<PAGE>
<TABLE>
<S> <C> <C>
PROSPECTUS 4,720,000 SHARES Filed Pursuant to Rule 424(b)(4)
Registration No. 333-46609
</TABLE>
ATMI, INC.
[LOGO OF ATMI, INC. APPEARS HERE]
COMMON STOCK
Of the 4,720,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by ATMI, Inc. ("ATMI" or the "Company") and 2,720,000 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 25, 1998, the last reported sale price of the Common
Stock was $30.125 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $29.50 $1.40 $28.10 $28.10
- --------------------------------------------------------------------------------
Total (3)................... $139,240,000 $6,608,000 $56,200,000 $76,432,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $540,000.
(3) The Company and the Selling Stockholders have granted to the Underwriters
a 30-day option to purchase up to 708,000 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, Proceeds to
Company and Proceeds to Selling Stockholders will be $160,126,000,
$7,599,200, $63,429,877 and $89,096,923, 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 March 31, 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.
March 26, 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(R), EcoSys(R) (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.......................... 2,720,000 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 $ 95,593
Total assets......................................... 103,146 158,806
Long-term debt, less current portion................. 14,526 14,526
Total stockholders' equity........................... 61,872 117,532
</TABLE>
- --------------------
(1) Based on the number of shares of Common Stock outstanding at January 31,
1998. Excludes: (i) 1,989,664 shares of Common Stock reserved for issuance
under the Company's stock plans, of which 1,795,736 shares of Common Stock
are issuable upon exercise of options outstanding as of January 31, 1998 at
a weighted average exercise price of $14.62 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 a public offering price of $29.50 per share and
the receipt of the 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 28.8% 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 13.4% and 11.3% of the outstanding shares of
the Company's Common Stock, respectively. As a result of their stock
ownership, the current executive officers and directors of the Company as a
group, and each of Mr. Siegele and Mr. Lawrence individually, are able to
exert significant influence over all matters requiring stockholder approval,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership in such persons could also have
the effect of making it more difficult for a third party to acquire, or could
discourage a third party from attempting to acquire, control of the Company
and, therefore, may limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. See "Principal and
Selling Stockholders."
Lack of Dividends. The Company has never declared or paid any cash dividends
on its capital stock. The Company currently intends to retain all available
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future. Certain financing agreements of the
Company's subsidiaries contain limitations or prohibitions on the payment of
dividends without the lender's consent or in conjunction with a subsidiary's
failure to comply with various financial covenants. See "Divided Policy."
Risks Associated with the Control of Use of Proceeds by the Board of
Directors and Management. Of the Company's approximately $55.7 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 a public offering price of
$29.50 per share are estimated to be $55,660,000 ($62,889,877 if the
Underwriters' over-allotment option is exercised in full), after deducting the
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 25, 1998)........................ 30.50 20.00
</TABLE>
On March 25, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $30.125 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
a public offering price of $29.50 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 96,091
Cumulative translation adjustment.................. (1,099) (1,099)
Retained earnings.................................. 22,339 22,339
-------- --------
Total stockholders' equity....................... 61,872 117,532
-------- --------
Total capitalization............................ $ 76,993 $132,653
======== ========
</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 (0.3)
Other income (expense), net................................ (0.9) 0.0 0.2
----- ----- -----
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 5.0% 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) (0.8)
Other income (expense),
net.................... 0.0 0.0 0.0 0.0 0.0 0.1 (0.1) 0.8
------- ------- ------- ------- ------- ------- ------- -------
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 7.8
------- ------- ------- ------- ------- ------- ------- -------
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) 0.2
------- ------- ------- ------- ------- ------- ------- -------
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
25
<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 insulating thin films.
3. Liquid Delivery Systems Continuous liquid refill and vaporization systems
maximize the productivity of CVD tools. ATMI manufactures and sells a variety
of innovative refill and vaporization systems.
4. Thin Film Deposition As source materials enter the CVD reactor, they
encounter energy in the form of heat or plasma. The energy decomposes the source
material to yield a functional thin film. ATMI provides contract CVD thin film
epitaxial services to semiconductor manufacturers.
5. Effluent Gas Treatment Only a small percentage of the source material is
actually decomposed, with the remainder flushed out of the reactor via vacuum
pumping systems. ATMI manufactures systems that minimize the release of reactor
effluent into the environment.
- --------------------------------------------------------------------------------
26
<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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<PAGE>
Research Projects Agency awarded a $5 million contract for the development of
thin film materials technology to the Collaborating Group, with the Company as
prime contractor. This program was successfully completed in 1996 with a total
cost of over $20 million. The Company, through its Emosyn division, intends to
use the technology developed under the program to develop and commercialize
smart card devices pursuant to a strategic alliance with a subsidiary of SMH
Swatch. In addition, ATMI's ferroelectric thin film technology has also
expanded to other ferroelectric materials that have applications ranging from
non-volatile memory devices to wireless components. This in turn has led ATMI
to enter into strategic alliances with Lucent Technologies, Siemens and Texas
Instruments to develop these materials for commercial markets.
SDS Gas Delivery Systems. Simultaneously with the development of these thin
film materials, the Company developed and patented a novel approach to the
delivery of gases to semiconductor reactors. Historically, semiconductor
process gases have only been available in high-pressure cylinders that can
create an immediate danger over a large area if inadvertently released.
Through the use of in-cylinder adsorbents, SDS reduces cylinder pressures
below atmospheric levels. This lowered pressure allows controllable, on-demand
release of certain semiconductor process gases. The Company began a strategic
alliance with Matheson in January 1994, under which Matheson exclusively
distributes the SDS product to ion implant users in the worldwide
semiconductor industry.
Government Contracts. ATMI participates in United States government funded
research and development contracts. As of December 31, 1997, the Company had
received aggregate awards since its inception of approximately $62.0 million
from United States government agencies, including approximately $54.9 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 2016. 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.
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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 $17.0 million, consisting of approximately $10.6 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 24,000 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............... 34 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............. 38 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 $89,000
for the period in 1997 during which he was employed by the Company. Had Mr.
Siegele been employed by the Company for all of 1997, he would have been the
Company's most highly compensated executive officer.
40
<PAGE>
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers during the year ended December
31, 1997.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
--------------------------------------------- --------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#) (1) IN 1997 ($/SH) DATE 5% ($) 10% ($)
- ---- -------------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eugene G. Banucci....... 25,000 4.1% 17.25 1/1/07 271,211 687,301
James M. Burns.......... 35,000 5.8% 16.88 1/2/07 371,441 941,304
Peter S. Kirlin......... 20,000 3.3% 17.25 1/1/07 216,969 549,841
Daniel P. Sharkey....... 15,000 2.5% 17.25 1/1/07 162,726 412,381
Duncan W. Brown......... 5,000 0.8% 17.25 1/1/07 54,242 137,460
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- ---------------------
(1) Options granted vest ratably over five years on each of the first five
anniversary dates of the grant date.
(2) The dollar amounts under these columns are the result of calculations
assuming 5% and 10% growth rates as set by the Securities and Exchange
Commission (the "Commission") and, therefore, are not intended to forecast
future price appreciation, if any, of the Company's Common Stock.
STOCK OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option holdings as of
December 31, 1997 with respect to the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END (#) AT FY-END ($)(1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eugene G. Banucci....... -- -- 112,175 47,200 2,502,094 502,825
James M. Burns.......... -- -- 0 35,000 -- 258,125
Peter S. Kirlin......... -- -- 64,074 35,700 1,410,598 371,450
Daniel P. Sharkey....... -- -- 77,375 28,500 1,729,372 329,750
Duncan W. Brown......... -- -- 72,537 11,900 1,665,361 138,275
</TABLE>
- ---------------------
(1) Based on the fair market value of the Company's Common Stock as of
December 31, 1997 ($24.25) minus the exercise price of the options.
DIRECTOR COMPENSATION
The Company's directors do not receive any cash compensation for service on
the Board of Directors or any committee thereof but are reimbursed for
expenses incurred in connection with attending meetings of the Board of
Directors and any committee thereof. In October 1993, the Company granted
options for the purchase of 22,500 shares of Common Stock at an exercise price
of $3.56 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 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 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
45
<PAGE>
case of Stephen H. Siegele and for a period of nine months after 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% 1,030,302 2,711,003 13.4%
6805 Capital of Texas
Highway
Suite 330
Austin, Texas 78731
Lamonte H. Lawrence
(2).................... 3,597,922 19.8% 1,308,484 2,289,438 11.3%
100 Sir Francis Drake
Boulevard
Ross, California 94957
Estate of Bernard
McKeown (3)............ 626,534 3.5% 172,252 454,282 2.3%
F.H.S. Investments, Ltd.
(4).................... 626,534 3.5% 133,616 492,918 2.4%
Eugene G. Banucci (5)... 323,382 1.8% -- 323,382 1.6%
Frederick J. Siegele
(6).................... 179,009 1.0% 38,176 140,833 *
Duncan W. Brown (7)..... 176,671 1.0% -- 176,671 *
Robert M. Jackson (8)... 89,504 * 17,170 72,334 *
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% 2,338,786 5,944,229 28.8%
</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, 193,078
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 1,845,736 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 9,947,985
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 9,776,735 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 6,214,235 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 9,947,985 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, Hambrecht
& Quist LLC, BT Alex. Brown Incorporated, NationsBanc Montgomery Securities
LLC, Advest, Inc. and Needham & Company, Inc. (the "Underwriters") 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........................................... 1,652,000
BT Alex. Brown Incorporated..................................... 1,062,000
NationsBanc Montgomery Securities LLC........................... 1,062,000
Advest, Inc. ................................................... 472,000
Needham & Company, Inc. ........................................ 472,000
---------
Total........................................................... 4,720,000
=========
</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 $0.84 per
share. The Underwriters may allow and such dealers may reallow a concession
not in excess of $0.10 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 Company and 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 708,000 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. The Company and 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 6,763,376 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. For the twelve months ended December 31, 1997,
NOW Technologies had total revenues of approximately $15 million.
On March 26, 1998, the Company commenced a registered underwritten public
offering of 4,720,000 shares of the Company's Common Stock. Of such shares,
2,000,000 shares were offered by the Company and 2,720,000 shares were offered
by certain stockholders of the Company. In addition, the Company and such
stockholders granted to the underwriters an option to purchase up to 257,291
and 450,709 additional shares of Common Stock, respectively, 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 APPEARS HERE]
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 APPEARS HERE] TEOS
Call on Epitronics and tap into a wealth of advanced semiconductor materials
expertise.
[LOGO APPEARS HERE] EPITRONICS
AN ATMI COMPANY
ECOSYS [LOGO OF APPEARS HERE]
[GRAPHIC APPEARS HERE]
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 APPEARS HERE]
SAFE DELIVERY SOURCE
[GRAPHIC APPEARS HERE]
. 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>
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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>
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4,720,000 SHARES
[LOGO OF ATMI, INC. APPEARS HERE]
ATMI, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
HAMBRECHT & QUIST
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
ADVEST, INC.
NEEDHAM & COMPANY, INC.
MARCH 26, 1998
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