semiconductor device. Other important materials include trimethylphosphite
("TMP"), triethylphosphate ("TEPO"), trimethylborate ("TMB") and
triethylborate ("TEB"), which are used for the deposition of phosphorous and
boron containing materials.
Because thin film precursors are consumables, the market for these materials
and delivery systems generally tracks wafer starts, as opposed to the market
for equipment, which generally tracks investment in new plants. The thin film
materials market is also characterized by segmentation into a wide variety of
material types and forms. For example, most thin film precursors are now sold
as pressurized gases, which allows for easy transport around a typical
semiconductor manufacturing plant. However, many of these gases are toxic
and/or hazardous, leading to the development of safer alternatives including
the use of liquid or solid CVD precursors and the adoption of gas handling
technologies and delivery systems that minimize the danger of a catastrophic
release of toxic gas. The Company estimates that the total annual market for
thin film precursor materials and delivery systems exceeds $500 million and is
growing at a rate in excess of 15% per year.
Environmental Equipment
The use of CVD processes has also required the development of environmental
equipment designed to abate the effluent from CVD reactors. In general, less
than 25% of the materials entering a CVD reactor are deposited as a thin film.
The remainder of the source materials, and certain by-products, constitute an
effluent stream containing toxic and hazardous material that must be abated to
meet increasingly strict worldwide environmental, safety and health
regulations. Traditionally, abatement has been accomplished by the use of
"whole plant" environmental systems which aggregate the effluents from an
entire facility. However, growing variations in the processes utilized and the
drive for increased productivity have led to the growth of point-of-use
environmental systems in which a single environmental unit is attached to a
single reactor. This approach provides for superior abatement because the
system can be tuned to the unique hazards of a particular
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effluent stream. In addition, point-of-use environmental systems can improve
plant productivity by reducing downtime associated with servicing
environmental systems. The Company believes the market for this type of point-
of-use environmental equipment exceeds $200 million per year.
Specialty Epitaxial Deposition Services
The demand for higher performance integrated circuits and discrete
semiconductor devices has driven the use of epitaxial wafers in a wide variety
of applications. Because epitaxy involves a high degree of expertise and
requires significant capital expenditures, a merchant market for epitaxial
wafers, primarily silicon epitaxial wafers, has in recent years grown to more
than $1.2 billion. This market is subdivided into "generic" wafers for high
volume applications such as dynamic random access memory ("DRAM") and
"specialty" wafers for use in applications such as automotive electronics and
sensors, silicon-based low power telecommunications circuits, analog power
controls and robust application-specific integrated circuits. The Company
believes that specialty epi products currently account for approximately 15%
of the total epi wafer market and will constitute a significant portion of the
overall growth of the merchant market for epitaxial wafers.
The continued drive for improved device performance and new applications for
integrated circuits has led to the development and commercialization of
alternative semiconductor technologies. A newer generation of devices has
emerged that utilize epitaxial wafers made of III-V and wide bandgap
materials, as opposed to silicon, to achieve this improved performance. III-V
semiconductors, including gallium arsenide and indium phosphide, are finding
increasing use in wireless communication devices where high frequency
performance is critical, in optoelectronic devices where the electronic
structure of the III-V semiconductors allows energy efficient light generation
and in solar cells for satellite applications where efficient generation of
electricity is critical. Wide bandgap semiconductors such as silicon carbide
and gallium nitride offer advantages in high power, optoelectronic and high
temperature devices.
The following depicts various aspects of the CVD process and ATMI's related
products and services:
[DIAGRAM DEPICTING EQUIPMENT AND VARIOUS ASPECTS OF THE CVD PROCESS]
(1) GASES
Most semiconductor thin film processes use high pressure gases either to
"carry" material into a reactor or as "source materials" that decompose to
form a thin film. ATMI manufactures a novel low pressure gas delivery
system called the SDS that provides for exceptional safety in handling
gaseous source materials.
(2) LIQUID SOURCE MATERIALS
Many CVD source materials are now liquids. ATMI designs, develops, and
manufactures liquid source materials that decompose in a CVD reactor to
form metallic, semiconducting, or insulating thin films.
(3) LIQUID DELIVERY SYSTEMS
Continuous liquid refill and vaporization systems maximize the productivity
of CVD tools. ATMI manufactures and sells a variety of innovative refill
and vaporization systems.
(4) THIN FILM DEPOSITION
As source materials enter the CVD reactor, they encounter energy in the
form of heat or plasma. The energy decomposes the source material to yield
a functional thin film. ATMI provides contract CVD thin film epitaxial
services to semiconductor manufacturers.
(5) EFFLUENT GAS TREATMENT
Only a small percentage of the source material is actually decomposed, with
the remainder flushed out of the reactor via vacuum pumping systems. ATMI
manufactures systems that minimize the release of reactor effluent into
the environment.
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ATMI STRATEGY
ATMI is a leading supplier of thin film materials and related delivery
systems, a full line of point-of-use semiconductor environmental equipment and
specialty epitaxial deposition services for the semiconductor industry. The
Company's objective is to establish and enhance leadership positions in each
of the markets it serves. The Company's strategy consists of the following key
elements:
Leverage CVD Technology Leadership. The Company has invested extensively in
developing proprietary and patented CVD thin film technology which it
leverages to commercialize new products to meet customer requirements. Its CVD
technology is based on a multidisciplinary approach that draws upon the
experience of ATMI's personnel in the areas of chemistry, physics, materials
science and electrical engineering. ATMI dedicates significant resources to
maintaining its expertise in CVD technology and protecting its intellectual
property, which now includes 80 issued U.S. patents and numerous counterparts
outside the United States. The Company intends to continue to develop new
products and new lines of business that leverage its core competencies.
Target High Growth Semiconductor Markets. ATMI targets semiconductor markets
where technology-driven paradigm shifts are occurring or are enabled by the
use of ATMI's core technologies. The Company typically focuses on markets with
high growth rates and that require products that are consumed in the
production process, such as thin film materials. For example, ATMI believes
that the market for low pressure gas delivery systems and related consumables,
served by the Company's SDS gas delivery product line, is growing at a rate in
excess of the overall growth rate of the semiconductor equipment industry.
Accelerate Product Introduction Through Strategic Alliances. ATMI forms
strategic alliances, including joint development programs and collaborative
marketing efforts, to accelerate the introduction of its products into markets
that have manufacturing and/or distribution barriers. Most of ATMI's strategic
alliances are with leading semiconductor manufacturers, such as IBM, Lucent
Technologies, Micron Technology, Siemens and Texas Instruments, each of which
has participated in advanced materials development programs with the Company.
Such programs enhance ATMI's core technology base and promote the introduction
of targeted products while reducing the Company's need to make research and
development and capital expenditures. In addition, since the Company's
inception, the United States government has provided approximately $62.0
million in research funding directed towards the costly development of new
thin film processes and materials for complex electronic devices.
Provide Full Market-Basket Solutions. To address semiconductor
manufacturers' desire to streamline their vendor relationships, ATMI seeks to
provide a full market-basket solution, or "one-stop shopping," in each of its
target markets. To provide such capability, ATMI pursues internal development
of new products and seeks to acquire complementary product lines and services
to continually expand its capabilities. For example, the Company acquired
"wet" and "combustion" scrubber product lines to complement its internally
developed "dry" scrubber product line in order to expand its capabilities to
abate effluents from all major semiconductor front-end processes. This
approach allows EcoSys to serve a wide spectrum of the semiconductor
industry's environmental needs and to provide comprehensive worldwide service.
BUSINESSES AND PRODUCTS
ATMI conducts its operations through three primary divisions: ADCS, EcoSys
and Epitronics. ADCS 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. EcoSys manufactures, sells and services point-of-use
environmental equipment for the semiconductor industry. Epitronics provides
specialty epitaxial deposition services to the semiconductor industry for a
wide variety of end-use applications.
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
DIVISION BUSINESS PRODUCTS
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ADCS Thin film materials and delivery systems . Thin film materials
. Liquid delivery systems
. Gas delivery systems
- ---------------------------------------------------------------------------------------------
EcoSys Point-of-use environmental equipment . Novapure dry scrubbers
. Vector liquid scrubbers
. Guardian active oxidation scrubbers
- ---------------------------------------------------------------------------------------------
Epitronics Specialty thin film deposition services . Silicon epitaxial services
. III-V epitaxial services
. Wide bandgap epitaxial services
- ---------------------------------------------------------------------------------------------
</TABLE>
Consistent with its corporate strategy, the Company actively explores new
opportunities to commercialize its core technology. In January 1998, the
Company announced the formation of its Emosyn division. Emosyn intends to
develop and commercialize smart card devices employing the Company's
ferroelectric materials and process integration technology. The Company
developed this technology in a consortium with IBM, Micron Technology and
Texas Instruments. Emosyn recently entered into a strategic alliance with a
subsidiary of SMH Swatch, the largest watch maker in Switzerland, to design,
develop, manufacture and distribute integrated circuits for use in smart
cards. In addition, the Company currently has two other ventures in
development that it believes may comprise future business units for the
Company. The first is focused on the development of gas sensing devices that
will allow for the detection and measurement of the many gases used in thin
film processing, and the second is focused on the development of metrology
tools that will detect thin film properties during the deposition process.
ADCS: SEMICONDUCTOR MATERIALS AND DELIVERY SYSTEMS
The Company believes ADCS is one of the fastest growing suppliers of
ultrahigh purity thin film materials and associated delivery systems equipment
to the semiconductor industry. The Company has taken advantage of the changes
in the market for thin film materials and delivery systems by: (i) developing
and commercializing a wide range of CVD liquid precursors; (ii)
commercializing innovative bulk delivery systems which automatically deliver
materials of the highest purity and consistency to the reactor; (iii)
developing innovative delivery systems that allow for the introduction of low
volatility liquids and even solids to the reactor; and (iv) developing and
commercializing patented low-pressure gas delivery systems for safe handling
and delivery of toxic and hazardous gases to semiconductor process equipment.
ADCS strives to ensure that its materials and related delivery systems meet
and exceed the requirements of its customers, which include semiconductor
device manufacturers and OEMs located throughout the world. In developing its
business, ADCS seeks: (i) to offer the most complete line of consumable and
delivery system products; (ii) to offer the most consistent, highest purity
thin film materials available; (iii) to offer the most reliable, innovative
equipment products; (iv) to improve the level of customer service and response
offered and to remain cost-effective to its customers; (v) to meet customer
needs for statistical quality control and dock-to-stock programs; and (vi) to
continue to meet the industry's needs for advanced thin film materials
required for next-generation devices and beyond.
Products and Services
ADCS has three primary product lines: thin film materials, liquid delivery
systems and gas delivery systems. ADCS also provides services relating to each
of these product lines.
Thin Film Materials. ADCS produces a broad range of thin film materials that
are used in making semiconductor devices. In addition to the widely used CVD
precursors--TEOS, TMP, TEPO, TMB and TEB--ADCS also sells thin film materials
used in other semiconductor manufacturing processes, including
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phosphorous and boron halides used for doping by diffusion processing. ADCS
also manufactures and sells source reagents that allow CVD of advanced
materials, including titanium nitride, platinum, copper, tantalum oxide, lead
zirconate titanate, strontium bismuth tantalate and barium strontium titanate
thin films.
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 chemicals have purities in excess of
99.99999% to 99.999999% with respect to unwanted metal impurities. A
proprietary DOUBLE DISTILLATION purification process is used to produce these
high-purity specifications. In order to preserve this high purity, the
chemicals are packaged and delivered in high quality, carefully constructed
and cleaned containers. ADCS has developed a proprietary COYOTE CLEAN process
for preparation of its containers, which range from quartz and stainless steel
ampules to much larger MINIBULK and SKINNIBULK canisters. Coupled with its
Quality Control Program, ADCS 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 reactor. Continuing
its commitment to quality, ADCS achieved ISO 9001 certification in 1997.
Liquid Delivery Systems. ADCS 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 reactor under the desired physical conditions. ADCS'
delivery hardware products include stainless steel ampules, stainless steel
MINIBULK canisters, stainless steel SKINNIBULK canisters, quartz bubblers,
bulk chemical delivery cabinets, level sensing systems, manual and continuous
refill systems and other application-specific equipment.
The Company believes that its continuous refill systems enhance the
performance of the process tools they support by eliminating process downtime
resulting from canister changes. Typically, process tools must cease operation
when canister changes are made to replenish source material. ADCS' bulk refill
systems allow continuous delivery of source material. In addition to the
elimination of the downtime associated with canister changes, this
configuration also minimizes the atmospheric and moisture contamination that
can occur during these change-outs.
Gas Delivery Systems (SDS). The SDS, or "Safe Delivery System," patented by
ATMI, uses a standard gas cylinder containing an adsorbent material. When the
cylinder is filled with gas, the gas is adsorbed by the material and
essentially "fixed" so that it behaves like a solid. The SDS cylinder is,
therefore, not under pressure, minimizing any potential leak of hazardous gas
and allowing more gas to be introduced into the cylinder. Consequently,
material delivery via SDS is both safer and provides higher rates of
productivity than traditional methods. Since most semiconductor processes
operate at reduced pressure and the gas can be desorbed or released from the
SDS under vacuum, it can be installed and operated like a conventional high-
pressure gas cylinder. These advantages have led major chip manufacturers to
adopt this technology.
To date, four gases--arsine, phosphine, boron trifloride and silicon
tetrafloride--using the SDS technology have been introduced. Each is used to
"dope" silicon wafers using ion implant processes. All of these gases are
available in different size cylinders, and some have different adsorbents that
allow for additional gas capacity within a cylinder. These products are
manufactured by the Company and, on a toll basis, by Matheson Gas Products
("Matheson"), the Company's exclusive distributor for ion implant.
The Company also believes that significant markets for SDS exist outside ion
implant. The Company is now conducting beta site tests with selected
semiconductor manufacturers and OEMs for CVD applications using SDS. The
Company believes that commercial introduction of SDS products for this market
will occur in the second half of 1998. ATMI also has undertaken extensive
development efforts to identify new markets
and products for the SDS technology. The Company believes that certain etch
gases used in the semiconductor industry and certain gases employed in the
medical field are possible candidates for SDS.
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Services. In addition to its thin film materials and associated delivery
systems equipment, ADCS 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.
ECOSYS: POINT-OF-USE SEMICONDUCTOR ENVIRONMENTAL EQUIPMENT
ATMI believes EcoSys is the only provider of point-of-use environmental
equipment offering all of the key technologies for effluent gas abatement to
the semiconductor industry: dry chemical, liquid and active oxidation. As a
result of this broad product line, ATMI believes EcoSys is a global market
leader in the manufacture and sale of point-of-use semiconductor effluent
abatement equipment. ATMI's strategy is to grow EcoSys' market share through
the continued development and acquisition of new semiconductor environmental
products and services. The Company believes that this full line of
semiconductor environmental products, coupled with a comprehensive service
strategy, will allow for continued market penetration by its EcoSys business.
Products and Services
EcoSys has three primary product lines and several developmental products.
Each of the three major point-of-use products has cost of ownership advantages
for semiconductor customers in certain applications such as CVD, ion implant
and etch.
Novapure dry chemical scrubbers adsorb and concentrate hazardous effluent
through the use of consumable resins at rates many times that of conventional
effluent treatment methods. ATMI believes that EcoSys, through its patented
adsorption materials, is a market leader for point-of-use semiconductor
effluent dry scrubbing throughout the world. Additionally, demand for
consumable resin material is increasing as the installed base of dry scrubbers
increases.
Vector liquid scrubbers are designed for cost effective removal of acidic
and high particulate bearing gases commonly used in the wafer fabrication
process. Vector scrubbers recirculate scrubbing water, minimizing overall
water use, and are effective in removing high particulate effluent.
Guardian active oxidation scrubbers treat a variety of combustible materials
used in semiconductor processing. The Guardian product line is designed for
low cost of ownership by operating on inexpensive methane fuel while achieving
very high removal efficiencies. These combustion systems also abate certain
global warming gases such as perfluorinated carbon compounds ("PFCs") at high
efficiency with near zero nitrous oxide generation.
EcoSys is engaged in the development of additional product lines to
complement its existing ones in order to meet the evolving needs of
semiconductor manufacturers. Developmental products include ReCAT catalytic
oxidation scrubbers which use proprietary catalysts to destroy volatile
organic compounds ("VOCs"). VOCs arise from the use of solvents in applying
photoresists and other organic materials during device fabrication. EcoSys is
also marketing and continuing to develop effluent treatment systems for the
capture of semiconductor process gases in emergency and cylinder change-out
situations. Such situations might arise at the point of delivery of a gas to a
reactor through gas cylinder rupture or similar catastrophic event. In
addition, EcoSys is investigating the potential for recycling the materials
used in thin film deposition processes in the belief that recycling is
ultimately preferred over destructive abatement. PFCs, for example, are used
in various wafer cleaning and etch processes. As suspected ozone depleting
materials, their use is being limited by production cutbacks and the need for
strict environmental control systems. In conjunction with Praxair Corporation,
EcoSys has developed a PFC recycling system that captures the gas and
repurifies it for subsequent reuse. In 1997, the first unit was installed at a
test site.
EPITRONICS: SPECIALTY EPITAXIAL DEPOSITION SERVICES
Epitronics is primarily a service business providing specialty epitaxial
deposition services for silicon, III-V and wide bandgap wafers. Desired
electrical and physical properties of the epitaxial layers are specified by
the
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customer and developed in collaboration with Epitronics. The properties of the
epitaxial layers are selected to maximize the performance of the customer's
integrated circuit or device while maximizing yield and minimizing cost.
Epitronics' fundamental competitive advantages include the manufacture of high
quality epitaxial layers with high yield. In addition, Epitronics
differentiates itself by offering quality epitaxial deposition services with
fast turnaround and in flexible volumes.
ATMI believes that Epitronics is the only provider offering CVD thin film
deposition services for each of the key materials used in semiconductor
devices today and that it is now a world leader in specialty epitaxial
deposition services. Epitronics' strategy is to maximize market share through
the continued development and acquisition of new semiconductor thin film
products and services. A key element of the business strategy is to work with
the customer in the early stages of product development to ensure that proven
epitaxial processes are in place when the decision is made to expand into
manufacturing.
Products and Services
Epitronics provides epitaxial deposition services for silicon, III-V
materials and wide bandgap materials. The Company also distributes certain
wafer products that are manufactured by third parties to provide "one-stop
shopping" for its customers. Several new products are also in varying stages
of commercialization.
Silicon Epitaxial Wafers. Epitronics currently processes silicon epitaxial
wafers in Mesa, Arizona. Epitronics has experience in a wide range of silicon
epitaxial processes and selects the process that provides the highest value to
the customer. Processes include deposition from trichlorosilane,
dichlorosilane and silane which can be operated at atmospheric or reduced
pressure. Epitronics is particularly skilled at: (i) the deposition of
epitaxial layers on wafers that already have patterns or buried circuits
created by selective implantation and diffusion; (ii) the deposition of
lattice matched silicon thin films containing high amounts of boron and
germanium that can be used in sensor applications; and (iii) the selective
deposition of silicon on sapphire or other oxide-patterned substrates.
III-V Epitaxial Wafers. Epitronics processes III-V epitaxial wafers in
Phoenix, Arizona. III-V epi products are finding increasing use in wireless
communications, satellites and optoelectronics for data and telecommunication
markets. In particular, there is an increased demand for III-V epi wafers for
heterojunction bipolar transistors for use in power amplifiers. Epitronics
markets its epitaxial services and sells the product of the service, epitaxial
wafers, directly to industry and government customers according to their
design specifications.
Wide Bandgap Epitaxial Wafers. Epitronics is developing epitaxial processes
for silicon carbide and gallium nitride on one- to two-inch diameter silicon
carbide and sapphire wafers in Danbury, Connecticut. The silicon carbide
wafers are manufactured in-house and are also offered for sale to external
customers. The Company believes that these substrate sales will promote
additional collaborations, addressing technology development and commercial
epitaxial product introduction issues associated with future optoelectronic,
sensor and power device products.
Distribution Products. Consistent with its marketing strategy of offering a
complete line of specialty epitaxial wafers and advanced substrates,
Epitronics is a distributor of SIMOX (Separation by IMplanted OXygen) wafers
for Nippon Steel Corporation ("NSC") (Japan) and specialty III-V wafers for
Wafer Technology (United Kingdom). These distributed materials complement
Epitronics' epitaxial services and leverage the development of the sales and
marketing organization required to execute its customer service driven
marketing plan. NSC SIMOX wafers are used for fabricating high speed and
radiation-hard circuits. Specialty III-V wafers from Wafer Technology include
indium phosphide-based materials for optical fiber-
based communications, gallium arsenide for optoelectronic devices and indium
antimonide for infrared detectors.
Developmental Products. Epitronics is developing both substrate and thin
film technology for solid-state blue light emitting diodes ("LEDs") and
lasers. Blue LEDs will be primarily used in full color displays while
33
<PAGE>
blue lasers are valuable for increasing optical data storage capabilities and
in full color printers. Gallium nitride substrate technology under development
by Epitronics and others may be essential to high yield LED manufacturing
processes and to developing long lifetime blue lasers. Epitronics is
collaborating with Hewlett-Packard, Xerox, SDL and others to develop substrate
technology for commodity blue lasers and is developing proprietary device
designs to enable penetration of specialty laser markets. Epitronics is the
preferred high performance materials supplier for a consortium which is
developing blue lasers for improved data storage.
CUSTOMERS, SALES AND MARKETING
ATMI sells and distributes its products worldwide, both directly and through
manufacturers' representatives. Many of ATMI's customers have relationships
with more than one division of the Company, or are acting as collaborators on
ATMI's development programs. A number of ATMI's customers are listed below:
<TABLE>
<S> <C> <C>
Advanced Micro Devices IBM Samsung Electronics
Applied Materials Intel SGS Thomson
Atmel Lucent Technologies Siemens
GEC Plessey Semiconductor Motorola Sony
Goldstar Electronics National Semiconductor Texas Instruments
Hewlett-Packard Novellus Tokyo Electron
Hyundai Electronics Philips TSMC
</TABLE>
ADCS primarily distributes its materials and delivery system products to
end-use customers through its direct sales force in North America and Europe
and through regional manufacturing representatives in Asia. ADCS distributes
its products in South Korea through ADCS-Korea. Additionally, the equipment
product lines are marketed and sold to semiconductor equipment OEMs, who in
turn resell to end users. The SDS product is currently being marketed and sold
solely into the ion implant market through an exclusive distribution agreement
with Matheson.
EcoSys distributes its point-of-use environmental equipment through
manufacturers' representatives throughout the world. Direct sales personnel
serve as regional managers who coordinate the representatives' activity within
their respective regions. Additionally, EcoSys markets directly to
semiconductor end-user facility managers to provide full-fab environmental
solutions as well as installation and on-going service.
Epitronics markets and sells its thin film deposition services and epitaxial
wafers primarily on a direct basis. In particular, silicon epi wafers and
services are sold directly throughout the world. Wide bandgap and III-V
epitaxial wafers are sold directly in North America and through distributors
and agents in Europe and Asia.
COMPETITION
The semiconductor thin film materials and delivery systems, environmental
equipment and epitaxial deposition services 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 ATMI. The Company attempts to
compete by leveraging its substantial investment in CVD thin film technology
to expand product offerings in combination with tactical acquisitions to
provide full market-basket solutions to customers that are increasingly
seeking to streamline their vendor relationships.
ADCS' primary competitors in the United States are the Schumacher Division
of Air Products Corporation and the Diffusion Systems Division of Olin Hunt
Specialty Products, Inc. Outside of North America, ADCS competes with these
companies and also with Yamanaka Hutech Corporation and Kojundo in Asia and
Merck in Europe. There are several other smaller participants in these
markets. There are currently no direct competitors to the patented SDS
product. Several companies, however, provide gases in high-pressure containers
that compete with the process capability of SDS.
34
<PAGE>
EcoSys' primary competition in effluent gas treatment is from companies
focused on water and combustion treatment methods. The primary water scrubber
competitor is Delatech, while combustion scrubber competitors include Delatech
and Alzeta. Dry scrubber competitors include CS GmbH, Ebara, Japan Pionics and
the Edwards Division of British Oxygen Corporation.
As a supplier of a broad-based line of epi services and products, Epitronics
has competitors in each of its three primary product areas. In silicon epi,
Epitronics competes with Moore Technologies and a number of specialty wafer
manufacturers with their own epi capabilities. In III-V epi, Epitronics
competes with Kopin, Epi Products, Emcore and a number of smaller
manufacturers. In wide bandgap epi, competitors include Cree Research (silicon
carbide) and IBIS Technology (SIMOX wafers).
MANUFACTURING
ADCS manufactures its thin film materials and delivery systems at its
Burnet, Texas and Danbury, Connecticut facilities. In addition, ADCS-Korea's
facility in Anseong, South Korea manufactures thin film materials to be
distributed in the South Korean market. The manufacturing facility for SDS in
Danbury is complemented by contracted manufacturing from Matheson's facility.
The Company believes that these facilities are adequate for its current needs,
but expects to expand to meet anticipated demand.
EcoSys manufactures the majority of its point-of-use environmental equipment
in San Jose, California. EcoSys manufactures its proprietary adsorbents for
its gas treatment products at ATMI's Danbury facility. Manufacture of the
Guardian product line had been subcontracted to a third party which
manufactured these products prior to the acquisition of the Guardian product
line by ATMI in 1995. The Company commenced manufacture of this product line
at its San Jose facility in 1997.
Epitronics processes its specialty silicon epitaxial wafers at its Mesa,
Arizona facility and processes III-V semiconductor wafers for the wireless and
optoelectronic industries at its Phoenix, Arizona facility. It processes wide
bandgap wafers and produces high performance thin films in Danbury.
Raw materials for ATMI's products and processes are available from multiple
domestic sources.
RESEARCH AND DEVELOPMENT AND STRATEGIC ALLIANCES
ATMI's research and development expenditures are partially funded by
external sources, including semiconductor manufacturers, semiconductor
equipment OEMs and various agencies of the federal government. Total sums
expended for research and development in the years ended December 31, 1994,
1995 and 1996 and in the nine months ended September 30, 1997 were $10.1
million, $13.2 million, $18.2 million and $13.8 million, respectively. Of
those amounts, $6.2 million, $7.5 million, $8.3 million and $6.0 million,
respectively, were externally funded and are classified as cost of contract
revenues on ATMI's Consolidated Financial Statements, and $4.0 million, $5.7
million, $9.8 million and $7.9 million, respectively, were internally funded
expenditures by the Company and are classified as research and development
expenses on ATMI's Consolidated Financial Statements. Over the last three
years, a significant portion of the Company's research and development has
focused on ferroelectric materials and SDS gas delivery systems.
Ferroelectric Materials. The Company believes that further reductions in
circuit dimensions will require changes in the materials used for the thin
films required to store, transmit and switch electricity in the complex
circuitry of semiconductor devices. As a result, in August 1992, the Company
entered into an agreement with IBM, Micron Technology and Texas Instruments
(the "Collaborating Group") to develop advanced thin film capacitor materials
and CVD process technology delivery equipment for next-generation memory
devices. This agreement focused on developing CVD process technology to
fabricate ferroelectric thin films, such as barium strontium titanate, for
high performance memory devices. Barium strontium titanate can store over 30
times more electrical charge than conventional thin films. Use of this
material could significantly reduce the manufacturing complexity of advanced
memory devices. In April 1993, the Advanced
35
<PAGE>
Research Projects Agency awarded a $5 million contract for the development of
thin film materials technology to the Collaborating Group, with the Company as
prime contractor. This program was successfully completed in 1996 with a total
cost of over $20 million. The Company, through its Emosyn division, intends to
use the technology developed under the program to develop and commercialize
smart card devices pursuant to a strategic alliance with a subsidiary of SMH
Swatch. In addition, ATMI's ferroelectric thin film technology has also
expanded to other ferroelectric materials that have applications ranging from
non-volatile memory devices to wireless components. This in turn has led ATMI
to enter into strategic alliances with Lucent Technologies, Siemens and Texas
Instruments to develop these materials for commercial markets.
SDS Gas Delivery Systems. Simultaneously with the development of these thin
film materials, the Company developed and patented a novel approach to the
delivery of gases to semiconductor reactors. Historically, semiconductor
process gases have only been available in high-pressure cylinders that can
create an immediate danger over a large area if inadvertently released.
Through the use of in-cylinder adsorbents, SDS reduces cylinder pressures
below atmospheric levels. This lowered pressure allows controllable, on-demand
release of certain semiconductor process gases. The Company began a strategic
alliance with Matheson in January 1994, under which Matheson exclusively
distributes the SDS product to ion implant users in the worldwide
semiconductor industry.
Government Contracts. ATMI participates in United States government funded
research and development contracts. As of September 30, 1997, the Company had
received aggregate awards since its inception of approximately $62.0 million
from United States government agencies, including approximately $47.6 million
recognized as revenue by ATMI through September 30, 1997. These contracts fund
continued CVD technology development, development of high performance
semiconductor devices, ferroelectric thin films and devices for specific
applications, while offsetting the cost of research and development.
Government contract revenues total approximately $7.2 million, $8.7 million,
$9.8 million and $7.1 million for the years ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30, 1997, respectively. This
represents approximately 20.8%, 14.5%, 11.1% and 9.7% of ATMI's total revenues
for those respective periods. The government may terminate contracts with the
Company at its convenience. The government may also exercise "march-in" rights
in the event that the Company fails to continue to develop the technology,
whereby the government may exercise a non-exclusive, royalty-free,
irrevocable, worldwide license to any technology developed under contracts
funded by the government. ATMI will continue to submit proposals to various
government entities for additional research and development funding as long as
such proposals are consistent with its commercialization strategy.
PATENTS AND PROPRIETARY RIGHTS
The Company has made a significant investment in securing intellectual
property protection for its technology and products. ATMI 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, continuing technological innovation and
the aggressive pursuit of licensing opportunities to help develop and maintain
its competitive position.
ATMI has been awarded 80 United States patents and currently has 89 United
States patent applications pending. Foreign counterparts of certain of these
applications have been filed or may be filed at an appropriate time. ATMI
decides on a case-by-case basis whether, and in what countries, it will file
counterparts of a United States patent application outside the United States.
ATMI holds licenses to 12 United States patents. ATMI's United States patents
expire between 2006 and 2014. The United States patents licensed to ATMI
expire during the period from 2006 through 2013.
ATMI's ability to compete effectively with other companies will depend, in
part, on its ability to maintain the proprietary nature of its technology.
Although ATMI has been awarded, has filed applications for, or has been
licensed under numerous patents in the United States and other countries,
there can be no assurance concerning the degree of protection afforded by
these patents or the likelihood that pending patents will be issued.
36
<PAGE>
The Company requires all employees and most consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with ATMI. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. All of ATMI's
employees have entered into agreements providing for the assignment of rights
to inventions made by them while in the employ of the Company.
BACKLOG
Neither ADCS, which conducts significant portions of its business with open-
ended, long-term supply contracts which do not specify quantities, nor
Epitronics, which generally operates with fast turnaround, maintains
significant backlog. Because orders comprising the Company's backlog may be
canceled and delivery schedules may be changed, the Company's backlog at any
particular date may not be indicative of actual sales for any succeeding
period.
ATMI considers orders for products shippable within six months of the
backlog date and fully executed and funded research contract awards as of the
backlog date as firm backlog. As of September 30, 1997, ATMI had firm backlog
of approximately $17.7 million, consisting of approximately $9.6 million of
product orders and approximately $8.1 million of executed and funded research
contracts. This compares to a firm backlog level of approximately $14.9
million as of September 30, 1996, which consisted of approximately $4.8
million of product orders and approximately $10.1 million of executed and
funded research contracts. SDS product backlog is not included because the
product is sold and shipped to Matheson for distribution to the ultimate end
user.
ENVIRONMENTAL REGULATION
The Company uses, generates and discharges toxic, volatile or otherwise
hazardous chemicals and wastes in its manufacturing, processing and research
and development 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, or is
seeking to obtain, all the permits necessary to conduct its business. However,
the failure to comply with present or future laws, rules or regulations or the
failure of the Company to obtain the permits it is currently seeking could
result in fines or other liabilities 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 any of
its premises, the various premises, particularly the premises in Danbury,
Connecticut, 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 to
recover its response costs and/or require future remedial measures 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
laws, rules or 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.
37
<PAGE>
EMPLOYEES
As of December 31, 1997, ATMI employed a total of 376 individuals, including
124 in sales and administration, 199 in operations and 53 in research and
development. Of these employees, 44 hold Ph.D. degrees and 31 hold other
advanced degrees in electrical engineering, materials science, chemistry,
physics or related fields. None of the Company's employees are covered by
collective bargaining agreements. ATMI has not experienced any work stoppages
and considers its relations with its employees to be strong.
PROPERTIES
ATMI's headquarters are located in Danbury, Connecticut where it leases a
72,000 square foot facility. The Company occupies this facility under a lease
which expires on August 30, 2005. ATMI believes its existing facility is
adequate and suitable for its current and anticipated needs.
ADCS' headquarters and general corporate offices are located in Austin,
Texas, where it leases approximately 4,000 square feet. This lease expires May
31, 2000. ADCS also owns approximately six acres of property in Burnet, Texas,
on which its 12,000 square foot manufacturing facility is located. Although
the Company believes the existing headquarters and manufacturing facilities
are adequate for the current level of demand, the Company expects to expand
the ADCS manufacturing facilities within the next 18 months to meet
anticipated demand.
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.
EcoSys leases a 25,000 square foot facility in San Jose, California, which
lease expires in March 2003. EcoSys has recently leased an additional 21,000
square foot facility in the same San Jose office park, which lease expires
March 2003. ATMI believes these facilities are adequate and suitable for
EcoSys' current and anticipated needs.
Epitronics owns its corporate headquarters located in Mesa, Arizona. This
facility measures 33,000 square feet, is expandable to 50,000 square feet and
houses the specialty silicon epitaxial service business. Epitronics also
leases a 15,000 square foot facility in Phoenix, Arizona, where the III-V
epitaxial business is located, which lease expires August 1999. The wide
bandgap epitaxial business is housed in ATMI's corporate facility in Danbury,
Connecticut. The Company 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. ATMI believes these facilities
are adequate and suitable for Epitronics' current and anticipated needs.
LITIGATION
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that could have a material adverse effect
either upon the Company's business, operating results or financial condition.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Eugene G. Banucci, Ph.D. ...... 54 President, Chief Executive Officer,
Chairman of the Board and Director
Peter S. Kirlin, Ph.D. ........ 37 Executive Vice President
Daniel P. Sharkey.............. 41 Vice President, Chief Financial Officer and
Treasurer
Vice President--Administration and
Ward C. Stevens, Ph.D. ........ 43 Secretary
Nicholas J. Wood............... 33 Vice President and General Manager--Emosyn
Division
Duncan W. Brown, Ph.D. ........ 45 President--Epitronics Division
James M. Burns................. 51 President--EcoSys Division
Stephen H. Siegele............. 37 President--ADCS Division and Director
Mark A. Adley (1)(2)........... 38 Director
John A. Armstrong, Ph.D (1).... 63 Director
Robert S. Hillas (1)(2)........ 49 Director
Lamonte H. Lawrence............ 59 Director
Stephen H. Mahle (2)........... 52 Director
</TABLE>
- ---------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Eugene G. Banucci, Ph.D., a founder of the Company, has served as President,
Chief Executive Officer, Chairman of the Board and 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.
Peter S. Kirlin, Ph.D. has served as Executive Vice President of the Company
since 1995. From 1991 to 1995, Dr. Kirlin served as Vice President of
Microelectronics and General Manager of the former NovaMOS division of the
Company. From 1988 to 1991, Dr. Kirlin served as Director of Superconductor
Materials and Electronics for the Company. Prior to joining the Company, Dr.
Kirlin was a Project Leader and Research Engineer for American Cyanamid
Company.
Daniel P. Sharkey has served as Chief Financial Officer since joining the
Company in 1990 and has served as Vice President and Treasurer since 1993.
From 1987 to 1990, Mr. Sharkey was Vice President of Finance and
Administration for Adage, Inc., a manufacturer of high-performance computer
graphics terminals. From 1983 to 1987, he was Corporate Controller for CGX
Corporation. Previously, Mr. Sharkey served as Audit Supervisor for KPMG Peat
Marwick.
Ward C. Stevens, Ph.D., a founder of the Company, has served as a Vice
President since 1986 and served as a director from 1986 to 1990. Prior to
joining the Company, Dr. Stevens was a Materials Scientist and Project Leader
at American Cyanamid Company and a Materials Scientist at Celanese Research
Company.
Nicholas J. Wood has served as Vice President and General Manager--Emosyn
Division since January 1998. From 1995 through 1997, Mr. Wood served as Vice
President--Marketing of the Company. From 1985 to 1995, he served in a variety
of sales and marketing positions with Intel Corporation. Most recently, from
1992 to 1995, he served as Northern European Marketing Manager of Intel.
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<PAGE>
Duncan W. Brown, Ph.D., a founder of the Company, has served as President--
Epitronics Division since March 1996. From 1986 to October 1997, Dr. Brown
served as Vice President of the Company and from 1990 to October 1997, he also
served as a director of the Company. From 1983 to 1986, Dr. Brown was a
Research Chemist at American Cyanamid Company. Previously, Dr. Brown was a
Postdoctoral Fellow in the Departments of Chemistry at the Massachusetts
Institute of Technology and Harvard University, and an Academic Associate at
IBM's Research Division.
James M. Burns has served as President--EcoSys Division since joining the
Company in January 1997. Previously, Mr. Burns served as Executive Vice
President and General Manager at Genus, Inc. from 1995 to 1996, as Assistant
Vice President--Operations at Hughes Network Systems from 1992 to 1995, and as
Director--Customer Satisfaction and Quality at Trimble Navigation, Ltd. from
1991 to 1992. Prior to that time, Mr. Burns served in a variety of managerial
positions in the high technology electronics industry.
Stephen H. Siegele has served as President--ADCS Division and as a director
of the Company since October 1997. Mr. Siegele, a co-founder of the ADCS
Group, served as the President and Chief Executive Officer of the ADCS Group
from February 1994 until October 1997 and has served as a director since its
inception in 1988. From 1988 to 1994, Mr. Siegele served as 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.
Mark A. Adley 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, where he was a Director from 1994 to 1996. 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. has served as a director of the Company since 1993.
Dr. Armstrong is currently an Adjunct Professor of Physics at the University
of Massachusetts. Previously, he was Vice President of Science and Technology
for IBM from 1987 until his retirement in 1993.
Robert S. Hillas 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. Mr. Hillas is also a
director of Transition Systems, Inc.
Lamonte H. Lawrence has served as a director of the Company since October
1997. Mr. Lawrence, the founder of LSL, served as the President and Chief
Executive Officer of LSL from its inception in 1988 until October 1997. In
1983, Mr. Lawrence founded U.S. Semiconductor Corp., where he served as
President from its inception in 1983 to 1987.
Stephen H. Mahle has served as a director of the Company since March 1996.
Mr. Mahle has been Senior Vice President of Medtronic, Inc., a medical device
manufacturer, and President of its pacing business since January 1998. From
1995 to 1998, he was President of the Brady Pacing Business, a division of
Medtronic, Inc. 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.
In October 1997, Mr. Siegele was appointed to the Board of Directors for a
three-year term pursuant to the terms of an agreement executed in connection
with the Company's acquisition of the ADCS Group. This agreement also provides
that upon the expiration of Mr. Siegele's initial three-year term, the Board
of
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Directors will nominate Mr. Siegele to serve for an additional three-year
term, subject to certain limitations. In addition, in October 1997, Mr.
Lawrence was appointed to the Board of Directors for a two-year term pursuant
to the terms of an agreement executed in connection with the Company's
acquisition of LSL.
The Company's Certificate of Incorporation and Bylaws divide the Board of
Directors into three classes, with the members of each class serving for terms
of office that expire at the third annual meeting of stockholders following
their election and until successors are duly qualified. The initial terms of
Class I (John A. Armstrong and Robert S. Hillas), Class II (Eugene G. Banucci,
Mark A. Adley and Lamonte H. Lawrence) and Class III (Stephen H. Mahle and
Stephen H. Siegele) directors expire at the annual meeting of stockholders in
1998, 1999 and 2000, respectively.
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The Audit Committee is comprised of Mr. Adley,
Dr. Armstrong and Mr. Hillas. The Audit Committee oversees the Company's
system of internal accounting controls, recommends to the 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 Board of Directors in connection with the annual audit
as it deems appropriate. The Compensation Committee is comprised of Mr. Adley,
Mr. Hillas and Mr. Mahle. 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,
1995 and 1997 Stock Plans, including the grant of stock options thereunder.
Executive officers serve at the discretion of the Board of Directors. There
are no family relationships among any of the executive officers or directors.
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EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid by the Company for the years ended December 31, 1997, 1996
and 1995 to the Company's Chief Executive Officer and each of the other four
most highly compensated executive officers in 1997 (together, the "Named
Executive Officers") for services in all capacities to the Company and its
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)(1)
- --------------------------- ---- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Eugene G. Banucci........ 1997 210,000 125,000 25,000 3,769
President, Chief 1996 181,300 40,000 -- 2,121
Executive Officer 1995 155,250 40,000 35,000 2,875
and Chairman of the
Board
James M. Burns (2)....... 1997 200,000 80,000 35,000 --
President--EcoSys 1996 -- -- -- --
Division 1995 -- -- -- --
Peter S. Kirlin.......... 1997 150,000 50,000 20,000 2,700
Executive Vice President 1996 111,100 30,000 -- --
1995 96,560 35,000 25,000 400
Daniel P. Sharkey........ 1997 130,000 50,000 15,000 1,903
Vice President, Chief 1996 110,000 20,000 -- 1,678
Financial 1995 103,000 25,000 15,000 1,583
Officer and Treasurer
Duncan W. Brown.......... 1997 149,167 10,000 5,000 2,073
President--Epitronics 1996 103,000 8,000 -- 1,988
Division 1995 98,000 15,000 10,000 1,932
</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. Burns joined the Company on January 2, 1997.
Mr. Stephen H. Siegele, the President of the ADCS division, joined the
Company on October 13, 1997 in connection with the Company's acquisition of
the ADCS Group. In 1997, the Company paid Mr. Siegele a base salary of $89,000
for the period in 1997 during which he was employed by the Company. Had Mr.
Siegele been employed by the Company for all of 1997, he would have been the
Company's most highly compensated executive officer.
42
<PAGE>
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers during the year ended December
31, 1997.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
--------------------------------------------- --------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#) (1) IN 1997 ($/SH) DATE 5% ($) 10% ($)
- ---- -------------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eugene G. Banucci....... 25,000 4.1% 17.25 1/1/07 271,211 687,301
James M. Burns.......... 35,000 5.8% 16.88 1/2/07 371,441 941,304
Peter S. Kirlin......... 20,000 3.3% 17.25 1/1/07 216,969 549,841
Daniel P. Sharkey....... 15,000 2.5% 17.25 1/1/07 162,726 412,381
Duncan W. Brown......... 5,000 0.8% 17.25 1/1/07 54,242 137,460
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- ---------------------
(1) Options granted vest ratably over five years on each of the first five
anniversary dates of the grant date.
(2) The dollar amounts under these columns are the result of calculations
assuming 5% and 10% growth rates as set by the Securities and Exchange
Commission (the "Commission") and, therefore, are not intended to forecast
future price appreciation, if any, of the Company's Common Stock.
STOCK OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option holdings as of
December 31, 1997 with respect to the Named Executive Officers.
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....... -- -- 112,175 47,200 2,502,094 502,825
James M. Burns.......... -- -- 0 35,000 -- 258,125
Peter S. Kirlin......... -- -- 64,074 35,700 1,410,598 371,450
Daniel P. Sharkey....... -- -- 77,375 28,500 1,729,372 329,750
Duncan W. Brown......... -- -- 72,537 11,900 1,665,361 138,275
</TABLE>
- ---------------------
(1) Based on the fair market value of the Company's Common Stock as of
December 31, 1997 ($24.25) minus the exercise price of the options.
DIRECTOR COMPENSATION
The Company's directors do not receive any cash compensation for service on
the Board of Directors or any committee thereof but are reimbursed for
expenses incurred in connection with attending meetings of the Board of
Directors and any committee thereof. In October 1993, the Company granted
options for the purchase of 22,500 shares of Common Stock at an exercise price
of $3.55 per share to John A. Armstrong in consideration of consulting
services performed for the Company. In December 1994, the Company granted
options for the purchase of 22,500 shares of Common Stock at an exercise price
of $5.50 per share to Robert S. Hillas in consideration of his services on the
Board of Directors. In May 1995, the Company granted options for the purchase
of 22,500 shares of Common Stock at an exercise price of $8.50 per share to
Mark A. Adley in consideration of his services on the Board of Directors. In
March 1996, the Company granted options for the purchase of 22,500 shares of
Common Stock at an exercise price of $10.50 per share to Stephen H. Mahle in
consideration of his services on the Board of Directors. In each case, the
exercise price for the options granted was the fair market value of the Common
Stock on the date of grant, and the options granted were subject to certain
vesting provisions.
43
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Eugene G. Banucci,
Daniel P. Sharkey and Duncan W. Brown, effective October 10, 1997. Pursuant to
the agreements, Dr. Banucci will act as President, Chief Executive Officer and
Chairman of the Board of the Company, Mr. Sharkey will act as Vice President,
Chief Financial Officer and Treasurer of the Company, and Dr. Brown will act
as President of the Epitronics division of the Company, for annual salaries of
$210,000, $130,000 and $180,000, respectively. Salaries are subject to
increase from time to time to take into account appropriate cost of living
adjustments and general compensation increases based on performance, in the
discretion of the Board of Directors. Each employee will also be eligible to
receive additional compensation, including awards of performance bonuses at
levels commensurate with other employees of the Company of equivalent position
and grants of employee stock options, in each case in the discretion of the
Compensation Committee of the Board of Directors.
The employment agreements expire on the earliest to occur of (i) October 10,
1999, (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 Dr. Banucci and for a period of nine months after termination in the
case of Mr. Sharkey and Dr. Brown. 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
October 10, 2002 or 36 months after the termination of employment in the case
of Dr. Banucci or 24 months after the termination of employment in the case of
Mr. Sharkey and Dr. Brown. In the event the Company 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 also provide that any termination associated with
a change in control of the Company (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 subsequently granted) to them; provided that such acceleration of vesting
shall not occur if and to the extent that (i) the Company's independent
accountant has advised the Board of Directors 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 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, Dr. Banucci, Mr. Sharkey and Dr. Brown 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
Internal Revenue Code of 1986, as amended. The Company 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 the Company. The
Company will not be allowed to take a deduction for federal income tax
purposes for the excess parachute payments.
In December 1996, the Company entered into an employment agreement with
James M. Burns, the President of the EcoSys division. Pursuant to the
agreement, Mr. Burns will serve as President of EcoSys for an annual base
salary of $200,000, subject to increase in accordance with the policies of the
Company, as determined by the Board of Directors. For 1997 and 1998, Mr. Burns
is also be eligible to receive special incentive compensation based upon
EcoSys' pretax income and market share in the front-end semiconductor
44
<PAGE>
environmental equipment market for such years. Pursuant to the agreement, the
Company paid Mr. Burns a signing bonus of $40,000 and granted Mr. Burns
options to purchase 35,000 shares of Common Stock at an exercise price of
$16.88 per share, which vest ratably over five years.
The Company may terminate Mr. Burns' employment agreement at any time. If
the Company terminates Mr. Burns without cause, the Company will pay Mr. Burns
his annual base salary then in effect for a period of nine months after
termination. The Company will also provide Mr. Burns during such period with
medical benefits at least equivalent to the benefits provided to Mr. Burns
during his employment.
The employment agreement restricts Mr. Burns from competing with the Company
during the term of his employment and for a period of 24 months thereafter. In
the event the Company 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 Mr. Burns.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996 and until October 10, 1997, the Compensation Committee of the
Board of Directors consisted of Gary A. Andersen and John A. Armstrong, and
since October 10, 1997 has consisted of Mark A. Adley, Robert S. Hillas and
Stephen H. Mahle. No executive officer of the Company served on the
compensation committee of another entity or on any other committee of the
board of directors of another entity performing similar functions during the
last fiscal year.
45
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITION OF THE ADCS GROUP
On October 10, 1997, the Company acquired the ADCS Group in exchange for
5,468,747 shares of the Company's Common Stock. Stephen H. Siegele, an
executive officer, director and greater than 5% stockholder of the Company,
was a principal holder of interests in the ADCS Group and received 3,741,305
shares of Common Stock in the exchange. F.H.S. Investments, Ltd., of which
Frederick H. Siegele, Stephen H. Siegele's father, is the sole general
partner, received 626,534 shares of Common Stock in exchange for its interests
in the ADCS Group. Stuart F. Siegele and Frederick J. Siegele, Stephen H.
Siegele's brothers, received 205,861 and 179,009 shares of Common Stock,
respectively, in exchange for their interests in the ADCS Group.
On October 10, 1997, in connection with the acquisition of the ADCS Group,
the Company and the holders of interests in the ADCS Group (the "ADCS
Holders"), including Stephen H. Siegele, F.H.S. Investments, Frederick J.
Siegele and Stuart F. Siegele, entered into an indemnification agreement (the
"Indemnification Agreement") with the Company. Pursuant to the Indemnification
Agreement, the Company 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,
ATM or Alamo Merger, Inc. in the merger and exchange agreement executed in
connection with the acquisition of the ADCS Group (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, its subsidiaries,
its 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 restructuring of the ADCS Group in 1996; (2)
depreciation on tax returns filed with respect to fiscal year 1996 and the
period in 1997 prior to October 10, 1997; (3) state sales tax paid with
respect to fiscal year 1996 and the period in 1997 prior to October 10, 1997
to a state in which the ADCS Group had 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 October 10, 1997. Notwithstanding
the foregoing indemnification, the Company has 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 any certificate or
agreement delivered to the Company in connection with consummation of the
transactions contemplated by the Merger and Exchange Agreement.
The Indemnification Agreement limits the Company's liability for losses to
the aggregate value of the 750,000 shares of the Company's Common Stock which
the ADCS Holders were required to place in escrow as security for their
indemnification obligations. Stephen H. Siegele, F.H.S. Investments, Frederick
J. Siegele and Stuart F. Siegele have deposited in escrow certificates
representing 513,095, 85,924, 24,550 and 28,232 shares of Common Stock,
respectively. The Indemnification 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. The ADCS
Holders, in the aggregate, shall not be liable for any damages in excess of
the aggregate value of the shares of the Company's Common Stock in the escrow
funds (valued at $16.00 per share), and no ADCS Holder shall be liable for any
damages in excess of such holder's escrow fund. The escrowed shares are
divided and held in three separate accounts, each of which will be available
only for certain specified
46
<PAGE>
claims, with an aggregate of 625,000 shares available solely for claims
arising under tax matter (1) discussed in the prior paragraph, an aggregate of
75,000 shares available solely for claims arising under tax matters (2)
through (5) discussed in the prior paragraph and an aggregate of 50,000 shares
available solely for (i) claims for indemnification other than with respect to
tax matters (1) through (5), and (ii) claims against an ADCS Holder arising
from breaches of such holder's representations, warranties and covenants as
discussed below, provided that recourse will be limited to the escrow fund of
the breaching ADCS Holder.
Other than with respect to tax matters or fraud or intentional
misrepresentation, an indemnified party generally may not make any claim for
indemnification after October 10, 1998, 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 the Company after October 10, 1997, 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.
The escrow account consisting of 50,000 shares of Common Stock will be held
in escrow until the later of: (i) October 10, 1998; 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 accounts consisting of 625,000
shares and 75,000 shares of Common Stock will be held in escrow until the
later of: (i) October 10, 1998; 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). A portion of the escrow accounts consisting of 625,000 shares and
75,000 shares of Common Stock may be released earlier if the Company
determines that certain of the escrowed shares are no longer required as
security for the indemnification obligations of the ADCS Holders.
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 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
Company 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.
The Company entered into employment agreements with each of Stephen H.
Siegele, Frederick H. Siegele and Frederick J. Siegele effective October 1997.
Pursuant to the agreements, Stephen H. Siegele, Frederick H. Siegele and
Frederick J. Siegele will act as President, Chief Technical Officer and
General Counsel of the ADCS division, respectively. 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. Salaries are subject
to increase from time to time to take into account appropriate cost of living
adjustments and general compensation increases based on performance, in the
discretion of the Board of Directors. Each employee will also be eligible to
receive additional compensation, including awards of performance bonuses at
levels commensurate with other employees of the Company of equivalent position
and grants of employee stock options, in each case in the discretion of the
Compensation Committee of the Board of Directors.
The employment agreements expire on the earliest to occur of (i) October 10,
1999, (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 for a period of nine months after
47
<PAGE>
termination in the case of Frederick H. Siegele and Frederick J. Siegele. 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
October 10, 2002 or 36 months after the termination of employment in the case
of Stephen H. Siegele or 24 months after the termination of employment in the
case of Frederick H. Siegele and Frederick J. Siegele. In the event the
Company 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.
ACQUISITION OF LSL
On October 10, 1997, the Company acquired LSL in exchange for 3,671,349
shares of the Company's Common Stock. Lamonte H. Lawrence, a director and
greater than 5% stockholder of the Company, was the principal stockholder of
LSL and received 3,597,922 shares of Common Stock in exchange for his shares
of LSL's common stock.
Under the terms of the merger agreement executed in connection with the
acquisition of LSL (the "LSL Merger Agreement"), the Company will indemnify
and hold harmless each of the former stockholders of LSL (the "LSL
Stockholders"), including Lamonte H. Lawrence, against any and all losses
arising out of (i) the conduct of the business or ownership of LSL after the
Company's acquisition thereof, and (ii) any breach of the representations,
warranties, or covenants of the Company contained in the LSL Merger Agreement.
Losses do not include any loss resulting from a diminution in the value of the
Company's Common Stock received in the acquisition of LSL. Further, the
Company will indemnify and hold harmless each of Lamonte H. Lawrence, Lawrence
Semiconductor Investments, Inc. ("LSI") and Lawrence Semiconductor Research
Laboratories, Inc. ("LSRL"), of which Mr. Lawrence is sole stockholder,
against any and all losses arising out of a breach by LSL of any obligation
guaranteed by Mr. Lawrence, LSI or LSRL.
In addition, pursuant to the terms of the LSL Merger Agreement, the LSL
Stockholders will indemnify and hold harmless LSL, the Company, Welk
Acquisition Corporation, 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 LSL contained in the LSL 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 LSL
Merger Agreement with respect to taxes and environmental matters (the "Special
Indemnities").
The LSL 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. 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
183,568 shares of the Company's Common Stock valued at $21.00 per share which
the LSL Stockholders were required to place in escrow as security for their
indemnification obligations. Mr. Lawrence has placed 179,896 shares into the
escrow fund. With respect to the Special Indemnities, Mr. Lawrence is
individually and personally liable for his pro rata portion, or 98%, of any
losses.
Other than with respect to the Special Indemnities and certain covenants, an
indemnified party generally may not make any claim for indemnification after
October 10, 1998, 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 the Company after the Company's acquisition of LSL if such claim is of a
type expected to be encountered in the
48
<PAGE>
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.
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 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
Company 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 or the other parties entitled to indemnification.
On October 10, 1997, LSL and LSI, a corporation wholly owned by Lamonte H.
Lawrence, entered into a consulting agreement (the "Consulting Agreement").
Pursuant to the Consulting Agreement, Mr. Lawrence's employment by LSL
terminated, LSL's obligations under any employment agreement ceased, and LSL
retained LSI as an independent consultant for a three-year period (the
"Consulting Term") on an independent contractor basis. Consulting services
under the Consulting Agreement are 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
in 1996, as Mr. Lawrence, on behalf of LSI, is expected to devote
approximately one-third of his time during the year to LSL-related matters.
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.
OTHER
In October 1997, LSL converted existing notes receivable from Lamonte H.
Lawrence bearing interest at 7% and due upon demand into a promissory note in
the principal amount of $1,000,779 bearing interest at 8% per annum. The note
is due and payable on October 9, 1998.
In March 1997, the Company loaned Peter S. Kirlin $60,000 in exchange for
Dr. Kirlin's promissory note bearing interest at 6% per annum. In July 1997,
the Company loaned Dr. Kirlin an additional $50,000 in exchange for Dr.
Kirlin's promissory note bearing interest at 6% per annum. In December 1997,
Dr. Kirlin prepaid an aggregate of $23,120 due under the notes and the Company
consolidated the two notes into one promissory note in the principal amount of
$86,880 bearing interest at 6% per annum. The note is due and payable on June
30, 1998.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of
December 31, 1997, and as adjusted to reflect the sale of the shares offered
hereby, by: (i) each person known by the Company to own beneficially more than
five percent of the outstanding Common Stock of the Company; (ii) each
director of the Company; (iii) each Named Executive Officer; (iv) each Selling
Stockholder; and (v) 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 Common Stock shown as beneficially owned
by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING NUMBER OF OFFERING
NAME AND ADDRESS ----------------------- SHARES BEING -----------------------
OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Stephen H. Siegele (1).. 3,741,305 20.6% 712,336 3,028,969 15.0%
6805 Capital of Texas
Highway
Suite 330
Austin, Texas 78731
Lamonte H. Lawrence
(2).................... 3,597,922 19.8% 980,000 2,617,922 13.0%
100 Sir Francis Drake
Boulevard
Ross, California 94957
Estate of Bernard
McKeown (3)............ 626,534 3.5% 119,291 507,243 2.5%
F.H.S. Investments, Ltd.
(4).................... 626,534 3.5% 119,291 507,243 2.5%
Eugene G. Banucci (5)... 323,382 1.8% -- 323,382 1.6%
Frederick J. Siegele
(6).................... 179,009 1.0% 34,082 144,927 *
Duncan W. Brown (7)..... 176,671 1.0% -- 176,671 *
Robert M. Jackson (8)... 89,504 * 15,000 74,504 *
Daniel P. Sharkey (9)... 80,375 * -- 80,375 *
The Arizona State
University Foundation
(10)................... 73,427 * 20,000 53,427 *
Peter S. Kirlin (9)..... 68,074 * -- 68,074 *
Robert S. Hillas (11)... 30,977 * -- 30,977 *
Mark A. Adley (12)...... 21,000 * -- 21,000 *
John A. Armstrong (9)... 18,000 * -- 18,000 *
Stephen H. Mahle (13)... 9,100 * -- 9,100 *
James M. Burns (14)..... 8,300 * -- 8,300 *
All directors and
executive officers as a
group (13 persons) (15) 8,272,345 44.4% 1,692,336 6,580,009 31.9%
</TABLE>
- ---------------------
*Less than 1% of the outstanding Common Stock.
(1) Stephen H. Siegele is a director of the Company and President--ADCS
Division. Mr. Siegele was the President and Chief Executive Officer of
the ADCS Group from February 1994 until the acquisition of the ADCS Group
by the Company on October 10, 1997.
(2) Lamonte H. Lawrence is a director of the Company. He was the President,
Chief Executive Officer and a director of LSL from its inception in 1988
until the acquisition of LSL by the Company on October 10, 1997.
(3) Prior to the acquisition of the ADCS Group, Bernard McKeown held an 11.5%
interest in the ADCS Group.
(4) Frederick H. Siegele is the sole General Partner of F.H.S. Investments,
Ltd. and as such may be deemed a beneficial owner of the shares held by
F.H.S. Investments, Ltd. Mr. Siegele is the Chief Technical Officer of
the Company's ADCS division, and prior to the acquisition of the ADCS
Group served as the ADCS Group's Director of Research since February
1994. Frederick H. Siegele is the father of Stephen H. Siegele.
(5) Includes 117,175 shares issuable upon exercise of options that are
exercisable within 60 days of December 31, 1997 and 6,159 shares either
owned or issuable upon exercise of options within 60 days of December 31,
1997 by Dr. Banucci's spouse. Dr. Banucci disclaims beneficial ownership
of the shares held by his spouse.
(6) Frederick J. Siegele is the General Counsel of the Company's ADCS
division. Prior to the acquisition of the ADCS Group, he served as Vice
President and Secretary of the ADCS Group since February 1994 and as
General Counsel since 1991. Frederick J. Siegele and Stephen H. Siegele
are brothers.
(7) Includes 73,537 shares issuable upon exercise of options that are
exercisable within 60 days of December 31, 1997 and 4,634 shares either
owned or issuable upon exercise of option within 60 days of December 31,
1997 by Dr. Brown's spouse. Dr. Brown claims beneficial ownership of the
shares held by his spouse.
(8) Prior to the acquisition of the ADCS Group, Robert M. Jackson served as
the ADCS Group's Vice President of Manufacturing since February 1994.
(9) Consists entirely of shares issuable upon exercise of options that are
exercisable within 60 days of December 31, 1997.
50
<PAGE>
(10) The Arizona State University Foundation has not held any position or
office or had any other material relationship with the Company within the
past three years.
(11) Includes 11,250 shares issuable upon exercise of options that are
exercisable within 60 days of December 31, 1997.
(12) Includes 18,000 shares issuable upon exercise of options that are
exercisable within 60 days of December 31, 1997.
(13) Includes 9,000 shares issuable upon exercise of options that are
exercisable within 60 days of December 31, 1997.
(14) Includes 7,000 shares issuable upon exercise of options that are
exercisable within 60 days of December 31, 1997.
(15) Includes 484,147 shares issuable to executive officers, directors and
their spouses pursuant to options which are exercisable within 60 days of
December 31, 1997.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, par value $.01 per share, and 2,000,000 shares of Preferred
Stock, par value $.01 per share. The following summary of certain provisions
of the Common Stock and the Preferred Stock of the Company does not purport to
be complete and is subject to, and qualified in its entirety by, the
Certificate of Incorporation and Bylaws of the Company that are included as
exhibits to the Registration Statement of which this Prospectus forms a part
and by the provisions of applicable law.
COMMON STOCK
As of December 31, 1997, there were 18,149,676 shares of Common Stock
outstanding, held by approximately 200 holders of record. In addition, 586,803
shares of Common Stock are reserved for future grants under the Company's 1995
and 1997 Stock Plans. Furthermore, as of December 31, 1997, there were
outstanding options and warrants to purchase 1,478,936 shares of Common Stock.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to dividends from funds legally
available therefor, when, as and if declared by the Board of Directors and are
entitled to share ratably in all of the assets of the Company available for
distribution to holders of Common Stock upon the liquidation, dissolution or
winding up of the affairs of the Company. The Common Stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock, and the outstanding
shares of Common Stock are fully paid and nonassessable.
Stockholders are entitled to one vote for each share of Common Stock held of
record on matters submitted to a vote of stockholders. The Common Stock does
not have cumulative voting rights. As a result, the holders of more than 50%
of the shares of 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 Common Stock will not be able to elect any person
or persons to the Board of Directors.
PREFERRED STOCK
The Board of Directors 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, 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 the Common Stock.
The purpose of authorizing the 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
Classified Board of Directors. The Company's Certificate of Incorporation
and Bylaws provide for the Board of Directors 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
52
<PAGE>
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
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 the Company to change the management of the
Company than if the Board of Directors 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 the Company and, therefore, may limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock.
Changes in Board of Directors. The Company's Certificate of Incorporation
and Bylaws provide that vacancies on the Board of Directors may be filled by a
vote of a majority of the Board of Directors 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
the Company's 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 the Company and, therefore, may limit the
price that certain investors might be willing to pay in the future for shares
of the Common Stock.
Stockholder Action. The Company's Certificate of Incorporation and Bylaws
provide that any action required or permitted to be taken by the stockholders
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 Board of Directors or the
Chairman of the Board. These provisions may also discourage another person or
entity from making a tender offer for 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.
Advance Notice Provisions for Stockholder Nominations of Directors and
Stockholder Proposals. The Company's Certificate of Incorporation and Bylaws
establish advance notice procedures with regard to the nomination, other than
by or at the direction of the Board of Directors, of candidates for election
as directors (the "Company Nomination Procedure") and with regard to other
matters to be brought by stockholders before an annual meeting of stockholders
(the "Company Business Procedure").
The Company Nomination Procedure requires that a stockholder give to the
Secretary of the Company prior written notice, in proper form, of a planned
nomination for the Board of Directors. The Company's Bylaws specify the
requirements for the form and timing of that notice. If the Chairman of the
Board of Directors determines that a person was not nominated in accordance
with the Company Nomination Procedure, such person will not be eligible for
election as a director.
Under the Company 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 the Company. The Company's Bylaws specify the
requirements for the form and timing of that notice. If the Chairman of the
Board of Directors determines that the other business was not properly brought
before such meeting in accordance with the Company Business Procedure, such
business will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors 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 Company's 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 the
53
<PAGE>
Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law, as amended ("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
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 completion of this offering, the holders of approximately 10,667,985
shares of Common Stock and warrants to purchase approximately 30,000 shares of
Common Stock will be 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 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, upon completion of this offering, holders
of approximately 10,496,735 shares of Common Stock will have the right to
require the Company, on not more than two occasions with respect to the
holders of approximately 3,562,500 shares and on not more than one occasion
with respect to the holders of approximately 6,934,235 shares, to file a
registration statement under the Securities Act at the Company's expense with
respect to such shares of Common Stock, and the Company is required to use its
best efforts to effect such registration, subject to certain conditions and
limitations. Further, the holders of approximately 3,693,750 shares of Common
Stock may require the Company to register all or a portion of their shares of
Common Stock on Form S-3, subject to certain conditions and limitations. Of
the approximately 10,667,985 shares of Common Stock subject to registration
rights, an aggregate of approximately 3,668,125 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.
The Company is required to bear substantially all registration and selling
expenses in connection with the registration of registrable shares in such
registrations. In addition, the Company will, subject to certain limitations,
indemnify any selling stockholders against certain liabilities, including
liabilities under the Securities Act, in connection with such registrations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
BankBoston, N.A.
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist
LLC, BT Alex. Brown Incorporated, NationsBanc Montgomery Securities LLC,
Advest, Inc. and Needham & Company, Inc., have severally agreed to purchase
from the Company and the Selling Stockholders the following respective number
of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC...........................................
BT Alex. Brown Incorporated.....................................
NationsBanc Montgomery Securities LLC...........................
Advest, Inc. ...................................................
Needham & Company, Inc. ........................................
---------
Total........................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the offering price set forth on the cover of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow and such dealers may reallow a concession
not in excess of $ per share to certain other dealers. After the public
offering of the shares, the offering price and other selling terms may be
changed by the Underwriters.
The Selling Stockholders have granted to the Underwriters an option,
exercisable no later than 30 days after the date of this Prospectus, to
purchase up to 600,000 additional shares of Common Stock at the public
offering price, less the underwriting discount, set forth on the cover page of
this Prospectus. To the extent that the Underwriters exercise this option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage thereof which the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total numbers of shares
of Common Stock offered hereby. Such Selling Stockholders will be obligated,
pursuant to the option, to sell such shares to the Underwriters to the extent
the option is exercised. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of shares of Common
Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
Certain stockholders of the Company, including the Selling Stockholders and
the executive officers and directors of the Company, who will own in the
aggregate 7,483,206 shares of Common Stock after the offering, have agreed
that, without the prior consent of Hambrecht & Quist LLC, they will not,
directly or indirectly sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or any rights
55
<PAGE>
to purchase or acquire Common Stock or enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described above is
settled by delivery of Common Stock or such other securities, in cash or
otherwise, during the 90-day period after the date of this Prospectus, except
that Selling Stockholders may make certain transfers of Common Stock to
members of their immediate families. In addition, the Company has agreed not
to offer, sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock during the 90-day period after the date of this
Prospectus without the prior approval of Hambrecht & Quist LLC, except that
the Company may issue, and grant options to purchase, shares of Common Stock
pursuant to its existing stock option plans and under currently outstanding
options and warrants and, with prior written notification to Hambrecht & Quist
LLC, may issue shares of Common Stock in connection with certain acquisition
transactions, subject to certain resale restrictions.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The
Commission has, however, adopted exemptions from these rules that permit
passive market making under certain conditions. These rules permit an
underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not
connected with the offering and that its net purchases on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, certain
Underwriters, selling group members and their respective affiliates intend to
engage in passive market making in the Company's Common Stock during the
cooling off period.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Company's Common Stock at levels above those which might otherwise prevail
in the open market, including by entering stabilizing bids or effecting
syndicate covering transaction. A stabilizing bid means the placing of any bid
or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Company's Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
In the last 12 months, the Company engaged Hambrecht & Quist LLC as a
financial advisor in connection with the acquisition of LSL solely to deliver
a financial opinion letter in connection with that acquisition. The Company
paid Hambrecht & Quist LLC a fee of $175,000 and also agreed to reimburse it
for its reasonable out-of-pocket expenses and to indemnify it against certain
liabilities. Also in connection with the sale of LSL, Alex. Brown & Sons
Incorporated acted as investment banker to LSL for a fee of approximately $1.3
million. In addition, the Company engaged Alex. Brown & Sons Incorporated as a
financial advisor in connection with the acquisition of the ADCS Group to
render its opinion as to the fairness, from a financial point of view, of the
consideration paid in connection with that acquisition. The Company paid Alex.
Brown & Sons Incorporated a fee of $275,000 and also agreed to reimburse it
for its reasonable out-of-pocket expenses and to indemnify it against certain
liabilities.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Shipman & Goodwin LLP, Hartford, Connecticut. As of the date of
this Prospectus, 7,714 shares of the Common Stock are beneficially owned by
lawyers employed at Shipman & Goodwin LLP. Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Hale and Dorr
LLP, Boston, Massachusetts.
56
<PAGE>
EXPERTS
The consolidated financial statements and related schedule of the Company at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein which, as to the years 1996,
1995 and 1994, are based in part on the reports of Price Waterhouse LLP,
independent accountants for Lawrence Semiconductor Laboratories, Inc. and its
affiliate prior to its acquisition by the Company. The financial statements
referred to above are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
Statements relating to patent matters in the portions of this Prospectus
entitled "Risk Factors--Patents and Protection of Proprietary Technology" and
"Business--Patents and Proprietary Rights" have been reviewed and approved by
the Company's patent counsel, Intellectual Property/Technology Law, Research
Triangle Park, North Carolina. Such statements are included herein in reliance
upon the review and approval by such firm as experts in patent law.
AVAILABLE INFORMATION
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 Commission. Such reports, proxy statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission 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
Commission. Prior to October 10, 1997, the Company's filings were made under
the name Advanced Technology Materials, Inc. The Company's Common Stock is
traded on the Nasdaq National Market and reports, proxy statements and other
information concerning the Company may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1801 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act (together with any amendments or supplements
thereto, the "Registration Statement") relating to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to such Registration Statement,
exhibits and schedules. A copy of the Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the
Commission's principal office in Washington, D.C., and copies of all or any
part thereof may be obtained from such office after payment of fees prescribed
by the Commission.
57
<PAGE>
ATMI, INC.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP................................................ F-2
Report of Price Waterhouse LLP............................................. F-3
Financial Statements
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Income.......................................... F-5
Consolidated Statements of Stockholders' Equity............................ F-6
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
ATMI, Inc.
We have audited the accompanying consolidated balance sheets of ATMI, Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in Item 16 of the Registration Statement, of which
this Prospectus forms a part. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits. We
did not audit the financial statements or Valuation and Qualifying Accounts
schedule data of Lawrence Semiconductor Laboratories, Inc., a wholly-owned
subsidiary, which statements reflect total assets constituting 33% and 24% at
December 31, 1996 and 1995, respectively, and total revenues constituting 23%,
24%, and 21% respectively, for each of the three years in the period ended
December 31, 1996. Those statements and schedule data were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Lawrence Semiconductor Laboratories, Inc., is
based solely on the report of the other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of ATMI, Inc. at December 31,
1996 and 1995, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Stamford, Connecticut
December 18, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Lawrence Semiconductor Laboratories, Inc. and Affiliate
In our opinion, the combined balance sheets and the related combined
statements of income and retained earnings and of cash flows of Lawrence
Semiconductor Laboratories, Inc. and Affiliate (not presented separately
herein) present fairly, in all material respects, the financial position of
Lawrence Semiconductor Laboratories, Inc. and Affiliate at December 31, 1996
and 1995, 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 the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Phoenix, Arizona
May 17, 1997, except for the last Paragraph of Note 3 which is as of July 29,
1997 and the last paragraph of Note 6 which is as of December 18, 1997
F-3
<PAGE>
ATMI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)... $11,962,000 $12,574,000 $ 7,306,000
Marketable securities (Notes 1 and
2).................................. 21,856,000 18,238,000 15,829,000
Accounts receivable, net of allowance
for doubtful accounts of $109,000 in
1995, $361,000 in 1996 and $299,000
at September 30, 1997 (Note 3)...... 12,890,000 13,804,000 19,184,000
Notes and other receivables (Note
3).................................. 1,397,000 2,933,000 4,376,000
Inventories (Notes 1 and 4).......... 3,579,000 7,769,000 9,269,000
Deferred merger costs (Note 10)...... -- -- 6,642,000
Other................................ 659,000 718,000 1,145,000
----------- ----------- ------------
Total current assets............... 52,343,000 56,036,000 63,751,000
Property and equipment, net (Notes 1
and 5)................................ 19,522,000 30,660,000 36,164,000
Goodwill and other long-term assets,
net (Notes 1 and 10).................. 6,725,000 6,495,000 7,626,000
----------- ----------- ------------
$78,590,000 $93,191,000 $107,541,000
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion (Note
6).................................. $ 5,808,000 $ 2,059,000 $ 1,562,000
Capital lease obligations, current
portion (Note 7).................... 959,000 1,837,000 2,696,000
Accounts payable..................... 4,905,000 5,219,000 4,632,000
Accrued expenses..................... 4,841,000 3,921,000 7,856,000
Accrued commissions.................. 984,000 1,379,000 2,295,000
Accrued litigation settlement (Note
12)................................. -- 2,000,000 --
Deferred income taxes (Note 8)....... -- 1,989,000 1,052,000
Other................................ 625,000 1,046,000 3,549,000
----------- ----------- ------------
Total current liabilities.......... 18,122,000 19,450,000 23,642,000
Notes payable, less current portion
(Note 6).............................. 8,835,000 10,342,000 9,755,000
Capital lease obligations (Note 7)..... 3,140,000 5,427,000 6,827,000
Deferred income taxes (Note 8)......... 2,659,000 1,873,000 1,579,000
Other long-term liabilities............ 181,000 81,000 88,000
Minority interest...................... 535,000 545,000 578,000
Stockholders' equity (Note 9):
Preferred stock, par value $.01:
2,000,000 shares authorized; none
issued and outstanding.............. -- -- --
Common stock, par value $.01:
30,000,000 shares authorized; Issued
17,818,929 in 1995, 17,873,128 in
1996 and 17,935,973 in 1997......... 178,000 179,000 179,000
Additional paid-in capital........... 37,257,000 37,431,000 37,924,000
Cumulative translation adjustment.... (10,000) (55,000) (62,000)
Retained earnings.................... 7,693,000 17,918,000 27,031,000
----------- ----------- ------------
Total stockholders' equity......... 45,118,000 55,473,000 65,072,000
----------- ----------- ------------
$78,590,000 $93,191,000 $107,541,000
=========== =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
ATMI, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 1):
Product revenues...... $27,537,000 $51,460,000 $78,815,000 $59,597,000 $66,427,000
Contract revenues..... 7,223,000 8,712,000 9,846,000 7,479,000 7,121,000
----------- ----------- ----------- ----------- -----------
Total revenues.......... 34,760,000 60,172,000 88,661,000 67,076,000 73,548,000
Cost of revenues:
Cost of product
revenues............. 11,588,000 22,232,000 32,890,000 24,535,000 29,468,000
Cost of contract
revenues............. 6,151,000 7,491,000 8,341,000 6,331,000 5,974,000
----------- ----------- ----------- ----------- -----------
Total cost of revenues.. 17,739,000 29,723,000 41,231,000 30,866,000 35,442,000
----------- ----------- ----------- ----------- -----------
Gross profit............ 17,021,000 30,449,000 47,430,000 36,210,000 38,106,000
Operating expenses:
Research and
development (Note
1)................... 3,981,000 5,697,000 9,838,000 6,927,000 7,863,000
Selling, general and
administrative....... 9,308,000 15,886,000 22,590,000 15,881,000 17,192,000
----------- ----------- ----------- ----------- -----------
13,289,000 21,583,000 32,428,000 22,808,000 25,055,000
----------- ----------- ----------- ----------- -----------
Operating income........ 3,732,000 8,866,000 15,002,000 13,402,000 13,051,000
Interest income......... 553,000 963,000 1,639,000 1,043,000 1,166,000
Interest expense (Note
6)..................... (803,000) (1,320,000) (1,635,000) (1,070,000) (1,274,000)
Other income (expense),
net.................... 3,769,000 (543,000) 18,000 -- --
----------- ----------- ----------- ----------- -----------
Income before taxes and
minority interest...... 7,251,000 7,966,000 15,024,000 13,375,000 12,943,000
Income taxes (Note 8)... 1,728,000 2,888,000 3,158,000 2,942,000 3,782,000
----------- ----------- ----------- ----------- -----------
Income before minority
interest............... 5,523,000 5,078,000 11,866,000 10,433,000 9,161,000
Minority interest....... 12,000 10,000 151,000 129,000 (48,000)
----------- ----------- ----------- ----------- -----------
Net income.............. $ 5,535,000 $ 5,088,000 $12,017,000 $10,562,000 $ 9,113,000
=========== =========== =========== =========== ===========
Net income per share
(Notes 1 and 9)........ $ 0.33 $ 0.30 $ 0.65 $ 0.57 $ 0.49
=========== =========== =========== =========== ===========
Weighted average shares
outstanding
(Note 1)............... 16,693,000 17,171,000 18,456,000 18,460,000 18,730,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
ATMI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL CUMULATIVE EARNINGS/
COMMON PAID-IN TRANSLATION (ACCUMULATED
STOCK CAPITAL ADJUSTMENT DEFICIT) TOTAL
-------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... $160,000 $19,595,000 $ -- $(2,930,000) $16,825,000
Issuance of 24,440
common shares pursuant
to the exercise of
employee stock
options................ -- 12,000 -- -- 12,000
Issuance of 74,017
common shares pursuant
to the exercise of
warrants............... 1,000 37,000 -- -- 38,000
Net income.............. -- -- -- 5,535,000 5,535,000
-------- ----------- -------- ----------- -----------
Balance at December 31,
1994................... 161,000 19,644,000 -- 2,605,000 22,410,000
Issuance of 137,571
common shares pursuant
to the exercise of
employee stock
options................ 1,000 183,000 -- -- 184,000
Sale of 1,525,000 common
shares, net of issuance
costs of $1,489,000.... 16,000 17,177,000 -- -- 17,193,000
Issuance of 20,000
common shares pursuant
to the acquisition of
Epitronics............. -- 203,000 -- -- 203,000
Compensation from the
issuance of common
stock options.......... -- 50,000 -- -- 50,000
Cumulative translation
adjustment............. -- -- (10,000) -- (10,000)
Net income.............. -- -- -- 5,088,000 5,088,000
-------- ----------- -------- ----------- -----------
Balance at December 31,
1995................... 178,000 37,257,000 (10,000) 7,693,000 45,118,000
Issuance of 54,199
common shares pursuant
to the exercise of
employee stock
options................ 1,000 174,000 -- -- 175,000
Distributions to
stockholders........... -- -- -- (1,792,000) (1,792,000)
Cumulative translation
adjustment............. -- -- (45,000) -- (45,000)
Net income.............. -- -- -- 12,017,000 12,017,000
-------- ----------- -------- ----------- -----------
Balance at December 31,
1996................... 179,000 37,431,000 (55,000) 17,918,000 55,473,000
Issuance of 42,845
common shares pursuant
to the exercise of
employee stock
options................ -- 280,000 -- -- 280,000
Issuance of 20,000
common shares pursuant
to the exercise of
warrants............... -- 213,000 -- -- 213,000
Cumulative translation
adjustment............. -- -- (7,000) -- (7,000)
Net income.............. -- -- -- 9,113,000 9,113,000
-------- ----------- -------- ----------- -----------
Balance at September 30,
1997 (unaudited)....... $179,000 $37,924,000 $(62,000) $27,031,000 $65,072,000
======== =========== ======== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ATMI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............. $ 5,535,000 $ 5,088,000 $ 12,017,000 $ 10,562,000 $ 9,113,000
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 2,306,000 3,179,000 4,678,000 3,064,000 3,936,000
Gain on restructuring
of joint venture..... (4,610,000) -- -- -- --
Stock option
compensation......... -- 50,000 -- -- --
Gain on disposal of
property and
equipment............ (21,000) -- -- -- --
Bad debt expense...... -- 16,000 191,000 -- --
Deferred income
taxes................ 626,000 1,160,000 1,204,000 (162,000) (1,231,000)
Loss on sale/leaseback
of equipment......... -- 542,000 -- -- --
Minority interest in
net earnings of
subsidiaries......... (12,000) (10,000) (151,000) 51,000 33,000
Changes in operating
assets and
liabilities
Increase in accounts
and notes
receivable........... (2,109,000) (5,505,000) (2,031,000) (1,556,000) (6,823,000)
Increase in
inventory............ (705,000) (830,000) (4,415,000) (3,617,000) (1,500,000)
Increase in deferred
merger costs......... -- -- -- -- (6,642,000)
Increase in other
assets............... (19,000) (259,000) (231,000) (722,000) (1,308,000)
Increase (decrease) in
accounts payable..... 1,052,000 1,341,000 313,000 538,000 (587,000)
Increase in accrued
expenses............. 623,000 1,062,000 3,045,000 1,510,000 2,851,000
Increase (decrease) in
other liabilities.... 546,000 1,352,000 (1,395,000) 247,000 2,503,000
----------- ------------ ------------ ------------ -----------
Total adjustments.... (2,323,000) 2,098,000 1,208,000 (647,000) (8,768,000)
----------- ------------ ------------ ------------ -----------
Net cash provided by
operating
activities......... 3,212,000 7,186,000 13,225,000 9,915,000 345,000
----------- ------------ ------------ ------------ -----------
INVESTING ACTIVITIES
Capital expenditures... (3,038,000) (6,328,000) (11,591,000) (10,792,000) (5,587,000)
Long-term investment... -- (1,000,000) -- -- (250,000)
Sale (purchase) of
marketable securities,
net................... 2,433,000 (11,213,000) 3,617,000 4,995,000 2,409,000
Advances to stockholder
on notes receivable... (158,000) (256,000) (286,000) -- --
Payments for
acquisitions.......... (93,000) (550,000) (4,000,000) -- --
Proceeds from sale of
assets................ -- 384,000 619,000 -- --
Net cash received from
joint venture
restructuring......... 2,457,000 -- -- -- --
----------- ------------ ------------ ------------ -----------
Net cash provided
(used) by investing
activities......... 1,601,000 (18,963,000) (11,641,000) (5,797,000) (3,428,000)
----------- ------------ ------------ ------------ -----------
FINANCING ACTIVITIES
Proceeds from issuance
of notes payable...... 1,414,000 3,226,000 4,447,000 668,000 --
Principal payments on
notes payable......... (1,314,000) (1,933,000) (2,553,000) -- (1,084,000)
Distribution to
stockholders.......... -- -- (1,792,000) (1,485,000) --
Repayment of amounts
borrowed.............. -- (235,000) (135,000) -- --
Payments on capital
lease obligations..... (838,000) (995,000) (1,274,000) (956,000) (1,594,000)
Proceeds from sale of
common stock, net..... -- 17,193,000 -- -- --
Investment by minority
stockholder........... 18,000 539,000 161,000 -- --
Proceeds from exercise
of stock options and
warrants.............. 49,000 113,000 174,000 79,000 493,000
----------- ------------ ------------ ------------ -----------
Net cash (used)
provided by
financing
activities......... (671,000) 17,908,000 (972,000) (1,694,000) (2,185,000)
----------- ------------ ------------ ------------ -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 4,142,000 6,131,000 612,000 2,424,000 (5,268,000)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 1,689,000 5,831,000 11,962,000 11,962,000 12,574,000
----------- ------------ ------------ ------------ -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 5,831,000 $ 11,962,000 $ 12,574,000 $ 14,386,000 $ 7,306,000
=========== ============ ============ ============ ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Advanced Technology Materials, Inc. underwent a reorganization involving the
creation of a new holding company (ATMI, Inc.--the successor registrant of
Advanced Technology Materials, Inc.) by means of a merger resulting in the
prior registrant becoming a wholly-owned subsidiary of the holding company. In
addition, these statements give retroactive effect to the acquisitions of
Advanced Delivery & Chemical Systems Nevada, Inc. and related entities (the
"ADCS Group") and Lawrence Semiconductor Laboratories, Inc. and affiliate
("LSL") which have been accounted for using the pooling-of-interests method.
Both of these acquisitions occurred on October 10, 1997, as part of the
consummation of the transactions described in Note 10 below.
Company's Activities
ATMI, Inc. together with its subsidiaries (the "Company") is a leading
supplier of thin film materials, equipment and services used worldwide in the
manufacture of semiconductor devices. The Company targets high growth
consumable and equipment markets within the semiconductor industry with
proprietary and patented products based on chemical vapor deposition ("CVD")
technology. Specifically, the Company provides a broad range of ultrahigh
purity thin film materials and related delivery systems, a full line of point-
of-use semiconductor environmental equipment and services, and specialty
epitaxial thin film deposition services.
Principles of Consolidation
The consolidated financial statements include the accounts of ATMI, Inc. and
all wholly and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition
Product revenues are recognized upon shipment of goods. Contract revenues
under fixed-price contracts and cost-reimbursement-type contracts are
recognized using the percentage-of-completion method based upon costs incurred
and estimated future costs. Provisions for expected losses on contracts are
recorded in the period when incurred. Revenues under fixed price contracts
from the U.S. Government were $4,201,000, $4,542,000, $4,046,000, $3,035,000
and $2,926,000 for the years ended December 31, 1994, 1995, 1996 and for the
nine month periods ended September 30, 1996 and 1997, respectively. Revenues
under cost-reimbursement-type contracts from the U.S. Government were
$2,817,000, $4,170,000, $5,800,000, $4,444,000 and $4,195,000 for the years
ended December 31, 1994, 1995, 1996 and for the nine month periods ended
September 30, 1996 and 1997, respectively.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
F-8
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
Research and development costs, including materials, labor, and overhead
related to self-funded projects and cost-sharing arrangements with the U.S.
Government, are expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Marketable Securities
Marketable securities are classified as available for sale and are reported
at fair value, which approximates cost. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. The cost of securities sold is
based on the specific identification method. Interest on these securities is
included in interest income.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
property and equipment is computed using the straight-line method over the
estimated useful lives of the assets, which vary from three to thirty-five
years.
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.
Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). Under FAS 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Fair Values of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
accounts receivable, short-term investments and short-term debt. Marketable
securities are accounted for at fair value. All other financial instruments
are accounted for on an historical cost basis which, due to the nature of
these instruments, approximates fair value at the balance sheet dates.
F-9
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
The Company reviews on a periodic basis the value of its long-lived assets
to determine whether an impairment exists. At December 31, 1996, no such
impairment existed. Goodwill and other long-term assets are stated net of
accumulated amortization of $75,000, $293,000, and $512,000 at December 31,
1995, 1996, and at September 30, 1997, respectively.
Stock Based Compensation
Effective in fiscal year 1996, the Company adopted Financial Accounting
Statement No. 123, "Accounting for Stock-Based Compensation." This statement
defines a fair value based method of accounting for employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans in accordance with Accounting Principle
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under
APB No. 25, compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date over the amount the employee must pay to
acquire the stock. The Company has elected to continue to account for its
employee stock compensation plans under APB No. 25. Pro forma disclosures of
net earnings and earnings per share, as if the fair value based method of
accounting had been applied, are presented in Note 9.
Per Share Data
Earnings per common share are computed using the treasury stock method based
on the weighted average number of common shares and common stock equivalent
shares outstanding during the period. Shares outstanding have been restated to
include those shares that would have been issued in connection with the
acquisitions of the ADCS Group, LSL and Vector Technical Group, Inc.
("Vector") (see Note 10) in each of the periods presented. Shares from the
assumed exercise of options and warrants granted by the Company have been
included in the computations of earnings per share for all periods, unless
their inclusion would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. This Statement simplifies the computation of earnings per share and
makes the computation more consistent with those of other countries. The
implementation will require the disclosure of basic and diluted earnings per
share. The Company will adopt this Statement during the fourth quarter of
1997. Pro forma basic earnings per share under the new computation are $0.36,
$0.32, $0.70, $0.61 and $0.53 for the years ended December 31, 1994, 1995,
1996 and for the nine month periods ended September 30, 1996 and 1997,
respectively. Pro forma diluted earnings per share under the new computation
are $0.33, $0.30, $0.65, $0.57 and $0.49 for the years ended December 31,
1994, 1995, 1996 and for the nine month periods ended September 30, 1996 and
1997, respectively.
2. MARKETABLE SECURITIES
Marketable securities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Corporate obligations.................. $ 7,775,000 $ 7,431,000 $ 9,071,000
U.S. Government obligations............ 14,081,000 9,538,000 6,758,000
Certificates of deposit................ -- 1,269,000 --
----------- ----------- -----------
$21,856,000 $18,238,000 $15,829,000
=========== =========== ===========
</TABLE>
All of the Company's marketable securities have maturities of less than two
years.
F-10
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
3. ACCOUNTS AND NOTES RECEIVABLE
Amounts due from various agencies of the U.S. Government were approximately
$2,031,000, $2,063,000 and $2,352,000 of accounts receivable at December 31,
1995, 1996, and at September 30, 1997, respectively. Unbilled accounts
receivable were $586,000, $757,000 and $956,000 and customer advances,
included in other liabilities, were $447,000, $276,000 and $459,000 at
December 31, 1995, 1996 and at September 30, 1997, respectively.
Notes receivable from a stockholder represents advances which bear interest
at 7% and are due upon demand. The balances at December 31, 1995, 1996 and
September 30, 1997 were $813,000, $1,099,000 and $1,155,000, respectively and
included accrued interest of $70,000, $126,000, and $181,000 respectively.
Interest income on the notes totaled $18,000, $32,000, $56,000, $54,000 and
$56,000 in years ended December 31, 1994, 1995, 1996 and for the nine month
periods ended September 30, 1996 and 1997, respectively. In addition
receivables of $584,000, $1,834,000 and $3,221,000 at December 31, 1995, 1996
and at September 30, 1997 respectively, are for use of the Company's epitaxial
reactors and advances made to Lawrence Semiconductor Investments, Inc., an
entity owned by a significant stockholder of the Company. On October 10, 1997,
the Company received payment on account of the notes receivable for the use of
the reactors and advances to Lawrence Semiconductor Investments, Inc.
Credit is extended to commercial customers based on an evaluation of their
financial condition, and collateral is not generally required. The evaluation
of financial condition is performed to reduce the risk of loss. The Company
has not experienced any material losses due to uncollectible accounts
receivable since inception. Certain transactions with foreign customers are
supported by letters of credit. The Company maintains an allowance for
doubtful accounts at a level that management believes is sufficient to cover
potential credit losses.
4. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Raw materials.......................... $2,779,000 $5,538,000 $ 6,150,000
Manufacturing spare parts.............. 406,000 1,266,000 1,082,000
Work in process........................ 614,000 687,000 1,228,000
Finished goods......................... 59,000 937,000 1,552,000
---------- ---------- -----------
3,858,000 8,428,000 10,012,000
Obsolescence reserve................... (279,000) (659,000) (743,000)
---------- ---------- -----------
$3,579,000 $7,769,000 $ 9,269,000
========== ========== ===========
</TABLE>
F-11
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Land............................. $ 1,242,000 $ 1,751,000 $ 1,817,000
Buildings........................ 211,000 4,947,000 7,408,000
Machinery and equipment.......... 24,192,000 33,646,000 39,574,000
Furniture and fixtures........... 722,000 1,157,000 1,490,000
Leasehold improvements........... 3,929,000 3,788,000 4,329,000
------------ ------------ ------------
30,296,000 45,289,000 54,618,000
Accumulated depreciation and
amortization.................... (10,774,000) (14,629,000) (18,454,000)
------------ ------------ ------------
$ 19,522,000 $ 30,660,000 $ 36,164,000
============ ============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995, 1996 and
for the nine month periods ended September 30, 1996 and 1997, was $2,306,000,
$3,104,000, $4,277,000, $2,736,000 and $3,717,000, respectively.
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Note payable in conjunction with
acquisition of Guardian Systems,
bearing interest at 5.4%, due on
January 4, 1996....................... $ 4,000,000 $ -- $ --
Note payable in conjunction with
acquisition of Guardian Systems,
bearing interest at 8.25% and 8.5% at
December 31, 1995 and 1996, due in
three annual installments beginning
January 1, 1999....................... 2,000,000 2,000,000 2,000,000
Term loans with Connecticut state
agency, bearing interest ranging
between 5%-6%, due between April 2001-
June 2002............................. 1,300,000 1,800,000 1,800,000
Equipment credit line with a commercial
bank, bearing interest at 9.5% and 9%
at December 31, 1995 and 1996,
respectively, due through June 2000... 2,019,000 1,701,000 1,326,000
Notes payable with commercial banks and
leasing companies, bearing interest
ranging between 7.3%-12.42%, due
between April 1997-February 2009...... 4,661,000 6,835,000 6,191,000
Other notes payable.................... 663,000 65,000 --
----------- ----------- -----------
14,643,000 12,401,000 11,317,000
Less current portion................... (5,808,000) (2,059,000) (1,562,000)
----------- ----------- -----------
$ 8,835,000 $10,342,000 $ 9,755,000
=========== =========== ===========
</TABLE>
F-12
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
6. NOTES PAYABLE (CONTINUED)
The approximate aggregate debt maturities are as follows as of September 30,
1997 (three month period ending December 31, 1997):
<TABLE>
<S> <C>
1997............................................ $ 408,000
1998............................................ 2,223,000
1999............................................ 2,563,000
2000............................................ 1,111,000
2001............................................ 1,442,000
Thereafter...................................... 3,570,000
-----------
$11,317,000
===========
</TABLE>
The term loans of $1,800,000 are collateralized by various equipment,
leasehold improvements and renovations in the Company's Connecticut facility.
The Company's equipment credit line bears interest at prime plus 1/2% per
annum and is collateralized by certain assets. The Company is in compliance
with or has obtained waivers for the credit line covenants, including
maintaining certain liquidity, leverage, and tangible net worth levels.
The majority of the Company's notes payable are secured by the related real
property or equipment. Certain of the notes payable contain covenants
requiring the Company 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. The Company is in compliance with the notes
payable covenants. In December, 1996, the Company obtained a $10 million
unsecured line of credit with a commercial bank which permits borrowing levels
tied to a percentage of accounts receivable and inventories. This line bears
interest at prime (with LIBOR options) and expires on December 26, 1997. There
were no borrowings under this line at December 31, 1996 and at September 30,
1997. Interest paid was $803,000, $1,318,000, $1,631,000, $1,055,000 and
$1,280,000 for the years ended December 31, 1994, 1995, 1996, and for the nine
month periods ended September 30, 1996, and 1997, respectively.
The Company has never declared or paid cash dividends on its capital stock.
The Company does not anticipate paying any cash dividends in the foreseeable
future. Certain of the Company's subsidiaries' financing agreements contain
limitations or prohibitions on the payment of dividends without the lender's
consent or in conjunction with the subsidiary's failure to comply with various
financial covenants.
7. LEASES
The Company is obligated under capital leases for certain machinery and
equipment that expire at various dates during the next five years. The gross
amount of machinery and equipment under the capital leases and the related
accumulated depreciation, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Machinery and equipment.............. $ 5,711,000 $10,151,000 $14,004,000
Accumulated depreciation............. (1,650,000) (2,230,000) (3,109,000)
----------- ----------- -----------
$ 4,061,000 $ 7,921,000 $10,895,000
=========== =========== ===========
</TABLE>
F-13
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
7. LEASES (CONTINUED)
The following is a schedule of future minimum lease payments for capital
leases as of September 30, 1997 (three month period ending December 31, 1997):
<TABLE>
<CAPTION>
CAPITAL LEASES
--------------
<S> <C>
1997....................................................... $ 848,000
1998....................................................... 3,326,000
1999....................................................... 2,922,000
2000....................................................... 2,143,000
2001....................................................... 1,560,000
Thereafter................................................. 366,000
-----------
Total lease payments.......................................... 11,165,000
Less amount representing interest............................. (1,642,000)
-----------
Present value of net capital lease payments................... 9,523,000
Less current portion.......................................... (2,696,000)
-----------
Long-term portion............................................. $ 6,827,000
===========
</TABLE>
The Company leases office and manufacturing facilities, and certain
manufacturing equipment under several operating leases. The lease for its
Danbury, Connecticut facility expires in August 2005 while the EcoSys San
Jose, California facility leases expire in March 2003 and the Epitronics
Phoenix, Arizona facility lease expires in August 1999. ADCS leases office
space under a lease which expires in May 2000. The manufacturing equipment
leases expire in years 1997 through 2001. Rental expense was $449,000,
$1,018,000, $2,322,000, $1,708,000 and $1,851,000 for the years ended December
31, 1994, 1995, 1996, and for the nine months ended September 30, 1996 and
1997, respectively.
The following is a schedule of future minimum lease payments for operating
leases as of September 30, 1997 (three month period ending December 31, 1997):
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
1997.......................................................... $ 586,000
1998.......................................................... 2,314,000
1999.......................................................... 2,187,000
2000.......................................................... 1,750,000
2001.......................................................... 916,000
Thereafter.................................................... 1,827,000
----------
Total minimum lease payments..................................... $9,580,000
==========
</TABLE>
F-14
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
8. INCOME TAXES
Significant components of the provision for income taxes for the periods
presented are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current:
Federal.............. $ 894,000 $1,254,000 $1,421,000 $ 913,000 $3,999,000
State................ 200,000 305,000 532,000 225,000 627,000
---------- ---------- ---------- ---------- ----------
Total current.......... 1,094,000 1,559,000 1,953,000 1,138,000 4,626,000
Deferred:
Federal.............. 505,000 1,092,000 914,000 1,443,000 (743,000)
State................ 129,000 237,000 291,000 361,000 (101,000)
---------- ---------- ---------- ---------- ----------
Total deferred......... 634,000 1,329,000 1,205,000 1,804,000 (844,000)
---------- ---------- ---------- ---------- ----------
Income tax provision... $1,728,000 $2,888,000 $3,158,000 $2,942,000 $3,782,000
========== ========== ========== ========== ==========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued liabilities................. $ 282,000 $ 1,063,000 $ 566,000
Net operating loss carryforwards and
tax credits........................ 2,305,000 829,000 3,006,000
Inventory reserves.................. 281,000 577,000 235,000
Other, net.......................... 590,000 702,000 266,000
----------- ----------- -----------
3,458,000 3,171,000 4,073,000
Valuation allowance................. (2,868,000) (1,706,000) (562,000)
----------- ----------- -----------
Net deferred tax assets............... 590,000 1,465,000 3,511,000
Deferred tax liabilities:
Depreciation........................ 549,000 1,136,000 1,839,000
Capital leases...................... 916,000 1,033,000 1,145,000
Other, net.......................... 1,784,000 3,158,000 3,158,000
----------- ----------- -----------
(3,249,000) (5,327,000) (6,142,000)
----------- ----------- -----------
Net deferred tax liabilities in the
financial statements................. $(2,659,000) $(3,862,000) $(2,631,000)
=========== =========== ===========
</TABLE>
At September 30, 1997, the Company had loss carryforwards for U.S. federal
income tax purposes of approximately $600,000 and research and development tax
credit carryforwards of approximately $238,000 expiring in 2002 through 2010.
It also had alternative minimum tax credit carryforwards of approximately
$45,000, with no expiration. For state tax purposes, the Company had loss
carryforwards of approximately $1,000,000 expiring between 1998 and 2000. For
financial reporting purposes, a valuation allowance of $2,868,000, $1,706,000
and $562,000 at December 31, 1995, 1996 and at September 30, 1997,
respectively, has been recognized primarily to offset the deferred tax assets
related to carryforwards which are limited due to the provisions of Section
382 of the Internal Revenue Code of 1986, as amended (the "Code"). Income
taxes paid for the years ended December 31, 1994, 1995, 1996 and for the nine
months ended September 30, 1997 were $343,000, $273,000, $3,170,000 and
$2,582,000.
F-15
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
8. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the Company's tax expense is:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
U.S. statutory rate..... $2,467,000 $2,712,000 $ 5,160,000 $ 4,351,000 $ 4,260,000
State income taxes...... 285,000 407,000 669,000 577,000 627,000
Income not subject to
federal income
taxation............... -- -- (1,483,000) (1,374,000) --
Net operating loss
carryforward
utilization............ (894,000) (263,000) (1,263,000) (794,000) (1,445,000)
Other, net.............. (130,000) 32,000 75,000 182,000 340,000
---------- ---------- ----------- ----------- -----------
$1,728,000 $2,888,000 $ 3,158,000 $ 2,942,000 $ 3,782,000
========== ========== =========== =========== ===========
</TABLE>
Prior to ATMI's acquisition of the ADCS Group, the stockholders of Advanced
Delivery & Chemical Systems Nevada, Inc. ("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. Additional federal
corporate income tax of $1,483,000 would have resulted if ADCS Nevada been
taxed as a C-Corporation for all of 1996, and the pro forma consolidated net
income and net income per share for ATMI for the year ended December 31, 1996
would have been $10,534,000 and $0.57, respectively.
South Korea has granted the Company a five year full income tax exemption
from the year in which ADCS-Korea Co., Ltd. ("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 Company 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 financial statements is remote. As there have been no
challenges or judgments against the Company in connection with this issue, no
amounts have been provided for in the financial statements.
9. STOCKHOLDERS' EQUITY
In October 1995, the Company completed a public offering of 1,600,000 shares
of common stock at $12.25 per share. Net proceeds to the Company of
$17,193,000 were from 1,525,000 shares sold by the Company while 75,000 shares
were sold for various selling stockholders. Costs of the offering, including
underwriting commissions, were $1,489,000.
Stock Plans
In May 1995, the Company's stockholders approved the adoption of the 1995
Stock Plan ("1995 Plan"), which provides for the granting of up to 500,000
nonqualified stock options, "incentive stock options" ("ISOs") and stock
appreciation rights to employees, directors and consultants of the Company.
F-16
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
The Company's 1987 Stock Plan (the "1987 Plan"), as amended, provides for
the granting of up to 1,115,833 nonqualified stock options and ISOs.
Under the terms of both stock plans, nonqualified options granted may not be
at a price of less than 50% of the fair market value of the common stock, and
ISOs granted may not be at a price of less than 100% of fair market value of
the common stock on the date of grant.
Options are generally exercisable commencing one year after the date of
grant at the rate of 20% per annum on a cumulative basis. Nonqualified options
expire up to ten years and one month from the date of grant, and ISOs expire
five to ten years from the date of grant.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Options outstanding at December 31, 1993........... 724,046 $ 0.28-$ 7.00
Granted.......................................... 156,900 $ 5.00-$ 6.38
Canceled......................................... (22,910) $ 0.44-$ 7.00
Exercised........................................ (24,440) $ 0.28-$ 0.53
--------- -------------
Options outstanding at December 31, 1994........... 833,596 $ 0.28-$ 7.00
Granted.......................................... 305,950 $ 6.88-$13.88
Canceled......................................... (27,670) $ 0.53-$ 6.38
Exercised........................................ (137,571) $ 0.28-$ 5.50
--------- -------------
Options outstanding at December 31, 1995........... 974,305 $ 0.28-$13.88
Granted.......................................... 92,500 $ 9.88-$17.63
Canceled......................................... (53,590) $ 0.53-$12.50
Exercised........................................ (54,999) $ 0.28-$12.50
--------- -------------
Options outstanding at December 31, 1996........... 958,216 $ 0.28-$17.63
Granted.......................................... 274,550 $16.88-$29.38
Canceled......................................... (54,430) $ 0.53-$17.25
Exercised........................................ (42,845) $ 0.28-$13.50
--------- -------------
Options outstanding at September 30, 1997.......... 1,135,491 $ 0.28-$29.38
========= =============
</TABLE>
At December 31, 1994, 1995, 1996 and at September 30, 1997, options for
537,683, 498,204, 567,066 and 595,411 shares, respectively, were exercisable,
and at September 30, 1997 options for 18,923 shares were available for grant.
Exercise prices for 485,091 options outstanding ranged from $0.28-$5.00; for
352,100 options outstanding ranged from $5.01-$13.00; and for 298,300 options
outstanding ranged from $13.01-$29.38 as of September 30, 1997.
The weighted average exercise price of options were $3.43, $4.99 and $8.18
for 1995, 1996 and for the nine month period ended September 30, 1997,
respectively. The weighted average remaining contractual life of these options
is 6.9 years.
F-17
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
If compensation expense for the Company's plans had been determined for all
stock option grants based on the fair value at the grant dates for awards
under those plans, consistent with the method described in SFAS No. 123, the
Company's net income and net income per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
---------- ----------- ------------------
<S> <C> <C> <C>
Net income....................... $5,022,000 $11,695,000 $8,525,000
Net income per share............. $ 0.29 $ 0.63 $ 0.46
</TABLE>
During the initial phase-in period, as required by SFAS No. 123, the pro
forma amounts were determined based on the stock option grants subsequent to
January 1, 1995. Therefore, the pro forma amounts presented may not be
indicative of the effects of compensation cost on net income and net income
per share in future years due to the timing of grants and considering that
options generally vest over a five year period.
The fair value of each option grant, for pro forma disclosure purposes, was
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for 1995, 1996 and for the
nine months ended September 30, 1997:
<TABLE>
<CAPTION>
1995 1996 SEPTEMBER 30, 1997
--------- --------- ------------------
<S> <C> <C> <C>
Expected dividend yield............. None None None
Risk free interest rate............. 6.10% 6.25% 6.00%
Expected volatility................. 58.2% 54.6% 56.3%
Expected life of options............ 7.5 years 7.5 years 7.5 years
</TABLE>
The weighted average fair value of stock options granted in 1995, 1996 and
for the nine months ended September 30, 1997 was $6.72, $8.21 and $11.95,
respectively.
Warrants
In connection with its initial public offering, the Company granted warrants
to its underwriters to purchase 131,250 common shares at $11.25 per share,
which became exercisable on November 23, 1994 and expire on November 23, 1998.
Additional warrants have been granted to agencies of the State of Connecticut
in connection with certain loan agreements with those agencies. These warrants
are for an aggregate of 50,000 shares at exercise prices ranging from $10.13
to $11.75, of which 20,000 were vested as of September 30, 1997. During the
nine month period ended September 30, 1997, 20,000 previously vested warrants
were exercised.
10. MERGERS, ACQUISITIONS AND JOINT VENTURES
On October 10, 1997, pursuant to an Agreement and Plan of Merger and
Exchange dated April 7, 1997 (the "Merger and Exchange Agreement"), the
Company issued 5,468,747 shares of its Common Stock in exchange for all the
ownership interests of the ADCS Group. The ADCS Group manufactures, markets
and designs ultrahigh purity specialty thin film materials and related
delivery equipment for the semiconductor and semiconductor equipment
manufacturing industries. The Company is continuing the business of the ADCS
Group and integrating its semiconductor thin film and delivery systems product
lines of the NovaMOS division into the business of the ADCS Group.
F-18
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
10. MERGERS, ACQUISITIONS AND JOINT VENTURES (CONTINUED)
In order to accomplish the tax-free and pooling of interest treatment of the
transaction contemplated by the Merger and Exchange Agreement, Advanced
Technology Materials, Inc. underwent a reorganization involving the creation
of a new holding company (ATMI, Inc.--the successor registrant of Advanced
Technology Materials, Inc.) by means of a merger resulting in the prior
registrant becoming a wholly-owned subsidiary of the holding company. Pursuant
to the reorganization, each outstanding share of common stock of Advanced
Technology Materials, Inc. ("ATM") was converted into one share of the
Company's Common Stock. The reorganization is intended to be a tax-free
transaction under the Code and has been accounted for as a pooling of
interests.
Also on October 10, 1997, pursuant to an Agreement and Plan of Merger, dated
as of May 17, 1997, as amended (the "Lawrence Merger Agreement"), the Company
issued 3,671,349 shares of the Company's Common Stock in exchange for all of
the outstanding common stock of LSL in a merger transaction. As a result, LSL
became a wholly-owned subsidiary of the Company. LSL is an outsourcer of
epitaxial processing of silicon wafers using chemical vapor deposition
technology to meet customer specifications. The Company is continuing the
business of LSL by integrating it with the Epitronics division of the Company
which develops, manufactures, distributes and sells high performance
substrates and thin film deposition services to the semiconductor industry.
The acquisition of LSL is also intended to be a tax-free transaction under the
Code and has been accounted for as a pooling of interests.
The former securityholders of the ADCS Group and LSL have agreed to
indemnify the Company and certain of its subsidiaries and affiliates from and
against certain losses arising out of breaches of representations and
warranties made by the respective securityholders and for certain tax matters.
As security for these obligations, the former securityholders of the ADCS
Group have delivered 750,000 shares of the Company's Common Stock which they
received and the former securityholders of LSL have delivered five percent of
the LSL consideration received into escrow in connection with the acquisitions
by the Company of the ADCS Group and LSL.
Non-recurring costs of approximately $9,000,000, primarily related to legal
costs, accounting costs, investment banker fees and a break-up fee in
connection with another transaction between LSL and another investor, will be
recorded as a one-time charge in the fourth quarter of 1997 in conjunction
with the October 1997 closings of the ADCS Group and LSL transactions. At
September 30, 1997, approximately $6,642,000 of non-recurring transaction
costs have been classified on the consolidated balance sheet as deferred
merger costs.
F-19
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
10. MERGERS, ACQUISITIONS AND JOINT VENTURES (CONTINUED)
The acquisitions of the ADCS Group and LSL were treated as a pooling of
interests. For the years ended December 31, 1994, 1995, 1996 and for the nine
month periods ended September 30, 1996 and 1997, prior to the acquisition,
revenues and net income of ATM, the ADCS Group and LSL included in the
financial statements are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
REVENUES: 1994 1995 1996 1996 1997
- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ATM................ $19,761,000 $30,048,000 $46,350,000 $34,583,000 $41,286,000
ADCS and LSL....... $14,999,000 $30,124,000 $42,311,000 $32,493,000 $32,262,000
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
NET INCOME: 1994 1995 1996 1996 1997
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ATM................ $ 2,636,000 $ 554,000 $ 3,321,000 $ 2,085,000 $ 3,979,000
ADCS and LSL....... $ 2,899,000 $ 4,534,000 $ 8,696,000 $ 8,477,000 $ 5,134,000
</TABLE>
On December 30, 1995, the Company acquired certain assets pertaining to the
Guardian Systems ("Guardian") product line of Messer Greisheim Industries,
Inc. for $6,000,000. In connection with this purchase, the Company recorded
approximately $4,900,000 in goodwill to be amortized over twenty years. The
Guardian product line consists of flame oxidation units used in the treatment
of effluent in the semiconductor industry. The product line has become part of
the Company's EcoSys operation.
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 South
Korean chusik hoesa, ADCS-Korea. The purpose of the joint venture is to
manufacture, sell and distribute chemicals to the semiconductor and related
industries in South Korea.
During 1995, the Company also acquired the assets of two businesses in
exchange for 20,000 shares of its Common Stock, $550,000 in cash and a
$700,000 promissory note bearing interest at prime plus 1%, payable in equal
quarterly installments beginning in September 1995. In 1996, one of those
businesses was subsequently sold, the $700,000 promissory note was paid in
full and a note receivable of approximately $498,000 was recorded. This note
receivable bears interest at 8% and is payable on October 31, 1999.
The pro forma unaudited results of operations for the years ended December
31, 1994 and 1995, for the purchase business combinations indicated above,
consummated as of the beginning of each period presented, are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Revenues.......................................... $40,659,000 $65,590,000
Net income........................................ 5,270,000 5,347,000
Net income per common share....................... $ 0.32 $ 0.31
</TABLE>
On September 15, 1994, the Company issued 698,505 shares of its Common Stock
and $93,309 in cash in exchange for all of the issued and outstanding shares
of common stock of Vector. In connection with this acquisition approximately
$1.0 million of costs were charged to other income, net, which were non-
recurring in nature and consisted primarily of professional fees, compensation
costs, and provisions for miscellaneous costs associated with the integration
and consolidation of Vector with the Company. The Vector acquisition was
treated as a pooling of interests. For the nine months ended September 30,
1994 prior to the acquisition, revenues and net income of Vector included in
the financial statements are $3,149,000 and $208,000, respectively.
F-20
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
11. ASSET SALE AND RESTRUCTURING AGREEMENT
On September 28, 1994, the Company executed an Asset Sale and Restructuring
Agreement whereby certain assets of a majority owned subsidiary, valued at
$0.2 million, were sold in exchange for approximately $2.7 million in cash and
a royalty on future sales of certain products. A gain of approximately $4.6
million was recognized as a result of the transaction which is included in
other income, net. Revenue generated by these assets was $4,569,000. The net
loss incurred was $26,000 for the period from January 1, 1994 to September 28,
1994.
12. COMMITMENTS AND CONTINGENCIES
On May 15, 1997, LSL settled patent infringement litigation with an
equipment manufacturer, related to equipment used by LSL that was purchased
from another manufacturer. Under the terms of the related settlement
agreement, LSL agreed to pay the manufacturer $2,000,000 and to purchase
reactors from the manufacturer assuming LSL's business conditions justify such
purchases. LSL has committed to purchase a reactor at an approximate fair
market value of $2,500,000. LSL accrued the $2,000,000 relating to this
settlement in the accompanying financial statements for the year ended
December 31, 1996. The amount was paid to the manufacturer during the nine
months ended September 30, 1997.
13. GEOGRAPHIC DATA
During 1994, 1995, 1996, and for the nine month periods ended September 30,
1996 and 1997, export sales represented 25%, 25%, 29%, 27% and 25% of the
Company's total revenues, respectively. Sales to Asia, primarily South Korea,
were 19%, 19%, 23%, 22% and 20% of the Company's revenues during those same
periods.
F-21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 QUARTER
- ---- ------------------------ NINE
FIRST SECOND THIRD MONTHS
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $22,513 $23,521 $27,514 $73,548
Gross profit.......................... 11,026 12,107 14,973 38,106
Net income............................ 2,516 2,616 3,981 9,113
Net income per share.................. $ 0.14 $ 0.14 $ 0.21 $ 0.49
<CAPTION>
1996 QUARTER
- ---- --------------------------------
FIRST SECOND THIRD FOURTH YEAR
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $21,185 $22,835 $23,056 $21,585 $88,661
Gross profit.......................... 12,472 11,628 12,110 11,220 47,430
Net income............................ 2,915 3,258 4,390 1,454 12,017
Net income per share.................. $ 0.16 $ 0.18 $ 0.23 $ 0.08 $ 0.65
<CAPTION>
1995 QUARTER
- ---- --------------------------------
FIRST SECOND THIRD FOURTH YEAR
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales............................. $11,655 $14,989 $15,643 $17,885 $60,172
Gross profit.......................... 5,665 7,875 7,507 9,402 30,449
Net income (loss)..................... (1,265) 1,929 1,846 2,578 5,088
Net income (loss) per share........... $ (0.08) $ 0.12 $ 0.11 $ 0.15 $ 0.30
</TABLE>
F-22
<PAGE>
INSIDE BACK COVER
(GRAPHIC)
ADCS
The ADCS(TM) Advantage
We've earned our customers' confidence and support by being a reliable, stable,
and innovative source for:
. ULTRAPUR(TM) high purity source chemicals
. EpiGrade(TM) next-generation precursors
. Liquid delivery equipment: refill to vaporization
. Fab-wide distribution systems
ADCS(TM)-Leading edge technology with a global presence
(GRAPHIC) TEOS
Call on Epitronics and tap into a wealth of advanced
semiconductor materials expertise.
(LOGO) EPITRONICS
AN ATMI COMPANY
ECOSYS (LOGO)
(GRAPHIC)
There is no single abatement solution to treat all fab effluent gases. A variety
of wet, dry and thermal treatment technologies are required to provide abatement
of all the effluent gases in the fab. Only EcoSys offers full coverage effluent
gas management using wet, dry and thermal abatement technologies
SDS (LOGO)
SAFE DELIVERY SOURCE
(GRAPHIC)
. Controlled, on-demand process gas delivery below atmospheric pressure
. Patented solid adsorbents hold pure dopant gas molecules within their
micropore structures, significantly improving productivity and safety
. Process gas capacity increases up to 10 times that of high-pressure cylinders
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCK-
HOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 13
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and
Analysis of Financial Condition and
Results of Operations................................................... 15
Business................................................................. 26
Management............................................................... 39
Certain Transactions..................................................... 46
Principal and Selling Stockholders....................................... 50
Description of Capital Stock............................................. 52
Underwriting............................................................. 55
Legal Matters............................................................ 56
Experts.................................................................. 57
Available Information.................................................... 57
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 SHARES
ATMI, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
HAMBRECHT & QUIST
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
ADVEST, INC.
NEEDHAM & COMPANY, INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the distribution of the shares of Common Stock registered
hereby. Pursuant to various registration rights agreements, the Registrant is
paying all of the expenses incurred on behalf of the Selling Stockholders
(other than underwriting discounts and commissions).
<TABLE>
<S> <C>
SEC registration fee............................................... $ 39,395.75
NASD filing fee.................................................... 13,854.49
Nasdaq listing fee................................................. 17,500.00
Printing expenses.................................................. 130,000.00
Fees and expenses of counsel for the Registrant.................... 175,000.00
Accounting fees and expenses....................................... 150,000.00
Blue sky fees and expenses (including counsel fees and expenses)... 10,000.00
Fees and expenses of transfer agent and registrar.................. 1,500.00
Miscellaneous...................................................... 2,749.76
-----------
Total expenses................................................... $540,000.00
===========
</TABLE>
ITEM 14. LIMITATION OF LIABILITY AND 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 Delaware
General Corporation Law, as amended (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' derivative 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 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 Registrant's Certificate of Incorporation 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. 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, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
The Registrant 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
Registrant
II-1
<PAGE>
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 Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Effective May 16, 1995, the Registrant issued a warrant to purchase 20,000
shares of Common Stock to the State of Connecticut. The exercise price under
the warrant is $11.75 per share, and the warrant is exercisable until January
1, 2005.
On June 27, 1995, the Registrant issued a warrant to purchase 50,000 shares
of Common Stock to the Connecticut Development Authority. The exercise price
under the warrant is $10.125 per share. The warrant is exercisable as to
10,000 shares on each of the first five anniversaries of issuance. The warrant
is exercisable until June 27, 2002. On September 23, 1997, the Registrant sold
20,000 shares of Common Stock to the Connecticut Development Authority
pursuant to the partial exercise of the warrant for aggregate consideration of
$222,500.
On December 4, 1995, the Registrant issued to Robert Adams and Sherry Adams
an aggregate of 20,000 shares of Common Stock in connection with the merger of
EpiTech Corporation into a wholly-owned subsidiary of the Registrant.
On October 6, 1997, the Registrant sold 65,625 shares of Common Stock to
Advest, Inc. pursuant to the exercise of a warrant for aggregate consideration
of $738,281.25.
On October 10, 1997, the Registrant issued to Lamonte H. Lawrence and The
Arizona State University Foundation an aggregate of 3,628,571 shares of Common
Stock in connection with the merger of a wholly-owned subsidiary of the
Registrant into Lawrence Semiconductor Laboratories, Inc. ("LSL").
On October 17, 1997, the Registrant sold 65,625 shares of Common Stock to
Needham & Company, Inc. pursuant to the exercise of a warrant for aggregate
consideration of $738,281.25.
The foregoing issuances of the Registrant's securities were made in reliance
upon the exemption from the registration requirements of the Securities Act
set forth in Section 4(2) of the Securities Act. In claiming the Section 4(2)
exemption, the Registrant relied on the following facts: (i) each of the
purchasers (a) had the requisite knowledge and experience in financial and
business matters to evaluate the merits and risk of an investment in the
Registrant; (b) was able to bear the economic risk of an investment in the
Registrant; (c) had access to or was furnished with the kinds of information
that registration under the Securities Act would have provided; (d) acquired
the shares for the purchaser's own account in a transaction not involving any
general solicitation or general advertising, and not with a view to the
distribution thereof; and (ii) a restrictive legend was placed on each
certificate or other instrument evidencing the shares or other securities.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed as a part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.01 Form of Underwriting Agreement. (1)
2.01 Agreement and Plan of Merger and Exchange by and among Advanced
Technology Materials, Inc., ATMI Holdings, Inc. (now known as
ATMI, Inc.), 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
(Exhibit 2.01 to Advanced Technology Materials, Inc. Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, File No.
0-22756 ("June 30, 1997 Form 10-Q")). (2)
2.02(a) Agreement and Plan of Merger by and among Advanced Technology
Materials, Inc., ATMI Holdings, Inc. (now known as ATMI, Inc.),
Welk Acquisition Corporation, Lawrence Semiconductor Laboratories,
Inc. and Lawrence Semiconductor Laboratories Marketing and Sales,
Inc. dated as of May 17, 1997 (Exhibit 2.02(a) to June 30, 1997
Form 10-Q). (2)
2.02(b) First Amendment to Agreement and Plan of Merger dated as of June
6, 1997 (Exhibit 2.02(b) to June 30, 1997 Form 10-Q). (2)
2.02(c) Second Amendment to Agreement and Plan of Merger dated as of July
30, 1997 (Exhibit 2.02(c) to June 30, 1997 Form 10-Q). (2)
2.03 Merger Agreement by and among ATMI, Inc., Glide Acquisition, Inc.
and NOW Technologies, Inc. dated as of February 19, 1998. (1)
3.01(a) Certificate of Incorporation of the Registrant (Exhibit 3.01 to
the Registrant's Registration Statement on Form S-4, filed
September 10, 1997, Registration No. 333-35323 (the "Form S-4
Registration Statement")). (2)
3.01(b) Certificate of Amendment to Certificate of Incorporation (Exhibit
4.1(b) to the Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form S-8, filed October 10, 1997,
Registration No. 33-77060). (2)
3.02 Bylaws of the Registrant (Exhibit 3.02 to the Form S-4
Registration Statement). (2)
4.01 Specimen of the Registrant's Common Stock Certificate (Exhibit
4.01 to the Form S-4 Registration Statement). (2)
5.01 Opinion and Consent of Shipman & Goodwin LLP, as to the legality
of the shares to be registered. (1)
10.01 Employment Agreement between Eugene G. Banucci, Ph.D. and Advanced
Technology Materials, Inc. dated October 10, 1997. (3)
10.02 Employment Agreement between Daniel P. Sharkey and Advanced
Technology Materials, Inc. dated October 10, 1997. (3)
10.03 Employment Agreement between Duncan W. Brown and Advanced
Technology Materials, Inc. dated October 10, 1997. (3)
10.04 Employment Agreement between James M. Burns and Advanced
Technology Materials, Inc. dated December 31, 1996. (3)
10.05 Employment Agreement between Stephen H. Siegele and Advanced
Delivery & Chemical Systems Nevada, Inc. dated October 13, 1997.
(3)
10.06 Consulting Agreement between Lawrence Semiconductor Laboratories,
Inc. and Lawrence Semiconductor Investments, Inc. dated October
10, 1997. (3)
10.07 Agreement of Lease between Melvyn J. Powers and Mary P. Powers
d/b/a/ M&M Realty and Advanced Technology Materials, Inc. dated
December 23, 1994 (Filed as Exhibit 10.09 to Advanced Technology
Materials, Inc. Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-22756 ("1994 Form 10-K")). (2)
10.08(a) Lease Agreement between Montague Oaks Associates Phase III and
ATMI EcoSys Corporation dated February 7, 1995 (Filed as Exhibit
10.10 to 1994 Form 10-K). (2)
10.08(b) First Amendment to Lease between Montague Oaks Associates Phase
III and ATMI EcoSys Corporation dated September 30, 1997. (3)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.09 Lease Agreement between Montague Oaks Associates Phase I & II and
ATMI EcoSys Corporation dated September 30, 1997. (3)
10.10(a) Standard Industrial Lease--Net between GKZ Investments and
Epitronics Corporation dated June 20, 1994. (3)
10.10(b) Lease extension letter between GKZ Investments and Epitronics
Corporation dated September 18, 1996. (3)
11.01 Statement re computation of per share earnings. (3)
21.01 Subsidiaries of the Registrant. (3)
23.01 Consent of Shipman & Goodwin LLP, included in opinion filed as
Exhibit 5.01.
23.02 Consent of Ernst & Young LLP. (3)
23.03 Consent of Price Waterhouse LLP. (3)
24.01 Power of Attorney, included in the signature page of this
registration statement. (3)
27.01 Financial data schedule. (3)
</TABLE>
- ---------------------
(1) To be filed by amendment.
(2) Incorporated by reference.
(3) Filed herewith.
The Company agrees to furnish to the Commission a copy of any instrument
evidencing long-term debt, which is not otherwise required to be filed.
(b) The following Financial Statement Schedule is filed as a part of this
Registration Statement:
Schedule II Valuation and Qualifying Accounts
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 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 February 20, 1998.
ATMI, Inc.
By: /s/ Eugene G. Banucci
-----------------------------------
EUGENE G. BANUCCI, PRESIDENT,
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
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 the
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, Chief February 20,
- ------------------------------------- Executive Officer, 1998
EUGENE G. BANUCCI Chairman of the
Board and Director
(principal
executive officer)
/s/ Daniel P. Sharkey Vice President, February 20,
- ------------------------------------- Treasurer and Chief 1998
DANIEL P. SHARKEY Financial Officer
(principal
financial and
accounting officer)
/s/ Mark A. Adley Director February 20,
- ------------------------------------- 1998
MARK A. ADLEY
/s/ John A. Armstrong Director February 20,
- ------------------------------------- 1998
JOHN A. ARMSTRONG
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Robert S. Hillas Director February 20,
- ------------------------------------- 1998
ROBERT S. HILLAS
/s/ Lamonte H. Lawrence Director February 20,
- ------------------------------------- 1998
LAMONTE H. LAWRENCE
/s/ Stephen H. Mahle Director February 20,
- ------------------------------------- 1998
STEPHEN H. MAHLE
/s/ Stephen H. Siegele Director February 20,
- ------------------------------------- 1998
STEPHEN H. SIEGELE
II-6
<PAGE>
SCHEDULE II
ATMI, INC.
VALUATION & QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGED TO END
YEAR ENDED OF PERIOD COST/EXPENSE DEDUCTIONS OF PERIOD
- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Allowance for doubtful
accounts............... $ 42,000 $ 48,000 $ 8,000 $ 82,000
Obsolescence reserve.... 139,000 215,000 78,000 276,000
DECEMBER 31, 1995
Allowance for doubtful
accounts............... 82,000 78,000 51,000 109,000
Obsolescence reserve.... 276,000 127,000 124,000 279,000
DECEMBER 31, 1996
Allowance for doubtful
accounts............... 109,000 280,000 28,000 361,000
Obsolescence reserve.... 276,000 380,000 0 659,000
<CAPTION>
NINE MONTHS ENDED
- -------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1997 (UNAU-
DITED)
Allowance for doubtful
accounts............... 361,000 148,000 210,000 299,000
Obsolescence reserve.... 659,000 93,000 9,000 743,000
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
----------- ----------- -------------
<C> <S> <C>
1.01 Form of Underwriting Agreement. (1)
2.01 Agreement and Plan of Merger and Exchange by and
among Advanced Technology Materials, Inc., ATMI
Holdings, Inc. (now known as ATMI, Inc.), 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 (Exhibit 2.01 to Advanced Technology
Materials, Inc. Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, File No. 0-22756
("June 30, 1997 Form 10-Q")). (2)
2.02(a) Agreement and Plan of Merger by and among Advanced
Technology Materials, Inc., ATMI Holdings, Inc.
(now known as ATMI, Inc.), Welk Acquisition
Corporation, Lawrence Semiconductor
Laboratories,Inc. and Lawrence Semiconductor
Laboratories Marketing and Sales, Inc. dated as of
May 17, 1997 (Exhibit 2.02(a) to June 30, 1997
Form 10-Q). (2)
2.02(b) First Amendment to Agreement and Plan of Merger
dated as of June 6, 1997 (Exhibit 2.02(b) to June
30, 1997 Form 10-Q). (2)
2.02(c) Second Amendment to Agreement and Plan of Merger
dated as of July 30, 1997 (Exhibit 2.02(c) to June
30, 1997 Form 10-Q. (2)
2.03 Merger Agreement by and among ATMI, Inc., Glide
Acquisition, Inc. and NOW Technologies, Inc. dated
as of February 19, 1998. (1)
3.01(a) Certificate of Incorporation of the Registrant
(Exhibit 3.01 to the Registrant's Registration
Statement on Form S-4, filed September 10, 1997,
Registration No. 333-35323 (the "Form S-4
Registration Statement")). (2)
3.01(b) Certificate of Amendment to Certificate of
Incorporation (Exhibit 4.1(b) to the Registrant's
Post-Effective Amendment No. 1 to Registration
Statement on Form S-8, filed October 10, 1997,
Registration No. 33-77060). (2)
3.02 Bylaws of the Registrant (Exhibit 3.02 to the Form
S-4 Registration Statement). (2)
4.01 Specimen of the Registrant's Common Stock
Certificate (Exhibit 4.01 to the Form S-4
Registration Statement). (2)
5.01 Opinion and Consent of Shipman & Goodwin LLP, as
to the legality of the shares to be registered.
(1)
10.01 Employment Agreement between Eugene G. Banucci,
Ph.D. and Advanced Technology Materials, Inc.
dated October 10, 1997. (3)
10.02 Employment Agreement between Daniel P. Sharkey and
Advanced Technology Materials, Inc. dated October
10, 1997. (3)
10.03 Employment Agreement between Duncan W. Brown and
Advanced Technology Materials, Inc. dated October
10, 1997. (3)
10.04 Employment Agreement between James M. Burns and
Advanced Technology Materials, Inc. dated December
31, 1996. (3)
10.05 Employment Agreement between Stephen H. Siegele
and Advanced Delivery & Chemical Systems Nevada,
Inc. dated October 13, 1997. (3)
10.06 Consulting Agreement between Lawrence
Semiconductor Laboratories, Inc. and Lawrence
Semiconductor Investments, Inc. dated October 10,
1997. (3)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
----------- ----------- -------------
<C> <S> <C>
10.07 Agreement of Lease between Melvyn J. Powers and
Mary P. Powers d/b/a/ M&M Realty and Advanced
Technology Materials, Inc. dated December 23, 1994
(Filed as Exhibit 10.09 to Advanced Technology
Materials, Inc. Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 0-22756
("1994 Form 10-K")). (2)
10.08(a) Lease Agreement between Montague Oaks Associates
Phase III and ATMI EcoSys Corporation dated
February 7, 1995 (Filed as Exhibit 10.10 to 1994
Form 10-K). (2)
10.08(b) First Amendment to Lease between Montague Oaks
Associates Phase III and ATMI EcoSys Corporation
dated September 30, 1997. (3)
10.09 Lease Agreement between Montague Oaks Associates
Phase I & II and ATMI EcoSys Corporation dated
September 30, 1997. (3)
10.10(a) Standard Industrial Lease--Net between GKZ
Investments and Epitronics Corporation dated June
20, 1994. (3)
10.10(b) Lease extension letter between GKZ Investments and
Epitronics Corporation dated September 18, 1996. (3)
11.01 Statement re computation of per share earnings. (3)
21.01 Subsidiaries of the Registrant. (3)
23.01 Consent of Shipman & Goodwin LLP, included in
opinion filed as Exhibit 5.01.
23.02 Consent of Ernst & Young LLP. (3)
23.03 Consent of Price Waterhouse LLP. (3)
24.01 Power of Attorney, included in the signature page
of this registration statement. (3)
27.01 Financial data schedule. (3)
</TABLE>
- ---------------------
(1) To be filed by amendment.
(2) Incorporated by reference.
(3) Filed herewith.
E-2
<PAGE>
EXHIBIT 10.01
EMPLOYMENT AGREEMENT
October 10, 1997
Eugene G. Banucci, Ph.D.
106 Adams Lane
New Canaan, CT 06840
Advanced Technology Materials, Inc., a Delaware corporation, has
agreed, pursuant to that certain Agreement and Plan of Merger and Exchange dated
as of the 7th day of April, 1997 by and among Advanced Technology Materials,
Inc., a Delaware corporation, ATMI Holdings, Inc. (n/k/a ATMI, 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, Advanced
Delivery & Chemical Systems Operating, LLC, a Delaware limited liability company
and Advanced Delivery & Chemical Systems, Ltd., a Texas limited partnership (the
"Exchange Agreement"), to enter into an employment agreement with you. The
"Company" as used in this Agreement shall be defined as Advanced Technology
Materials, Inc., and for purposes of Section 8 hereof shall include any of its
subsidiaries or affiliates for which you provide any product, process,
technology or service to or supervise or otherwise participate in during the two
(2) years prior to the termination of your employment with Advanced Technology
Materials, Inc. As part of the transactions contemplated by the Exchange
Agreement and as a condition precedent for the ADCS Group to enter into the
Exchange Agreement and consummate the transactions contemplated thereby, you
have agreed to enter into such an employment agreement containing, among other
things, restrictions on your ability to compete with the business of the Company
and its subsidiaries and affiliates to the extent provided in the preceding
sentence for a period of time following your termination of employment.
Capitalized terms are used herein with the respective meanings set forth in the
Exchange Agreement unless otherwise defined herein or unless otherwise required
by the context.
Accordingly, in consideration of the premises and the mutual promises
and covenants contained herein and for other good and valuable consideration,
including but not limited to (i) your receipt of a term of employment pursuant
to Section 2 of this
<PAGE>
Agreement; (ii) your access to and receipt of the confidential, proprietary and
trade secret information of the Company and its subsidiaries and affiliates;
(iii) your receipt of compensation pursuant to Section 3 of this Agreement; and
(iv) your receipt of other benefits pursuant to Section 4 of this Agreement, the
receipt and sufficiency of which are hereby expressly acknowledged, effective
the date of this Agreement, the Company and you agree as follows:
1. POSITION AND RESPONSIBILITIES.
-----------------------------
1.1 You shall serve as President, Chief Executive Officer and Chairman of
the Board of the Company or in such other capacity as shall be designated by the
Board of Directors of Holdings. You shall perform such duties at Danbury,
Connecticut or such other place as you and the Company shall mutually agree.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and to the business and
affairs of the Company. You agree to serve as an officer of the Company and/or
Holdings, if elected by their respective Board of Directors, and to perform such
executive duties as may be assigned to you by their respective Board of
Directors from time to time.
1.3 You will duly, punctually and faithfully perform and observe any and
all rules and regulations which the Company and/or Holdings may now or shall
hereafter establish governing the conduct of the Company's business.
2. TERM OF EMPLOYMENT.
------------------
2.1 The term of your employment shall be two (2) years (the "Initial
Term") commencing with the date hereof, provided your employment shall
automatically terminate upon your death and may be terminated at any time as
provided in Section 2.2. At the end of the Initial Term, unless the parties
mutually agree to renew, extend or modify the provisions hereof, your employment
shall continue "at will," subject to the Company's obligation to pay the
Severance Payment as hereinafter provided, and the other terms and conditions of
this Agreement (as then in effect) shall continue.
2.2 The Company shall have the right, on written notice to you specifying
the reason, to terminate your employment:
(a) immediately for Cause (as defined in Section 2.4), or
(b) subject to Section 2.6 hereof, at any time without Cause, or
(c) subject to Section 2.6 hereof, in the event of your death or total
disability which, in the reasonable opinion of the Board of Directors of
Holdings, renders you
-2-
<PAGE>
unable or incompetent to carry out your duties, responsibilities, and
assignments for a period of ninety (90) consecutive days.
2.3 You shall have the right, on written notice to the Company, to
terminate your employment if you "resign for just cause," which shall mean a
resignation of your employment as a direct result of (a) a material breach by
the Company of its obligations to you under this Agreement, provided that, if
such breach is capable of remedy, a written notice within sixty (60) days of
such breach and opportunity to cure such breach shall be afforded the Company
and, in such event, just cause shall exist if the Company shall fail to cure
such breach within a reasonable period of time not to exceed thirty (30) days;
or (b) a significant decrease by the Board of Directors of Holdings of your
duties or authority (except in connection with a termination pursuant to Section
2.2(a) or (c)), provided that you have given the Company notice of such decrease
within three (3) months of its occurrence.
2.4 The term "Cause" shall mean (i) your failure or refusal to render
substantial services to the Company in accordance with your obligations under
this Agreement, provided that if your failure or refusal is capable of remedy, a
written notice within three (3) months of such failure or refusal and
opportunity to cure shall be afforded you and, in such event, Cause shall exist
if you fail to cure such failure or refusal within a reasonable period of time
not to exceed thirty (30) days or if such failure or refusal is timely cured,
you repeat such failure or refusal; (ii) the commission by you of an act of
fraud or embezzlement against the Company or the commission by you of any other
action with the intent to injure the Company; (iii) an act of moral turpitude by
you which is materially detrimental to the business or reputation of the
Company; or (iv) your having been convicted of, or pleading nolo contendere to,
a felony (other than traffic offenses which do not bring you or the Company into
disgrace or disrepute). For purposes of this Section 2.4, the term "Company"
shall include the Company and its subsidiaries and affiliates.
2.5 If you are terminated for Cause, neither the Company nor any
affiliate of the Company shall have any further obligation to you or your
personal representatives under this Agreement, except for salary, additional
compensation and permitted business expenses accrued hereunder and unpaid at the
date of termination. On or before the date of termination of your employment,
you shall return to the Company all records and other personal property of the
Company in your possession or control, including all confidential, proprietary
or trade secret information of the Company and its subsidiaries and affiliates.
2.6 Severance Benefits. In the event of the termination of your
------------------
employment pursuant to either Section 2.2(b) or Section 2.3 hereof, the Company
shall pay to you an aggregate of eighteen (18) months' Base Salary at the time
of termination, less applicable taxes and withholding (the "Severance Payment"),
in the manner and subject to the terms and conditions as hereinafter provided,
and the Company shall provide you during such period medical, dental, life and
disability insurance benefits on the same basis the
-3-
<PAGE>
Company would have provided you such benefits during such period had you
continued to be an employee of the Company (collectively, the "Severance
Benefits"). The Severance Payment shall be payable in installments on such date
or dates on which Base Salary would have been paid to you had your employment
not been terminated.
2.7 In the event of the termination of your employment associated
with a "change in control" of Holdings (including if you "resign for just cause"
as defined in Section 2.3), (a) all stock options held by you to purchase shares
of Holdings Common Stock shall become immediately exercisable, notwithstanding
the vesting provisions of any stock option award agreement concerning such
options; 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, and (b) you
will be entitled to any bonuses under any bonus plans then in effect as if fully
earned. Benefits payable under this Section 2.7 upon a change in control may
subject you to an excise tax as "excess parachute payments" under Section 280G
of the Code. Holdings will reimburse you 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. For purposes of this Section 2.7, a "change in control" of
Holdings shall be deemed to have taken place if: (i) a third person, including a
"person" as defined in Section 13(d)(3) of the Exchange Act becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or
indirectly, of securities of Holdings representing twenty-five percent (25%) or
more of the total number of votes that may be cast for the election of the
directors of Holdings; or (ii) as the result of, or in connection with, any
tender or exchange offer, merger, consolidation or other business combination,
sale of assets or one or more contested elections, or any combination of the
foregoing transactions (a "Transaction") the persons who were directors of
Holdings immediately prior to the Transaction shall cease to constitute a
majority of the Board of Directors of Holdings or of any successor to Holdings.
Notwithstanding the foregoing, a "change in control" of Holdings shall not be
deemed to have taken place as a result of (i) the consummation of the
transactions contemplated by the Exchange Agreement, (ii) the consummation of
the transactions contemplated by that certain Agreement and Plan of Merger dated
May 17, 1997, by and among, inter alia, Holdings and Lawrence Semiconductor
----- ----
Laboratories, Inc., or (iii) the consummation of all such transactions.
3. COMPENSATION.
------------
3.1 Base Salary. The Company shall pay to you for the services to be
-----------
rendered hereunder a Base Salary ("Base Salary") at an annual rate of $210,000,
subject to customary withholding for federal, state and local taxes. Such Base
Salary shall be
-4-
<PAGE>
payable periodically in conformity with the prevailing practice of Holdings and
Holdings' subsidiaries for executives' compensation as such practice shall be
established or modified from time to time. Such Base Salary shall be subject to
increase from time to time 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.
3.2 Business Expenses. You shall be entitled to be reimbursed for all
-----------------
reasonable and necessary expenses incurred in connection with the performance of
your duties hereunder provided that you shall, as a condition of reimbursement,
submit verification of the nature and amount of such expenses in accordance with
the reimbursement policy from time to time adopted by Holdings.
4. OTHER BENEFITS.
--------------
4.1 Vacation. You shall be entitled to vacation in accordance with
--------
the vacation policy of Holdings and Holdings' subsidiaries, as the same may be
in effect from time to time, without loss of compensation or other benefits to
which you are entitled under this Agreement, to be taken at such times as you
may reasonably select.
4.2 Other Benefit Programs. The Company will provide to you all other
----------------------
employee benefits generally available to employees of Holdings and Holdings'
subsidiaries of equivalent position, as the same may be in effect from time to
time.
4.3 Incentive Compensation. You shall be eligible to receive additional
----------------------
compensation, including awards of performance bonuses at levels commensurate
with employees of Holdings and Holdings' subsidiaries 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.
5. OTHER ACTIVITIES DURING EMPLOYMENT.
----------------------------------
5.1 Except with the prior written consent of the Holdings' Board of
Directors, which consent shall not be unreasonably withheld, you will not during
the term of this Agreement undertake or engage in any other employment or
occupation except as permitted by Section 5.3. This provision shall not be
deemed to preclude membership in professional societies, lecturing or the
acceptance of honorary positions, that are in any case incidental to your
employment by the Company, which are not adverse or antagonistic to or
competitive with the Company or its subsidiaries or affiliates, their business
or prospects, financial or otherwise and are consistent with your obligations
regarding the confidential, proprietary and trade secret information of the
Company and its subsidiaries and affiliates pursuant to the Proprietary
Information and Inventions Agreement referenced below.
-5-
<PAGE>
5.2 Except as permitted by Section 5.3, you will not assume or participate
in, directly or indirectly, any position or interest adverse or antagonistic to
the Company or its subsidiaries or affiliates, their business or prospects,
financial or otherwise, or take any action towards any of the foregoing.
5.3 During the term of your employment by the Company, except on behalf of
the Company or its subsidiaries or its affiliates, you will not, directly or
indirectly, whether as an officer, director, stockholder, partner, proprietor,
associate, representative or otherwise, become or be interested in any other
person, corporation, firm, partnership or other entity whatsoever which directly
competes with the Company or its subsidiaries or affiliates, in any part of the
world, in any line of business engaged in (or planned to be engaged in) by the
Company or its subsidiaries or affiliates (or any successor to their business).
With respect to any company or partnership which directly competes with the
Company or its subsidiaries or affiliates, in any part of the world, in any line
of business engaged in (or planned to be engaged in) by the Company or its
subsidiaries or affiliates (or any successor to their business), this Section
5.3 shall not prohibit you from owning (i) as a passive investor only, an
aggregate of not more than one percent (1%) of the total stock or equity
interests of such company or partnership if the same are publicly traded, or
(ii) stock or equity interests of such company or partnership through mutual
funds or other similar investment vehicles over which you retain no investment
discretion.
6. FORMER EMPLOYMENT.
-----------------
6.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior employment or consulting
agreement or relationship. Subject to Section 6.2, you represent and warrant
that you do not possess confidential information arising out of prior employment
which, in your best judgment, would be utilized in connection with your
employment by the Company in the absence of Section 6.2.
6.2 If, in spite of the second sentence of Section 6.l, you should find
that confidential information belonging to any former employer might be usable
in connection with the Company's business, you will not intentionally disclose
to the Company or use on its behalf any confidential information belonging to
any of your former employers; but during your employment by the Company you will
use in the performance of your duties all information which is generally known
and used by persons with training and experience comparable to your own and all
information which is common knowledge in the industry or otherwise legally in
the public domain or is legally obtainable.
7. CONFIDENTIALITY. You acknowledge that, in consideration of your
---------------
receipt of the specific consideration expressed in the second paragraph of this
Agreement, you have entered into and are bound by the terms of the standard
Proprietary Information and Inventions Agreement for employees of Holdings'
subsidiaries and affiliates, the terms of which are incorporated herein by
reference.
-6-
<PAGE>
8. POST-EMPLOYMENT ACTIVITIES.
--------------------------
8.1 You understand and acknowledge that the provisions of this Section 8
are necessary to protect the legitimate business interests of the Company and
are fair and reasonable for numerous reasons, including your receipt of the
specific consideration expressed in the second paragraph of this Agreement. In
addition, as a result of your executive position with the Company, you have had,
and will continue to have, access to significant confidential, proprietary or
trade secret information of the Company, so that, if you were employed by a
competitor of the Company, there would be a substantial risk to the Company of
your use of its confidential, proprietary or trade secret information. Based on
the foregoing, for a period of the later of sixty (60) months from the date of
this Agreement or thirty-six (36) months after the termination of your
employment with the Company, absent the Company's prior written approval (with
concurrence by the Board of Directors of Holdings), you will not directly or
indirectly:
(a) render any services to, or engage in any activities for, any other
person, firm, corporation or business organization with respect to any
product, process, technology or service, in existence or under development
which substantially resembles or competes with a product, process, or
service of the Company in existence or under development upon which you
worked or exercised supervisory responsibility at any time during the two
(2) years prior to the termination of your employment with the Company;
(b) solicit employees of the Company to leave their employ or offer or
cause to be offered employment to any person who is or was employed by the
Company at any time during the six (6) months prior to the termination of
your employment with the Company;
(c) entice, induce or encourage any of the Company's other employees
to engage in any activity which, were it done by you, would violate any
provision of this Section 8; or
(d) otherwise attempt to interfere with or disrupt the business or
activities of the Company or its subsidiaries or affiliates after written
notice and a 60-day cure period.
You agree that if you act in violation of this Section 8, the number of days
that you are in violation will be added to the time period specified in this
Section 8.
8.2 Upon your written request to the Company specifying the activities
proposed to be conducted by you, the Company may in its discretion, subject to
the concurrence of the Board of Directors of Holdings, give you written
approval(s) to engage personally in any activity or render services referred to
in Section 8.l upon receipt
-7-
<PAGE>
of written assurances (satisfactory to the Company and its counsel in their
discretion) from you and from your prospective employer(s) that the integrity of
the provisions of Section 7 and Section 8.l will not in any way be jeopardized
or violated by such activities; provided, however, the burden of so establishing
-------- -------
the foregoing to the satisfaction of the Company and said counsel shall be upon
you and your prospective employer(s). Failure of the Company to respond to such
written request shall be deemed a rejection of such request.
9. REMEDIES. Your duties under Section 7 and Section 8 shall survive
--------
termination of your employment with the Company. You acknowledge and agree that
any breach by you of any of the provisions of Section 7 or Section 8.1 of this
Agreement will result in irreparable and continuing damage to the Company and
that a remedy at law for any breach or threatened breach by you of the
provisions of Section 7 or Section 8.1 would be inadequate, and you therefore
agree that the Company shall be entitled to temporary, preliminary and permanent
injunctive relief in case of any such breach or threatened breach. The
prevailing party in an action under this Agreement shall be entitled to recover
its costs and expenses, including attorneys' fees. Nothing in this Agreement
shall be construed to prohibit the Company from pursuing any other remedy
available to it at law or in equity, the parties having agreed that all remedies
are cumulative.
10. MISCELLANEOUS.
-------------
10.1 Assignment. This Agreement and the rights and obligations of the
----------
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties or the
business or properties of the Company or any subsidiary or division thereof,
but, except as to any such successor or assignee of the Company, neither this
Agreement nor any rights or benefits hereunder may be assigned by the Company or
you.
10.2 Interpretation. In case any one or more of the provisions contained
--------------
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement. If moreover, any one
or more of the provisions contained in this Agreement shall for any reason be
held to be excessively broad as to duration, geographical scope, activity or
subject, the parties expressly agree that a court may rewrite and modify such
provisions so as to be enforceable to the fullest extent compatible with the
applicable law as it shall then appear.
10.3 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 (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return
-8-
<PAGE>
receipt requested, or (c) when received by the addressee, if sent by 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 Company:
Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, CT 06810
Facsimile No. (203) 792-8040
Attention: Daniel P. Sharkey
If to you:
Eugene G. Banucci
106 Adams Lane
New Canaan, CT 06840
Facsimile No. (203) 966-7761
10.4 Waivers. If either party shall waive any breach of any provision of
-------
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
10.5 Headings. The headings of the sections hereof are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.
10.6 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 Connecticut applicable to agreements made and to be performed
wholly within such jurisdiction.
10.7 Complete Agreement; Amendments; Prior Agreements. The foregoing,
------------------------------------------------
together with the Proprietary Information and Inventions Agreement, are the
entire agreement of the parties with respect to the subject matter hereof and
may not be amended, supplemented, cancelled or discharged except by written
instrument executed by both parties hereto. This Agreement supersedes any and
all prior agreements between the Company and you with respect to the matters
covered hereby, including but not limited to, that certain Key Employee
Agreement between the Company and you.
10.8 Counterparts. This Agreement may be executed in counterparts, each
------------
of which when so executed and delivered shall constitute a complete and original
instrument but all of which together shall constitute one and the same
agreement, and it shall not be
-9-
<PAGE>
necessary when making proof of this Agreement or any counterpart thereof to
account for any other counterpart.
10.9 Opportunity for Review. You acknowledge that you had the opportunity
----------------------
to have this Agreement reviewed by an attorney prior to your execution of this
Agreement.
If you are in agreement with the foregoing, please so indicate by signing
and returning the enclosed copy of this letter.
ADVANCED TECHNOLOGY MATERIALS, INC.
By: /s/ Daniel P. Sharkey
-------------------------------------
Title: Vice President, Chief Financial
-------------------------------
Officer and Treasurer
-------------------------------------
Accepted and agreed:
/s/ Eugene G. Banucci
- ---------------------
Eugene G. Banucci
Date: October 10, 1997
-10-
<PAGE>
EXHIBIT 10.02
EMPLOYMENT AGREEMENT
October 10, 1997
Daniel P. Sharkey
182 Carriage Drive
Southbury, CT 06488
Advanced Technology Materials, Inc., a Delaware corporation, has
agreed, pursuant to that certain Agreement and Plan of Merger and Exchange dated
as of the 7th day of April, 1997 by and among Advanced Technology Materials,
Inc., a Delaware corporation, ATMI Holdings, Inc. (n/k/a ATMI, 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, Advanced
Delivery & Chemical Systems Operating, LLC, a Delaware limited liability company
and Advanced Delivery & Chemical Systems, Ltd., a Texas limited partnership (the
"Exchange Agreement"), to enter into an employment agreement with you. The
"Company" as used in this Agreement shall be defined as Advanced Technology
Materials, Inc., and for purposes of Section 8 hereof shall include any of its
subsidiaries or affiliates for which you provide any product, process,
technology or service to or supervise or otherwise participate in during the two
(2) years prior to the termination of your employment with Advanced Technology
Materials, Inc. As part of the transactions contemplated by the Exchange
Agreement and as a condition precedent for the ADCS Group to enter into the
Exchange Agreement and consummate the transactions contemplated thereby, you
have agreed to enter into such an employment agreement containing, among other
things, restrictions on your ability to compete with the business of the Company
and its subsidiaries and affiliates to the extent provided in the preceding
sentence for a period of time following your termination of employment.
Capitalized terms are used herein with the respective meanings set forth in the
Exchange Agreement unless otherwise defined herein or unless otherwise required
by the context.
Accordingly, in consideration of the premises and the mutual promises
and covenants contained herein and for other good and valuable consideration,
including but not limited to (i) your receipt of a term of employment pursuant
to Section 2 of this
<PAGE>
Agreement; (ii) your access to and receipt of the confidential, proprietary and
trade secret information of the Company and its subsidiaries and affiliates;
(iii) your receipt of compensation pursuant to Section 3 of this Agreement; and
(iv) your receipt of other benefits pursuant to Section 4 of this Agreement, the
receipt and sufficiency of which are hereby expressly acknowledged, effective
the date of this Agreement, the Company and you agree as follows:
1. POSITION AND RESPONSIBILITIES.
-----------------------------
1.1 You shall serve as Vice President, Chief Financial Officer and
Treasurer of the Company or in such other capacity as shall be designated by the
Board of Directors of Holdings. You shall perform such duties at Danbury,
Connecticut or such other place as you and the Company shall mutually agree.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and to the business and
affairs of the Company. You agree to serve as an officer of the Company and/or
Holdings, if elected by their respective Board of Directors, and to perform such
executive duties as may be assigned to you by their respective Board of
Directors from time to time.
1.3 You will duly, punctually and faithfully perform and observe any and
all rules and regulations which the Company and/or Holdings may now or shall
hereafter establish governing the conduct of the Company's business.
2. TERM OF EMPLOYMENT.
------------------
2.1 The term of your employment shall be two (2) years (the "Initial
Term") commencing with the date hereof, provided your employment shall
automatically terminate upon your death and may be terminated at any time as
provided in Section 2.2. At the end of the Initial Term, unless the parties
mutually agree to renew, extend or modify the provisions hereof, your employment
shall continue "at will," subject to the Company's obligation to pay the
Severance Payment as hereinafter provided, and the other terms and conditions of
this Agreement (as then in effect) shall continue.
2.2 The Company shall have the right, on written notice to you specifying
the reason, to terminate your employment:
(a) immediately for Cause (as defined in Section 2.4), or
(b) subject to Section 2.6 hereof, at any time without Cause, or
(c) subject to Section 2.6 hereof, in the event of your death or total
disability which, in the reasonable opinion of the Board of Directors of
Holdings, renders you
-2-
<PAGE>
unable or incompetent to carry out your duties, responsibilities, and
assignments for a period of ninety (90) consecutive days.
2.3 You shall have the right, on written notice to the Company, to
terminate your employment if you "resign for just cause," which shall mean a
resignation of your employment as a direct result of (a) a material breach by
the Company of its obligations to you under this Agreement, provided that, if
such breach is capable of remedy, a written notice within sixty (60) days of
such breach and opportunity to cure such breach shall be afforded the Company
and, in such event, just cause shall exist if the Company shall fail to cure
such breach within a reasonable period of time not to exceed thirty (30) days;
or (b) a significant decrease by the Board of Directors of Holdings of your
duties or authority (except in connection with a termination pursuant to Section
2.2(a) or (c)), provided that you have given the Company notice of such decrease
within three (3) months of its occurrence.
2.4 The term "Cause" shall mean (i) your failure or refusal to render
substantial services to the Company in accordance with your obligations under
this Agreement, provided that if your failure or refusal is capable of remedy, a
written notice within three (3) months of such failure or refusal and
opportunity to cure shall be afforded you and, in such event, Cause shall exist
if you fail to cure such failure or refusal within a reasonable period of time
not to exceed thirty (30) days or if such failure or refusal is timely cured,
you repeat such failure or refusal; (ii) the commission by you of an act of
fraud or embezzlement against the Company or the commission by you of any other
action with the intent to injure the Company; (iii) an act of moral turpitude by
you which is materially detrimental to the business or reputation of the
Company; or (iv) your having been convicted of, or pleading nolo contendere to,
a felony (other than traffic offenses which do not bring you or the Company into
disgrace or disrepute). For purposes of this Section 2.4, the term "Company"
shall include the Company and its subsidiaries and affiliates.
2.5 If you are terminated for Cause, neither the Company nor any affiliate
of the Company shall have any further obligation to you or your personal
representatives under this Agreement, except for salary, additional compensation
and permitted business expenses accrued hereunder and unpaid at the date of
termination. On or before the date of termination of your employment, you shall
return to the Company all records and other personal property of the Company in
your possession or control, including all confidential, proprietary or trade
secret information of the Company and its subsidiaries and affiliates.
2.6 Severance Benefits. In the event of the termination of your
------------------
employment pursuant to either Section 2.2(b) or Section 2.3 hereof, the Company
shall pay to you an aggregate of nine (9) months' Base Salary at the time of
termination, less applicable taxes and withholding (the "Severance Payment"), in
the manner and subject to the terms and conditions as hereinafter provided, and
the Company shall provide you during such period medical, dental, life and
disability insurance benefits on the same basis the
-3-
<PAGE>
Company would have provided you such benefits during such period had you
continued to be an employee of the Company (collectively, the "Severance
Benefits"). The Severance Payment shall be payable in installments on such date
or dates on which Base Salary would have been paid to you had your employment
not been terminated.
2.7 In the event of the termination of your employment associated with a
"change in control" of Holdings (including if you "resign for just cause" as
defined in Section 2.3), (a) all stock options held by you to purchase shares of
Holdings Common Stock shall become immediately exercisable, notwithstanding the
vesting provisions of any stock option award agreement concerning such options;
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, and (b) you will be entitled to
any bonuses under any bonus plans then in effect as if fully earned. Benefits
payable under this Section 2.7 upon a change in control may subject you to an
excise tax as "excess parachute payments" under Section 280G of the Code.
Holdings will reimburse you 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. For purposes of this Section 2.7, a "change in control" of Holdings
shall be deemed to have taken place if: (i) a third person, including a "person"
as defined in Section 13(d)(3) of the Exchange Act becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of
securities of Holdings representing twenty-five percent (25%) or more of the
total number of votes that may be cast for the election of the directors of
Holdings; or (ii) as the result of, or in connection with, any tender or
exchange offer, merger, consolidation or other business combination, sale of
assets or one or more contested elections, or any combination of the foregoing
transactions (a "Transaction") the persons who were directors of Holdings
immediately prior to the Transaction shall cease to constitute a majority of the
Board of Directors of Holdings or of any successor to Holdings. Notwithstanding
the foregoing, a "change in control" of Holdings shall not be deemed to have
taken place as a result of (i) the consummation of the transactions contemplated
by the Exchange Agreement, (ii) the consummation of the transactions
contemplated by that certain Agreement and Plan of Merger dated May 17, 1997, by
and among, inter alia, Holdings and Lawrence Semiconductor Laboratories, Inc.,
----- ----
or (iii) the consummation of all such transactions.
3. COMPENSATION.
------------
3.1 Base Salary. The Company shall pay to you for the services to be
-----------
rendered hereunder a Base Salary ("Base Salary") at an annual rate of $130,000,
subject to customary withholding for federal, state and local taxes. Such Base
Salary shall be
-4-
<PAGE>
payable periodically in conformity with the prevailing practice of Holdings and
Holdings' subsidiaries for executives' compensation as such practice shall be
established or modified from time to time. Such Base Salary shall be subject to
increase from time to time 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.
3.2 Business Expenses. You shall be entitled to be reimbursed for all
-----------------
reasonable and necessary expenses incurred in connection with the performance of
your duties hereunder provided that you shall, as a condition of reimbursement,
submit verification of the nature and amount of such expenses in accordance with
the reimbursement policy from time to time adopted by Holdings.
4. OTHER BENEFITS.
--------------
4.1 Vacation. You shall be entitled to vacation in accordance with the
--------
vacation policy of Holdings and Holdings' subsidiaries, as the same may be in
effect from time to time, without loss of compensation or other benefits to
which you are entitled under this Agreement, to be taken at such times as you
may reasonably select.
4.2 Other Benefit Programs. The Company will provide to you all other
----------------------
employee benefits generally available to employees of Holdings and Holdings'
subsidiaries of equivalent position, as the same may be in effect from time to
time.
4.3 Incentive Compensation. You shall be eligible to receive additional
----------------------
compensation, including awards of performance bonuses at levels commensurate
with employees of Holdings and Holdings' subsidiaries 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.
5. OTHER ACTIVITIES DURING EMPLOYMENT.
----------------------------------
5.1 Except with the prior written consent of the Holdings' Board of
Directors, which consent shall not be unreasonably withheld, you will not during
the term of this Agreement undertake or engage in any other employment or
occupation except as permitted by Section 5.3. This provision shall not be
deemed to preclude membership in professional societies, lecturing or the
acceptance of honorary positions, that are in any case incidental to your
employment by the Company, which are not adverse or antagonistic to or
competitive with the Company or its subsidiaries or affiliates, their business
or prospects, financial or otherwise and are consistent with your obligations
regarding the confidential, proprietary and trade secret information of the
Company and its subsidiaries and affiliates pursuant to the Proprietary
Information and Inventions Agreement referenced below.
-5-
<PAGE>
5.2 Except as permitted by Section 5.3, you will not assume or participate
in, directly or indirectly, any position or interest adverse or antagonistic to
the Company or its subsidiaries or affiliates, their business or prospects,
financial or otherwise, or take any action towards any of the foregoing.
5.3 During the term of your employment by the Company, except on behalf of
the Company or its subsidiaries or its affiliates, you will not, directly or
indirectly, whether as an officer, director, stockholder, partner, proprietor,
associate, representative or otherwise, become or be interested in any other
person, corporation, firm, partnership or other entity whatsoever which directly
competes with the Company or its subsidiaries or affiliates, in any part of the
world, in any line of business engaged in (or planned to be engaged in) by the
Company or its subsidiaries or affiliates (or any successor to their business).
With respect to any company or partnership which directly competes with the
Company or its subsidiaries or affiliates, in any part of the world, in any line
of business engaged in (or planned to be engaged in) by the Company or its
subsidiaries or affiliates (or any successor to their business), this Section
5.3 shall not prohibit you from owning (i) as a passive investor only, an
aggregate of not more than one percent (1%) of the total stock or equity
interests of such company or partnership if the same are publicly traded, or
(ii) stock or equity interests of such company or partnership through mutual
funds or other similar investment vehicles over which you retain no investment
discretion.
6. FORMER EMPLOYMENT.
-----------------
6.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior employment or consulting
agreement or relationship. Subject to Section 6.2, you represent and warrant
that you do not possess confidential information arising out of prior employment
which, in your best judgment, would be utilized in connection with your
employment by the Company in the absence of Section 6.2.
6.2 If, in spite of the second sentence of Section 6.l, you should find
that confidential information belonging to any former employer might be usable
in connection with the Company's business, you will not intentionally disclose
to the Company or use on its behalf any confidential information belonging to
any of your former employers; but during your employment by the Company you will
use in the performance of your duties all information which is generally known
and used by persons with training and experience comparable to your own and all
information which is common knowledge in the industry or otherwise legally in
the public domain or is legally obtainable.
7. CONFIDENTIALITY. You acknowledge that, in consideration of your
---------------
receipt of the specific consideration expressed in the second paragraph of this
Agreement, you have entered into and are bound by the terms of the standard
Proprietary Information and Inventions Agreement for employees of Holdings'
subsidiaries and affiliates, the terms of which are incorporated herein by
reference.
-6-
<PAGE>
8. POST-EMPLOYMENT ACTIVITIES.
--------------------------
8.1 You understand and acknowledge that the provisions of this Section 8
are necessary to protect the legitimate business interests of the Company and
are fair and reasonable for numerous reasons, including your receipt of the
specific consideration expressed in the second paragraph of this Agreement. In
addition, as a result of your executive position with the Company, you have had,
and will continue to have, access to significant confidential, proprietary or
trade secret information of the Company, so that, if you were employed by a
competitor of the Company, there would be a substantial risk to the Company of
your use of its confidential, proprietary or trade secret information. Based on
the foregoing, for a period of the later of sixty (60) months from the date of
this Agreement or twenty-four (24) months after the termination of your
employment with the Company, absent the Company's prior written approval (with
concurrence by the Board of Directors of Holdings), you will not directly or
indirectly:
(a) render any services to, or engage in any activities for, any other
person, firm, corporation or business organization with respect to any
product, process, technology or service, in existence or under development
which substantially resembles or competes with a product, process, or
service of the Company in existence or under development upon which you
worked or exercised supervisory responsibility at any time during the two
(2) years prior to the termination of your employment with the Company;
(b) solicit employees of the Company to leave their employ or offer or
cause to be offered employment to any person who is or was employed by the
Company at any time during the six (6) months prior to the termination of
your employment with the Company;
(c) entice, induce or encourage any of the Company's other employees
to engage in any activity which, were it done by you, would violate any
provision of this Section 8; or
(d) otherwise attempt to interfere with or disrupt the business or
activities of the Company or its subsidiaries or affiliates after written
notice and a 60-day cure period.
You agree that if you act in violation of this Section 8, the number of days
that you are in violation will be added to the time period specified in this
Section 8.
8.2 Upon your written request to the Company specifying the
activities proposed to be conducted by you, the Company may in its discretion,
subject to the concurrence of the Board of Directors of Holdings, give you
written approval(s) to engage personally in any activity or render services
referred to in Section 8.l upon receipt
-7-
<PAGE>
of written assurances (satisfactory to the Company and its counsel in their
discretion) from you and from your prospective employer(s) that the integrity of
the provisions of Section 7 and Section 8.l will not in any way be jeopardized
or violated by such activities; provided, however, the burden of so establishing
-------- -------
the foregoing to the satisfaction of the Company and said counsel shall be upon
you and your prospective employer(s). Failure of the Company to respond to such
written request shall be deemed a rejection of such request.
9. REMEDIES. Your duties under Section 7 and Section 8 shall survive
--------
termination of your employment with the Company. You acknowledge and agree that
any breach by you of any of the provisions of Section 7 or Section 8.1 of this
Agreement will result in irreparable and continuing damage to the Company and
that a remedy at law for any breach or threatened breach by you of the
provisions of Section 7 or Section 8.1 would be inadequate, and you therefore
agree that the Company shall be entitled to temporary, preliminary and permanent
injunctive relief in case of any such breach or threatened breach. The
prevailing party in an action under this Agreement shall be entitled to recover
its costs and expenses, including attorneys' fees. Nothing in this Agreement
shall be construed to prohibit the Company from pursuing any other remedy
available to it at law or in equity, the parties having agreed that all remedies
are cumulative.
10. MISCELLANEOUS.
-------------
10.1 Assignment. This Agreement and the rights and obligations of the
----------
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties or the
business or properties of the Company or any subsidiary or division thereof,
but, except as to any such successor or assignee of the Company, neither this
Agreement nor any rights or benefits hereunder may be assigned by the Company or
you.
10.2 Interpretation. In case any one or more of the provisions contained
--------------
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement. If moreover, any one
or more of the provisions contained in this Agreement shall for any reason be
held to be excessively broad as to duration, geographical scope, activity or
subject, the parties expressly agree that a court may rewrite and modify such
provisions so as to be enforceable to the fullest extent compatible with the
applicable law as it shall then appear.
10.3 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 (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return
-8-
<PAGE>
receipt requested, or (c) when received by the addressee, if sent by 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 Company:
Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, CT 06810
Facsimile No. (203) 792-8040
Attention: Eugene G. Banucci
If to you:
Daniel P. Sharkey
182 Carriage Drive
Southbury, CT 06488
10.4 Waivers. If either party shall waive any breach of any provision of
-------
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
10.5 Headings. The headings of the sections hereof are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.
10.6 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 Connecticut applicable to agreements made and to be performed
wholly within such jurisdiction.
10.7 Complete Agreement; Amendments; Prior Agreements. The foregoing,
------------------------------------------------
together with the Proprietary Information and Inventions Agreement, are the
entire agreement of the parties with respect to the subject matter hereof and
may not be amended, supplemented, cancelled or discharged except by written
instrument executed by both parties hereto. This Agreement supersedes any and
all prior agreements between the Company and you with respect to the matters
covered hereby, including but not limited to, that certain Key Employee
Agreement between the Company and you.
10.8 Counterparts. This Agreement may be executed in counterparts, each of
------------
which when so executed and delivered shall constitute a complete and original
instrument but all of which together shall constitute one and the same
agreement, and it shall not be
-9-
<PAGE>
necessary when making proof of this Agreement or any counterpart thereof to
account for any other counterpart.
10.9 Opportunity for Review. You acknowledge that you had the opportunity
----------------------
to have this Agreement reviewed by an attorney prior to your execution of this
Agreement.
If you are in agreement with the foregoing, please so indicate by signing
and returning the enclosed copy of this letter.
ADVANCED TECHNOLOGY MATERIALS, INC.
By: /s/ Eugene G. Banucci
----------------------------------
Title: President, Chief Executive Officer
----------------------------------
and Chairman
------------
Accepted and agreed:
/s/ Daniel P. Sharkey
- -------------------------
Daniel P. Sharkey
Date: October 10, 1997
-10-
<PAGE>
EXHIBIT 10.03
EMPLOYMENT AGREEMENT
October 10, 1997
Duncan W. Brown, Ph.D.
60 Teapot Hill
Wilton, CT 06897
Advanced Technology Materials, Inc., a Delaware corporation, has agreed,
pursuant to that certain Agreement and Plan of Merger and Exchange dated as of
the 7th day of April, 1997 by and among Advanced Technology Materials, Inc., a
Delaware corporation, ATMI Holdings, Inc. (n/k/a ATMI, 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, Advanced
Delivery & Chemical Systems Operating, LLC, a Delaware limited liability company
and Advanced Delivery & Chemical Systems, Ltd., a Texas limited partnership (the
"Exchange Agreement"), to enter into an employment agreement with you. The
"Company" as used in this Agreement shall be defined as Advanced Technology
Materials, Inc., and for purposes of Section 8 hereof shall include any of its
subsidiaries or affiliates for which you provide any product, process,
technology or service to or supervise or otherwise participate in during the two
(2) years prior to the termination of your employment with Advanced Technology
Materials, Inc. As part of the transactions contemplated by the Exchange
Agreement and as a condition precedent for the ADCS Group to enter into the
Exchange Agreement and consummate the transactions contemplated thereby, you
have agreed to enter into such an employment agreement containing, among other
things, restrictions on your ability to compete with the business of the Company
and its subsidiaries and affiliates to the extent provided in the preceding
sentence for a period of time following your termination of employment.
Capitalized terms are used herein with the respective meanings set forth in the
Exchange Agreement unless otherwise defined herein or unless otherwise required
by the context.
Accordingly, in consideration of the premises and the mutual promises and
covenants contained herein and for other good and valuable consideration,
including but not limited to (i) your receipt of a term of employment pursuant
to Section 2 of this
<PAGE>
Agreement; (ii) your access to and receipt of the confidential, proprietary and
trade secret information of the Company and its subsidiaries and affiliates;
(iii) your receipt of compensation pursuant to Section 3 of this Agreement; and
(iv) your receipt of other benefits pursuant to Section 4 of this Agreement, the
receipt and sufficiency of which are hereby expressly acknowledged, effective
the date of this Agreement, the Company and you agree as follows:
1. POSITION AND RESPONSIBILITIES.
-----------------------------
1.1 You shall serve as President of the Epitronics Division of the Company
or in such other capacity as shall be designated by the Board of Directors of
ATMI, Inc. ("Holdings"). You shall perform such duties at Phoenix, Arizona or
such other place as you and the Company shall mutually agree.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and to the business and
affairs of the Company. You agree to serve as an officer of the Company and/or
Holdings, if elected by their respective Board of Directors, and to perform such
executive duties as may be assigned to you by their respective Board of
Directors from time to time.
1.3 You will duly, punctually and faithfully perform and observe any and
all rules and regulations which the Company and/or Holdings may now or shall
hereafter establish governing the conduct of the Company's business.
2. TERM OF EMPLOYMENT.
------------------
2.1 The term of your employment shall be two (2) years (the "Initial
Term") commencing with the date hereof, provided your employment shall
automatically terminate upon your death and may be terminated at any time as
provided in Section 2.2. At the end of the Initial Term, unless the parties
mutually agree to renew, extend or modify the provisions hereof, your employment
shall continue "at will," subject to the Company's obligation to pay the
Severance Payment as hereinafter provided, and the other terms and conditions of
this Agreement (as then in effect) shall continue.
2.2 The Company shall have the right, on written notice to you specifying
the reason, to terminate your employment:
(a) immediately for Cause (as defined in Section 2.4), or
(b) subject to Section 2.6 hereof, at any time without Cause, or
(c) subject to Section 2.6 hereof, in the event of your death or total
disability which, in the reasonable opinion of the Board of Directors of
Holdings, renders you
-2-
<PAGE>
unable or incompetent to carry out your duties, responsibilities, and
assignments for a period of ninety (90) consecutive days.
2.3 You shall have the right, on written notice to the Company, to
terminate your employment if you "resign for just cause," which shall mean a
resignation of your employment as a direct result of (a) a material breach by
the Company of its obligations to you under this Agreement, provided that, if
such breach is capable of remedy, a written notice within sixty (60) days of
such breach and opportunity to cure such breach shall be afforded the Company
and, in such event, just cause shall exist if the Company shall fail to cure
such breach within a reasonable period of time not to exceed thirty (30) days;
or (b) a significant decrease by the Board of Directors of Holdings of your
duties or authority (except in connection with a termination pursuant to Section
2.2(a) or (c)), provided that you have given the Company notice of such decrease
within three (3) months of its occurrence.
2.4 The term "Cause" shall mean (i) your failure or refusal to render
substantial services to the Company in accordance with your obligations under
this Agreement, provided that if your failure or refusal is capable of remedy, a
written notice within three (3) months of such failure or refusal and
opportunity to cure shall be afforded you and, in such event, Cause shall exist
if you fail to cure such failure or refusal within a reasonable period of time
not to exceed thirty (30) days or if such failure or refusal is timely cured,
you repeat such failure or refusal; (ii) the commission by you of an act of
fraud or embezzlement against the Company or the commission by you of any other
action with the intent to injure the Company; (iii) an act of moral turpitude by
you which is materially detrimental to the business or reputation of the
Company; or (iv) your having been convicted of, or pleading nolo contendere to,
a felony (other than traffic offenses which do not bring you or the Company into
disgrace or disrepute). For purposes of this Section 2.4, the term "Company"
shall include the Company and its subsidiaries and affiliates.
2.5 If you are terminated for Cause, neither the Company nor any affiliate
of the Company shall have any further obligation to you or your personal
representatives under this Agreement, except for salary, additional compensation
and permitted business expenses accrued hereunder and unpaid at the date of
termination. On or before the date of termination of your employment, you shall
return to the Company all records and other personal property of the Company in
your possession or control, including all confidential, proprietary or trade
secret information of the Company and its subsidiaries and affiliates.
2.6 Severance Benefits. In the event of the termination of your employment
------------------
pursuant to either Section 2.2(b) or Section 2.3 hereof, the Company shall pay
to you an aggregate of nine (9) months' Base Salary at the time of termination,
less applicable taxes and withholding (the "Severance Payment"), in the manner
and subject to the terms and conditions as hereinafter provided, and the Company
shall provide you during such period medical, dental, life and disability
insurance benefits on the same basis the
-3-
<PAGE>
Company would have provided you such benefits during such period had you
continued to be an employee of the Company (collectively, the "Severance
Benefits"). The Severance Payment shall be payable in installments on such date
or dates on which Base Salary would have been paid to you had your employment
not been terminated.
2.7 In the event of the termination of your employment associated with a
"change in control" of Holdings (including if you "resign for just cause" as
defined in Section 2.3), (a) all stock options held by you to purchase shares of
Holdings Common Stock shall become immediately exercisable, notwithstanding the
vesting provisions of any stock option award agreement concerning such options;
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, and (b) you will be entitled to
any bonuses under any bonus plans then in effect as if fully earned. Benefits
payable under this Section 2.7 upon a change in control may subject you to an
excise tax as "excess parachute payments" under Section 280G of the Code.
Holdings will reimburse you 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. For purposes of this Section 2.7, a "change in control" of Holdings
shall be deemed to have taken place if: (i) a third person, including a "person"
as defined in Section 13(d)(3) of the Exchange Act becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of
securities of Holdings representing twenty-five percent (25%) or more of the
total number of votes that may be cast for the election of the directors of
Holdings; or (ii) as the result of, or in connection with, any tender or
exchange offer, merger, consolidation or other business combination, sale of
assets or one or more contested elections, or any combination of the foregoing
transactions (a "Transaction") the persons who were directors of Holdings
immediately prior to the Transaction shall cease to constitute a majority of the
Board of Directors of Holdings or of any successor to Holdings. Notwithstanding
the foregoing, a "change in control" of Holdings shall not be deemed to have
taken place as a result of (i) the consummation of the transactions contemplated
by the Exchange Agreement, (ii) the consummation of the transactions
contemplated by that certain Agreement and Plan of Merger dated May 17, 1997, by
and among, inter alia, Holdings and Lawrence Semiconductor Laboratories, Inc.,
----------
or (iii) the consummation of all such transactions.
3. COMPENSATION.
------------
3.1 Base Salary. The Company shall pay to you for the services to be
-----------
rendered hereunder a Base Salary ("Base Salary") at an annual rate of $180,000,
subject to customary withholding for federal, state and local taxes. Such Base
Salary shall be
-4-
<PAGE>
payable periodically in conformity with the prevailing practice of Holdings and
Holdings' subsidiaries for executives' compensation as such practice shall be
established or modified from time to time. Such Base Salary shall be subject to
increase from time to time 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.
3.2 Business Expenses. You shall be entitled to be reimbursed for all
-----------------
reasonable and necessary expenses incurred in connection with the performance of
your duties hereunder provided that you shall, as a condition of reimbursement,
submit verification of the nature and amount of such expenses in accordance with
the reimbursement policy from time to time adopted by Holdings.
4. OTHER BENEFITS.
--------------
4.1 Vacation. You shall be entitled to vacation in accordance with the
--------
vacation policy of Holdings and Holdings' subsidiaries, as the same may be in
effect from time to time, without loss of compensation or other benefits to
which you are entitled under this Agreement, to be taken at such times as you
may reasonably select.
4.2 Other Benefit Programs. The Company will provide to you all other
----------------------
employee benefits generally available to employees of Holdings and Holdings'
subsidiaries of equivalent position, as the same may be in effect from time to
time.
4.3 Incentive Compensation. You shall be eligible to receive additional
----------------------
compensation, including awards of performance bonuses at levels commensurate
with employees of Holdings and Holdings' subsidiaries 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.
5. OTHER ACTIVITIES DURING EMPLOYMENT.
----------------------------------
5.1 Except with the prior written consent of the Holdings' Board of
Directors, which consent shall not be unreasonably withheld, you will not during
the term of this Agreement undertake or engage in any other employment or
occupation except as permitted by Section 5.3. This provision shall not be
deemed to preclude membership in professional societies, lecturing or the
acceptance of honorary positions, that are in any case incidental to your
employment by the Company, which are not adverse or antagonistic to or
competitive with the Company or its subsidiaries or affiliates, their business
or prospects, financial or otherwise and are consistent with your obligations
regarding the confidential, proprietary and trade secret information of the
Company and its subsidiaries and affiliates pursuant to the Proprietary
Information and Inventions Agreement referenced below.
-5-
<PAGE>
5.2 Except as permitted by Section 5.3, you will not assume or participate
in, directly or indirectly, any position or interest adverse or antagonistic to
the Company or its subsidiaries or affiliates, their business or prospects,
financial or otherwise, or take any action towards any of the foregoing.
5.3 During the term of your employment by the Company, except on behalf of
the Company or its subsidiaries or its affiliates, you will not, directly or
indirectly, whether as an officer, director, stockholder, partner, proprietor,
associate, representative or otherwise, become or be interested in any other
person, corporation, firm, partnership or other entity whatsoever which directly
competes with the Company or its subsidiaries or affiliates, in any part of the
world, in any line of business engaged in (or planned to be engaged in) by the
Company or its subsidiaries or affiliates (or any successor to their business).
With respect to any company or partnership which directly competes with the
Company or its subsidiaries or affiliates, in any part of the world, in any line
of business engaged in (or planned to be engaged in) by the Company or its
subsidiaries or affiliates (or any successor to their business), this Section
5.3 shall not prohibit you from owning (i) as a passive investor only, an
aggregate of not more than one percent (1%) of the total stock or equity
interests of such company or partnership if the same are publicly traded, or
(ii) stock or equity interests of such company or partnership through mutual
funds or other similar investment vehicles over which you retain no investment
discretion.
6. FORMER EMPLOYMENT.
-----------------
6.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior employment or consulting
agreement or relationship. Subject to Section 6.2, you represent and warrant
that you do not possess confidential information arising out of prior employment
which, in your best judgment, would be utilized in connection with your
employment by the Company in the absence of Section 6.2.
6.2 If, in spite of the second sentence of Section 6.1, you should find
that confidential information belonging to any former employer might be usable
in connection with the Company's business, you will not intentionally disclose
to the Company or use on its behalf any confidential information belonging to
any of your former employers; but during your employment by the Company you will
use in the performance of your duties all information which is generally known
and used by persons with training and experience comparable to your own and all
information which is common knowledge in the industry or otherwise legally in
the public domain or is legally obtainable.
7. CONFIDENTIALITY. You acknowledge that, in consideration of your
---------------
receipt of the specific consideration expressed in the second paragraph of this
Agreement, you have entered into and are bound by the terms of the standard
Proprietary Information and Inventions Agreement for employees of Holdings'
subsidiaries and affiliates, the terms of which are incorporated herein by
reference.
-6-
<PAGE>
8. POST-EMPLOYMENT ACTIVITIES.
--------------------------
8.1 You understand and acknowledge that the provisions of this Section 8
are necessary to protect the legitimate business interests of the Company and
are fair and reasonable for numerous reasons, including your receipt of the
specific consideration expressed in the second paragraph of this Agreement. In
addition, as a result of your executive position with the Company, you have had,
and will continue to have, access to significant confidential, proprietary or
trade secret information of the Company, so that, if you were employed by a
competitor of the Company, there would be a substantial risk to the Company of
your use of its confidential, proprietary or trade secret information. Based on
the foregoing, for a period of the later of sixty (60) months from the date of
this Agreement or twenty-four (24) months after the termination of your
employment with the Company, absent the Company's prior written approval (with
concurrence by the Board of Directors of Holdings), you will not directly or
indirectly:
(a) render any services to, or engage in any activities for, any
other person, firm, corporation or business organization with respect to
any product, process, technology or service, in existence or under
development which substantially resembles or competes with a product,
process, or service of the Company in existence or under development upon
which you worked or exercised supervisory responsibility at any time during
the two (2) years prior to the termination of your employment with the
Company;
(b) solicit employees of the Company to leave their employ or offer
or cause to be offered employment to any person who is or was employed by
the Company at any time during the six (6) months prior to the termination
of your employment with the Company;
(c) entice, induce or encourage any of the Company's other employees
to engage in any activity which, were it done by you, would violate any
provision of this Section 8; or
(d) otherwise attempt to interfere with or disrupt the business or
activities of the Company or its subsidiaries or affiliates after written
notice and a 60-day cure period.
You agree that if you act in violation of this Section 8, the number of days
that you are in violation will be added to the time period specified in this
Section 8.
8.2 Upon your written request to the Company specifying the activities
proposed to be conducted by you, the Company may in its discretion, subject to
the concurrence of the Board of Directors of Holdings, give you written
approval(s) to engage personally in any activity or render services referred to
in Section 8.1 upon receipt
-7-
<PAGE>
of written assurances (satisfactory to the Company and its counsel in their
discretion) from you and from your prospective employer(s) that the integrity of
the provisions of Section 7 and Section 8.l will not in any way be jeopardized
or violated by such activities; provided, however, the burden of so establishing
-------- -------
the foregoing to the satisfaction of the Company and said counsel shall be upon
you and your prospective employer(s). Failure of the Company to respond to such
written request shall be deemed a rejection of such request.
9. REMEDIES. Your duties under Section 7 and Section 8 shall survive
--------
termination of your employment with the Company. You acknowledge and agree that
any breach by you of any of the provisions of Section 7 or Section 8.1 of this
Agreement will result in irreparable and continuing damage to the Company and
that a remedy at law for any breach or threatened breach by you of the
provisions of Section 7 or Section 8.1 would be inadequate, and you therefore
agree that the Company shall be entitled to temporary, preliminary and permanent
injunctive relief in case of any such breach or threatened breach. The
prevailing party in an action under this Agreement shall be entitled to recover
its costs and expenses, including attorneys' fees. Nothing in this Agreement
shall be construed to prohibit the Company from pursuing any other remedy
available to it at law or in equity, the parties having agreed that all remedies
are cumulative.
10. MISCELLANEOUS.
-------------
10.1 Assignment. This Agreement and the rights and obligations of the
----------
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties or the
business or properties of the Company or any subsidiary or division thereof,
but, except as to any such successor or assignee of the Company, neither this
Agreement nor any rights or benefits hereunder may be assigned by the Company or
you.
10.2 Interpretation. In case any one or more of the provisions contained
--------------
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement. If moreover, any one
or more of the provisions contained in this Agreement shall for any reason be
held to be excessively broad as to duration, geographical scope, activity or
subject, the parties expressly agree that a court may rewrite and modify such
provisions so as to be enforceable to the fullest extent compatible with the
applicable law as it shall then appear.
10.3 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 (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return
-8-
<PAGE>
receipt requested, or (c) when received by the addressee, if sent by 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 Company:
Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, CT 06810
Facsimile No. (203) 792-8040
Attention: Daniel P. Sharkey
If to you:
Duncan W. Brown
60 Teapot Hill
Wilton, CT 06897
10.4 Waivers. If either party shall waive any breach of any provision of
-------
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
10.5 Headings. The headings of the sections hereof are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.
10.6 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 Connecticut applicable to agreements made and to be performed
wholly within such jurisdiction.
10.7 Complete Agreement; Amendments; Prior Agreements. The foregoing,
------------------------------------------------
together with the Proprietary Information and Inventions Agreement, are the
entire agreement of the parties with respect to the subject matter hereof and
may not be amended, supplemented, cancelled or discharged except by written
instrument executed by both parties hereto. This Agreement supersedes any and
all prior agreements between the Company and you with respect to the matters
covered hereby, including but not limited to, that certain Key Employee
Agreement between the Company and you.
10.8 Counterparts. This Agreement may be executed in counterparts, each
------------
of which when so executed and delivered shall constitute a complete and original
instrument but all of which together shall constitute one and the same
agreement, and it shall not be
-9-
<PAGE>
necessary when making proof of this Agreement or any counterpart thereof to
account for any other counterpart.
10.9 Opportunity for Review. You acknowledge that you had the opportunity
----------------------
to have this Agreement reviewed by an attorney prior to your execution of this
Agreement.
If you are in agreement with the foregoing, please so indicate by signing
and returning the enclosed copy of this letter.
ADVANCED TECHNOLOGY MATERIALS, INC.
By: /s/ Eugene G. Banucci
------------------------
Title: President, Chief Executive Officer
----------------------------------
and Chairman
------------
Accepted and agreed:
/s/ Duncan W. Brown
- -------------------------
Duncan W. Brown
Date: October 10, 1997
-10-
<PAGE>
EXHIBIT 10.04
EMPLOYMENT AGREEMENT
--------------------
December 30, 1996
James M. Burns
1017 Dartmouth Lane
Los Altos, CA 94024
ADVANCED TECHNOLOGY MATERIALS, INC., a Delaware corporation (the
"Company"), agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
-----------------------------
1.1 You shall serve as President of ATMI EcoSys Corporation
("EcoSys"), a Delaware corporation having its principal place of business at 617
River Oaks Parkway, San Jose, California, which is a subsidiary of the Company,
or in a position substantially equivalent thereto, and shall perform such duties
at such place or places as the Company shall designate.
1.2 You will, to the best of your ability, devote your full time and
best efforts to the performance of your duties hereunder and to the business and
affairs of the Company; provided, however, if your employment begins prior to
January 9, 1997, you will be granted an unpaid leave for the period January 9,
1997 through February 9, 1997. You agree to serve as an employee of the Company
and to perform such duties, consistent with your position, as may be assigned to
you.
1.3 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.
2. TERM OF EMPLOYMENT.
------------------
2.1 Subject to Section 2.2, you shall be an "employee at will," and
your employment may be terminated at any time as provided in Section 2.2.
2.2 The Company shall have the right, on written notice to you, to
terminate your employment:
(a) immediately for cause (as hereinafter defined),
<PAGE>
(b) subject to Section 3.3 hereof, at any time without cause, or
(c) in the event of your death or total disability which, in the
reasonable opinion of the Board of Directors of the Company, renders you unable
or incompetent to carry out your duties, responsibilities, and assignments for a
period of 120 consecutive days.
2.3 For purposes of Section 2.2, the term "cause" shall mean (i) your
failure or refusal to render services to the Company in accordance with your
obligations under this Agreement; (ii) the commission by you of an act of fraud
or embezzlement against the Company or the commission by you of any other action
with the intent to injure the Company; (iii) an act of moral turpitude by you
which is materially detrimental to the business of the Company; or (iv) your
having been convicted of a felony, other than traffic offenses which traffic
offenses do not bring you or the Company into disgrace or disrepute.
3. COMPENSATION.
------------
3.1 The Company shall pay to you for the service to be rendered
hereunder a base salary ("Base Salary") at an annual rate of $200,000, subject
to increase in accordance with the policies of the Company, as determined by its
Board of Directors, from time to time, payable in installments in accordance
with Company policy, but not less frequently than twice monthly. You shall also
be entitled to all rights and benefits for which you shall be eligible under
deferred bonus, pension, group insurance, profit-sharing or other company
benefits which may be in force from time to time and provided to you or for the
Company's employees generally.
3.2 Incentive Compensation. You will also be eligible to receive
----------------------
special incentive compensation as described in Exhibit 1 hereto.
3.3 Payments Following Termination. In the event of the termination
------------------------------
of your employment pursuant to Section 2.2(b) hereof, the Company shall pay to
you nine (9) months' Base Salary, less applicable taxes, in conformity with the
Company's prevailing practice for executives' compensation as such practice
shall be established or modified from time to time ("Severance Payments"). Such
payments shall be paid to you at the same level of Base Salary you were
receiving immediately prior to such termination. You shall also receive, in such
event, medical benefits (including dental and vision, if provided at such time)
at least equivalent to the benefits provided to you while employed for the same
period that you are entitled to receive Severance Payments.
3.4 Stock Options. Subject to the approval of the compensation
-------------
committee of the board of directors, the Company shall issue to you an option to
purchase an aggregate of 35,000 shares of the Company's Common Stock pursuant to
the Company's 1995 Stock Plan (the "Plan"),
-2-
<PAGE>
such option to be evidenced by and subject to the terms and conditions of the
Non-Qualified Stock Option Agreement attached as Exhibit 2 hereto.
3.5 Market Share Based Stock Options. If at any time during the term
--------------------------------
of your employment as President hereunder, EcoSys achieves a thirty percent
(30%) market share for sales of semiconductor point of use environmental
equipment, the Company will, subject to the approval of the compensation
committee of its board of directors, issue to you a fully vested option,
pursuant to the Plan, to purchase an aggregate of 5,000 shares of the Company's
Common Stock at an exercise price equal to the fair market value of such shares
on the date of grant. In addition, if during such period, EcoSys achieves a
fifty percent (50%) share of such market, the Company will, subject to the
approval of the compensation committee of its board of directors, issue to you
an additional such option to purchase an additional 10,000 shares of the
Company's Common Stock at an exercise price equal to the fair market value of
such shares on the date of grant. Achievement of percentages of market share
shall be determined using a mutually agreed upon measurement method.
3.6 Spin-off or Sale of EcoSys.
--------------------------
(a) If during the period of your employment, the Company successfully
completes an initial public offering of a class of the capital stock of EcoSys,
a sale of a portion or all of the outstanding capital stock or the assets of
EcoSys to a third party unaffiliated with the Company, the transfer of a portion
or all of the outstanding capital stock or assets of EcoSys to a separate entity
as part of the formation of a joint venture with a third party otherwise
unaffiliated with the Company, or any similar transaction (each of the
foregoing, a "Spin-Off") and in connection with such a Spin-Off, you are
appointed chief executive officer of EcoSys, the Company shall cause EcoSys to
issue to you an option to purchase an aggregate of five percent (5%) of the
number of outstanding shares of common stock of EcoSys outstanding upon the
consummation of the Spin-Off, at an exercise price equal to the fair market
value of the EcoSys common stock upon the consummation of the Spin-Off. Such
option shall be vested upon grant with respect to three percent (3%) of the
outstanding shares of EcoSys common stock, and such option shall vest ratably
with respect to the remaining two percent (2%) of such shares over a five year
period commencing one year from the date of grant.
(b) If during the period of your employment, the Company sells or
otherwise transfers all or substantially all of the capital stock or assets of
EcoSys and upon the consummation of such a sale or transfer, you are no longer
an officer of EcoSys, the Company shall pay to you a cash bonus equal to: (a) 1%
of the consideration received by the Company in connection with such sale or
transfer in excess of $20,000,000 if such sale or transfer occurs during
calendar 1997, (b) 2% of the consideration received by the Company in connection
with such sale or transfer in excess of $20,000,000 if such sale or transfer
occurs during calendar 1998; or (c) 3% of the
-3-
<PAGE>
consideration received by the Company in connection with such sale or transfer
in excess of $20,000,000 if such sale or transfer occurs during thereafter.
3.7 Signing Bonus.
-------------
If you commence employment hereunder on or before January 2, 1997, the
Company will pay to you additional compensation in the amount of $40,000. Such
additional compensation shall be payable following your employment by the
Company for three (3) months in accordance with the terms hereof.
4. OTHER BENEFITS.
--------------
4.1 Vacation. For each twelve (12) month period beginning with the
--------
effectiveness of this Agreement, you shall be entitled to four (4) weeks of
vacation, without loss of compensation or other benefits to which you are
entitled under this Agreement, to be taken at such times as you may reasonably
select.
4.2 Other Benefit Programs. The Company will provide to you all
----------------------
other employee benefits generally available to executive officers of the
Company, including the Company's 401(k) plan, as the same may be in effect from
time to time.
5. OTHER ACTIVITIES DURING EMPLOYMENT.
----------------------------------
5.1 Except with the prior written consent of the Company's Board of
Directors, you will not during the term of this Agreement undertake or engage in
any other employment, occupation or business enterprise other than one in which
you are an inactive investor. This provision shall not be deemed to preclude
(i) membership in professional societies, lecturing or the acceptance of
honorary positions, that are in any case incidental to your employment by the
Company and which are not adverse or antagonistic to the Company, its business
or prospects, financial or otherwise or (ii) any activities permitted by Section
5.3.
5.2 Except as permitted by Section 5.3, you will not acquire, assume
or participate in, directly or indirectly, any position, investment or interest
adverse or antagonistic to the Company, its business or prospects, financial or
otherwise, or take any action towards any of the foregoing.
5.3 During the term of your employment by the Company, except on
behalf of the Company or its subsidiaries, or as described in Section 5.1, you
will not, directly or indirectly, whether as an officer, director, employee,
stockholder, partner, proprietor, associate, representative, or otherwise,
become or be interested in any other person, corporation, firm, partnership or
other entity whatsoever which directly competes with the Company, in any part of
the world, in any line of business engaged in (or which the Company has made
plans to be
-4-
<PAGE>
engaged in) by the Company; provided, however, that anything above to the
contrary notwithstanding, you may own, as an inactive investor, securities of
any competitor corporation, so long as your holdings in any one such corporation
shall not in the aggregate constitute more than one percent (l%) of the voting
stock of such corporation.
6. FORMER EMPLOYMENT.
-----------------
6.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior employment or
consulting agreement or relationship. Subject to Section 6.2, you represent and
warrant that you do not possess confidential information arising out of prior
employment which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 6.2.
6.2 If, in spite of the second sentence of Section 6.l, you should
find that confidential information belonging to any former employer might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on its behalf any confidential information
belonging to any of your former employers; but during your employment by the
Company you will use in the performance of your duties all information which is
generally known and used by persons with training and experience comparable to
your own and all information which is common knowledge in the industry or
otherwise legally in the public domain.
7. PROPRIETARY INFORMATION AND INNOVATIONS. You agree to be bound by
---------------------------------------
the provisions of the Proprietary Information and Inventions Agreement dated
December ___, 1996 by and between you and the Company (the "Proprietary
Information Agreement").
8. POST - EMPLOYMENT ACTIVITIES.
----------------------------
8.1 As a result of your executive position with the Company, you will
have access to valuable and significant confidential and proprietary information
of the Company. You hereby acknowledge and understand that the restrictions set
forth herein are fair and reasonable give, among other things, the worldwide
market for the Company's products and technology. Based on the foregoing, and
in consideration thereof and of the payments to be made to you by the Company
pursuant to this Agreement, for a period of 24 months after the termination of
your employment with the Company, absent the Company's prior written approval,
you will not directly or indirectly:
(a) engage in activities for, nor render services to, any firm or
business organization which directly competes with the Company in any line of
business engaged in (or planned to be engaged in) by the Company, whether now
existing or hereafter established nor shall you engage in such activities nor
render such services to any other person or entity engaged or about to become
engaged in such activities to, for, or on behalf of, any such firm or business
organization;
-5-
<PAGE>
(b) solicit employees of the Company to leave its employ;
(c) offer or cause to be offered employment to any person who is
employed by the Company at any time during the six months prior to the
termination of your employment with the Company;
(d) entice, induce or encourage any of the Company's other employees
to engage in any activity which, were it done by you, would violate any
provision of this Section 8; or
(e) otherwise attempt to interfere with or disrupt the business or
activities of the Company.
8.2 Upon your written request to the Company specifying the
activities proposed to be conducted by you, the Company may in its discretion
give you written approval(s) to personally engage in any activity or render
services referred to in Section 8.l upon receipt of written assurances
(satisfactory to the Company and its counsel) from you and from your prospective
employer(s) that the integrity of the provisions of Section 7 and Section 8.l
will not in any way be jeopardized or violated by such activities, provided the
burden of so establishing the foregoing to the satisfaction of the Company and
said counsel shall be upon you and your prospective employer(s).
9. REMEDIES. Your duties under the Proprietary Information Agreement
--------
and Section 8 shall survive termination of your involvement with the Company.
You acknowledge that a remedy at law for any breach or threatened breach by you
of the provisions of the Proprietary Information Agreement or Section 8 would be
inadequate, and you therefore agree that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach.
10. ASSIGNMENT. This Agreement and the rights and obligations of the
----------
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or you.
11. INTERPRETATION. In case any one or more of the provisions
--------------
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. If moreover, any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical
-6-
<PAGE>
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
12. NOTICES. Any notice which the Company is required or may desire
-------
to give to you shall be given to you by personal delivery or registered or
certified mail, return receipt requested, addressed to you at the address of
record with the Company, or at such other place as you may from time to time
designate in writing. Any notice which you are required or may desire to give
to the Company hereunder shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing. The date of personal delivery or three business days
after the date of mailing any such notice shall be deemed to be the date of
delivery thereof.
13. WAIVERS. If either party shall waive any breach of any provision
-------
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. HEADINGS. The headings of the sections hereof are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.
15. GOVERNING LAW. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of Connecticut.
16. COMPLETE AGREEMENT; AMENDMENTS; PRIOR AGREEMENTS. The foregoing
------------------------------------------------
and all Exhibits hereto constitute the entire agreement of the parties with
respect to the subject matter hereof and may not be amended, supplemented,
cancelled or discharged (except as provided in this Agreement) except by written
instrument executed by both parties hereto. This Agreement supersedes any and
all prior agreements between the Company and you with respect to the matters
covered hereby.
17. COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which when so executed and delivered shall constitute a complete and
original instrument but all of which together shall constitute one and the same
agreement, and it shall not be necessary when making proof of this Agreement or
any counterpart thereof to account for any other counterpart.
-7-
<PAGE>
If you are in agreement with the foregoing, please so indicate by
signing and returning the enclosed copy of this letter.
ADVANCED TECHNOLOGY MATERIALS, INC.
By: /s/ Eugene G. Barnui
----------------------------------
Title: President, Chief Executive Officer and Chairman
-----------------------------------------------
ACCEPTED AND AGREED:
/s/ James M. Burns
- ------------------
James M. Burns
-8-
<PAGE>
EXHIBIT 1
SPECIAL INCENTIVE COMPENSATION SCHEDULE
---------------------------------------
During the term of your employment, you will be eligible to receive
Special Incentive Compensation as described below.
1. For calendar years 1997 and 1998, you will receive an annual
payment equal to one percent (1%) of the pretax income of EcoSys (calculated
before corporate overhead allocation). Such payment will be calculated and paid
on a calendar year basis. In the event that you are employed for less than the
full calendar year, such payment will be equal to one percent (1%) of the pretax
income of EcoSys for such year multiplied by a fraction, the numerator of which
shall be the number of days you were employed during such year and the
denominator of which shall be three hundred sixty-five (365).
2. For calendar years 1997 and 1998, you will be eligible to receive
an annual payment based upon annual increases in the market share of EcoSys in
the front end semiconductor equipment market as compared to the previous
calendar year as follows:
Annual Increase in Total Annual
Market Share Payment
------------------- --------------
3% $15,000
6% $30,000
The market share for EcoSys for the 1996 calendar year and annual increases in
such market share will be determined using a mutually agreed upon method of
measurement.
-9-
<PAGE>
Exhibit 2
---------
ADVANCED TECHNOLOGY MATERIALS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
1. GRANT OF OPTION.
---------------
ADVANCED TECHNOLOGY MATERIALS, INC., a Delaware corporation (the
"Company"), hereby grants to James M. Burns (the "Employee"), an option,
pursuant to the Company's 1995 Stock Plan (the "Plan"), to purchase an aggregate
of 35,000 shares of Common Stock, $.01 par value per share ("Common Stock"), of
the Company at a price of $_______ per share, purchasable as set forth in and
subject to the terms and conditions of this option and the Plan. The date of
grant of this option is hereinafter referred to as the "date of grant," and the
date ending twelve months thereafter and each subsequent successive twelve-month
period is hereinafter referred to as the "first anniversary date," "second
anniversary date," "third anniversary date," etc.
2. EXERCISE OF OPTION AND PROVISIONS FOR TERMINATION.
-------------------------------------------------
(a) Except as otherwise provided herein and subject to the right of
cumulation provided herein, this option may be exercised, prior to the
tenth anniversary date, as to not more than the following number of shares
covered by this option during the respective periods set forth below:
No shares from and after the date of grant and prior to the first
anniversary date;
7,000 shares from and after the first anniversary date and prior
to the second anniversary date;
7,000 shares from and after the second anniversary date and prior
to the third anniversary date;
7,000 shares from and after the third anniversary date and prior
to the fourth anniversary date;
7,000 shares from and after the fourth anniversary date and prior
to the fifth anniversary date; and
7,000 shares from and after the fifth anniversary date.
<PAGE>
The right of exercise provided herein shall be cumulative so that if the
option is not exercised to the maximum extent permissible during any such
period it shall be exercisable, in whole or in part, with respect to all
shares not so purchased at any time during any subsequent period prior to
the expiration or termination of this option. This option may not be
exercised at any time after the tenth anniversary date.
(b) Subject to the conditions hereof, this option shall be
exercisable by the Employee giving written notice of exercise to the
Company, specifying the number of shares to be purchased and the purchase
price to be paid therefor and accompanied by payment in accordance with
Section 3 hereof. Such exercise shall be effective upon receipt by the
Treasurer of the Company of the written notice together with the required
payment. The Employee shall be entitled to purchase less than the number of
shares covered hereby, provided that no partial exercise of this option
shall be for less than 10 whole shares.
(c) If the Employee ceases to be employed by the Company or one of
its subsidiaries for any reason, including retirement but other than death
or termination by the Company without cause (as hereinafter defined), this
option shall immediately terminate; provided, however, that any portion of
-----------------
this option which was otherwise exercisable on the date of termination of
the Employee's employment may be exercised within the three-month period
following the date on which the Employee ceased to be so employed, but in
no event after the tenth anniversary date. Any such exercise may be made
only to the extent of the number of shares subject to this option which are
purchasable upon the date of such termination of employment. If the
Employee dies during such three-month period, this option shall be
exercisable by the Employee's personal representatives, heirs or legatees
to the same extent and during the same period that the Employee could have
exercised this option upon the date of his or her death.
(d) If the Employee ceases to be employed by the Company or one of its
subsidiaries as a result of termination without cause (as hereinafter
defined), this option shall terminate nine-months from the date of such
termination. This option may be exercised by the Employee and shall
continue to vest during such nine month period as if the Employee was
employed by the Company or one of its subsidiaries during such nine-month
period, provided however, that in no event may this option be exercised
after the tenth anniversary date. If the Employee dies during such nine-
month period, this option shall be exercisable by the Employee's personal
representatives, heirs or legatees to the same extent that the Employee
could have exercised this option during such nine-month period.
(e) If the Employee dies while an employee of the Company or any
subsidiary of the Company, this option shall be exercisable, by the
Employee's personal representatives, heirs or legatees, to the same extent
that the Employee could have exercised this option on the date of his or
her death. This option or any unexercised
-2-
<PAGE>
portion hereof shall terminate unless so exercised prior to the earlier of
the expiration of six months from the date of such death or ten years from
the date of its grant.
(f) For purposes of Section 2, the term "cause" shall mean (i) the
Employee's failure or refusal to render services to the Company or one of
its subsidiaries in accordance with the Employee's obligations under that
certain Employment Agreement by and between the Company and the Employee
dated as of December ___, 1996; (ii) the commission by the Employee of an
act of fraud or embezzlement against the Company or the commission by the
Employee of any other action with the intent to injure the Company; (iii)
an act of moral turpitude by the Employee which is materially detrimental
to the business of the Company; or (iv) the Employee having been convicted
of a felony, other than traffic offenses which traffic offenses do not
bring the Employee into disgrace or disrepute.
3. PAYMENT OF PURCHASE PRICE.
-------------------------
(a) Payment of the purchase price for shares purchased upon exercise
of this option shall be made by delivery to the Company of cash or check
payable to the order of the Company in an amount equal to the purchase
price of such shares, or, if the Employee elects and the Company permits,
by delivery of shares of Common Stock of the Company having a fair market
value equal in amount to the purchase price of such shares.
(b) For the purposes hereof, the fair market value of any share of
the Company's Common Stock to be delivered to the Company in exercise of
this option shall be determined in good faith by the Board of Directors of
the Company, in accordance with the terms of the Plan.
(c) If the Employee elects to exercise options by delivery of shares
of Common Stock of the Company, the certificate or certificates
representing the shares of Common Stock of the Company to be delivered
shall be duly executed in blank by the Employee or shall be accompanied by
a stock power duly executed in blank suitable for purposes of transferring
such shares to the Company. Fractional shares of Common Stock of the
Company will not be accepted in payment of the purchase price of shares
acquired upon exercise of this option.
4. DELIVERY OF SHARES.
------------------
The Company shall, upon payment of the purchase price for the number of
shares purchased and paid for, make prompt delivery of such shares to the
Employee, provided that if any law or regulation requires the Company to take
any action with respect to such shares before the issuance thereof, then the
date of delivery of such shares shall be extended for the period necessary to
complete such action. No shares shall be issued and delivered upon exercise of
any option unless and until, in the opinion of counsel for the Company, any
applicable registration
-3-
<PAGE>
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.
5. NON-TRANSFERABILITY OF OPTION.
-----------------------------
Except as provided in Section 2(c), 2(d) and 2(e) hereof, this option is
personal and no rights granted hereunder shall be transferred, assigned, pledged
or hypothecated in any way (whether by operation of law or otherwise) nor shall
any such rights be subject to execution, attachment or similar process. Upon
any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of
this option or of such rights contrary to the provisions hereof, or upon the
levy of any attachment or similar process upon this option or such rights, this
option and such rights shall become null and void.
6. NO SPECIAL EMPLOYMENT RIGHTS.
----------------------------
Nothing contained in the Plan or this Agreement shall be construed or
deemed by any person under any circumstances to bind the Company or any of its
subsidiaries to continue the employment of the Employee for the period within
which this option may be exercised. However, during the period of the
Employee's employment, the Employee shall render diligently and faithfully the
services which are assigned to the Employee from time to time by the Board of
Directors or by the executive officers of the Company and its subsidiaries and
shall at no time take any action which directly or indirectly would be
inconsistent with the best interests of the Company or of its subsidiaries.
7. RIGHTS AS A STOCKHOLDER.
-----------------------
The Employee shall have no rights as a stockholder with respect to any
shares which may be purchased by exercise of this option unless and until a
certificate or certificates representing such shares are duly issued and
delivered to the Employee. 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.
8. RECAPITALIZATION.
----------------
In the event that dividends are payable in shares of Common Stock or in the
event there are splits, sub-divisions or combinations of shares of Common Stock
subsequent to the date of grant, the number of shares subject to this option
shall be increased or decreased proportionately, as the case may be, and the
number of shares deliverable upon the exercise thereafter of this option shall
be increased or decreased proportionately, as the case may be, without change in
the aggregate purchase price.
-4-
<PAGE>
9. REORGANIZATION.
--------------
In case the Company is merged or consolidated with another corporation and
the Company is not the surviving corporation, or in case the property or stock
of the Company is acquired by any other corporation, or in case of a
reorganization or liquidation of the Company, prior to the termination or
expiration of this option, the Employee shall, with respect to this option or
any unexercised portion thereof, be entitled to the rights and benefits, and be
subject to the limitations, set forth in Section 11 of the Plan.
10. WITHHOLDING TAXES.
-----------------
Whenever shares are to be issued upon exercise of this option, the Company
shall have the right to require the Employee to remit to the Company an amount
sufficient to satisfy any federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares.
11. MISCELLANEOUS.
-------------
(a) Except as provided herein, this Agreement may not be amended or
otherwise modified unless evidenced in writing and signed by the Company
and the Employee.
(b) All notices under this Agreement shall be mailed or delivered by
hand to the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing by
either of the parties to one another.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
Date of Grant: ADVANCED TECHNOLOGY MATERIALS, INC.
____________________ By: _____________________________
Title: _____________________________
Address: 7 Commerce Drive
Danbury, CT 06810
-5-
<PAGE>
EMPLOYEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms
and conditions thereof.
JAMES M. BURNS
___________________________
Signature
Address: __________________________
__________________________
-6-
<PAGE>
EXHIBIT 10.05
EMPLOYMENT AGREEMENT
October 13, 1997
Stephen H. Siegele
3600 Woodcutters Way
Austin, TX 78746
Advanced Delivery & Chemical Systems Nevada, Inc., a Nevada corporation,
has agreed, pursuant to that certain Agreement and Plan of Merger and Exchange
dated as of the 7th day of April, 1997 by and among Advanced Technology
Materials, Inc., a Delaware corporation, ATMI Holdings, Inc. (n/k/a ATMI, 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,
Advanced Delivery & Chemical Systems Operating, LLC, a Delaware limited
liability company and Advanced Delivery & Chemical Systems, Ltd., a Texas
limited partnership (the "Exchange Agreement"), to enter into an employment
agreement with you. The "Company" as used in this Agreement shall be defined as
Advanced Delivery & Chemical Systems Nevada, Inc., and for purposes of Section 8
hereof shall include any of its subsidiaries or affiliates for which you provide
any product, process, technology or service to or supervise or otherwise
participate in during the two (2) years prior to the termination of your
employment with Advanced Delivery & Chemical Systems Nevada, Inc. As part of the
transactions contemplated by the Exchange Agreement and as a condition precedent
for the ATMI Group to enter into the Exchange Agreement and consummate the
transactions contemplated thereby, you have agreed to enter into such an
employment agreement containing, among other things, restrictions on your
ability to compete with the business of the Company and its subsidiaries and
affiliates to the extent provided in the preceding sentence for a period of time
following your termination of employment. Capitalized terms are used herein with
the respective meanings set forth in the Exchange Agreement unless otherwise
defined herein or unless otherwise required by the context.
Accordingly, in consideration of the premises and the mutual promises and
covenants contained herein and for other good and valuable consideration,
including but not limited to (i) your receipt of your Pro Rata Portion of the
Exchange Consideration
<PAGE>
(ii) your receipt of a term of employment pursuant to Section 2 of this
Agreement; (iii) your access to and receipt of the confidential, proprietary and
trade secret information of the Company and its subsidiaries and affiliates;
(iv) your receipt of compensation pursuant to Section 3 of this Agreement; and
(v) your receipt of other benefits pursuant to Section 4 of this Agreement, the
receipt and sufficiency of which are hereby expressly acknowledged, effective
the date of this Agreement, the Company and you agree as follows:
1. POSITION AND RESPONSIBILITIES.
-----------------------------
1.1 You shall serve as Chief Executive Officer of the Company or in such
other capacity as shall be designated by the Board of Directors of Holdings. You
shall perform such duties at Austin, Texas or such other place as you and the
Company shall mutually agree.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and to the business and
affairs of the Company. You agree to serve as an officer of the Company and/or
Holdings, if elected by their respective Board of Directors, and to perform such
executive duties as may be assigned to you by their respective Board of
Directors from time to time.
1.3 You will duly, punctually and faithfully perform and observe any and
all rules and regulations which the Company and/or Holdings may now or shall
hereafter establish governing the conduct of the Company's business.
2. TERM OF EMPLOYMENT.
------------------
2.1 The term of your employment shall be two (2) years (the "Initial
Term") commencing with the date hereof, provided your employment shall
automatically terminate upon your death and may be terminated at any time as
provided in Section 2.2. At the end of the Initial Term, unless the parties
mutually agree to renew, extend or modify the provisions hereof, your employment
shall continue "at will," subject to the Company's obligation to pay the
Severance Payment as hereinafter provided, and the other terms and conditions of
this Agreement (as then in effect) shall continue.
2.2 The Company shall have the right, on written notice to you specifying
the reason, to terminate your employment:
(a) immediately for Cause (as defined in Section 2.4), or
(b) subject to Section 2.6 hereof, at any time without Cause, or
(c) subject to Section 2.6 hereof, in the event of your death or total
disability which, in the reasonable opinion of the Board of Directors of
Holdings, renders you
-2-
<PAGE>
unable or incompetent to carry out your duties, responsibilities, and
assignments for a period of ninety (90) consecutive days.
2.3 You shall have the right, on written notice to the Company, to
terminate your employment if you "resign for just cause," which shall mean a
resignation of your employment as a direct result of (a) a material breach by
the Company of its obligations to you under this Agreement, provided that, if
such breach is capable of remedy, a written notice within sixty (60) days of
such breach and opportunity to cure such breach shall be afforded the Company
and, in such event, just cause shall exist if the Company shall fail to cure
such breach within a reasonable period of time not to exceed thirty (30) days;
or (b) a significant decrease by the Board of Directors of Holdings of your
duties or authority (except in connection with a termination pursuant to Section
2.2(a) or (c)), provided that you have given the Company notice of such decrease
within three (3) months of its occurrence.
2.4 The term "Cause" shall mean (i) your failure or refusal to render
substantial services to the Company in accordance with your obligations under
this Agreement, provided that if your failure or refusal is capable of remedy, a
written notice within three (3) months of such failure or refusal and
opportunity to cure shall be afforded you and, in such event, Cause shall exist
if you fail to cure such failure or refusal within a reasonable period of time
not to exceed thirty (30) days or if such failure or refusal is timely cured,
you repeat such failure or refusal; (ii) the commission by you of an act of
fraud or embezzlement against the Company or the commission by you of any other
action with the intent to injure the Company; (iii) an act of moral turpitude by
you which is materially detrimental to the business or reputation of the
Company; or (iv) your having been convicted of, or pleading nolo contendere to,
a felony (other than traffic offenses which do not bring you or the Company into
disgrace or disrepute). For purposes of this Section 2.4, the term "Company"
shall include the Company and its subsidiaries and affiliates.
2.5 If you are terminated for Cause, neither the Company nor any
affiliate of the Company shall have any further obligation to you or your
personal representatives under this Agreement, except for salary, additional
compensation and permitted business expenses accrued hereunder and unpaid at the
date of termination. On or before the date of termination of your employment,
you shall return to the Company all records and other personal property of the
Company in your possession or control, including all confidential, proprietary
or trade secret information of the Company and its subsidiaries and affiliates.
2.6 Severance Benefits. In the event of the termination of your
------------------
employment pursuant to either Section 2.2(b) or Section 2.3 hereof, the Company
shall pay to you an aggregate of eighteen (18) months' Base Salary at the time
of termination, less applicable taxes and withholding (the "Severance Payment"),
in the manner and subject to the terms and conditions as hereinafter provided,
and the Company shall provide you during such period medical, dental, life and
disability insurance benefits on the same basis the
-3-
<PAGE>
Company would have provided you such benefits during such period had you
continued to be an employee of the Company (collectively, the "Severance
Benefits"). The Severance Payment shall be payable in installments on such date
or dates on which Base Salary would have been paid to you had your employment
not been terminated.
3. COMPENSATION.
------------
3.1 Base Salary. The Company shall pay to you for the services to be
-----------
rendered hereunder a Base Salary ("Base Salary") at an annual rate of $400,000,
subject to customary withholding for federal, state and local taxes. Such Base
Salary shall be payable periodically in conformity with the prevailing practice
of Holdings and Holdings' subsidiaries for executives' compensation as such
practice shall be established or modified from time to time. Such Base Salary
shall be subject to increase from time to time 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.
3.2 Business Expenses. You shall be entitled to be reimbursed for all
-----------------
reasonable and necessary expenses incurred in connection with the performance of
your duties hereunder provided that you shall, as a condition of reimbursement,
submit verification of the nature and amount of such expenses in accordance with
the reimbursement policy from time to time adopted by Holdings.
4. OTHER BENEFITS.
--------------
4.1 Vacation. You shall be entitled to vacation in accordance with the
--------
vacation policy of Holdings and Holdings' subsidiaries, as the same may be in
effect from time to time, without loss of compensation or other benefits to
which you are entitled under this Agreement, to be taken at such times as you
may reasonably select. For purposes of the amount of vacation to which you are
entitled, you will be credited for your prior service to the ADCS Group.
4.2 Other Benefit Programs. The Company will provide to you all other
----------------------
employee benefits generally available to employees of Holdings and Holdings'
subsidiaries of equivalent position, as the same may be in effect from time to
time.
4.3 Incentive Compensation. You shall be eligible to receive additional
----------------------
compensation, including awards of performance bonuses at levels commensurate
with employees of Holdings and Holdings' subsidiaries 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.
-4-
<PAGE>
4.4 Automobile Expenses. The Company will reimburse you for automobile
-------------------
expenses consistent with the reimbursement policy that had been in effect for
you while an employee of the ADCS Group.
5. OTHER ACTIVITIES DURING EMPLOYMENT.
----------------------------------
5.1 Except with the prior written consent of the Holdings' Board of
Directors, which consent shall not be unreasonably withheld, you will not during
the term of this Agreement undertake or engage in any other employment or
occupation except as permitted by Section 5.3. This provision shall not be
deemed to preclude (i) membership in professional societies, lecturing or the
acceptance of honorary positions, that are in any case incidental to your
employment by the Company, and (ii) membership on the Board of Directors or
other governing body of Atlantic Coast Polymers, Inc., and which in the case of
(i) and (ii) are not adverse or antagonistic to or competitive with the Company
or its subsidiaries or affiliates, their business or prospects, financial or
otherwise and are consistent with your obligations regarding the confidential,
proprietary and trade secret information of the Company and its subsidiaries and
affiliates pursuant to the Proprietary Information and Inventions Agreement
referenced below.
5.2 Except as permitted by Section 5.3, you will not assume or
participate in, directly or indirectly, any position or interest adverse or
antagonistic to the Company or its subsidiaries or affiliates, their business or
prospects, financial or otherwise, or take any action towards any of the
foregoing.
5.3 During the term of your employment by the Company, except on behalf
of the Company or its subsidiaries or its affiliates, you will not, directly or
indirectly, whether as an officer, director, stockholder, partner, proprietor,
associate, representative or otherwise, become or be interested in any other
person, corporation, firm, partnership or other entity whatsoever which directly
competes with the Company or its subsidiaries or affiliates, in any part of the
world, in any line of business engaged in (or planned to be engaged in) by the
Company or its subsidiaries or affiliates (or any successor to their business).
With respect to any company or partnership which directly competes with the
Company or its subsidiaries or affiliates, in any part of the world, in any line
of business engaged in (or planned to be engaged in) by the Company or its
subsidiaries or affiliates (or any successor to their business), this Section
5.3 shall not prohibit you from owning (i) as a passive investor only, an
aggregate of not more than one percent (1%) of the total stock or equity
interests of such company or partnership if the same are publicly traded, or
(ii) stock or equity interests of such company or partnership through mutual
funds or other similar investment vehicles over which you retain no investment
discretion.
6. FORMER EMPLOYMENT.
-----------------
6.1 You represent and warrant that your employment by the Company will
not conflict with and will not be constrained by any prior employment or
consulting
-5-
<PAGE>
agreement or relationship. Subject to Section 6.2, you represent and warrant
that you do not possess confidential information arising out of prior employment
(other than employment by the ADCS Group) which, in your best judgment, would be
utilized in connection with your employment by the Company in the absence of
Section 6.2.
6.2 If, in spite of the second sentence of Section 6.l, you should find
that confidential information belonging to any former employer, other than
confidential information belonging to the ADCS Group, might be usable in
connection with the Company's business, you will not intentionally disclose to
the Company or use on its behalf any confidential information belonging to any
of your former employers, other than confidential information belonging to the
ADCS Group; but during your employment by the Company you will use in the
performance of your duties all information which is generally known and used by
persons with training and experience comparable to your own and all information
which is common knowledge in the industry or otherwise legally in the public
domain or is legally obtainable.
7. CONFIDENTIALITY. You acknowledge that, in consideration of your
---------------
receipt of the specific consideration expressed in the second paragraph of this
Agreement, you have entered into and are bound by the terms of a standard
Proprietary Information and Inventions Agreement for employees of Holdings'
subsidiaries and affiliates, the terms of which are incorporated herein by
reference.
8. POST-EMPLOYMENT ACTIVITIES.
--------------------------
8.1 You understand and acknowledge that the provisions of this Section 8
are necessary to protect the legitimate business interests of the Company and
are fair and reasonable for numerous reasons, including your receipt of the
specific consideration expressed in the second paragraph of this Agreement. In
addition, as a result of your prior position with the ADCS Group and your
executive position with the Company, you have had, and will continue to have,
access to significant confidential, proprietary or trade secret information of
the ADCS Group and the Company, so that, if you were employed by a competitor of
the Company, there would be a substantial risk to the Company of your use of its
confidential, proprietary or trade secret information. Based on the foregoing,
for a period of the later of sixty (60) months from the date of this Agreement
or thirty-six (36) months after the termination of your employment with the
Company, absent the Company's prior written approval (with concurrence by the
Board of Directors of Holdings), you will not directly or indirectly:
(a) render any services to, or engage in any activities for, any
other person, firm, corporation or business organization with respect to
any product, process, technology or service, in existence or under
development which substantially resembles or competes with a product,
process, or service of the Company in existence or under development upon
which you worked or exercised
-6-
<PAGE>
supervisory responsibility at any time during the two (2) years prior to
the termination of your employment with the Company;
(b) solicit employees of the Company to leave their employ or offer
or cause to be offered employment to any person who is or was employed by
the Company at any time during the six (6) months prior to the termination
of your employment with the Company;
(c) entice, induce or encourage any of the Company's other employees
to engage in any activity which, were it done by you, would violate any
provision of this Section 8; or
(d) otherwise attempt to interfere with or disrupt the business or
activities of the Company or its subsidiaries or affiliates after written
notice and a 60-day cure period.
You agree that if you act in violation of this Section 8, the number of days
that you are in violation will be added to the time period specified in this
Section 8.
8.2 Upon your written request to the Company specifying the activities
proposed to be conducted by you, the Company may in its discretion, subject to
the concurrence by the Board of Directors of Holdings, give you written
approval(s) to engage personally in any activity or render services referred to
in Section 8.l upon receipt of written assurances (satisfactory to the Company
and its counsel in their discretion) from you and from your prospective
employer(s) that the integrity of the provisions of Section 7 and Section 8.l
will not in any way be jeopardized or violated by such activities; provided,
--------
however, the burden of so establishing the foregoing to the satisfaction of the
- -------
Company and said counsel shall be upon you and your prospective employer(s).
Failure of the Company to respond to such written request shall be deemed a
rejection of such request.
9. REMEDIES. Your duties under Section 7 and Section 8 shall survive
--------
termination of your employment with the Company. You acknowledge and agree that
any breach by you of any of the provisions of Section 7 or Section 8.1 of this
Agreement will result in irreparable and continuing damage to the Company and
that a remedy at law for any breach or threatened breach by you of the
provisions of Section 7 or Section 8.1 would be inadequate, and you therefore
agree that the Company shall be entitled to temporary, preliminary and permanent
injunctive relief in case of any such breach or threatened breach. The
prevailing party in an action under this Agreement shall be entitled to recover
its costs and expenses, including attorneys' fees. Nothing in this Agreement
shall be construed to prohibit the Company from pursuing any other remedy
available to it at law or in equity, the parties having agreed that all remedies
are cumulative.
-7-
<PAGE>
10. MISCELLANEOUS.
-------------
10.1 Assignment. This Agreement and the rights and obligations of the
----------
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties or the
business or properties of the Company or any subsidiary or division thereof,
but, except as to any such successor or assignee of the Company, neither this
Agreement nor any rights or benefits hereunder may be assigned by the Company or
you.
10.2 Interpretation. In case any one or more of the provisions contained
--------------
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement. If moreover, any one or
more of the provisions contained in this Agreement shall for any reason be held
to be excessively broad as to duration, geographical scope, activity or subject,
the parties expressly agree that a court may rewrite and modify such provisions
so as to be enforceable to the fullest extent compatible with the applicable law
as it shall then appear.
10.3 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 (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 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 Company:
c/o Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, CT 06810
Facsimile No. (203) 792-8040
Attention: Daniel P. Sharkey
If to you:
Stephen H. Siegele
3600 Woodcutters Way
Austin, TX 78746
-8-
<PAGE>
10.4 Waivers. If either party shall waive any breach of any provision of
-------
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
10.5 Headings. The headings of the sections hereof are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.
10.6 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 Connecticut applicable to agreements made and to be performed
wholly within such jurisdiction.
10.7 Complete Agreement; Amendments; Prior Agreements. The foregoing,
------------------------------------------------
together with the Proprietary Information and Inventions Agreement, are the
entire agreement of the parties with respect to the subject matter hereof and
may not be amended, supplemented, cancelled or discharged except by written
instrument executed by both parties hereto. This Agreement supersedes any and
all prior agreements between the Company and you with respect to the matters
covered hereby.
10.8 Counterparts. This Agreement may be executed in counterparts, each
------------
of which when so executed and delivered shall constitute a complete and original
instrument but all of which together shall constitute one and the same
agreement, and it shall not be necessary when making proof of this Agreement or
any counterpart thereof to account for any other counterpart.
10.9 Opportunity for Review. You acknowledge that you had the opportunity
----------------------
to have this Agreement reviewed by an attorney prior to your execution of this
Agreement.
-9-
<PAGE>
If you are in agreement with the foregoing, please so indicate by signing
and returning the enclosed copy of this letter.
ADVANCED DELIVERY & CHEMICAL
SYSTEMS NEVADA, INC.
By: /s/ Frederick J. Siegele
----------------------------
Title: Vice President, Secretary and General
-------------------------------------
Counsel
-------
Accepted and agreed:
/s/ Stephen H. Siegele
- ------------------------------
Stephen H. Siegele
Date: October 13, 1997
-10-
<PAGE>
EXHIBIT 10.06
CONSULTING AGREEMENT
CONSULTING AGREEMENT (the "Agreement") dated as of October 10, 1997, by and
between LAWRENCE SEMICONDUCTOR LABORATORIES, INC., an Arizona corporation (the
"Company") and LAWRENCE SEMICONDUCTOR INVESTMENTS, INC., an Arizona corporation
("Consultant").
WHEREAS, the Company has entered into that certain Agreement and Plan of
Merger (the "Merger Agreement") dated May 17, 1997 as amended by a First
Amendment thereto dated June 6, 1997 and a Second Amendment thereto dated July
30, 1997 among the Company, LAWRENCE SEMICONDUCTOR LABORATORIES MARKETING AND
SALES, INC., an Arizona corporation; ADVANCED TECHNOLOGY MATERIALS, INC., a
Delaware corporation; ATMI, INC. (f/k/a ATMI HOLDINGS, INC.), a Delaware
corporation; and WELK ACQUISITION CORPORATION, a Delaware corporation ("Buyer
Sub"), whereby the Company will be acquired by the Buyer by the Merger of the
Buyer Sub with and into the Company upon the terms set forth therein; and
WHEREAS, the Merger Agreement calls for the Company to enter into a
Consulting Agreement with Lamonte H. Lawrence ("Lawrence"); and
WHEREAS, Consultant has an exclusive arrangement with Lawrence regarding
his consulting services; and
WHEREAS, the Company and Consultant desire to enter into a consulting
arrangement on the terms set forth below. All capitalized terms not otherwise
defined in this Agreement shall have the meaning ascribed to each such term in
the Merger Agreement.
NOW, THEREFORE, the Company and Consultant agree as follows:
1. Termination of Employment Relationship. As of the Effective Date,
--------------------------------------
Consultant and the Company hereby agree that the employment of Lawrence by LSL
shall terminate and LSL's obligations under any employment agreement shall cease
at such time.
2. Retention as Consultant. The Company hereby retains Consultant as an
-----------------------
independent consultant for the three (3) year period ("Consulting Term") from
the Effective Time (the "Expiration Date"), or such earlier date on which this
Agreement is terminated as provided in Section 7, below. Consultant shall retain
the services of Lawrence to provide consulting services hereunder to the Company
throughout the term of this Agreement, unless the Company shall provide its
prior written consent given in its sole discretion, to Consultant regarding the
retention of the services of another expert in epitaxial processing of silicon
wafers to provide consulting services to the Company.
<PAGE>
3. Consulting Services. Consultant shall perform those consulting
-------------------
services and work on such projects as Consultant and the Company may from time
to time mutually agree. Consultant's relationship with the Company shall be that
of an independent contractor and not that of an employee of the Company or any
affiliate and, except as otherwise provided herein, Consultant shall not be
eligible for any employee benefits offered by the Company, and the Company shall
neither make nor be liable for any deductions from Consultant's fees paid
hereunder for taxes, insurance, bonds or any other subscriptions of any kind.
The Company and Consultant hereby agree that all consulting services to be
performed under this Agreement shall be personal services of Lawrence.
During each of the three twelve-month periods of the Consulting Term,
Consultant shall render consulting services as mutually agreed by Consultant and
the Company.
4. Performance of Consulting Services. The nature of the consulting
----------------------------------
services to be performed and the time and place of performance of such services
shall be at Mesa, Arizona, or as mutually agreed to by the Company and
Consultant. The Company agrees to provide Consultant such secretarial services
and office facilities as Consultant requires in rendering consulting services
hereunder. Consultant shall not be required to relocate in order to perform the
services required hereunder.
5. Consideration. In consideration of the consulting services to be
-------------
provided by Consultant hereunder, the Company agrees to pay Consultant, for
each year during the Consulting Term, a per diem of Two Thousand Eight Hundred
Eighty Dollars ($2,880.00) for a mutually agreed number of days per twelve-month
period under this Agreement, but in no event shall the total fee payable to
Consultant hereunder total less than Two Hundred Fifty Thousand Dollars
($250,000.00) for the first twelve-month period. No minimum shall be applicable
after the first twelve-month period. On or before the 10th day of each month,
Consultant shall submit an invoice for the prior month, indicating total hours
worked. The Company shall pay such invoice within 15 days of its receipt
thereof.
In addition, the Company agrees to take such action as may be necessary to
permit Consultant to become a participating employer in the Company's health
insurance or similar benefit program, but only for the benefit of Lamonte H.
Lawrence and his dependents.
6. Expenses. Consultant's reasonable expenses incurred in connection with
--------
the performance of consulting services hereunder will be paid by the Company
or, if Consultant has paid such expenses, reimbursed by the Company upon receipt
of documentation of such expenses in accordance with the Company's standard
policies and procedures; provided that Consultant shall obtain preapproval from
the Company for any expenditures in excess of One Thousand Dollars ($1,000), and
the Company shall not be liable for reimbursement for such expenses where
Consultant did not obtain preapproval for such expenditures.
7. Termination. This Agreement shall be subject to termination as
-----------
follows:
2
<PAGE>
(a) Consultant may terminate this Agreement at any time after one (1)
year from the Effective Time upon thirty (30) days' written notice to the
Company;
(b) The Company may terminate this Agreement only for "cause" which,
for purposes of this Agreement, shall mean (i) the continued failure by
Consultant or Lawrence to perform his duties with the Company (other than any
such failure resulting from his incapacity due to death or physical or mental
incapacity), after a written demand for substantial performance is delivered to
Consultant or Lawrence by the Company that identifies the manner in which the
Company believes that Consultant or Lawrence has not substantially performed his
duties and provides for a 30-day cure period, (ii) engaging by Consultant or
Lawrence in misconduct which is materially injurious to the Company, monetarily
or otherwise, after a written warning and a 30-day cure period, (iii)
Consultant's or Lawrence's final conviction for fraud or of any felony, or (iv)
Consultant's or Lawrence's use of illegal drugs and/or abuse of alcohol.
Notwithstanding the foregoing, Consultant shall not be deemed to have been
terminated for cause under clause (i) or (ii) unless and until there shall have
been delivered to Consultant a copy of a Notice of Termination from the Board of
Directors of the Company after reasonable notice to Consultant and an
opportunity for Consultant to be heard before the Board finding that, in the
good faith opinion of the Board, Consultant was guilty of conduct set forth
above and specifying the particulars thereof in detail.
(c) This Agreement, and the Company's obligations hereunder, shall
terminate immediately upon Consultant's or Lawrence's disability. For purposes
of this Agreement, the term "disability" shall be defined as a physical or
mental impairment of any type that prevents Consultant or Lawrence from
performing the essential functions of his employment under this Agreement for a
total period of ninety (90) days in any twelve (12) consecutive month period, as
reasonably determined by the Company.
(d) This Agreement shall terminate upon the death of Consultant or
Lawrence.
8. Effect of Termination. Upon termination of this Agreement pursuant to
---------------------
Section 7 hereof, Sections 8, 9, and 10 shall survive, and Consultant shall be
entitled to receive all fees and expenses payable under Section 5 through the
date of termination of this Agreement.
9. Indemnification. The Company agrees to defend, indemnify and hold
---------------
Consultant and Consultant's estate harmless from and against all losses,
liabilities, damages, claims, demands, actions, and proceedings, and all costs
and expenses in connection therewith, including reasonable attorneys' fees,
arising out of or connected with the performance of Consultant's services under
this Agreement, except as may arise from Consultant's willful misconduct or
negligent acts or omissions.
10. Additional Instruments. The parties hereto shall execute any further
----------------------
or additional instruments and they will perform any acts which may be reasonably
necessary or appropriate in order to effectuate and carry out the purposes of
this Agreement.
3
<PAGE>
11. Execution in 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.
12. Modification and Amendments. No provision of this Agreement may be
---------------------------
modified or amended except by a writing executed by the party sought to be
charged with such modification or amendment.
13. Notices. All notices, claims, demands and other communications
-------
hereunder shall be in writing and shall be deemed given if delivered personally
or by telecopy 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):
If to Consultant, to:
Lawrence Semiconductor Investments, Inc.
100 Sir Francis Drake Blvd.
Ross, California 94957
Facsimile Number: (415) 456-0949
with a copy to:
Polese, Pietzsch, Williams & Nolan, P.A.
2702 North Third Street, Suite 3000
Phoenix, Arizona 85004-4607
Attention: Michael E. Pietzsch; Michael J. Tucker
Facsimile Number: (602) 279-5107
If to the Company, to:
Lawrence Semiconductor Laboratories, Inc.
c/o Advance Technology Materials, Inc.
7 Commerce Drive
Danbury, Connecticut 06810
Attention: Daniel P. Sharkey
Facsimile: (203) 792-8040
with a copy to:
Shipman & Goodwin, LLP
One American Row
Hartford, Connecticut 06103
Attention: Frank J. Marco, Esq.
Facsimile: (860) 251-5900
4
<PAGE>
14. Entire Agreement; Assignment. This Agreement 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.
15. Binding Agreement. This Agreement shall inure to the benefit of and
-----------------
shall be binding upon the Company and Consultant, and their respective
successors and assigns.
16. Severability.
------------
16.1. Severable. The provisions of this Agreement are severable and,
---------
in the event that any provision hereof shall be found by any court to be
unenforceable, in whole or in part, the remainder of this Agreement shall
nonetheless remain enforceable and binding upon the Company and Consultant.
16.2. Enforcement. To the extent that any provision hereof is deemed
-----------
unenforceable by virtue of its scope in terms of area, business activity
prohibited and/or length of time, but could be enforceable by reducing the scope
of area, business activity prohibited or length of time, Consultant and the
Company agree that same shall be enforced to the fullest extent permissible
under the laws and public policies applied in the jurisdiction in which
enforcement is sought, and that the Company shall have the right, in its sole
discretion, to modify such invalid or unenforceable written provision to the
extent required to be valid and enforceable. Consultant agrees to be bound by
any promise or covenant imposing the maximum duty permitted by law which is
subsumed within the terms of any provision hereof, as though it were separately
articulated in and made a part of this Agreement, that may result from striking
or modifying any of the provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
written above.
CONSULTANT: LAWRENCE SEMICONDUCTOR
INVESTMENTS, INC., an Arizona corporation
By /s/ Lamonte H. Lawrence
----------------------------------------
Lamonte H. Lawrence, President
THE COMPANY: LAWRENCE SEMICONDUCTOR
LABORATORIES, INC., an Arizona corporation
By /s/ Lamonte H. Lawrence
---------------------------------------
Its President, CEO
---------------------------------------
5
<PAGE>
Exhibit 10.08(b)
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is made and entered into as of
September 30, 1997 ("Effective Date") by and between MONTAGUE OAKS ASSOCIATES
PHASE III, a California general partnership ("Landlord"), and ATMI ECOSYS
CORPORATION, a California corporation ("Tenant").
R E C I T A L S
---------------
A. Pursuant to that certain Lease dated February 7, 1995 ("Lease"),
Landlord leases to Tenant, and Tenant leases from Landlord, certain premises
("Premises") consisting of approximately twenty-three thousand eight hundred
sixty (23,860) rentable square feet of space within that certain building
("Building") commonly known as 617 River Oaks Parkway, San Jose, California and
located in that certain project ("Project") commonly referred to as Montague
Oaks, all as more particularly described in the Lease.
B. Landlord and Tenant desire to extend the term of the Lease for an
additional one (1) year period and to establish a formula for determining the
rent during the extended term, all as more particularly described herein.
Capitalized terms used in this Amendment shall have the meanings ascribed to
such terms in the Lease unless otherwise defined in this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Landlord and Tenant hereby modify, supplement and
amend the Lease as follows:
1. Term. The term of the Lease is hereby extended for an additional
----
one (1) year and seven (7) day period from March 16, 2002 to March 23, 2003
("First Extended Term"). The option to extend the term for a period of five (5)
years granted to Tenant under paragraph 55 of the Lease remains in force and
effect provided that all references in said paragraph 55 to the Initial Term are
hereby replaced with references to the First Extended Term.
2. Rent. At the commencement of the First Extended Term, the monthly
----
basic rent for the Premises shall be adjusted to be equal to ninety-five percent
(95%) of the market rate. As used herein, the "market rate" shall mean the
monthly rent (triple net) then being obtained under leases with comparable terms
as this Lease in the Project and in buildings and/or other projects within the
same geographical area of similar types in identity, quality and location as the
Project; provided, however, in no event shall the monthly basic rent during the
First Extended Term be less than Eighteen Thousand One Hundred Thirty-three
Dollars and Sixty Cents ($18,133.60) per month or Seventy-six Cents ($.76) per
square foot ("Minimum Extended Term Rent"), nor more than Thirty-six Thousand
Nine Hundred Eighty-three Dollars ($36,983) per month or One Dollar
<PAGE>
and Fifty-five Cents ($1.55) per square foot ("Maximum Extended Term Rent"). Not
earlier than two hundred and seventy (270) days nor later than one hundred
eighty (180) days prior to the expiration of the Lease Term, the parties shall
meet and negotiate the market rate in good faith. If Landlord and Tenant agree
on the amount of the market rate, they shall immediately execute an Amendment to
this Lease setting forth the amount of the monthly basic rent to be paid by
Tenant during the First Extended Term. If Landlord and Tenant are unable to
agree on the amount of the market rate within thirty (30) days after the
commencement of such negotiations, then the market rate shall be determined in
the following manner:
Within forty-five (45) days after commencement of negotiations, Landlord
and Tenant shall each select an independent licensed commercial real estate
broker having not less than ten (10) years experience in the leasing of research
and development and industrial properties in Santa Clara County, which broker
shall not have been employed by either party in this transaction. Within fifteen
(15) days of their employment, the two real estate brokers shall select a third
real estate broker who is similarly qualified. Within thirty (30) days from the
appointment of the third broker, the three brokers so selected shall, acting as
a board of arbitrators, determine the amount of the market rate, basing their
determination on standard procedures and tests normally employed in the
commercial real estate profession in determining market rate and applying the
factors included within the definition of market rate set forth above. The
decision of the majority of the brokers shall be final and binding upon the
parties hereto. If a majority of the brokers are unable to agree on the market
rate within the stipulated period of time, the three opinions of the market rate
shall be added together and their total divided by three, and the resulting
quotation shall be the market rate; provided, however, in no event shall the
market rate be less than the Minimum Extended Term Rent nor exceed the Maximum
Extended Term Rent. Each party shall pay the expenses and charges of the broker
appointed by it and the parties shall pay the expenses and charges of the third
broker in equal shares. When the market rate has been so determined, Landlord
and Tenant shall immediately execute an Amendment to the Lease stating the basic
rent for the First Extended Term. Tenant shall pay the basic rent determined for
the First Extended Term in accordance with the provisions of paragraph 4(a) of
the Lease.
3. Common Area Charges. During the First Extended Term, Tenant shall
-------------------
continue to pay its percentage share of common area charges in accordance with
the provisions of paragraph 4(b) of the Lease, subject to adjustments and
reconciliation as provided in paragraph 16 of the Lease.
4. Tenant Improvements. Tenant acknowledges that Landlord has no
-------------------
obligation to provide Tenant with any tenant improvements or refurbishing
allowance with respect to tenant improvements in Premises during the First
Extended Term.
5. Brokers. Each party represents and warrants to the other party
-------
that it has not had any dealings in any manner with any real estate broker,
finder or other person with respect to the Premises and the negotiations and
execution of this Amendment. Each
-2-
<PAGE>
party shall defend, indemnify and hold harmless the other party from and against
all damage, loss, liability and expense (including attorneys' fees and related
costs) arising out of or resulting from any claims for commissions or fees that
may or have been asserted against the other party by any broker, finder or other
person with whom Tenant or Landlord has or purportedly has dealt with in
connection with the Premises and the negotiation or execution of this Amendment.
6. Corporate Authority. If Tenant is a corporation, each individual
-------------------
executing this Amendment on behalf of the corporation represents and warrants
that he is duly authorized to execute and deliver this Amendment on behalf of
the corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation and that this Amendment is binding upon said
corporation in accordance with its terms. If Tenant is a corporation, Tenant
shall deliver to Landlord, within ten (10) days of the execution of this
Amendment, a copy of the resolution of the Board of Directors of Tenant
authorizing the execution of this Amendment and naming the officers that are
authorized to execute this Amendment on behalf of Tenant, which copy shall be
certified by Tenant's president or secretary as correct and in full force and
effect.
7. Effect of Amendment. Except as modified herein, the terms and
-------------------
provisions of the Lease shall remain unmodified and continue in full force and
effect. In the event of any conflict between the terms and provisions of this
Amendment and the terms and provisions of the Lease, the terms and provisions of
the Amendment shall govern and control the intent and agreement of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
LANDLORD:
MONTAGUE OAKS ASSOCIATES
PHASE III, a California general partnership
By: McCANDLESS GROUP (MONTAGUE), a California
general partnership, a general partner
By: /s/ Birk S. McCandless
-------------------------------------
BIRK S. McCANDLESS, as Trustee of the
Birk S. McCandless and Mary McCandless
Intervivos Trust dated February 17,
1982, a general partner
-3-
<PAGE>
By: 745 PROPERTY INVESTMENTS, a Massachusetts
voluntary trust, a general partner
By: /s/ Robert Heckler
----------------------------------
Its: Vice President
----------------------------------
TENANT:
ATMI ECOSYS CORPORATION, a California corporation
By: /s/ Daniel P. Sharkey
---------------------------------------
Its: Chief Financial Officer
---------------------------------------
-4-
<PAGE>
EXHIBIT 10.09
LEASE
-----
THIS LEASE is made as of this 30th day of September, 1997, by and
between MONTAGUE OAKS ASSOCIATES PHASE I & II, a California general partnership
("Landlord") and ATMI ECOSYS CORPORATION, a California corporation ("Tenant").
WITNESSETH:
Landlord leases to Tenant and Tenant leases from Landlord those
certain premises outlined in red on Exhibit "A" (the "Premises") commonly known
as 655 River Oaks Parkway, San Jose, California, which Landlord and Tenant
hereby agree consists of approximately twenty thousand five hundred eighty-two
(20,582) square feet in the "Project". As used herein the term Project shall
mean and include all of the land described in Exhibit "B" and all the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Tenant covenants, as a material part of the consideration of this
lease, to perform and observe each and all of the terms, covenants and
conditions set forth below, and this lease is made upon the condition of such
performance and observance.
1. Use. Subject to the restrictions contained in paragraph 6
---
hereof, Tenant shall use the Premises for general office, research and
development, assembly and manufacturing, warehousing and uses incidental to the
foregoing and shall not use or permit the Premises to be used for any other
purpose.
2. Term. The term shall be for sixty-five (65) months and twenty-
----
three (23) days (unless sooner terminated as hereinafter provided) and, subject
to paragraph 3, shall commence on October 1, 1997 ("Commencement Date") and end
on March 23, 2003.
3. Possession.
----------
(a) If Landlord for any reason cannot deliver possession of the
Premises to Tenant by the scheduled Commencement Date set forth in paragraph 2,
this lease shall not be void or voidable, Landlord shall not be liable to Tenant
for any loss or damage on account thereof and, unless Landlord's failure to
deliver possession of the Premises to Tenant by the scheduled commencement date
set forth in paragraph 2 is caused by Tenant caused delays, Tenant shall not be
liable for rent until Landlord delivers possession of the Premises to Tenant.
If the term commences on a date other than the date specified in paragraph 2
above, then the parties shall immediately execute an amendment to this lease
stating the actual date of commencement and the revised expiration date. The
expiration date of the term shall be extended by the same number of days that
Tenant's possession of the Premises was delayed from that set forth in paragraph
2.
<PAGE>
(b) Tenant's inability or failure to take possession of the Premises
when delivery is tendered by Landlord shall not delay the commencement of the
term of this lease or Tenant's obligation to pay rent. Tenant acknowledges that
Landlord shall incur significant expenses upon the execution of this lease, even
if Tenant never takes possession of the Premises, including without limitation
brokerage commissions and fees and legal and other professional fees. Tenant
acknowledges that all of said expenses shall be included in measuring Landlord's
damages should Tenant breach the terms of this lease.
4. Monthly Rent.
-------------
(a) Basic Rent. Tenant shall pay to Landlord basic rent for the
----------
Premises, in advance commencing as of the Commencement Date of the term, as
follows:
<TABLE>
<CAPTION>
Lease Months Amounts
------------ -------
<S> <C>
October 1, 1997 through September 30, 1999 $26,756.60
October 1, 1999 through September 30, 2001 $28,814.80
October 1, 2001 through September 30, 2002 $30,873.00
October 1, 2002 through March 31, 2003 $31,902.10
</TABLE>
Basic rental shall be paid in monthly installments on or before the first day of
the first full calendar month of the term and on or before the first day of each
and every successive calendar month. Basic rent for any partial month shall be
payable in advance and shall be prorated at the rate of 1/30th of the monthly
basic rent per day.
(b) Common Area Charges. In addition to the above basic rent and as
-------------------
additional rent, Tenant shall pay to Landlord, subject to adjustments and
reconciliation as provided in paragraph 16 of this lease, the sum of Three
Thousand Seven Hundred Four Dollars and Seventy-six Cents ($3,704.76) on or
before the first day of the first full calendar month of the term and on the
first day of each and every successive calendar month, said sum representing
Tenant's estimated payment of its percentage share of common area charges as
provided for in paragraph 16 of this lease. Payment of common area charges for
any partial month shall be payable in advance and shall be prorated at the rate
of 1/30th of the monthly payment of common area charges per day.
(c) Manner and Place of Payment. All payments of basic rent and common
---------------------------
area charges shall be paid to Landlord, without deduction or offset, in lawful
money of the United States of America, at the office of Landlord at 3945 Freedom
Circle, Suite 640, Santa Clara, California 95054, or to such other person or
place as Landlord may from time to time designate in writing.
-2-
<PAGE>
(d) Security Deposit. Concurrently with Tenant's execution of this lease,
----------------
Tenant shall deposit with Landlord the sum of Twenty-six Thousand Seven Hundred
Fifty-six Dollars and Sixty Cents ($26,756.60) which sum shall be held by
Landlord as a security deposit for the faithful performance by Tenant of all of
the terms, covenants and conditions of this lease to be kept and performed by
Tenant. If Tenant defaults with respect to any provision of this lease,
including but not limited to, the provisions relating to the payment of basic
rent and common area charges, Landlord may (but shall not be required to) use,
apply, or retain all or any part of this security deposit for the payment of any
reasonable amount which Landlord may spend by reason of Tenant's default or to
compensate Landlord for any other actual loss or damage which Landlord may
suffer by reason of default. If any portion of said deposit is so used, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in the amount sufficient to restore the security deposit to its
original amount; Tenant's failure to do so shall be a material breach of this
lease. Landlord shall not be required to keep this security deposit separate
from its general funds and Tenant shall not be entitled to interest on such
deposit. If Tenant is not in default at the expiration or termination of this
lease, the security deposit or any balance thereof shall be returned to Tenant
not later than thirty (30) days after Tenant has vacated the Premises. In the
event of termination of Landlord's interest in this lease, Landlord shall
transfer said deposit to Landlord's successor in interest, and Tenant agrees
that Landlord shall thereupon be released from liability for the return of such
deposit or any accounting therefor.
5. Intentionally Omitted.
---------------------
6. Restriction on Use. Tenant shall not do or permit to be done in or
------------------
about the Premises or the Project, nor bring or keep or permit to be brought or
kept in or about the Premises or Project, anything which is prohibited by or
will in any way increase the existing rate of, or otherwise affect, fire or any
other insurance covering the Project or any part thereof, or any of its
contents, or will cause a cancellation of any insurance covering the Project or
any part thereof, or any of its contents. Tenant shall not do or permit to be
done anything in or about the Premises or the Project which will constitute
waste or which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Project or injure or annoy them, or use or allow the
Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain
or permit any nuisance in or about the Premises or the Project. No loudspeaker
or other device, system or apparatus which can be heard outside the Premises
shall be used in or at the Premises without the prior written consent of
Landlord. Tenant shall not use the Premises in any manner that will cause or
emit any objectionable odor, noise or light into the adjoining premises or
Common Area. Tenant shall not do anything on the Premises that will cause
damage to the Project and Tenant shall not overload the floor capacity of the
Premises or the Project. No machinery, apparatus or other appliance shall be
used or operated in or on the Premises that will in any manner injure,
unreasonably vibrate or shake the Premises. Landlord shall determine in its
reasonable business judgment whether such odor, noise, light or vibration is
such as to violate the provisions of this paragraph. No waste materials or
refuse shall be dumped upon or permitted to remain upon any part of the
-3-
<PAGE>
Premises or the Project except in trash containers placed inside exterior
enclosures designated for that purpose by Landlord, or where otherwise
designated by Landlord; and no toxic or hazardous materials shall be disposed of
through the plumbing or sewage system. No materials, supplies, equipment,
finished products or semi-finished products, raw materials or articles of any
nature shall be stored or permitted to remain outside of the building proper. No
retail sales shall be made on the Premises. Tenant shall comply with any
covenant, condition or restriction ("CC&R's") affecting the Premises.
7. Compliance with Laws. Except as expressly provided in paragraph 8(d),
--------------------
Tenant shall, in connection with its use and occupation of the Premises, at its
sole cost and expense, promptly observe and comply with (i) all laws, statutes,
ordinances and governmental rules, regulations and requirements of federal,
state, county, municipal and other governmental authorities, now or hereafter in
effect, which shall impose any duty upon Landlord or Tenant with respect to
Tenant's use, occupancy or alteration of the Premises, (ii) with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted and (iii) with any direction or occupancy certificate
issued pursuant to law by any public authority; provided, however, that no such
failure shall be deemed a breach of these provisions if Tenant, immediately upon
notification, commences to remedy or rectify said failure. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action against
Tenant (whether or not Landlord is a party thereto) that Tenant has violated any
such law, statute, ordinance or governmental rule, regulation, requirement,
direction or provision, shall be conclusive of that fact as between Landlord and
Tenant. This lease shall remain in full force and effect notwithstanding any
loss of use or other effect on Tenant's enjoyment of the Premises by reason of
any governmental laws, statutes, ordinances, rules, regulations and requirements
now or hereafter in effect.
8. Alterations.
-----------
(a) Landlord shall deliver the Premises to Tenant in its "as-is"
condition on the Commencement Date. Tenant acknowledges that Landlord shall have
no obligation to alter or refurbish the Premises or to construct any
improvements or alterations in the Premises for Tenant's benefit. Tenant shall
not make or suffer to be made any alteration, addition or improvement to or of
the Premises or any part thereof (collectively referred to herein as
"alterations") without (i) the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed, (ii) a valid building permit
issued by the appropriate governmental authority if required by law, and (iii)
otherwise complying with all applicable laws, regulations and requirements of
governmental agencies having jurisdiction and with the rules, regulations and
requirements of any board of fire underwriters or similar body. Notwithstanding
the foregoing, Tenant may make alterations to the Premises that are
nonstructural and do not affect the electrical, mechanical or heating,
ventilation and/or air conditioning systems, at Tenant's sole cost and expense,
in an amount not to exceed Ten Thousand Dollars ($10,000.00) per year, without
Landlord's prior written consent, but subject to compliance with all the other
terms and conditions set forth in this Paragraph 8.
-4-
<PAGE>
Landlord's consent to any requested alteration shall not create on the part of
Landlord or cause Landlord to incur any responsibility or liability for such
alteration's compliance with all laws, rules and regulations of federal, state,
county, municipal and other governmental authorities. Any alteration made by
Tenant (excluding moveable furniture and trade fixtures not attached to the
Premises) shall at once become a part of the Premises and belong to Landlord.
Without limiting the foregoing, all heating, lighting, electrical (including all
wiring, conduit, outlets, drops, buss ducts, main and subpanels), air
conditioning, partitioning (other than movable partitions installed by Tenant),
drapery and carpet installations made by Tenant, regardless of how attached to
the Premises, together with all other alterations that have become an integral
part of the Project in which the Premises are a part, shall be and become part
of the Premises and belong to Landlord upon installation and shall not be deemed
trade fixtures, and shall remain upon and be surrendered with the Premises at
the termination of the lease.
If Landlord consents to the making of any alteration by Tenant, the same
shall be made by Tenant at its sole risk, cost and expense and only after
Landlord's written approval of any contractor or person selected by Tenant for
that purpose, which approval shall not be unreasonably withheld or delayed and
the same shall be made at such time and in such manner as Landlord may
reasonably from time to time designate. If the cost of any alteration will
exceed One Hundred Thousand Dollars ($100,000.00), Tenant shall, if required by
Landlord, secure at Tenant's cost a completion and lien indemnity bond for such
work. Upon Tenant's written request at the time Landlord consents to any
alteration as provided herein, Landlord shall notify Tenant whether Landlord
requires such alteration to be removed upon the expiration of the term of this
Lease. Unless Landlord has notified Tenant otherwise at the time Landlord
consents to the alterations, upon the expiration or sooner termination of the
term, Landlord may, at Landlord's sole option, require Tenant, at Tenant's sole
cost and expense, to promptly both remove such alterations made by Tenant and
repair any damage to the Premises caused by such removal, and restore the
Premises to the condition that existed prior to such alteration in accordance
with all applicable laws, statutes, building codes, and regulations in effect as
of the date of such restoration. Any moveable furniture and equipment or trade
fixtures remaining on the Premises at the expiration or other termination of the
term shall become the property of the Landlord unless promptly removed by
Tenant.
(b) Landlord and Tenant acknowledge that Tenant intends to construct
certain improvements to the Premises ("Initial Alterations"). All Initial
Alterations shall be constructed in accordance with this paragraph 8. Prior to
commencement of the Initial Alterations, Tenant shall deliver the plans and
specifications therefor to Landlord for written approval, which approval shall
not be unreasonably withheld, conditioned or delayed. Landlord shall respond to
Tenant's request for approval of Tenant's plans and specifications within
fifteen (15) business days after receipt thereof. If Landlord does not approve
Tenant's plans and specifications, Landlord shall notify Tenant of its objection
thereto in writing. Landlord and Tenant shall thereafter work cooperatively and
in good faith to reach agreement upon mutually acceptable plans and
specifications. Landlord shall inform Tenant at the time Landlord approves the
Initial Alterations
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whether the Initial Alterations or any portion thereof must be removed at the
expiration of the term of the Lease. If Landlord designates any Initial
Alterations for removal, Tenant shall remove such Initial Alterations prior to
the expiration or earlier termination of the Lease, repair any damage to the
Premises caused by such removal, and restore the Premises or portion thereof
where such Initial Alterations were removed in accordance with all applicable
laws, statutes, building codes and regulations in effect as of the date of such
restoration. Tenant shall engage a licensed California contractor, subject to
Landlord's reasonable approval, to construct the Initial Alterations.
(c) Landlord shall provide Tenant an allowance ("Allowance") in an
amount equal to One Hundred Two Thousand Nine Hundred Ten Dollars ($102,910)
(based on Five Dollars ($5) per square foot in the Premises) to be applied
toward the Initial Alterations in accordance with all of the terms and
provisions of this paragraph 8. The Allowance shall only be used to reimburse
Tenant for Initial Alterations to the Premises which shall, subject to
Landlord's right to cause removal thereof in accordance with paragraph 8(b),
become part of the Premises and remain in the Premises upon the expiration or
earlier termination of the lease or to refurbish existing improvements that will
remain in the Premises upon the expiration or earlier termination of the lease.
Tenant shall not be permitted to use the Allowance for furniture, trade
fixtures, equipment or other personal property which Tenant would be permitted
to remove from the Premises upon the expiration or earlier termination of the
Lease. Tenant may request disbursements from the Allowance in writing not more
frequently than once a month. Landlord shall not be obligated to make any
disbursements from the Allowance if there exists a condition, event or act which
would constitute a default by Tenant under this Lease beyond any applicable cure
period. Each request for disbursement shall be accompanied by: (i) a written
request for disbursement itemizing each cost for which payment is requested, in
form and content reasonably acceptable to Landlord; (ii) conditional lien
releases, in form and content reasonably satisfactory to Landlord, from all
persons and entities providing work or materials covered by such requests; (iii)
unconditional lien releases from all persons or entities providing work or
materials who were paid out of the prior disbursements; (iv) invoices, vouchers,
statements, affidavits and/or other documents in a form reasonably acceptable to
Landlord which substantiate and justify the disbursement requested; and (v) such
other documentation reasonably requested by Landlord. Within thirty-five (35)
days after Landlord's receipt of each fully completed disbursement request,
Landlord shall pay the portion of the Allowance sought to be disbursed directly
to the Tenant or the contractors and the subcontractors, laborers, or suppliers
entitled thereto. Notwithstanding the foregoing, Landlord shall have no further
obligation to disburse any amounts from the Allowance from and after June 30,
1998. In addition, Tenant shall not be entitled to any rent reduction or credit
in the event that the Allowance or any portion thereof remains unused for any
reason whatsoever.
(d) If during the term any alteration, addition or change of the
Premises is required by law, regulation, ordinance or order of any public
authority, Tenant, at its sole cost and expense, shall promptly make the same.
If during the term any
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alterations, additions or changes to the Common Area or to the Project in which
the Premises is located is required by law, regulation, ordinance or order of
any public or quasi-public authority, and it is impractical in Landlord's
judgment for the affected tenants to individually make such alterations,
additions or changes, Landlord shall make such alterations, additions or changes
and the cost thereof shall be a common area charge and Tenant shall pay its
percentage share of such cost to Landlord as provided in paragraph 16.
Notwithstanding the foregoing, Landlord shall be responsible, at Landlord's sole
cost and expense, for any alterations, additions or improvements which are
necessary to cause the common area or the exterior of the Project to comply with
the Americans with Disabilities Act of 1990 and all regulations promulgated
thereunder to the extent such compliance was required as of the date of this
Lease.
9. Repair and Maintenance. By entry hereunder, Tenant accepts the
----------------------
Premises as being in good and sanitary order, condition and repair. Except as
expressly provided below, Tenant shall at its sole cost keep and maintain the
entire Premises and every part thereof including, without limitation, the
windows, window frames, plate glass, glazing, elevators within the Premises,
truck doors, doors and all door hardware, the interior walls and partitions,
lighting and the electrical, mechanical, and plumbing systems. Tenant shall
also repair and maintain the heating and air conditioning systems (unless
Landlord has elected to keep and maintain the heating and air conditioning
systems as provided below) which shall include, without limitation, a periodic
maintenance agreement with a reputable and licensed heating and air conditioning
service company. If Tenant's use of the heating and air conditioning system is
limited to normal business hours (8:00 a.m. to 6:00 p.m.), such agreement shall
provide for service at least as often as every sixty (60) days; if Tenant's use
of the heating or air conditioning systems extends beyond such normal business
hours this service shall be as often as may be reasonably required by Landlord
and in any event such service shall meet all warranty enforcement requirements
of such equipment and comply with all manufacturer recommended maintenance.
Landlord may elect, at its option, to keep and maintain the heating and air
conditioning systems of the Premises and in such event, Tenant shall pay to
Landlord upon demand the full cost of such maintenance.
Subject to the provisions of paragraph 17, Landlord shall keep and maintain
the roof, structural elements, and exterior walls of the buildings constituting
the Project and Common Area in good order and repair. Tenant waives all rights
under and benefits of California Civil Code Sections 1932(1), 1941, and 1942 and
under any similar law, statute or ordinance now or hereafter in effect. The
cost of the repairs and maintenance which are the obligation of Landlord
hereunder, including without limitation, maintenance contracts and supplies,
materials, equipment and tools used in such repairs and maintenance shall be a
common area charge and Tenant shall pay its percentage share of such costs to
Landlord as provided in paragraph 16; provided, however, that if any repairs or
maintenance is required because of an act or omission of Tenant, or its agents,
employees or invitees, Tenant shall pay to Landlord upon demand the full cost of
such repairs or maintenance.
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10. Liens. Tenant shall keep the Premises and the Project free from any
-----
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt
of a preliminary twenty (20) day notice filed by a claimant pursuant to
California Civil Code Section 3097, Tenant shall immediately provide Landlord
with a copy of such notice. Should any lien be recorded against the Project,
Tenant shall give immediate notice of such lien to Landlord. In the event that
Tenant shall not, within ten (10) days following the imposition of such lien,
cause the same to be released of record, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but no obligation, to
cause the same to be released by such means as it shall deem proper, including
payment of the claim giving rise to such lien. All sums paid by Landlord for
such purpose, and all reasonable expenses (including attorneys' fees) incurred
by it in connection therewith, shall be payable to Landlord by Tenant on demand
with interest at the rate of twelve percent (12%) per annum or the maximum rate
permitted by law, whichever is less. Landlord shall have the right at all times
to post and keep posted on the Premises any notices permitted or required by
law, or which Landlord shall deem proper for the protection of Landlord, the
Premises and the Project and any other party having an interest therein, from
mechanics' and materialmen's liens and like liens. Tenant shall give Landlord
at least fifteen (15) days prior notice of the date of commencement of any
construction on the Premises in order to permit the posting of such notices. In
the event Tenant is required to post an improvement bond with a public agency in
connection with any work performed by Tenant on or to the Premises, Tenant shall
include Landlord as an additional obligee.
11. Insurance. Tenant, at its sole cost and expense, shall keep in force
---------
during the term (i) commercial general liability and property damage insurance
with a combined single limit of at least $2,000,000 per occurrence insuring
against personal or bodily injury to or death of persons occurring in, on or
about the Premises or Project and any and all liability of the insureds with
respect to the Premises or arising out of Tenant's maintenance, use or occupancy
of the Premises and all areas appurtenant thereto, (ii) direct physical loss-
special insurance covering the leasehold improvements in the Premises and all of
Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and
personal property from time to time located in, on or about the Premises, with
coverage in the amount of the full replacement cost thereof, and (iii) Worker's
Compensation Insurance as required by law, together with employer's liability
coverage with a limit of not less than $1,000,000 for bodily injury for each
accident and for bodily injury by disease for each employee. Tenant's
commercial general liability and property damage insurance and Tenant's Workers
Compensation Insurance shall be endorsed to provide that said insurance shall
not be canceled or reduced except upon at least thirty (30) days prior written
notice to Landlord. Further, Tenant's commercial general liability and property
damage insurance shall be primary and shall be endorsed to provide that Landlord
and McCandless Management Corporation, and their respective partners, officers,
directors and employees and such other persons or entities as directed from time
to time by Landlord shall be named as additional insureds for all liability
using ISO Bureau Form CG20111185 (or a successor
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form) or such other endorsement form reasonably acceptable to Landlord; shall
contain a severability of interest clause and a cross-liability endorsement;
shall be endorsed to provide that the limits and aggregates apply per location
using ISO Bureau Form CG25041185 (or a successor form) or such other endorsement
form reasonably acceptable to Landlord; and shall be issued by an insurance
company admitted to transact business in the State of California and rated
A+VIII or better in Best's Insurance Reports (or a successor report). The
deductibles for all insurance required to be maintained by Tenant hereunder
shall be reasonably satisfactory to Landlord. The commercial general liability
insurance carried by Tenant shall specifically insure the performance by Tenant
of the indemnification provisions set forth in paragraph 18 of this lease
provided, however, nothing contained in this paragraph 11 shall be construed to
limit the liability of Tenant under the indemnification provisions set forth in
said paragraph 18. If Landlord or any of the additional insureds named on any of
Tenant's insurance, have other insurance which is applicable to the covered loss
on a contributing, excess or contingent basis, the amount of the Tenant's
insurance company's liability under the policy of insurance maintained by Tenant
shall not be reduced by the existence of such other insurance. Any insurance
carried by Landlord or any of the additional insureds named on Tenant's
insurance policies shall be excess and non-contributing with the insurance so
provided by Tenant.
Tenant shall, prior to the commencement of the term and at least thirty
(30) days prior to any renewal date of any insurance policy required to be
maintained by Tenant pursuant to this paragraph, provide Landlord with a
completed Certificate of Insurance, using a form acceptable in Landlord's
reasonable judgment, attaching thereto copies of all endorsements required to be
provided by Tenant under this lease. Tenant agrees to increase the coverage or
otherwise comply with changes in connection with said commercial general
liability, property damage, direct physical loss and Worker's Compensation
Insurance as Landlord or Landlord's lender may from time to time reasonably
require.
Landlord shall obtain and keep in force a policy or policies of insurance
covering loss or damage to the Premises and Project, in the amount of the full
replacement value thereof, providing protection against those perils included
within the classification of "all risk" insurance, with increased cost of
reconstruction and contingent liability (including demolition), plus a policy of
rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months' rent (including sums paid as additional rent) and such other
insurance as Landlord or Landlord's lender may from time to time require.
Landlord may, but shall not be obligated to, obtain flood and/or earthquake
insurance. Landlord shall have no liability to Tenant if Landlord elects not to
obtain flood and/or earthquake insurance. The cost of all such insurance
purchased by Landlord, plus any charges for deferred payment of premiums and the
amount of any deductible incurred upon any covered loss within the Project,
shall be common area charges and Tenant shall pay to Landlord its percentage
share of such costs as provided in paragraph 16. If the cost of insurance is
increased due to Tenant's use of the Premises, then Tenant shall pay to Landlord
upon demand the full cost of such increase.
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<PAGE>
Landlord and Tenant hereby mutually waive any and all rights of recovery
against one another for real or personal property loss or damage occurring to
the Premises or the Project, or any part thereof, or to any personal property
therein, from perils insured against under fire and extended insurance and any
other property insurance policies existing for the benefit of the respective
parties so long as such insurance permits waiver of liability and contains a
waiver of subrogation without additional premiums.
If Tenant does not take out and maintain insurance as required pursuant to
this paragraph 11, Landlord may, but shall not be obligated to, take out the
necessary insurance and pay the premium therefor, and Tenant shall repay to
Landlord promptly on demand, as additional rent, the amount so paid. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorney fees) and
damages which Landlord may sustain by reason of the failure of Tenant to obtain
and maintain such insurance, it being expressly declared that the expenses and
damages of Landlord shall not be limited to the amount of the premiums thereon.
12. Utilities and Service. Tenant shall pay for all water, gas, light,
---------------------
heat, power, electricity, telephone, trash pickup, sewer charges and all other
services supplied to or consumed on the Premises. In the event that any service
is not separately metered or billed to the Premises, the cost of such utility
service or other service shall be a common area charge and Tenant shall pay its
percentage share of such cost to Landlord as provided in paragraph 16. In
addition, the cost of all utilities and services furnished by Landlord to the
Common Area shall be a common area charge and Tenant shall pay its percentage
share of such cost to Landlord as provided in paragraph 16.
If Tenant's use of any such utility or service is materially in excess of
the average furnished to the other tenants of the Project, and such utility or
service is not separately metered, then Tenant shall pay to Landlord upon
demand, as additional rent, the full cost of such excess use, or Landlord may
cause such utility or service to be separately metered, in which case Tenant
shall pay the full cost of such utility or service and reimburse Landlord upon
demand for the costs of installing the separate meter.
Landlord shall not be liable for, and Tenant shall not be entitled to any
abatement or reduction of rent by reason of, the failure of any person or entity
to furnish any of the foregoing services when such failure is caused by
accident, breakage, repairs, strikes, lockouts or other labor disturbances or
labor disputes of any character, governmental moratoriums, regulations or other
governmental actions, or by any other cause, similar or dissimilar, beyond the
reasonable control of Landlord. In addition, Tenant shall not be relieved from
the performance of any covenant or agreement in this lease because of any such
failure, and no eviction of Tenant shall result from such failure.
13. Taxes and Other Charges. All real estate taxes and assessments and
-----------------------
other taxes, fees and charges of every kind or nature, foreseen or unforeseen,
which are
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levied, assessed or imposed upon Landlord and/or against the Premises, building,
Common Area or Project, or any part thereof by any federal, state, county,
regional, municipal or other governmental or quasi-public authority, together
with any increases therein for any reason, shall be a common area charge and
Tenant shall pay its percentage share of such costs to Landlord as provided in
paragraph 16. By way of illustration and not limitation, "other taxes, fees and
charges" as used herein include any and all taxes payable by Landlord (other
than state and federal personal or corporate income taxes measured by the net
income of Landlord from all sources, and premium taxes), whether or not now
customary or within the contemplation of the parties hereto, (i) upon, allocable
to, or measured by the rent payable hereunder, including, without limitation,
any gross income or excise tax levied by the local, state or federal government
with respect to the receipt of such rent (but not Landlord's state or federal
income tax), (ii) upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any part thereof, (iii) upon or measured by the value of Tenant's
personal property or leasehold improvements located in the Premises, (iv) upon
this transaction or any document to which Tenant is a party creating or
transferring an interest or estate in the Premises, (v) upon or with respect to
vehicles, parking or the number of persons employed in or about the Project, and
(vi) any tax, license, franchise fee or other imposition upon Landlord which is
otherwise measured by or based in whole or in part upon the Project or any
portion thereof. "Taxes, or other taxes, fees and charges" as used herein shall
not include inheritance, estate, succession, transfer, gift, franchise,
corporation, income or profit taxes incurred by Landlord. If Landlord contests
any such tax, fee or charge, the cost and expense incurred by Landlord thereby
(including, but not limited to, costs of attorneys and experts) shall also be
common area charges and Tenant shall pay its percentage share of such costs to
Landlord as provided in paragraph 16. Landlord shall consider paying any
assessments in the maximum number of installments allowed by law. In the event
the Premises and any improvements installed therein by Tenant or Landlord are
valued by the assessor disproportionately higher than those of other tenants in
the building or Project or in the event alterations or improvements are made to
the Premises, Tenant's percentage share of such taxes, assessments, fees and/or
charges shall be readjusted upward accordingly and Tenant agrees to pay such
readjusted share. Such determination shall be made by Landlord from the
respective valuations assigned in the assessor's work sheet or such other
information as may be reasonably available and Landlord's determination thereof
shall be conclusive.
Tenant agrees to pay, before delinquency, any and all taxes levied or
assessed during the term hereof upon Tenant's equipment, furniture, fixtures and
other personal property located in the Premises, including carpeting and other
property installed by Tenant notwithstanding that such carpeting or other
property has become a part of the Premises. If any of Tenant's personal
property shall be assessed with the Project, Tenant shall pay to Landlord, as
additional rent, the amount attributable to Tenant's personal property within
ten (10) days after receipt of a written statement from Landlord setting forth
the amount of such taxes, assessments and public charges attributable to
Tenant's personal property.
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14. Entry by Landlord. Landlord reserves, and shall at all reasonable
-----------------
times have, the right to enter the Premises (i) to inspect the Premises, (ii) to
supply services to be provided by Landlord hereunder, (iii) to show the Premises
to prospective purchasers, lenders or tenants and to put 'for sale' or 'for
lease' signs thereon, (iv) to post notices required or allowed by this lease or
by law, (v) to alter, improve or repair the Premises and any portion of the
Project, and (vi) to erect scaffolding and other necessary structures in or
through the Premises or the Project where reasonably required by the character
of the work to be performed. Notwithstanding the foregoing, Landlord's right to
place "for lease" signs on the Premises as provided above shall be limited to
the last one hundred eighty (180) days of the term of this Lease. Landlord
shall use reasonable efforts not to interfere with Tenant's use and enjoyment of
the Premises; provided, however, Landlord shall not be liable in any manner for
any inconvenience, disturbance, loss of business, nuisance or other damage
arising from Landlord's entry and acts pursuant to this paragraph and Tenant
shall not be entitled to an abatement or reduction of rent if Landlord exercises
any rights reserved in this paragraph. For each of the foregoing purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the doors in, on and about the Premises (excluding Tenant's vaults, safes and
similar areas designated in writing by Tenant in advance), and Landlord shall
have the right to use any and all means which Landlord may deem proper to open
said doors in an emergency in order to obtain entry to the Premises. Any entry
by Landlord to the Premises pursuant to this paragraph shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into or
a detainer of the Premises or an eviction, actual or constructive, of Tenant
from the Premises or any portion thereof.
15. Common Area; Parking. Subject to the terms and conditions of this
--------------------
lease and such rules and regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees and invitees shall, in common with
other occupants of the Project, and their respective employees and invitees and
others entitled to the use thereof, have the nonexclusive right to use the
access roads, parking areas and facilities within the Project provided and
designated by Landlord for the general use and convenience of the occupants of
the Project which areas and facilities shall include, but not be limited to,
sidewalks, parking, refuse, landscape and plaza areas, roofs and building
exteriors, which areas and facilities are referred to herein as "Common Area."
This right shall terminate upon the termination of this lease.
Landlord reserves the right from time to time to make changes in the shape,
size, location, amount and extent of the Common Area. Landlord shall also have
the right at any time to change the name, number or designation by which the
Project is commonly known.
Tenant shall have the nonexclusive use of eighty-two (82) parking spaces in
the Common Area as designated from time to time by Landlord. Landlord reserves
the right at its sole option to assign and label parking spaces, but it is
specifically agreed that Landlord is not responsible for policing any such
parking spaces. Tenant shall not at any
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time park or permit the parking of Tenant's trucks or other vehicles, or the
trucks or other vehicles of others, adjacent to loading areas so as to interfere
in any way with the use of such areas; nor shall Tenant at any time park or
permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of
Tenant's suppliers or others, in any portion of the Common Area not designated
by Landlord for such use by Tenant. Tenant shall not park or permit any
inoperative vehicle or equipment to be parked on any portion of the Common Area.
Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be operated, managed and maintained and the
expenditures for such operation, management and maintenance shall be comparable
to that of other similar properties located in Santa Clara County. The cost of
such maintenance, operation and management of the Common Area, including but not
limited to landscaping, repair of paving, parking lots and sidewalks, security
and exterminator services and salaries and employee benefits (including union
benefits) of on-site and accounting personnel engaged in such maintenance and
operations management, shall be a common area charge and Tenant shall pay to
Landlord its percentage share of such costs as provided in paragraph 16.
16. Common Area Charges. Tenant shall pay to Landlord, as additional
-------------------
rent, an amount equal to twenty-three and forty-seven one hundredths percent
(23.47%) of the total common area charges as defined below. Tenant's percentage
share of common area charges shall be paid as follows:
Tenant's estimated monthly payment of common area charges payable by Tenant
during the calendar year in which the term commences is set forth in paragraph
4(b) of this lease. Prior to the commencement of each succeeding calendar year
of the term (or as soon as practicable thereafter), Landlord shall deliver to
Tenant a written estimate of Tenant's monthly payment of common area charges.
Tenant shall pay, as additional rent, on the first day of each month during the
term in accordance with paragraph 4(b) of this lease, its monthly share of
common area charges as estimated by Landlord. Within one hundred twenty (120)
days of the end of each calendar year and of the termination of this lease (or
as soon as practicable thereafter), Landlord shall deliver to Tenant a statement
of actual common area charges incurred for the preceding year. If such
statement shows that Tenant has paid less than its actual percentage then Tenant
shall on demand pay to Landlord the amount of such deficiency. If Tenant fails
to pay such excess amount due within thirty (30) days after demand, Tenant shall
pay an additional ten percent (10%) of the amount due as a penalty. If such
statement shows that Tenant has paid more than its actual percentage share then
Landlord shall, at its option, promptly refund such excess to Tenant or credit
the amount thereof to the rent next becoming due from Tenant. Landlord reserves
the right to revise any estimate of common area charges if actual or projected
common area charges show an increase or decrease in excess of ten percent (10%)
from any earlier estimate for the same period. In such event, Landlord shall
deliver the revised estimate to Tenant, together with an explanation of the
reasons therefor, and Tenant shall revise its payments accordingly.
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Landlord's and Tenant's obligation with respect to adjustments at the end of the
term or earlier expiration of this lease shall survive such termination or
expiration.
Within one hundred twenty (120) days after receipt of the itemized
statement of actual common area charges for the prior calendar year, Tenant
shall have the right to request in writing from Landlord further documentation
substantiating any actual common area charge. If Tenant makes such written
request, Landlord shall provide Tenant with copies of invoices or other evidence
of the common area charge in question. Tenant's failure to request such further
backup documentation within the one hundred twenty (120) day period referenced
above shall be deemed a waiver by Tenant of the right to request any
documentation. Tenant shall have no right, pending the receipt of any
documentation, to withhold any payment of the common area charges or any other
amount owed by Tenant under this Lease.
"Common area charges," as used in this lease, shall include, but not be
limited to, (i) all items identified in paragraphs 8, 9, 11, 12, 13 and 15 as
being common area charges; (ii) amortization of such capital improvements having
a useful life greater than one year as Landlord may have installed for the
purpose of reducing operating costs and/or to comply with all laws, rules and
regulations of federal, state, county, municipal and other governmental
authorities now or hereinafter in effect (Tenant's total share of any such
capital improvement shall equal Tenant's proportionate share of the fraction of
the cost of such capital improvement equal to the remaining term of the lease
over the useful life of such capital improvement); (iii) salaries and employee
benefits (including union benefits) of personnel engaged in the operation and
maintenance of the Project (or the building in which the Premises are located)
and payroll taxes applicable thereto; (iv) supplies, materials, equipment and
tools used or required in connection with the operation and maintenance of the
Project; (v) licenses, permits and inspection fees; (vi) a reasonable reserve
for repairs and replacement of equipment used in the maintenance and operation
of the Project; and (vii) all other operating costs incurred by Landlord in
maintaining and operating the Project. Notwithstanding the foregoing, common
area charges shall not include the following: (1) depreciation; (2) principal,
interest, loan fees and penalties relating to any loans encumbering the Premises
or the Project and expenditures relating to any Landlord ground lease payment
and obligations, if any; (3) leasehold improvements made for other tenants of
the Project; (4) refinancing costs; (5) any cost which would otherwise be
considered a common area charge which is reimbursed to Landlord by an insurance
company, condemnor, a tenant, or any other third party (and Landlord shall use
reasonable efforts to be reimbursed by such parties to the extent possible); (6)
cost of repairs determined by a court of competent jurisdiction to have been
caused by Landlord's gross negligence or willful misconduct; (7) costs,
including attorneys fees, incurred by Landlord in connection with its lease
negotiations with either prospective and present tenants or enforcement of
leases, and all brokerage commissions and advertising expenses; (8) expenses
incurred by Landlord in connection with services or equipment supplied to
another tenant for its specific or disproportionate use; (9) Landlord's everyday
corporate and administrative overhead; (10) all costs incurred by Landlord in
connection with any dispute relating to Landlord's title to and
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ownership of the Project; (11) all utility costs for which Tenant directly
contracts with local utility companies; (12) all penalties and costs determined
by a court of competent jurisdiction to be caused by Landlord's or any other
tenant's gross negligence or willful misconduct; and (13) any expenses for
repairs or maintenance which are covered by warranties and service contracts
under which there is no charge to Landlord.
The total common area charges charged to all tenants may not be greater
than the actual total common area charges incurred, and no cost shall be
included more than once in common area charges or any other charge made to the
Tenant under this Lease. Landlord shall not impose any administrative fee on
common area charges.
17. Damage by Fire, Casualty. In the event the Premises are damaged by
------------------------
any casualty which is covered under an insurance policy required to be
maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to
the use of all insurance proceeds and, subject to this paragraph 17, shall
repair such damage as soon as reasonably possible and this lease shall continue
in full force and effect.
In the event the Premises are damaged by any casualty not covered under an
insurance policy required to be maintained pursuant to paragraph 11, Landlord
may, at Landlord's option, either (i) repair such damage, at Landlord's expense,
as soon as reasonably possible, in which event this lease shall continue in full
force and effect, or (ii) give written notice to Tenant within thirty (30) days
after the date of the occurrence of such damage of Landlord's intention to
cancel and terminate this lease as of the date of the occurrence of the damage;
provided, however, that if such damage is caused by an act or omission of Tenant
or its agent, servants or employees, then Tenant shall repair such damage
promptly at its sole cost and expense. In the event Landlord elects to
terminate this lease pursuant hereto, Tenant shall have the right within ten
(10) days after receipt of the required notice to notify Landlord in writing of
Tenant's intention to repair such damage at Tenant's expense, without
reimbursement from Landlord, in which event this lease shall continue in full
force and effect and Tenant shall proceed to make such repairs as soon as
reasonably possible. If Tenant does not give such notice within the ten (10)
day period, this lease shall be canceled and terminated as of the date of the
occurrence of such damage. Under no circumstances shall Landlord be required to
repair any injury or damage to (by fire or other cause), or to make any
restoration or replacement of, any of Tenant's personal property, trade fixtures
or property leased from third parties, whether or not the same is attached to
the Premises.
If the Premises are damaged or destroyed but can be repaired or restored
within two hundred ten (210) days of the date of destruction to substantially
the condition existing prior to such destruction and if the proceeds of the
insurance payable to the Landlord by reason of such destruction are sufficient
to pay the cost of such repair or restoration, then the insurance proceeds shall
be so applied, Landlord shall promptly repair and restore the Premises and this
lease shall continue, without interruption, in full force and effect. If
Landlord estimates that the Premises cannot reasonably be repaired or restored
within two hundred ten (210) days after the date of destruction to
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substantially the condition existing prior to such destruction, Landlord shall
have the right to either terminate this Lease or to elect to restore the
Premises. Landlord shall give written notice to Tenant of its election to
terminate or restore within forty-five (45) days from the date of such damage.
If Landlord elects to restore, the notice shall include Landlord's reasonable
estimate of the period required to effect such repair. If the estimated time to
repair is in excess of two hundred ten (210) days, then provided Tenant is not
in monetary default hereunder and that such damage or destruction was not caused
by Tenant or its agents, invitees or employees, Tenant shall have the right to
terminate this Lease by written notice of such election delivered to Landlord
within ten (10) days after the date of Landlord's notice. Failure of Tenant to
give Landlord written notice of termination within said ten (10) days shall
constitute Tenant's irrevocable election not to terminate this Lease, and
Landlord shall thereafter commence the repair and restoration of the Premises as
soon as reasonably possible. If the Premises are totally destroyed during the
last twelve (12) months of the term, Landlord may at Landlord's option cancel
and terminate this lease as of the date of occurrence of such damage by giving
written notice to Tenant of Landlord's election to do so within thirty (30) days
after the occurrence of such damage.
If the Premises are partially or totally destroyed or damaged and Landlord
or Tenant repair them pursuant to this lease, the rent payable hereunder for the
period during which such damage and repair continues shall be abated only in
proportion to the square footage of the Premises rendered untenantable to Tenant
by such damage or destruction. Tenant shall have no claim against Landlord for
any damage, loss or expense suffered by reason of any such damage, destruction,
repair or restoration. The parties waive the provisions of California Civil
Code sections 1932(2) and 1933(4) (which provisions permit the termination of a
lease upon destruction of the leased premises), and hereby agree that the
provisions of this paragraph 17 shall govern in the event of such destruction.
18. Indemnification. Landlord shall not be liable to Tenant and Tenant
---------------
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises or the
Project by or from any cause whatsoever except the failure of Landlord to
perform its obligations under this lease where such failure has persisted for an
unreasonable period of time after notice of such failure, provided, however,
that the foregoing waiver shall not extend to any claims Tenant may have against
Landlord arising out of the willful misconduct or gross negligence of Landlord.
Without limiting the foregoing, Landlord shall not be liable to Tenant for any
injury to or death of any person or damage to or destruction of property by
reason of, or arising from, any latent defect in the Premises or Project or the
act or negligence of any other tenant of the Project. Tenant shall immediately
notify Landlord of any defect in the Premises or Project.
Except as to injury to persons or damage to property the principal cause of
which is the failure by Landlord to observe any of the terms and conditions of
this lease or Landlord's willful misconduct or gross negligence, Tenant shall
hold Landlord harmless
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from and defend Landlord against any claim, liability, loss, damage or expense
(including reasonable attorney fees) arising out of any injury to or death of
any person or damage to or destruction of property occurring in, on or about the
Premises from any cause whatsoever or on account of the use, condition,
occupational safety or occupancy of the Premises. Tenant shall further hold
Landlord harmless from and defend Landlord against any claim, liability, loss,
damage or expense (including attorney fees) arising (i) from Tenant's use of the
Premises or from the conduct of its business or from any activity or work done,
permitted or suffered by Tenant or its agents or employees in or about the
Premises or Project, (ii) out of the failure of Tenant to observe or comply with
Tenant's obligation to observe and comply with laws or other requirements as set
forth in paragraph 7, (iii) by reason of Tenant's use, handling, storage, or
disposal of toxic or hazardous materials or waste, (iv) by reason of any labor
or service performed for, or materials used by or furnished to, Tenant or any
contractor engaged by Tenant with respect to the Premises, or (v) from any other
act, neglect, fault or omission of Tenant or its agents or employees.
The provisions of this paragraph 18 shall survive the expiration or earlier
termination of this lease.
19. Assignment and Subletting. Tenant shall not voluntarily assign,
-------------------------
encumber or otherwise transfer its interest in this lease or in the Premises, or
sublease all or any part of the Premises, or allow any other person or entity to
occupy or use all or any part of the Premises, without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld or
delayed subject to compliance with the requirements of this paragraph 19. Any
assignment, encumbrance or sublease without Landlord's consent, shall constitute
a default.
If Tenant desires to sublet or assign all or any portion of the Premises,
Tenant shall give Landlord written notice thereof, specifying the projected
commencement date of the proposed sublet or assignment (which date shall be not
less than thirty (30) days or more than one hundred twenty (120) days after the
date of such notice), the portions of the Premises proposed to be sublet or
assigned, and the identity of the proposed assignee or subtenant. Tenant shall
further provide Landlord with such other information concerning the proposed
assignee or subtenant as reasonably requested by Landlord. Any proposed
assignee or sublessee must agree to assume and agree to perform all the
covenants and conditions of Tenant under this lease. In the case of any
proposed assignment, or in the case of a proposed sublet of all of the Premises
at a time when Tenant has not occupied the Premises, or if the proposed sublet
is for the entire Premises for a sublet term ending within the last twelve (12)
months of the term of this lease, Landlord shall have the right, exercisable by
written notice to be delivered to Tenant within thirty (30) days of receipt of
Tenant's notice, to terminate this lease effective as of the date specified in
Tenant's notice as the proposed commencement date of the assignment or sublease.
If Landlord elects to terminate this lease in accordance with the foregoing
sentence, Tenant shall have the right, within ten (10) days after receipt of
Landlord's notice of termination of the lease, to withdraw its request for
consent to the
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proposed assignment or subletting of the Premises; provided, however, that
Tenant may withdraw such request only twice during the term of this lease. If
Landlord does not elect to terminate this lease and if Landlord consents in
writing to the proposed assignment or sublet, Tenant shall be free to assign or
sublet all or a portion of the Premises subject to the following conditions: (i)
any sublease shall be on the same terms set forth in the notice given to
Landlord; (ii) no sublease shall be valid and no subtenant shall take possession
of the sublet premises until an executed counterpart of such sublease has been
delivered to Landlord; (iii) no subtenant shall have a further right to sublet;
(iv) fifty percent (50%) of any sums or other economic consideration received by
Tenant as a result of such assignment or sublet (except rental or other payments
received which are attributable to the amortization over the term of this lease
of the cost of leasehold improvements constructed for such assignee or
subtenant, and brokerage fees) whether denominated rentals or otherwise, which
exceed, in the aggregate, the total sums which Tenant is obligated to pay
Landlord under this lease (prorated to reflect obligations allocable to that
portion of the Premises subject to such sublease), shall be payable to Landlord
as additional rent under this lease without affecting or reducing any other
obligation of Tenant hereunder; and (v) no sublet or assignment shall release
Tenant of Tenant's obligation or alter the primary liability of Tenant to pay
the rent and to perform all other obligations to be performed by Tenant
hereunder without Landlord's express written consent. Tenant shall pay to
Landlord promptly upon demand as additional rent, Landlord's actual attorneys'
fees and other costs incurred for reviewing, processing or documenting any
requested assignment or sublease, whether or not Landlord's consent is granted.
Tenant shall not be entitled to assign this lease or sublease all or any part of
the Premises (and any attempt to do so shall be voidable by Landlord) during any
period in which Tenant is in default under this lease.
If Tenant is a partnership, a withdrawal or change, voluntary or
involuntary or by operation of law, of any general partner or the dissolution of
the partnership shall be deemed an assignment of this lease subject to all the
conditions of this paragraph 19. If Tenant is a corporation any dissolution,
merger, consolidation or other reorganization of Tenant or the sale or other
transfer of a controlling percentage of the capital stock of Tenant or the sale
of more than fifty percent (50%) of the value of Tenant's assets shall be an
assignment of this lease subject to all the conditions of this paragraph 19.
The term "controlling percentage" means the ownership of, and the right to vote,
stock possessing more than fifty percent (50%) of the total combined voting
power of all classes of Tenant's capital stock issued, outstanding and entitled
to vote. This paragraph shall not apply if Tenant is a corporation the stock of
which is traded through an exchange. Notwithstanding anything contained in this
paragraph 19, Tenant may, without Landlord's prior written consent, sublet the
Premises or assign this lease to (i) corporation controlled by Tenant, (ii) a
successor corporation related to Tenant by merger, consolidation, or other
reorganization, or (iii) a purchaser of all or substantially all of Tenant's
assets so long as Tenant provides evidence satisfactory to Landlord, in
Landlord's reasonable discretion, that Tenant is a surviving entity, the net
worth of the assignee or subtenant is greater than or equal to the net worth of
Tenant at the execution
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of this lease, the use and occupancy of the Premises shall remain the same, and
Tenant remains fully liable under this lease.
The acceptance of rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or sublet shall not be deemed consent to any subsequent assignment or
sublet. In the event of default by any assignee of Tenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee or successor. Landlord may consent to subsequent assignments or
sublets of this lease or amendments or modifications to this lease with
assignees of Tenant, without notifying Tenant, or any successor of Tenant, and
without obtaining its or their consent thereto and such action shall not relieve
Tenant of liability under this lease.
No interest of Tenant in this lease shall be assignable by operation of law
(including, without limitation, the transfer of this lease by testacy or
intestacy). Each of the following acts shall be considered an involuntary
assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors or institutes a proceeding under the
Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership
or consists of more than one person or entity, if any partner of the partnership
or other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; (ii) if a writ of attachment or
execution is levied on this lease; or (iii) if, in any proceeding or action to
which Tenant is a party, a receiver is appointed with authority to take
possession of the Premises. An involuntary assignment shall constitute a
default by Tenant and Landlord shall have the fight to elect to terminate this
lease, in which case this lease shall not be treated as an asset of Tenant.
Tenant immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this lease, all rent from any subletting of all or a
pan of the Premises as permitted by this lease, and Landlord, as assignee and as
attorneys-in-fact for Tenant, or a receiver of Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this lease; except that, until the occurrence of an act or default by
Tenant, Tenant shall have the right to collect such rent, subject to promptly
forwarding to Landlord any portion thereof to which Landlord is entitled
pursuant to this paragraph 19.
20. Default. The occurrence of any of the following shall constitute a
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default by Tenant: (i) failure of Tenant to pay any rent or other sum payable
hereunder within five (5) days of when due; (ii) abandonment of the Premises
(Tenant's failure to occupy and conduct business in the Premises for fourteen
(14) consecutive days shall be deemed an abandonment); or (iii) failure of
Tenant to perform any other term, covenant or condition of this lease if the
failure to perform is not cured within thirty (30) days after notice thereof has
been given to Tenant (provided that if such default cannot reasonably be cured
within thirty (30) days, Tenant shall not be in default if Tenant commences to
cure such failure to perform within the thirty (30) day period and diligently
and in good
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faith continues to cure the failure to perform). The notice referred to in
clause (iii) above shall specify the failure to perform and the applicable lease
provision and shall demand that Tenant perform the provisions of this lease
within the applicable period of time. No notice shall be deemed a forfeiture or
termination of this lease unless Landlord so elects in the notice. No notice
shall be required in the event of abandonment or vacation of the Premises.
In addition to the above, the occurrence of any of the following events
shall also constitute a default by Tenant: (i) Tenant fails to pay its debts as
they become due or admits in writing its inability to pay its debts, or makes a
general assignment for the benefit of creditors; or (ii) any financial
statements given to Landlord by Tenant, any assignee of Tenant, subtenant of
Tenant, any guarantor of Tenant, or successor in interest of Tenant (including,
without limitation, any schedule of Tenant's aged accounts payable) are
materially false. At any time during the term of this lease Landlord, at
Landlord's option, shall have the right to receive from Tenant, upon Landlord's
request, a current annual balance sheet for Landlord's review. Landlord shall
use reasonable efforts to keep Tenant's balance sheet confidential.
In the event of a default by Tenant, then Landlord, in addition to any
other rights and remedies of Landlord at law or in equity, shall have the right
either to terminate Tenant's right to possession of the Premises (and thereby
terminate this lease) or, from time to time and without termination of this
lease, to relet the Premises or any part thereof for the account and in the name
of Tenant for such term and on such terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises.
Should Landlord elect to keep this lease in full force and effect, Landlord
shall have the right to enforce all of Landlord's rights and remedies under this
lease, including but not limited to the right to recover and to relet the
Premises and such other rights and remedies as Landlord may have under
California Civil Code Section 1951.4 or successor Code section or any other
California statute. If Landlord relets the Premises, then Tenant shall pay to
Landlord, as soon as ascertained, the reasonable costs and expenses incurred by
Landlord in such reletting and in making alterations and repairs. Rentals
received by Landlord from such reletting shall be applied (i) to the payment of
any indebtedness due hereunder, other than basic rent and common area charges,
from Tenant to Landlord; (ii) to the payment of the cost of any repairs
necessary to return the Premises to good condition normal wear and tear
excepted, including the cost of alterations and the cost of storing any of
Tenant's property left on the Premises at the time of reletting; and (iii) to
the payment of basic rent or common area charges due and unpaid hereunder. The
residue, if any, shall be held by Landlord and applied in payment of future rent
or damages in the event of termination as the same may become due and payable
hereunder and the balance, if any at the end of the term of this lease, shall be
paid to Tenant. Should the basic rent and common area charges received from
time to time from such reletting during any month be less than that agreed to be
paid during that month by Tenant hereunder, Tenant shall pay such deficiency to
Landlord.
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<PAGE>
Such deficiency shall be calculated and paid monthly. No such reletting of the
Premises by Landlord shall be construed as an election on its part to terminate
this lease unless a notice of such intention is given to Tenant or unless the
termination hereof is decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this lease for such previous breach, provided it
has not been cured.
Should Landlord at any time terminate this lease for any breach, in
addition to any other remedy it may have, it shall have the immediate right of
entry and may remove all persons and property from the Premises and shall have
all the rights and remedies of a landlord provided by California Civil Code
Section 1951.2 or any successor code section. Upon such termination, in addition
to all its other rights and remedies, Landlord shall be entitled to recover from
Tenant all damages it may incur by reason of such breach, including the cost of
recovering the Premises and including (i) the worth at the time of award of the
unpaid rent which had been earned at the time of termination; (ii) the worth at
the time of award of the amount by which the unpaid rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided; (iii) the
worth at the time of the award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this lease or which in the
ordinary course of events would be likely to result therefrom. The "worth at the
time of award" of the amounts referred to in (i) and (ii) above is computed by
allowing interest at the rate of twelve percent (12%) per annum. The "worth at
the time of award" of the amount referred to in (iii) above shall be computed by
discounting such amount at the discount rate of the federal reserve bank of San
Francisco at the time of award plus one percent (1%). Tenant waives the
provisions of Section 1179 of the California Code of Civil Procedure (which
Section allows Tenant to petition a court of competent jurisdiction for relief
against forfeiture of this lease). Property removed from the Premises may be
stored in a public or private warehouse or elsewhere at the sole cost and
expense of Tenant. In the event that Tenant shall not immediately pay the cost
of storage of such property after the same has been stored for a period of
thirty (30) days or more, Landlord may sell any or all thereof at a public or
private sale in such manner and at such times and places that Landlord, in its
sole discretion, may deem proper, without notice to or demand upon Tenant.
21. Landlord's Right to Cure Tenant's Default. Landlord, at any time
-----------------------------------------
after Tenant commits a default, may, but shall not be obligated to, cure the
default at Tenant's cost. If Landlord at any time, by reason of Tenant's
default, pays any sum or does any act that requires the payment of any sum, the
sum paid by Landlord shall be due immediately from Tenant to Landlord and shall
bear interest at the rate of twelve percent (12%) per annum or the maximum rate
permitted by law, whichever is less, from the
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date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts
due Landlord hereunder shall be additional rent.
22. Eminent Domain. If all or any part of the Premises shall be taken by
--------------
any public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this lease shall terminate as to any portion of the
Premises so taken or conveyed on the date when title vests in the condemnor, and
Landlord shall be entitled to any and all payments, income, rent, award or any
interest therein whatsoever which may be paid or made in connection with such
taking or conveyance. Tenant shall have no claim against Landlord or otherwise
for the value of any unexpired term of this lease. Notwithstanding the
foregoing, Tenant shall be entitled to any compensation for depreciation to and
cost of removal of Tenant's equipment and fixtures and any compensation for its
relocation expenses necessitated by such taking, but in each case only to the
extent the condemning authority makes a separate award therefor or specifically
identifies a portion of the award as being therefor. Each party waives the
provisions of Section 1265.130 of the California Code of Civil Procedure (which
section allows either party to petition the Superior Court to terminate this
lease in the event of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of the Premises or
any portion thereof or of any other space in the Project, or if Landlord is
advised in writing by any entity or body having the right or power of
condemnation of its intention to condemn the Premises or any portion thereof or
of any other space in the Project, and Landlord shall decide to discontinue the
use and operation of the Project or decide to demolish, alter or rebuild the
Project, or decide that the remaining portion of the Project or Premises cannot
be restored, then Landlord shall have the right to terminate this lease by
giving Tenant written notice thereof within sixty (60) days of the earlier of
the date of Landlord's receipt of such notice of intention to condemn or the
commencement of said action or proceeding. Such termination shall be effective
as of the last day of the calendar month next following the month in which such
notice is given or the date on which title shall vest in the condemnor,
whichever occurs first.
In the event of a partial taking, or conveyance in lieu thereof, of the
Premises and fifty percent (50%) or more of the number of square feet in the
Premises are taken or if Landlord notifies Tenant that it does not elect to
restore the Premises following such partial taking, then Tenant may terminate
this lease. Any election by Tenant to so terminate shall be by written notice
given to Landlord within sixty (60) days from the date of such taking or
conveyance and shall be effective on the last day of the calendar month next
following the month in which such notice is given or the date on which title
shall vest in the condemnor, whichever occurs first.
If a portion of the Premises is taken by power of eminent domain or
conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease
as provided above, then this lease shall continue in full force and effect as to
the part of the Premises not so taken or conveyed and all payments of rent shall
be apportioned as of the date of such
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taking or conveyance so that thereafter the amounts to be paid by Tenant shall
be in the ratio that the area of the portion of the Premises not so taken bears
to the total area of the Premises prior to such taking.
23. Notice and Covenant to Surrender. On the last day of the term or on
--------------------------------
the effective date of any earlier termination, Tenant shall surrender to
Landlord the Premises and all of Tenant's improvements and alterations in their
condition existing as of the commencement of the term or the installation
thereof (other than improvements and alterations required to be removed
hereunder), condemnation, damage by casualty, and normal wear and tear excepted
with all interior vinyl covered walls cleaned and repaired or replaced if marked
or damaged, and the air conditioning and heating system serviced and repaired by
a reputable and licensed service firm (unless Landlord has elected to maintain
such system pursuant to paragraph 9); all to the reasonable satisfaction of
Landlord. On or prior to the last day of the term or the effective date of any
earlier termination, Tenant shall remove all of Tenant's personal property and
trade fixtures, together with improvements or alterations that Tenant is
obligated to remove pursuant to the provisions of paragraph 8, from the
Premises, repair any damage caused by such removal, and restore such areas to
the condition that existed prior to the installation of such trade fixtures or
alterations in accordance with all applicable laws, statutes, building codes,
and regulations in effect as of the date of such restoration. Any personal
property not removed shall be deemed abandoned. In addition, on or prior to the
expiration or earlier termination of this lease, Tenant shall remove, at
Tenant's sole cost and expense, all telephone, other communication, computer and
any other cabling and wiring of any sort installed in the space above the
suspended ceiling of the Premises or anywhere else in the Premises and shall
promptly repair any damage to the suspended ceiling, lights, light fixtures,
walls and any other part of the Premises resulting from such removal.
If the Premises are not surrendered as required in this paragraph, Tenant
shall indemnify Landlord against all loss, liability and expense (including but
not limited to, reasonable attorney fees) resulting from the failure by Tenant
in so surrendering the Premises, including, without limitation, any claims made
by any succeeding tenants. It is agreed between Landlord and Tenant that the
provisions of this paragraph shall survive termination of this lease.
24. Tenant's Quitclaim. At the expiration or earlier termination of this
------------------
lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten
(10) days after written demand, from Landlord to Tenant, any quitclaim deed or
other document required to remove the cloud or encumbrance created by this lease
from the real property of which the Premises are a part. This obligation shall
survive said expiration or termination.
25. Holding Over. Any holding over after the expiration or termination of
------------
this lease with the written consent of Landlord shall be construed to be a
tenancy from month to month at the monthly rent, as adjusted, in effect on the
date of such expiration or termination. All provisions of this lease, except
those pertaining to the term and any
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option to extend, shall apply to the month to month tenancy. The provisions of
this paragraph are in addition to, and do not affect, Landlord's right of
reentry or other rights hereunder or provided by law.
If Tenant shall retain possession of the Premises or any part thereof
without Landlord's consent following the expiration or sooner termination of
this lease for any reason, then Tenant shall pay to Landlord for each day of
such retention one hundred fifty percent (150%) of the amount of the daily
rental in effect during the last month prior to the date of such expiration or
termination. Tenant shall also indemnify and hold Landlord harmless from any
loss, liability and expense (including, but not limited to, reasonable,
attorneys fees) resulting from delay by Tenant in surrendering the Premises,
including without limitation any claims made by any succeeding tenant founded on
such delay. Acceptance of rent by Landlord following expiration or termination
shall not constitute a renewal of this lease, and nothing contained in this
paragraph shall waive Landlord's right of re-entry or any other right. Tenant
shall be only a tenant at sufferance, whether or not Landlord accepts any rent
from Tenant, while Tenant is holding over without Landlord's written consent.
26. Subordination. In the event Landlord's title or leasehold interest is
-------------
now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall,
at the request of Landlord or the lender, execute in writing an agreement
subordinating its rights under this lease to the lien of such encumbrance, or,
if so requested, agreeing that the lien of lender's encumbrance shall be or
remain subject and subordinate to the rights of Tenant under this lease. Tenant
hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute,
deliver and record any such instrument or instruments for and in the name and on
behalf of Tenant to the extent Tenant fails to do so when requested by Landlord.
Notwithstanding any such subordination, Tenant's possession under this lease
shall not be disturbed if Tenant is not in default and so long as Tenant shall
pay all amounts due hereunder and otherwise observe and perform all provisions
of this lease. In connection with any such request to execute a subordination
agreement, Landlord shall use reasonable efforts to obtain a nondisturbance
agreement from the lender. In addition, if in connection with any such loan the
lender shall request reasonable modifications of this lease as a condition to
such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereof, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder.
27. Certificate of Estoppel. Each party shall, within five (5) calendar
-----------------------
days after request therefor, execute and deliver to the other party, in
recordable form, a certificate stating that the lease is unmodified and in full
force and effect, or in full force and effect as modified and stating the
modifications. The certificate shall also state the amount of the monthly rent,
the date to which monthly rent has been paid in advance, the amount of the
security deposit and/or prepaid monthly rent, and, if the request is made by
Landlord, shall include such other items as Landlord or Landlord's lender may
reasonably request. Failure to deliver such certificate within such time shall
constitute a
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conclusive acknowledgment by the party failing to deliver the certificate that
the lease is in full force and effect and has not been modified except as may be
represented by the party requesting the certificate. Any such certificate
requested by Landlord may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises or Project. Further, within five (5)
calendar days following written request made from time to time by Landlord,
Tenant shall furnish to Landlord current financial statements of Tenant.
28. Sale by Landlord. In the event the original Landlord hereunder, or
----------------
any successor owner of the Project or Premises, shall sell or convey the Project
or Premises, all liabilities and obligations on the part of the original
Landlord, or such successor owner, under this lease accruing thereafter shall
terminate, and thereupon all such liabilities and obligations shall be binding
upon the new owner. Tenant agrees to attorn to such new owner and to look
solely to such new owner for performance of any and all such liabilities and
obligations.
29. Attornment to Lender or Third Party. In the event the interest of
-----------------------------------
Landlord in the land and buildings in which the Premises are located (whether
such interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by a lender or any
other third party through judicial foreclosure or by exercise of a power of sale
at private trustee's foreclosure sale, Tenant hereby agrees to release Landlord
of any obligation arising on or after any such foreclosure sale and to attorn to
the purchaser at any such foreclosure sale and to recognize such purchaser as
the Landlord under this lease.
30. Default by Landlord. Landlord shall not be in default unless Landlord
-------------------
fails to perform obligations required of Landlord within a reasonable time, but
in no event earlier than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
If Landlord is in default of this lease, Tenant's sole remedy shall be to
institute suit against Landlord in a court of competent jurisdiction, and Tenant
shall have no right to offset any sums expended by Tenant as a result of
Landlord's default against future rent and other sums due and payable pursuant
to this lease. If Landlord is in default of this lease, and as a consequence
Tenant recovers a money judgment against Landlord, the judgment shall be
satisfied only out of the proceeds of sale received on execution of the judgment
and levy against the right, title and interest of Landlord in the Project of
which the Premises are a part, and out of rent or other income from such real
property receivable by Landlord or out of the consideration received by Landlord
from the sale or other disposition of all or any part of Landlord's right, title
and interest in the Project of
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which the Premises are a part. Neither Landlord nor any of the partners
comprising the partnership designated as Landlord shall be personally liable for
any deficiency.
31. Intentionally Omitted.
---------------------
32. Measurement of Premises. Any reference to square footage of the
-----------------------
Premises is approximate only. Landlord and Tenant waive any claim against the
other regarding the accuracy of any such measurement and agree that there shall
not be any adjustment in basic rent or common area charges or other amounts
payable hereunder by reason of inaccuracies in such measurement.
33. Attorney Fees. If either party commences an action against the other
-------------
party arising out of or in connection with this lease, the prevailing party
shall be entitled to have and recover from the losing party all reasonable
expenses of litigation, including, without limitation, travel expenses, attorney
fees, expert witness fees, trial and appellate court costs, and deposition and
transcript expenses. Subject to the foregoing, if either party becomes a party
to any litigation concerning this lease, or concerning the Premises or the
Project, by reason of any act or omission of the other party or its authorized
representatives, the party that causes the other party to become involved in the
litigation shall be liable to the other party for all expenses of litigation,
including, without limitation, travel expenses, attorney fees, expert witness
fees, trial and appellate court costs, and deposition and transcript expenses.
34. Surrender. The voluntary or other surrender of this lease or the
---------
Premises by Tenant, or a mutual cancellation of this lease, shall not work a
merger, and at the option of Landlord shall either terminate all or any existing
subleases or subtenancies or operate as an assignment to Landlord of all or any
such subleases or subtenancies.
35. Waiver. No delay or omission in the exercise of any right or remedy
------
of Landlord or Tenant on any default by the other shall impair such right or
remedy or be construed as a waiver. The receipt and acceptance by Landlord of
delinquent rent or other payments shall not constitute a waiver of any other
default and acceptance of partial payments shall not be construed as a waiver of
the balance of such payment due. No act or conduct of Landlord, including,
without limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant before the expiration of
the term. Only a written notice from Landlord to Tenant shall constitute
acceptance of the surrender of the Premises and accomplish a termination of this
lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of this
lease.
36. Easements, Airspace Rights. Landlord reserves the right to alter
--------------------------
the boundaries of the Project and grant easements and dedicate for public use
portions of the
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Project without Tenant's consent, provided that no such grant or dedication
shall interfere with Tenant's use of the Premises or otherwise cause Tenant to
incur cost or expense. From time to time, and upon Landlord's demand, Tenant
shall execute, acknowledge and deliver to Landlord, in accordance with
Landlord's instructions, any and all documents, instruments, maps or plats
necessary to effectuate Tenant's covenants hereunder.
This lease confers no rights either with regard to the subsurface of or
airspace above the land on which the Project is located or with regard to
airspace above the building of which the Premises are a part. Tenant agrees
that no diminution or shutting off of light or view by a structure which is or
may be erected (whether or not by Landlord) on property adjacent to the building
of which the Premises are a part or to property adjacent thereto, shall in any
way affect this lease, or entitle Tenant to any reduction of rent, or result in
any liability of Landlord to Tenant.
37. Rules and Regulations. Landlord shall have the right from time to
---------------------
time to promulgate rules and regulations for the safety, care and cleanliness of
the Premises, the Project and the Common Area, or for the preservation of good
order; providing, however, such rules and regulations and CC&R's shall not
unreasonably interfere with Tenant's use of the Premises. On delivery of a copy
of such rules and regulations and CC&R's to Tenant, Tenant shall comply with the
rules and regulations and CC&R's, and a violation of any of them shall
constitute a default by Tenant under this lease. If there is a conflict between
the rules and regulations and CC&R's and any of the provisions of this lease,
the provisions of this lease shall prevail. Such rules and regulations and
CC&R's may be amended by Landlord from time to time with or without advance
notice.
38. Notices. All notices, demands, requests, consents and other
-------
communications which may be given or are required to be given by either party to
the other shall be in writing and shall be sufficiently made and delivered if
personally served or if sent by United States first class mail, postage prepaid.
Prior to the commencement date, all such communications from Landlord to Tenant
shall be served or addressed to Tenant at 617 River Oaks Parkway, San Jose,
California. On or after the commencement date, all such communications from
Landlord to Tenant shall be addressed to Tenant at the Premises. All such
communications by Tenant to Landlord shall be sent to Landlord at its offices at
3945 Freedom Circle, Suite 640, Santa Clara, California 95054. Either party may
change its address by notifying the other of such change. Each such
communication shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.
39. Name. Tenant shall not use the name of the Project for any purpose,
----
other than as the address of the business conducted by Tenant in the Premises,
without the prior written consent of Landlord.
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<PAGE>
40. Governing Law, Severability. This lease shall in all respects be
---------------------------
governed by and construed in accordance with the laws of the State of
California. If any provision of this lease shall be held or rendered invalid,
unenforceable or ineffective for any reason whatsoever, all other provisions
hereof shall be and remain in full force and effect.
41. Definitions. As used in this lease, the following words and phrases
-----------
shall have the following meanings:
Authorized representative: any officer, agent, employee or
-------------------------
independent contractor retained or employed by either party, acting within
authority given him by that party.
Encumbrance: any deed of trust, mortgage or other written security
-----------
device or agreement affecting the Premises or the Project that constitutes
security for the payment of a debt or performance of an obligation, and the note
or obligation secured by such deed of trust, mortgage or other written security
device or agreement.
Lease Month: the period of time determined by reference to the day
-----------
of the month in which the term commences and continuing to one day short of the
same numbered day in the next succeeding month; e.g., the tenth day of one month
to and including the ninth day in the next succeeding month.
Lender: the beneficiary, mortgagee or other holder of an
------
encumbrance, as defined above.
Lien: a charge imposed on the Premises by someone other than
----
Landlord, by which the Premises are made security-for the performance of an act.
Most of the liens referred to in this lease are mechanic's liens.
Maintenance: repairs, replacement, repainting and cleaning.
-----------
Monthly Rent: the sum of the monthly payments of basic rent and
------------
common area charges.
Person: one or more human beings, or legal entities or other
------
artificial persons, including, without limitation, partnerships, corporations,
trusts, estates, associations and any combination of human being and legal
entities.
Provision: any term, agreement, covenant, condition, clause,
---------
qualification, restriction, reservation or other stipulation in the lease that
defines or otherwise controls, establishes or limits the performance required or
permitted by either party.
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<PAGE>
Rent: basic rent, common area charges, additional rent, and all
----
other amounts payable by Tenant to Landlord required by this lease or arising by
subsequent actions of the parties made pursuant to this lease.
Words used in any gender include other genders. If there be more than
one Tenant, the obligations of Tenant hereunder are joint and several. All
provisions whether covenants or conditions, on the part of Tenant shall be
deemed to be both covenants and conditions. The paragraph headings are for
convenience of reference only and shall have no effect upon the construction or
interpretation of any provision hereof.
42. Time. Time is of the essence of this lease and of each and all of
----
its provisions.
43. Interest on Past Due Obligations; Late Charge. Any amount due from
---------------------------------------------
Tenant to Landlord hereunder which is not paid when due shall bear interest at
the rate of ten percent (10%) per annum from when due (including the grace
period) until paid, unless otherwise specifically provided herein, but the
payment of such interest shall not excuse or cure any default by Tenant under
this lease. In addition, Tenant acknowledges that late payment by Tenant to
Landlord of basic rent or common area charges or of any other amount due
Landlord from Tenant, will cause Landlord to incur costs not contemplated by
this lease, the exact amount of such costs being extremely difficult and
impractical to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord, e.g., by
the terms of any encumbrance and note secured by any encumbrance covering the
Premises. Therefore, if any such payment due from Tenant is not received by
Landlord when due, Tenant shall pay to Landlord an additional sum of five
percent (5%) of the overdue payment as a late charge. The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant. Acceptance of any late
charge shall not constitute a waiver of Tenant's default with respect to the
overdue amount, nor prevent Landlord from exercising any of the other rights and
remedies available to Landlord. No notice to Tenant of failure to pay shall be
required prior to the imposition of such interest and/or late charge, and any
notice period provided for in paragraph 20 shall not affect the imposition of
such interest and/or late charge. Any interest and late charge imposed pursuant
to this paragraph shall be and constitute additional rent payable by Tenant to
Landlord.
44. Entire Agreement. This lease, including any exhibits and
----------------
attachments, constitutes the entire agreement between Landlord and Tenant
relative to the Premises and this lease and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves or their agents or
representatives relative to the leasing of the Premises are merged in or revoked
by this lease.
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<PAGE>
45. Corporate Authority. If Tenant is a corporation, each individual
-------------------
executing this lease on behalf of the corporation represents and warrants that
he is duly authorized to execute and deliver this lease on behalf of the
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation and that this lease is binding upon said
corporation in accordance with its terms. If Tenant is a corporation, Tenant
shall deliver to Landlord, within ten (10) days of the execution of this lease,
a copy of the resolution of the Board of Directors of Tenant authorizing the
execution of this lease and naming the officers that are authorized to execute
this lease on behalf of Tenant, which copy shall be certified by Tenant's
president or secretary as correct and in full force and effect.
As of the date this Lease is executed, Landlord covenants that it has
full authority to enter into this Lease, each person executing this Lease on
behalf of Landlord is duly authorized to execute and deliver this Lease on
behalf of Landlord, and no other person, firm or corporation need join in the
execution of this Lease to make Landlord's execution complete or appropriate.
46. Recording. Neither Landlord nor Tenant shall record this lease or a
---------
short form memorandum hereof without the consent of the other.
47. Real Estate Brokers. Each party represents and warrants to the
-------------------
other party that it has not had dealings in any manner with any real estate
broker, finder or other person with respect to the Premises and the negotiation
and execution of this lease. Each party shall indemnify and hold harmless the
other party from all damage, loss, liability and expense (including attorneys'
fees and related costs) arising out of or resulting from any claims for
commissions or fees that may or have been asserted against the other party by
any broker, finder or other person with whom Tenant or Landlord has or
purportedly has dealt with in connection with the Premises and the negotiation
and execution of this lease.
48. Exhibits and Attachments. All exhibits and attachments to this
------------------------
lease are a part hereof.
49. Environmental Matters.
---------------------
(a) Hazardous Materials. Tenant, its agents, invitees, employees,
-------------------
contractors, sublessees, assigns and/or successors shall not use, store,
dispose, release or otherwise cause to be present or permit the use, storage,
disposal, release or presence of Hazardous Materials (as defined below) on or
about the Premises or Project; provided, however, that the foregoing shall not
prohibit Tenant from using common office, janitorial or kitchen products that
contain de minimis quantities of materials technically classified as Hazardous
Materials so long as all such products are used, stored and disposed in
accordance with all applicable Hazardous Material laws. Notwithstanding the
foregoing, if Tenant at any time during the term of this lease reasonably
determines that it is required to use Hazardous Materials in order to
accommodate operations
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<PAGE>
undertaken by Tenant on the Premises as permitted by this Lease, then Tenant
shall notify Landlord of such determination prior to any use thereof and shall
provide in writing: (i) an explanation of the methods Tenant shall use to
monitor the use of the materials, (ii) an estimate of the quantities which
Tenant intends to use from time to time, and (iii) evidence reasonably
satisfactory to Landlord that such materials are related to Tenant's use of the
Premises. Landlord shall review the determination of Tenant based on the
following criteria: the toxicity of the material, the efficacy of the monitoring
plan, the estimate of the quantity, and Tenant's financial condition at the time
of the determination. Landlord shall exercise due diligence to conduct its
review as expeditiously as possible following Tenant's submission of the
information described in (i) through (iii) above. Thereafter, Landlord may, in
its reasonable discretion, by written notice to Tenant, set forth such
conditions upon the use of the material by Tenant as may be reasonably
appropriate (including, without limitation, more frequent monitoring and
reporting than otherwise required by this paragraph 49 and including the
construction and installation at Tenant's sole cost and expense of any
alterations, improvements or fixtures to or in the Premises required by
Hazardous Materials Laws (hereinafter defined) for the use, storage or disposal
of such permitted Hazardous Materials that Landlord deems necessary to protect
the Premises and the Project from the unauthorized or unintentional release or
disposal of such permitted Hazardous Materials. Tenant shall remove any and all
such alterations, improvements or fixtures from the Premises and restore any
damage caused by such removal prior to the expiration of the term in accordance
with paragraph 23 of the lease. Upon completion of Landlord review and the
implementation of any conditions imposed by Landlord, Tenant and Landlord shall
amend this lease to set forth the Hazardous Materials to be used by Tenant in
the Premises ("Permitted Hazardous Materials"). Prior to Tenant using any
Permitted Hazardous Materials, Tenant shall submit to Landlord each hazardous
materials management plan or similar document required by the City of San Jose
or any other regulatory agency (collectively, "HMMP"), together with any other
information any department of the City of San Jose requires during Tenant's
occupancy of the Premises relating to the use of such Permitted Hazardous
Materials. Landlord may, but without obligation, review the foregoing
information, and such review or failure to review shall not act as an estoppel
or otherwise waive Landlord's rights under this lease or relieve Tenant of its
obligations under the lease. If Landlord reasonably determines in good faith by
inspection of the Premises or review of the HMMP that the methods in use or
described by Tenant are not adequate to prevent or control the existence of
environmental hazards, then Landlord shall appoint a consultant qualified to
review Tenant's HMMP and operations, to inspect the Premises and review the
HMMP, and Tenant shall, at its expense, change the method of use, handling, or
storage of Permitted Hazardous Materials and modify the applicable HMMP if and
as recommended in the consultant's report, or cease the use of that Permitted
Hazardous Material. The cost and expense of such consultant shall be borne
equally by the parties, unless such consultant determines that the methods, or
any part thereto, in use by Tenant are inadequate in any material respect to
prevent or control the existence of environmental hazards, in which event the
cost and expense of such consultant shall be the sole responsibility of Tenant.
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<PAGE>
(b) Compliance with Environmental Laws. Tenant shall at all
----------------------------------
times and in all respects comply with all federal, state and local laws,
ordinances, regulations, orders, permits, licenses and operation plans
(collectively "Hazardous Materials Laws") and prudent industry practices
relating to industrial hygiene, environmental protection or the use,
introduction, handling, analysis, generation, manufacture, storage, presence,
disposal, discharge, treatment, transportation, receipt or other acts or
omissions relating to any Hazardous Materials, including without limitation
Permitted Hazardous Materials, on, in, under, at, around, or near the Premises
by Tenant (the foregoing activities are referred to collectively as "Usage"). In
no event shall Tenant operate on the Premises, or any portion of the Project,
any facility required to be permitted or licensed as a hazardous waste facility
or for which interim status as such is required. Tenant shall not store any
Hazardous Materials on the Premises for ninety (90) days or more other than de
minimis quantities of materials technically classified as Hazardous Materials
but commonly used, and actually used by Tenant, for common office, janitorial,
or kitchen purposes.
(c) Hazardous Materials Handling. Tenant shall, at its own
----------------------------
expense, procure and maintain in effect any and all permits, licenses and other
governmental and regulatory approvals required for Tenant's use of the Premises,
including, without limitation, the use and storage of Permitted Hazardous
Materials. Tenant shall cause any and all Permitted Hazardous Materials removed
from the Premises to be removed and transported solely by duly licensed haulers
to duly licensed facilities for final disposal or recycling of such materials
and wastes. All reporting obligations imposed by Hazardous Materials Laws
relating to the Usage of Hazardous Materials are strictly the responsibility of
Tenant. Tenant is "in charge" of Tenant's "facility" as such terms are used in
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). Upon expiration or earlier termination of this lease, Tenant shall
cause all Hazardous Materials which were caused by Tenant to be present in, on
or about the Premises or the Project and any tanks or fixtures which were caused
by Tenant to be present in, on or about the Premises or the Project and which
contain or contained Hazardous Materials, to be removed from the Premises and
transported for use, storage or disposal in accordance and compliance with all
applicable Hazardous Materials Laws.
(d) Landlord's Right to Participate. Landlord shall have the
-------------------------------
right to join in and participate in, as a party if it so elects, any legal
proceedings or other actions or hearings affecting the Premises or any part of
the Project which are initiated in connection with any Hazardous Materials Laws
which relate to the Usage of Hazardous Materials in, on or about the Premises or
the Project by Tenant and Tenant shall pay all of Landlord's costs and expenses
(including, without limitation, reasonable attorneys' fees and costs) incurred
in connection therewith. Tenant shall not take any remedial action in response
to the presence of any Hazardous Materials in or about the Premises or the
Project or any buildings which are part of the Project ("Buildings"), except in
the case where loss of life or substantial property damage is imminent or
immediate action is required by any governmental entity, in which event Tenant
shall take immediate remedial action (but such action shall not prejudice
Tenant's reimbursement rights, if
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<PAGE>
any, set forth in this lease), nor enter into any settlement agreement, consent
decree or other compromise in respect to any claims relating to any Hazardous
Materials in any way connected with Landlord's interest in the Premises, Project
or Buildings, without first notifying Landlord of Tenant's intention to do so
and affording Landlord reasonable opportunity to appear, intervene or otherwise
appropriately assert and protect Landlord's interest with respect thereto. Any
and all remedial work undertaken by Tenant resulting from the Usage of Hazardous
Materials in, on or about the Premises, Buildings or Project by Tenant shall be
performed in accordance with applicable Hazardous Materials Laws and by a
contractor, under the supervision of an environmental consultant, both of whom
have been approved in advance in writing by Landlord, which approval shall not
be unreasonably withheld or delayed. All costs and expenses of such remedial
work required or permitted by the preceding sentence including without
limitation Landlord's reasonable fees and costs (including, without limitation,
reasonable attorneys' fees and costs) incurred in connection with the monitoring
and review of such remedial work, shall be paid by Tenant.
(e) Environmental Audit; Right of Entry. At any time that
-----------------------------------
Landlord reasonably believes Tenant has failed to perform its obligations
hereunder with respect to Permitted Hazardous Materials, Landlord shall have the
right to require Tenant to undertake and submit to Landlord a periodic
environmental audit from an environmental company approved by Landlord, which
audit shall review and evaluate Tenant's compliance or failure to comply with
this paragraph 49 regarding Tenant's Usage of Permitted Hazardous Materials.
Tenant shall bear the cost of two (2) such audits per calendar year and, in
addition, any audit which discloses a failure by Tenant to comply with the
provisions of this paragraph 49 regarding Tenant's Usage of Permitted Hazardous
Materials. If Tenant disputes the findings of any environmental audit performed
by Landlord and shows to Landlord's reasonable satisfaction that the
requirements of such audit which relate to Tenant's Usage of Permitted Hazardous
Materials are incorrect, then Landlord shall bear the cost of such audit. Tenant
shall promptly comply with all requirements of such audit which relate to
Tenant's Usage of Permitted Hazardous Materials, and at Tenant's sole cost,
Tenant shall cure all matters raised therein as necessary to comply with this
paragraph 49. Tenant shall cooperate with Landlord in furnishing Landlord with
complete information regarding Tenant's Usage of Permitted Hazardous Materials.
Subject to reasonable prior notice to Tenant and Landlord's use of reasonable
efforts to minimize interference with Tenant's operations, Landlord and its
representatives shall have the right to enter the Premises and conduct testing,
monitoring and analysis for Hazardous Materials, review any documents,
materials, inventory, notices or correspondence relating to Hazardous Materials
and review all storage, use, transportation, and disposal facilities and
procedures associated with Hazardous Materials.
(f) Definition. As used herein "Hazardous Materials" shall mean
----------
any petroleum or petroleum by-products, flammable explosives, asbestos, urea
formaldehyde, radioactive materials or waste and any "hazardous substance,"
"hazardous waste," "hazardous materials," "toxic substance" or "toxic waste" as
those terms are
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<PAGE>
defined under the provisions of the California Health and Safety Code and/or the
provisions of the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. "9601, et. seq.) as amended by the Superfund Amendments
-- ----
and Reauthorization Act of 1986 (42 U.S.C. "9601, et. seq.), or any other
-- ----
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or any agency thereof,
or the United States Government or any agency thereof. Hazardous Materials shall
also include any Permitted Hazardous Materials.
(g) Notices. Tenant shall immediately notify Landlord in writing of:
-------
(i) any enforcement, cleanup, removal or other governmental or regulatory action
instituted, completed or threatened pursuant to any Hazardous Materials Laws,
(ii) any claim made or threatened by any person against Tenant, the Premises,
Project or Buildings relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from or claimed to result from any
Hazardous Materials; and (iii) any reports made to any environmental agency
arising out of or in connection with any Hazardous Materials in, on or removed
from the Premises, Project or Buildings, including any complaints, notices,
warnings, reports or asserted violations in connection therewith. Tenant shall
also supply to Landlord as promptly as possible, and in any event within five
(5) business days after Tenant first receives or sends the same, copies of all
claims, reports, complaints, notices, warnings or asserted violations relating
in any way to the Premises, Project or Buildings or Tenant's use thereof.
Tenant shall promptly deliver to Landlord copies of hazardous waste manifests
reflecting the legal and proper disposal of all Hazardous Materials removed from
the Premises.
(h) Indemnification of Landlord. Tenant shall indemnify, defend (by
---------------------------
counsel acceptable to Landlord), protect, and hold Landlord, and each of
Landlord's partners, employees, agents, attorneys, successors and assigns, free
and harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including reasonable attorneys' fees) for death
of or injury to any person or damage to any property whatsoever (including water
tables and atmosphere) arising from or caused in whole or in part, directly or
indirectly, by (i) the presence in, on, under or about the Premises, Project or
Buildings or discharge in or from the Premises, Project or Buildings of any
Hazardous Materials caused by Tenant or Tenant's use, analysis, storage,
transportation, disposal, release, threatened release, discharge or generation
of Hazardous Materials to, in, on, under, about or from the Premises, Project or
Buildings, or (ii) Tenant's failure to comply with any Hazardous Materials Laws
whether knowingly, unknowingly, intentionally or unintentionally. Tenant's
obligations hereunder shall include, without limitation, and whether foreseeable
or unforeseeable, all costs of any required or necessary repair, cleanup or
detoxification or decontamination of the Premises, Project or Buildings, and the
preparation and implementation of any closure, remedial action or other required
plans in connection therewith. In addition, Tenant shall reimburse Landlord for
(i) losses in or reductions to rental income resulting from Tenant's use,
storage or disposal of Hazardous Materials, (ii) all costs of refitting or other
alterations to the Premises, Project or Buildings required as a result of
Tenant's
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<PAGE>
use, storage, or disposal of Hazardous Materials including, without limitation,
alterations required to accommodate an alternate use of the Premises, Project or
Buildings and (iii) any diminution in the fair market value of the Premises,
Project or Buildings caused by Tenant's use, storage, or disposal of Hazardous
Materials. For purposes of this paragraph 49, any acts or omissions of Tenant,
or by employees, agents, assignees, contractors or subcontractors of Tenant or
others acting for or on behalf of Tenant (whether or not they are negligent,
intentional, willful or unlawful) shall be strictly attributable to Tenant.
(i) Survival. The provisions of this paragraph 49 shall survive the
--------
expiration or earlier termination of the term of this lease.
50. Signage. Tenant shall not, without obtaining the prior written
-------
consent of Landlord, install or attach any sign or advertising material on any
part of the outside of the Premises, or on any part of the inside of the
Premises which is visible from the outside of the Premises, or in the halls,
lobbies, windows or elevators of the building in which the Premises are located
or on or about any other portion of the Common Area or Project. If Landlord
consents to the installation of any sign or other advertising material, the
location, size, design, color and other physical aspects thereof shall be
subject to Landlord's prior written approval and shall be in accordance with any
sign program applicable to the Project. In addition to any other requirements
of this paragraph 50, the installation of any sign or other advertising material
by or for Tenant must comply with all applicable laws, statutes, requirements,
rules, ordinances and any CC&R's or other similar requirements. With respect to
any permitted sign installed by or for Tenant, Tenant shall maintain such sign
or other advertising material in good condition and repair and shall remove such
sign or other advertising material on the expiration or earlier termination of
the term of this lease. The cost of any permitted sign or advertising material
and all costs associated with the installation, maintenance and removal thereof
shall be paid for solely by Tenant. If Tenant fails to properly maintain or
remove any permitted sign or other advertising material, Landlord may do so at
Tenant's expense. Any cost incurred by Landlord in connection with such
maintenance or removal shall be deemed additional rent and shall be paid by
Tenant to Landlord within ten (10) days following notice from Landlord.
Landlord may remove any unpermitted sign or advertising material without notice
to Tenant and the cost of such removal shall be additional rent and shall be
paid by Tenant within ten (10) days following notice from Landlord. Landlord
shall not be liable to Tenant for any damage, loss or expense resulting from
Landlord's removal of any sign or advertising material in accordance with this
paragraph 50. The provisions of this paragraph 50 shall survive the expiration
or earlier termination of this lease.
Subject to the compliance with the terms and conditions of this paragraph
50, Tenant is granted use of the monument sign for the Project. Tenant's sign
shall be supplied and installed at its own cost and expense.
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<PAGE>
51. Submission of Lease. The submission of this lease to Tenant for
-------------------
examination or signature by Tenant is not an offer to lease the Premises to
Tenant, nor an agreement by Landlord to reserve the Premises for Tenant.
Landlord will not be bound to Tenant until this lease has been duly executed and
delivered by both Landlord and Tenant.
52. Additional Rent. All costs, charges, fees, penalties, interest and
---------------
other payments (including Tenant's reimbursement to Landlord of costs incurred
by Landlord) which Tenant is required to make to Landlord pursuant to the terms
and conditions of this lease and any amendments to this lease shall be and
constitute additional rent payable by Tenant to Landlord when due as specified
in this lease and any amendments hereto.
53. Option to Extend. Landlord grants to Tenant an option to extend the
----------------
term for a period of five (5) years (such extension is hereafter referred to as
the "Extended Term"). The Extended Term shall follow the expiration of the
initial term set forth in paragraph 2(a) ("Initial Term"). All the provisions
of this lease shall apply during the Extended Term except for the amount of the
basic rent. The basic rent for the Extended Term shall be adjusted to ninety-
five percent (95%) of the market rate; provided that in no event shall the basic
rent for the Extended Term be less than the basic rent in effect at the
expiration of the Initial Term. The option is further subject to the following
terms and conditions:
(a) Tenant must deliver its irrevocable written notice of Tenant's
exercise of the option to Landlord not less than six (6) lease months, nor more
than twelve (12) lease months, prior to the expiration of the Initial Term.
Time is of the essence with respect to the time period during which Tenant must
deliver to Landlord its written notice of exercise and, therefore, if Tenant
fails to give Landlord its irrevocable written notice of its exercise of the
option within the applicable time period provided above, then the option shall
expire and be of no further force or effect.
(b) The parties shall have thirty (30) days from the date Landlord
receives Tenant's notice of exercise in which to agree on the amount
constituting the market rate. If Landlord and Tenant agree on the amount of the
market rate, they shall immediately execute an amendment to this lease setting
forth the expiration date of the Extended Term and the amount of the basic rent
to be paid by Tenant during the Extended Term. If Landlord and Tenant are
unable to agree on the amount of the market rate within such time period, then,
at the request of either party, the market rate shall be determined in the
following manner: (i) within thirty (30) days of the request of either party,
Landlord and Tenant shall each select a licensed real estate appraiser with not
less than five (5) years experience in the business of appraising commercial
properties of the same type and use and in the same geographic area as the
Premises, (ii) within fifteen (15) days of their appointment, such two real
estate appraisers shall select a third appraiser who is similarly qualified,
(iii) within thirty (30) days from the appointment of the third appraiser, the
three appraisers so selected shall, acting as a board of arbitrators, then
determine the amount of the market rate, basing their
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determination on standard procedures and tests normally employed in determining
market rates and applying the factors included within the definition of market
rate set forth in subparagraph (c) below. The decision of the majority of said
appraisers shall be final and binding upon the parties hereto. If a majority of
the appraisers are unable to agree on the market rate within the stipulated
period of time, the three opinions of the market rate shall be added together
and their total divided by three (3); the resulting quotient shall be the market
rate. If, however, the low opinion and/or the high opinion are/is more than
fifteen percent (15%) lower and/or higher than the middle opinion, the low
opinion and/or the high opinion, as the case may be, shall be disregarded. If
only one opinion is disregarded, the remaining two opinions shall be added
together and their total divided by two (2) and the resulting quotient shall be
the market rate. If both the low opinion and the high opinion are disregarded as
stated in this paragraph, the middle opinion shall be the market rate. If a
party does not appoint a qualified appraiser within the required time period,
the appraiser appointed by the other party shall be the sole appraiser and shall
determine the market rate. If the two appraisers appointed by the parties are
unable to agree on the third appraiser, either of the parties to this lease, by
giving ten (10) days notice to the other party, can apply to the then president
of the county real estate board of the county in which the Premises are located,
or to the presiding judge of the superior court of that county, for the
selection of a third appraiser who meets the qualifications stated in this
paragraph. Each party shall pay the expense and charges of the appraiser
appointed by it and the parties shall pay the expenses and charges of the third
appraiser in equal shares. When the market rate has been so determined, Landlord
and Tenant shall immediately execute an amendment to this lease stating the
basic rent for the Extended Term.
(c) As used herein, the "market rate" shall be the monthly rent
(triple net) then obtained for five (5) year fixed rate leases of comparable
terms for premises in the Project and in buildings and/or projects within the
same geographical area of similar types and identity, quality and location as
the Project.
(d) Common area charges shall continue to be determined and payable
as provided in paragraph 16 of this lease.
(e) Neither party shall have the right to have any court or other
third party determine the market rate or the basic rent. Tenant shall not
assign or otherwise transfer this option or any interest therein and any attempt
to do so shall render this option null and void. Tenant shall have no right to
extend the term beyond the Extended Term. If Tenant is in default under this
lease at the date of delivery of Tenant's notice of exercise to Landlord, then
such notice shall be of no effect and this lease shall expire at the end of the
Initial Term. If Tenant is in default under this lease on the last day of the
Initial Term, then Landlord may in its sole discretion elect to have Tenant's
exercise of the option be of no effect, in which case this lease shall expire at
the end of the Initial Term.
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<PAGE>
54. Guaranty. The obligations of Tenant under this lease shall be
--------
guaranteed by Advanced Technology Materials, Inc., a Delaware corporation,
pursuant to a Guaranty of Lease of even date herewith executed by Advanced
Technology Materials, Inc. ("Guarantor") The Guaranty may terminate at any time
with respect to all obligations of Tenant under this lease (except for those
obligations expressly reserved as provided in paragraph 56 hereof) as of the
date Tenant has satisfied all of the following conditions, which conditions must
be satisfied, if at all, not later than December 31, 1997:
(a) Tenant has provided financial statements to Landlord showing,
to Landlord's reasonable satisfaction, that (i) Tenant has generated Fifteen
Million Dollars ($15,000,000) in annual revenues in one or more fiscal years,
(ii) Tenant has generated One Million Dollars ($1,000,000) in operating income
(on a trailing four-quarters basis), and (iii) Tenant has a current ratio of
assets compared to liabilities in excess of 1.5:1;
(b) Tenant has delivered to Landlord either (i) an unconditional,
irrevocable standby letter of credit in form reasonably acceptable to Landlord,
providing for payment at a location in the San Francisco Bay Area against
presentation of Landlord's drafts at site ("Letter of Credit"), or (ii) a
certificate of deposit ("Certificate of Deposit") for a term of not less than
one year, evidencing an account established by Tenant in a federally insured
financial institution in Tenant's name for the benefit of Landlord, which
account is restricted to withdrawal by Landlord only ("CD Account"), which
Letter of Credit or Certificate of Deposit shall be in the applicable amount set
forth below, depending on the date Tenant satisfies the conditions set forth in
this paragraph 56(a) and (b):
<TABLE>
<CAPTION>
Time Period Amount
----------- --------
<S> <C>
Commencement Date - March 23, 1998 $200,000
March 24, 1998 - March 23, 1999 $175,000
March 24, 1999 - March 23, 2000 $125,000
</TABLE>
In lieu of providing either the Letter of Credit or Certificate of Deposit,
Tenant may elect to have Guarantor continue the Guaranty by executing and
delivering to Landlord an amendment to the Guaranty that deletes paragraph 30
thereof and reaffirms the obligations of the Guarantor thereunder; and
(c) Tenant has cured any and all monetary defaults and non-
monetary defaults existing under this lease. Within five (5) business days after
the date that Tenant provides Landlord with evidence of Tenant's satisfaction of
the conditions set forth in subparagraph (a) above, Landlord shall give Tenant
written notice of any monetary or non-monetary defaults then existing under this
lease. As a condition to termination of the Guaranty, Tenant shall cure all such
defaults within the applicable time periods specified in paragraph 20 of this
lease. Notwithstanding the foregoing, if all conditions to termination of the
Guaranty, including the cure of any existing defaults, have been
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satisfied, except for the cure of non-monetary defaults which cannot reasonably
be cured within thirty (30) days after the date Landlord gives Tenant written
notice of such defaults but Tenant has commenced to cure such non-monetary
defaults and is diligently pursuing such cure to completion, then the Guaranty
shall terminate as of such thirtieth (30th) day as to all obligations of the
Tenant under this lease except for the obligation relating to the uncured non-
monetary defaults and the obligations set forth in the next paragraph.
If all of the conditions set forth in subparagraphs (a) through (c)
hereof are satisfied, then, except as provided in the next sentence, the
Guaranty shall terminate and Landlord shall execute and deliver to Guarantor an
acknowledgment of the termination of the Guaranty. Notwithstanding the
foregoing, the Guaranty shall not terminate and shall remain in full force and
effect with respect to the indemnity obligations of the Tenant under paragraph
49(h) of this lease for events, acts, or omissions covered by such indemnity
that Landlord shows occurred during the period prior to the termination of the
Guaranty, and with respect to any uncured non-monetary defaults of Tenant as
specified in subparagraph (c) hereof.
If Tenant delivers the Letter of Credit, the Letter of Credit shall be
maintained in effect in the amount required hereunder, whether through
replacement, renewal or extension, through March 23, 2000. If Tenant obtains a
Letter of Credit with an expiration date earlier than set forth in the previous
sentence, Tenant shall deliver a new Letter of Credit in the amount required
hereunder or a certificate of renewal or extension to Landlord at least thirty
(30) days prior to the expiration of the Letter of Credit. Failure to timely
deliver such new Letter of Credit or certificate of renewal or extension to
Landlord shall entitle Landlord to draw upon the Letter of Credit in full and to
retain the proceeds thereof as a security deposit in accordance with paragraph
4(d) of this lease. If Tenant delivers the Certificate of Deposit, Tenant shall
maintain the Certificate of Deposit in effect in the amount required hereunder,
whether through replacement, renewal or extension through March 23, 2000.
Tenant shall deliver a new Certificate of Deposit in the amount required
hereunder or a certificate of renewal or extension of the Certificate of Deposit
to Landlord at least thirty (30) days prior to expiration of the Certificate of
Deposit. Failure to timely deliver such new Certificate of Deposit or
certificate of renewal or extension to Landlord shall entitle Landlord to
withdraw the funds in the CD Account in full and to retain the proceeds thereof
as a security deposit in accordance with paragraph 4(d) of this lease.
The Letter of Credit or Certificate of Deposit shall be held by
Landlord as a security deposit in accordance with the terms and conditions of
paragraph 4(d) of this lease. If Tenant defaults with respect to any provisions
of this lease, Landlord may in accordance with paragraph 4(d) of this lease, but
shall not be required to, draw upon all or any part of the Letter of Credit or
withdraw all or a portion of the funds in the CD Account for payment of any
reasonable amount which Landlord may spend by reason of Tenant's default or to
compensate Landlord for any other actual loss or damage which Landlord may
suffer by reason of default. In the event of termination of Landlord's
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<PAGE>
interest in this lease, Landlord may transfer the Letter of Credit or
Certificate of Deposit to Landlord's successor-in-interest, Tenant shall execute
such documents as may be necessary to permit Landlord to transfer the Letter of
Credit or Certificate of Deposit to Landlord's successor-in-interest, and Tenant
agrees that Landlord shall thereupon be released from liability for the return
of the Letter of Credit or Certificate of Deposit or any accounting of the
proceeds therefor.
In the event Tenant meets the conditions set forth in subparagraphs (a)
through (c) above but Guarantor elects to continue the Guaranty as specified in
subparagraph (b), the obligations of Guarantor under the Guaranty shall
terminate as of March 23, 2000 so long as no monetary default by Tenant then
exists and Tenant has cured any non-monetary default of which Landlord has given
Tenant written notice pursuant to paragraph 20 of this Lease; provided, however,
the Guaranty shall continue with respect to the indemnity obligations of Tenant
under paragraph 49(h) of this Lease for events, act, or omissions covered by
such indemnity that Landlord shows occurred prior to termination of the
Guaranty.
Notwithstanding the foregoing, if no monetary default by Tenant then
exists and Tenant has cured any non-monetary default of which Landlord has given
Tenant written notice pursuant to paragraph 20, tenant shall be entitled to
reduce the amount of the Letter of Credit or the balance of the CD Account to
One Hundred Seventy-five Thousand Dollars ($175,000) on March 23, 1998 and to
One Hundred Twenty-five Thousand Dollars ($125,000) on March 23, 1999.
If Tenant reduces the balance of the Letter of Credit or the CD Account
in accordance with the foregoing, Tenant shall provide Landlord with a
replacement Letter of Credit or a new Certificate of Deposit evidencing the
Letter of Credit or the Certificate of Deposit in the amount equal to the
amounts listed above. If no monetary default by Tenant then exists and Tenant
has cured any non-monetary default of which Landlord has given Tenant written
notice pursuant to paragraph 20, the Letter of Credit or the funds in the CD
Account shall be returned to Tenant after March 23, 2000.
55. Quiet Enjoyment. Landlord covenants that Tenant's use and
---------------
enjoyment of the Premises shall not be disturbed during the term of this lease
subject to Tenant's payment of the rent in compliance with the terms of this
lease and subject to the rights of Landlord's lender or any mortgagee of the
Project.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this lease on the date first above written.
LANDLORD
MONTAGUE OAKS ASSOCIATES
PHASE I & II, a California general partnership
By: McCANDLESS GROUP (MONTAGUE), a California
general partnership, a general partner
By: /s/ Birk S. McCandless
--------------------------------------
BIRK S. McCANDLESS, as Trustee of the
Birk S. McCandless and Mary McCandless
Intervivos Trust dated February 17, 1982,
a general partner
By: 745 PROPERTY INVESTMENTS, a Massachusetts
voluntary trust, a general partner
By: /s/ Robert Heckler
------------------------------------
Its: Vice President
----------------------------------
TENANT:
ATMI ECOSYS CORPORATION, a California corporation
By: /s/ Daniel P. Sharkey
----------------------------
Its: Chief Financial Officer
----------------------------
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<PAGE>
EXHIBIT 10.10(a)
STANDARD INDUSTRIAL LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated for reference purposes only, June 20, 1994, is
made by and between GKZ INVESTMENTS, 4015 Clarinda Drive, Tarzana 91356,
California (herein called "LESSOR") and EPITROMICS CORPORATION (herein called
"LESSEE").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Maricopa, State of Arizona,
commonly known as 21002 N. 19th Ave., Units 5, 6 and a portion of 7, Phoenix, AZ
and described as approximately 14651 sq. ft. of office and industrial space.
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for two years, renewable for
up to three additional years at the same rate commencing on September 1, 1994
and ending on August 31, 1996, if renewed, to August 31, 1999, unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $7,618.52 plus rental tax, in advance, on the 1st day of each month of the
term hereof.
<PAGE>
Lessee shall pay Lessor upon the execution hereof $ N.A. as rent for ______.
---------
In addition to rent Lessee is responsible for 20.39% of the common rea charges
for the property. Rent for any period during the term hereof which is for less
than one month shall be a pro rata portion of the monthly installment. Rent
shall be payable in lawful money of the United States to Lessor at the address
stated herein or to such other persons or at such other places as Lessor may
designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$3,366 of which $3,366 is on deposit as security for Lessee's faithful
performance of Lessee's obligations hereunder. If Lessee fails to pay rent or
other charges due hereunder, or otherwise defaults with respect to any provision
of this Lease, Lessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Lessor may become obligated by reason of
Lessee's default, or to compensate Lessor for any loss or damage which Lessor
may suffer thereby. If Lessor so uses or applies all or any portion of said
deposit, Lessee shall within ten (10) days after written demand therefor deposit
cash with Lessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Lessee's failure to do so shall be a material
breach of this Lease. Lessor shall not be required to keep said deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for semiconductor
manufacturing, warehousing, general office and related uses or any other use
which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to
Lessor written notice of the violation of this warranty within six months from
the date that the Lease term commences, the correction of same shall be the
obligation of the Lessee at Lessee's sole cost. The warranty contained in this
paragraph 6.2(a) shall be of no force or effect if, prior to the date of this
Lease, Lessee was the
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<PAGE>
owner or occupant of the Premises, and, in such event, Lessee shall correct any
such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statues, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will lend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall lend to
disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee selling forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and nonstructural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's
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<PAGE>
expense, an air conditioning system maintenance contract) ventilating,
electrical, lighting facilities and equipment within the Premises, fixtures,
walls (interior and exterior), foundations, ceilings, roofs (interior and
exterior), floors, windows, doors, plate glass and skylights located within the
Premises, and all landscaping, driveways, parking lots, fences and signs located
on the Premises and sidewalks and parkways adjacent to the Premises. Leaking
roof to be excluded from this clause.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after ten
(10) days' prior written notice to Lessee (except in the case of an emergency,
in which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate then allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit
of any statute now or hereinafter in effect which would otherwise afford Lessee
the right to make repairs at Lessor's expense or to terminate this Lease because
of Lessor's failure to keep the premises in good order, condition and repair.
Except roof repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior
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<PAGE>
written consent. As used in this Paragraph 7.5 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Lessor may require that Lessee remove any or all of said
alterations, improvements, additions or Utility Installations at the expiration
of the term, and restore the Premises to their prior condition. Lessor may
require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the prior
approval of Lessor, Lessor may require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of non-
responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, the Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee
to pay Lessor's attorneys' fees and costs in participating in such action if
Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.5(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2.
Subject to list of equipment and fixtures which Lessee shall have the
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<PAGE>
right to remove at the expiration of this lease provided under original lease
signed in 1984.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name Lessee
as an additional insured on such policy. Whether the insuring party is the
Lessor or the Lessee, Lessee shall, as additional rent for the Premises, pay the
cost of all insurance required hereunder, except for that portion of the cost
attributable to Lessor's liability insurance coverage in excess of $1,000,000
per occurrence. If Lessor is the insuring party Lessee shall, within ten (10)
days following demand by Lessor, reimburse Lessor for the cost of the insurance
so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $500,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during the term
of this Lease a policy or policies of insurance covering loss or damage to the
Premises, in the amount of the full replacement value thereof, as the same may
exist from time to time, which replacement value is now $2,200,000, but in no
event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on Premises. The insuring party shall, in addition,
obtain and keep in force during the term of this Lease a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period. A stipulated value or agreed amount endorsement deleting the
coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail
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to procure and maintain said insurance the other party may, but shall not be
required to, procure and maintain the same, but at the expense of Lessee. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount.
(b) If the Premises are part of a larger building, or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance of
such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in Paragraph
8.3. If Lessee does or permits to be done anything which shall increase the cost
of the insurance policies referred to in Paragraph 8.3, then Lessee shall
forthwith upon Lessor's demand reimburse Lessor for any additional premiums
attributable to any act or omission or operation of Lessee causing such increase
in the cost of insurance. If Lessor is the insuring party, and if the insurance
policies maintained hereunder cover other improvements in addition to the
Premises, Lessor shall deliver to Lessee a written statement setting forth the
amount of any such insurance cost increase and showing in reasonable detail the
manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the
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insurance carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon, and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
Except for leaking roof.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located. Except for leaking roof.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
then replacement cost of the Premises. "Premises Building Partial Damage" shall
herein mean damage or destruction to the building of which the Premises are a
part to the extent that the cost of repair is less than 50% of the then
replacement cost of such building as a whole.
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(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an Insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements unless the same have become a part of the Premises pursuant
to Paragraph 7.5 hereof as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the above, if the Lessee is
the insuring party, and if the insurance proceeds received by Lessor are not
sufficient to effect such repair, Lessor shall give notice to Lessee of the
amount required in addition to the insurance proceeds to effect such repair.
Lessee shall contribute the required amount to Lessor within ten days after
Lessee has received notice from Lessor of the shortage in the insurance. When
Lessee shall contribute such amount to Lessor, Lessor shall make such repairs as
soon as reasonably possible and this Lease shall continue in full force and
effect. Lessee shall in no event have any right to reimburse for any such
amounts so contributed.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such notice
of Lessor's intention to cancel and terminate this Lease. Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
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9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there
is damage, whether or not an Insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction or such
that materially affects the operation of Lessee's business.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
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9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as defined
in paragraph 10.2, applicable to the Premises during the term of this Lease. All
such payments shall be made at least ten (10) days prior to the delinquency date
of such payment. Lessee shall promptly furnish Lessor with satisfactory evidence
that such taxes have been paid. If any such taxes paid by Lessee shall cover any
period of time prior to or after the expiration of the term hereof, Lessee's
share of such taxes shall be equitably prorated to cover only the period of time
within the tax fiscal year during which this Lease shall be in effect, and
lessor shall reimburse Lessee to the extent required. If Lessee shall fail to
pay any such taxes, Lessor shall have the right to pay the same, in which case
Lessee shall repay such amount to Lessor with Lessee's next rent installment
together with interest at the maximum rate then allowable by law.
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such
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other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive. (20.39%)
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises. (20.39%)
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner within 30 days and any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void, and shall
constitute a breach of this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
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12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice thereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's default is such that more than
30 days are reasonably required for its cure, then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently procedures such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. (S)101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the
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same is dismissed within 60 days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within 30 days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the Premises
or of Lessee's interest in this Lease, where such seizure is not discharged
within 30 days. Provided, however, in the event that any provision of this
paragraph 13.1(d) is contrary to any applicable law, such provision shall be of
no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
at any time thereafter, with or without notice or demand and without limiting
Lessor in the exercise of any right or remedy which Lessor may have by reason of
such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term alter the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by lessor pursuant to Paragraph 15
applicable to the unexpired term of this lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
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13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirements for notice to Lessee, Lessee shall pay to Lessor
a late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary
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default of Lessee in lie of being applied to the payment of real property tax
and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession or if any portion taken materially affects the operation of
Lessee's business) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
N/A Licensed real estate broker(s), a fee as set forth in a separate
- ----------
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of $ N/A , for
---------
brokerage services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have
-16-
<PAGE>
acquired had an Option herein granted to Lessee been exercised, or if Lessee
remains in possession of the Premises after the expiration of the term of this
Lease after having failed to exercise an Option, or if said broker(s) are the
procuring cause of any other lease or sale entered into between the parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, then as to any of said transactions, Lessor shall pay said broker(s) a
fee in accordance with the schedule of said broker(s) in effect at the time of
execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Said broker shall be a
third party beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior written
notice from Lessor execute, acknowledge and deliver to Lessor a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement within
such time shall be a material breach of this Lease or shall be conclusive upon
Lessee (i) that this Lease is in full force and effect, without modification
except as may be represented by Lessor, (ii) that there are no uncured defaults
in Lessor's performance, and (iii) that not more than one month's rent has been
paid in advance or such failure may be considered by Lessor as a default by
Lessee under this Lease.
(c) If Lessor desires to finance, refinance or sell the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by each lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises and except as expressly provided in Paragraph
15, in the event of any
-17-
<PAGE>
transfer of such title or interest, Lessor herein named (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the date
of such transfer of all liability as respects Lessor's obligations thereafter to
be performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest shall be delivered
to the grantee. The obligations contained in this Lease to be performed by
Lessor shall, subject as aforesaid, be binding on Lessor's successors and
assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent unless doing so is illegal.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or
-18-
<PAGE>
permitted to be given to Lessor hereunder shall be concurrently transmitted to
such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or subsequently breach by Lessee of the
same or any other provision. Lessor's consent to, or approval of, any act shall
not be deemed to render unnecessary the obtaining of Lessor's consent to or
approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
thereafter, other than the failure of Lessee to pay the particular rent so
accepted regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
either party shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease,
-19-
<PAGE>
unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the dale of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents In accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as filed by the court.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises upon reasonable notice of inspecting the same, showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part as Lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises any ordinary "For Sale" signs and Lessor may
at any time during the last 120 days of the term hereof place on or about the
Premises any ordinary "For Lease" signs, all without rebate of rent or liability
to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
or any or all of such subtenancies.
-20-
<PAGE>
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest on the
Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2. OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1(b) or 13.1(c) and continuing until the default alleged in said notice of
default is cured, or (ii)
-21-
<PAGE>
during the period of time commencing on the day after a monetary obligation to
Lessor is due from Lessee and unpaid (without any necessity for notice thereof
to Lessee) continuing until the obligation is paid, or (iii) at any time after
an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e)
(without any necessity of Lessor to give notice of such default to Lessee), or
(iv) in the event that Lessor has given to Lessee three or more notices of
default under paragraph 13.1(b), where a late charge has become payable under
paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not
the defaults are cured, during the 12 month period prior to the time that Lessee
intends to exercise the subject Option.
(b) The period of lime within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of 30 days after such obligation becomes due (without any necessity of
Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1 (c) within 30 days after the date
that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without
any necessity of Lessor to give notice of such default to Lessee), or (iv)
Lessor gives to Lessee three or more notices of default under paragraph 13.1(b),
where a late charge becomes payable under paragraph 13.4 for each such default,
or paragraph 13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights,
-22-
<PAGE>
dedications, Maps and restrictions do not unreasonably interfere with the use of
the Premises by Lessee. Lessee shall sign any of the aforementioned documents
upon request of Lessor and failure to do so shall constitute a material breach
of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party of the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the Lessor.
47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
_________ through ________ which constitutes a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY
-23-
<PAGE>
UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at Tarzana, California on June 30, 1994.
By /s/ Robert F. Adams
----------------------------
Address___________________________________ By ____________________________
__________________________________________ LESSEE (Corporate seal)
Executed at Phoenix, Arizona on June 28, 1994.
GKZ INVESTMENTS
Address __________________________________ By: /s/ Ernest J. Zeilberger
----------------------------
__________________________________________ LESSEE (Corporate seal)
-24-
<PAGE>
EXHIBIT 10.10(b)
Sep 18, 96
Epitronics Corporation
21002 N. 19th Avenue
Phoenix, Az.
Gentlemen:
Per our lease dated June 20, 94 you have the option to renew for an additional
three year period. It is our understanding that you have exercised that option.
For the record would you please acknowledge by signing this letter below and
returning same to me.
Thank you,
/s/ Ernest J. Zeilberger
Ernest J. Zeilberger
GKZ Investments
/s/ Duncan W. Brown
- --------------------
Epitronics Corporation
Epitronics Corporation will verify for each of the three (3) available years
that the lease will be renewed for the following year.
<PAGE>
EXHIBIT 11.01
ATMI, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
Primary
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
12/31/94 12/31/95 12/31/96 9/30/96 9/30/97
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income.............................. $ 5,535,000 $ 5,088,000 $ 12,017,000 $ 10,562,000 $ 9,113,000
=========== =========== ============ ============ ===========
Average common shares outstanding....... 16,099,000 16,611,000 17,836,000 17,830,000 17,901,000
Incremental shares issuable pursuant to
employee stock options and warrants
(if dilutive)........................... 594,000 560,000 620,000 630,000 829,000
----------- ----------- ------------ ------------ -----------
Total shares............................ 16,693,000 17,171,000 18,456,000 18,460,000 18,730,000
=========== =========== ============ ============ ===========
Net income per share.................... $ 0.35 $ 0.30 $ 0.65 $ 0.57 $ 0.49
=========== =========== ============ ============ ===========
</TABLE>
Fully Diluted
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
12/31/94 12/31/95 12/31/96 9/30/96 9/30/97
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income.............................. $ 5,535,000 $ 5,088,000 $ 12,017,000 $ 10,562,000 $ 9,113,000
=========== =========== ============ ============ ===========
Average common shares outstanding....... 16,099,000 16,611,000 17,836,000 17,830,000 17,901,000
Incremental shares issuable pursuant to
employee stock options and warrants
(if dilutive)........................... 594,000 564,000 737,000 664,000 974,000
----------- ----------- ------------ ------------ -----------
Total shares............................ 16,693,000 17,175,000 18,573,000 18,494,000 18,875,000
=========== =========== ============ ============ ===========
Net income per share.................... $ 0.33 $ 0.30 $ 0.65 $ 0.57 $ 0.48
=========== =========== ============ ============ ===========
</TABLE>
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF ATMI, INC.
ADCS-Korea Co., Ltd.
Advanced Delivery & Chemical Systems Holdings, LLC
Advanced Delivery & Chemical Systems, Ltd.
Advanced Delivery & Chemical Systems Manager, Inc.
Advanced Delivery & Chemical Systems Nevada, Inc.
Advanced Delivery & Chemical Systems Operating, LLC
Advanced Technology Materials, Inc.
Advanced Technology Materials FSC Inc.
ATMI EcoSys Corporation
Epitronics Corporation
Lawrence Semiconductor Laboratories, Inc.
Lawrence Semiconductor Laboratories Marketing and Sales, Inc.
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 18, 1997, in the Registration Statement
(Form S-1) and related Prospectus of ATMI, Inc. for the registration of
4,600,000 shares of its common stock.
Ernst & Young LLP
Stamford, Connecticut
February 18, 1998
<PAGE>
Exhibit 23.03
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of ATMI, Inc. of our report dated May 17,
1997, except for the last paragraph of Note 3 which is as of July 29, 1997 and
the last paragraph of Note 6 which is as of December 18, 1997 relating to the
consolidated financial statements of Lawrence Semiconductor Laboratories, Inc.
and Affiliate. It should be noted, however, that such financial statements are
not presented separately in such Form S-1. We also consent to the reference to
us under the heading of "Experts" in such Prospectus.
Price Waterhouse LLP
Phoenix, Arizona
February 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 7,306 12,574
<SECURITIES> 15,829 18,238
<RECEIVABLES> 19,184 13,804<F1>
<ALLOWANCES> 0 0
<INVENTORY> 9,269 7,769
<CURRENT-ASSETS> 63,751 56,036
<PP&E> 36,164 30,660<F2>
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 107,541 93,191
<CURRENT-LIABILITIES> 23,642 19,450
<BONDS> 0 0
0 0
0 0
<COMMON> 179 179
<OTHER-SE> 64,893 55,294
<TOTAL-LIABILITY-AND-EQUITY> 107,541 93,191
<SALES> 73,548 88,661
<TOTAL-REVENUES> 73,548 88,661
<CGS> 35,442 41,231
<TOTAL-COSTS> 35,442 41,231
<OTHER-EXPENSES> 7,863 9,838<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,274 1,635
<INCOME-PRETAX> 12,943 15,024
<INCOME-TAX> 3,782 3,158
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,113 12,017
<EPS-PRIMARY> .49 .65
<EPS-DILUTED> .49 .65
<FN>
<F1>Net of allowance for doubtful accounts, consistent with balance sheet
presentation.
<F2>Net of accumulated depreciation, consistent with balance sheet presentation.
<F3>Research and development expenses
</FN>
</TABLE>
