<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1998
REGISTRATION NO. 333-46609
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
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
---------------
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. [_]
---------------
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 MARCH 3, 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 March 2, 1998, the last reported sale price of the Common Stock
was $28.47 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
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- --------------------------------------------------------------------------------
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 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 45%, 27% and 28%, respectively, of the Company's revenues in
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 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 1.20 million to 1.64
million (excluding shares issuable upon exercise of outstanding options). 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.......................... 20,174,026 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>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
CONSOLIDATED STATEMENTS OF INCOME DATA:(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Product revenues......... $16,998 $27,537 $51,460 $78,815 $92,757
Contract revenues........ 6,070 7,223 8,712 9,846 9,120
------- ------- ------- ------- -------
Total revenues........... 23,068 34,760 60,172 88,661 101,877
Operating income......... 2,134 3,732 8,866 15,002 10,459 (4)
Net income............... $ 1,050 $ 5,535 (2) $ 5,088 $12,017 (3) $ 4,421 (4)
Net income per share--
assuming dilution.... $ 0.07 $ 0.33 (2) $ 0.30 $ 0.65 (3) $ 0.24 (4)
Weighted average shares
outstanding--assuming
dilution............... 14,610 16,637 17,127 18,394 18,660
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED (5)
-------- ---------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................................... $ 39,933 $ 93,484
Total assets......................................... 103,146 156,697
Long-term debt, less current portion................. 14,526 14,526
Total stockholders' equity........................... 61,872 115,423
</TABLE>
- --------------------
(1) Based on the number of shares of Common Stock outstanding at January 31,
1998. Excludes: (i) 1,989,264 shares of Common Stock reserved for issuance
under the Company's stock plans, of which 1,796,261 shares of Common Stock
are issuable upon exercise of options outstanding as of January 31, 1998 at
a weighted average exercise price of $14.60 per share; and (ii) 50,000
shares of Common Stock issuable upon exercise of warrants outstanding as of
January 31, 1998 at a weighted average exercise price of $11.45 per share.
(2) Net income and net income per share--assuming dilution 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--assuming dilution 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--assuming dilution
would have been approximately $10.5 million and $0.57, respectively, for
the year ended December 31, 1996. Net income and net income per share--
assuming dilution in 1996 also include the effect of a non-recurring 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) Operating income, net income and net income per share--assuming dilution in
1997 include the effect of a non-recurring charge of $9.0 million related
to costs incurred in investigating, analyzing and completing the ADCS Group
and LSL acquisitions.
(5) 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 $28.47 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, 1995, 1996 and
1997, sales outside the United States accounted for 25.5%, 28.9% and 21.9%,
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
7
<PAGE>
stockholders' equity as reflected in currency 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, 1995, 1996 and 1997, sales to the Company's five top customers
totaled approximately 26.0%, 23.8% and 21.0%, 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 $53.6 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 $28.47 per share are estimated to be $53,550,625, 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 March 2, 1998)......................... 30.50 20.00
</TABLE>
On March 2, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $28.47 per share. As of January 31, 1998, 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
December 31, 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 $28.47 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>
DECEMBER 31, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Total long-term debt, less current portion........... $ 14,526 $ 14,526
======== ========
Minority interest.................................... 595 595
-------- --------
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; 18,149,676 shares issued and
outstanding; 20,149,676 shares issued and
outstanding, as adjusted (1)...................... 181 201
Additional paid-in capital......................... 40,451 93,982
Cumulative translation adjustment.................. (1,099) (1,099)
Retained earnings.................................. 22,339 22,339
-------- --------
Total stockholders' equity....................... 61,872 115,423
-------- --------
Total capitalization............................ $ 76,993 $130,544
======== ========
</TABLE>
- ---------------------
(1) Based on the number of shares outstanding at December 31, 1997. Excludes:
(i) 1,427,936 shares of Common Stock issuable upon exercise of outstanding
options at a weighted average exercise price of $11.97 per share; and (ii)
50,000 shares of Common Stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $11.45 per share. See
Note 9 of Notes to Consolidated Financial Statements.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of income data for the years
ended December 31, 1994, 1995, 1996 and 1997 and the balance sheet data as of
December 31, 1995, 1996 and 1997 are derived from the audited consolidated
financial statements of the Company. The statements of income data for the
year ended December 31, 1993 and the balance sheet data as of December 31,
1993 and 1994 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. 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>
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF INCOME DATA:
Product revenues....... $ 16,998 $ 27,537 $ 51,460 $ 78,815 $ 92,757
Contract revenues...... 6,070 7,223 8,712 9,846 9,120
-------- -------- -------- -------- --------
Total revenues......... 23,068 34,760 60,172 88,661 101,877
Cost of revenues....... 12,655 17,739 29,723 41,231 48,684
-------- -------- -------- -------- --------
Gross profit........... 10,413 17,021 30,449 47,430 53,193
Operating expenses:
Research and
development......... 1,864 3,981 5,697 9,838 10,581
Selling, general and
administrative...... 6,415 9,308 15,886 20,590 23,153
Non-recurring
expenses............ 0 0 0 2,000(1) 9,000(2)
-------- -------- -------- -------- --------
Total operating
expenses........... 8,279 13,289 21,583 32,428 42,734
-------- -------- -------- -------- --------
Operating income....... 2,134 3,732 8,866 15,002 10,459
Interest income
(expense), net........ (338) (250) (357) 4 (328)
Other income
(expense), net........ 123 3,769 (543) 18 233
-------- -------- -------- -------- --------
Income before income
taxes and minority
interest.............. 1,919 7,251 7,966 15,024 10,364
Income taxes........... 1,138 1,728 2,888 3,158 5,941
-------- -------- -------- -------- --------
Income before minority
interest.............. 781 5,523 5,078 11,866 4,423
Minority interest...... 269 12 10 151 (2)
-------- -------- -------- -------- --------
Net income............. $ 1,050 $ 5,535(3) $ 5,088 $ 12,017(4) $ 4,421
======== ======== ======== ======== ========
Net income per share--
assuming dilution .... $ 0.07 $ 0.33(3) $ 0.30 $ 0.65(4) $ 0.24
======== ======== ======== ======== ========
Weighted average
shares outstanding--
assuming dilution..... 14,610 16,637 17,127 18,394 18,660
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities............ $ 14,765 $ 16,474 $ 33,818 $ 30,812 $ 29,011
Working capital........ 15,404 17,124 34,221 36,586 39,933
Total assets........... 29,518 40,995 78,590 93,191 103,146
Long-term debt, less
current portion....... 2,022 7,811 11,975 15,769 14,526
Minority interest...... 3,179 6 535 545 595
Total stockholders'
equity................ 16,825 22,410 45,118 55,473 61,872
</TABLE>
- ---------------------
(1) Represents 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) Represents a one-time charge of $9.0 million accrued in connection with
costs incurred in investigating, analyzing and completing the ADCS Group
and LSL acquisitions.
(3) Net income and net income per share--assuming dilution in 1994 include a
non-recurring gain of approximately $3.6 million, or $0.22 per share--
assuming dilution, related to the restructuring of a joint venture and
costs incurred in the acquisition of Vector.
(4) Net income and net income per share--assuming dilution 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--assuming dilution
would have been 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. In 1997, approximately 73% of the Company's
product revenues were from product lines that were primarily related to "wafer
starts," while approximately 27% 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 45% of consolidated revenues in
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 27% of the Company's
consolidated revenues in 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 in 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 1.20 million to 1.64 million (excluding shares issuable upon exercise of
outstanding options). 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
-------------------
FISCAL YEAR ENDED
DECEMBER 31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Product revenues........................................... 85.5% 88.9% 91.0%
Contract revenues.......................................... 14.5 11.1 9.0
----- ----- -----
Total revenues............................................. 100.0 100.0 100.0
Cost of revenues........................................... 49.4 46.5 47.8
----- ----- -----
Gross profit............................................... 50.6 53.5 52.2
Operating expenses:
Research and development.................................. 9.5 11.1 10.4
Selling, general and administrative....................... 26.4 23.2 22.7
Non-recurring expenses.................................... 0.0 2.3 8.8
----- ----- -----
Total operating expenses................................. 35.9 36.6 41.9
----- ----- -----
Operating income........................................... 14.7 16.9 10.3
Interest income (expense), net............................. (0.6) 0.0 0.0
Other income (expense), net................................ (0.9) 0.0 0.0
----- ----- -----
Income before income taxes and minority interest........... 13.2 16.9 10.2
Income taxes............................................... 4.8 3.6 5.8
----- ----- -----
Income before minority interest............................ 8.4 13.4 4.3
Minority interest.......................................... 0.0 0.2 0.0
----- ----- -----
Net income................................................. 8.5% 13.6% 4.3%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Revenues. Total revenues increased 15% to $101.9 million in 1997 from $88.7
million in 1996, and increased 47% in 1996 from $60.2 million in 1995. Product
revenues increased 18% to $92.8 million in 1997 from $78.8 million in 1996,
and increased 53% in 1996 from $51.5 million in 1995. Commercial product
revenues have grown rapidly, such that they comprised 91.0% of total revenues
in 1997 compared to 88.9% in 1996 and 85.5% in 1995.
Over the three year period, ADCS revenues grew at a rate in excess of the
growth rate of the semiconductor industry. ADCS revenues increased 41% in 1997
when compared to 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 17% in 1997 when compared to 1996. This
materials revenue growth included sales to new customers as well as increased
sales to existing accounts. Revenues from the sale of materials delivery
equipment increased only 2% when comparing the two periods, due primarily 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.
Sales of materials and delivery systems increased 42% in 1996 when compared
to 1995. 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.
17
<PAGE>
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 and
the first half of 1997. EcoSys revenues increased 9% in 1997 when compared to
1996 and increased 48% in 1996 when compared to 1995. The 1997 increase was
attributable to a slight increase in equipment sales and continued growth in
sales of consumable resins. The December 1995 acquisition of the Guardian
Systems product line, which was accounted for as a purchase transaction, was
responsible for a portion of the revenue growth in 1996.
Epitronics revenues increased 2% in 1997 when compared to 1996. Growth in
the smaller gallium arsenide and wide bandgap product lines was tempered by a
slight increase in silicon epitaxial services revenues. The relative flatness
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. Prior to 1997, Epitronics
revenues had 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.
Contract revenues decreased 7% to $9.1 million, or 9.0% of total revenues,
in 1997 from $9.8 million, or 11.1% of total revenues, in 1996. The decline in
1997 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. General increases in government
funding of ATMI research resulted in the growth of contract revenues in
previous years. Government funding increased 13% to $9.8 million in 1996 from
$8.7 million in 1995. The increased research funding in 1996 was primarily
focused on materials development, device processing and device design
activities within ADCS and Epitronics.
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 12% to $53.2 million in 1997 from $47.4 million in
1996. Gross margin decreased to 52.2% of revenues in 1997 from 53.5% of
revenues in 1996. Gross margin on product revenues decreased to 56.0% in 1997
from 58.3% in 1996. The decrease of product margins was primarily attributable
to lower margins in the silicon epi business due to the relocation of
manufacturing equipment 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 1996. Margin
decreases were partially offset by the improved margin profile of the overall
product mix of EcoSys in 1997. Gross margin on contract revenues decreased to
13.7% in 1997 from 15.3% in 1996. Contract margins varied slightly when
comparing the two periods due to different fee arrangements and indirect cost
absorption.
Gross profit increased 56% to $47.4 million in 1996 from $30.4 million in
1995 and gross margin improved to 53.5% of revenues in 1996 from 50.6% of
revenues in 1995. In 1996, 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. Product gross margin
improved to 58.3% of product
18
<PAGE>
revenues in 1996, up from 56.8% of product revenues in 1995. 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. Gross profit on contract revenues increased 23% to $1.5 million in
1996 from approximately $1.2 million in 1995, while gross margin on contract
revenues increased to 15.3% in 1996 from 14.0% in 1995. 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 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 8% to $10.6 million in 1997 from $9.8 million in 1996, and increased
73% in 1996 from $5.7 million in 1995. The 1997 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. 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 decreased to 10.4% in 1997, compared with 11.1% in 1996, which was an
increase from 9.5% in 1995. 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 12% to $23.2 million in 1997 from $20.6
million in 1996, and increased 30% in 1996 from $15.9 million in 1995. The
increases were primarily due to increased corporate administrative costs,
increased commissions on higher product revenues and increased product
marketing activity. 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 as a percentage
of revenues decreased to 22.7% in 1997, compared with 23.2% in 1996 and 26.4%
in 1995.
Non-Recurring Expenses. The 1997 operating results included a one-time, non-
recurring charge of $9.0 million related to the costs incurred in
investigating, analyzing and completing the ADCS Group and LSL acquisitions.
These costs included legal, accounting and investment banking fees as well as
miscellaneous expenses incurred in connection with the transactions that
closed in the fourth quarter of 1997. The 1996 operating results included 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.
Interest Income (Expense), Net. Interest income is primarily derived from
interest earned on the Company's cash, cash equivalents and marketable
securities. Interest income decreased 10% to $1.5 million in 1997 from $1.6
million in 1996, and increased 70% in 1996 from $1.0 million in 1995. The
Company's invested cash balances were lower in 1997 than in 1996 due to net
cash outflow during the year, primarily from the costs incurred in closing the
ADCS Group and LSL acquisitions in the fourth quarter of 1997. The increase in
interest income in 1996 was due to the Company's invested cash balances
throughout 1996 being significantly higher than in 1995 due to the Company's
public offering of common stock in October 1995. Interest expense increased
11% to $1.8 million in 1997 from $1.6 million in 1996, and increased 24% in
1996 from $1.3 million in 1995. The 1997 increase was due to larger debt
balances outstanding during 1997, while the 1996 increase was primarily
attributable to increased borrowings under capital lease commitments at
Epitronics as well as the mortgage on the Mesa, Arizona facility.
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 federal and state tax credits. Income tax expense
increased 88% to $5.9 million in 1997 from $3.2 million in 1996, and increased
9% in 1996 from $2.9 million in 1995. The effective income tax rate increased
to 57.3% in 1997 from 21.0% in 1996
19
<PAGE>
and decreased from 36.3% in 1995. The significant increase in 1997 to a level
above statutory rates was due in part to the 1997 operating results including
the $9.0 million non-recurring charge related to the ADCS Group and LSL
acquisitions for which no tax benefit has been taken. The decline in the
effective rate in 1996 was the result of the ADCS Group's being taxed as an S-
Corporation for a portion of 1996. 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, on a diluted basis, decreased 63% to
$0.24 per share in 1997 from $0.65 per share in 1996, and increased 117% in
1996 from $0.30 per share in 1995. However, after adjusting earnings to
exclude the non-recurring charges recognized in 1997 and 1996, and to adjust
1996 earnings on a pro forma basis to treat the ADCS Group as a C-Corporation
for all of 1996, earnings per share, on a diluted basis, increased 13% to
$0.72 per share in 1997 from $0.64 per share in 1996, and increased 113% in
1996 from $0.30 per share in 1995.
Basic earnings per share under Financial Accounting Standards Board
Statement No. 128 ("FAS 128") decreased 63% to $0.26 per share in 1997 from
$0.70 per share in 1996, and increased 119% in 1996 from $0.32 per share in
1995.
20
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
financial information for the eight quarters ended December 31, 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, DEC. 31,
1996 1996 1996 1996 1997 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 $26,330
Contract revenues....... 2,483 2,212 2,784 2,367 2,618 2,282 2,221 1,999
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 21,185 22,835 23,056 21,585 22,513 23,521 27,514 28,329
Cost of revenues........ 8,713 11,207 10,946 10,365 11,487 11,414 12,541 13,242
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 12,472 11,628 12,110 11,220 11,026 12,107 14,973 15,087
Operating expenses:
Research and
development........... 2,835 2,318 1,774 2,911 2,465 2,643 2,755 2,718
Selling, general and
administrative........ 5,274 5,310 5,297 4,709 5,155 5,776 6,261 5,961
Non-recurring
expenses.............. 0 0 0 2,000(1) 0 0 0 9,000(2)
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 8,109 7,628 7,071 9,620 7,620 8,419 9,016 17,679
------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................. 4,363 4,000 5,039 1,600 3,406 3,688 5,957 (2,592)
Interest income
(expense), net......... 7 43 (87) 41 16 (60) (64) (220)
Other income (expense),
net.................... 10 0 0 8 (5) 22 (17) 233
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
minority interest...... 4,380 4,043 4,952 1,649 3,417 3,650 5,876 (2,579)
Income taxes............ 1,518 796 627 217 920 990 1,872 2,159
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
minority interest...... 2,862 3,247 4,325 1,432 2,497 2,660 4,004 (4,738)
Minority interest....... 53 11 65 22 19 (44) (23) 46
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 2,915 $ 3,258 $ 4,390 $ 1,454 $ 2,516 $ 2,616 $ 3,981 $(4,692)
======= ======= ======= ======= ======= ======= ======= =======
<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% 92.9%
Contract revenues....... 11.7 9.7 12.1 11.0 11.6 9.7 8.1 7.1
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues........ 41.1 49.1 47.5 48.0 51.0 48.5 45.6 46.7
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 58.9 50.9 52.5 52.0 49.0 51.5 54.4 53.3
Operating expenses:
Research and
development........... 13.4 10.2 7.7 13.5 10.9 11.2 10.0 9.6
Selling, general and
administrative........ 24.9 23.3 23.0 21.8 22.9 24.6 22.8 21.0
Non-recurring
expenses.............. 0.0 0.0 0.0 9.3(1) 0.0 0.0 0.0 31.8(2)
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 38.3 33.4 30.7 44.6 33.8 35.8 32.8 62.4
------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................. 20.6 17.5 21.9 7.4 15.1 15.7 21.7 (9.1)
Interest income
(expense), net......... 0.0 0.2 (0.4) 0.2 0.1 (0.3) (0.2) (0.1)
Other income (expense),
net.................... 0.0 0.0 0.0 0.0 0.0 0.1 (0.1) 0.1
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
minority interest...... 20.7 17.7 21.5 7.6 15.2 15.5 21.4 (9.1)
Income taxes............ 7.2 3.5 2.7 1.0 4.1 4.2 6.8 7.6
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
minority interest...... 13.5 14.2 18.8 6.6 11.1 11.3 14.6 (16.7)
Minority interest....... 0.3 0.0 0.3 0.1 0.1 (0.2) (0.1) 0.1
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... 13.8% 14.3% 19.0% 6.7% 11.2% 11.1% 14.5% (16.6)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------------
(1) Represents 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) Represents a one-time charge of $9.0 million accrued in connection with
costs incurred in investigating, analyzing and completing the ADCS Group
and LSL acquisitions.
21
<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 $39.9 million at
December 31, 1997 from $36.6 million at December 31, 1996.
In 1997, operations provided cash of approximately $5.9 million. Working
capital increases, most notably in accounts receivable, inventory and other
assets, resulted in significant uses of cash during 1997. The $9.0 million of
non-recurring transaction costs, expensed in the fourth quarter of 1997,
reduced the cash generated from operations by approximately $7.0 million, as
approximately $2.0 million remained unpaid at December 31, 1997. Net cash
generated from operations in 1996 of approximately $13.3 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.
The Company's investing activities included capital expenditures of $6.3
million, $11.6 million and $6.3 million in 1997, 1996 and 1995, 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 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, the Company sold $0.8 million in
marketable securities in 1997, while in 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 Systems 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.
As of December 1997, ATMI has financed a significant portion of its capital
equipment purchases, particularly the silicon epitaxial capacity currently in
place, through capital leases with approximately $8.9 million of capital lease
obligations outstanding. Financial institutions have also provided collateral-
based loans for other equipment purchases, and approximately $6.1 million of
notes payable to commercial banks was outstanding as of December 31, 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 December 31,
1997, $2.0 million remained outstanding on a promissory note related to the
Company's 1995 acquisition of the Guardian Systems product line. At December
31, 1997, $19.9 million of loans and financing remained outstanding.
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,
22
<PAGE>
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, 1995, 1996 and 1997, sales outside the
United States, including Asia and Europe, accounted for 25.5%, 28.9%, and
21.9%, 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.
23
<PAGE>
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 45%, 27% and 28%, respectively, of the Company's
revenues in 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
24
<PAGE>
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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<PAGE>
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 insulting 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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<PAGE>
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 86 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.
27
<PAGE>
<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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<PAGE>
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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<PAGE>
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
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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.
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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, 1995,
1996 and 1997 were $13.2 million, $18.2 million and $18.5 million,
respectively. Of those amounts, $7.5 million, $8.3 million and $7.9 million,
respectively, were externally funded and are classified as cost of contract
revenues on ATMI's Consolidated Financial Statements, and $5.7 million, $9.8
million and $10.6 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
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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 December 31, 1997, the Company had
received aggregate awards since its inception of approximately $62.0 million
from United States government agencies, including approximately $49.6 million
recognized as revenue by ATMI through December 31, 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 totaled approximately $8.7 million, $9.8 million
and $9.1 million for the years ended December 31, 1995, 1996 and 1997,
respectively. This represents approximately 14.5%, 11.1% and 9.0% 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 86 United States patents and currently has 86 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.
34
<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 December 31, 1997, ATMI had firm backlog
of approximately $16.7 million, consisting of approximately $10.3 million of
product orders and approximately $6.4 million of executed and funded research
contracts. This compares to a firm backlog level of approximately $16.5
million as of December 31, 1996, which consisted of approximately $8.2 million
of product orders and approximately $8.3 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.
35
<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.
36
<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.
37
<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
38
<PAGE>
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.
39
<PAGE>
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
Executive Officer 1996 181,300 40,000 -- 2,121
and Chairman of the
Board 1995 155,250 40,000 35,000 2,875
James M. Burns (2)....... 1997 200,000 80,000 35,000 --
President--EcoSys
Division 1996 -- -- -- --
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
Financial 1996 110,000 20,000 -- 1,678
Officer and Treasurer 1995 103,000 25,000 15,000 1,583
Duncan W. Brown.......... 1997 149,167 10,000 5,000 2,073
President--Epitronics
Division 1996 103,000 8,000 -- 1,988
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 $89,000
for the period in 1997 during which he was employed by the Company. Had Mr.
Siegele been employed by the Company for all of 1997, he would have been the
Company's most highly compensated executive officer.
40
<PAGE>
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers during the year ended December
31, 1997.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
--------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED(#) (1) IN 1997 ($/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
41
<PAGE>
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.
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.
42
<PAGE>
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
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.
43
<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
44
<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
45
<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
46
<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.
47
<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 January
31, 1998, 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)... 40,977 * -- 40,977 *
Mark A. Adley (12)...... 21,000 * -- 21,000 *
John A. Armstrong (9)... 18,000 * -- 18,000 *
Stephen H. Mahle (13)... 9,600 * -- 9,600 *
James M. Burns (14)..... 8,470 * -- 8,470 *
All directors and
executive officers as a
group
(13 persons) (15)...... 8,283,015 44.4% 1,692,336 6,590,679 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. Does not include any of the shares
held by F.H.S. Investments, Ltd. ("FHS"), as to which Stephen H. Siegele
disclaims beneficial ownership. See Note (4).
(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 FHS and as such may
be deemed a beneficial owner of the shares held by FHS. 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 and Frederick J. Siegele. The limited partners of FHS
include the Frederick J. Siegele Irrevocable Trust, of which Frederick J.
Siegele is the sole beneficiary, and the Stephen H. Siegele Irrevocable
Trust, of which Stephen H. Siegele is the sole beneficiary. None of the
limited partners of FHS have or share any voting or investment power with
respect to the shares held by FHS.
(5) Includes 117,175 shares issuable upon exercise of options that are
exercisable within 60 days of January 31, 1998 and 6,159 shares either
owned or issuable upon exercise of options within 60 days of January 31,
1998 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. Does not include any of the shares held by FHS, as to which
Frederick J. Siegele disclaims beneficial ownership. See Note (4).
48
<PAGE>
(7) Includes 73,537 shares issuable upon exercise of options that are
exercisable within 60 days of January 31, 1998 and 4,634 shares either
owned or issuable upon exercise of option within 60 days of January 31,
1998 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 January 31, 1998.
(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 21,250 shares issuable upon exercise of options that are
exercisable within 60 days of January 31, 1998.
(12) Includes 18,000 shares issuable upon exercise of options that are
exercisable within 60 days of January 31, 1998.
(13) Includes 9,500 shares issuable upon exercise of options that are
exercisable within 60 days of January 31, 1998.
(14) Includes 7,000 shares issuable upon exercise of options that are
exercisable within 60 days of January 31, 1998.
(15) Includes 494,647 shares issuable to executive officers, directors and
their spouses pursuant to options which are exercisable within 60 days of
January 31, 1998.
49
<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 January 31, 1998, there were 18,174,026 shares of Common Stock
outstanding, held by approximately 200 holders of record. In addition, 193,003
shares of Common Stock are reserved for future grants under the Company's 1995
and 1997 Stock Plans. Furthermore, as of January 31, 1998, there were
outstanding options and warrants to purchase 1,846,261 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 of directors being
elected at each annual meeting of stockholders. In the event of any increase
or decrease in
50
<PAGE>
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 Company, even if the conduct of such
solicitation or such attempt might be beneficial to the Company and its
stockholders.
51
<PAGE>
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.
52
<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
53
<PAGE>
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 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.
54
<PAGE>
EXPERTS
The consolidated financial statements and related schedule of the Company at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, 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
and 1995, 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.
55
<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, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. 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% at December
31, 1996, and total revenues constituting 23%, and 24%, respectively, for each
of the two 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,
1997 and 1996, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, 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
February 11, 1998
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 sheet 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 the results of their operations and their cash flows for each of the two
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,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)................ $12,574,000 $ 11,550,000
Marketable securities (Notes 1 and 2)............. 18,238,000 17,461,000
Accounts receivable, net of allowance for doubtful
accounts of
$361,000 in 1996, and $405,000 in 1997 (Note 3).. 13,804,000 19,784,000
Notes and other receivables (Note 3).............. 2,933,000 1,197,000
Inventories (Notes 1 and 4)....................... 6,503,000 7,717,000
Other............................................. 1,984,000 2,873,000
----------- ------------
Total current assets............................ 56,036,000 60,582,000
Property and equipment, net (Notes 1 and 5)......... 30,660,000 36,032,000
Goodwill and other long-term assets, net (Notes 1
and 10)............................................ 6,495,000 6,532,000
----------- ------------
$93,191,000 $103,146,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion (Note 6)........... $ 2,059,000 $ 2,655,000
Capital lease obligations, current portion (Note
7)............................................... 1,837,000 2,671,000
Accounts payable.................................. 5,219,000 4,977,000
Accrued expenses.................................. 4,226,000 6,436,000
Accrued commissions............................... 1,379,000 2,113,000
Accrued litigation settlement (Note 11)........... 2,000,000 --
Income taxes payable (Note 8)..................... 741,000 1,078,000
Deferred income taxes (Note 8).................... 1,989,000 719,000
----------- ------------
Total current liabilities....................... 19,450,000 20,649,000
Notes payable, less current portion (Note 6)........ 10,342,000 8,288,000
Capital lease obligations (Note 7).................. 5,427,000 6,238,000
Deferred income taxes (Note 8)...................... 1,873,000 4,829,000
Other long-term liabilities......................... 81,000 675,000
Minority interest................................... 545,000 595,000
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 17,873,128 in 1996, and 18,149,676 in
1997............................................. 179,000 181,000
Additional paid-in capital........................ 37,431,000 40,451,000
Cumulative translation adjustment................. (55,000) (1,099,000)
Retained earnings................................. 17,918,000 22,339,000
----------- ------------
Total stockholders' equity...................... 55,473,000 61,872,000
----------- ------------
$93,191,000 $103,146,000
=========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
ATMI, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenues (Note 1):
Product revenues.................... $51,460,000 $78,815,000 $ 92,757,000
Contract revenues................... 8,712,000 9,846,000 9,120,000
----------- ----------- ------------
Total revenues........................ 60,172,000 88,661,000 101,877,000
Cost of revenues:
Cost of product revenues............ 22,232,000 32,890,000 40,817,000
Cost of contract revenues........... 7,491,000 8,341,000 7,867,000
----------- ----------- ------------
Total cost of revenues................ 29,723,000 41,231,000 48,684,000
----------- ----------- ------------
Gross profit.......................... 30,449,000 47,430,000 53,193,000
Operating expenses:
Research and development (Note 1)... 5,697,000 9,838,000 10,581,000
Selling, general and
administrative..................... 15,886,000 20,590,000 23,153,000
Non-recurring expenses (Notes 10 and
11)................................ -- 2,000,000 9,000,000
----------- ----------- ------------
21,583,000 32,428,000 42,734,000
----------- ----------- ------------
Operating income...................... 8,866,000 15,002,000 10,459,000
Interest income....................... 963,000 1,639,000 1,482,000
Interest expense (Note 6)............. (1,320,000) (1,635,000) (1,810,000)
Other income (expense), net........... (543,000) 18,000 233,000
----------- ----------- ------------
Income before taxes and minority
interest............................. 7,966,000 15,024,000 10,364,000
Income taxes (Note 8)................. 2,888,000 3,158,000 5,941,000
----------- ----------- ------------
Income before minority interest....... 5,078,000 11,866,000 4,423,000
Minority interest..................... 10,000 151,000 (2,000)
----------- ----------- ------------
Net income............................ $ 5,088,000 $12,017,000 $ 4,421,000
=========== =========== ============
Net income per share--basic (Notes 1
and 9)............................... $ 0.32 $ 0.70 $ 0.26
=========== =========== ============
Net income per share--assuming
dilution (Notes 1 and 9)............. $ 0.30 $ 0.65 $ 0.24
=========== =========== ============
Weighted average shares outstanding
(Notes 1 and 9)...................... 16,040,000 17,266,000 17,288,000
=========== =========== ============
Weighted average shares outstanding--
assuming dilution (Notes 1 and 9).... 17,127,000 18,394,000 18,660,000
=========== =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
ATMI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION RETAINED
STOCK CAPITAL ADJUSTMENT EARNINGS TOTAL
-------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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 82,520
common shares pursuant
to the exercise of
employee stock options. -- 411,000 -- -- 411,000
Issuance of 151,250
common shares pursuant
to the exercise of
warrants............... 2,000 1,688,000 -- -- 1,690,000
Compensation for the
issuance of common
shares................. -- 243,000 -- -- 243,000
Tax benefit related to
nonqualified stock
options................ -- 678,000 -- -- 678,000
Cumulative translation
adjustment............. -- -- (1,044,000) -- (1,044,000)
Net income.............. -- -- -- 4,421,000 4,421,000
-------- ----------- ----------- ----------- -----------
Balance at December 31,
1997................... $181,000 $40,451,000 $(1,099,000) $22,339,000 $61,872,000
======== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ATMI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 5,088,000 $12,017,000 $ 4,421,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 3,179,000 4,678,000 5,274,000
Stock compensation..................... 50,000 -- 243,000
Bad debt expense....................... 16,000 191,000 365,000
Deferred income taxes.................. 1,160,000 1,205,000 1,686,000
Loss on sale/leaseback of equipment.... 542,000 -- --
Minority interest in net earnings of
subsidiaries.......................... (10,000) (151,000) 2,000
Changes in operating assets and
liabilities
Increase in accounts and notes
receivable........................... (5,505,000) (2,031,000) (4,609,000)
Increase in inventory................. (830,000) (4,415,000) (1,214,000)
Increase in other assets.............. (249,000) (186,000) (1,881,000)
Increase (decrease) in accounts
payable.............................. 1,341,000 313,000 (242,000)
Increase in accrued expenses.......... 1,062,000 3,350,000 944,000
Increase (decrease) in other
liabilities.......................... 1,352,000 (1,701,000) 931,000
----------- ----------- -----------
Total adjustments..................... 2,108,000 1,253,000 1,499,000
----------- ----------- -----------
Net cash provided by operating
activities.......................... 7,196,000 13,270,000 5,920,000
----------- ----------- -----------
INVESTING ACTIVITIES
Capital expenditures.................... (6,328,000) (11,591,000) (6,256,000)
Long-term investment.................... (1,000,000) -- (250,000)
Sale (purchase) of marketable
securities, net........................ (11,213,000) 3,617,000 777,000
Advances to LSL stockholder on notes
receivable............................. (256,000) (286,000) --
Payments for acquisitions............... (550,000) (4,000,000) --
Proceeds from sale of assets............ 384,000 619,000 --
----------- ----------- -----------
Net cash used by investing
activities.......................... (18,963,000) (11,641,000) (5,729,000)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of notes
payable................................ 3,226,000 4,447,000 141,000
Principal payments on notes payable..... (1,933,000) (2,553,000) (1,599,000)
Distribution to ADCS stockholders....... -- (1,792,000) --
Repayment of amounts borrowed........... (235,000) (135,000) --
Payments on capital lease obligations... (995,000) (1,274,000) (2,447,000)
Proceeds from sale of common stock,
net.................................... 17,193,000 -- --
Investment by minority stockholder...... 539,000 161,000 48,000
Tax benefit of nonqualified stock
options................................ -- -- 678,000
Proceeds from exercise of stock options
and warrants........................... 113,000 174,000 2,101,000
----------- ----------- -----------
Net cash provided (used) by financing
activities.......................... 17,908,000 (972,000) (1,078,000)
----------- ----------- -----------
Effects of exchange rate changes on
cash................................... (10,000) (45,000) (137,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 6,131,000 612,000 (1,024,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR................................... 5,831,000 11,962,000 12,574,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.. $11,962,000 $12,574,000 $11,550,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Certain amounts have been reclassified to conform to current year
presentation.
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 $4,542,000, $4,046,000, and $3,708,000 for the
years ended December 31, 1995, 1996, 1997, respectively. Revenues under cost-
reimbursement-type contracts from the U.S. Government were $4,170,000,
$5,800,000, and $5,412,000 for the years ended December 31, 1995, 1996, 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.
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.
F-8
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
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, 1997, no such
impairment existed. Goodwill and other long-term assets are stated net of
accumulated amortization of $293,000, and $585,000 at December 31, 1996 and
1997, respectively.
F-9
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 income, net income per share-basic and net income per share-assuming
dilution, as if the fair value based method of accounting had been applied,
are presented in Note 9.
Per Share Data
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
128, "Earnings per Share," which was adopted in the fourth quarter of 1997.
This new rule changes the way earnings per share is calculated and requires
restatement of all reported prior period amounts. Under the new requirements,
basic earnings per share is calculated by dividing net earnings by the
weighted-average number of common shares outstanding during the period. The
diluted earnings per share computation includes the effect of shares which
would be issuable upon the exercise of outstanding stock options, reduced by
the number of shares which are assumed to be purchased by the Company from the
resulting proceeds at the average market price during the period.
New Accounting Pronouncements
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131. "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 is effective for the first quarter of 1998, while
SFAS No. 131 is effective for the year-end financial reporting in 1998 and on
an interim basis thereafter. Both of these pronouncements require additional
disclosures, but the Company expects no material impact upon adoption.
2. MARKETABLE SECURITIES
Marketable securities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Corporate obligations............................... $ 7,431,000 $10,590,000
U.S. Government obligations......................... 9,538,000 6,407,000
Certificates of deposit............................. 1,269,000 464,000
----------- -----------
$18,238,000 $17,461,000
=========== ===========
</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)
3. ACCOUNTS AND NOTES RECEIVABLE
Amounts due from various agencies of the U.S. Government were approximately
$2,063,000, and $2,619,000 of accounts receivable at December 31, 1996, and
1997, respectively. Unbilled accounts receivable were $757,000, and
$1,019,000, and customer advances, included in other liabilities, were
$276,000, and $612,000 at December 31, 1996 and 1997, respectively.
Notes receivable from a stockholder assumed in the LSL transaction
represents advances which bear interest at 8% and are due upon demand. The
balances at December 31, 1996, and 1997 were $1,099,000, and $1,197,000,
respectively and included accrued interest of $126,000, and $196,000
respectively. Interest income on the notes totaled $32,000, $56,000, and
$70,000 in the years ended December 31, 1995, 1996, and 1997, respectively.
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,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Raw materials........................................ $5,538,000 $6,682,000
Work in process...................................... 687,000 946,000
Finished goods....................................... 937,000 1,074,000
---------- ----------
7,162,000 8,702,000
Obsolescence reserve................................. (659,000) (985,000)
---------- ----------
$6,503,000 $7,717,000
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Land............................................. $ 1,751,000 $ 1,323,000
Buildings........................................ 4,947,000 7,243,000
Machinery and equipment.......................... 33,646,000 40,963,000
Furniture and fixtures........................... 1,157,000 1,590,000
Leasehold improvements........................... 3,788,000 4,494,000
------------ ------------
45,289,000 55,613,000
Accumulated depreciation and amortization........ (14,629,000) (19,581,000)
------------ ------------
$ 30,660,000 $ 36,032,000
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997,
was $3,104,000, $4,277,000, and $4,976,000, respectively.
F-11
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Note payable in conjunction with acquisition of
Guardian Systems, bearing interest at 8.5%, due in
three annual installments beginning January 1,
1999................................................ $ 2,000,000 $ 2,000,000
Term loans with Connecticut state agency, bearing
interest ranging between 5%-6%, due between April
2001-June 2002...................................... 1,800,000 1,713,000
Equipment credit line with a commercial bank, bearing
interest at 9%, due through June 2000............... 1,701,000 1,128,000
Notes payable with commercial banks and leasing
companies, bearing interest ranging between 7.3%-
12.42%, due between April 1997-February 2009........ 6,835,000 6,102,000
Other notes payable.................................. 65,000 --
----------- -----------
12,401,000 10,943,000
Less current portion................................. (2,059,000) (2,655,000)
----------- -----------
$10,342,000 $ 8,288,000
=========== ===========
</TABLE>
The approximate aggregate debt maturities are as follows as of December 31,
1997:
<TABLE>
<S> <C>
1998........................................................ $ 2,655,000
1999........................................................ 2,113,000
2000........................................................ 1,111,000
2001........................................................ 1,442,000
2002........................................................ 340,000
Thereafter.................................................. 3,282,000
-----------
$10,943,000
===========
</TABLE>
The term loans of $1,713,000 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.
Interest paid was $1,318,000, $1,631,000, and $1,808,000, for the years
ended December 31, 1995, 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.
F-12
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Machinery and equipment............................ $10,151,000 $14,060,000
Accumulated depreciation........................... (2,230,000) (3,346,000)
----------- -----------
$ 7,921,000 $10,714,000
=========== ===========
</TABLE>
The following is a schedule of future minimum lease payments for capital
leases as of December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL LEASES
--------------
<S> <C>
1998........................................................ $ 3,337,000
1999........................................................ 2,934,000
2000........................................................ 2,147,000
2001........................................................ 1,560,000
2002........................................................ 366,000
-----------
Total lease payments.......................................... 10,344,000
Less amount representing interest............................. (1,435,000)
-----------
Present value of net capital lease payments................... 8,909,000
Less current portion.......................................... (2,671,000)
-----------
Long-term portion............................................. $ 6,238,000
===========
</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 1998 through 2002. Rental expense was $1,018,000,
$2,322,000, and $2,507,000, for the years ended December 31, 1995, 1996 and
1997, respectively.
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 1997:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1998.......................................................... $ 2,636,000
1999.......................................................... 2,516,000
2000.......................................................... 1,742,000
2001.......................................................... 1,268,000
2002.......................................................... 878,000
Thereafter.................................................... 1,392,000
-----------
Total minimum lease payments.................................... $10,432,000
===========
</TABLE>
F-13
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
Significant components of the provision for income taxes for the periods
presented are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal...................................... $1,254,000 $1,421,000 $3,845,000
State........................................ 305,000 532,000 410,000
---------- ---------- ----------
Total current.................................. 1,559,000 1,953,000 4,255,000
Deferred:
Federal...................................... 1,092,000 914,000 1,433,000
State........................................ 237,000 291,000 253,000
---------- ---------- ----------
Total deferred................................. 1,329,000 1,205,000 1,686,000
---------- ---------- ----------
$2,888,000 $3,158,000 $5,941,000
========== ========== ==========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities................................. $ 1,063,000 $ 392,000
Net operating loss carryforwards and tax credits.... 829,000 --
Inventory reserves.................................. 577,000 382,000
Other, net.......................................... 702,000 86,000
----------- -----------
3,171,000 860,000
Valuation allowance................................. (1,706,000) --
----------- -----------
Net deferred tax assets............................... 1,465,000 860,000
Deferred tax liabilities:
Depreciation........................................ 1,136,000 2,068,000
Capital leases...................................... 1,033,000 1,182,000
Other, net.......................................... 3,158,000 3,158,000
----------- -----------
(5,327,000) (6,408,000)
----------- -----------
Net deferred tax liabilities.......................... $(3,862,000) $(5,548,000)
=========== ===========
</TABLE>
For financial reporting purposes, a valuation allowance of $1,706,000 at
December 31, 1996 was established primarily to recognize the cumulative loss
status of the Company's predecessor. As a result of the Company's continued
profitability and the acquisitions of the ADCS Group and LSL, such valuation
allowance was no longer required.
Income taxes paid for the years ended December 31, 1995, 1996, and 1997 were
$273,000, $3,170,000, and $3,566,000.
F-14
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
U.S. statutory rate................... $2,712,000 $ 5,160,000 $3,524,000
State income taxes.................... 407,000 669,000 415,000
Effect of nondeductible acquisition
expenses............................. -- -- 3,420,000
Income not subject to federal income
taxation............................. -- (1,483,000) --
Net operating loss carryforward and
tax credit utilization............... (263,000) (1,263,000) (237,000)
Reversal of valuation allowance....... -- -- (1,163,000)
Other, net............................ 32,000 75,000 (18,000)
---------- ----------- ----------
$2,888,000 $ 3,158,000 $5,941,000
========== =========== ==========
</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 had been
taxed as a C-Corporation for all of 1996, and the pro forma consolidated net
income and net income per share-assuming dilution 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 former securityholders of the ADCS Group have agreed to indemnify the
Company against losses arising out of certain tax matters. As security for
these tax matters, the former securityholders of the ADCS Group have delivered
700,000 shares of the Company's common stock which they received into escrow.
Any claim for such tax matters adversely determined against the Company,
regardless of the escrow, would result in a charge to the Company's results of
operations.
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 1997, the Company's stockholders approved the adoption of the 1997
Stock Plan ("1997 Plan"), which provides for the granting of up to 900,000
nonqualified stock options, "incentive stock options" ("ISOs") and stock
appreciation rights to employees, directors and consultants of the Company.
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, ISOs and stock appreciation rights to employees,
directors and consultants of the Company. The Company's 1987 Stock Plan (the
"1987 Plan"),
F-15
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
as amended, provided for the granting of up to 1,115,833 nonqualified stock
options and ISOs. The 1987 Plan expired in 1997.
Under the terms of these 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, 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........................................ (54,390) $ 0.53 - $12.50
Exercised....................................... (54,199) $ 0.28 - $12.50
--------- ---------------
Options outstanding at December 31, 1996.......... 958,216 $ 0.28 - $17.63
Granted......................................... 900,490 $16.88 - $40.13
Canceled........................................ (348,250) $ 0.53 - $40.13
Exercised....................................... (82,520) $ 0.28 - $13.50
--------- ---------------
Options outstanding at December 31, 1997.......... 1,427,936 $ 0.28 - $29.38
========= ===============
</TABLE>
At December 31, 1995, 1996, and 1997 options for 498,204, 567,066, and
657,396 shares, respectively, were exercisable, and at December 31, 1997
options for 586,803 shares were available for grant. Exercise prices for
447,086 options outstanding ranged from $0.28-$5.00; for 351,850 options
outstanding ranged from $5.01-$13.00; and for 629,000 options outstanding
ranged from $13.01-$29.38 as of December 31, 1997.
The weighted average exercise price and remaining contractual life of
options outstanding at December 31, 1997 was $11.97 and 7.3 years,
respectively.
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, net income per share-basic and net income per share-
assuming dilution would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Net income............................ $5,022,000 $11,695,000 $3,687,000
Net income per share--basic........... $ 0.31 $ 0.68 $ 0.21
Net income per share--assuming
dilution............................. $ 0.29 $ 0.64 $ 0.20
</TABLE>
F-16
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
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, net income per
share-basic and net income per share-assuming dilution 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 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 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% 56.0%
Expected life of options.................... 7.5 years 7.5 years 7.5 years
</TABLE>
The weighted average fair value of non-canceled stock options granted in
1995, 1996 and 1997 was $6.72, $8.21 and $17.04, respectively.
Warrants
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 an exercise prices ranging from
$11.13 to $11.75, of which 20,000 were exercisable as of December 31, 1997.
Earnings Per Share
The following table presents the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income........................... $ 5,088,000 $12,017,000 $ 4,421,000
=========== =========== ===========
Denominator:
Denominator for basic earnings per
share-weighted-average shares....... 16,040,000 17,266,000 17,288,000
Dilutive effect of contingent shares
related to the ADCS Group
acquisition......................... 700,000 700,000 700,000
Dilutive effect of employee stock
options and warrants................ 387,000 428,000 672,000
----------- ----------- -----------
Denominator for diluted earnings per
share............................... 17,127,000 18,394,000 18,660,000
----------- ----------- -----------
Net income per share--basic............ $ 0.32 $ 0.70 $ 0.26
=========== =========== ===========
Net income per share--assuming
dilution.............................. $ 0.30 $ 0.65 $ 0.24
=========== =========== ===========
</TABLE>
Options to purchase 138,000, 32,000 and 16,000 shares of common stock,
outstanding as of December 31, 1995, 1996 and 1997, respectively, were not
included in the computation of diluted earnings per share because their
exercise prices were greater than the average market price of the common
shares and, therefore, their inclusion would be antidilutive.
F-17
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 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 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, have
been recorded as a one-time charge in 1997 in conjunction with the
investigation, analysis and October 1997 closings of the ADCS Group and LSL
transactions.
F-18
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1995 and 1996 and for the nine
month period ended September 30, 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
REVENUES: 1995 1996 SEPTEMBER 30, 1997
--------- ----------- ----------- ------------------
<S> <C> <C> <C>
ATM............................ $30,048,000 $46,350,000 $41,286,000
ADCS and LSL................... $30,124,000 $42,311,000 $32,262,000
<CAPTION>
NINE MONTHS ENDED
NET INCOME: 1995 1996 SEPTEMBER 30, 1997
----------- ----------- ----------- ------------------
<S> <C> <C> <C>
ATM............................ $ 554,000 $ 3,321,000 $ 3,979,000
ADCS and LSL................... $ 4,534,000 $ 8,696,000 $ 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 year ended December
31, 1995, for the purchase business combinations indicated above, consummated
as of the beginning of the period presented, is as follows:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Revenues..................................................... $65,590,000
Net income................................................... 5,347,000
Net income per share--basic.................................. $0.33
Net income per share--assuming dilution...................... $0.31
</TABLE>
F-19
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. 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 year
ended December 31, 1997.
12. GEOGRAPHIC DATA
During 1995, 1996, and 1997 the Company had export sales of approximately
25%, 29%, and 22%, respectively. Sales to Asia, primarily South Korea, were
approximately 19%, 23%, and 17%, respectively, of the Company's revenues
during those same periods.
13. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Company is
utilizing both internal and external resources to identify, correct or
reprogram, and test its systems for Year 2000 compliance. 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.
14. SUBSEQUENT EVENTS (UNAUDITED)
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 1.20 million to
1.64 million (excluding shares issuable upon exercise of outstanding options).
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.
On February 20, 1998, the Company filed a Registration Statement on Form S-1
with the Securities and Exchange Commission with respect to the proposed
underwritten public offering of 4,000,000 shares of the Company's Common
Stock. Of such shares, 2,000,000 shares will be offered by the Company and
2,000,000 shares will be offered by certain stockholders of the Company. In
addition, such stockholders will grant to the underwriters an option to
purchase up to 600,000 additional shares of Common Stock to cover over-
allotments, if any.
F-20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER YEAR
------------------------------- --------
1997 FIRST SECOND THIRD FOURTH 1997
- ---- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues......................... $22,513 $23,521 $27,514 $28,329 $101,877
Gross profit..................... 11,026 12,107 14,973 15,087 53,193
Net income (loss)................ 2,516 2,616 3,981 (4,692)(1) 4,421
Net income (loss) per share--
basic........................... $ 0.15 $ 0.15 $ 0.23 $ (0.27)(1) $ 0.26
Net income (loss) per share--
assuming dilution............... $ 0.13 $ 0.14 $ 0.21 $ (0.27)(1) $ 0.24
<CAPTION>
QUARTER YEAR
------------------------------- --------
1996 FIRST SECOND THIRD FOURTH 1996
- ---- ------- ------- ------- ------- --------
<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(2) 12,017
Net income per share--basic...... $ 0.17 $ 0.19 $ 0.26 $ 0.08(2) $ 0.70
Net income per share--assuming
dilution........................ $ 0.16 $ 0.18 $ 0.23 $ 0.08(2) $ 0.65
</TABLE>
(1) Includes a non-recurring charge of $9.0 million accrued in connection with
costs incurred in investigating, analyzing and completing the ADCS Group
and LSL acquisitions.
(2) Includes a non-recurring 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.
F-21
<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 absorbents 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.......................................................... 12
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and
Analysis of Financial Condition and
Results of Operations................................................... 15
Business................................................................. 24
Management............................................................... 37
Certain Transactions..................................................... 44
Principal and Selling Stockholders....................................... 48
Description of Capital Stock............................................. 50
Underwriting............................................................. 53
Legal Matters............................................................ 54
Experts.................................................................. 55
Available Information.................................................... 55
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 3,671,349 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)
21.01 Subsidiaries of the Registrant. (3)
23.01 Consent of Shipman & Goodwin LLP, included in opinion filed as
Exhibit 5.01. (1)
23.02 Consent of Ernst & Young LLP. (1)
23.03 Consent of Price Waterhouse LLP. (1)
23.04 Consent of Intellectual Property/Technology Law, patent counsel to
the Registrant. (1)
24.01 Power of Attorney, included in the signature page of this
registration statement. (3)
27.01 Financial data schedule. (1)
</TABLE>
- ---------------------
(1) Filed herewith.
(2) Incorporated by reference.
(3) Previously filed.
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 March 2, 1998.
ATMI, Inc.
By: /s/ Eugene G. Banucci
----------------------------------
EUGENE G. BANUCCI, PRESIDENT,
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Eugene G. Banucci President, Chief
- ------------------------------------- Executive Officer, March 2, 1998
EUGENE G. BANUCCI Chairman of the
Board and Director
(principal
executive officer)
/s/ Daniel P. Sharkey Vice President,
- ------------------------------------- Treasurer and Chief March 2, 1998
DANIEL P. SHARKEY Financial Officer
(principal
financial and
accounting officer)
Director
Mark A. Adley* March 2, 1998
- -------------------------------------
MARK A. ADLEY
Director
John A. Armstrong* March 2, 1998
- -------------------------------------
JOHN A. ARMSTRONG
Director
Robert S. Hillas* March 2, 1998
- -------------------------------------
ROBERT S. HILLAS
Director
Lamonte H. Lawrence* March 2, 1998
- -------------------------------------
LAMONTE H. LAWRENCE
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Stephen H. Mahle* Director March 2, 1998
- -------------------------------------
STEPHEN H. MAHLE
Stephen H. Siegele* Director March 2, 1998
- -------------------------------------
STEPHEN H. SIEGELE
By: /s/ Daniel P. Sharkey
----------------------------------
DANIEL P. SHARKEY,
ATTORNEY-IN-FACT
</TABLE>
- ---------------------
* Each by his Attorney thereunto duly authorized by Power of Attorney.
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, 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
DECEMBER 31, 1997
Allowance for doubtful
accounts............... 361,000 365,000 321,000 405,000
Obsolescence reserve.... 659,000 1,134,000 808,000 985,000
</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)
21.01 Subsidiaries of the Registrant. (3)
23.01 Consent of Shipman & Goodwin LLP, included in
opinion filed as Exhibit 5.01. (1)
23.02 Consent of Ernst & Young LLP. (1)
23.03 Consent of Price Waterhouse LLP. (1)
23.04 Consent of Intellectual Property/Technology Law,
patent counsel to the Registrant. (1)
24.01 Power of Attorney, included in the signature page
of this registration statement. (3)
27.01 Financial data schedule. (1)
</TABLE>
- ---------------------
(1) Filed herewith.
(2) Incorporated by reference.
(3) Previously filed.
E-2
<PAGE>
EXHIBIT 1.01
ATMI, INC.
4,000,000 Shares/1/
Common Stock
UNDERWRITING AGREEMENT
----------------------
_________, 1998
HAMBRECHT & QUIST LLC
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY
SECURITIES LLC
ADVEST, INC.
NEEDHAM & COMPANY, INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
ATMI, Inc. a Delaware corporation (herein called the Company), proposes to
issue and sell 2,000,000 shares of its authorized but unissued Common Stock,
$.01 par value per share (herein called the Common Stock), and the stockholders
of the Company named in Schedule II hereto (herein collectively called the
Selling Stockholders) propose to sell an aggregate of 2,000,000 shares of Common
Stock of the Company (said 4,000,000 shares of Common Stock being herein called
the Underwritten Stock). The Selling Stockholders named on Schedule III propose
to grant to the Underwriters (as hereinafter defined) an option to purchase up
to 600,000 additional shares of Common Stock (herein called the Option Stock and
with the Underwritten Stock herein collectively called the Stock). The Common
Stock is more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
- -------------------------
/1/ Plus an option to purchase from the Selling Stockholders up to 600,000
additional shares to cover over-allotments.
<PAGE>
The Company and the Selling Stockholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-46609), including the related Preliminary Prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act), of the Stock. Copies of such registration statement and of
each amendment thereto, if any, including the related Preliminary Prospectus
(meeting the requirements of Rule 430A of the rules and regulations of the
Commission) heretofore filed by the Company with the Commission have been
delivered to you.
The term Registration Statement as used in this Agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, and any registration statement filed pursuant to
Rule 462(b) of the rules and regulations of the Commission with respect to the
Stock (herein called a Rule 462(b) registration statement) in the form in which
it became effective and, in the event of any amendment thereto after the
effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended including any Rule 462(b) registration
statement. The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A or (if no such filing is required) as included in the
Registration Statement, and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or of the effectiveness of such
amendment) such prospectus as so supplemented or amended. The term Preliminary
Prospectus as used in this Agreement shall mean each preliminary prospectus
included in such registration statement prior to the time it becomes effective.
For purposes of this Agreement, all references to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement to any
of the foregoing shall, if applicable, be deemed to include the copy filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you
-2-
<PAGE>
copies of each Preliminary Prospectus and has consented to the use of such
copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
(a) The Company hereby represents and warrants to each Underwriter as
follows:
(i) Each of the Company and its subsidiaries has been duly organized
and is validly existing as an entity, in good standing under the laws of
the jurisdiction of its organization, has full entity power and authority
to own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus and as currently being conducted,
and is duly qualified and in good standing in all jurisdictions in which
the character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure to
be so qualified would not have a material adverse effect on the business,
operations, financial condition or income of the Company and its
subsidiaries, taken as a whole). The outstanding equity interests of each
such subsidiary have been duly authorized and validly issued, are fully
paid and nonassessable and are owned by the Company (either directly or
indirectly through another wholly-owned subsidiary) free and clear of all
liens, encumbrances and security interests except as disclosed in the
Registration Statement; and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into equity interests or other ownership interests
in any such subsidiary are outstanding.
(ii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in the business, operations, financial condition,
income or business prospects of the Company and its subsidiaries taken as a
whole, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary course of
business, neither the Company nor any of its subsidiaries has entered into
any material transaction not referred to in the Registration Statement and
the Prospectus.
(iii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, nor
instituted proceedings for that purpose. The Registration Statement and
the Prospectus comply, and on the Closing Date (as hereinafter defined) and
any later date on which Option Stock is to be purchased, the Prospectus
will comply in all material respects with the provisions of the Securities
Act and
-3-
<PAGE>
the rules and regulations of the Commission thereunder; on the Effective
Date and on the Closing Date and any later date on which Option Stock may
be purchased, neither the Registration Statement nor any amendment
thereto, and neither the Prospectus nor any supplements thereto, contains
or will contain any untrue statement of a material fact or omits or will
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading;
provided, however, that none of the representations and warranties in
this subparagraph (iii) shall apply to statements in, or omissions from,
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to
the Company by or on behalf of the Underwriters for use in the
Registration Statement or the Prospectus. There are no contracts or
documents of the Company which would be required by the Securities Act or
by the rules and regulations of the Commission to be filed as exhibits to
the Registration Statement which have not been so filed.
(iv) The capitalization of the Company is, and upon consummation of
the transactions contemplated hereby will be, as set forth in the
Prospectus under the caption "Capitalization"; the outstanding shares of
Common Stock of the Company have been duly authorized and validly issued
and are fully paid and non-assessable; the capital stock of the Company
conforms to the description thereof in the Registration Statement under the
caption "Description of Capital Stock"; the Stock is duly and validly
authorized, is (or, in the case of shares of the Stock to be sold by the
Company, will be, when issued and sold to the Underwriters as provided
herein) duly and validly issued, fully paid, nonassessable, free of pre-
emptive rights and conforms to the description thereof in the Prospectus.
There are no outstanding options, warrants or other rights granted to or by
the Company to purchase shares of Common Stock or other securities of the
Company other than as described in the Registration Statement; and no such
option, warrant or other right has been granted to any person, the exercise
of which would cause such person to own more than five percent of the
Common Stock outstanding immediately after the offering other than as
described in the Prospectus. Except for such rights not currently
applicable or which have no practical applicability due to the Company's
reorganization on October 10, 1997 pursuant to which stockholders of
Advanced Technology Materials, Inc. received shares of Common Stock of the
Company which were registered under the Securities Act, no person or entity
holds a right to require or participate in the registration under the
Securities Act of shares of Common Stock of the Company which right has not
been waived by the holder thereof or exercised in accordance with its terms
as of the date hereof with respect to the registration of shares pursuant
to the Registration Statement, and except as described in the Prospectus,
no person holds a right to require registration under the Securities Act of
shares of Common Stock of the Company at any other time. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the issuance and sale of the Stock as
contemplated herein.
-4-
<PAGE>
(v) The Company and its subsidiaries now hold, and at the Closing Date
(as defined in Section 5(a) hereof) will hold, all material licenses,
certificates and permits from state, federal and other regulatory
authorities which are necessary for the conduct of the business of the
Company and its subsidiaries taken as a whole; neither the Company nor any
of its subsidiaries is in violation of its organizational charter or by-
laws, partnership agreement or operating agreement, as applicable, or in
default in the performance or observance of any provision of any
obligation, agreement, covenant or condition contained in any bond,
debenture or in any contract, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which the Company or such
subsidiary is a party or by which it or any of its properties is bound
(except to the extent that such a default would not have a material adverse
effect on the business, properties, operations, condition (financial or
otherwise), results of operations, income or business prospects of the
Company, as presently being conducted or as proposed to be conducted in the
Prospectus), or, to the best of the Company's knowledge, is in violation of
any law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or foreign.
(vi) The Company owns, or possesses adequate rights to use or
sublicense, all patents, patent rights, inventions, trade secrets,
licenses, know-how, proprietary techniques, including processes,
trademarks, service marks, trade names, copyrights and other intellectual
property described or referred to in the Registration Statement and the
Prospectus as owned or used by it or which are necessary for the conduct of
its business as now conducted and as described in the Registration
Statement and the Prospectus. All such patents, patent rights, licenses,
trademarks, service marks and copyrights are (i) valid and enforceable and
(ii) not being infringed by any third parties which infringement could,
whether singly or in the aggregate, materially and adversely affect the
business, properties, operations, condition (financial or otherwise),
results of operations, income or business prospects of the Company, as
presently being conducted or as proposed to be conducted in the Prospectus.
The Company has no knowledge of, and has not received any notice of,
infringement of or conflict with asserted rights of others with respect to
any patents, patent rights, inventions, trade secrets, licenses, know-how,
proprietary techniques, including processes and substances, trademarks,
service marks, trade names, copyrights or other intellectual property
which, singly or in the aggregate, is, or is reasonably likely to be, the
subject of an unfavorable decision, ruling or finding that could materially
and adversely affect the business, properties, operations, condition
(financial or otherwise), results of operations, income or business
prospects of the Company, as now conducted or as proposed to be conducted
in the Registration Statement and the Prospectus.
-5-
<PAGE>
(vii) The Company has full corporate power and authority to enter
into this Agreement and the Custody Agreements with the Selling
Stockholders (herein called the "Custody Agreements"). This Agreement has
been duly authorized, executed and delivered by the Company and by the
Attorney-in-Fact for the Selling Stockholders; the Custody Agreements have
been duly authorized, executed and delivered by the Company and constitute
a valid and binding agreement of the Company and is, or when executed will
be, enforceable against the Company in accordance with the terms hereof and
thereof, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting the enforcement
of creditors' rights generally; the performance of this Agreement and the
Custody Agreements and the consummation of the transactions herein
contemplated and therein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, (A) any indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the property of the Company or any of
the subsidiaries is bound, (B) the organizational charter or by-laws,
partnership agreement or operating agreement, as applicable, of the Company
or any of the subsidiaries or (C) (assuming the making of all filings
required under Rule 424(b) or Rule 430A and the due qualification of the
Stock for public offering by the Underwriters under state and foreign
securities laws) any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any
of the subsidiaries or over the properties of the Company [,except as has
been waived].
(viii) Except as set forth in the Prospectus, there is not any
action, suit or proceeding, at law or in equity, pending against the
Company or any subsidiary before any court or administrative agency, which,
if determined adversely to the Company or any subsidiary, would materially
adversely affect the business, operations, financial condition, income or
business prospects of the Company and the subsidiaries taken as a whole, or
prevent consummation of the transactions contemplated hereby.
(ix) The consolidated financial statements of the Company and its
subsidiaries, together with the related notes and schedules as set forth in
the Registration Statement, present fairly the consolidated financial
position and the results of operations of the Company and its subsidiaries,
at the indicated dates and for the indicated periods. Such financial
statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of results for such
periods have been made except for normal year-end adjustments with respect
to interim financial statements which will not in the aggregate be
material. No other financial
-6-
<PAGE>
statements or schedules of the Company are required by the Securities
Act, the Securities Exchange Act of 1934, as amended (hereinafter the
"Exchange Act"), the Exchange Act Rules and Regulations or the Securities
Act Rules and Regulations to be included in the Registration Statement or
the Prospectus. The summary financial and statistical data included in
the Registration Statement present fairly the information shown therein
and have been compiled on a basis consistent with the financial
statements presented therein.
(x) The Company and its subsidiaries have filed all federal, state and
foreign income tax returns which have been required to be filed (or have
filed extensions therefor or obtained any required extensions in connection
therewith), and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such taxes
have become due and are not being contested in good faith.
(xi) Each approval, consent, order, authorization, designation,
declaration or filing by or with any United States regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company and the Selling Stockholders of this
Agreement and the consummation by the Company and the Selling Stockholders
of the transactions herein contemplated (except (A) such additional steps
as may be required by the National Association of Securities Dealers, Inc.
(the "NASD"), (B) as may be necessary to make the Registration Statement
effective (and to maintain such effectiveness) and to qualify the Stock for
public offering by the Underwriters under state and foreign securities laws
or (C) filings required under Rule 424(b) or Rule 430(A)) has been obtained
or made and is in full force and effect.
(xii) Ernst & Young LLP and Price Waterhouse LLP, who have certified
the financial statements of the Company and of certain subsidiaries of the
Company, respectively, filed with the Commission as part of the
Registration Statement, are independent public accountants as required by
the Securities Act and the rules and regulations thereunder.
(xiii) The Company and the subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) described as
owned by them, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind except those reflected in such financial statements (or as
described in the Registration Statement) or which are not material in
amount.
(xiv) Neither the Company nor any of its subsidiaries is involved in
any material labor dispute nor, to the knowledge of the Company, is any
such dispute threatened.
-7-
<PAGE>
(xv) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act, and is listed on the Nasdaq National Market, and the Company
has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq National Market, nor has the
Company received any notification that the Commission or the NASD is
contemplating terminating such registration or listing.
(xvi) Neither the Company nor, to its knowledge, any of its officers,
directors or affiliates have taken, and at the Closing Date and at each
purchase of the Option Stock, neither the Company nor, to its knowledge,
any of its officers, directors or affiliates will have taken, directly or
indirectly, any action which has constituted, or might reasonably be
expected to constitute, the stabilization or manipulation of the price of
sale or resale of the Stock.
(xvii) Neither the Company nor any subsidiary is or has been an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(xviii) The Company has timely and properly filed with the Commission
all reports and other documents required to have been filed with the
Commission.
(b) Each of the Selling Stockholders, severally and not jointly as to
itself or himself only, represents and warrants to each Underwriter as follows:
(i) Such Selling Stockholder has good and marketable title to all the
shares of Stock to be sold by such Selling Stockholder hereunder, free and clear
of all liens, encumbrances, equities, security interests and claims whatsoever,
with full right and authority to deliver the same hereunder, subject, in the
case of each Selling Stockholder, to the rights of the Company, as custodian
(herein called the Custodian), and that upon the delivery of and payment for
such shares of the Stock hereunder, the several Underwriters will receive good
and marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of the Stock to be
sold by such Selling Stockholder have been placed in custody under the Custody
Agreement for delivery under this Agreement with the Custodian; such Selling
Stockholder specifically agrees that the shares of the Stock represented by the
certificates so held in custody for such Selling Stockholder are subject to the
interests of the several Underwriters and the Company, that the arrangements
made by such Selling Stockholder for such custody, including the Selling
Stockholder's Irrevocable Power of Attorney (herein called the Power of
Attorney) provided for in the Custody
-8-
<PAGE>
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Stockholder shall not be terminated by any act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur before
the delivery of such shares of the Stock hereunder, certificates for such
shares of the Stock shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if such death, incapacity,
dissolution, liquidation or other event had not occurred, regardless of
whether the Custodian shall have received notice of such death, incapacity,
dissolution, liquidation or other event.
(iii) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this Agreement,
the Power of Attorney and the Custody Agreement, and (assuming the making of all
filings required under Rule 424(b) or Rule 430A and the due qualification of the
Stock for public offering by the Underwriters under state and foreign securities
laws) for the sale and delivery of the Stock to be sold by the Selling
Stockholder hereunder, have been obtained; and the Selling Stockholder has the
right, power and authority to enter into this Agreement, the Power of Attorney
and Custody Agreement and to sell, assign, transfer and deliver the Stock to be
sold by the Selling Stockholder hereunder; the Power of Attorney and the Custody
Agreement constitute valid and binding obligations and agreements of such
Selling Stockholder in accordance with their respective terms.
(iv) The performance of this Agreement, the Selling Stockholder's
Irrevocable Power of Attorney and the Custody Agreement and the consummation of
the transactions herein and therein contemplated will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound, or (assuming the making of all filings required under Rule
424(b) or Rule 430A and the due qualification of the Stock for public offering
by the Underwriters under state and foreign securities laws) any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or the property of such Selling
Stockholder.
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which has constituted, or which is designed
to or might reasonably be expected to cause or result in, stabilization or
manipulation of the price of sale or resale of the Stock.
(vi) Each of the Selling Stockholders, severally and not jointly,
represents and warrants that the representations and warranties of the Company
set forth in subparagraph (iii) of paragraph 2(a) above are true and correct and
that, to
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their knowledge, the representations and warranties of the Company set forth
in subparagraphs (i) and (ii) and (iv)-(xviii) of paragraph 2(a) above are
true and correct.
3. Purchase of the Stock by the Underwriters.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
2,000,000 shares of the Underwritten Stock to the several Underwriters, each
Selling Stockholder agrees to sell to the several Underwriters the number of
shares of the Underwritten Stock set forth in Schedule II opposite the name of
such Selling Stockholder, and each of the Underwriters agrees to purchase from
the Company and the Selling Stockholders the respective aggregate number of
shares of Underwritten Stock set forth opposite its name in Schedule I. The
price at which such shares of Underwritten Stock shall be sold by the Company
and the Selling Stockholders and purchased by the several Underwriters shall be
$[_____] per share. The obligation of each Underwriter to the Company and each
of the Selling Stockholders shall be to purchase from the Company and the
Selling Stockholders that number of shares of the Underwritten Stock which
represents the same proportion of the total number of shares of the Underwritten
Stock to be sold by each of the Company and the Selling Stockholders pursuant to
this Agreement as the number of shares of the Underwritten Stock set forth
opposite the name of such Underwriter in Schedule I hereto represents of the
total number of shares of the Underwritten Stock to be purchased by all
Underwriters pursuant to this Agreement, as adjusted by you in such manner as
you deem advisable to avoid fractional shares. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraphs (b) and (c) of this Section 3, the agreement of each Underwriter is
to purchase only the respective number of shares of the Underwritten Stock
specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the non-defaulting Underwriters shall have the right within
twenty-four (24) hours after receipt by you of such notice to purchase, or
procure one or more other Underwriters to purchase, in such proportions as may
be agreed upon between you and such purchasing Underwriter or Underwriters and
upon the terms herein set forth, all or any part of the shares of the Stock
which such defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such arrangements with respect to
all such shares and portion, the number of shares and portion of the Stock which
each non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining shares which the defaulting Underwriter or
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Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the shares and portion which
the defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such shares of the Stock exceeds 10% of the total number of shares
of the Stock which all Underwriters agreed to purchase hereunder. If the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased or absorbed in accordance with the
two preceding sentences, the Company and the Selling Stockholders shall have
the right, within twenty-four (24) hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms
herein set forth. In any such case, either you or the Company and the Selling
Stockholders shall have the right to postpone the Closing Date determined as
provided in Section 5 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 5 in order
that any necessary changes in the Registration Statement, the Prospectus or
any other documents or arrangements may be made. If neither the non-defaulting
Underwriters nor the Company and the Selling Stockholders shall make
arrangements within the 24-hour periods stated above for the purchase of all
the shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without
further act or deed and without any liability on the part of the Company or
the Selling Stockholders to any non-defaulting Underwriter and without any
liability on the part of any non-defaulting Underwriter to the Company or the
Selling Stockholders. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, each of the
Selling Stockholders named on Schedule III grants an option to the several
Underwriters to purchase, severally and not jointly, the Option Stock from such
Selling Stockholders, each in the amount set forth on Schedule III hereto, at
the same price per share as the Underwriters shall pay for the Underwritten
Stock. Said option may be exercised only to cover over-allotments in the sale
of the Underwritten Stock by the Underwriters and may be exercised in whole or
in part at any time (but not more than once) on or before the 30th day after the
date of this Agreement upon written or telegraphic notice by you to the Company
as Custodian no later than 9:00 a.m. San Francisco time setting forth the
aggregate number of shares of the Option Stock as to which the several
Underwriters are exercising the option. If the option granted hereby is
exercised in part, the Option Stock to be sold by each Selling Stockholder shall
be the same percentage of the total number of shares of the Option Stock to be
sold by each Selling Stockholder as is set forth on Schedule III, as adjusted by
you in such reasonable manner as you deem advisable to avoid fractional shares.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as
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provided in Section 5 hereof. The number of shares of the Option Stock to be
purchased by each Underwriter shall be the same percentage of the total number
of shares of the Option Stock to be purchased by the several Underwriters as
such Underwriter is purchasing of the Underwritten Stock, as adjusted by you
in such manner as you deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the public offering by the Underwriters of the Stock to be
purchased by them shall be as set forth in the Prospectus. The Underwriters may
from time to time change the public offering price after the closing of the
public offering and increase or decrease the concessions and discounts to
dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover page
and under the caption "Underwriting" (other than the last paragraph set forth
under the caption "Underwriting") in the Registration Statement, any Preliminary
Prospectus or the Prospectus relating to the Stock (insofar as such information
relates to the Underwriters) constitutes the only information furnished by the
Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 a.m., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of Shipman & Goodwin LLP, One American Row, Hartford, Connecticut 06103
at 7:00 a.m., San Francisco time, on the [third] business day after the date of
this Agreement, or at such time on such other day, not later than seven full
business days after the date of this Agreement, as shall be agreed upon in
writing by the Company, the Selling Stockholders and you. The date and hour of
such delivery and payment (which may be postponed as provided in Section 3(b)
hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, and on or before the 30th day after the date of this Agreement,
delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made at the office of Shipman & Goodwin LLP, One American Row,
Hartford, Connecticut 06103 at 7:00 a.m., San Francisco time, on the third
business day after the exercise of such option.
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(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order, and payment for the Stock purchased from the Selling
Stockholders shall be made to the Custodian, for the account of the Selling
Stockholders, in each case by one or more wire transfers or one or more
certified or official bank check or checks in same day funds. Such payment
shall be made upon delivery of certificates for the Stock to you for the
respective accounts of the several Underwriters against receipt therefor signed
by you. Certificates for the Stock to be delivered to you shall be registered
in such name or names and shall be in such denominations as you may request at
least two business days before the Closing Date, in the case of Underwritten
Stock, and at least one business day prior to the purchase thereof, in the case
of the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 not less than one
full business day prior to the Closing Date or, in the case of the Option Stock,
by 3:00 p.m., New York time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Stockholders for shares to be purchased by any Underwriter whose
check shall not have been received by you on the Closing Date or any later date
on which Option Stock is purchased for the account of such Underwriter. Any
such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS. The
Company and, with respect to paragraphs (j) and (l) below, each of the Selling
Stockholders severally and not jointly as to itself or himself only, covenant
and agree as follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance in all material respects with the Securities Act or the
rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of (i)
the request by the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction,
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or (v) the receipt by the Company of notice of the initiation or threatening
of any proceeding for such purpose. The Company will make every reasonable
effort to prevent the issuance of such a stop order and, if such an order
shall at any time be issued, to obtain the withdrawal thereof at the earliest
possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each post-
effective amendment, if any, to the Registration Statement (together with, in
each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act. The
copies of the Registration Statement, any Preliminary Prospectus or Prospectus
and each amendment or supplement thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the reasonable opinion
of counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
Stock, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the public
offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the reasonable opinion either
of counsel for the Company or of counsel for the Underwriters such proposed
variation requires that the Prospectus be supplemented or amended, the Company
will forthwith
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prepare and file with the Commission a supplement to the Prospectus or an
amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time
to time, prepare and file such statements, reports, and other documents as are
or may be required to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(h) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement (including, without
limitation, those costs and expenses relating to Stock to be sold by the Selling
Stockholders), including all costs and expenses incident to (i) the preparation,
printing and filing with the Commission and the NASD of the Registration
Statement, any Preliminary Prospectus and the Prospectus, (ii) the furnishing to
the Underwriters of copies of any Preliminary Prospectus and of the several
documents required by paragraph (c) of this Section 6 to be so furnished, (iii)
the printing of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this Section 6, (v)
the furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees.
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(i) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including reasonable
counsel fees and disbursements and cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their counsel in
qualifying the Stock under state securities or blue sky laws and for filing fees
incident to the review of the offering by the NASD.
(j) The Selling Stockholders will pay any transfer taxes incident to the
transfer to the Underwriters of the shares of the Stock being sold by the
Selling Stockholders.
(k) The Company hereby agrees that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not, for a
period of 90 days following the Effective Date, directly or indirectly, (i)
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 to purchase or acquire Common Stock or (ii) 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 in clause (i) or (ii) above is settled by delivery of Common Stock or
such other securities, in cash or otherwise. The foregoing sentence shall not
apply to (i) the Stock to be sold to the Underwriters pursuant to this
Agreement, (ii) shares of Common Stock issued by the Company upon the exercise
of outstanding warrants or upon the exercise of options granted under the stock
option plans and employee stock purchase plans of the Company (the "Option
Plans") or upon the exercise of options outstanding as of the date hereof, all
as described in the Prospectus, (iii) options to purchase Common Stock granted
under the Option Plans and options or other rights to purchase Common Stock
granted under a stock option plan or employee stock purchase plan of the
Company as may be approved by the Board of Directors and the stockholders of
the Company, provided that such options or other rights do not vest and may
not be exercised during the period of 90 days following the Effective Date and
(iv) with five business days prior written notification to Hambrecht & Quist
LLC, up to an aggregate of ____________ shares of Common Stock to be issued by
the Company in connection with the acquisition by the Company of another
company or entity, provided that the terms of such issuance prohibit the re-
sale of such Common Stock until 90 days following the Effective Date. For
purposes of this paragraph (k), a sale, offer, or other disposition shall be
deemed to include any sale to an institution which can, following such sale,
sell Common Stock to the public in reliance on Rule 144A.
(l) Each of the Selling Stockholders agrees that, without the prior consent
of Hambrecht & Quist LLC, for a period of 90 days following the Effective Date,
such Selling Stockholder will not, directly or indirectly: (i) 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 right to purchase or acquire Common Stock
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(except for the Stock) or (ii) 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 in clause (i) or (ii)
above is settled by delivery of Common Stock or such other securities, in cash
or otherwise. Notwithstanding the foregoing, any Selling Stockholder may
transfer shares of Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock, either during his or her
lifetime or on death, by gift, will or intestate succession to his or her
immediate family or to a trust the beneficiaries of which are exclusively such
Selling Stockholders and/or a member or members of his or her immediate
family; provided, however, that in any such case it shall be a
-------- -------
condition to the transfer that the transferee thereof execute an agreement,
reasonably satisfactory to Hambrecht & Quist LLC, stating that the transferee
is receiving and holding the Common Stock in accordance with this paragraph
(l), and there shall be no further transfer of such Common Stock except in
accordance with this paragraph (l). For purposes of this paragraph, "immediate
family" shall mean spouse, lineal descendant, stepchildren, father, mother,
brother or sister of the transferor.
(m) The Company will invest the proceeds received by the Company from the
Stock sold by the Company to the Underwriters pending the use of such proceeds,
in investment-grade, interest-bearing securities, in accordance with the "Use of
Proceeds" indicated in the Registration Statement.
(n) Until the termination of the offering of the Stock, the Company will
timely file all documents, and any amendments to previously filed documents,
required to be filed by it pursuant to Sections 13, 14 or 15(d) of the Exchange
Act.
(o) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(p) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Securities Act), the
Company will make generally available an earnings statement in accordance with
Section 11(a) of the Securities Act and Rule 158 thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) below, the Company and the
Selling Stockholders jointly and severally agree to indemnify and hold harmless
each Underwriter and each person (including each partner or officer thereof) who
controls
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any Underwriter within the meaning of Section 15 of the Securities Act from
and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise,
and the Company and the Selling Stockholders jointly and severally agree to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties
in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties,
in each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the
omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that (1) the
indemnity agreements of the Company and the Selling Stockholders contained in
this paragraph (a) shall not apply to any such losses, claims, damages,
liabilities or expenses if such statement or omission was made in reliance
upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration
Statement or the Prospectus or any such amendment thereof or supplement
thereto, and (2) the indemnity agreement contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or
to the benefit of any person controlling such Underwriter) if at or prior to
the written confirmation of the sale of such Stock a copy of the Prospectus
(or the Prospectus as amended or supplemented) was not sent or delivered to
such person and the untrue statement or omission of a material fact contained
in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented) unless the failure is the result of
noncompliance by the Company with paragraph (c) of Section 6 hereof. The
indemnity agreements of the Company and the Selling Stockholders contained in
this paragraph (a) and the representations and warranties of the Company and
the Selling Stockholders contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of any payment
for the Stock.
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(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Stockholders from and against any and
all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus and any 462(b) registration
statement as part thereof) or any post-effective amendment thereto (including
any 462(b) registration statement) or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against it, in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was
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prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall
not relieve such indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any indemnifying party shall be entitled
at its own expense to participate in the defense of any action, suit or
proceeding against, or investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of the Notice by giving written notice (herein called the Notice
of Defense) to the indemnified party, to assume (alone or in conjunction with
any other indemnifying party or parties) the entire defense of such action,
suit, investigation, inquiry or proceeding, in which event such defense shall
be conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to
the indemnified party or parties; provided, however, that (i) if the
indemnified party or parties reasonably determine that there may be a conflict
between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition
to those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled, to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a) through
(c) of this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses of not more than one
separate counsel for the indemnified party or parties incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear
such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt of
the Notice, no Notice of Defense has been given, the indemnifying party or
parties shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
-20-
<PAGE>
party as a result of the losses, claims, damages or liabilities referred to in
paragraph (a) or (b) of this Section 7 (i) in such proportion as is appropriate
to reflect the relative benefits received by each indemnifying party from the
offering of the Stock or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same respective proportions as the total net proceeds from the
offering of the Stock received by the Company and the Selling Stockholders and
the total underwriting discount received by the Underwriters, as set forth in
the table on the cover page of the Prospectus, bear to the aggregate public
offering price of the Stock. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by each indemnifying party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparation to defend or defense against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have
-21-
<PAGE>
hereunder or otherwise (except as specifically provided in paragraph (c) of
this Section 7).
(e) Neither the Company nor the Selling Stockholders will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding. No Underwriter shall be liable for any settlement
of any proceeding entered into without its written consent. The Underwriters
will not, without the prior written consent of the Company and one of the
Attorneys-in-Fact for the Selling Stockholders, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not the Company, any person who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act or a Selling
Stockholder is a party to such claim, action suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of the
Company, each such controlling person and each Selling Stockholder from all
liability arising out of such claim, action, suit or proceeding. Neither the
Company nor any Selling Stockholder shall be liable for any settlement or any
proceeding without its written consent (which may be the written consent of an
Attorney-in-Fact in the case of a Selling Stockholder).
(f) The liability of each Selling Stockholder under such Selling
Stockholder's representations and warranties contained in paragraph (b) of
Section 2 hereof and under the indemnity and reimbursement agreements contained
in the provisions of this Section 7 and Section 11 hereof shall be limited to an
amount equal to the proceeds received by such Selling Stockholder for the Stock
sold by such Selling Stockholder to the Underwriters. The Company and the
Selling Stockholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Stockholders if after the date of this Agreement trading in the Common
Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States would, in the
Underwriters' reasonable judgment, make the offering or
-22-
<PAGE>
delivery of the Stock impracticable, (iii) suspension of trading in securities
generally or a material adverse decline in the value of securities generally
on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq
National Market, or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities on either such exchange or system,
(iv) the enactment, publication, decree or other promulgation of any federal
or state statute, regulation, rule or order of, or commencement of any
proceeding or investigation by, any court, legislative body, agency or other
governmental authority which in the Underwriters' reasonable opinion
materially and adversely affects or will materially or adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by either federal or New York State authorities or (vi) the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States and
would, in the Underwriters' reasonable judgment, make the offering or delivery
of the Stock impractical. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company or the Selling
Stockholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Stockholders; provided, however, that in the event of
any such termination the Company and the Selling Stockholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Stockholders under this Agreement, including all costs and expenses referred
to in paragraphs (h) and (i) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Stockholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and the
validity and form of the certificates representing the Stock, all corporate
proceedings and other legal matters incident to the foregoing, and the form of
the Registration Statement and of the Prospectus (except as to the financial
statements contained therein), shall have been approved at or prior to the
Closing Date by Hale and Dorr LLP, counsel for the Underwriters.
(c) (i) You shall have received from Shipman & Goodwin LLP, counsel for
the Company, an opinion, addressed to the Underwriters and dated the Closing
Date,
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<PAGE>
covering the matters set forth in Annex A hereto. If Option Stock is
purchased at any date after the Closing Date, you shall receive an additional
opinion from the aforementioned counsel, addressed to the Underwriters and dated
such later date, confirming that the statements expressed as of the Closing Date
in such opinion remain valid as of such later date.
(ii) You shall have received from Intellectual Property/Technology
Law, intellectual property counsel for the Company, an opinion, addressed to the
Underwriters and dated the Closing Date, covering the matters set forth in Annex
B hereto. If Option Stock is purchased at any date after the Closing Date, you
shall receive an additional opinion from the aforementioned counsel, addressed
to the Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date or such opinion remain valid as of such later
date.
(iii) You shall have received from counsel to each Selling
Stockholder who is reasonably satisfactory to Hale and Dorr LLP, counsel to the
Underwriters, an opinion addressed to the Underwriters and dated the Closing
Date, covering the matters set forth on Annex C hereto, and if such Option Stock
is purchased at any date after the Closing Date, an additional opinion from each
such counsel, addressed to the Underwriters and dated such later date confirming
that the statements expressed as of the Closing Date in such opinion remains
valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct in all material respects and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not misleading,
(ii) since the Effective Date, no event has occurred which should have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment, (iii) since the respective dates as of
which information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or earnings of the Company and its subsidiaries as a whole, whether or
not arising from transactions in the ordinary course of business, and, since
such dates, except in the ordinary course of business, neither the Company nor
any of its subsidiaries has entered into any material transaction not referred
to in the Registration Statement in the form in which it originally became
effective and the Prospectus contained therein, (iv) neither the Company nor any
of its subsidiaries has any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus, (v) there are not
any pending or known threatened legal proceedings to which the Company or any of
its subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed in
the
-24-
<PAGE>
Registration Statement and the Prospectus, (vi) there are not any franchises,
contracts, leases or other documents which are required to be filed as
exhibits to the Registration Statement which have not been filed as required,
(vii) the representations and warranties of the Company herein are true and
correct in all material respects as of the Closing Date or any later date on
which Option Stock is to be purchased, as the case may be, and (viii) there
has not been any material change in the market for securities in general or in
political, financial or economic conditions from those reasonably foreseeable
as to render it impracticable in your reasonable judgment to make a public
offering of the Stock, or a material adverse change in market levels for
securities in general (or those of comparable companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date on
which Option Stock is purchased a certificate, dated the Closing Date or such
later date, as the case may be, and signed by each of the Chief Executive
Officer and the Chief Financial Officer of the Company, stating that the
respective signers of said certificate have carefully examined the Registration
Statement in the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.
(f) You shall have received from each of Ernst & Young LLP and Price
Waterhouse LLP, a letter or letters, addressed to the Underwriters and dated the
Closing Date and any later date on which Option Stock is purchased, confirming
that they are independent public accountants with respect to the Company or
certain of its subsidiaries within the meaning of the Securities Act and the
applicable published rules and regulations thereunder and based upon the
procedures described in its letter delivered to you concurrently with the
execution of this Agreement (herein called the Original Letter), but carried out
to a date not more than five business days prior to the Closing Date or such
later date on which Option Stock is purchased (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of the Original Letter or
to reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company or any of its subsidiaries which, in your reasonable judgment, makes
it impractical or inadvisable to proceed with the public offering of the Stock
or the purchase of the Option Stock as contemplated by the Prospectus.
(g) You shall have received on the Closing Date a certificate from each
Selling Stockholder stating that (i) the representations and warranties made by
such
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<PAGE>
Selling Stockholder herein are true and correct on the Closing Date; and (ii)
such Selling Stockholder has complied with each obligation which is required
to be performed on his or its part at or prior to the Closing Date.
(h) You shall have received from Ernst & Young LLP a letter stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's financial statements as of and as at December 31, 1996 and
December 31, 1997, did not disclose any weakness in internal controls that they
considered to be material weaknesses.
(i) You shall have been furnished evidence in usual written or telegraphic
form from the appropriate authorities of the several states, or other evidence
satisfactory to you, of the qualification referred to in paragraph (f) of
Section 6 hereof.
(j) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for inclusion on the Nasdaq National
Market upon official notice of issuance.
(k) On or prior to the Closing Date, you shall have received from all
directors, executive officers, and certain beneficial holders of more than 1% of
the outstanding Common Stock, and all Selling Stockholders, stockholders
agreements in form reasonably satisfactory to Hambrecht & Quist LLC, to the
effect of the agreements of the Selling Stockholders set forth in Section 6(l)
hereto.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Hale and Dorr LLP, counsel for the Underwriters, shall
be reasonably satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Stockholders. Any such termination shall be without
liability of the Company or the Selling Stockholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Stockholders; provided, however, that (i) in the event of such termination, the
Company and the Selling Stockholders agree to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Stockholders under this Agreement,
including all costs and expenses referred to in paragraphs (h) and (i) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein, to fulfill any of the conditions
herein, or to comply with any provision hereof other than by reason of a default
by any of the Underwriters, the Company will reimburse the Underwriters
severally upon
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<PAGE>
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The obligation of the Company and the Selling Stockholders to
deliver the Stock shall be subject to the conditions that (a) the Registration
Statement shall have become effective and (b) no stop order suspending the
effectiveness thereof shall be in effect and no proceedings therefor shall be
pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Stockholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Stockholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Stockholders; provided, however, that (i) in the event of any such termination
the Company and the Selling Stockholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Stockholders under this Agreement, including all costs and expenses referred to
in paragraphs (h) and (i) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement and subject, in the case of a
Selling Stockholders, to the provisions of paragraph (f) of Section 7, the
Company and the Selling Stockholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company, the Selling Stockholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Stockholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed
-27-
<PAGE>
to give to any other person, firm or corporation any legal or equitable remedy
or claim under or in respect of this Agreement or any provision herein
contained. The term "successors and assigns" as herein used shall not include
any purchaser, as such purchaser, of any of the Stock from any of the several
Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 7 Commerce Drive, Danbury,
Connecticut 06810, Attention: Chief Executive Officer, with a copy to Shipman &
Goodwin LLP, One American Row, Hartford, Connecticut 06103, Attention: Donna L.
Brooks, Esq.; and if to the Selling Stockholders, shall be mailed, telegraphed
or delivered to the Selling Stockholders in care of the Custodian, ATMI, Inc., 7
Commerce Drive, Danbury, CT 06810. All notices given by telegraph shall be
promptly confirmed by letter.
14. DEFAULT BY SELLING STOCKHOLDERS. If on any Closing Date any Selling
Stockholder fails to sell the Stock which such Selling Stockholder has agreed to
sell on such date as set forth in Schedule II or Schedule III hereto, the
Company agrees that it will sell or arrange for the sale of that number of
shares of Common Stock to the Underwriters which represents the shares of Stock
which such Selling Stockholder has failed to so sell, as set forth in Schedule
II or Schedule III hereto, or such fewer number of shares as may be requested by
the Underwriters.
15. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Stockholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (k) and (l) of Section 6 hereof shall be of
no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Any person executing and delivering this Agreement as Attorney-in-Fact for
the Selling Stockholders represents by so doing that he has been duly appointed
as Attorney-in-Fact by each such Selling Stockholder pursuant to a validly
existing and
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<PAGE>
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Please sign and return to the Company and to the Selling Stockholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters in accordance with its terms.
Very truly yours,
ATMI, INC.
By:
-----------------------------
Eugene G. Banucci, Ph.D.
President and Chief Executive
Officer
SELLING STOCKHOLDERS LISTED ON SCHEDULE II AND SCHEDULE III HERETO
By:
----------------
Attorney-in-Fact
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<PAGE>
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
HAMBRECHT & QUIST LLC
BT ALEX.BROWN INCORPORATED
NATIONSBANC MONTGOMERY
SECURITIES LLC
ADVEST, INC.
NEEDHAM & COMPANY, INC.
By Hambrecht & Quist LLC
By:
----------------------
Managing Director
Acting on behalf of the several
Underwriters, including themselves,
named in Schedule I hereto.
-30-
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Shares
to be
Underwriters Purchased
------------ ----------------
<S> <C>
Hambrecht & Quist LLC
BT Alex. Brown Incorporated
NationsBanc Montgomery Securities LLC
Advest, Inc.
Needham & Company, Inc.
_________
Total 4,000,000
=========
</TABLE>
-31-
<PAGE>
SCHEDULE II
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of
Name and Address Shares
of Selling Stockholders to be Sold
- ------------------------- ----------
<S> <C>
---------
Total 2,000,000
=========
</TABLE>
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<PAGE>
SCHEDULE III
OPTION STOCK
<TABLE>
<CAPTION>
Number of
Name and Address Shares
of Selling Stockholders to be Sold
- ------------------------- ----------
<S> <C>
-------
Total 600,000
=======
</TABLE>
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<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF
SHIPMAN & GOODWIN LLP
COUNSEL FOR THE COMPANY
(i) Each of the Company and its subsidiaries set forth on Exhibit A hereto
------- -
(each, a "Subsidiary") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation in each state of the
United States of America in which its ownership or leasing of property requires
such qualification except where the failure to be so qualified would not have a
material adverse effect on the business, properties, financial condition or
results of operations of the Company and its subsidiaries taken as a whole, and
has full corporate power and authority to own or lease its properties and to
conduct its business as described in the Registration Statement; all the issued
and outstanding capital stock of each of the subsidiaries has been duly
authorized and validly issued and is fully paid and nonassessable, and is owned
directly or indirectly by the Company free and clear of all claims, liens,
encumbrances and security interests, and, to our knowledge, no options, warrants
or other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in such subsidiary are outstanding;
(ii) the duly authorized capital stock of the Company is as set forth in
the Registration Statement and the Prospectus; proper corporate proceedings have
been taken validly to authorize such authorized capital stock; all of the
outstanding shares of such capital stock (including the Stock to be sold by the
Selling Stockholders) have been duly and validly issued and are fully paid and
nonassessable; the certificates evidencing the Stock delivered to the
Representatives for the several accounts of the Underwriters are in due and
proper form under Delaware law, and when duly countersigned by the Company's
transfer agent and registrar and delivered to you or upon your order against
payment of the agreed consideration therefor in accordance with the provisions
of the Underwriting Agreement, the Stock represented thereby will be duly
authorized and validly issued, fully paid and non-assessable; the description of
the capital stock of the Company in the Registration Statement and Prospectus
conforms to the terms thereof; [any Option Stock purchased after the Closing
Date when issued and delivered to and paid for by the Underwriters as provided
in the Underwriting Agreement, will have been duly and validly issued and
fully paid and non-assessable [to be included only if Option Stock is being
issued]; no preemptive rights of, or rights of refusal in favor of,
stockholders exist with respect
A-1
<PAGE>
to the Stock, or the issuance and sale thereof, pursuant to the Certificate of
Incorporation or By-Laws of the Company and, to such counsel's knowledge,
there are no contractual preemptive rights with respect to the issuance and
sale of the Stock that have not been waived or exercised in accordance with
their terms or rights of first refusal or rights of co-sale which exist with
respect to the issuance and sale of the Stock or with respect to the Stock
being sold by the Selling Stockholders;
(iii) the Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or threatened by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
(v) the information required to be set forth in the Registration
Statement in answer to Item 9, Item 10 (insofar as it relates to such counsel)
and Item 11(c) of Form S-1 is to such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is
required with respect to such Items; and, to such counsel's knowledge the
description of the Company's stock option plans and the options granted and
which may be granted thereunder and the options granted otherwise than under
such plans set forth in the Registration Statement accurately and fairly
presents in all material respects the information required to be shown with
respect to said plans and options to the extent required by the Securities Act
and the rules and regulations of the Commission thereunder;
(vi) such counsel does not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(vii) the Company has full corporate power and authority to enter into
the Underwriting Agreement and the Custody Agreements; the Underwriting
Agreement and the Custody Agreements have been duly authorized, executed and
delivered by the Company; the Custody Agreements constitute the valid and
binding agreements of the Company, enforceable against the Company in accordance
with the respective terms thereof, except as enforceability may be limited by
the application of bankruptcy, insolvency or other laws affecting creditors'
rights generally;
(viii) no consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation of the transactions contemplated under the Underwriting Agreement,
except such as have been obtained or made under the Act or the Rules and
Regulations and such as
A-2
<PAGE>
may be required under state securities or Blue Sky laws or the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Stock;
(ix) the execution and delivery of the Agreement and the Custody
Agreements, the compliance by the Company with all of the terms thereof and the
consummation of the transactions contemplated thereby will not result in the
creation or imposition of any lien, charge or encumbrance upon any of the assets
of the Company or any of the Subsidiaries pursuant to the terms and provisions
of, result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any party a right to terminate any of its
obligations under, or result in the acceleration of any obligation under, the
Certificate of Incorporation or By-Laws of the Company or any of the
Subsidiaries, any indenture, mortgage, deed of trust, voting trust agreement,
loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument filed (or
incorporated by reference) by the Company as an exhibit to its Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 or in any Quarterly
Report or registration statement filed with the Securities and Exchange
Commission since that date, or violate or conflict with (i) any judgment,
ruling, decree or order known to us or (ii) any statute, rule or regulation of
any court or other governmental agency or body, applicable to the business or
properties of the Company or any of the Subsidiaries [,except as may have been
waived];
(x) all holders of securities of the Company who acquired Securities of
the Company on or after October 10, 1997 or who hold options, warrants or
other rights to acquire such securities] having rights to the registration of
shares of Common Stock, or other securities, because of the filing of the
Registration Statement by the Company have waived such rights, exercised such
rights in accordance with their terms or such rights have expired by reason of
lapse of time following notification of the Company's intent;
(xi) the Stock sold by the Selling Stockholders is listed and duly admitted
to trading on the Nasdaq Stock Market, and the Stock issued and sold by the
Company will have been duly authorized for listing by the Nasdaq Stock Market
upon official notice of issuance; and
(xii) neither the Company nor any subsidiary is or has been an
"investment company" or a company "controlled" by an "investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel that leads them to believe that the Registration
Statement (except as to the financial statements and schedules, or notes
thereto, and other financial data contained or incorporated by reference
therein, as to which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or omitted to
state a material fact required to be
A-3
<PAGE>
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus (except as to the financial statements and schedules, or
notes thereto, and other financial data contained or incorporated by reference
therein as to which such counsel need not express any opinion or belief) as of
its date or at the Closing Date (or any later date on which Option Stock is
purchased), contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
_______________________________________
Counsel rendering the foregoing opinion may (i) in the case of the law
governing the Underwriting Agreement, assume, without independent inquiry, that
such laws are the same as those of the State of Connecticut and (ii) rely as to
questions of law not involving the laws of the United States, the State of
Delaware or of the State of Connecticut, upon opinions of local counsel
satisfactory in form and scope to counsel for the Underwriters. Copies of any
opinions so relied upon shall be delivered to the Underwriters and to counsel
for the Underwriters and the foregoing opinion shall also state that counsel
knows of no reason the Underwriters are not entitled to rely upon the opinions
of such local counsel.
A-4
<PAGE>
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF
INTELLECTUAL PROPERTY/TECHNOLOGY LAW, INTELLECTUAL
PROPERTY COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the Company and its
subsidiaries in their businesses and the manner of its use thereof and have read
the Registration Statement and the Prospectus, including particularly the
portions of the Registration Statement and the Prospectus referring to
trademarks, trade names, patents, mask works, copyrights, licenses, trade
secrets or other intellectual property rights and:
(i) such counsel have no reason to believe that the Registration
Statement or the Prospectus (A) contains any untrue statement of a material
fact with respect to trademarks, trade names, patents, mask works,
copyrights, licenses, trade secrets or other intellectual property rights
owned or used by the Company or any of its subsidiaries, or the manner of
its use thereof, or any allegation on the part of any person that the
Company or any of its subsidiaries is infringing any trademarks, trade
names, patent rights, mask works, copyrights, licenses, trade secrets or
other intellectual property rights of any such person or (B) omits to state
any material fact relating to trademarks, trade names, patents, mask works,
copyrights, license, trade secrets or other intellectual property rights
owned or used by the Company or any of its subsidiaries, or the manner of
its use thereof, or any allegation of which such counsel have knowledge,
that is required to be stated in the Registration Statement or the
Prospectus or is necessary to make the statements therein not misleading;
(ii) to the best of such counsel's knowledge, there are no adversarial
legal or governmental proceedings pending relating to trademarks, trade
names, patent rights, mask works, copyrights, licenses, trade secrets or
other intellectual property rights of the Company or any of its
subsidiaries, and to the best of such counsel's knowledge no such
adversarial proceedings are threatened or contemplated by governmental
authorities or others;
(iii) such counsel do not know of any contracts or other documents
relating to the Company's or any of its subsidiaries' trademarks, trade
names, patents, mask works, copyrights, licenses, trade secrets or other
intellectual property rights of a character required to be filed as an
exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus that are not filed or described as
required;
B-1
<PAGE>
(iv) to the best of such counsel's knowledge, neither the Company nor
any of its subsidiaries is infringing or otherwise violating any
trademarks, trade names, patents, mask works, copyrights, licenses, trade
secrets or other intellectual property rights of others, and to the best
such counsel's knowledge there are no infringements by any of the Company's
or any of its subsidiaries' trademarks, trade names, patents, mask works,
copyrights, licenses, trade secrets or other intellectual property rights
which in the judgment of such counsel could affect materially the use
thereof by the Company or any of its subsidiaries; and
(v) to the best of such counsel's knowledge, the Company or one of its
subsidiaries owns or possesses sufficient licenses, or other rights to use
all trademarks, trade names, patents, mask works, copyrights, licenses,
trade secrets or other intellectual property rights necessary conduct the
business now being or proposed to be conducted by the Company and its
subsidiaries as described in the Prospectus.
B-2
<PAGE>
ANNEX C
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL FOR EACH SELLING STOCKHOLDER
(i) The Selling Stockholder is the "beneficial owner" (as such phrase is
defined in Rule 13d-3) of the securities set forth opposite his, her or its name
under the caption "PRINCIPAL AND SELLING STOCKHOLDERS" in the Prospectus as and
to the extent set forth therein;
(ii) the Underwriting Agreement has been duly executed and delivered by or
on behalf of the Selling Stockholder and the Custody Agreement between the
Selling Stockholder and ATMI, Inc., a Delaware corporation, as Custodian, and
the Power of Attorney referred to in such Custody Agreement have been duly
executed and delivered by the Selling Stockholder;
(iii) to the best of such counsel's knowledge, the Selling Stockholder
has full legal right, power and authority, and any approval required by law
(other than any approval required by the applicable state securities and Blue
Sky laws) to sell, assign, transfer and deliver the Stock to be sold by him, her
or it in the manner provided in the Underwriting Agreement and the Custody
Agreement and the Selling Stockholder's Irrevocable Power of Attorney; and
(iv) upon delivery to the Underwriters of a certificate for such of the
Stock that is being sold by the Selling Stockholder under the Underwriting
Agreement and payment for such Stock by the Underwriters, each Underwriter will
acquire all of the rights of such Selling Stockholder in such Stock, and each
Underwriter will also acquire such Stock free of any "adverse claim" (within the
meaning of Section 8-302(2) of the Uniform Commercial Code).
C-1
<PAGE>
EXHIBIT 2.03
MERGER AGREEMENT
EFFECTIVE DATE: February 19, 1998
PARTIES: ATMI, Inc.
7 Commerce Drive
Danbury, CT 06810-4169
("Parent")
Glide Acquisition, Inc.
7 Commerce Drive
Danbury, CT 06810-4169
("Subsidiary")
NOW Technologies, Inc.
10779 Hampshire Avenue South
Minneapolis, MN 55438
("NOW")
RECITALS:
A. NOW is engaged in the business of manufacturing container and
dispensing systems for advanced purity chemicals used in the manufacture of
microelectronics.
B. Parent with its subsidiaries is engaged in the business of developing,
manufacturing and selling specialty thin film materials and delivery
systems, point-of-use environmental equipment and epitaxial processing
services for the semiconductor industry.
C. All of the issued and outstanding capital stock of Subsidiary is owned
by Parent.
D. The respective Boards of Directors of NOW, Parent and Subsidiary have
determined that it is in the respective best interests of NOW, Parent and
Subsidiary and their respective shareholders to combine their businesses
under common management and control. As a result, the parties mutually
desire that NOW be merged with Subsidiary with NOW being the surviving
corporation upon the terms and subject to the conditions set forth in this
Agreement.
E. The parties desire the merger of NOW with Subsidiary to be a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, and for
such transaction to be accounted for as a pooling of interests.
AGREEMENT:
The parties hereto, each intending to be legally bound, agree as follows:
1
<PAGE>
ARTICLE 1.
DEFINITIONS
-----------
As used herein, the following words and terms shall have the meanings set forth
below:
"Agreement" shall mean this Merger Agreement (together with all Exhibits and
Schedules hereto) as from time to time assigned, supplemented, modified,
amended, or restated or as the terms hereby may be waived.
"Ceiling Lower Limit" shall mean the Initial Price plus 15%.
"Ceiling Upper Limit" shall mean the Ceiling Lower Limit plus $2.50.
"Closing" has the meaning set forth in Section 2.4 below.
"Closing Date" shall mean the date on which the Closing occurs.
"Closing Price" shall mean the average of the closing prices of Parent Common
Stock for the 20 trading day period ending the third trading day prior to the
Closing Date; provided, however, that if the Closing Price exceeds the Ceiling
Upper Limit, the Closing Price shall be deemed to be the Ceiling Upper Limit,
and if the Closing Price is less than the Floor Lower Limit, the Closing Price
shall be deemed to be the Floor Lower Limit.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Competing Transaction" shall mean any of the following (other than the Merger):
(i) any merger, consolidation, share exchange, business combination, or other
similar transaction involving NOW, (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of the assets of NOW in a single
transaction or series of transactions not in the ordinary course of business,
(iii) any tender offer or exchange offer for shares of NOW Common Stock, or (iv)
any agreement to engage in any of the foregoing.
"DGCL" shall mean the Delaware General Corporation Law.
"Effective Time" shall mean the time that the Merger becomes effective pursuant
to Section 2.2 below.
"Environmental Laws" means the Comprehensive Environmental Response Compensation
and Liability Act ("CERCLA") as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. (S)(S) 9601 et seq.; the Federal
-- ---
Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. (S)(S) 6901
et seq.; the Clean Water Act, 33 U.S.C. (S)(S) 1321 et seq.; the Clean Air Act,
- -- --- -- ---
42 U.S.C. (S)(S) 7401 et seq., and any other federal, state, county, local,
-- ---
foreign or other governmental statute, regulation, or ordinance, as now in
existence, that relates to or deals with employee safety and human health,
pollution, health or the environment including, but not limited to, the use,
generation, discharge, transportation, disposal, recordkeeping, notification
and reporting of Hazardous Materials (defined in Section 4.16 below).
2
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" shall mean State Street Bank and Trust Company or its authorized
successors and assigns pursuant to the Escrow Agreement.
"Escrow Agreement" shall mean the escrow agreement attached hereto as Exhibit
-------
9.5 which shall be executed and delivered by the parties thereto at the Closing.
- ---
"Escrow Fund" shall mean the funds being held in escrow from time to time
pursuant to the Escrow Agreement.
"Floor Lower Limit" shall mean the Floor Upper Limit less $2.50.
"Floor Upper Limit" shall mean the Initial Price less 15%.
"Governmental Entity" shall mean any federal, state, local or foreign
governmental body, agency, official or authority (including courts,
administrative agencies, commissions, self-regulatory agencies or authorities or
other governmental authority or instrumentality).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"Initial Price" shall mean the average of the closing prices of Parent Common
Stock for the 20 trading day period ending 10 trading days after the filing of
the Form S-1 with the Securities and Exchange Commission filed or to be filed by
Parent on or about the date hereof; provided, however, that notwithstanding the
foregoing, the Initial Price shall not be greater than $31.50 nor less than
$27.50.
"Knowledge" shall mean knowledge of the executive management of NOW, Parent or
Subsidiary, as the case may be, after making reasonable inquiry of the knowledge
of officers or senior management employees having responsibility for those
operations or transactions to which such representation and warranty relates.
An individual will be deemed to have "knowledge" of a particular fact or other
matter if:
(i) such individual is actually aware of such fact or other matter; or
(ii) a reasonably prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of making
reasonable inquiry of the knowledge of other officers or employees having
general responsibility for those operations or transactions to which such
representation and warranty relates.
"Material Adverse Effect" when used with respect to any entity shall mean a
material adverse effect on the business, assets, liabilities, financial
condition or results of operations of such entity and its subsidiaries,
individually or in the aggregate.
"MBCA" shall mean the Minnesota Business Corporation Act.
"Merger" shall mean the merger of NOW and Subsidiary more fully described
herein.
3
<PAGE>
"NOW" shall mean NOW Technologies, Inc., a Minnesota corporation.
"NOW Common Stock" shall mean NOW's Common Stock, par value $.01 per share.
"NOW Options" has the meaning set forth in Section 3.6 below.
"NOW Share Price" shall mean $21.9372.
"NOW Shares" shall mean the shares of NOW Common Stock outstanding as of the
effective time.
"Parent" shall mean ATMI, Inc., a Delaware corporation.
"Parent Common Stock" shall mean Parent's Common Stock, par value $.01 per
share.
"Product Liability Claims" has the meaning set forth in Section 4.12 below.
"SEC" shall mean the Securities and Exchange Commission.
"Shareholders" shall mean all of the shareholders of NOW.
"Shareholders' Meeting" shall mean the meeting of the shareholders of NOW to be
called to approve the Merger and this Agreement.
"Subsidiary" shall mean Glide Acquisition, Inc., a Delaware corporation.
"Surviving Corporation" shall mean the corporation that is the surviving
corporation in the Merger.
ARTICLE 2.
THE MERGER
----------
2.1) The Merger. Upon the terms and subject to the conditions set forth in
- ---- ----------
this Agreement, at the Effective Time, Subsidiary shall be merged with and into
NOW in accordance with the MBCA and the DGCL, whereupon the separate existence
of Subsidiary shall cease, and NOW shall continue as the Surviving Corporation.
2.2) Articles of Merger; Effective Time. As soon as practicable after
- ---- ----------------------------------
satisfaction or, to the extent permitted hereunder, waiver of all conditions to
the Merger set forth in Article 7 below, the parties hereto shall cause the
Merger to be consummated by filing Articles of Merger with the Secretary of
State of the State of Minnesota, and a Certificate of Merger with the Secretary
of State of the State of Delaware and making all other filings or recordings
required by the MBCA and the DGCL in connection with the Merger and the
transactions contemplated by this Agreement. The Merger shall become effective
(a) at the later of such time as the Articles of Merger are duly filed with
the Secretary of State of the State of Minnesota or the Certificate of Merger
is duly filed with the Secretary of State of the State of Delaware or (b) at
such later time
4
<PAGE>
as may be agreed by the parties in writing and specified in the Articles of
Merger or the Certificate of Merger.
2.3) Effect of Merger. From and after the Effective Time, the Surviving
- ---- ----------------
Corporation shall possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities and duties of NOW and
Subsidiary, all as provided under the MBCA and the DGCL.
2.4) Closing. The closing of the Merger will take place at 10:00 a.m. on a
- ---- -------
date to be specified by the parties, which shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in Article
7 at the offices of Shipman & Goodwin LLP in Hartford, Connecticut, unless
another date, time or place is agreed to in writing by the parties (the
"Closing").
2.5) Articles of Incorporation; By-laws.
- ---- ----------------------------------
(a) The articles of incorporation of the Surviving Corporation shall
be the articles of incorporation of NOW, as amended in connection with
the Merger to read in their entirety (other than with respect to the name
of the corporation) as the certificate of incorporation of Subsidiary in
effect immediately prior to the Effective Time, with such changes as
Parent may determine are necessary or proper to comply with Minnesota
law, until thereafter amended as provided by law.
(b) The by-laws of the Surviving Corporation shall be the by-laws of
NOW, as amended in connection with the Merger to read in their entirety
(other than with respect to the name of the corporation) as the by-laws
of Subsidiary in effect immediately prior to the Effective Time, with
such changes as Parent may determine are necessary or proper to comply
with Minnesota law, until thereafter amended as provided by law.
2.6) Directors and Officers. The directors of Subsidiary immediately prior to
- ---- ----------------------
the Effective Time and Terry Nagel shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the articles of
incorporation and by-laws of the Surviving Corporation, and the officers of NOW
immediately prior to the Effective Time and Daniel P. Sharkey shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
ARTICLE 3.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
--------------------------------------------------
3.1) Conversion of Shares. At the Effective Time, by virtue of the Merger and
- ---- --------------------
without any action on the part of the holder thereof:
(a) The shares of Subsidiary common stock which shall be outstanding
immediately prior to the Effective Time shall be converted into a number
of shares of common stock of the Surviving Corporation equal to the
number of shares of common stock of Subsidiary then outstanding.
5
<PAGE>
(b) Each NOW Share outstanding immediately prior to the Effective Time
shall, at the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive that fractional share of Parent Common Stock determined by
multiplying one share of Parent Common Stock times the Exchange Ratio.
(c) All per share prices or amounts referred to in this Agreement
shall be appropriately adjusted to reflect the effect of any stock
splits, stock dividends, stock combinations or similar transactions.
3.2) Exchange Ratio. The Exchange Ratio shall be determined as follows:
- ---- --------------
(a) If the Closing Price is less than or equal to the Ceiling Lower
Limit and greater than or equal to the Floor Upper Limit, the Exchange
Ratio shall be equal to the NOW Share Price divided by the Initial Price.
(b) If the Closing Price is less than or equal to the Ceiling Upper
Limit and greater than the Ceiling Lower Limit, the Exchange Ratio shall
be equal to the NOW Share Price plus 15% divided by the Closing Price.
(c) If the Closing Price is less than the Floor Upper Limit and
greater than or equal to the Floor Lower Limit, the Exchange Ratio shall
be equal to the NOW Share Price less 15% divided by the Closing Price.
(d) If the Closing Price is greater than the Ceiling Upper Limit,
the Exchange Ratio shall be equal to the NOW Share Price plus 15% divided
by the Ceiling Upper Limit.
(e) If the Closing Price is less than the Floor Lower Limit, the
Exchange Ratio shall be equal to the NOW Share Price less 15% divided by
the Floor Lower Limit.
(f) Notwithstanding any other provision of this Section 3.2, in the
event that before the Effective Time an announcement is made with respect
to a business combination involving the acquisition of Parent or a
substantial portion of Parent's assets, the Closing Price shall mean the
average of the closing prices of Parent Common Stock for the 20 trading
day period ending 10 days prior to the public announcement of the
business combination.
3.3) Stock Options. At Closing, Parent shall assume all of the options to
- ---- -------------
purchase NOW Common Stock outstanding as of the Effective Time (the "NOW
Options"). Each of the NOW Options shall be converted without any action on the
part of the holder thereof into an option to purchase shares of Parent Common
Stock as of the Effective Time under Parent's 1997 Stock Plan. The holder of a
NOW Option shall be entitled to purchase from Parent up to a number of whole
shares of Parent Common Stock equal to the product of (i) the number of shares
of NOW Common Stock subject to such NOW Option multiplied by (ii) the Exchange
Ratio, at a price per share of Parent Common Stock determined by dividing the
exercise price per share of NOW Common Stock provided for in such NOW Option
by the Exchange Ratio. The assumption and conversion of the NOW Options as
provided herein shall not give the holders of such NOW
6
<PAGE>
Options additional benefits which they did not have immediately prior to the
Effective Time or relieve the holders of any obligations or restrictions
applicable to their NOW Options or the shares obtainable upon exercise of the
NOW Options. Parent shall reserve out of its authorized but unissued shares of
Parent Common Stock sufficient shares to provide for the exercise of the NOW
Options.
3.4) Exchange of NOW Shares.
- ---- ----------------------
(a) Immediately following the Effective Time, each record holder (a
"Shareholder") of any certificate or certificates which, immediately prior
to the Effective Time, represented outstanding NOW Shares (the
"Certificates") whose NOW Shares were converted into the right to receive
shares of Parent Common Stock shall be entitled to surrender his, her or
its Certificates to Parent for cancellation in exchange for the shares of
Parent Common Stock into which such NOW Shares have been converted, ninety-
five percent (95%) of which amount shall be issued to the Shareholder
thereof upon the surrender of the Certificates in accordance with this
Section 3.4, and five percent (5%) of which amount (the "Indemnification
Escrow Shares") shall be held by the Escrow Agent pursuant to the Escrow
Agreement. If any Shareholder shall fail to surrender his, her or its
Certificates promptly following the Effective Time, the Parent shall send
to such Shareholder notice of the Merger and instructions for use in
effecting the surrender of the Certificates in exchange for the shares of
Parent Common Stock into which such NOW Shares have been converted, and the
holder of such Certificates shall be entitled to receive in exchange
therefor solely the shares of Parent Common Stock into which such NOW
Shares have been converted less any applicable stock transfer taxes. No
interest shall be paid or accrued for the benefit of holders of the
Certificates on the consideration payable upon the surrender of the
Certificates. It shall be a condition of exchange that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer.
(b) From and after the Effective Time, there shall be no transfers on
the stock transfer books of the Surviving Corporation of the NOW Shares
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving
Corporation for exchange, they shall be canceled and exchanged for the
shares of Parent Common Stock into which such NOW Shares have been
converted in accordance with the procedures set forth in this Section.
(c) At or prior to the Effective Time, Parent shall deliver to the
Escrow Agent certificates evidencing the Indemnification Escrow Shares to
be held in escrow in accordance with the terms of the Escrow Agreement,
together with appropriate stock powers executed by each Shareholder, to
be held in escrow in accordance with the terms of the Escrow Agreement.
(d) Notwithstanding the foregoing, any NOW Shares issued and
outstanding immediately prior to the Effective Time which are held by
Shareholders who have dissented from the Merger and have demanded
appraisal rights as provided by the MBCA (the "Dissenting Shareholders")
shall not be converted into shares of Parent Common
7
<PAGE>
Stock in the manner contemplated by Section 3.1(b) above, and the rights
of holders of the Dissenting Shareholders shall be governed by the
applicable provisions of the MBCA.
3.5) No Further Rights in NOW Shares. All shares of Parent Common Stock
- ---- -------------------------------
received by any Shareholder pursuant to this Agreement shall be deemed to have
been delivered and received in full satisfaction of all rights pertaining to
such Shareholder's NOW Shares. At the Effective Time, the holders of
Certificates representing outstanding NOW Shares shall cease to have any rights
with respect to such shares (other than such rights as they may have as
dissenting shareholders under the MBCA), and their sole right shall be to
receive the shares of Parent Common Stock into which such NOW Shares have been
converted. Dissenting Shareholders shall have the rights accorded to them by
the MBCA.
3.6) No Fractional Securities. No fractional shares of Parent Common Stock
- ---- ------------------------
shall be issuable by Parent to any Shareholder in connection with the Merger.
In lieu of any such fractional shares, each Shareholder who would otherwise have
been entitled to receive a fraction of a share of Parent Common Stock shall be
entitled to receive instead an amount in cash equal to such fractional share
multiplied by the Closing Price.
3.7) Tax and Accounting Treatment. The parties intend that the Merger will be
- ---- ----------------------------
treated as a reorganization within the meaning of Section 368 of the Code and a
pooling of interests for accounting purposes.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF GLIDE
---------------------------------------
NOW makes the following representations and warranties to Parent and Subsidiary
with the intention that Parent and Subsidiary may rely upon the same,
notwithstanding any investigation by Parent or Subsidiary or on their behalf:
4.1) Organization; Permits. NOW is a corporation duly organized, validly
- ---- ---------------------
existing and in good standing under the laws of the state of Minnesota and has
all requisite power and authority, corporate and otherwise, to own its
properties and assets and conduct its business as it is now being conducted.
NOW has all business licenses, permits and approvals necessary to conduct its
business as presently conducted, except where the failure to have such permit or
approval does not have a Material Adverse Effect. NOW conducts its business
under the trade names and other assumed names set forth on Exhibit 4.1. The
current officers and directors of NOW and each of its subsidiaries are set forth
on Exhibit 4.1.
4.2) Qualification. NOW is qualified to do business and in good standing as a
- ---- -------------
foreign corporation in all states in which qualification is required by the
nature of its business and in which the failure to so qualify would have a
Material Adverse Effect on NOW.
4.3) Corporate Authority. NOW has all requisite power and authority to
- ---- -------------------
execute, perform and carry out the provisions of this Agreement. NOW has taken
all requisite corporate action authorizing and empowering NOW to enter into this
Agreement and to consummate the Merger.
8
<PAGE>
This Agreement constitutes the legal, valid and binding obligation of NOW
enforceable against it in accordance with the terms hereof. NOW is not subject
to any charter, mortgage, lien, lease, agreement, contract, instrument, law,
rule, regulation, order, judgment or decree, or any other restriction of any
kind or character, which would prevent or inhibit the consummation of the
Merger.
4.4) Capitalization. The authorized capital stock of NOW consists of 4,000,000
- ---- --------------
shares of NOW Common Stock, $.01 par value, and 1,000,000 undesignated shares.
As of the date of this Agreement, there are outstanding 1,833,000 shares of NOW
Common Stock and no other shares of capital stock of NOW. As of the date
hereof, all persons having record ownership of shares of the capital stock of
NOW or having any right to purchase, acquire or obtain any of the capital stock
of NOW are as set forth on Exhibit 4.4. All outstanding shares of NOW Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable and were issued in compliance with all applicable federal and
state securities laws. As of the date of this Agreement, there are options to
acquire 264,000 shares of NOW Common Stock outstanding. Except as set forth in
this Section 4.4, there are outstanding (a) no shares of NOW Common Stock or
other voting securities of NOW, (b) no securities of NOW convertible into or
exchangeable for shares of NOW Common Stock or voting securities of NOW and (c)
no options, warrants or other rights to acquire from NOW, and no obligation of
NOW to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of NOW. There are
no outstanding obligations of NOW to repurchase, redeem or otherwise acquire any
NOW Common Stock. To NOW's Knowledge, no officer, director, or Shareholder of
NOW would be unable to give the representation that none of the events or
circumstances described in Rule 262 of Regulation A under the Securities Act of
1933, as amended (the "Securities Act") have occurred.
4.5) Subsidiaries, Joint Ventures or Partnerships. Except as set forth on
- ---- --------------------------------------------
Exhibit 4.5 hereto, NOW does not have any subsidiaries, and NOW is not a
shareholder, partner or joint venturer with any other person or legal entity.
4.6) Financial Statements.
- ---- --------------------
(a) Financial Statements. NOW has furnished Parent a true and complete
--------------------
copy of its audited balance sheets and statements of income for its fiscal
years ended March 31, 1996 and 1997 and has furnished internally-prepared
interim financial statements for the 9-month period ending December 24,
1997 (collectively the "Financial Statements"). The Financial Statements
have been prepared in conformance with generally accepted accounting
principles ("GAAP") applied on a basis consistent with prior periods, and
fairly present in all material respects the financial condition of NOW as
of the represented dates thereof and the results of NOW's operations for
the periods covered thereby. For purposes of this Agreement, the Financial
Statements shall be deemed to include any notes thereto. Except as set
forth in Exhibit 4.6(a), neither NOW nor any subsidiary has, nor at the
Effective Time will have, any liabilities or obligations, either
absolute, accrued, contingent or otherwise, which individually or in the
aggregate are material to the financial condition and business of NOW or
any subsidiary and which (i) have not been reflected in the Financial
Statements, (ii) have not been described in this Agreement or in any of
the
9
<PAGE>
Exhibits hereto, or (iii) have been incurred since December 24, 1997,
other than in the ordinary course of its business consistent with past
practice.
(b) NOW's Books and Records. NOW's books of account and records (including
-----------------------
customer order files, employment records and production and manufacturing
records) are complete, true and correct in all material respects.
(c) No Adverse Changes. Since December 24, 1997 and through the date
------------------
hereof, there has not occurred or arisen (whether or not in the ordinary
course of business) any Material Adverse Effect with respect to NOW, and
NOW has not (i) declared any dividend or made any payment or other
distribution in respect of any shares of its capital stock, (ii) acquired
or disposed of any shares of its capital stock or granted any options,
warrants or other rights to acquire or convert any obligation into any
shares of its capital stock, (iii) entered into any material transaction
with any officer, director, employee or any known relative thereof or any
entity in which such person has an interest, except (A) the payment of
rent, salaries, wages and expense reimbursement in the ordinary course of
business, and (B) termination agreements pursuant to this Agreement, (iv)
incurred any material obligation or liability (contingent or otherwise),
except for (A) this Agreement and NOW's agreement with BT Alex. Brown
Incorporated, (B) normal trade and other obligations incurred in the
ordinary course of business consistent with past practice and (C)
obligations under contracts, agreements and leases incurred in the ordinary
course of business consistent with past practice, the performance of which
has not and will not, individually or in the aggregate, have a Material
Adverse Effect on NOW, (v) discharged or satisfied any material lien or
other encumbrance or paid any material obligation or liability (fixed or
contingent), except in the ordinary course of business or as contemplated
by this Agreement, (vi) mortgaged, pledged or subjected to any lien or
other encumbrance any of its material assets (whether tangible or
intangible), (vii) sold, assigned, transferred, conveyed, leased or
otherwise disposed of or agreed to sell, lease or otherwise dispose of any
of its material assets except for sales of inventory or other assets for
fair consideration in the ordinary course of business or as contemplated by
this Agreement, (viii) canceled or compromised any material debt or claim,
except in the ordinary course of business, (ix) waived or released any
material rights, except for waivers or releases made in the ordinary course
of business consistent with past practice, (x) made any single capital
expenditure in excess of $50,000, or entered into any commitment therefor,
or (xi) suffered any material casualty loss or damage, whether or not
covered by insurance, or any adverse ruling, judgment or award, whether or
not amounts were reserved on NOW's books, which would have a Material
Adverse Effect on NOW
4.7) Tax Reports and Returns.
- ---- -----------------------
(a) Except as set forth on Exhibit 4.7(a), (i) all Returns (defined in
Subsection 4.7(b) below) in respect of Taxes (defined in Subsection 4.7(b)
below) required to be filed with respect to NOW (including any
consolidated federal income tax return and any state Tax return that
includes NOW or any of its related companies on a consolidated, combined
or unitary basis) have been timely filed, none of such Returns contains,
or is required to contain, a disclosure statement under section 6661 or
6662 of the Code or any similar
10
<PAGE>
provision of state, local or foreign law, and no extension of time within
which to file any such Return has been requested, which Return has not
since been timely filed; (ii) all Taxes whether or not shown on such
Returns have been timely paid and all payments of estimated Taxes
required to be made with respect to NOW under section 6655 of the Code or
any comparable provision of state, local or foreign law have been made;
(iii) all such Returns are true, correct and complete in all material
respects; (iv) no adjustment relating to any of such Returns has been
proposed formally or informally by any Tax authority; (v) there are no
outstanding subpoenas or requests for information with respect to any
Returns of NOW or the Taxes reflected on such Returns; (vi) there are no
pending or to NOW's Knowledge threatened actions or proceedings for the
assessment or collection of Taxes against NOW or any corporation that was
included in the filing of a Return with NOW on a consolidated, combined
or unitary basis; (vii) no consent under section 341(f) of the Code has
been filed with respect to NOW; (viii) there are no Tax liens on any
assets of NOW except liens for Taxes not yet due and payable or being
contested in good faith by appropriate proceedings for which adequate
reserves have been established; (ix) no acceleration of the vesting
schedule for any property that is nonvested within the meaning of the
regulations under section 83 of the Code will occur in connection with
the transactions contemplated by this Agreement; (x) NOW is not now nor
has it at any time been subject to any accumulated earnings tax or
personal holding company tax; (xi) NOW owes no amounts pursuant to any
written or unwritten Tax sharing agreement or arrangement and will not
have any liability after the date hereof in respect of any written or
unwritten Tax sharing agreement or arrangement executed or agreed to
prior to the date hereof; (xii) all Taxes required to be withheld,
collected or deposited by NOW have been timely withheld, collected or
deposited and, to the extent required, have been paid to the relevant Tax
authority; (xiii) any adjustment of Taxes of NOW made by the Internal
Revenue Service that is required to be reported to any state, local or
foreign Tax authority has been so reported and any additional Tax due as
a result thereof has been paid in full; (xiv) there are no outstanding
waivers or agreements extending the statute of limitations for any period
with respect to any Tax to which NOW may be subject; (xv) to NOW's
Knowledge there are no requests for rulings or information currently
outstanding that could affect the Taxes of NOW, or any similar matters
pending with respect to any Tax authority; (xvi) no Tax authority has
proposed reassessments of any property owned or leased by NOW that could
increase the amount of any Tax to which NOW would be subject; (xvii) no
power of attorney that is currently in force has been granted with
respect to any matter relating to Taxes that could affect NOW; and
(xviii) with respect to each Return that has been examined by the
relevant Tax authority, such examination is closed and final without any
adjustment having been made to such Return (including adjustments not
affecting the amount of Tax due with respect to such Return).
(b) For purposes of this Agreement, "Tax" or "Taxes" shall mean any and all
taxes, charges, fees, levies, and other governmental assessments and
impositions of any kind, payable to any federal, state, local or foreign
governmental entity or taxing authority or agency, including, without
limitation, (i) income, franchise, profits, gross receipts, minimum,
alternative minimum, estimated, ad valorem, value added, sales, use,
----------
service,
11
<PAGE>
real or personal property, capital stock, license, payroll, withholding,
disability, employment, social security, workers' compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes, (ii)
customs duties, imposts, charges, levies or other similar assessments of
any kind, and (iii) interest, penalties and additions to tax imposed with
respect thereto; and "Returns" shall mean any and all returns, reports,
and information statements with respect to Taxes required to be filed
with the Internal Revenue Service or any other Governmental Entity or Tax
authority or agency, whether domestic or foreign including, without
limitation. consolidated, combined and unitary tax returns. For the
purposes of this Section 4.7, references to NOW shall include former
subsidiaries of NOW identified on Exhibit 4.7(b), if any, for the periods
during which any such subsidiaries were owned, directly or indirectly, by
NOW.
4.8) Assets. NOW is the owner of or otherwise has the right to use all assets
- ---- ------
material to the conduct of its business as now conducted and as reflected on the
Financial Statements. NOW holds title to all assets owned by it free and clear
of all liens, charges, encumbrances or third party claims or interests of any
kind whatsoever, except as disclosed in Exhibit 4.8 hereto. The assets of NOW,
including real, personal and mixed, tangible and intangible, necessary or useful
to the operation of its business (the "Assets") are in good condition and
repair, ordinary wear and tear excepted, and suitable for the uses intended.
Except as disclosed in Exhibit 4.8 hereto, (i) the Assets comply with and are
operated in conformity with all applicable laws, ordinances, regulations,
orders, permits and other requirements relating thereto adopted or currently in
effect; (ii) the leases and other agreements or instruments under which NOW
holds, leases, subleases or is entitled to the use of any of the Assets are in
full force and effect, and all rentals, royalties or other payments payable
thereunder have been duly paid or provided for by adequate reserves; and (iii)
no default or event of default by NOW exists, and no event which, with notice or
lapse of time or both, would constitute a default by NOW, has occurred and is
continuing, under the terms or provisions of any such lease, agreement or other
instrument or under the terms or provisions of any agreement to which any of
such Assets is subject, nor has NOW received notice of any claim of such
default.
4.9) Intellectual Property.
- ---- ---------------------
(a) Exhibit 4.9(a) contains an accurate and complete list of: (i) all
patents, applications for patents, registrations of trademarks (including
service marks) and applications therefor, registrations of copyrights and
applications therefor that are owned by NOW and that are part of the
business of NOW as presently conducted; (ii) all other intellectual
property rights that are owned by NOW and that are material to the conduct
of business as presently conducted; (iii) all unexpired licenses relating
to such of NOW's intellectual property rights that have been granted to or
by NOW and that are material to the conduct of the business of NOW as
presently conducted; and (iv) all other agreements relating to intellectual
property rights that are material to the conduct of the business of NOW as
presently conducted (collectively, items (i)-(iv) are referred to as
"Intellectual Property Rights").
12
<PAGE>
(b) NOW owns and has the right to use, and license others to use, all
Intellectual Property Rights that are material to the conduct of the
business of NOW as presently conducted, and such ownership and right to
use, and license of others to use, are free and clear of, and without
liability under, all liens and security interests of third parties. Such
ownership and right to use, and license of others to use, are free and
clear of, and without liability under, all claims and rights of third
parties that, if determined to be legally protectable, could have a
Material Adverse Effect.
(c) NOW has taken reasonable steps sufficient to safeguard and maintain the
secrecy and confidentiality of, and its proprietary rights in, the
unpatented know-how, technology, proprietary processes, formulae, and other
information that is material to the conduct of the business of NOW as
presently conducted (the "Proprietary Information"). Without limiting the
generality of the foregoing, NOW has obtained confidentiality and
inventions assignment agreements from all of NOW's past and present
employees and independent contractors involved in the creation or
development of Intellectual Property Rights and Proprietary Information
including, without limitation, from all employees and contractors who are
inventors, authors, creators or developers of Intellectual Property Rights
that are material to the conduct of the business as presently conducted.
To NOW's Knowledge, Exhibit 4.9(c) lists all nondisclosure agreements to
which NOW is a party or by which it is bound.
(d) Except as set forth on Exhibit 4.9(d) and except for payments made with
respect to patents and patent applications, there are no royalties,
honoraria, fees or other payments payable by NOW to any person by reason of
the ownership, use, license, sale or disposition of any Intellectual
Property Right or any Proprietary Information.
(e) Except as set forth on Exhibit 4.9(e), NOW has not received notice that
NOW is infringing in the conduct of the business upon the right or claimed
right of any other party with respect to any Intellectual Property Rights
or Proprietary Information, nor does NOW have Knowledge of any alleged or
claimed infringement by any product or process manufactured, used, sold or
under development by or for NOW in the conduct of the business of NOW as
presently conducted.
(f) To NOW's Knowledge, the Intellectual Property Rights and Proprietary
Information are free of any unresolved ownership disputes with respect to
any third party, and there is no unauthorized use, infringement or
misappropriation of any of such Intellectual Property Rights or Proprietary
Information by any third party, including any employee or former employee
of NOW.
(g) For purposes of this Section 4.9, "use" with respect to intellectual
property rights includes make, reproduce, display or perform (publicly or
otherwise), prepare derivative works based on, sell, distribute, disclose
and otherwise exploit such intellectual property rights and products
incorporating or subject to such intellectual property rights.
4.10) Agreements, Contracts and Commitments.
- ----- -------------------------------------
13
<PAGE>
(a) Material Contracts. Exhibit 4.10(a) hereto contains an accurate and
------------------
complete list of all agreements, contracts, leases and commitments written
or oral to which NOW is a party or is bound and which involve more than
$50,000 singly or $100,000 in the aggregate or which is a (i) consulting
agreement not terminable on sixty (60) days or less notice involving the
payment of more than $50,000 per annum, (ii) joint venture agreement, (iii)
noncompetition or similar agreement that restricts NOW from engaging in a
line of business, (iv) agreement with any executive officer or other
employee of NOW the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving NOW
of the nature contemplated by this Agreement, (v) agreement with respect to
any executive officer of NOW or any subsidiary providing any term of
employment or compensation guaranty in excess of $50,000 per annum, (vi)
agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement, (vii) (A) any agreement providing for disposition of any
line of business, material assets or securities of NOW, (B) any agreement
with respect to the acquisition of any line of business, material assets or
securities of any other business, or (C) any agreement of merger or
consolidation or letter of intent with respect to the foregoing, or (viii)
any agreement to indemnify any other party with respect to an adverse
environmental condition.
(b) Union and Employment Contracts and Other Employment Matters.
-----------------------------------------------------------
(i) Except as set forth in Exhibit 4.10(b) hereto, NOW is not a
party to any collective bargaining agreement or any other written
employment agreement, nor is NOW a party to any other contract or
understanding (oral or written) that contains any severance pay
liabilities or obligations, except for accrued, unused vacation pay
or accrued and unused sick leave pay. Exhibit 4.10(b) sets forth a
list of the names, employment status, location of employment, and
rates of compensation (including salaries, wages, commissions and
bonuses) of all employees of NOW. Except as described in Exhibit
4.10(b), NOW has no written or oral contract of employment with any
employee of NOW, and NOW is not a party to or subject to any
collective bargaining agreement nor has NOW been a party to or
subject to any collective bargaining agreement or collective
bargaining plan during the last five (5) years. Except as described
in Exhibit 4.10(b), NOW is not a party to any pending nor, to NOW's
Knowledge, threatened labor dispute affecting the business of NOW.
NOW has complied in all material respects with all applicable
foreign, federal, state and local laws, ordinances, rules and
regulations and requirements relating to the employment of labor,
including, but not limited to, the provisions thereof relative to
wages, hours, collective bargaining, drug testing, personnel
policies and practices, payment of Social Security, unemployment and
withholding taxes, and equal opportunity employment. NOW is not
liable for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing. Except as set forth in
Exhibit 4.10(b), NOW has not received notice from any
14
<PAGE>
employee earning a base salary in excess of $40,000 that such
employee is terminating his or her employment with NOW, nor to NOW's
Knowledge, does any such employee intend to terminate his or her
employment with NOW.
(ii) Except as set forth in Exhibit 4.10(b) hereto, NOW has no, and on
the Closing Date will not have, any obligations to NOW's directors,
officers, employees or agents other than obligations arising in the
ordinary course of business on account of wages, salaries and
commissions for prior services performed or business produced.
(c) Breach. Except as disclosed in Exhibit 4.10(c) hereto, NOW has
------
performed all material obligations required to be performed by NOW to date
under any material contract, commitment or arrangement of any kind to which
NOW is a party or by which NOW is bound, including those listed on Exhibit
4.10(a); and neither NOW nor to NOW's Knowledge, any other party is in
default under any material contract, commitment or arrangement of any kind
to which NOW is a party or by which NOW is bound, including those listed on
Exhibit 4.10(a). To NOW's Knowledge, except as disclosed in Exhibit
4.10(c), no event has occurred which after the giving of notice or the
lapse of time or otherwise would constitute a default under, or result in a
breach of by NOW or any other party, any material contract, commitment, or
arrangement to which NOW is a party or by which NOW is bound, including
those listed on Exhibit 4.10(a).
(d) Copies of Contracts; Terms and Binding Effect. True, complete and
---------------------------------------------
correct copies of all written contracts, commitments, understandings and
other documents referred to in the Exhibits have been delivered or made
available to Parent; there are no amendments to or modifications of, or
agreements of the parties relating to, any such contracts, commitments, and
understandings which have not been delivered or made available to Parent;
and each such contract, commitment, or understanding, as amended, is valid
and binding on the parties to it in accordance with its respective terms.
4.11) Contracts with Related Parties. Except as disclosed in Exhibit 4.11
- ----- ------------------------------
hereto, there are no material agreements or contracts between NOW and any of its
officers, directors or shareholders. Without limiting the generality of the
foregoing, as of the date hereof, none of the Shareholders or any other present
officer or director of NOW, or any person related to, controlling, controlled by
or under common control with any of the foregoing (i) has any material direct or
indirect interest in any entity which does business with NOW, (ii) has any
direct or indirect interest in any property, asset or right which is used by NOW
in the conduct of its business, or (iii) has any contractual relationship with
NOW other than such relationships which occur from being an employee, officer,
or director of NOW.
4.12) Product Liability Claims. Except as set forth on Exhibit 4.12, all
- ----- ------------------------
products which NOW has sold have been merchantable, free from material defects
in material or workmanship, and suitable for the purpose for which they were
sold. Except as set forth in Exhibit 4.12 hereto, NOW has not received any
claims based upon an alleged breach of product warranty, strict liability in
tort, negligent manufacture of product, or any other allegation of liability
arising from NOW's manufacture or sale of its products (hereafter collectively
referred to as "Product Liability
15
<PAGE>
Claims"), during the sixty months immediately preceding the date hereof which
Product Liability Claim exceeds $25,000. To NOW's Knowledge there are no
existing facts or conditions which reasonably would be expected to give rise
to any claim exceeding $25,000. All liability from any actual and potential
Product Liability Claims, whether or not asserted on or before the Closing,
are fully covered, except for the deductible amounts, including all costs of
defense and investigation, by NOW's product liability insurance policies.
4.13) Insurance. All of the Assets are covered by such fire, casualty, product
- ----- ---------
liability, and other insurance policies issued by reputable companies as are
customarily obtained to cover comparable properties and assets by businesses in
the region in which such Assets are located, in amounts, scope and coverage
which are reasonable in light of existing conditions. Exhibit 4.13 sets forth a
list of the policies of insurance and fidelity or surety bonds carried by NOW,
including, but not limited to, fire, flood, liability, workers' compensation,
and officers' life insurance policies. NOW has not failed to give any notice or
present any material claim under any insurance policy in due and timely fashion,
and all insurance premiums due and payable by NOW in connection with the
policies set forth on Exhibit 4.13 prior to the Effective Time have been or will
be paid. There are no outstanding written requirements or written
recommendations by any insurance company that issued a policy with respect to
any of the Assets of NOW by any Board of Fire Underwriters or other body
exercising similar functions or by any governmental authority requiring or
recommending any repairs or other work to be done on or with respect to any of
the Assets of NOW or requiring or recommending any equipment or facilities to be
installed on or in connection with any of the Assets. The unemployment
insurance ratings and contributions of NOW are also set forth on Exhibit 4.13.
4.14) Litigation and Related Matters. Except as set forth on Exhibit 4.14, as
- ----- ------------------------------
of the date of this Agreement: (i) there is no action, suit, judicial or
administrative proceeding, arbitration or investigation pending or, to NOW's
Knowledge, threatened against or involving NOW or any of its properties or
rights, before any court, arbitrator, or administrative or governmental body;
(ii) there is no judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against NOW; and (iii) NOW is not in violation any term of any
judgments, decrees, injunctions or orders outstanding against it. An action
suit, proceeding, arbitration or investigation shall be considered "threatened"
for purposes of this Section 4.14 if NOW has received written notice or
otherwise has Knowledge that such event may be commenced. Except as set forth
on Exhibit 4.14, to NOW's Knowledge there are no existing facts or conditions
which reasonably would be expected to give rise to any charge, claim,
litigation, proceeding, or investigation.
4.15) Laws and Regulations. In all material respects, NOW has complied, and is
- ----- --------------------
in compliance, with applicable laws, statutes, orders, rules, regulations and
requirements promulgated by governmental or other authorities relating to its
business, including, without limitation, any relating to wages, hours, hiring,
promotion, retirement, working conditions, air, water, solid or liquid waste
pollution, nondiscrimination, health, safety, pensions, benefits, the
production, processing, advertising or sale of products, trade regulation,
antikickback, export licensing, antitrust, antiboycott, warranties, or control
of foreign exchange; and NOW has not received any notice of any sort of
alleged violation of any such statute, order, rule, regulation or requirement.
16
<PAGE>
4.16) Environmental Protection. Exhibit 4.16 completely and accurately sets
- ----- ------------------------
forth the following: (a) a list of, to NOW's Knowledge, all above-ground
storage tanks or underground storage tanks for Hazardous Materials (as defined
below) on real property now or at any time in the past owned, leased or occupied
by NOW (such real property referred to in this Section as the "Real Property");
(b) the identity of any Hazardous Materials (as defined below) used, generated,
transported or disposed of by NOW now or at any time in the past, together with
a brief description and location of each activity using such Hazardous
Materials; (c) a summary of the identity of, to NOW's Knowledge, any Hazardous
Materials that have been disposed of or found on, above or below any Real
Property; and (d) a list of all reports, studies or tests in the possession of
NOW or initiated by NOW pertaining to the existence of Hazardous Materials on,
above or below any Real Property or any property adjoining or which could
reasonably be expected to affect Real Property, or concerning compliance with or
liability under the Environmental Laws (as defined below). NOW has heretofore
delivered to Parent complete and accurate copies of such reports, studies or
tests.
NOW has obtained, and maintained in full force and effect, all required
environmental permits and other governmental approvals and is in compliance with
all applicable Environmental Laws (as defined below), except where the failure
to so obtain and maintain or to be in compliance would not have a Material
Adverse Effect on NOW. NOW has never received a written or oral notice or Claim
(as defined below) alleging potential liability under any of the Environmental
Laws or alleging a violation of the Environmental Laws and does not have any
Knowledge that such a notice or Claim may be issued in the future. NOW does not
have any Knowledge of any notices to or Claims against any persons, or
reasonable basis therefor, alleging potential liability under any of the
Environmental Laws with respect to the Real Property or any adjoining properties
or which could reasonably be expected to affect the Real Property. There is no
proceeding or investigation pending or, to the Knowledge of NOW, threatened by
any Governmental Entity with respect to the Environmental Laws. NOW has no
Knowledge of any conditions or circumstances that could reasonably be expected
to result in the determination of liability against NOW relating to the
Environmental Laws that would have a Material Adverse Effect. No Hazardous
Materials have been or are threatened to be discharged, omitted or released into
the air, water, soil, or subsurface at or from any Real Property by NOW or, to
NOW's Knowledge, by any other person.
For purposes of this Section 4.16, the following terms shall have the
following meanings: (i) "Hazardous Materials" means asbestos, urea
formaldehyde, polychlorinated biphenyls, nuclear fuel or materials, chemical
waste, radioactive materials, explosives, known human carcinogens, petroleum
products or other substances or materials listed, identified or designated as
toxic or hazardous or as a pollutant or contaminant in, or the use, release or
disposal of which is regulated by, the Environmental Laws; (ii) "Environmental
Laws" means the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. (S)(S) 9601 et seq.; the
-- ---
Federal Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C.
(S)(S) 6901 et seq.; the Clean Water Act, 33 U.S.C. (S)(S) 1321 et seq.; the
-- ---
Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., and any other federal, state,
-- ---
county, local, foreign or other governmental statute, regulation, or
ordinance, as now in existence, that relates to or deals with employee safety
and human health, pollution, health or the environment including, but not
limited to, the use, generation, discharge,
17
<PAGE>
transportation, disposal, recordkeeping, notification and reporting of
Hazardous Materials; and (iii) "Claim" means any and all claims, demands,
causes of actions, suits, proceedings, administrative proceedings, losses,
judgments, decrees, debts, damages, liabilities, court costs, penalties,
attorneys' fees and any other expenses incurred, assessed, sustained or
alleged by or against NOW.
4.17) Breaches of Contracts; Required Consents. Neither the execution and
- ----- ----------------------------------------
delivery of this Agreement by NOW, nor compliance by NOW with the terms and
provisions of this Agreement will:
(a) Conflict with or result in a breach of (i) any of the terms, conditions
or provisions of the articles of incorporation, by-laws or other governing
instruments of NOW, (ii) any judgment, order, decree or ruling to which NOW
is a party, (iii) any injunction of any court or governmental authority to
which it is subject, or (iv) any agreement, contract or commitment listed
in Exhibit 4.10(a) or which is material to NOW; or
(b) Except as disclosed in Exhibit 4.17(b) hereto, require the affirmative
consent or approval of or filing with any third party or Governmental
Entity.
4.18) Brokers. Except for its financial advisor, BT Alex. Brown & Sons
- ----- -------
Incorporated, no broker, finder or financial advisor is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of NOW, and a true and correct copy
of the engagement letter or agreement between NOW and BT Alex. Brown
Incorporated has been previously provided to Parent.
4.19) Employee Benefit Plans.
- ----- ----------------------
(a) Exhibit 4.19(a) lists each "employee benefit plan" (within the meaning
of section 3(3) of ERISA) that is maintained or otherwise contributed to by
NOW for the benefit of its employees (including, without limitation,
pension, profit sharing, stock bonus, medical reimbursement, life
insurance, disability and severance pay plans) (collectively, "Company
Plans") and all other employee benefit plans providing for deferred
compensation, bonuses, stock options, employee insurance coverage or any
similar compensation or welfare benefit plan (collectively, "Benefit
Arrangements" and, together with Company Plans, collectively referred to as
"Employee Benefit Programs").
(b) With respect to each of the Company Plans, NOW has made available to
Parent a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof (including all existing
amendments thereto that shall become effective at a later date) and, to
the extent applicable, (i) any related trust agreement, annuity contract
or other funding instrument; and (ii) any summary plan description.
(c) (i) Each of the Employee Benefit Programs has been established and
administered in compliance with any applicable provisions of ERISA, the
Code, and the terms of all documents relating to such programs; (ii) each
Company Plan that is intended to be qualified within the meaning of section
401(a) of the Code has received a favorable
18
<PAGE>
determination letter as to its qualification; (iii) as of the date of
this Agreement, no "reportable event" (as such term is used in section
4043 of ERISA) other than an event of a type as to which the Pension
Benefit Guaranty Corporation has waived the reporting requirements,
"prohibited transaction" (as such term is used in section 4975 of the
Code or section 406 of ERISA) or "accumulated funding deficiency" (as
such term is used in section 412 or 4971 of the Code) has heretofore
occurred with respect to any Company Plan; and (iv) there are no pending
or, to NOW's Knowledge, threatened, actions, claims or lawsuits which
have been asserted or instituted against the Employee Benefit Programs,
the assets of any of the trusts under such plans or the plan sponsor or
the plan administrator, or against any fiduciary of the Employee Benefit
Programs with respect to the operation of such plans (other than routine
benefit claims).
(d) NOW does not maintain or contribute to any "multiemployer plan" (as
such term is defined in section 3(37) of ERISA) and has not incurred any
material liability that remains unsatisfied with respect to any such plans.
(e) No Employee Benefit Program (other than one which is an employee
pension benefit plan within the meaning of Section 3(2)(A) of ERISA)
provides benefits (including, without limitation, death, health or medical
benefits, whether or not insured) with respect to current or former
employees of NOW beyond their retirement or other termination of service
with NOW, other than (a) coverage mandated by applicable law, (b) deferred
compensation benefits which have been accrued as liabilities on the books
of NOW, (c) benefits the full cost of which is borne by the current or
former employees (or their beneficiaries), or (d) benefits which have
already been satisfied in full.
4.20) Indebtedness.
- ----- ------------
(a) Except as set forth on Exhibit 4.20(a), NOW does not have any
obligation for money borrowed or under any guarantee nor any agreement or
arrangement to borrow money or to enter into any such guarantee, and as of
the Effective Time, except as set forth on Exhibit 4.20(a), NOW will not
have any obligation for money borrowed nor any agreement or arrangement to
borrow money, and NOW will not have any guarantee outstanding nor any
agreement or commitment to enter into any such guarantee.
(b) Except as set forth on Exhibit 4.20(b), NOW has not loaned or advanced
any funds to any person. All obligations listed on Exhibit 4.20(b) are
current, and, to NOW's Knowledge, no default or event of default by any
borrower, and no event which, with notice or lapse of time or both, would
constitute a default by any borrower has occurred and is continuing,
under the terms or provisions of any agreement or other instrument
evidencing or securing such indebtedness.
4.21) Accounts Receivable. No amount included in the accounts receivable of
- ----- -------------------
NOW in the Financial Statements has been released for an amount less than the
value at which it was included or is or will be regarded as unrecoverable in
whole or in part except to the extent there shall have been an appropriate bad
debt reserve therefor. Such receivables are not, to NOW's Knowledge,
19
<PAGE>
subject to any counterclaim, refusal to pay or setoff not reflected in the
reserves set forth on the NOW Financial Statements.
4.22) Hart-Scott-Rodino. The "total assets" and the "annual net sales" of the
- ----- -----------------
"ultimate parent entity" of NOW (as such terms are used within the meaning of
Section 7A.(a)(2)(A) of the HSR Act) are shown on Exhibit 4.22.
4.23) Customers and Suppliers. Except as set forth in Exhibit 4.23, NOW has
- ----- -----------------------
not received any notice or has any Knowledge that any customer from whom NOW
received more than $50,000 in gross receipts during the 1997 or 1998 fiscal
years (i) has ceased, or will cease, to use the products, goods or services of
its business, (ii) has substantially reduced, or will substantially reduce, the
use of products, goods or services of its business or (iii) has sought, or is
seeking, to reduce the price it will pay for products, goods or services of its
business. NOW has not received any notice nor has any Knowledge that any
supplier from whom NOW purchased more than $50,000 in goods during the 1997 or
1998 fiscal years will not sell raw materials, supplies, merchandise and other
goods to NOW at any time after the Effective Time on terms and conditions
similar to those used in the current sales to NOW, subject to general and
customary price increases and unforeseeable supply or demand changes.
4.24) Stock Ownership. Other than through mutual funds or other similar
- ----- ---------------
investment vehicles over which no investment discretion is retained, neither NOW
nor, to NOW's Knowledge, any Shareholder owns any securities issued by Parent or
has any warrants, options or other rights to purchase or otherwise acquire or
convert any obligations into securities issued by Parent.
4.25) Powers of Attorney. Except as set forth in Exhibit 4.25, no person has
- ----- ------------------
any power of attorney to act on behalf of NOW in connection with any of its
properties or business affairs other than such powers to so act as normally
pertain to the officers of NOW.
4.26) Tax-Free Reorganization; Pooling. To its Knowledge, NOW has not taken,
- ----- --------------------------------
or failed to take, any action that would jeopardize the treatment of the Merger
as a tax-free reorganization for tax purposes or a pooling of interests for
accounting purposes.
4.27) Information in Registration Statement. None of the information supplied
- ----- -------------------------------------
or to be supplied by NOW or any Shareholder for inclusion or incorporation by
reference in any registration statement filed in connection with this Agreement
will, at the time such registration statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
4.28) No Misrepresentations. Neither this Agreement nor any certificate or
- ----- ---------------------
Exhibit or other information by or on behalf of NOW or any Shareholder pursuant
to this Agreement contains any untrue statement of a material fact or, when this
Agreement and such certificates, Exhibits and other information are taken in
their entirety, omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
20
<PAGE>
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
-------------------------------------------------------
Parent and Subsidiary make the following representations and warranties to NOW
with the intention that NOW may rely upon the same.
5.1) Organization. Each of Parent and Subsidiary is a corporation duly
- ---- ------------
organized, validly existing and in good standing under the laws of the state of
Delaware and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted and to own all of its properties
and assets.
5.2) Corporate Authority. Each of Parent and Subsidiary has the corporate
- ---- -------------------
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement by Parent and Subsidiary and the
consummation by each of Parent and Subsidiary of the transactions contemplated
hereby have been duly authorized by the respective Boards of Directors of Parent
and Subsidiary, and this Agreement and each of the transactions contemplated
hereby has been approved by Parent as the sole stockholder of Subsidiary. No
other corporate proceedings on the part of either Parent or Subsidiary are
necessary to approve this Agreement or the transactions contemplated hereby, and
this Agreement constitutes the valid and binding obligations of Parent and
Subsidiary, enforceable against each in accordance with its terms.
5.3) Breaches of Contracts; Required Consents. Except as set forth on Exhibit
- ---- ----------------------------------------
5.3 and except for applicable requirements of state or foreign laws relating to
takeovers, federal and state securities or blue sky laws, filings with the
Nasdaq Stock Market, Inc. and filing of an Agreement of Merger under the MBCA
and a Certificate of Merger under the DGCL, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is necessary
for the consummation by Parent or Subsidiary of the transactions contemplated by
this Agreement. Except as set forth on Exhibit 5.3, neither the execution and
delivery of this Agreement by Parent or Subsidiary, nor the consummation by
Parent or Subsidiary of the transactions contemplated hereby, nor compliance by
Parent or Subsidiary with any of the provisions hereof, will (i) result in any
breach of the certificate of incorporation or by-laws of Parent or Subsidiary,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, contract,
agreement or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which any of them or any of their properties or
assets may be bound or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Parent, any of its subsidiaries or
any of their properties or assets, except in the case of clauses (ii) and
(iii) for violations, breaches or defaults that would not have a Material
Adverse Effect.
5.4) SEC Filings. Parent and any predecessor of Parent have filed all forms,
- ---- -----------
reports and documents with the SEC required to be filed by them pursuant to the
federal securities laws and the rules and regulations of the SEC (together, the
"SEC Documents"). As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended or the Securities Act, and none of the SEC
21
<PAGE>
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, except to the extent corrected by a subsequently filed SEC
Document.
5.5) Capitalization. The authorized capital stock of Parent consists of
- ---- --------------
30,000,000 shares of Common Stock, $.01 par value, and 2,000,000 shares of
Preferred Stock, $.01 par value. As of the date of this Agreement, there are
outstanding 18,166,283 shares of Parent Common Stock and no shares of Preferred
Stock of Parent. All outstanding shares of Parent Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and were
issued in compliance with all applicable federal and state securities laws. As
of the date of this Agreement, there are options and warrants to acquire
1,802,711 and 50,000 shares, respectively, of Parent Common Stock outstanding.
Except as set forth in this Section 5.5, there are outstanding (a) no shares of
Parent Common Stock or other voting securities of Parent, (b) no securities of
Parent convertible into or exchangeable for shares of Parent Common Stock or
voting securities of Parent and (c) no options, warrants or other rights to
acquire from Parent, and no obligation of Parent to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Parent. There are no outstanding obligations of
Parent to repurchase, redeem or otherwise acquire any Parent Common Stock. To
Parent's Knowledge, no officer, director, or Shareholder of Parent would be
unable to give the representation that none of the events or circumstances
described in Rule 262 of Regulation A under the Securities Act have occurred.
5.6) Financial Statements. The audited supplemental consolidated balance
- ---- --------------------
sheets of Parent and its subsidiaries at December 31, 1995, 1996, and 1997 and
the statements of income and changes in stockholders' equity and cash flows for
the years ended December 31, 1995, 1996, and 1997 (the "Parent Financial
Statements"), fairly present the financial position and results of operations of
Parent and its subsidiaries as for the periods then ended and the financial
position of Parent and its subsidiaries at the dates thereof in accordance with
GAAP applied on a consistent basis with prior periods (a copy of the 1997 Parent
Financial Statements are to be delivered within 10 days of the date of this
Agreement). Parent has maintained its books of account in accordance with
applicable laws, rules and regulations of government authorities and with GAAP
applied on a consistent basis with prior periods, and such books of account are
and, during the period covered by Parent Financial Statements, were correct and
complete in all material respects, fairly and accurately reflect or reflected
the income, expenses, assets and liabilities of Parent, including the nature
thereof and the transactions giving rise thereto, and provide or provided a fair
and accurate basis for the preparation of the Parent Financial Statements.
5.7) No Undisclosed Liabilities. Except as set forth in Exhibit 5.7, neither
- ---- --------------------------
Parent nor any subsidiary has, nor at the Effective Time will have, any
liabilities or obligations, either absolute, accrued, contingent or otherwise,
which individually or in the aggregate are material to the financial condition
and business of Parent or any subsidiary and which (i) have not been reflected
in the Parent Financial Statements, (ii) have not been described in this
Agreement or in any of the Exhibits hereto, or (iii) have been incurred since
September 30, 1997, other than in the ordinary course of its business consistent
with past practice.
22
<PAGE>
5.8) Information in Registration Statement. None of the information supplied
- ---- -------------------------------------
or to be supplied by Parent for inclusion or incorporation by reference in any
registration statement filed in connection with this Agreement will, at the time
such registration statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading. Any registration statement will comply as
to form in all material respects with the provisions of the Securities Act and
the rules and regulations thereunder, except that no representation is made by
Parent with respect to statements made therein based on information supplied by
NOW or any Shareholder or inclusion in any registration statement.
5.9) Subsidiary. Subsidiary was formed solely for the purpose of engaging in
- ---- ----------
the transactions contemplated by this Agreement. As of the date hereof and the
Effective Time, except for obligations or liabilities incurred in connection
with its incorporation or organization and the transactions contemplated by this
Agreement, Subsidiary does not have and will not have incurred any obligations
or liabilities or engaged in any business activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person.
5.10) Tax-Free Reorganization: Pooling. To its Knowledge, Parent has not
- ----- --------------------------------
taken, or failed to take, any action that would jeopardize the treatment of the
Merger as tax-free reorganization for tax purposes or a pooling of interests for
accounting purposes.
5.11) No Misrepresentations. Neither this Agreement nor any certificate or
- ----- ---------------------
Exhibit or other information furnished by or on behalf of Parent pursuant to
this Agreement contains any untrue statement of a material fact or, when this
Agreement and such certificates, Exhibits and other information are taken in
their entirety, omits to state a material fact necessary to make the statements
contained herein not misleading.
5.12) Laws and Regulations. In all material respects, Parent has complied, and
- ----- --------------------
is in compliance, with applicable laws, statutes, orders, rules, regulations and
requirements promulgated by governmental or other authorities relating to its
business, including, without limitation, any relating to wages, hours, hiring,
promotion, retirement, working conditions, air, water, solid or liquid waste
pollution, nondiscrimination, health, safety, pensions, benefits, the
production, processing, advertising or sale of products, trade regulation,
antikickback, export licensing, antitrust, antiboycott, warranties, or control
of foreign exchange; and Parent has not received any notice of any sort of
alleged violation of any such statute, order, rule, regulation or requirement.
5.13) Litigation and Related Matters. Except as set forth in Exhibit 5.13, as
- ----- ------------------------------
of the date of this Agreement, (i) there is no action, suit, judicial or
administrative proceeding, arbitration or investigation pending or, to Parent's
Knowledge, threatened against or involving Parent or any of its properties or
rights, before any court, arbitrator, or administrative or governmental body;
(ii) there is no judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Parent; and (iii) Parent is not in violation any term of any
judgments, decrees, injunctions or orders outstanding against it. An action,
suit, proceeding, arbitration or investigation shall be considered "threatened"
for purposes of this Section 5.13 if Parent has received written notice or
otherwise has Knowledge
23
<PAGE>
that such event may be commenced. Except as set forth on Exhibit 5.13, to
Parent's Knowledge there are no existing facts or conditions which reasonably
would be expected to give rise to any charge, claim, litigation, proceeding,
or investigation.
ARTICLE 6.
ADDITIONAL AGREEMENTS
---------------------
6.1) Access to Information. During the period prior to the Closing, NOW shall
- ---- ---------------------
give to Parent and its attorneys, accountants or other authorized
representatives, full access to all of the property, books, contracts and
records of NOW and shall furnish to Parent during such period all such
information concerning its business as Parent reasonably may request.
6.2) Restrictions. Except as disclosed in Exhibit 6.2 hereto, NOW covenants
- ---- ------------
that during the period from the date of this Agreement to the Closing (except as
Parent otherwise has consented in writing):
(a) The business of NOW will be conducted only in the usual and ordinary
manner.
(b) No change will be made in NOW's authorized or issued corporate shares
or in its capital structure.
(c) No increase will be made in the compensation payable to or to become
payable to any employee of NOW, and no bonus payment will be made by NOW to
any such employee, except in each case in the ordinary course of business
consistent with past practice.
(d) NOW will not embark upon any new venture, enter into or amend any
material leases or agreements, purchase any material fixed assets or
equipment, amend any loan agreements, guarantee any obligation or increase
any existing lines of credit.
(e) NOW will not sell, dispose, transfer, assign or otherwise remove any of
its material assets except in the ordinary course of business and
consistent with past practice.
(f) NOW, in all material respects, will timely pay and discharge all bills
and monetary obligations and timely and properly perform all of its
obligations and commitments under all existing contracts and agreements
pertaining to or affecting NOW.
(g) NOW shall use its reasonable best efforts to preserve the business
organization and assets of NOW and to keep available to Parent the services
of NOW's present employees, and not to impair relationships with suppliers,
customers and others having business relations with NOW.
(h) NOW will maintain all insurance policies listed on Exhibit 4.13 hereto
in effect.
6.3) Preserve Accuracy of Representations and Warranties. NOW shall refrain
- ---- ---------------------------------------------------
from taking any action, other than in the ordinary course of business, except
with the prior written consent of
24
<PAGE>
Parent, which would render any representation, warranty or agreement of NOW in
this Agreement inaccurate or breached as of the Closing. At all times prior to
the Closing, NOW will promptly inform Parent in writing with respect to any
matters that arise after the date of this Agreement which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in the Exhibits. NOW promptly will notify Parent in writing
of all lawsuits, claims, proceedings and investigations that may be
threatened, brought, asserted or commenced against NOW or NOW's officers or
directors.
6.4) No Solicitation of Transactions. NOW shall cause its officers, directors,
- ---- -------------------------------
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it) not to initiate,
solicit or encourage, directly or indirectly (including by way of furnishing
non-public information or assistance), or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Competing Transaction, or enter into or continue
discussions or negotiations with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of their respective officers, directors
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by them to take any such action, and NOW shall
notify Parent of all inquiries or proposals which it receives relating to any of
such matters.
6.5) Public Announcements. NOW understands that Parent is a public company,
- ---- --------------------
and that until the transactions contemplated by this Agreement are made public,
NOW and the Shareholders and those whom they advise of this transaction (which
shall only be on a "need to know basis") may be privy to material inside
information; accordingly, NOW understands, and NOW has apprised those of its
officers, directors and employees who know of the potential transaction, of the
need for confidentiality and the potential consequences of any trading in Parent
Common Stock. No public announcements shall be made concerning the negotiations
between the parties, this Agreement or the transactions contemplated herein,
without the prior mutual consent of NOW and Parent, except as may be required by
law or the rules or regulations of The Nasdaq Stock Market. The parties agree
that, to the maximum extent feasible, they will advise and confer with each
other prior to the issuance of any reports, statements or releases pertaining to
this Agreement or the transactions contemplated herein. In addition, the
parties agree to respond to all inquiries with respect to the Merger by stating
that it is their policy not to comment on such matters.
6.6) Appropriate Action; Consents; Filings.
- ---- -------------------------------------
(a) NOW, Parent and Subsidiary shall use their respective best efforts to
(i) take, or cause to be taken, all appropriate action, and do, or cause to
be done, all things necessary, proper or advisable under applicable law or
required to be taken by any Governmental Entity or otherwise to consummate
the Merger as promptly as practicable, (ii) obtain from any Governmental
Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by NOW, Parent or
Subsidiary in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger, and (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other
required submissions, with respect to this
25
<PAGE>
Agreement and the Merger required under any applicable law; provided that
NOW and Parent shall cooperate with each other in connection with the
making of all such filings, including providing copies of all such
documents to the other party and its advisors prior to filing and, if
requested, to accept all reasonable additions, deletions or changes
suggested in connection therewith. NOW and Parent shall use reasonable
best efforts to furnish to the other party all information required for
any application or other filing to be made pursuant to the rules and
regulations of any applicable law in connection with the Merger and this
Agreement.
(b) (i) NOW, Parent and Subsidiary shall give any notices to third
parties, and use, their reasonable best efforts to obtain any third
party consents, (A) necessary to consummate the Merger, (B) disclosed
or required to be disclosed in the exhibits to this Agreement or (C)
required to prevent a Material Adverse Effect on NOW, Parent or
Subsidiary.
(ii) In the event that NOW, Parent or Subsidiary shall fail to obtain
any third party consent described in subsection (b)(i) above, each
party, as appropriate, shall use its reasonable best efforts, and
shall take any such actions reasonably requested by any other party,
to minimize any adverse effect on NOW, Parent or Subsidiary which
could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent.
(c) From the date of this Agreement until the Effective Time, the parties
shall each promptly notify each other of any pending or threatened action,
proceeding or investigation by any Governmental Entity or any other person
(i) challenging or seeking damages in connection with the Merger or (ii)
seeking to restrain or prohibit the consummation of the Merger.
6.7) Tax-Free Reorganization: Pooling. None of NOW, Parent or Subsidiary shall
- ---- --------------------------------
take any action which would jeopardize the treatment of the Merger as a tax-free
reorganization or which would prevent the Merger from being accounted for as a
pooling of interests.
6.8) Preparation of S-4. Parent shall prepare and file as promptly as
- ---- ------------------
practicable after the execution of this Agreement with the SEC a registration
statement on Form S-4 (the "S-4"). NOW shall furnish all information concerning
NOW and the Shareholders as may be reasonably requested in connection with the
S-4. Parent shall use its best efforts to have the S-4 declared effective under
the Securities Act as promptly as practicable after such filing. Parent shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common Stock
in the Merger, and NOW shall furnish all information concerning NOW and the
Shareholders as may be reasonably requested in connection with any such
action.
6.9) Nasdaq Listing. Parent will make such filings as are necessary with The
- ---- --------------
Nasdaq Stock Market regarding the transactions contemplated hereby, including
filing a Notification Form for
26
<PAGE>
Listing of Additional Shares with respect to the shares of Parent Common Stock
to be issued in the Merger.
6.10) HSR Act. In the event that the parties determine that the proposed
- ----- -------
transactions are subject to a waiting period under HSR Act, NOW and Parent shall
promptly file or cause to be filed on behalf of itself and any other acquired or
acquiring persons under the HSR Act, Premerger Notification and Report Forms
with respect to the transactions contemplated herein, respond to any requests
for additional information and documents and provide the necessary information
and make the necessary filings under the HSR Act. The Effective Time shall be
reasonably extended as necessary to allow the period specified in the HSR Act
and any extensions thereof to expire prior to such date.
6.11) Shareholder Matters. NOW shall call a meeting of its Shareholders for
- ----- -------------------
the purpose of voting upon matters relating to this Agreement and the Merger to
be held as soon as practicable after the date hereof. NOW will, through its
Board of Directors, recommend to its Shareholders approval of this Agreement,
the Merger and the other transactions contemplated hereby or thereby and will
use its reasonable best efforts to cause its Shareholders to approve the Merger.
6.12) Tax Matters. Each of the parties agrees to prepare and file any and all
- ----- -----------
tax returns, reports and other filings regarding the tax treatment of the Merger
in a manner which is consistent in all respects with the intent and expectation
set forth herein.
ARTICLE 7.
CONDITIONS OF CLOSING; ABANDONMENT OF TRANSACTION
-------------------------------------------------
7.1) Conditions of Each Party's Obligations to Effect the Merger. The
- ---- -----------------------------------------------------------
respective obligations of NOW, Parent and Subsidiary to consummate the Merger
are subject to the satisfaction upon or prior to the Closing of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have been
--------------------
approved by the affirmative vote of the holders of at least 51% of shares
of outstanding NOW Common Stock in accordance with the MBCA and the
articles of incorporation and by-laws of NOW.
(b) HSR Approval. Any waiting period applicable to the consummation of the
------------
merger under the HSR Act shall have expired or been terminated.
(c) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) Statutes. No action shall have been taken, and no statute, rule,
--------
regulation or order shall have been enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Entity which would (i)
make the consummation of the Merger illegal or (ii)
27
<PAGE>
render NOW, Parent or Subsidiary unable to consummate the Merger, except
for any waiting period provisions.
(e) Accountant's Letters. Ernst & Young LLP, independent accountants to
--------------------
Parent, shall have rendered its opinion(s), addressed to Parent, in form
and substance satisfactory to Parent as to the appropriateness of pooling
of interest accounting for the Merger under Accounting Principles Board
Opinion No. 16, and Ernst & Young LLP shall have rendered its opinion to
Parent to the effect that the Merger has been structured in a manner which
is tax-free with respect to Parent and its stockholders and NOW and the
Shareholders.
(f) Form S-4. The S-4 registering the issuance and delivery of the shares
--------
of Parent Common Stock shall have been declared effective in accordance
with the provisions of the Securities Act, and no stop order suspending the
effectiveness of the S-4 shall have been issued by the SEC. All other
filings necessary under federal and state securities laws to permit the
issuance and delivery of the shares of Parent Common Stock in compliance
therewith shall have been made, and any authorizations in connection
therewith from all applicable securities regulatory authorities shall have
been obtained.
(g) Escrow Agreement. Parent, NOW and the Shareholders shall have executed
----------------
and delivered to the Escrow Agent the Escrow Agreement.
7.2) Conditions of Obligations of Parent and Subsidiary. The respective
- ---- --------------------------------------------------
obligations of Parent and Subsidiary to consummate the Merger are subject to
the satisfaction prior to or upon the Closing of the following conditions,
unless waived by Parent.
(a) Representations and Warranties. The representations and warranties of
------------------------------
NOW set forth in this Agreement shall be true and correct in all material
respects as of the Closing, as though made on and as of such date (provided
that those representations or warranties made as of a particular date need
only be true and correct as of such date).
(b) Performance of Obligations of NOW. NOW shall have performed in all
---------------------------------
material respects all obligations and covenants required to be performed by
it under this Agreement prior to or as of the Closing.
(c) Consents. The consents, approvals and authorizations described (or
--------
required to be described) on Exhibit 4.17(b) hereto shall have been
obtained in form and in substance reasonably satisfactory to Parent.
(d) No Material Adverse Changes. There shall not have been a material
---------------------------
adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of NOW, whether or not arising from transactions in the ordinary
course of business, and NOW shall not have sustained any material loss or
interference with its business or properties from fire, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action, order or
decree.
28
<PAGE>
(e) Affiliate Agreements. NOW shall have delivered (or cause to be
--------------------
delivered) duly executed Affiliate Agreements substantially in the form of
Exhibit 7.2(e) from each affiliate of NOW.
(f) Employment Agreements. NOW shall have delivered (or cause to be
---------------------
delivered) duly executed Employment Agreements substantially in the form of
Exhibit 7.2(f) from Terry Nagel, Mike Osgar and Josh Waldman.
(g) Accountant's Letter. Deloitte & Touche LLP, independent accountants to
-------------------
NOW, shall have rendered its opinion, addressed to NOW, but upon which
Ernst & Young LLP may rely, in form and substance satisfactory to NOW as to
the appropriateness of pooling of interest accounting for the Merger under
Accounting Principles Board Opinion No. 16.
(h) Stock Powers. NOW shall have delivered (or caused to be delivered)
------------
duly executed stock powers from each Shareholder, with signatures
guaranteed, with respect to the Indemnification Escrow Shares substantially
in the form of Exhibit 7.2(h).
(i) Releases. NOW shall have delivered (or cause to be delivered) duly
--------
executed releases substantially in the form on Exhibit 7.2(i) hereto,
executed by each director and each officer of NOW, releasing NOW from any
and all liabilities and obligations owed by NOW to him or her, including
but not limited to those owed to him or her in his or her capacity as a
director, officer, shareholder and/or employee of NOW.
(j) Jennifer Development Lease. NOW shall have delivered a letter
--------------------------
agreement with Jennifer Development in which the current lease of NOW's
facilities is effectively amended to allow NOW to store, use and dispose of
hazardous materials necessary to the conduct of its business so long as
such storage, use and disposal conforms to applicable law. NOW shall use
its reasonable best efforts to: (i) obtain from Jennifer Development a
release of any liens Jennifer Development may have pursuant to its lease
with NOW; (ii) obtain a non-disturbance agreement from mortgagees of
Jennifer Development; (iii) obtain Jennifer Development's acknowledgment
that the Merger is not an assignment under the terms of its lease; and (iv)
obtain Jennifer Development's consent to NOW's sublease of lab facilities.
7.3) Conditions of Obligations of NOW. The obligation of NOW to effect the
- ---- --------------------------------
Merger is subject to the satisfaction prior to or upon the Closing of the
following conditions, unless waived by NOW:
(a) Representations and Warranties. The representations and warranties of
------------------------------
Parent and Subsidiary set forth in this Agreement shall be true and correct
in all material respects as of the Closing, as though made on and as of
such date (provided that those representations or warranties made as of a
particular date need only be true and correct as of such date).
(b) Performance of Obligations of Parent and Subsidiary. Parent and
---------------------------------------------------
Subsidiary shall have performed in all material respects all obligations
and covenants required to be performed by them under this Agreement prior
to or as of the Closing.
29
<PAGE>
(c) Consents. The consents, approvals and authorizations described (or
--------
required to be described) on Exhibit 5.3 hereto shall have been obtained in
form and in substance reasonably satisfactory to NOW.
(d) Accountant's Letters. Ernst & Young LLP, independent accountants to
--------------------
Parent, shall have rendered its opinion(s), addressed to Parent, in form
and substance satisfactory to Parent as to the appropriateness of pooling
of interest accounting for the Merger under Accounting Principles Board
Opinion No. 16, and Ernst & Young LLP shall have rendered its opinion to
Parent to the effect that the Merger has been structured in a manner which
is tax-free with respect to Parent and its stockholders and NOW and the
Shareholders.
(e) No Material Adverse Changes. There shall not have been a material
---------------------------
adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of Parent, whether or not arising from transactions in the
ordinary course of business, and Parent shall not have sustained any
material loss or interference with its business or properties from fire,
explosion, flood or other casualty, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental
action, order or decree.
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
8.1) Termination. This Agreement may be terminated and the Merger may be
- ---- -----------
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval of this Agreement and the Merger by the shareholders of NOW only in
accordance with the following provisions:
(a) by mutual written consent of each of NOW, Parent and Subsidiary; or
(b) by NOW if either (i) the Effective Time shall not have occurred on or
before June 30, 1998; provided, however, that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to NOW if its
failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on or before
such date, or (ii) there shall be any law that makes consummation of the
Merger illegal or otherwise prohibited or if any court of competent
jurisdiction or Governmental Entity shall have issued an order, decree,
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action
shall have become final and unappealable; provided that NOW shall have
complied with its obligations under Section 6.6 above, or (iii) any of
the conditions provided in Section 7.3 have not been satisfied or waived;
or
(c) by Parent if either (i) the Effective Time shall not have occurred on
or before June 30, 1998; provided, however, that the right to terminate
this Agreement under this Section 8.1(c) shall not be available to Parent
if Parent's or Subsidiary's failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
30
<PAGE>
Effective Time to occur on or before such date, or (ii) there shall be any
law that makes consummation of the Merger illegal or otherwise prohibited
or if any court of competent jurisdiction or Governmental Entity shall have
issued an order, decree, ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and unappealable; provided
that Parent and Subsidiary shall have complied with their obligations under
Section 6.6 above, or (iii) any of the conditions provided in Section 7.2
have not been satisfied or waived; or
(d) by Parent, if the Board of Directors of NOW withdraws, modifies or
changes its recommendation of this Agreement or the Merger in a manner
adverse to Parent or shall have resolved to do any of the foregoing or the
Board of Directors of NOW shall have recommended to the shareholders of NOW
any Competing Transaction or resolved to do so; or
(e) by Parent if more than 10% of the Shareholders shall have dissented to
the Merger in accordance with the applicable provisions of the MBCA; or
(f) by NOW, in the event of a material breach by Parent or Subsidiary of
any representation, warranty, covenant or agreement contained herein which
has not been cured or is not curable by June 30, 1998; or
(g) by Parent, in the event of a material breach by NOW of any
representation, warranty, covenant or agreement contained herein which has
not been cured or is not curable by June 30, 1998.
8.2) Termination; Termination Payment. In the event of termination of this
- ---- --------------------------------
Agreement, this Agreement shall forthwith become void, and there shall be no
liability on the part of any of the parties hereto or their respective
affiliates, directors, officers, or stockholders, except as provided below and
except for those obligations intended to survive termination. In the event
that: (i) either Parent or NOW shall terminate this Agreement because of
material misrepresentation or a breach of a material covenant by the other
party; or (ii) Parent shall terminate this Agreement pursuant to Section 8.1(d);
or (iii) the Merger shall not have been approved by the affirmative vote of the
holders of at least 51% of the voting securities of NOW; or (iv) the number of
Dissenting Shareholders exceeds 10% and NOW enters into a Competing Transaction
within one year of the date hereof with any person or entity other than Parent,
(A) in the case of (i) and (ii), the nonterminating party shall be liable to
and shall pay to the terminating party by wire transfer the sum of $2,200,000
in full satisfaction of all claims within fifteen (15) business days after the
nonterminating party's receipt of written notice of termination, and (B) in
the case of (iii) and (iv), NOW shall be liable to and shall pay to the Parent
by wire transfer the sum of $2,200,000 in full satisfaction of all claims
within fifteen (15) business days after the Shareholders' Meeting, in the case
of (iii) and the entering into of such Competing Transaction, in the case of
(iv). It is agreed that the payments due hereunder are the exclusive remedy
for termination of this Agreement. Notwithstanding the foregoing, in the event
of a breach by NOW of Section 6.4, Parent may pursue any and all remedies
available to it at law or in equity. Recovery by Parent of a termination
payment under this Section 8.2 shall not bar any such action for breach of
Section
31
<PAGE>
6.4, but the amount of any monetary damages awarded to Parent in such action
shall be reduced by the termination payment actually received by Parent.
8.3) Amendment. This Agreement may be amended by the parties hereto by action
- ---- ---------
taken by or on behalf of their respective Boards of Directors at any time prior
to the Effective Time; provided, however, that, after the approval of this
Agreement and the Merger by the shareholders of NOW, no amendment may be made
which would reduce the timing, certainty or number of the shares of Parent
Common Stock. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
8.4) Waiver. At any time prior to the Effective Time, any party hereto may (a)
- ---- ------
extend the time for the performance of any obligation or other act of any other
party hereto, (b) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any agreement or condition contained herein. Any such extension
or waiver shall be valid if set forth in any instrument in writing signed by the
party or parties to be bound thereby.
ARTICLE 9
GENERAL PROVISIONS
------------------
9.1) Certain Employee Benefit Matters. Parent confirms to NOW that it is
- ---- --------------------------------
Parent's present intent to provide after the Effective Time to continuing
employees of NOW employee benefit programs that in the aggregate are generally
not less favorable to such employees than those being provided to Parent's
employees on the date of this Agreement. To the extent Parent's employee
benefit programs provide medical or dental welfare benefits after the Closing
Date, Parent shall use reasonable efforts to cause all pre-existing condition
exclusions to be waived, and Parent shall provide that any expenses incurred on
or before the Closing Date shall be taken into account under the Parent employee
benefit programs for purposes of satisfying the applicable deductible,
coinsurance and maximum out-of-pocket provisions for such employees and their
covered dependents.
9.2) Director and Officer Indemnification. Until the date of issuance of the
- ---- ------------------------------------
first independent audit report with respect to the financial statements of
Parent after the Effective Time, Parent and the Surviving Corporation each
agrees that for acts occurring prior to the Effective Time, all rights to
indemnification and advancement of expenses existing in favor of the directors
and officers of NOW under the provisions existing on the date hereof of the
Articles of Incorporation, Bylaws and indemnification agreements of NOW shall
survive the Effective Time, and Parent and the Surviving Corporation each
agrees to indemnify and advance expenses to such directors and officers to the
full extent required or permitted under the provisions existing on the date
hereof of NOW's Articles of Incorporation and Bylaws and indemnification
agreements. To the extent that any matter which is properly the subject of
indemnification with respect to such continuing director and officer
indemnification obligations results from a breach of a representation,
warranty or covenant under this Agreement, Parent shall not be relieved of its
requirements to honor such continuing indemnification obligations but shall
itself be entitled to seek indemnification pursuant to the terms of this
Agreement. If such a claim by Parent is indemnified under Section 9.5, no
32
<PAGE>
director or officer shall thereafter be entitled to seek indemnification under
the articles of incorporation or by-laws of NOW or director and officer
indemnity agreements for any amounts required to be paid pursuant to this
Agreement.
9.3) Expenses. All costs and expenses incurred in connection with this
- ---- --------
Agreement and the transactions contemplated hereby (whether or not the Merger is
consummated) shall be paid by the party incurring such expenses, except that if
the Merger is not consummated Parent and NOW shall share equally the expenses
incurred in connection with filings under the HSR Act.
9.4) Survival of Representations and Warranties. The representations and
- ---- ------------------------------------------
warranties in this Agreement and in any instrument delivered pursuant to this
Agreement shall survive the Effective Time for a period of twelve months.
9.5) Indemnification.
- ---- ---------------
(a) Subject to the limitations set forth in Section 9.5(b) below, Parent
and Subsidiary, jointly and severally, shall indemnify and hold NOW and the
shareholders of NOW harmless at all times from and after the date of this
Agreement against and in respect of all damages, losses, costs and expenses
(including reasonable attorney fees but not including any loss resulting
from a diminution in the value of Parent Common Stock received in the
Merger) which NOW and/or the shareholders of NOW may suffer or incur in
connection with the breach by Parent or Subsidiary of any of their
respective representations, warranties or covenants in this Agreement.
(b) NOW and the shareholders of NOW shall not assert any claim under
Section 9.5(a) above unless and until such claims exceed an aggregate of
$100,000 and any claim under Section 9.5(a) above must be asserted within
twelve months from the Effective Time or be forever barred. Notwithstanding
the foregoing or anything in this Agreement to the contrary, no claim
seeking indemnification with respect to matters set forth in Section 9.5(a)
may be brought after the date of issuance of the first independent audit
report with respect to the financial statements of Parent after the
Effective Time if such claim is of a type expected to be encountered in the
course of an audit performed in accordance with generally accepted auditing
standards.
(c) Subject to the limitations set forth in Section 9.5(d) below, NOW and
the shareholders of NOW shall indemnify and hold the Surviving Corporation,
Parent and Subsidiary harmless at all times from and after the date of
this Agreement, against and in respect of all losses, damages, costs and
expenses (including reasonable attorney fees) which the Surviving
Corporation, Parent and/or Subsidiary may suffer or incur in connection
with the breach by NOW of any of its representations, warranties or
covenants in this Agreement.
(d) The Surviving Corporation, Parent and Subsidiary shall not assert any
claim under Section 9.5(c) above unless and until such claims exceed an
aggregate of $100,000; any claim under Section 9.5(c) above must be
asserted within twelve months from the Effective Time or be forever barred;
and any claim under Section 9.5(c) above must be
33
<PAGE>
made only against the Escrow Fund and only in accordance with the terms
of the Escrow Agreement. Notwithstanding the foregoing or anything in
this Agreement to the contrary, no claim seeking indemnification with
respect to matters set forth in Section 9.5(c) may be brought after the
date of issuance of the first independent audit report with respect to
the financial statements of Parent after the Effective Time if such claim
is of a type expected to be encountered in the course of an audit
performed in accordance with generally accepted auditing standards.
(e) If a claim by a third party is made against any of the indemnified
parties, and if any of the indemnified parties intends to seek indemnity
with respect to such claim under this Section 9.5, such indemnified party
shall promptly notify the indemnifying party of such claim. The
indemnifying party shall have thirty (30) days after receipt of the above-
mentioned notice to undertake, conduct and control, through counsel of such
party's own choosing (subject to the consent of the indemnified party, such
consent not to be unreasonably withheld) and at such party's expense, the
settlement or defense of it, and the indemnified party shall cooperate with
the indemnifying party in connection with such efforts; provided that: (i)
the indemnifying party shall not by this Agreement permit to exist any
lien, encumbrance or other adverse charge upon any asset of any indemnified
party, (ii) the indemnifying party shall permit the indemnified party to
participate in such settlement or defense through counsel chosen by the
indemnified party, provided that the fees and expenses of such counsel
shall be borne by the indemnified party, (iii) the indemnifying party shall
agree promptly to reimburse the indemnified party for the full amount of
any loss resulting from such claim and all related expense incurred by the
indemnified party pursuant to this Article, and (iv) the indemnifying party
will not compromise or settle any claim without the prior consent of the
indemnified party. So long as the indemnifying party is reasonably
contesting any such claim in good faith, the indemnified party shall not
pay or settle any such claim. If the indemnifying party does not notify
the indemnified party within thirty (30) days after receipt of the
indemnified party's notice of a claim of indemnity under this Section 9.5
that such party elects to undertake the defense of such claim, the
indemnified party shall have the right to contest, settle or compromise the
claim in the exercise of the indemnified party's exclusive discretion at
the expense of the indemnifying party.
(f) In the event that Parent and/or Subsidiary have a claim against NOW,
that claim must be asserted against the Escrow Fund only and must be made
in accordance with the provisions of the Escrow Agreement.
(g) To the extent that Parent or Subsidiary make a claim against the
Indemnification Escrow Shares pursuant to the Escrow Agreement, and such
claim is paid in shares of Parent Common Stock, then for purposes of such
payment, the shares of Parent Common Stock shall be valued at the Initial
Price, if Section 3.2(a) is applicable, or the Closing Price, if any of
Sections 3.2(b)-(e) is applicable.
9.6) Notices. All notices, requests, claims, demands and other communications
- ---- -------
to any party hereunder shall be in writing (including telecopy or similar
writing) and shall be deemed given if delivered personally, by facsimile, by
certified mail (postage prepaid, return receipt requested) or sent by overnight
courier (in each case, providing proof of delivery) to the parties at the
addresses
34
<PAGE>
and/or facsimile numbers set forth at the beginning of this Agreement (or such
other address or facsimile number for a party as shall be specified in like
notice).
9.7) Entire Agreement. This Agreement (including the Exhibits and Schedules
- ---- ----------------
hereto) and the other documents referenced herein contain the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior arrangements and understandings, both written and oral, with respect
thereto.
9.8) Successors and Assigns. The provisions of this Agreement shall be binding
- ---- ----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of the other parties hereto.
9.9) Parties in Interest. This Agreement shall be binding upon and inure
- ---- -------------------
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than (a) Section 3.3 above (which is intended to be for the
benefit of the persons holding the stock options referred to therein); (b)
Section 9.1 above (which is intended to be for the benefit of the employees of
NOW); and (c) Section 9.4 and Section 9.5(a) which are intended to be for the
benefit of the shareholders of NOW.
9.10) Enforcement. The parties agree that irreparable damage would occur in
- ----- -----------
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement pursuant to Section 9.11 below, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.11) Governing Law; Jurisdiction. This Agreement shall be governed and
- ----- ---------------------------
construed in accordance with the laws of the State of Delaware without giving
effect to the provisions thereof relating to conflicts of law. Each party
hereto: (1) agrees that any proceeding arising out of this Agreement and the
Merger shall be brought in a state court or United States federal court located
in the State of New York; (2) consents to the jurisdiction of each such court in
any such proceeding; (3) waives any objection which such party may have to the
laying of venue of any such proceeding in any of such courts; and (4) agrees
that New York is the most convenient forum for litigation of any such
proceeding.
9.12) Counterparts; Effectiveness. This Agreement may be signed in any number
- ----- ---------------------------
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
9.13) Delivery by NOW. NOW shall deliver or cause to be delivered to Parent at
- ----- ---------------
Closing:
(i) A complete and correct copy of its articles of incorporation, as
amended to date, certified by the Secretary of State of the State of
Minnesota and its by-laws,
35
<PAGE>
as amended to date, certified by the Secretary or an Assistant
Secretary of NOW, and the original corporate stock ledgers,
corporate seal and minute book(s) of NOW.
(ii) Long form certificates of good standing or legal existence, as
appropriate, as of a recent date issued by (i) the Secretary of State
of the State of Minnesota to the effect that NOW is in good standing
under the laws of such state, and (ii) the Secretary of State of each
state in which NOW is authorized to transact business as a foreign
corporation to the effect that NOW is duly qualified as a foreign
corporation in such state.
(iii) Such other certificates and representations as are reasonably
requested by Ernst & Young LLP in order to render its opinions.
(iv) With respect to each subsidiary of NOW, items (i) and (ii) above.
(v) Such further instruments or documents as Parent or its counsel may
reasonably request to assure the full and effective completion of the
Merger and to assure the effective completion of the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
NOW Technologies , Inc.
By /s/ TERRY J. NAGEL
------------------
Name: Terry J. Nagel
Title: President and Chief Executive Officer
ATMI, Inc.
By /s/ EUGENE G. BANUCCI
---------------------
Name: Eugene G. Banucci
Title: President and Chief Executive Officer
Glide Acquisition, Inc.
By /s/ EUGENE G. BANUCCI
---------------------
Name: Eugene G. Banucci
Title: President and Chief Executive Officer
36
<PAGE>
None of the following exhibits referenced in the Merger Agreement is contained
in the attached copy:
Exhibit 4.1 Trade Names and Current Officers and
Directors
Exhibit 4.4 Record Owners of Capital Stock and
Options
Exhibit 4.5 Subsidiaries
Exhibit 4.6 (a) Undisclosed Liabilities
Exhibit 4.7 (a) Taxes
Exhibit 4.7 (b) Former Subsidiaries
Exhibit 4.8 Liens and Encumbrances
Exhibit 4.9 (a) Intellectual Property
Exhibit 4.9 (c) Nondisclosure Agreements
Exhibit 4.9 (d) Royalties
Exhibit 4.9 (e) Infringement
Exhibit 4.10 (a) Material Contracts
Exhibit 4.10 (b) Employment Contracts and Employees
Exhibit 4.10 (c) Breach of Contract
Exhibit 4.11 Contracts with Related Parties
Exhibit 4.12 Product Liability Claims
Exhibit 4.13 Insurance
Exhibit 4.14 Litigation
Exhibit 4.16 Environmental Matters
Exhibit 4.17 (b) Required Consents
Exhibit 4.19 (a) Employee Benefit Plans
Exhibit 4.20 (a) Indebtedness - Owed by NOW
Exhibit 4.20 (b) Indebtedness - Owed to NOW
Exhibit 4.22 Hart-Scott-Rodino
Exhibit 4.23 Customers and Suppliers
Exhibit 4.25 Powers of Attorney
Exhibit 5.3 Required Consents
Exhibit 5.7 Undisclosed Liabilities
Exhibit 5.13 Litigation
Exhibit 6.2 Interim Operations
Exhibit 7.2 (e) Form of Affiliate Agreement
Exhibit 7.2 (f) Form of Employment Agreement
Exhibit 7.2 (h) Form of Stock Power
Exhibit 7.2 (i) Form of Release
Exhibit 9.5 Form of Escrow Agreement
The registrant agrees to furnish supplementally a copy of any omitted exhibits
to the Securities and Exchange Commission upon request.
<PAGE>
EXHIBIT 5.01
Shipman & Goodwin LLP One American Row
Counselors at Law Hartford, CT 06103-2819
TEL: (860) 251-5000
March 3, 1998
ATMI, Inc.
7 Commerce Drive
Danbury, Connecticut 06810
Ladies and Gentlemen:
In connection with registration of 4,600,000 shares of the Common Stock,
par value $.01 per share (the "Common Stock"), of ATMI, Inc., a Delaware
corporation (the "Company"), of which the Company proposes to issue up to
2,000,000 shares of its authorized but unissued Common Stock (the "Company
Shares") and certain stockholders propose to sell up to 2,600,000 outstanding
shares of Common Stock (the "Stockholder Shares"), pursuant to a public
offering, we have examined, as counsel to the Company, the Registration
Statement on Form S-1 (and the prospectus included therein) to be filed under
the Securities Act of 1993, as amended (the "Securities Act"), and such other
documents as we have deemed necessary or appropriate in order to express the
opinions set forth below.
In connection with our opinions hereinafter given, we have examined and
relied upon originals, or copies, certified or otherwise, identified to our
satisfaction, of such agreements, documents, certificates and other statements
of government officials, corporate officers and representatives and other
documents as we have deemed relevant and necessary as a basis for such opinions.
In such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that (a) when (i) the
Registration Statement shall have become effective under the Securities Act, and
(ii) the Company Shares shall have been issued and delivered against payment
therefor as contemplated in the Registration Statement, the Company Shares will
be legally and validly issued, fully paid and non-assessable and (b) the
Stockholder Shares have been legally and validly issued and are fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus included in the Registration Statement. In giving
this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Securities and Exchange Commission.
<PAGE>
Very truly yours,
/s/ SHIPMAN & GOODWIN LLP
<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 February 11, 1998, in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-46609) and related Prospectus of ATMI,
Inc. for the registration of 4,600,000 shares of its common stock.
/s/ Ernst & Young LLP
Stamford, Connecticut
March 2, 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
combined 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 application of
such report to the Financial Statement Schedule for the three years ended
December 31, 1996 listed under Item 16(b) of this Registration Statement when
such schedule is read in conjunction with the financial statements referred to
in our report. We also consent to the reference to us under the heading of
"Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Phoenix, Arizona
March 2, 1998
<PAGE>
EXHIBIT 23.04
INTELLECTUAL PROPERTY/TECHNOLOGY LAW
<TABLE>
<S> <C>
Office Location: 6320 Quadrangle Drive . Suite 110 . Chapel Hill, NC 27514 Telephone: 919 419 9350
Mailing Address: P.O. Box 14329 . Research Triangle Park, NC 27709 Facsimile: 919 419 9354
email: [email protected]
-------------
</TABLE>
February 27, 1998
We hereby consent to the reference to our firm, Intellectual Property/Technology
Law, under the caption "Experts" in the Registration Statement on Form S-1 (and
the prospectus included therein), as amended, filed under the Securities Act of
1933, as amended, by ATMI, Inc. (the "Company") for the registration of
4,600,000 shares of the Common Stock of the Company and consent to the filing
this consent as an exhibit to the Registration Statement.
INTELLECTUAL PROPERTY/
TECHNOLOGY LAW
/s/ STEVEN J. HULTQUIST
Steven J. Hultquist
Principal
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 11550
<SECURITIES> 17461
<RECEIVABLES> 19784<F1>
<ALLOWANCES> 0
<INVENTORY> 7717
<CURRENT-ASSETS> 60582
<PP&E> 36032<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 103146
<CURRENT-LIABILITIES> 20649
<BONDS> 0
0
0
<COMMON> 181
<OTHER-SE> 61691
<TOTAL-LIABILITY-AND-EQUITY> 103146
<SALES> 101877
<TOTAL-REVENUES> 101877
<CGS> 48684
<TOTAL-COSTS> 48684
<OTHER-EXPENSES> 10581<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1810
<INCOME-PRETAX> 10364
<INCOME-TAX> 5941
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4421
<EPS-PRIMARY> .26
<EPS-DILUTED> .24
<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>
