<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1998
REGISTRATION NO. 333-40269
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
MKS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
MASSACHUSETTS 3823 04-2277512
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
Six Shattuck Road
Andover, MA 01810
(978) 975-2350
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOHN R. BERTUCCI
Chairman, President and Chief Executive Officer
MKS Instruments, Inc.
Six Shattuck Road
Andover, MA 01810
(978) 975-2350
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK G. BORDEN, ESQ. DAVID C. CHAPIN, ESQ.
HALE AND DORR LLP ROPES & GRAY
60 State Street One International Place
Boston, Massachusetts 02109 Boston, Massachusetts 02110
(617) 526-6000 (617) 951-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 15, 1998
4,000,000 SHARES
[LOGO]
MKS INSTRUMENTS
COMMON STOCK
All of the 4,000,000 shares of Common Stock offered hereby are being sold
by the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $ and $ . See "Underwriting"
for a discussion of factors to be considered in determining the initial public
offering price.
Upon consummation of this Offering, John R. Bertucci, Chairman of the Board
of Directors, Chief Executive Officer and President of the Company, and members
of his family, will in the aggregate beneficially own approximately 72% of the
outstanding Common Stock of the Company. See "Risk Factors -- Concentration of
Stock Ownership."
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "MKSI."
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
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>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(3)........................................ $ $ $
</TABLE>
================================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting estimated expenses payable by the Company, estimated at
$ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 600,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to the Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates
representing such shares will be made against payment therefor at the offices of
NationsBanc Montgomery Securities, Inc. on or about , 1998.
------------------------
NATIONSBANC MONTGOMERY SECURITIES, INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED
, 1998.
<PAGE> 3
MKS INSTRUMENTS, INC.
PROSPECTUS COVER
NOVEMBER 14, 1997
INSIDE FRONT COVER (PG. 2):
This page is produced in four-color process. Amidst a dark background, the MKS
logo appears at the top of the page, and underneath is the phrase "A wide range
of products made using MKS Process Control Instruments." Two paragraphs
describing the role MKS plays in complex advanced materials manufacturing
processes, such as semiconductor, also appear on this page, and are as follows:
(first paragraph) "MKS Surrounds the Process. In semiconductor and other
industries involving advanced materials processing, products such as
semiconductor devices, CD ROMS, flat panel displays, and fiber optic cables are
the result of complex manufacturing processes. These processes build up very
thin layers of materials, step by step, through the interaction of specific
gases and materials inside tightly controlled process chambers. Maintaining
control of these complex steps throughout the entire manufacturing process is
critical to performance and yield. (second paragraph) MKS Process Control
Instruments are integrated into almost every step of gas-related
processes--managing the flow rates of gases entering and exiting the process
chamber, controlling the gas composition and pressure inside the chamber,
analyzing and monitoring the composition of the gases, and isolating the gases
from the outside environment."
In the center of the page is a photo montage, displaying images of semiconductor
devices, flat panel displays, magnetic and optical storage media, fiberoptic
cables, solar panels, and gas lasers. Each of these images has a text label
adjacent to it.
INSIDE SPREAD (PGS. 3 AND 4):
These pages are produced in four-color process. The main focus of the spread is
the illustration of a typical process chamber, with numerous MKS products
surrounding the chamber. At the top of the illustration, centered across the two
pages, is the title "MKS Instruments...Surrounding the Process." Each product is
described in a brief paragraph, and the paragraphs appear on both sides of the
illustration--left and right columns. The paragraphs are as follows:
DIRECT LIQUID INJECTION SUBSYSTEMS
For use in the delivery of a wide variety of new materials to the process
chamber that cannot be delivered using conventional thermal-based mass flow
controllers.
AUTOMATIC PRESSURE CONTROLLERS WITH INTEGRATED BARATRON(R) PRESSURE TRANSDUCERS
A compact, integrated measurement and control package for use in controlling
upstream or downstream process chamber pressure.
ULTRACLEAN MINI-BARATRON(R) PRESSURE TRANSDUCERS
For use in gas cabinets to feed ultra-pure gases to critical process systems.
ULTRACLEAN MASS FLOW CONTROLLERS
For the precise measurement and control of mass flow rates of inert or corrosive
gases and vapors into the process chamber.
IN SITU FLOW VERIFIERS
For fast verification of mass flow controller accuracy and repeatability during
a process.
PRESSURE CONTROL VALVES
To precisely control the flow of gases to a process chamber in a wide range of
flow rates.
<PAGE> 4
DIGITAL COLD CATHODE IONIZATION AND CONVECTION VACUUM GAUGES
A variety of indirect pressure gauges for measuring very low chamber pressures
and conveying information digitally to host computers.
HEATED PUMPING LINES
For the reduction of contaminants in the vacuum pump and pump exhaust stream.
ORION(R) PROCESS MONITORS AND RESIDUAL GAS ANALYZERS
For the analysis of the composition of background and process gases inside a
process chamber.
PRESSURE SWITCHES
Provide protection of vacuum equipment and processes by signaling when
atmospheric pressure has been reached.
IN SITU DIAGNOSTICS ACCESS VALVE
Allows for accurate calibration and diagnostics of vacuum gauges and pressure
transducers while directly mounted on the process chamber.
BARATRON(R) PRESSURE MEASURING INSTRUMENTS
For the accurate measurement and control of a wide range of process pressures.
EXHAUST THROTTLE VALVES AND AUTOMATIC PRESSURE CONTROLLERS
For isolation and downstream control of process chamber pressures, and pressure
control within the exhaust systems.
HIGH VACUUM VALVES
To isolate the process chamber from both the pumps and from atmosphere.
VAPOR SUBLIMATION TRAP
To collect by-products and particulates that could otherwise contaminate devices
in the process chambers and damage vacuum pumps.
Lines are drawn from each paragraph section to its corresponding part on the
illustration. The MKS logo appears in color above the left column of text.
Underneath the illustration at the bottom of the page spread is a sentence that
reads as follows: 'The above graphic depicts a typical process chamber and
surrounding equipment used in semiconductor manufacturing.'
At the bottom of the right column (on pg. 4) is a sentence in smaller type that
reads: 'Prices of products shown above range from $400 to $80,000.'
[PICTURES]
MKS, MKS Instruments, Baratron and Orion are trademarks of the Company. This
Prospectus contains trade marks, service marks and trade names of companies and
organizations other than MKS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS
OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and the Notes thereto appearing elsewhere in this Prospectus. Except as
otherwise noted herein, all information in this Prospectus (i) gives effect to a
2,110-for-1 stock split, to be effected in the form of a stock dividend prior to
the closing of this offering, of each share of Class A Common Stock and Class B
Common Stock of the Company and the conversion of such shares upon the closing
of this offering into an aggregate of 12,035,440 shares of Common Stock of the
Company (the "Recapitalization") and (ii) assumes no exercise of the
Underwriters' over-allotment option. See "Description of Capital Stock,"
"Underwriting" and Note 2 of Notes to Consolidated Financial Statements.
THE COMPANY
MKS Instruments, Inc. ("MKS" or the "Company") is a leading worldwide
supplier of instruments and components used to measure, control, analyze and
isolate gases in semiconductor and other manufacturing processes. The Company
offers a comprehensive line of products which are used around the process
chamber in both semiconductor front-end manufacturing processes and other
advanced thin-film and vacuum-based processes used in the manufacture of, among
other things, flat panel displays, magnetic and optical storage media, solar
cells, fiber optic cables and gas lasers. The Company's products include: (i)
pressure and flow measurement and control instruments; (ii) vacuum gauges,
valves and components; and (iii) gas analysis instruments.
The trend toward semiconductor devices with smaller geometries and enhanced
functionality has resulted in higher value per wafer and more complex
manufacturing processes. This has led to the need for increasingly sophisticated
semiconductor manufacturing equipment, a heightened emphasis on uptime, yield
and throughput, and the need for more precise process controls. As a result, the
design and performance of instruments that control pressure or the flow of
gases, or analyze the mixture of gases, are becoming even more critical to the
semiconductor manufacturing process. In addition, the number and diversity of
components and subassemblies used in the manufacturing process has grown as the
number and complexity of process steps and sophistication of process equipment
has increased. These trends in the semiconductor industry have led semiconductor
equipment manufacturers to seek to establish relationships with a smaller group
of suppliers that provide broad and integrated product lines, worldwide sales
and support and advanced technological capabilities for critical process
technology areas.
The Company believes that it offers the widest range of pressure and vacuum
measurement and control products serving the semiconductor industry. The
Company's objective is to be the leading worldwide supplier of instruments and
components used to measure, control, analyze and isolate gases in semiconductor
and other advanced thin-film processing applications. The Company's strategies
to accomplish this objective include extending its technology leadership,
providing a comprehensive product line, building upon its close customer
relationships in the semiconductor industry, expanding the application of its
existing technologies to related markets and leveraging its global
infrastructure.
For over 20 years the Company has been focused on serving the needs of
semiconductor device manufacturers and semiconductor equipment OEMs and has
established long-term relationships with many of its customers. The Company has
over 4,000 customers worldwide including most major semiconductor equipment
OEMs, semiconductor device manufacturers, a broad range of industrial companies
and university, government and industrial research laboratories. The Company's
customers in its principal market, the semiconductor market, include Applied
Materials, Eaton, Hitachi, Lam Research, Tokyo Electron, Ltd. ("TEL") and ULVAC.
The Company sells its products primarily through its direct sales force in 22
offices in Canada, France, Germany, Japan, Korea, the Netherlands, the United
Kingdom and the United States.
MKS Instruments, Inc. is a Massachusetts corporation organized in June
1961. The Company's principal executive offices are located at Six Shattuck
Road, Andover, MA 01810, and its telephone number is (978)975-2350.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......... 4,000,000 shares
Common Stock to be outstanding after the
offering.................................. 16,035,440 shares(1)
Use of proceeds............................. For distributions to current stockholders
and general corporate purposes.
Proposed Nasdaq National Market symbol...... MKSI
</TABLE>
- ---------------
(1) Based on shares of Common Stock outstanding as of September 30, 1997.
Excludes (i) 1,042,361 shares of Common Stock issuable upon exercise of
stock options outstanding as of such date at an exercise price of $6.64 per
share and (ii) 1,978,139 additional shares reserved for future grants or
issuances under the Company's stock option and stock purchase plans.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................................... $73,260 $80,852 $106,829 $157,164 $170,862 $136,097 $134,629
Gross profit...................................... 30,628 34,068 47,016 69,461 68,854 55,019 56,173
Income from operations............................ 4,593 6,365 12,087 24,106 16,068 12,990 15,088
Net income........................................ $ 2,646 $ 4,351 $ 10,003 $ 21,658 $ 12,503 $ 10,291 $ 12,892
PRO FORMA STATEMENT OF INCOME DATA:
Pro forma net income(1)........................... $ 8,248 $ 8,731
Pro forma net income per share(2)................. $ 0.59 $ 0.62
Pro forma weighted average common shares
outstanding(2).................................. 13,994 14,134
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
-------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 29,479 $ (704)
Total assets........................................................ 106,685 106,685
Short-term obligations.............................................. 16,372 16,372
Long-term obligations, less current portion......................... 16,348 16,348
Stockholders' equity................................................ 51,756 21,573
</TABLE>
- ---------------
(1) Effective July 1, 1987, the Company elected to be treated as an S
corporation. As an S corporation, the Company has not been subject to
federal, and certain state, income taxes. The pro forma net income reflects
the provision for income taxes that would have been recorded had the Company
been a C corporation, assuming an effective tax rate of 38.0%. As a result
of terminating its S corporation status upon the closing of this offering,
the Company will record a one-time non-cash credit to historical earnings
for additional deferred taxes. If this credit to earnings had occurred at
September 30, 1997, the amount would have been approximately $2.8 million.
This amount is expected to change through the closing of this offering and
is excluded from pro forma net income. See Notes 2 and 9 of Notes to
Consolidated Financial Statements.
(2) In accordance with a regulation of the Securities and Exchange Commission,
the pro forma net income per share and weighted average common shares
outstanding reflect the effect of an assumed issuance of sufficient shares
to fund the S Corporation Distribution, as of January 1, 1997, to be made
out of the proceeds of this offering. See "S Corporation and Termination of
S Corporation Status" and Note 2 of Notes to Consolidated Financial
Statements.
(3) Pro forma balance sheet data reflects the distribution of an estimated $30.2
million, calculated as of September 30, 1997, of cumulative undistributed S
corporation taxable income for which stockholders of record prior to the
closing of this offering have been or will be taxed. The actual amount to be
distributed is expected to increase based upon taxable earnings for the
period October 1, 1997 through the closing of the offering, subject to
certain limitations. See "S Corporation and Termination of S Corporation
Status."
(4) Adjusted to reflect the sale of 4,000,000 shares of Common Stock at an
assumed initial public offering price of $ per share, after deducting the
estimated underwriting discount and offering expenses payable by the
Company.
4
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers of the Common Stock offered hereby should consider carefully the
following factors in evaluating the Company and its business.
CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY
During 1996 and the first nine months of 1997, the Company estimates that
approximately two-thirds of the Company's sales were to semiconductor equipment
OEMs and semiconductor device manufacturers and the Company expects that sales
to such customers will continue to account for a substantial majority of its
sales. The Company's business depends substantially upon the capital
expenditures of semiconductor device manufacturers, which in turn depend upon
the demand for semiconductors and other products utilizing semiconductors.
Historically, the semiconductor market has been highly cyclical and has
experienced periods of overcapacity, resulting in significantly reduced demand
for capital equipment. In 1996, the semiconductor industry experienced a
significant decline, which caused a number of the Company's customers to reduce
their orders from the Company. Although there have been indications that the
semiconductor and semiconductor equipment industries have begun to recover from
the 1996 downturn, there can be no assurance that such industries will continue
to improve or that there will not be further downturns or slowdowns in any of
the markets that the Company serves. More recently, the financial markets in
Asia, one of the Company's principal international markets, have experienced
significant turmoil, including the decline in value of the Japanese Yen and
Korean Won versus the U.S. Dollar. There can be no assurance that such turmoil
in the financial markets will not negatively impact the growth of the
semiconductor industry in the region. Also, the requirement that the Company
continue to invest in research and development, marketing and customer support
will constrain the Company's ability to reduce expenses in response to any such
downturn or slowdown. In addition, the Company's future sales will depend in
part on the sale of products for new large fabrication facilities that are
either planned or under construction and there can be no assurance that such
fabrication facilities will be completed or, if completed, will operate at full
capacity. Any reduction in orders resulting from a downturn or slowdown in the
semiconductor industry, together with the Company's inability to quickly adjust
expenses, would have a material adverse impact on the Company's revenues,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Selected Quarterly
Operating Results."
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly and annual operating results. A
substantial proportion of the Company's shipments occur shortly after an order
is received. Due to the short time between receipt of orders and shipments, the
Company operates with a low level of backlog. Moreover, this backlog at any
point in time is not sufficient to meet the Company's revenue expectations for a
particular quarter. As a consequence of the just-in-time basis of the Company's
shipments and the low level of backlog, a decrease in demand for the Company's
products from one or more customers could occur with limited advanced notice and
could have an adverse effect on the Company's results of operations in a
particular period. The Company's revenues and operating results are also
affected by a variety of other factors, including specific economic conditions
in the industries in which the Company's customers operate, particularly the
semiconductor industry; the timing of the receipt of orders from major
customers; customer cancellations or shipment delays; price competition;
disruption in sources of supply; seasonal variations of capital spending by
customers; production capacity constraints; specific features requested by
customers; exchange rate fluctuations; the introduction or announcement of new
products by the Company or its competitors; and other factors, many of which are
beyond the Company's control.
The Company's results of operations for a particular period would be
adversely affected if an anticipated significant order were not received in time
to permit shipment during that period, as a significant portion of the Company's
operating expenses are fixed in nature and planned expenditures are based in
part on anticipated orders. In addition, the need for continued expenditures for
research and development would make it difficult to reduce expenses in a
particular period if the Company's sales goals for that period were not met. The
inability to adjust spending quickly enough to compensate for any revenue
shortfall would magnify the adverse impact of such revenue shortfall on the
Company's results of operations. For example, the Company was in the process of
increasing its production capacity when the semiconductor capital equipment
market began to
5
<PAGE> 8
experience a significant downturn in 1996. This downturn had a material adverse
effect on the Company's operating results in the second half of 1996 and the
first half of 1997. As a result of the factors discussed above, it is likely
that the Company will in the future experience quarterly or annual fluctuations
and that, in one or more future quarters, the Company's operating results will
fall below the expectations of public market analysts or investors. In any such
event, the price of the Company's common stock could decline significantly. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Selected Quarterly Operating Results."
CUSTOMER CONCENTRATION
While the Company sold products to more than 4,000 customers in 1996, the
Company's five largest customers in 1994, 1995 and 1996 accounted for
approximately 18%, 24% and 26%, respectively, of the Company's net sales. During
the first nine months of 1997, the five largest customers accounted for
approximately 31% of the Company's net sales, and one customer, Applied
Materials, accounted for approximately 21% of the Company's net sales. While the
Company has entered into a purchase contract with Applied Materials that expires
in 2002, no significant customer of the Company, including Applied Materials,
has entered into an agreement requiring it to purchase any minimum quantity of
the Company's products. The demand for the Company's products from its customers
depends in part on orders received by such customers from their own
semiconductor device manufacturer customers.
The Company sells its products primarily to semiconductor equipment OEMs
and, to a lesser extent, semiconductor device manufacturers. The number of the
Company's potential customers in its primary market is limited. The loss of a
major customer or any reduction in orders by such customers, including
reductions due to market or competitive conditions, would likely have a material
adverse effect on the Company's business and results of operations. Attempts to
mitigate the adverse impact of any such loss or reduction through the rapid
addition of new customers could be difficult because prospective customers
typically require lengthy qualification periods prior to placing volume orders
with a new supplier. The Company's future success will continue to depend upon
its ability to maintain its relationships with its existing key customers and to
attract new customers, as well as the success of the Company's OEM customers in
creating demand for their capital equipment products incorporating the Company's
products. See "Business -- Customers."
COMPETITION
The market for the Company's products is highly competitive. The Company
encounters substantial competition in each of its product lines from a number of
competitors, although no one competitor competes with the Company across all
product lines. Certain of the Company's competitors have greater financial and
other resources than the Company. Other competitors are smaller than the Company
but well established in specific product niches. In some cases, particularly
with respect to mass flow controllers, end-user semiconductor device
manufacturers may direct semiconductor equipment OEMs to use a specified
supplier's product in their equipment. Accordingly, for such products, the
Company's success will depend in part on its ability to have semiconductor
device manufacturers specify that its products be used at their fabrication
facilities and the Company may encounter difficulties in changing established
relationships of competitors with a large installed base of products at such
customers' fabrication facilities. There can be no assurance that competitors
will not develop products that offer price or performance features superior to
those of the Company's products. To the extent that the Company's products do
not achieve performance or other advantages over products offered by
competitors, the Company is likely to experience greater price competition or
loss of market share with respect to such products. Also, certain of the
Company's customers may develop in-house products that serve the functions of
and replace the Company's products. The Company believes that the worldwide
competitive pressures in the Company's markets could result in a decline in the
prices of its products in the future. Declines in the selling prices of the
Company's products, if not offset by reductions in the cost of producing such
products and increased unit volume sales or by sales of products with higher
gross margins, could have a material adverse effect on the Company's business
and results of operations. See "Business -- Competition."
TECHNOLOGICAL CHANGES
The semiconductor equipment industry is subject to rapid technological
change and new product introductions and enhancements. The Company's success
depends in part upon its ability to develop enhanced and new
6
<PAGE> 9
products that keep pace with technological developments, achieve market
acceptance and respond to evolving customer requirements. New product
introductions may contribute to fluctuations in quarterly operating results, as
customers may defer ordering products from the Company's existing product lines
or may purchase products from competitors. Any new product reliability or
quality problems could result in reduced orders, higher manufacturing costs and
additional service and warranty expense. Responding to rapid technological
change and the need to develop and introduce new products to meet customers'
needs and evolving industry standards will require the Company to make
substantial investments in research and product development. Any failure by the
Company to anticipate or respond adequately to technological developments and
customer requirements or any significant delays in product development or
introduction could result in a loss of competitiveness and could materially
adversely affect the Company's operating results. There can be no assurance that
the Company will successfully develop and manufacture new products or that any
product enhancements or new products developed by the Company will gain market
acceptance.
The semiconductor device manufacturing industry is currently undergoing an
evolution from 200mm to 300mm wafers and from .35 micron to .25 and .18 micron
line-widths. Device manufacturers are beginning to establish pilot production
lines and specifications for the use of 300mm wafers and the production of .25
and .18 micron devices. The Company has developed, and is developing, new
products and product enhancements to address the expected increasing demand for
equipment capable of handling these new wafer sizes and line-widths. The Company
has supplied pre-production equipment to be incorporated into semiconductor
equipment OEM 300mm pre-production wafer process equipment which is expected to
be included in pilot product lines of device manufacturers. The Company has also
developed equipment that is being used by research laboratories for devices
using .18 micron line-widths. However, there can be no assurance that the
Company's new products and enhancements will be designed into production lines
by the Company's customers. Failure by the Company to develop products and
enhancements for general acceptance by its customers in a timely manner would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Trends in Manufacturing."
EXPANSION INTO NEW MARKETS
The Company plans to build upon its experience in manufacturing and selling
gas management products used by the semiconductor industry by designing and
selling gas management products for applications in other industries which use
production processes similar to those used in the semiconductor industry. The
Company's future success will depend in part on its ability to identify new
applications for its products, adapt its products for such applications and then
market and sell such products to customers. The Company has limited experience
selling its products in certain markets outside the semiconductor industry.
There can be no assurance that the Company will be successful in further
expanding its business outside the semiconductor industry. Any failure to
penetrate additional markets would limit the Company's ability to reduce its
vulnerability to downturns in the semiconductor industry and could have a
material adverse effect upon its business and results of operations. See
"Business -- MKS Strategy" and "Use of Proceeds."
EXPANSION OF MANUFACTURING CAPACITY
The Company plans in the year ending December 31, 1998 to add manufacturing
facilities to its Austin, Texas and United Kingdom operations and further equip
its cleanroom facilities in Andover and Methuen, Massachusetts. The Company
expects to complete such plans before the completion of its year ending December
31, 1998. The Company's ability to continue to increase sales of certain of its
products depends in part upon its ability to expand its manufacturing capacity
for such products in a timely manner. If the Company is unable to expand its
manufacturing capacity on a timely basis or to manage such expansion
effectively, the Company's rate of growth and market share could be reduced and
its business and results of operations could be adversely affected. Because the
semiconductor industry is subject to rapid demand shifts which are difficult to
foresee, the Company may not be able to increase capacity quickly enough to
respond to a rapid increase in demand in the semiconductor industry. The
Company's market share and results of operations could also be adversely
affected if it is unable to adjust to a rapid demand increase in the highly
cyclical semiconductor industry. Additionally, any capacity expansion by the
Company will increase its fixed operating expenses and if sales levels do not
increase to offset the additional expense levels associated with any such
expansion, the Company's operating results would likely be adversely affected.
See "Business -- Manufacturing" and "Use of Proceeds."
7
<PAGE> 10
INTERNATIONAL OPERATIONS AND SALES
The Company has production, sales and service facilities in Germany, Japan,
Korea and the United States and sales and service facilities in Canada, France,
the Netherlands and the United Kingdom. In addition, the Company has
established, through agents and representatives, sales and service facilities in
China, India, Israel, Italy, Singapore and Taiwan. International sales (which
include sales by the Company's foreign subsidiaries, but exclude export sales
made directly by the Company, which were less than 10% of the Company's total
net sales) accounted for approximately 32%, 30% and 28% of net sales in 1995,
1996, and the first nine months of 1997, respectively. The Company anticipates
that international sales will continue to account for a significant portion of
its net sales. As a result, the Company's operations are subject to risks
inherent in international business activities, including, in particular, general
economic conditions in each country, the overlap of different tax structures,
management of a large organization spread over various countries, unexpected
changes in regulatory requirements, compliance with a variety of foreign laws
and regulations and longer accounts receivables payment cycles in certain
countries. The Company's international sales are also subject to certain
governmental restrictions including the Export Administration Act and the
regulations promulgated thereunder. Other risks associated with international
operations include import and export licensing requirements, trade restrictions
and changes in tariff and freight rates. A number of these risks also apply to
sales to U.S. based semiconductor equipment OEMs that incorporate the Company's
products into systems delivered outside the United States. Additionally, the
Company denominates in local currencies the prices for products sold to and by
its foreign subsidiaries, and, therefore, the Company's operating results
attributable to these sales are exposed to fluctuations in the value of the U.S.
dollar versus other currencies. While the Company seeks to mitigate its exposure
to currency fluctuations by entering into forward exchange contracts and local
currency purchased options to reduce currency exposure arising from foreign
denominated sales associated with intercompany purchases of inventory, there can
be no assurance that exchange rate fluctuations will not have an adverse effect
on the Company's results of operations and financial condition or that the
Company will not realize losses with respect to its hedging activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Sales, Marketing and Support."
NEED TO RETAIN AND ATTRACT KEY PERSONNEL
The Company's success depends to a large extent upon the efforts and
abilities of a number of key employees and officers. The loss of key employees
or officers could materially and adversely affect the Company. The Company
believes that its future success will depend in part on its ability to attract
and retain highly skilled technical, financial, managerial and marketing
personnel. Competition for such personnel is intense and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The Company is the beneficiary of a $5,000,000 key-man life insurance
policy on its Chairman of the Board of Directors, Chief Executive Officer and
President, John R. Bertucci. See "Business -- Employees" and
"Management -- Executive Officers and Directors."
CONCENTRATION OF STOCK OWNERSHIP
Upon consummation of this offering, John R. Bertucci, Chairman of the Board
of Directors, Chief Executive Officer and President of the Company, and members
of his family will, in the aggregate, beneficially own approximately 72% of the
Company's outstanding Common Stock. As a result, these stockholders, acting
together, would be able to control all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions such as mergers and consolidations and the sale of all or
substantially all of the assets of the Company as well as action to liquidate or
dissolve the Company. See "Principal Stockholders."
INTELLECTUAL PROPERTY MATTERS
Although the Company seeks to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately,
that competitors will not be able to develop similar technology independently,
that any of the Company's pending patent applications will be issued or that
intellectual property laws will protect the Company's intellectual property
rights. In addition, litigation may be necessary in order to enforce the
Company's patents, copyrights or other intellectual property rights, to protect
the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse
8
<PAGE> 11
effect on the Company's business and results of operations. There can be no
assurance that any patent issued to the Company will not be challenged,
invalidated or circumvented, that the rights granted thereunder will provide
competitive advantages to the Company or that third parties may not assert that
the Company's products infringe patent, copyright or trade secrets of such
parties. Furthermore, there can be no assurance that others will not
independently develop similar products or duplicate the Company's products. See
"Business -- Patents and Other Intellectual Property Rights."
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to a variety of extensive and changing
federal, state and local environmental and safety laws, regulations and
ordinances. Such laws, regulations or ordinances may impose liability for the
cost of remediating, and for certain damages resulting from, releases, including
past releases, of hazardous materials. The Company believes that it currently
conducts and in the past has conducted its activities and operations in
substantial compliance with applicable environmental laws and believes that
costs of complying with existing environmental laws will not have a material
adverse effect on the Company's financial condition or results of operations.
There can be no assurance, however, that environmental laws will not become more
stringent in the future or that the Company will not incur significant costs in
the future in order to comply with such laws.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Company's
Common Stock and there can be no assurance that an active public market for the
Common Stock will develop or continue after the offering. The initial public
offering price will be determined by negotiation between the Company and the
representatives of the Underwriters. See "Underwriting." The trading price of
the Company's Common Stock could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors or other events or
factors. In addition, the stock market has experienced extreme price and volume
fluctuations which have particularly affected the market prices for many high
technology companies. These broad market fluctuations may materially and
adversely affect the market price of the Company's Common Stock.
DILUTION
Purchasers of Common Stock offered hereby will incur immediate and
substantial dilution in the net tangible book value per share of Common Stock
from the assumed initial public offering price. See "Dilution."
ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Organization, By-Laws and
Massachusetts law could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for stockholders to participate in tender offers
including tender offers at a price above the then current market value of the
Common Stock. Such provisions may also inhibit increases in the market price of
the Common Stock that could result from takeover attempts. In addition, the
Board of Directors, without further stockholder approval, may issue preferred
stock that could have the effect of delaying, deterring or preventing a change
in control of the Company. The issuance of preferred stock could adversely
affect the voting power of the holders of Common Stock including the loss of
voting control to others. The Company has no present plans to issue any
preferred stock. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely effect the market price of the Common Stock. All
of the outstanding shares of Common Stock are subject to lock-up agreements with
the representatives of the Underwriters ("Lock-up Agreements") for a period of
180 days after the date of this Prospectus. Upon expiration of the Lock-up
Agreements 180 days after the date of this Prospectus, 12,035,440 shares of
Common Stock will be eligible for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, the Company intends to register approximately
3,020,500 shares of Common Stock issuable under its stock option and purchase
plans upon the closing of this offering. See "Shares Eligible for Future Sale,"
"Description of Capital Stock" and "Underwriting."
9
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered hereby are estimated to be $ ($ if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $ per share, after deducting the
estimated underwriting discount and offering expenses. The principal purposes of
this offering are to increase the Company's working capital and equity base, to
provide a public market for the Company's Common Stock and to facilitate future
access by the Company to public equity markets.
The Company expects to use a portion of the net proceeds to pay to current
stockholders the undistributed S corporation earnings of the Company through the
closing of this offering. Such undistributed S corporation earnings were
approximately $30.2 million (including approximately $28.9 million representing
the share of Mr. Bertucci and members of his family. See "Principal
Stockholders.") at September 30, 1997 and are expected to increase from October
1, 1997 to the closing of this offering. See "S Corporation and Termination of S
Corporation Status." The Company expects to use the remainder of the net
proceeds for general corporate purposes, including working capital, product
development and capital expenditures. The Company plans in the year ending
December 31, 1998 to make capital expenditures totaling approximately $10
million, primarily for additions of capital equipment and for expansion of its
manufacturing facilities and the Company expects to use a portion of the net
proceeds for such purposes.
A portion of the net proceeds may also be used for the acquisition of
businesses, products and technologies that are complementary to those of the
Company. The Company has no commitments or understandings for any acquisitions
and no portion of the net proceeds has been allocated for any specific
acquisition. Pending such uses, the Company intends to invest the net proceeds
from this offering in short-term, investment-grade, interest-bearing securities.
10
<PAGE> 13
S CORPORATION AND TERMINATION OF S CORPORATION STATUS
Effective July 1, 1987, the Company elected to be treated as an S
corporation for federal income tax purposes. As a result, the Company currently
pays no federal, and certain state, income tax and all of the earnings of the
Company are subject to federal, and certain state, income taxation directly at
the stockholder level. The Company's S corporation status will terminate upon
the closing of this offering, at which time the Company will become subject to
corporate income taxation under Subchapter C of the Internal Revenue Code of
1986, as amended (the "Code").
In 1996 and in the first nine months of 1997, the Company distributed $14.5
million and $6.4 million, respectively, of undistributed S corporation earnings
to its stockholders. The Company expects to make additional distributions of
approximately $5.5 million prior to the closing of this offering.
As soon as practicable following the closing of the offering, the Company
intends to make a distribution (the "S Corporation Distribution") to the holders
of record on the day prior to the closing of this offering (the "Existing
Stockholders") in an amount equivalent to the "accumulated adjustments account,"
as defined in Section 1368(a)(1) of the Code (the "AA Account"). As of September
30, 1997, the outstanding balance of the AA Account was approximately $30.2
million, and such balance is expected to increase in the period from October 1,
1997 through the closing of the offering. The AA Account is cumulatively equal
to financial reporting income, adjusted for differences between the methods of
accounting used for financial accounting and for federal income tax purposes
from the effective date of the Company's election to be treated as an S
corporation through the date of termination of the Company's S corporation
status, that has not been previously distributed. Investors purchasing shares in
this offering will not receive any portion of the S Corporation Distribution.
The Company expects to enter into a Tax Indemnification and S Corporation
Distribution Agreement (the "Existing Stockholders Agreement") with the Existing
Stockholders providing for, among other things, the indemnification of the
Company by such stockholders for any federal and state income taxes (including
interest) incurred by the Company if for any reason the Company is deemed to be
treated as a C corporation during any period which it reported its taxable
income as an S corporation. The tax indemnification obligation of the Existing
Stockholders is limited to the amount of any reduction in their tax liability as
a result of any such determination. The Existing Stockholders Agreement also
provides for the cross-indemnification by the Company of each Existing
Stockholder for any losses or liabilities with respect to certain additional
taxes (including interest and penalties) resulting from the Company's operations
during the period in which it was an S corporation. The Existing Stockholders
Agreement further provides for the payment, with interest, by the Existing
Stockholders or the Company, as the case may be, for the difference between the
S Corporation Distribution amount and the actual amount of the AA Account on the
day immediately preceding the closing of the offering. The actual amount of the
AA Account on the day prior to the closing of the offering cannot be determined
until the Company calculates the amount of its taxable income for the year
ending December 31, 1998. Purchasers of Common Stock in this offering will not
be parties to the Existing Stockholders Agreement.
The termination date of the Company's S corporation status will occur on
the closing date of this offering. Subsequent to the termination date, the
Company will no longer be an S corporation and, accordingly, will be subject to
federal and state income taxes. The pro forma Statement of Income set forth in
this Prospectus has been adjusted to include pro forma federal income tax
provisions as if the Company had been a C corporation under Subchapter C of the
Code during the relevant periods.
DIVIDEND POLICY
The Company anticipates that following the completion of this offering and
the S Corporation Distribution, subject to the Company's contractual obligations
under the Existing Stockholders Agreement, all earnings will be retained for
development of its business and will not be distributed to stockholders as
dividends. Restrictions or limitations on the payment of dividends may be
imposed in the future under the terms of credit agreements or under other
contractual provisions. In the absence of such restrictions or limitations, the
payment of any dividends will be at the discretion of the Company's Board of
Directors.
11
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1997, (ii) on a pro forma basis to reflect distributions and
adjustments in connection with the Company's S corporation status and (iii) as
adjusted to reflect the sale of 4,000,000 shares of Common Stock by the Company
at an assumed initial public offering price of $ per share and the
application of the net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)(4)
------- ------------ --------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
Long-term obligations, less current portion........... $16,348 $ 16,348 $
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued or outstanding.... -- -- --
Common Stock, no par value; 50,000,000 shares
authorized, 12,035,440 shares issued and
outstanding (actual and pro forma); 16,035,440
shares issued and outstanding (pro forma as
adjusted)(3)................................... 113 113
Additional paid-in capital....................... 48 48
Unrealized gain on investments................... 562 562
Retained earnings................................ 50,045 19,862
Cumulative translation adjustment................ 988 988
------- ------- -------
Total stockholders' equity.................. 51,756 21,573
------- ------- -------
Total capitalization...................... $68,104 $ 37,921 $
======= ======= =======
</TABLE>
- ---------------
(1) Pro forma data reflects the distribution of an estimated $30.2 million,
calculated as of September 30, 1997, of cumulative undistributed S
corporation taxable income for which stockholders of record prior to the
closing of the offering have been or will be taxed. The actual amount to be
distributed is expected to increase based upon taxable earnings for the
period from October 1, 1997 through the closing of the offering, subject to
certain limitations. See "S Corporation and Termination of S Corporation
Status" and Notes 2 and 9 of Notes to Consolidated Financial Statements.
(2) As adjusted to reflect the issuance of 4,000,000 shares of Common Stock at
an assumed initial public offering price of $ per share, after deducting
the estimated underwriting discount and offering expenses payable by the
Company.
(3) Gives effect to (i) a 2,110-for-1 stock split to be effected in the form of
a stock dividend prior to the closing of this offering and the conversion
upon the closing of this offering, of the 2,454 shares of Class A Common
Stock and 3,250 shares of Class B Common Stock outstanding at September 30,
1997 into an aggregate of 12,035,440 shares of Common Stock and (ii) the
filing of an amendment to the Company's Restated Articles of Organization to
increase the number of authorized shares of Common Stock to 50,000,000 and
to authorize 2,000,000 shares of Preferred Stock prior to the closing of
this offering.
(4) The remaining balance in retained earnings represents accumulated earnings
prior to the Company converting from a C corporation to an S corporation in
1987.
12
<PAGE> 15
DILUTION
As of September 30, 1997, the Company had a net tangible book value of
$51,756,000, or $4.30 per share of Common Stock. Without taking into account any
changes in such net tangible book value subsequent to September 30, 1997, other
than to give effect to the sale by the Company of 4,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $ per
share (after deducting the estimated underwriting discount and offering
expenses) and the application of the estimated proceeds therefrom, including the
distribution of an estimated $30.2 million of cumulative undistributed S
corporation taxable income for which stockholders have been or will be taxed, as
of September 30, 1997, the pro forma net tangible book value of the Company as
of September 30, 1997 would have been $ , or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to current shareholders and the immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $
Net tangible book value per share at September 30, 1997............. $4.30
Decrease per share attributable to the S Corporation Distribution...
Increase per share attributable to new investors....................
-----
Pro forma net tangible book value per share after the offering...........
------
Dilution per share to new investors...................................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average price per share paid by the
existing stockholders and by the investors purchasing shares of Common Stock in
this offering at an assumed initial offering price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 12,035,440 75.1% $ 161,000 % $ 0.013
New investors.................. 4,000,000 24.9
---------- ----- ----------- ------
Total..................... 16,035,440 100.0% $ 100.00%
========== ===== =========== ======
</TABLE>
As of September 30, 1997, there were options outstanding to purchase a
total of 1,042,361 shares of Common Stock, at an exercise price of $6.64 per
share. To the extent that any of these options are exercised, there will be
further dilution to new investors.
13
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data as of December 31, 1995 and 1996 and
September 30, 1997 and for the years ended December 31, 1994, 1995 and 1996, and
the nine month period ending September 30, 1997, have been derived from the
Company's financial statements, included elsewhere in this Prospectus, which
have been audited by Coopers & Lybrand L.L.P., independent accountants, as
indicated in their report. The selected financial data as of and for the nine
month period ended September 30, 1996 have been derived from unaudited financial
statements that have been prepared on the same basis as the Company's audited
financial statements and which, in the opinion of management, included all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of operations.
The selected financial data as of December 31, 1992, 1993 and 1994 and for the
years ended December 31, 1992 and 1993 are derived from financial statements,
which were also audited by Coopers & Lybrand L.L.P., not included herein.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. The data should be read in conjunction with the Consolidated
Financial Statements, including the Notes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................................... $73,260 $80,852 $106,829 $157,164 $170,862 $136,097 $134,629
Cost of sales................................... 42,632 46,784 59,813 87,703 102,008 81,078 78,456
------- ------- -------- -------- -------- -------- --------
Gross profit.................................... 30,628 34,068 47,016 69,461 68,854 55,019 56,173
Research and development........................ 5,836 6,244 8,036 10,935 14,195 11,220 10,336
Selling, general and administrative............. 20,199 21,459 26,893 34,420 37,191 29,409 30,749
Restructuring................................... 0 0 0 0 1,400 1,400 0
------- ------- -------- -------- -------- -------- --------
Income from operations.......................... 4,593 6,365 12,087 24,106 16,068 12,990 15,088
Interest expense, net........................... 1,784 1,421 1,284 1,448 2,286 1,811 1,466
Other income (expense), net..................... -- -- -- -- (479) (230) 460
------- ------- -------- -------- -------- -------- --------
Income before income taxes...................... 2,809 4,944 10,803 22,658 13,303 10,949 14,082
Provision for income taxes(1)................... 163 593 800 1,000 800 658 1,190
------- ------- -------- -------- -------- -------- --------
Net income...................................... $ 2,646 $ 4,351 $ 10,003 $ 21,658 $ 12,503 $ 10,291 $ 12,892
======= ======= ======== ======== ======== ======== ========
PRO FORMA STATEMENT OF INCOME DATA (UNAUDITED)(2):
Income before income taxes, as reported......... $ 13,303 $ 14,082
Pro forma provision for income taxes............ 5,055 5,351
-------- --------
Pro forma net income............................ $ 8,248 $ 8,731
======== ========
Pro forma net income per common share........... $ 0.59 $ 0.62
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
------------------------------------------------ -----------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(3)
------- ------- ------- -------- ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $19,293 $18,420 $25,078 $ 32,202 $22,404 $ 29,479 $ (704)
Total assets................................. 60,697 59,261 72,320 104,511 95,000 106,685 106,685
Short-term obligations....................... 9,141 6,749 9,246 15,192 16,124 16,372 16,372
Long-term obligations, less current
portion.................................... 15,761 15,326 14,948 20,462 18,899 16,348 16,348
Stockholders' equity......................... 29,593 28,965 37,272 48,392 45,498 51,756 21,573
</TABLE>
- ---------------
(1) Effective July 1, 1987, the Company elected to be treated as an S
corporation under the applicable provisions of the Internal Revenue Code of
1986. As an S corporation, the Company has not been subject to federal, and
certain state, income taxes. The pro forma net income reflects the provision
for income taxes that would have been recorded had the Company been a C
corporation, assuming an effective tax rate of 38.0%. As a result of
terminating its S corporation status upon the closing of this offering, the
Company will record a one-time non-cash credit to historical earnings for
additional deferred taxes. If this credit to earnings had occurred at
September 30, 1997, the amount would have been approximately
14
<PAGE> 17
$2.8 million. This amount is expected to change through the closing of the
offering and is excluded from pro forma net income. See Notes 2 and 9 of
Notes to Consolidated Financial Statements.
(2) In accordance with a regulation of the Securities and Exchange Commission,
the pro forma net income per share and weighted average common shares
outstanding reflect the effect of an assumed issuance of sufficient shares
to fund the S Corporation Distribution, as of January 1, 1997, to be made
out of the proceeds of this offering. See "S Corporation and Termination of
S Corporation Status" and Note 2 of Notes to Consolidated Financial
Statements.
(3) Pro forma balance sheet data reflects the distribution of an estimated $30.2
million, calculated as of September 30, 1997, of cumulative undistributed S
corporation taxable income for which stockholders of record prior to the
closing of this offering have been or will be taxed. The actual amount to be
distributed is expected to increase based upon taxable earnings for the
period October 1, 1997 through the closing of the offering, subject to
certain limitations. See "Use of Proceeds," "S Corporation and Termination
of S Corporation Status" and Notes 2 and 9 of Notes to Consolidated
Financial Statements.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
With the exception of historical matters and statements of current status,
certain matters discussed below are forward-looking statements that involve
substantial risks and uncertainties that could cause actual results to differ
materially from targets or projected results. Factors that could cause actual
results to differ materially include, among others, those factors described in
"Risk Factors." Many of these factors are beyond the Company's ability to
predict or control. Prospective investors are cautioned not to put undue
reliance on forward-looking statements, which statements have been made as of
the date of this Prospectus, and prospective investors should not infer that
there has been no change in the affairs of the Company since the date hereof
that would warrant any modification of any forward-looking statement made
herein. The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
OVERVIEW
MKS was founded in 1961. The Company sells instruments and components to
OEMs and end-users in the semiconductor and other advanced thin-film processing
industries. During 1996 and the first nine months of 1997, the Company estimates
that approximately two-thirds of its net sales were to semiconductor equipment
OEMs and semiconductor device manufacturers. The Company expects that sales to
such customers will continue to account for a substantial majority of its sales.
The Company typically enters into contracts with its semiconductor equipment OEM
customers that provide for quantity discounts. The Company recognizes revenues,
and accrues for anticipated returns and warranty costs, upon shipment.
In the third quarter of 1996, as a result of the downturn in the
semiconductor industry, the Company recorded a restructuring charge of $1.4
million. The charge was primarily related to a reduction of personnel and the
closure of certain facilities and included the cost of severance, lease
commitments and the write-off of leasehold improvements.
A significant portion of the Company's sales are to operations in
international markets. International sales by the Company's foreign subsidiaries
were 30.1% and 27.9% of net sales for 1996 and for the nine months ended
September 30, 1997, respectively. The Company does not classify export sales
made directly by the Company as international sales. Such sales were less than
10% of net sales. The Company currently uses, and plans to continue to use,
forward exchange contracts and local currency purchased options to reduce
currency exposure arising from foreign denominated sales associated with the
intercompany purchases of inventory. Gains and losses on derivative financial
instruments that qualify for hedge accounting are classified in cost of sales.
Gains and losses on derivative financial instruments that do not qualify for
hedge accounting are marked-to-market and recognized immediately in other
income. See Note 2 to Notes to Consolidated Financial Statements.
Effective July 1, 1987, the Company elected to be treated as an S
corporation for federal income tax purposes. The Company's S corporation status
will terminate upon the closing of this offering, at which time the Company will
become subject to federal, and certain state, income taxation as a C
corporation. The pro forma net income reflects a pro forma effective tax rate of
38.0% to reflect federal and state income taxes which would have been payable
for 1996 and the first nine months of 1997 had the Company been taxed as a C
corporation.
16
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total sales of certain line items included in the Company's consolidated
statement of income data:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 56.0 55.8 59.7 59.6 58.3
----- ----- ----- ----- -----
Gross profit....................................... 44.0 44.2 40.3 40.4 41.7
Research and development........................... 7.5 7.0 8.3 8.3 7.7
Selling, general and administrative................ 25.2 21.9 21.8 21.6 22.8
Restructuring...................................... 0.0 0.0 0.8 1.0 0.0
----- ----- ----- ----- -----
Income from operations............................. 11.3 15.3 9.4 9.5 11.2
Interest expense, net.............................. 1.2 0.9 1.3 1.3 1.1
Other income (expense), net........................ 0.0 0.0 (0.3) (0.2) 0.4
----- ----- ----- ----- -----
Income before income taxes......................... 10.1 14.4 7.8 8.0 10.5
Provision for income taxes......................... 0.7 0.6 0.5 0.4 0.9
----- ----- ----- ----- -----
Net income......................................... 9.4% 13.8% 7.3% 7.6% 9.6%
===== ===== ===== ===== =====
Pro forma data:
Historical income before income taxes.............. 7.8% 10.5%
Pro forma provision for income taxes............... 3.0 4.0
----- -----
Pro forma net income............................... 4.8% 6.5%
===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net Sales. Net sales decreased 1.1% to $134.6 million for the nine months
ended September 30, 1997 from $136.1 million for the same period of 1996.
International net sales decreased 5.9% to $37.5 million (27.9% of net sales) for
the first nine months of 1997 from $39.9 million (29.3% of net sales) for the
first nine months of 1996. The decrease in net sales and international net sales
was primarily due to decreased worldwide sales volume resulting from the
downturn in the semiconductor industry that began in 1996 and adversely affected
the third quarter of 1996, as well as the first and second quarters of 1997.
Gross Profit. Gross profit as a percentage of sales increased to 41.7% for
the nine months ended September 30, 1997 from 40.4% for the same period of 1996.
The change was due primarily to the reduction in fixed costs resulting from the
restructuring effected in the third quarter of 1996.
Research and Development. Research and development expenses decreased 7.9%
to $10.3 million (7.7% of net sales) for the nine months ended September 30,
1997 from $11.2 million (8.2% of net sales) for the same period of 1996. The
decrease was primarily due to lower staffing levels and project cost reductions
during the first nine months of 1997 as a result of the restructuring effected
in the third quarter of 1996. The Company expects research and development
expenses to continue to increase as the Company continues to work to develop
products to address advances in the semiconductor industry, such as the trend
toward smaller device geometries and larger wafer sizes.
Selling, General and Administrative. Selling, general and administrative
expense increased 4.6% to $30.7 million (22.8% of net sales) for the nine months
ended September 30, 1997 from $29.4 million (21.6% of net sales) for the same
period of 1996. The increase was due primarily to increased compensation expense
of approximately $0.9 million, and the write-off of certain assets of
approximately $0.4 million.
Restructuring. In the third quarter of 1996, as a result of the downturn
in the semiconductor industry, the Company recorded a restructuring charge of
$1.4 million. The charge included $0.4 million of severance pay, $0.7 million of
lease commitments, and $0.3 million for the write-off of leasehold improvements.
17
<PAGE> 20
Interest Expense, Net. Net interest expense decreased 19.1% to $1.5
million for the nine months ended September 30, 1997 from $1.8 million for the
same period of 1996 primarily due to lower debt outstanding during 1997.
Other Income (Expense), Net. Other expense of $0.2 million for the nine
months ended September 30, 1996 and other income of $0.5 million for the nine
months ended September 30, 1997 reflect losses and gains, respectively, from
foreign exchange contracts that did not qualify for hedge accounting.
Provision for Income Taxes. Effective July 1, 1987, the Company elected to
be treated as an S corporation under the applicable provisions of the Code, and
as a result has not been subject to federal income taxes, but it has been
subject to certain state income taxes. The provision for income taxes is
comprised of foreign income taxes and certain state income taxes. The provision
increased to $1.2 million for the nine months ended September 30, 1997 from $0.7
million for the same period of 1996 primarily due to increased income.
Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes for the nine months ended September 30, 1997 reflects the estimated tax
expense the Company would have incurred had it been subject to federal and state
income taxes as a C corporation under the Code. The pro forma provision reflects
a pro forma effective tax rate of 38.0%, which differs from the federal
statutory rate due primarily to the effects of state and foreign taxes and
certain tax credits.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased 8.7% to $170.9 million for 1996 from $157.2
million for 1995. International net sales were $51.4 million for 1996 (30.1% of
net sales) and $50.2 million for 1995 (31.9% of net sales). In the fourth
quarter of 1995 the Company purchased UTI Instruments Company ("UTI"), a
designer and manufacturer of gas monitoring instrumentation, for $4.4 million in
cash. The increase in net sales was due primarily to the inclusion of sales by
UTI as well as increased worldwide sales volume of the Company's existing
products.
Gross Profit. Gross profit as a percentage of net sales decreased to 40.3%
for 1996 from 44.2% for 1995. The decrease was primarily due to higher fixed
costs resulting from manufacturing capacity expansion and lower margins
initially earned on certain new products.
Research and Development. Research and development expenses increased
29.8% to $14.2 million (8.3% of net sales) for 1996 from $10.9 million (7.0% of
net sales) for 1995. The increase was primarily due to increased costs
associated with the development of new products, including approximately $0.8
million resulting from the inclusion of a full year of costs associated with
UTI.
Selling, General and Administrative. Selling, general and administrative
expenses increased 8.1% to $37.2 million (21.8% of net sales) for 1996 from
$34.4 million (21.9% of net sales) for 1995. The increase was primarily due to
the inclusion of a full year of costs associated with UTI.
Restructuring. In the third quarter of 1996 the Company recorded a
restructuring charge of $1.4 million. The charge included $0.4 million of
severance pay, $0.7 million of lease commitments, and $0.3 million for the
write-off of leasehold improvements.
Interest Expense, Net. Net interest expense increased to $2.3 million in
1996 from $1.4 million in 1995 primarily due to increased debt outstanding
during 1996.
Other Income (Expense), Net. Other expense of $0.5 million in 1996
represents losses from foreign exchange contracts that did not qualify for hedge
accounting.
Provision for Income Taxes. The provision for income taxes is comprised of
foreign income taxes and certain state income taxes. The provision decreased to
$0.8 million in 1996 from $1.0 million in 1995 primarily due to lower income.
Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes in 1996 reflects the estimated tax expense the Company would have incurred
had it been subject to federal and state income taxes
18
<PAGE> 21
as a C corporation under the Code. The pro forma provision reflects a pro forma
effective tax rate of 38.0%, which differs from the federal statutory rate due
primarily to the effects of state and foreign taxes and certain tax credits.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased 47.1% to $157.2 million for 1995 from
$106.8 million in 1994. International net sales increased 44.0% to $50.2 million
(31.9% of net sales) for 1995 from $34.8 million (32.6% of net sales) in 1994.
These increases were due primarily to increased worldwide sales volume to
customers in the semiconductor industry.
Gross Profit. Gross profit as a percentage of net sales was substantially
the same for 1995 (44.2%) and 1994 (44.0%).
Research and Development. Research and development expenses increased
36.1% to $10.9 million (7.0% of net sales) for 1995 from $8.0 million (7.5% of
net sales) in 1994. The increase in the dollar amount of the expenses was
primarily due to increased staffing levels and other costs associated with
continued development of new products.
Selling, General and Administrative. Selling, general and administrative
expenses increased 28.0% to $34.4 million (21.9% of net sales) for 1995 from
$26.9 million (25.2% of net sales) for 1994. The change was due primarily to
increased salaries and wages of approximately $3.0 million resulting from higher
staffing levels, approximately $1.9 million of increased costs resulting from
the establishment of sales and service subsidiaries in Europe, Korea, and the
United States, and other increased selling and general and administrative costs
incurred to support the Company's increased sales volume.
Interest Expense, Net. Net interest expense increased to $1.4 million for
1995 from $1.3 million for 1994, primarily due to increased debt outstanding
during 1995.
Provision for Income Taxes. The provision for income taxes is comprised of
foreign income taxes and certain state income taxes. The provision increased to
$1.0 million for 1995 from $0.8 million for 1994 primarily due to increased
income.
SELECTED QUARTERLY OPERATING RESULTS
The following tables present unaudited consolidated financial information
for the seven quarters ended September 30, 1997. In the opinion of management
this information has been presented on the same basis as the audited
Consolidated Financial Statements appearing elsewhere in this Prospectus and all
adjustments (consisting only of normal recurring adjustments) which management
considers necessary for a fair presentation of the results of such periods have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto. The results for any quarter are not
necessarily indicative of future quarterly results of operations.
19
<PAGE> 22
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $49,811 $ 48,278 $38,008 $ 34,765 $40,520 $ 45,749 $48,360
Cost of sales.................... 29,610 29,235 22,233 20,930 24,277 26,413 27,766
------- ------- ------- ------- ------- ------- -------
Gross profit..................... 20,201 19,043 15,775 13,835 16,243 19,336 20,594
Research and development......... 3,560 4,031 3,629 2,975 2,994 3,563 3,779
Selling, general and
administrative................. 10,113 10,595 8,701 7,782 9,612 10,321 10,816
Restructuring.................... 0 0 1,400 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Income from operations........... 6,528 4,417 2,045 3,078 3,637 5,452 5,999
Interest expense, net............ 475 675 661 475 494 527 445
Other income (expense), net...... (12) (9) (209) (249) 275 (447) 632
------- ------- ------- ------- ------- ------- -------
Income before income taxes....... 6,041 3,733 1,175 2,354 3,418 4,478 6,186
Provision for income taxes....... 363 224 71 142 289 378 523
------- ------- ------- ------- ------- ------- -------
Net income....................... $ 5,678 $ 3,509 $ 1,104 $ 2,212 $ 3,129 $ 4,100 $ 5,663
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF NET SALES:
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 59.4 60.6 58.5 60.2 59.9 57.7 57.4
--------- -------- --------- -------- --------- -------- ---------
Gross profit..................... 40.6 39.4 41.5 39.8 40.1 42.3 42.6
Research and development......... 7.2 8.4 9.5 8.5 7.4 7.8 7.8
Selling, general and
administrative................. 20.3 21.9 22.9 22.4 23.7 22.6 22.4
Restructuring.................... 0.0 0.0 3.7 0.0 0.0 0.0 0.0
--------- -------- --------- -------- --------- -------- ---------
Income from operations........... 13.1 9.1 5.4 8.9 9.0 11.9 12.4
Interest expense, net............ 1.0 1.4 1.7 1.4 1.2 1.1 0.9
Other income (expense), net...... 0.0 0.0 (0.6) (0.7) 0.6 (1.0) 1.3
--------- -------- --------- -------- --------- -------- ---------
Income before income taxes....... 12.1 7.7 3.1 6.8 8.4 9.8 12.8
Provision for income taxes....... 0.7 0.4 0.2 0.4 0.7 0.8 1.1
--------- -------- --------- -------- --------- -------- ---------
Net income....................... 11.4% 7.3% 2.9% 6.4% 7.7% 9.0% 11.7%
========= ======== ======== ======== ========= ======== ========
</TABLE>
The Company's quarterly operating results have varied significantly and are
likely to continue to vary significantly due to a number of factors including
specific economic conditions in the industries in which the Company's customers
operate, particularly the semiconductor industry; the timing of the receipt of
orders from major customers; customer cancellations or shipment delays; price
competition; disruption in sources of supply; seasonal variations of capital
spending by customers; production capacity constraints; specific features
requested by customers; exchange rate fluctuations; the introduction or
announcement of new products by the Company or its competitors; and other
factors, many of which are beyond the Company's control. See "Risk
Factors -- Fluctuations in Operating Results."
The Company's net sales have fluctuated over the past seven quarters
primarily due to the decline in the semiconductor industry in 1996 that
adversely affected sales of the Company's products in the third and fourth
quarters of 1996 and the first and second quarters of 1997.
Gross profit as a percentage of net sales decreased for the second quarter
of 1996 primarily due to higher fixed costs resulting from manufacturing
capacity expansion. Gross profit as a percentage of net sales improved in the
third quarter of 1996 primarily due to reduced overhead costs as a result of the
Company's restructuring. Gross profit as a percentage of net sales decreased in
the fourth quarter of 1996 primarily as a result of lower net sales relative to
fixed costs. Gross profit as a percentage of net sales increased in the first,
second and third quarters of 1997 primarily as a result of fuller utilization of
existing manufacturing capacity as a result of increased net sales.
20
<PAGE> 23
Research and development expenses increased in the second quarter of 1996
primarily as a result of increased staffing levels and costs related to product
development support. The reduction in research and development expenses in the
third and fourth quarters of 1996 was primarily due to lower staffing levels and
project cost reductions. The increase in research and development expenses for
the second and third quarters of 1997 was primarily due to increased staffing
levels.
Selling, general and administrative expenses decreased in the third and
fourth quarters of 1996 primarily due to a reduction of general and
administrative staffing levels as a result of the restructuring effected in the
third quarter of 1996 and other cost reductions, and increased in the first
quarter of 1997 primarily due to increased staffing levels and increased
compensation expense. The increase in selling, general and administrative
expenses in the second and third quarter of 1997 was primarily due to increased
compensation expense and the write-off of certain assets with no remaining
value.
Other income primarily represents gains and losses on foreign exchange
contracts.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital requirements through a
combination of cash provided by operations, long-term real estate financing,
capital lease financing and short-term lines of credit.
Operations provided cash of $7.7 million, $13.2 million, $26.3 million and
$11.7 million for 1994, 1995, 1996 and the first nine months of 1997,
respectively, primarily impacted in each period by net income, depreciation and
changes in the levels of inventory and accounts receivable. Investing activities
utilized cash of $4.0 million, $13.2 million, $10.2 million, and $2.6 million in
1994, 1995, 1996 and the first nine months of 1997, respectively, primarily for
the purchase of property and equipment in each period and, in 1994, for the
purchase of investments and, in 1995, the acquisition of UTI. Financing
activities utilized cash of $2.3 million, $0.4 million, $15.6 million and $7.9
million in 1994, 1995, 1996 and the first nine months of 1997, respectively,
primarily for stockholder distributions in each period. Cash flows from
financing activities for each period were primarily from short-term and
long-term borrowings.
Working capital was $29.5 million as of September 30, 1997. The Company has
a combined $20.0 million unsecured revolving line of credit with two domestic
financial institutions, expiring June 30, 1999. The unused balance under this
revolving line of credit was $17.5 million at September 30, 1997. The Company
also has lines of credit through its foreign subsidiaries with several financial
institutions, totaling $13.3 million at September 30, 1997. The total unused
balance under these lines of credit was $2.6 million at September 30, 1997.
These lines generally expire and are renewed at six month intervals. In
addition, the Company has outstanding term loans and mortgage loans from banks
totaling $14.4 million (net of the current portion) at September 30, 1997. See
Note 6 of Notes to Consolidated Financial Statements.
The Company believes that the net proceeds from this offering, together
with the cash anticipated to be generated from operations and funds available
from existing credit facilities, will be sufficient to satisfy its estimated
working capital and planned capital expenditure requirements through at least
the next 12 months.
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT.
A significant portion of the Company's business is conducted outside of the
United States through its foreign subsidiaries. The foreign subsidiaries
maintain their accounting records in their local currencies. Consequently,
period to period comparability of results of operations is affected by
fluctuations in exchange rates. The Company derives a significant portion of its
cash flows from foreign denominated revenue. To the extent the dollar value of
foreign denominated revenue is diminished as a result of a strengthening dollar,
the Company's results of operations and cash flows could be adversely affected.
To mitigate the risks associated with foreign currency rate fluctuations, the
Company has entered into forward exchange contracts and local currency purchased
options on a continuing basis in amounts and timing consistent with the
underlying currency exposures. Gains on forward exchange contracts and local
currency purchased options, qualifying for hedge accounting, amounted to $0.9
million, $1.9 million and $2.5 million for the years ended December 31, 1994,
1995 and 1996, respectively, and $1.6 million and $1.0 million for the nine
months ended September 30, 1996 and 1997, respectively, and are classified in
cost of sales. Losses of $0.5 million, $0.2 million and gains of
21
<PAGE> 24
$0.5 million on forward exchange contracts that did not qualify for hedge
accounting were recognized in earnings for 1996 and the nine months ended
September 30, 1996 and 1997, respectively, and are classified in other income
(expense), net. While the Company does not issue or hold derivative financial
instruments for trading purposes, there can be no assurance that any losses
realized on such instruments will be fully offset by gains on the underlying
exposure. Prospectively, the Company plans to use local currency purchased
options, and to a lesser extent forward exchange contracts, to seek to mitigate
the impact of exchange rate fluctuations. See Notes 2 and 3 of Notes to
Consolidated Financial Statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 2 of Notes to Consolidated Financial Statements for a discussion
of the impact of recently issued accounting pronouncements.
YEAR 2000
The Company has commenced a study of its computer systems in order to
assess its exposure to year 2000 issues. The Company expects to make necessary
modifications or changes to its computer information systems to enable proper
processing of transactions relating to the year 2000 and beyond. The Company
will evaluate appropriate courses of action, including modification or
replacement of certain software systems. However, there can be no assurance that
year 2000 costs and expenses will not have a material effect on the Company.
22
<PAGE> 25
BUSINESS
The Company is a leading worldwide supplier of instruments and components
used to measure, control, analyze and isolate gases in semiconductor and other
manufacturing processes. The Company offers a comprehensive line of products
which are used around the process chamber in both semiconductor front-end
manufacturing processes and other advanced thin-film and vacuum-based processes
used in the manufacture of, among other things, flat panel displays, magnetic
and optical storage media, solar cells, fiber optic cables and gas lasers. The
Company's products include: (i) pressure and flow measurement and control
instruments; (ii) vacuum gauges, valves and components; and (iii) gas analysis
instruments.
For over 20 years the Company has been focused on serving the needs of
semiconductor device manufacturers and semiconductor equipment OEMs and has
established long-term relationships with many of its customers. The Company has
over 4,000 customers worldwide including most major semiconductor equipment
OEMs, semiconductor device manufacturers, a broad range of industrial companies
and university, government and industrial research laboratories. The Company's
customers in its principal market, the semiconductor market, include Applied
Materials, Eaton, Hitachi, Lam Research, TEL and ULVAC. The Company sells its
products primarily through its direct sales force in 22 offices in Canada,
France, Germany, Japan, Korea, the Netherlands, the United Kingdom and the
United States.
INDUSTRY BACKGROUND
In the past 35 years, significant advances in materials science and
processing technologies have enabled the manufacture of products ranging from
highly complex microprocessor chips to simple but effective impervious coatings
for food packaging. In many materials processing applications, specific gas
mixtures at precisely controlled pressures are used to create and maintain the
required process atmosphere, serve as a medium to deposit source material on a
substrate and provide the etchant media for removing materials from a substrate.
The largest commercial application of materials science technology processes is
in the manufacture of semiconductor devices.
Worldwide semiconductor sales have increased as the use of semiconductors
has expanded beyond personal computer and computer systems to a wide array of
additional applications such as telecommunications and data communications
systems, automotive products, consumer goods, medical products and household
appliances. In large part, this growth has been facilitated by the ability of
semiconductor manufacturers to produce increasingly fast, more complex, higher
performance semiconductors while steadily reducing cost per function, power
consumption requirements and size of these products to meet end-user and system
designer requirements. These improvements in the ratio of price to performance
have been enabled by advancements in semiconductor process technology, which
have facilitated the ability to reduce circuit geometries and subsequently
increase transistor densities, or the number of transistors on a silicon wafer.
These trends have driven the need for increasingly complex and sophisticated
semiconductor device manufacturing processes, process equipment and process
controls.
SEMICONDUCTOR MANUFACTURING PROCESS
The front-end of the semiconductor manufacturing process, or wafer
processing, requires hundreds of process steps involving the controlled
application of materials on silicon wafers. These process steps take place
within a process chamber, which provides a controlled environment for the
fabrication of semiconductor devices. Most of the key front-end processes used
in the production of semiconductors require precise control of gas pressure,
flow and composition in the process chamber.
To ensure the integrity and performance of the manufacturing process,
semiconductor device manufacturers require sophisticated instruments that can
provide precise automated control of all major process variables within the
process chamber. The process steps required to produce device features involve
the control of multiple gases flowing into the process chamber at specified
intervals, and at controlled pressure and vacuum levels. In a typical process
step, the process chamber is evacuated to a base pressure established by a
vacuum pumping system and measured with vacuum gauges. Automatic shut-off valves
are sequenced to protect pumps and process instruments from exposure to
atmospheric pressure. Chamber leak integrity may
23
<PAGE> 26
be checked by gas analyzers scanning for the presence of undesirable atmospheric
gases or water vapor. Mass flow controllers automatically control the flow rates
of multiple gases into the process chamber. Simultaneously, the automatic
pressure control system for the process chamber measures the pressure in the
chamber and controls it at the desired level by electronically adjusting the
position of a control valve located between the process chamber and the vacuum
pump. Downstream of the process chamber, heated lines and vacuum valves and
switches are used to prevent contamination of the devices as a result of
backstreaming of particles and exhaust gases into the process chamber.
The front-end process steps involving gaseous media include deposition,
etch, ion implantation, plasma stripping and cleaning, rapid thermal processing,
diffusion and epitaxy. The most frequently employed front-end process steps
requiring gaseous media are deposition, etch and ion implantation.
Deposition involves the formation of several layers of conducting,
semiconducting and insulating thin films on the surface of a wafer. The two
principal methods of film deposition are physical vapor deposition ("PVD"),
which is used primarily to deposit conductive metal layers, and chemical vapor
deposition ("CVD"), which is used primarily to deposit semiconducting and
insulating thin films. In the PVD process, wafers are typically placed in a
process chamber where solid sources of film materials mounted in the chamber are
sputtered onto the wafer surface at precisely controlled pressures and
temperatures. In the CVD process, a specially designed gas or vaporized liquid
material is introduced into a pressure and temperature controlled process
chamber containing the wafers. The gases interact with the wafer surface to form
a semiconducting or insulating layer. The pressure in the process chamber during
the deposition process and the mixture of deposition gases must be tightly
controlled to achieve uniform film thickness and composition.
The etching process creates the line-widths and other feature sizes on
integrated circuits. To produce specified line-widths manufacturers typically
employ plasma etching techniques, which use ionized gases that chemically react
with unprotected portions of the wafer to create the thinly etched features that
form the patterns of the device. The pressure in the etch chamber and the
mixture of etchant gases must be precisely controlled to achieve the specified
side wall angle and ratio of line-widths to depths. Plasma stripping and
cleaning are etching processes used to prepare the wafer surface for further
processing steps.
In the ion implantation process, ions of certain materials are formed in
minuscule quantities from gases introduced into a chamber on the implantation
tool. The ions are generated in the chamber and are accelerated into the silicon
wafer. The ions are implanted beneath the surface of the silicon, altering its
electrical characteristics. The flow rates of the gases into the ion chamber and
the pressure in the ion chamber must be precisely controlled to create and
maintain the ion density required to achieve desired electrical characteristics.
24
<PAGE> 27
The pressures used in semiconductor manufacturing processes range from as
low as one trillionth of atmospheric pressure (10(-9) Torr) to as high as 200
times atmospheric pressure. The following table shows the wide range of
pressures required for typical semiconductor manufacturing processes:
[This table graphically depicts, using graybars, the gas pressure ranges
(10(-D)Torr to 152,000 Torr) used in various typical semiconductor process steps
(Gas distribution, Atmosharic CVD, Sub-atmospheric CVD, Low Pressure CVD, Plasma
Etching & Cleaning, PVD and Implant).]
[CHART]
Etching and deposition steps are repeated many times in the fabrication of
a semiconductor device and require varying flow rates, pressures and gases. A
typical process step uses from three to five different gases. The uptime, yield
and throughput of the process depends on precise repeatable measurement and
control of the specific gas pressure and flow rates, as well as the maintenance
of the vacuum integrity of the process chamber and the prevention of wafer
contamination from particles entering the chamber. Pressure variations of as
little as one-hundred-thousandth of atmospheric pressure can change process
yields significantly and errors in gas composition may impair device
performance. Particle contamination can produce defects that significantly
reduce device yields.
TRENDS IN SEMICONDUCTOR MANUFACTURING
The ability of semiconductor manufacturers to offer integrated circuits
with greater functionality at higher speeds requires continuous improvements in
semiconductor process equipment and process controls. The transition to smaller
device geometries, such as .25 micron and smaller line-widths, may require
shorter process steps and is also leading to the introduction of new materials
such as copper and parylene for conductors and insulators which in turn require
new technologies for delivery of gases and vapors to the process chamber. In
addition, the introduction of advanced processes such as high density plasma is
leading to a need for lower pressures, which are more difficult to measure and
control than higher pressures. These trends, along with increased wafer sizes,
which result in higher device value per wafer, are leading to the need for
increased sophistication of semiconductor processing equipment, a heightened
emphasis on uptime, yield and throughput and the need for more precise process
controls. As a result, the design and performance of instruments that control
pressure or the flow of gases, or analyze the mixture of gases, are becoming
even more critical to the semiconductor manufacturing process.
At the same time, the accelerating pace of technological change and the
increasing sophistication of semiconductor manufacturing equipment have led to
an increase in the number of components and subsystems used in the semiconductor
manufacturing process. To help address this increased complexity, semiconductor
equipment manufacturers are increasingly seeking to establish relationships with
a smaller group of broad-based suppliers that provide (i) value-added,
integrated component solutions that address multiple steps in the semiconductor
manufacturing process, (ii) a worldwide sales and support infrastructure and
(iii) advanced technological capabilities to meet their needs on a worldwide
basis.
25
<PAGE> 28
MKS STRATEGY
The Company's objective is to be the leading worldwide supplier of
instruments and components used to measure, control, analyze and isolate gases
in semiconductor and other advanced thin-film materials processing applications.
The principal elements of the Company's strategy to achieve this objective are
set forth below:
Extend Technology Leadership. The Company seeks to apply its expertise in
vacuum, pressure and flow measurement and control technologies to develop
advanced products that meet the critical gas-related process requirements of
semiconductor and advanced thin-film materials manufacturers. The Company has
introduced technological innovations including corrosion-resistant pressure and
vacuum sensors, closed-loop low pressure and vacuum control systems, and
transducer-configured residual gas analyzers. The Company has developed, and
continues to develop, new products to address emerging industry trends such as
the transition from the use of 200mm wafers to 300mm wafers and the shrinking of
integrated circuit line-widths from .35 micron to .25 and .18 micron and
smaller. The Company has supplied pre-production equipment to be incorporated
into semiconductor equipment OEM 300mm pre-production wafer process equipment
which is expected to be included in pilot product lines of device manufacturers.
The Company has also developed equipment that is being used by research
laboratories for devices using .18 micron line-widths. In addition, the Company
has developed and, continues to develop materials delivery systems for new
classes of materials, such as copper and parylene, that are beginning to be used
in small geometry manufacturing technologies. In addition, the Company has been
a leader in making its products compatible with emerging digital network
standards, such as DeviceNet, for enabling components used in semiconductor
manufacturing processes to transmit self-diagnostic and other information on a
digital host network while reducing system complexity and space requirements.
Offer Comprehensive Product Lines. The Company believes that it offers the
widest range of pressure and vacuum measurement and control products serving the
semiconductor industry. The Company offers a full line of products including
pressure and flow measurement and control instrumentation products; vacuum
gauges, valves and components; and gas analysis instruments. Since the
development of its original Baratron laboratory-based instrument in 1961, the
Company has continuously enhanced and expanded its product offerings in response
to the evolving needs of its customers. In 1997, for example, the Company
introduced various new products and enhancements to existing products, including
the Micro Baratron instrument, a significantly smaller version of its pressure
measurement product, and a new low vapor pressure material delivery system. The
Company plans to introduce new products in 1998, including a line of mass flow
calibrators and process monitoring hardware and software for residual gas
analysis. The Company plans to continue to expand its product lines through both
internal development and acquisitions of complementary businesses, products and
technologies.
Build Upon Close Working Relationships with Customers. The Company has
been focused on serving the needs of semiconductor device manufacturers and
semiconductor equipment OEMs for over 20 years and has established long-term
relationships with many of its customers. The Company works closely with its OEM
customers on future generation designs to provide products that are tailored for
their specific needs. The Company works with its customers at the pre-design and
design stage to identify and respond to their requests for current and future
generations of products. These close working relationships also allow the
Company to understand and address the cost and performance expectations of its
customers. The Company plans to enhance its relationships with its major
customers and identify opportunities to develop similar relationships with
additional semiconductor equipment OEMs and device manufacturers.
Pursue Applications in Related Markets. The Company is leveraging its
accumulated expertise in the semiconductor industry by developing products for
applications that employ production processes similar to semiconductor
fabrication processes in their reliance upon gases and vacuum-based production
technologies. Applications served by the Company outside the semiconductor
industry include vacuum freeze-drying of pharmaceuticals and foods,
sterilization of medical appliances, and applications that involve advanced
thin-film manufacturing such as flat panel displays, magnetic and optical
storage media, solar cells, fiber optic
26
<PAGE> 29
cables and optical coatings. The Company plans to continue to identify and
develop products that address advanced materials processing applications where
gas management plays a critical role.
Leverage Global Infrastructure. As semiconductor device manufacturers have
become increasingly sensitive to the significant costs of system downtime, they
have required that suppliers offer comprehensive local repair service and close
customer support. Manufacturers require close support to enable them to repair,
modify, upgrade and retrofit their equipment to improve yields and adapt to new
materials or processes. To meet these market requirements, MKS maintains a
worldwide sales and support organization with offices in 22 locations. The
Company currently manufactures its products at nine facilities in the United
States and abroad. The Company continues to devote significant resources to
expand and maintain its worldwide production and service capabilities to meet
the global demand for gas management instruments and components. The Company
believes that the ability to manufacture reliable instruments and components in
a cost-effective manner is critical to meet the demanding "just-in-time"
delivery requirements of its OEM and end-user customers. During the year ending
December 31, 1998, the Company plans to add manufacturing capabilities to its
Austin, Texas and United Kingdom facilities and further equip its cleanroom
facilities in Andover and Methuen, Massachusetts. The Company intends to open a
sales and support facility in Singapore also in 1998.
PRODUCTS
MKS offers a full line of instruments and components that are used to
measure, control, analyze and isolate gases in semiconductor and other advanced
thin-film manufacturing processes. The Company supplies products in three
principal areas: (i) pressure and flow measurement and control instrumentation
products; (ii) vacuum gauges, valves and components; and (iii) gas analysis
instruments.
27
<PAGE> 30
The following schematic shows where MKS products are used in a typical
semiconductor manufacturing process.
[MANUFACTURING SCHEMATIC]
1. Ultraclean
Mini-Baratron
Pressure Transducer
and Local Display
Module
2. Automatic Pressure
Controller/
Regulator
3. Thermal Mass Flow
Controller or
Pressure-based Mass
Flow Controller
4. Gas Box Rate-of-Rise
In-situ Calibrator
5. Control and Shut-off
Valves
6. Direct Liquid
Injection --
Controller
7. Direct Liquid
Injection --
Micropump
8. Direct Liquid
Injection --
Vaporizer
9. RGA Mass
Spectrometer with
Software
10. Baratron Pressure
Switch
11. In Situ Diagnostics
Access Valve
12. Baratron Pressure
Transducer
13. Automatic
Downstream valve
Controller
14. Vacuum Foreline
15. In-line Valve
16. Convection Pirani
Gauge
17. Throttle Valve
18. Cold Cathode High
Vacuum Gauge or Hot
Cathode High Vacuum
Gauge
19. In-line Trap
20. Foreline/Exhaust
Line Heaters
[The schematic is the illustration of a typical process chamber, with
numerous MKS products surrounding the chamber. The products are as those listed
to the right of the schematic.]
PRESSURE AND FLOW MEASUREMENT AND CONTROL INSTRUMENTATION PRODUCTS
The Company designs and manufactures a wide range of pressure and flow
measurement and control instrumentation. Each product line consists of products
which are designed for a variety of pressure and flow ranges and accuracies.
Baratron Pressure Measurement Products. The Company's Baratron pressure
measurement products are high-resolution, variable capacitance pressure
measurement instruments and consist of five product lines that range from high
accuracy digital output instruments to simple electronic switches. These
products are typically used to measure the pressure of the gases being
distributed upstream of the process chamber, to measure process chamber pressure
and to measure pressures between the process chamber and the pump. Baratron
instruments measure pressures at ranges from two hundred times atmospheric
pressure to 10(-6) Torr. The Company believes it offers the widest range of
variable capacitance gas pressure measurement instruments in the semiconductor
and advanced thin-film materials processing industries.
A key feature of Baratron instruments is that they measure pressure
independent of gas composition, which is critical for precise pressure control
of semiconductor processes that involve gas mixtures. In these processes, there
is a need to control both pressure and gas mixture, but the pressure measurement
instrument must measure only the pressure of the sum of the gases in the
chamber, independent of gas composition. The Baratron line of instruments
enables users to achieve a highly accurate and repeatable measurement of gas
pressure. Pressure measurement, independent of gas composition, is also useful
in evacuation (removal of atmospheric gases) and backfilling (introduction of
specific amounts of several gases) applications, such as fluorescent bulb
manufacturing and gas laser fabrication.
28
<PAGE> 31
The following table shows the Company's principal Baratron pressure
measurement product lines:
BARATRON PRESSURE MEASUREMENT PRODUCTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RANGES OF LIST
PRODUCT LINES TYPICAL APPLICATIONS DESCRIPTION PRICES
----------------------------- --------------------- ---------------------- ------------------
<S> <C> <C> <C> <C> <C>
High accuracy pressure and CVD Instruments with $ 2,125 - $6,125
vacuum measurement PVD built-in temperature
instruments Etch stabilization
Pressure calibration features, for high
accuracy and high
temperature operation
- ----------------------------------------------------------------------------------------------------------
General purpose pressure and CVD Rugged instruments $450 - $3,600
vacuum measurement PVD with and without
instruments Etch built-in temperature
stabilization
features, for
reliable, accurate,
process measurement
- ----------------------------------------------------------------------------------------------------------
Ultra-clean high pressure and Gas Distribution Instruments with $650 - $950
vacuum measurement CVD ultra- clean surfaces
instruments Etch exposed to gas, for
high purity
applications
- ----------------------------------------------------------------------------------------------------------
General purpose "MINI" CVD Small footprint $625 - $1,700
pressure and vacuum Etch instruments for
measurement instruments accurate, general
purpose process
measurement
- ----------------------------------------------------------------------------------------------------------
Electronic switches ranging PVD Economical, stable $375 - $650
from atmosphere to vacuum CVD instrument providing
Etch "go/no-go" output for
pressure trip-points
and alarms
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Company's list prices for its Baratron measurement products vary
depending upon accuracy, pressure range, operating temperature range, stability,
resolution and gas purity specifications.
Pressure Control Products. The Company's pressure control products consist
of analog and digital automatic pressure and vacuum control electronic
instruments and valves. These products enable precise control of process
pressure by electronically actuating valves which control the flow of gases in
and out of the process chamber to minimize the difference between desired and
actual pressure in the chamber. The electronic controllers vary from simple
analog units with precise manual tuning capability to state-of-the-art
self-tuning, digital signal processing controllers. The valve products vary from
small gas inlet valves to large exhaust valves.
In most cases, the Company's Baratron pressure measurement instruments
provide the pressure input to the pressure control device, providing the user
with an integrated closed-loop pressure control system. The Company's pressure
control products can also accept inputs from other measurement instruments,
enabling the control of gas input or exhaust based on parameters other than
pressure.
29
<PAGE> 32
PRESSURE AND VACUUM CONTROL PRODUCTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RANGES OF LIST
PRODUCT LINES TYPICAL APPLICATIONS DESCRIPTION PRICES
----------------------------- --------------------- ---------------------- ------------------
<S> <C> <C> <C> <C> <C>
Downstream automatic valve CVD Analog controllers, $850 - $2,000
controllers Etch self- tuning digital
controllers and
displayless self-
tuning controllers
- ----------------------------------------------------------------------------------------------------------
Downstream exhaust control CVD Non-sealing valves, $ 1,250 - $8,200
throttle valves Etch sealing valves, high
speed sealing valves,
microprocessor-based
smart throttle valves
and vane-type valves
- ----------------------------------------------------------------------------------------------------------
Upstream or downstream CVD Integrated sensor, $ 1,400 - $3,000
automatic controllers Etch valve and control
Implant electronics package
Backside wafer
cooling
- ----------------------------------------------------------------------------------------------------------
Upstream control valves Etch Elastomer and $450 - $1,500
Implant all-metal- sealed
Backside wafer valves
cooling
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Company has recently introduced a line of integrated pressure
controllers that combine the functions of its Baratron pressure measurement
instrument, control electronics and valve into a three-inch footprint instrument
which can be placed directly on a gas line to control pressure either upstream
or downstream of the instrument. This addresses the need for smaller components,
saving valuable clean room space.
Flow Measurement and Control Products. The Company's flow measurement
products include gas, vapor and liquid flow measurement products based upon
thermal conductivity, pressure and direct liquid injection technologies. The
flow control products combine the flow measuring device with valve control
elements based upon solenoid, piezo-electric and piston pump technologies. The
products measure and control the mass flow rate of gases and vapors into the
process chamber. The Company's broad product lines include products that allow
the precise flow control of inert or corrosive gases, the control of low vapor
pressure gases, and heated liquid source materials, and the control of delicate,
advanced technology liquid sources and dissolved solid sources for next
generation devices.
The Company's line of thermal-based mass flow controllers includes
all-metal-sealed designs and ultra-clean designs for semiconductor applications
and general purpose controllers for applications where all-metal-sealed
construction is not required. The Company has also developed pressure-based mass
flow controllers, based on Baratron pressure instrument measurement and control
technology, which use flow restrictors in the gas line to transform pressure
control into mass flow control.
30
<PAGE> 33
FLOW MEASUREMENT AND CONTROL PRODUCTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RANGES OF LIST
PRODUCT LINES TYPICAL APPLICATIONS DESCRIPTION PRICES
----------------------------- --------------------- ---------------------- ------------------
<S> <C> <C> <C> <C> <C>
Direct liquid injection CVD Pumps and vaporizes $8,500 - $24,900
system liquid metal and
dielectric precursers
into process chamber
- ----------------------------------------------------------------------------------------------------------
Gas box rate of rise In situ calibration Measures pressure $7,500
calibrator of mass flow increase with time in
controllers a known volume
- ----------------------------------------------------------------------------------------------------------
Pressure-based vapor delivery CVD Measures and controls $4,600 - $12,400
systems flow of low pressure
vapors into chamber
- ----------------------------------------------------------------------------------------------------------
Pressure-based mass flow CVD Gas flow controller $2,700
controllers Implant consisting of Baratron
sensor, control valve,
orifice, and
electronics
- ----------------------------------------------------------------------------------------------------------
Ultra-clean all-metal-sealed CVD Gas flow controller $1,400 - $13,850
thermal mass flow controllers PVD consisting of sensor,
Etch control valve and
electronics
- ----------------------------------------------------------------------------------------------------------
General purpose elastomer- CVD Gas flow controller $875 - $2,000
sealed mass flow controllers Etch consisting of sensor,
control valve and
electronics
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Certain new materials required for the next generation of semiconductor
devices are difficult to control using traditional thermal mass flow technology.
To control these new materials, the Company has designed a direct liquid
injection subsystem ("DLI") which pumps a precise volume of liquid into a
vaporizer, which in turn supplies a controlled flow of vapor into the process
chamber. The DLI pump and vaporizer are presently used principally for research
and development applications for next generation semiconductor device conductors
and insulators, such as copper and parylene.
The Company's flow measurement products also include an in situ calibration
system which independently measures mass flow and compares this measurement to
that of the process chamber mass flow controller. The demand for the Company's
calibration system is driven by the increasingly stringent process control needs
of the semiconductor industry and the need to reduce costly downtime resulting
from stopping operations to address mass flow controller problems.
VACUUM GAUGES, VALVES AND COMPONENTS
The Company is a leading supplier of vacuum gauges, valves and components.
The Company offers a wide range of vacuum instruments consisting of vacuum
measurement sensors and associated power supply and readout units. These vacuum
gauges measure phenomena that are related to the level of pressure in the
process chamber and downstream of the process chamber between the chamber and
the pump, but, unlike Baratron pressure measurement instruments, do not measure
pressure directly. These gauges are used to measure vacuum at pressures lower
than those measurable with a Baratron pressure measurement instrument or to
measure vacuum in the Baratron pressure measurement instrument range where less
accuracy is required. The Company's indirect pressure gauges use thermal
conductivity and ionization gauge technologies to measure pressure from
atmospheric pressure to 10(-9)Torr. The Company's Baratron pressure measurement
instruments, together with its vacuum gauges are capable of measuring the full
range of pressures used in semiconductor and other thin-film manufacturing
processes from 200 times atmospheric pressure to 10(-9)Torr.
31
<PAGE> 34
The Company also manufactures a wide range of vacuum gauge instruments in
which the associated electronics are packaged with the vacuum sensor, reducing
panel space and installation cost. The Company offers both analog and digital
versions of these vacuum gauge transducers.
VACUUM GAUGES, VALVES AND COMPONENT PRODUCTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TYPICAL RANGES OF LIST
PRODUCT LINES APPLICATIONS DESCRIPTION PRICES
----------------------------- ---------------- --------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Cold cathode and hot filament PVD Electronic gauges to $600 - $6,200
vacuum gauges Etch measure pressure down to
10(-9) Torr
- ---------------------------------------------------------------------------------------------------------
Convection gauges PVD Electronic gauges to $200 - $725
CVD measure from atmosphere
Etch down to 10(-3) Torr
- ---------------------------------------------------------------------------------------------------------
Right-angle and in-line shut- PVD High vacuum rapid action $275 - $4,500
off valves CVD poppet valves
Etch
Implant
- ---------------------------------------------------------------------------------------------------------
Vacuum traps CVD Contaminant particle trap $1,800 - $2,500
Etch
- ---------------------------------------------------------------------------------------------------------
Other vacuum components PVD Flanges, fittings and $325 - $1,650
CVD heated lines
Etch
Implant
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Company's vacuum valves are used on the gas lines between the process
chamber and the pump downstream of the process chamber for CVD, PVD, implant and
etch processes. The Company's vacuum components consist of fittings, flanges,
traps and heated lines that are used downstream from the process chamber to
provide leak free connections and to prevent condensable materials from
depositing particles near or back into the chamber. The manufacture of small
geometry devices cannot tolerate contamination from atmospheric pressure or
particles. The Company's vacuum components are designed to minimize such
contamination and thus increase yields and uptimes.
GAS ANALYSIS INSTRUMENTS
The Company's gas analysis instruments are sold primarily to the
semiconductor industry. The residual gas analysis product lines include a
quadrapole mass spectrometer sensor with built-in electronics to analyze the
composition of background and process gases in the process chamber. The
Company's ORION process monitoring system is a sophisticated quadrapole mass
spectrometer process analyzer for statistical process monitoring of
manufacturing processes operating from very low pressures to atmospheric
pressure. These instruments are provided both as portable laboratory systems and
as process gas monitoring systems used in the diagnosis of semiconductor
manufacturing process systems. The gas monitoring systems can indicate out-
of-bounds conditions, such as the presence of undesirable atmospheric gases,
water vapor or out-of-tolerance amounts of specific gases in the process
chamber, enabling operators to diagnose and repair faulty equipment. The
Company's gas sampling systems provide a turn-key solution for withdrawing gases
from chambers at relatively high pressures for introduction into the low
pressure gas analyzers. Next generation, smaller geometry and larger wafer size
device manufacturing processes are expected to require sophisticated gas
analysis instruments and or monitoring equipment to ensure tighter process
control and earlier diagnosis of equipment failures.
MARKETS AND APPLICATIONS
The Company estimates that approximately two-thirds of its sales in the
first nine months of 1997 were made to the semiconductor industry. The Company's
products are also used in other markets and applications
32
<PAGE> 35
including the manufacture of flat panel displays, magnetic and optical storage
media, solar cells, fiber optic cables and optical coatings. The Company sells
its products primarily through its direct sales force which consists of 134
employees in 22 offices in Canada, France, Germany, Japan, Korea, the
Netherlands, the United Kingdom and the United States. This direct sales force
is supplemented by sales representatives and agents in China, India, Israel,
Italy, Singapore and Taiwan and in selected domestic cities. The major markets
for the Company's products include:
Semiconductor Manufacturing
The Company's products are sold to semiconductor device manufacturers and
semiconductor equipment OEMs. The Company's products are used in the major
front-end process technologies such as PVD, CVD, etch and ion implantation and
for process facility applications such as gas distribution, clean room pressure
control and vacuum distribution. The Company anticipates that the semiconductor
manufacturing market will continue to account for a substantial portion of its
sales. While the semiconductor device manufacturing market is global, the major
semiconductor equipment OEMs are concentrated in the U.S., Japan and Europe.
Flat Panel Display Manufacturing
The Company's products are used in the manufacture of flat panel displays,
which require the same or similar fabrication processes as semiconductor
manufacturing. The dominant fabrication process is CVD, which uses the same or
similar Company products as CVD for semiconductor manufacturing. The Company
sells its products both to OEMs and to end-users in the flat panel display
market. The transition to larger panel size and higher definition is driving the
need for defect reduction which requires tighter process controls.
Magnetic and Optical Storage Media
The Company's products are used in the manufacture of CD-ROMs, CDs, hard
disks, and DVDs (digital video disks), typically in PVD applications. The
Company's products are also used in the production of thin-film heads where ion
beam technology is typically used. The transition to higher density storage
capacity requires manufacturing processes incorporating tighter process
controls. While storage media manufacturing is global, the major manufacturers
are concentrated in Japan and the Asia-Pacific region and equipment OEMs are
concentrated in the U.S., Japan and Europe.
Optical Fiber and Optical Coating
The Company's products are used in optical fiber and optical coating film
processes. The Company's products are sold both to coating equipment OEMs and to
manufacturers of products made using optical thin-films processes. Optical
fibers used for data transmission are manufactured using CVD processes similar
to those used in semiconductor manufacturing. The requirement for greater data
transmission is driving the need for tighter control of optical fiber coating
processes. Optical thin films for eyeglasses, solar panels and architectural
glass are deposited using evaporation, CVD or PVD in processes similar to those
used in semiconductor manufacturing. Optical fiber manufacturing and optical
thin-film processing are concentrated in the U.S., Japan and Europe.
The Company estimates that the flat panel display, magnetic and optical
storage media, optical fiber and optical coating markets, combined, accounted
for approximately 13% of net sales for 1996 and the first nine months of 1997.
Other Markets
The Company's pressure and flow measurement and control instruments are
also used in CVD and PVD processes for the application of thin films to harden
tool bit surfaces, in the production of diamond thin films, in plasma processes
used to sterilize medical instruments, in vacuum freeze drying of
pharmaceuticals, foods and beverages and in vacuum processes involved in light
bulb and gas laser manufacturing. The major OEMs and manufacturers are
concentrated in the U.S., Japan and Europe.
CUSTOMERS
The Company has more than 4,000 active customers worldwide (having
purchased products during the past year), including most major semiconductor
device manufacturers, semiconductor equipment OEMs and
33
<PAGE> 36
industrial and research laboratories. The Company's largest customers consist
primarily of leading semiconductor equipment OEMs and semiconductor device
manufacturers, including Applied Materials, Eaton, Hitachi, Lam Research, TEL
and ULVAC. In 1995 and 1996 and the first nine months of 1997, sales to the
Company's top five customers accounted for approximately 24%, 26% and 31%,
respectively, of the Company's net sales. During the same periods, international
sales represented approximately 32%, 30% and 28% of total net sales,
respectively. During the first nine months of 1997, Applied Materials accounted
for approximately 21% of the Company's net sales. Applied Materials purchases
products from the Company under the terms of an agreement, with no minimum
purchase requirements, that expires in 2002.
SALES, MARKETING AND SUPPORT
The Company's worldwide sales, marketing and support organization is
critical to its strategy of maintaining close relationships with semiconductor
equipment OEMs and device manufacturers. The Company sells its products
primarily through its direct sales force which consists of 134 employees in 22
offices in Canada, France, Germany, Japan, Korea, the Netherlands, the United
Kingdom and the United States. This direct sales force is supplemented by sales
representatives and agents in China, India, Israel, Italy, Singapore and Taiwan
and in selected domestic cities. The Company maintains a marketing staff of 24
employees to identify customer requirements, assist in product planning and
specifications and to focus on future trends in the semiconductor and other
markets.
As semiconductor device manufacturers have become increasingly sensitive to
the significant costs of system downtime they have required that suppliers offer
comprehensive local repair service and close customer support. Manufacturers
require close support to enable them to repair, modify, upgrade and retrofit
their equipment to improve yields and adapt new materials or processes. To meet
these market requirements, the Company maintains a worldwide sales and support
organization with offices in 22 locations. Technical support is provided by
applications engineers located at offices in Arizona, California, Colorado,
Massachusetts, Oregon and Texas, as well as Canada, France, Germany, India,
Israel, Italy, Japan, Korea, the Netherlands, Singapore, Taiwan and the United
Kingdom. Repair and calibration services are provided at 14 service depots
located both in the United States and abroad. The Company provides warranties
from one to three years, depending upon the type of product. In addition, the
Company offers training programs for its customers in a wide range of vacuum and
gas handling technologies.
MANUFACTURING
The Company believes that the ability to manufacture reliable gas
management instruments and components in a cost-effective manner is critical to
meeting the demanding requirements of its OEM and end-user customers. The
Company monitors and analyzes product lead times, warranty data, process yields,
supplier performance, field data on mean time between failures, inventory turns,
repair response time and other indicators so that it may continuously improve
its manufacturing processes. The Company has adopted a total quality management
process. Certain of the Company's major manufacturing and service operations are
ISO 9001 certified and the Company is planning to implement ISO 9000 for the
remainder of its U.S. and European operations by the end of 1998.
The Company is devoting significant financial and management resources to
maintain and expand its worldwide production and service capabilities to meet
the global demand for gas management instruments and components. The Company
believes that the ability to manufacture reliable instruments and components in
a cost-effective manner is critical to meet the demanding "just-in-time"
delivery requirements of its OEM and end-user customers. Due to the short time
between the receipt of orders and shipments, the Company normally operates with
a level of backlog that is not significant. The Company currently manufactures
its products at nine facilities in the United States and abroad. The Company
plans in the year ending December 31, 1998 to add manufacturing capabilities to
its Austin, Texas and United Kingdom facilities and further equip its cleanroom
facilities in Andover and Methuen, Massachusetts. See "Use of Proceeds."
The Company's principal manufacturing activities consist of precision
assembly, test, calibration, welding and machining activities. The Company
subcontracts a portion of its assembly, machining and printed circuit board
assembly and testing. All other assembly, test and calibration functions are
performed by the Company. Critical assembly activities are performed in
cleanroom environments at the Company's facilities.
34
<PAGE> 37
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are directed toward
developing and improving the Company's gas management instruments and components
for semiconductor and advanced thin-film processing applications and identifying
and developing products for new applications for which gas management plays a
critical role. The Company has undertaken an initiative to involve its
marketing, engineering, manufacturing and sales personnel in the concurrent
development of new products in order to reduce the time to market for new
products. The Company's employees also work closely with its customers'
development personnel. These relationships help the Company identify and define
future technical needs on which to focus its research and development efforts.
In addition, the Company participates in SEMI/SEMATECH, a consortium of
semiconductor equipment suppliers, to assist in product development and
standardization of product technology, and it supports research at academic
institutions targeted at advances in materials science and semiconductor process
development.
As of September 30, 1997, the Company employed a research and development
staff of 131 employees. In 1995, 1996 and the first nine months of 1997, the
Company's research and development expenditures were approximately $10.9
million, $14.2 million and $10.3 million, respectively, representing
approximately 7.0%, 8.3% and 7.7% of net sales.
COMPETITION
The market for the Company's products is highly competitive. Principal
competitive factors include historical customer relationships; product quality,
performance and price; breadth of product line; manufacturing capabilities; and
customer service and support. While the Company believes that it competes
favorably with respect to these factors, there can be no assurance that it will
continue to do so.
The Company encounters substantial competition in each of its product lines
from a number of competitors, although no one competitor competes with the
Company across all product lines. Certain of the Company's competitors have
greater financial and other resources than the Company. In some cases, the
competitors are smaller than the Company, but well established in specific
product niches. Millipore offers products that compete with the Company's
pressure and flow products. AERA, STEC and Unit Instruments each offer products
that compete with the Company's mass flow control products. NOR-CAL and MDC each
offer products that compete with the Company's vacuum components.
Leybold-Inficon offers products that compete with the Company's vacuum measuring
and gas analysis products. Spectra Instruments offers products that compete with
the Company's gas analysis products. In some cases, particularly with respect to
mass flow controllers, end-user semiconductor device manufacturers may direct
semiconductor equipment OEMs to use a specified supplier's product in their
equipment. Accordingly, the Company's success depends in part on its ability to
have semiconductor device manufacturers specify that its products be used at
their fabrication facilities and the Company may encounter difficulties in
changing established relationships of competitors with a large installed base of
products at such customers' fabrication facilities. In addition, the Company's
competitors can be expected to continue to improve the design and performance of
their products. There can be no assurance that competitors will not develop
products that offer price or performance features superior to those of the
Company's products.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret laws and license agreements to establish and protect its
proprietary rights. The Company has 38 U.S. patents and 21 U.S. patent
applications pending. Foreign counterparts of certain of these applications have
been filed or may be filed at the appropriate time. While the Company believes
that certain patents may be important for certain aspects of its business, the
Company believes that its success depends more upon close customer contact,
innovation, technological expertise, responsiveness and worldwide distribution.
The Company requires each of its employees, including its executive
officers, to enter into standard agreements pursuant to which the employee
agrees to keep confidential all proprietary information of the Company and to
assign to the Company all inventions made while in the employ of the Company.
35
<PAGE> 38
EMPLOYEES
As of September 30, 1997, the Company employed 1,126 persons, including 711
in manufacturing, 131 in research and development, 284 in marketing, sales,
support and general and administrative activities. Management believes that the
Company's ongoing success depends upon its continued ability to attract and
retain highly skilled employees. None of the Company's employees is represented
by a labor union or party to a collective bargaining agreement. The Company
believes that its employee relations are good.
FACILITIES
The Company sells its products primarily through its direct sales force in
22 offices in Canada, France, Germany, Japan, Korea, the Netherlands, the United
Kingdom and the United States. The direct sales force is supplemented by sales
representatives and agents in China, India, Israel, Italy, Singapore and Taiwan
and in selected domestic cities. The Company's corporate headquarters are
located in Andover, Massachusetts. Manufacturing and other operations are
conducted in a number of locations worldwide. The Company's minimum payments for
leased real estate for year ending December 31, 1998 are expected to be
$1,073,000. The Company believes that the current facilities along with the
planned addition for 1998 will be adequate and suitable to meet its needs for
the foreseeable future. The following table provides information concerning the
Company's principal and certain other owned and leased facilities:
<TABLE>
<CAPTION>
LEASE
LOCATION SQ. FT. ACTIVITY PRODUCTS MANUFACTURED EXPIRES
- ------------------------ ------- --------------------------- ---------------------- ---------
<S> <C> <C> <C> <C>
Andover, Massachusetts 82,000 Headquarters, Baratron pressure (1)
Manufacturing, Customer measurement products
Support and Research &
Development
Boulder, Colorado 86,000 Manufacturing, Customer Vacuum gauges, valves (2)
Support, Service and and components
Research & Development
Methuen, Massachusetts 85,000 Manufacturing, Customer Pressure control and (1)
Support, Service and flow measurement and
Research & Development control products
Lawrence, Massachusetts 40,000 Manufacturing Baratron pressure (1)
measurement products
San Jose, California 35,900 Sales and Service 2/14/98
Tokyo, Japan 20,700 Manufacturing, Sales, Mass flow measurement (3)
Customer Support, Service and control products
and Research & Development
Walpole, Massachusetts 20,000 Manufacturing, Customer Gas analysis 3/31/00*
Support, Service and instruments
Research & Development
Munich, Germany 14,100 Manufacturing, Sales, Mass flow measurement (1)
Customer Support, Service and control products
and Research & Development
Le Bourget, France 13,700 Sales, Customer Support and (1)
Service
Santa Clara, California 15,600 Sales, Customer Support and (4)**
Service
Richardson, Texas 14,600 Manufacturing, Sales, Subassemblies 8/31/98
Customer Support and
Service
Austin, Texas 8,200 Sales, Customer Support and 1/30/03
Service
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
LEASE
LOCATION SQ. FT. ACTIVITY PRODUCTS MANUFACTURED EXPIRES
- ------------------------ ------- --------------------------- ---------------------- ---------
<S> <C> <C> <C> <C>
Seoul, Korea 4,760 Manufacturing, Sales, Mass flow measurement 5/98*
Customer Support and and control products
Service
Manchester, U.K. 2,200 Sales, Customer Support and 10/5/09
Service
Ottawa, Canada 2,095 Sales, Customer Support and (1)
Service
</TABLE>
- ---------------
(1) This facility is owned by the Company.
(2) The Company leases one facility which has 39,000 square feet of space and a
lease term which expires 10/31/98 and owns a second and third facility with
28,000 and 19,000 square feet of space, respectively.
(3) The Company leases a facility which has 14,000 square feet of space and a
lease term which expires 4/30/99 and owns another facility with 6,700 square
feet of space.
(4) The Company leases one facility with 4,000 square feet of space on a
month-to-month basis, a second facility of 4,000 square feet with a lease
term which expires on 1/30/00 and a third facility of 2,600 square feet with
a lease term which expires 6/30/99. The Company owns a fourth facility of
5,000 square feet.
* The Company has an option to extend these leases for a period of 2 years.
** The Company has an option to extend these leases for a period of 18 months.
In addition to manufacturing and other operations conducted at the
foregoing leased or owned facilities, the Company provides worldwide sales,
customer support and services from various other leased facilities throughout
the world. See "Business -- Sales, Marketing and Support."
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
37
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of October 31, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
John R. Bertucci................... 56 Chairman of the Board of Directors, President and
Chief Executive Officer
Ronald C. Weigner.................. 52 Vice President and Chief Financial Officer
John J. Sullivan................... 62 Executive Vice President of Technology
William D. Stewart................. 53 Corporate Vice President and General Manager, Vacuum
Products
Leo Berlinghieri................... 44 Corporate Vice President, Customer Support
Operations
Richard S. Chute(1)................ 59 Director
Owen W. Robbins(2)................. 68 Director
Robert J. Therrien(1).............. 63 Director
Louis P. Valente(1)(2)............. 67 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Bertucci has served as President of the Company since 1974 and has been
Chief Executive Officer and Chairman of the Board of Directors since November
1995. From 1970 to 1974, he was Vice President and General Manager of the
Company. Mr. Bertucci has an M.S. in Industrial Administration and a B.S. in
Metallurgical Engineering from Carnegie-Mellon University. Mr. Bertucci is also
a director of Applied Science and Technology Corporation.
Mr. Weigner has served as Vice President and Chief Financial Officer of the
Company since November 1995. From September 1991 until November 1995, he was
Vice President and Corporate Controller of the Company and from 1980 to 1993 he
was Corporate Controller. Mr. Weigner is a certified public accountant and has a
B.S. in Business Administration from Boston University.
Mr. Sullivan has served as Executive Vice President of Technology of the
Company since March 1995. From 1982 to March 1995, Mr. Sullivan was Vice
President of Marketing of the Company and from 1975 to 1982 he was Vice
President of Sales and Marketing of the Company. Mr. Sullivan has an M.S. and a
B.S. in physics from Northeastern University.
Mr. Stewart has served as Corporate Vice President and General Manager,
Vacuum Products since November 1997. From October 1986 to November 1997 he was
President of the Company's HPS Vacuum Products group, which the Company acquired
in October 1986. Mr. Stewart co-founded HPS in 1976. Mr. Stewart has an M.B.A.
from Northwestern University and a B.S. in Business Administration from the
University of Colorado. Mr. Stewart also serves on the Board of Directors of the
Janus Fund.
Mr. Berlinghieri has served as Corporate Vice President, Customer Support
Operations for the Company since November 1995. From 1980 to November 1995, Mr.
Berlinghieri served in various management positions for the Company, including
Manufacturing Manager, Production & Inventory Control Manager, and Director of
Customer Support Operations. Mr. Berlinghieri is also Treasurer of the TQM-Base
Council, Inc., (a non-profit quality management consortium comprised of
Boston-area semiconductor and capital equipment manufacturers).
Mr. Chute has served as a director of the Company since 1974. Mr. Chute has
been a member of the law firm of Hill & Barlow, a professional corporation,
since November 1971.
Mr. Robbins has served as a director of the Company since February 1996.
Mr. Robbins was Executive Vice President of Teradyne, Inc., a manufacturer of
electronic test systems and backplane connection systems used in the electronics
and telecommunications industries from March 1992 to May 1997, and its Chief
38
<PAGE> 41
Financial Officer from February 1980 to May 1997. Mr. Robbins has served on the
Board of Directors of Teradyne since March 1992 and was Vice Chairman from
January 1996 to May 1997.
Mr. Therrien has served as a director of the Company since February 1996.
Mr. Therrien has been President and Chief Executive Officer of Brooks
Automation, Inc., a manufacturer of semiconductor processing equipment, since
1989.
Mr. Valente has served as a director of the Company since February 1996.
Mr. Valente was a Senior Vice President of Acquisitions, Mergers and Investments
of EG&G, Inc. from 1991 until July 1995. Mr. Valente has been President and
Chief Executive Officer of Palomar Medical Technologies, Inc. ("PMT"), a company
which designs, manufactures and markets cosmetic lasers, from May 1997 to
September 1997, its Chairman of the Board of Directors and Chief Executive
Officer from September 1997 to present and a director of PMT since February
1997. Mr. Valente is also a director of Micrion Corporation.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors are duly elected and qualified.
There are no family relationships among any of the executive officers of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee consists of Messrs. Chute, Therrien and Valente.
The Compensation Committee reviews and evaluates the salaries, supplemental
compensation and benefits of all officers of the Company, reviews general policy
matters relating to compensation and benefits of employees of the Company and
makes recommendations concerning these matters to the Board of Directors. The
Compensation Committee also administers the Company's stock option and stock
purchase plans. See "-- Stock Plans."
The Audit Committee consists of Messrs. Robbins and Valente. The Audit
Committee reviews with the Company's independent auditors the scope and timing
of their audit services, the auditor's report on the Company's financial
statements following completion of their audit and the Company's policies and
procedures with respect to internal accounting and financial controls. In
addition, the Audit Committee will make annual recommendations to the Board of
Directors for the appointment of independent auditors for the ensuing year.
DIRECTOR COMPENSATION
Directors of the Company are reimbursed for expenses incurred in connection
with their attendance at Board and committee meetings. Directors who are not
employees of the Company are paid an annual fee of $10,000 and $1,000 for each
Board meeting they attend and $500 for each committee meeting they attend which
is not held on the same day as a Board meeting. Messrs. Chute, Robbins, Therrien
and Valente, the Company's four non-employee directors, have each been granted
options, under the Company's 1996 Director Stock Option Plan, to purchase 5,125
shares of Common Stock at an exercise price of $6.64 per share and will be
eligible for future grants under the Company's 1997 Director Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently comprised of Messrs. Chute,
Therrien and Valente. No member of the Compensation Committee was at any time
during the fiscal year ended December 31, 1996 or at any other time an employee
of the Company. No executive officer of the Company serves as a member of the
board of directors or compensation committee of any other entity which has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers for the year ended December 31, 1996 (the "Named
Executive Officers").
39
<PAGE> 42
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
ANNUAL COMPENSATION AWARDS
------------------------------------ ---------------------
OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
- --------------------------- -------- -------- ------------ --------------------- ---------------
<S> <C> <C> <C> <C> <C>
John R. Bertucci........... $319,712 -- -- $15,942
President and Chief
Executive Officer
Ronald C. Weigner.......... 153,555 -- 53,031 12,000
Vice President and Chief
Financial Officer
John J. Sullivan........... 135,962 $ 30,959(1) -- 11,957
Executive Vice President
of Technology
William D. Stewart......... 166,250 -- 32,098 12,000
Corporate Vice President
and General Manager,
Vacuum Products
Leo Berlinghieri........... 121,755 -- 30,338 7,500
Corporate Vice President,
Customer Support
Operations
</TABLE>
- ---------------
(1) Includes a transportation allowance of $21,127.
(2) Includes a premium of $3,942 paid on a life insurance policy, and payments
of $12,000 paid into a 401(k) plan for Mr. Bertucci and payments paid into a
401(k) plan for Messrs. Weigner, Sullivan, Stewart and Berlinghieri.
OPTION GRANTS
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers for the year ended December 31,
1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES BASE PRICE -------------------
NAME GRANTED(1) IN FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
- --------------------------- --------- --------------- ----------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John R. Bertucci........... -- -- -- -- -- --
Ronald C. Weigner.......... 53,031 9.82% $6.64 11/30/05 $200,965 $498,926
John J. Sullivan........... -- -- -- -- -- --
William D. Stewart......... 32,098 5.94 6.64 11/30/05 121,642 301,994
Leo Berlinghieri........... 30,338 5.62 6.64 11/30/05 114,972 285,435
</TABLE>
- ---------------
(1) These options become exercisable on a quarterly basis over a four year
period.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price growth. Actual gains, if any, on
stock option exercises and Common Stock are dependent on the timing of such
exercise and the future performance of the Common Stock.
40
<PAGE> 43
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1996 with respect to each
of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT YEAR-END AT YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John R. Bertucci................................. -- -- -- --
Ronald C. Weigner................................ 10,607 42,424 -- --
John J. Sullivan................................. -- -- -- --
William D. Stewart............................... 6,420 25,678 -- --
Leo Berlinghieri................................. 6,068 24,270 -- --
</TABLE>
- ---------------
(1) Values are based on the difference between the fair market value of the
underlying securities at December 31, 1996 ($6.64 per share) and the
exercise price of each option listed (in each case, $6.64 per share).
In January 1997, the Company granted options to purchase 31,369, 52,302 and
54,062 shares of Common Stock to Messrs. Weigner, Stewart and Berlinghieri,
respectively, at an exercise price of $6.64 per share.
STOCK PLANS
1995 Stock Incentive Plan
The Company's Amended and Restated 1995 Stock Incentive Plan (the "1995
Stock Plan") provides for the grant of incentive stock options, nonstatutory
stock options, stock appreciation rights, performance shares and awards of
restricted stock and unrestricted stock ("Awards"). An aggregate of 2,500,000
shares of Common Stock may be issued pursuant to the 1995 Stock Plan (subject to
adjustment for certain changes in the Company's capitalization). No Award may be
made under the 1995 Stock Plan after November 30, 2005.
The 1995 Stock Plan is administered by the Board of Directors and the
Compensation Committee. The Board has the authority to grant Awards under the
1995 Stock Plan and to accelerate, waive or amend certain provisions of
outstanding Awards. The Board has authorized the Compensation Committee to
administer certain aspects of the 1995 Stock Plan and has authorized the Chief
Executive Officer of the Company to grant Awards to non-executive officer
employees. The maximum number of shares represented by such Awards may not
exceed 300,000 shares in the aggregate or 20,000 shares to any one employee.
Incentive Stock Options and Nonstatutory Options. Optionees receive the
right to purchase a specified number of shares of Common Stock at some time in
the future at an option price and subject to such terms and conditions as are
specified at the time of the grant. Incentive Stock Options and options that the
Board of Directors or Compensation Committee intends to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding 10% or more of the voting
stock of the Company). All other options may be granted at an exercise price
that may be less than, equal to or greater than the fair market value of the
Common Stock on the date of grant.
Stock Appreciation Rights and Performance Shares. A stock appreciation
right ("SAR") is based on the value of Common Stock and entitles the SAR holder
to receive consideration to the extent that the fair market value on the date of
exercise of the shares of Common Stock underlying the SAR exceeds the fair
41
<PAGE> 44
market value of the underlying shares on the date the SAR was granted. A
performance share award entitles the recipient to acquire shares of Common Stock
upon the attainment of specified performance goals.
Restricted and Unrestricted Stock. Restricted stock awards entitle
recipients to acquire shares of Common Stock, subject to the right of the
Company to repurchase all or part of such shares at their purchase price from
the recipient in the event that the conditions specified in the applicable stock
award are not satisfied prior to the end of the applicable restriction period
established for such award. The Company may also grant (or sell at a purchase
price not less than 85% of the fair market value on the date of such sale) to
participants shares of Common Stock free of any restrictions under the 1995
Stock Plan.
All of the employees, officers, directors, consultants and advisors of the
Company and its subsidiaries who are expected to contribute to the Company's
future growth and success are eligible to participate in the 1995 Stock Plan.
Section 162(m) of the Code disallows a tax deduction to public companies
for certain compensation in excess of $1 million paid to a company's chief
executive officer or to any of the four other most highly compensated executive
officers. Certain compensation, including "performance-based compensation," is
not included in compensation subject to the $1 million limitation. The 1995
Stock Plan limits to 900,000 the maximum number of shares of Common Stock with
respect to which Awards may be granted to any employee in any calendar year.
This limitation is intended to preserve the tax deductions to the Company that
might otherwise be unavailable under Section 162(m) with respect to certain
Awards.
Prior to the date of this Prospectus, the Company plans to grant options
(to vest 20% after one year and 5% per quarter thereafter) to purchase
approximately 350,000 shares of Common Stock to employees of the Company, at an
exercise price equal to the initial public offering price.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan")
authorizes the issuance of up to an aggregate of 300,000 shares of Common Stock
to participating employees. The Company will make one or more offerings
("Offerings") to employees to purchase Common Stock under the Purchase Plan.
Offerings under the Purchase Plan commence on June 1 and December 1 and
terminate, respectively on November 30 and May 31. During each Offering, the
maximum number of shares which may be purchased by a participating employee is
determined on the first day of the Offering period under a formula whereby 85%
of the market value of a share of Common Stock on the first day of the Offering
period is divided into an amount equal to 10% of the employee's annualized
compensation (or such lower percentage as may be established by the Compensation
Committee) for the immediately preceding six-month period. An employee may elect
to have up to 10% deducted from his or her regular salary (or such lower
percentage as may be established by the Compensation Committee) for this
purpose. The price at which an employee's option is exercised is the lower of
(i) 85% of the closing price of the Common Stock on the Nasdaq National Market
on the day that the Offering commences or (ii) 85% of the closing price on the
day that the Offering terminates.
The Purchase Plan is administered by the Board of Directors and the
Compensation Committee. With certain exceptions, all eligible employees,
including directors and officers, regularly employed by the Company for at least
six months on the applicable Offering commencement date are eligible to
participate in the Purchase Plan. The Purchase Plan is intended to qualify as an
"employee stock purchase plan" as defined in Section 423 of the Code.
1997 Director Stock Option Plan
The Company's 1997 Director Stock Option Plan (the "1997 Director Plan")
authorizes the issuance of up to an aggregate of 200,000 shares of Common Stock.
The 1997 Director Plan is administered by the Company's Board of Directors.
Options are granted under the 1997 Director Plan only to directors of the
Company who are not employees of the Company ("eligible directors"). Under the
1997 Director Plan, prior to the date of this Prospectus each existing eligible
director will receive an option to purchase 7,000 shares of Common Stock at an
exercise price equal to the initial public offering price and future
non-employee directors will receive an option to purchase 7,500 shares of Common
Stock upon their initial election to the Board of
42
<PAGE> 45
Directors ("Initial Options"). Each Initial Option shall vest in twelve equal
quarterly installments following the date of grant. On the date of each annual
meeting of the stockholders, options will be automatically granted to each
eligible director who has been in office for at least six months prior to the
date of the annual meeting of the stockholders ("Annual Options"). Each Annual
Option will entitle the holder to purchase 4,000 shares of Common Stock. Each
Annual Option will become exercisable on the day prior to the first annual
meeting of stockholders following the date of grant (or if no such meeting is
held within 13 months after the date of grant, on the 13-month anniversary of
the date of grant). The exercise price of all options granted under the 1997
Director Plan is equal to the fair market value of the Common Stock on the date
of grant. Options granted under the 1997 Director Plan terminate upon the
earlier of three months after the optionee ceases to be a director of the
Company or ten years after the grant date. In the event of a Change in Control
(as defined in the 1997 Director Plan), the vesting of all options then
outstanding would be accelerated in full and any restrictions on exercising
outstanding options would terminate.
The Company's 1996 Director Stock Option Plan, under which options have
been granted to four non-employee directors of the Company, has been terminated.
See "-- Director Compensation."
43
<PAGE> 46
CERTAIN TRANSACTIONS
Mr. Chute a director of the Company, the Company's Clerk, and a co-trustee
of certain of the Bertucci Family Trusts (See "Principal Stockholders") and Mr.
Thomas H. Belknap, a co-trustee of certain of the Bertucci Family Trusts, are
attorneys at the law firm of Hill & Barlow, a professional corporation. Hill &
Barlow has provided legal services to the Company during the calendar year ended
December 31, 1996 for which it was compensated by the Company in the aggregate
amount of $189,000.
Mr. Stewart, Vice President and General Manager, Vacuum Products group, is
the general partner of Aspen Industrial Park Partnership ("Aspen"). On October
12, 1989 the Company entered into a lease with Aspen for certain facilities
occupied by the Company's Vacuum Products group in Boulder, Colorado. The
Company pays Aspen approximately $342,000 annually to lease such facilities.
Effective July 1, 1987, the Company elected to be treated as an S
corporation for federal income tax purposes. As a result, the Company currently
pays no federal, and certain state, income tax and all of the earnings of the
Company are subject to federal, and certain state, income taxation directly at
the stockholder level. The Company's S corporation status will terminate upon
the closing of this offering, at which time the Company will become subject to
corporate income taxation under Subchapter C of the Code. In 1996 and in the
first nine months of 1997, the Company distributed $14.5 million and $6.4
million, respectively, of undistributed S corporation earnings to its
stockholders. The Company expects to make additional distributions of
approximately $5.5 million prior to the closing of this offering. As soon as
practicable following the closing of the offering, the Company intends to make a
distribution to the holders of record on the day prior to the closing of this
offering in an amount equivalent to the AA Account. As of September 30, 1997,
the outstanding balance of the AA Account was approximately $30.2 million and
such balance is expected to increase in the period from October 1, 1997 through
the closing of the offering. See "S Corporation And Termination of S Corporation
Status."
44
<PAGE> 47
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 30, 1997, and as adjusted
to reflect the sale of shares offered hereby, by (i) each of the directors of
the Company, (ii) each of the Named Executive Officers, (iii) each person or
entity known to the Company to own beneficially more than 5% of the Company's
Common Stock and (iv) all directors and executive officers as a group. Except as
indicated below, none of these entities has a relationship with the Company or,
to the knowledge of the Company, any Underwriters of this offering or their
respective affiliates. Unless otherwise indicated, each person or entity named
in the table has sole voting power and investment power (or shares such power
with his or her spouse) with respect to all shares of capital stock listed as
owned by such person or entity.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
NUMBER SHARES OUTSTANDING(1)(2)
BENEFICIALLY -----------------------------------
NAME OF BENEFICIAL OWNER OWNED(1) BEFORE OFFERING AFTER OFFERING
- -------------------------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
John R. Bertucci(3)......................... 11,507,940 95.62% 71.77%
Ronald C. Weigner(4)........................ 33,760 * *
John J. Sullivan(5)......................... 409,340 3.40 2.55
William D. Stewart(4)....................... 33,760 * *
Leo Berlinghieri(4)......................... 33,760 * *
Richard S. Chute(6)......................... 1,430,731 11.89 8.92
Owen W. Robbins(4).......................... 2,261 * *
Robert J. Therrien(4)....................... 2,261 * *
Louis P. Valente(4)......................... 2,261 * *
Thomas H. Belknap(7)........................ 1,280,770 10.64 7.99
All executive officers and directors as a
group..................................... 12,027,604 99.03% 74.49%
</TABLE>
- ---------------
* Less than 1% of outstanding Common Stock.
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual has sole or shared voting power or investment power
and also any shares which the individual has the right to acquire within 60
days of November 30, 1997 through the exercise of any stock option or other
right. The inclusion herein of such shares, however, does not constitute an
admission that the named stockholder is a direct or indirect beneficial
owner of such shares.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Includes 4,441,550 shares held directly by Mr. Bertucci, 4,357,150 shares
held directly by Mrs. Bertucci, wife of Mr. Bertucci, and 2,709,240 shares
held by trusts (collectively, the "Bertucci Family Trusts") for which either
Mr. or Mrs. Bertucci serves as a co-trustee.
(4) Comprised solely of options exercisable within 60 days of November 30, 1997.
(5) Includes 211,000 shares held in a grantor retained annuity trust.
(6) Includes 1,428,470 shares held by certain of the Bertucci Family Trusts for
which Mr. Chute serves as a co-trustee and 2,261 shares subject to options
held by Mr. Chute exercisable within 60 days of November 30, 1997.
(7) Represents shares held by certain of the Bertucci Family Trusts for which
Mr. Belknap serves as a co-trustee.
45
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, no par value per share, and 2,000,000 shares of Preferred
Stock, $.01 par value per share, after giving effect to the amendment and
restatement of the Company's Restated Articles of Organization (the "Articles of
Organization") which will be filed with the Secretary of State of The
Commonwealth of Massachusetts prior to the closing of this offering.
COMMON STOCK
As of September 30, 1997, there were 12,035,440 shares of Common Stock
outstanding and held of record by seventeen stockholders, after giving effect to
a 2,110-for-1 stock split, to be effected prior to the closing of this offering,
of shares of Class A Common Stock and Class B Common Stock and the conversion of
such shares into shares of Common Stock upon the closing of this offering.
Upon the closing of this offering, all holders of Common Stock shall be
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and will not have cumulative voting rights. Accordingly, holders of
a majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding Preferred Stock. Upon
the liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities, subject to the prior
rights of any outstanding Preferred Stock. Holders of the Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in the
offering made by this Prospectus will be, when issued and paid for, fully paid
and nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future. There are no shares of Preferred Stock
outstanding.
PREFERRED STOCK
The Articles of Organization authorize the Board of Directors, subject to
certain limitations prescribed by law, without further stockholder approval,
from time to time to issue up to an aggregate of 2,000,000 shares of Preferred
Stock in one or more series and to fix or alter the designations, preferences
and rights, and any qualifications, limitations or restrictions thereof, of the
shares of each such series, including the number of shares constituting any such
series and the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices and liquidation preferences thereof. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plans to issue any shares of
Preferred Stock.
MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED ARTICLES OF
ORGANIZATION AND BY-LAWS
The Company intends to amend and restate its bylaws (the "By-Laws") prior
to the closing of the offering. The By-Laws will include a provision excluding
the Company from the applicability of Massachusetts General Laws Chapter 110D,
entitled "Regulation of Control Share Acquisitions." In general, this statute
provides that any stockholder of a corporation subject to this statute who
acquires 20% or more of the outstanding voting stock of a corporation may not
vote such stock unless the stockholders of the corporation so authorize. The
Board of Directors will be able to amend the By-Laws at any time to subject the
Company to this statute prospectively.
Massachusetts General Laws Chapter 156B, Section 50A generally requires
that publicly-held Massachusetts corporations have a classified board of
directors consisting of three classes as nearly equal in size as possible,
unless the corporation elects to opt out of the statute's coverage. The By-Laws,
will contain provisions which give effect to Section 50A.
46
<PAGE> 49
The By-Laws will require that nominations for the Board of Directors made
by a stockholder of a planned nomination must be given not less than 30 and not
more than 90 days prior to a scheduled meeting, provided that if less than 40
days' notice is given of the date of the meeting, a stockholder will have ten
days within which to give such notice. The stockholder's notice of nomination
must include particular information about the stockholder, the nominee and any
beneficial owner on whose behalf the nomination is made. The Company may require
any proposed nominee to provide such additional information as is reasonably
required to determine the eligibility of the proposed nominee.
The By-Laws will also require that a stockholder seeking to have any
business conducted at a meeting of stockholders give notice to the Company not
less than 60 and not more than 90 days prior to the scheduled meeting, provided
in certain circumstances that a ten-day notice rule applies. The notice from the
stockholder will be required to describe the proposed business to be brought
before the meeting and include information about the stockholder making the
proposal, any beneficial owner on whose behalf the proposal is made, and any
other stockholder known to be supporting the proposal. The By-Laws will require
the Company to call a special stockholders meeting at the request of
stockholders holding at least 40% of the voting power of the Company.
The Articles of Organization will provide that the directors and officers
of the Company shall be indemnified by the Company to the fullest extent
authorized by Massachusetts law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with service for or on behalf of the Company. In addition, the Articles of
Organization will provide that the directors of the Company will not be
personally liable for monetary damages to the Company for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to the
Company or its stockholders, acted in bad faith, knowingly or intentionally
violated the law (which could include securities laws), authorized illegal
dividends or redemptions or derived an improper personal benefit from their
action as directors.
The Articles of Organization will provide that any amendment to the
Articles of Organization, the sale, lease or exchange of all or substantially
all of the Company's property and assets, or the merger or consolidation of the
Company into or with any corporation may be authorized by the approval of the
holders of a majority of the shares of each class of stock entitled to vote
thereon, rather than by two-thirds as otherwise provided by statute, provided
that the transactions have been authorized by a majority of the members of the
Board of Directors and the requirements of any other applicable provisions of
the Articles of Organization have been met.
The Articles of Organization will provide a provision excluding the Company
from the applicability of Massachusetts General Laws Chapter 110F, entitled
"Business Combinations with Interested Shareholders." In general, Chapter 110F
places limitations on a Massachusetts corporation's ability to engage in
business combinations (as defined in the statute) with certain Company
stockholders for a period of three years, unless the corporation elects to opt
out of the statute's coverage by including such a provision in its Articles of
Organization.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe
LP.
47
<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company. Upon completion of this offering, based upon the number of
shares outstanding at September 30, 1997, there will be 16,035,440 shares of
Common Stock of the Company outstanding (assuming no exercise of the
Underwriters' over-allotment option or options outstanding under the Company's
stock option plans). Of these shares, the 4,000,000 shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 ("Rule 144") under the Securities Act ("Affiliates"), may generally only be
sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 12,035,440 shares of Common Stock are deemed "restricted
securities" under Rule 144. All of these shares are subject to 180-day lock-up
agreements (the "Lock-Up Agreements") with the Representatives of the
Underwriters. Upon expiration of the Lock-Up Agreements 180 days after the date
of this Prospectus (and assuming no exercise of any outstanding options), all
such shares will be available for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act.
Stockholders who are parties to the Lock-Up Agreement have agreed that for
a period of 180 days after the date of this Prospectus, they will not sell,
offer, contract or grant any option to sell, pledge, transfer, establish an open
put equivalent position or otherwise dispose of any shares of Common Stock, any
options to purchase shares of Common Stock or any shares convertible into or
exchangeable for shares of Common Stock, owned directly by such persons or with
respect to which they have the power of disposition, without the prior written
consent of NationsBanc Montgomery Securities, Inc.
In general, Rule 144 as currently in effect, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
a stockholder, including an Affiliate, who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock (160,354
shares immediately after this offering) or the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144, provided certain requirements
concerning availability of public information, manner of sale and notice of sale
are satisfied. In addition, under Rule 144(k), if a period of at least two years
has elapsed between the later of the date restricted securities were acquired
from the Company or (if applicable) the date they were acquired from an
Affiliate of the Company, a stockholder who is not an Affiliate of the Company
at the time of sale and has not been an Affiliate of the Company for at least
three months prior to the sale is entitled to sell the shares immediately
without compliance with the foregoing requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the Company's
stock plans) are also restricted and, beginning 90 days after the effective date
of the Registration Statement of which this Prospectus is a part, may be sold by
stockholders other than Affiliates of the Company subject only to the manner of
sale provisions of Rule 144 and by Affiliates under Rule 144 without compliance
with its one-year holding period requirement.
OPTIONS
The Company has granted options to purchase an aggregate of 1,042,361
shares of which options to purchase an aggregate of 282,516 were exercisable as
of September 30, 1997. Of these, 880,116 shares were subject to the Lock-Up
Agreements. The Company intends to file registration statements on Form S-8
under the Securities Act to register all shares of Common Stock issuable under
each of the 1995 Stock Plan, Purchase Plan and the 1997 Director Plan promptly
following the consummation of this offering. Shares issued pursuant to such
plans shall be, after the effective date of the Form S-8 registration
statements, eligible for resale in the public market without restriction,
subject to Rule 144 limitations applicable to Affiliates and the Lock-up
Agreements noted above, if applicable.
48
<PAGE> 51
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and PaineWebber Incorporated (the "Representatives"), have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock
indicated below opposite their respective names at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain terms and conditions precedent and that the
Underwriters are committed to purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------------ ---------
<S> <C>
NationsBanc Montgomery Securities, Inc. ................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
PaineWebber Incorporated................................................
---------
Total.............................................................. 4,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters
initially propose to offer the Common Stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $ per share, and the Underwriters may
allow, and any other dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the initial public offering, the offering
price and other selling terms may be changed by the Representatives. The Common
Stock is offered subject to receipt and acceptance by the Underwriters and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 600,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover overallotments
made in connection with this offering.
All stockholders prior to this offering, as well as certain holders of
options to purchase Common Stock, have agreed not to directly or indirectly
sell, offer, contract or grant any option to sell, pledge, transfer, establish
an open put equivalent position or otherwise dispose of any rights with respect
to any shares of Common Stock, any options or warrants to purchase Common Stock,
or any securities convertible or exchangeable for Common Stock, owned directly
by such holders or with respect to which they have the power of disposition for
a period of 180 days after the period of this Prospectus without the prior
written consent of NationsBanc Montgomery Securities, Inc. NationsBanc
Montgomery Securities, Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to these lock-up
agreements. In addition, the Company has agreed not to sell, offer to sell,
contract to sell or otherwise sell or dispose of any shares of Common Stock or
any rights to acquire Common Stock, other than pursuant to its stock plans or
upon the exercise of outstanding options, for a period of 180 days after the
date of this Prospectus without the prior consent of NationsBanc Montgomery
Securities, Inc. See "Shares Eligible for Future Sale."
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities, under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilization, syndicate covering
transactions and imposition of penalty bids. In an over-allotment, the
Underwriters would allot more shares of
49
<PAGE> 52
Common Stock to their customers in the aggregate than are available for purchase
by the Underwriters under the Underwriting Agreement. Stabilizing means the
placing of any bid, or the effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of a security. In a syndicate covering
transaction, the Underwriters would place a bid or effect a purchase to reduce a
short position created in connection with this offering. Pursuant to a penalty
bid, NationsBanc Montgomery Securities, Inc. on behalf of the Underwriters,
would be able to reclaim a selling concession from an Underwriter if shares of
Common Stock originally sold by such Underwriter are purchased in syndicate
covering transactions. These transactions may result in the price of the Common
Stock being higher than the price that might otherwise prevail in the open
market. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise, and, if commenced, may be discontinued at
any time.
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price has been
determined through negotiations among the Company and the Representatives. Among
the factors considered in such negotiations were the history of, and prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, the present state of the Company's development, the
prospects for future earnings of the Company, the prevailing market conditions
at the time of this offering, market valuations of publicly traded companies
that the Company and the Representatives believe to be comparable to the
Company, and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by Ropes
& Gray, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of MKS Instruments, Inc. as of December 31,
1995, 1996 and September 30, 1997 and the consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996 and for the nine month period ended September 30, 1997
included in this Prospectus have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given upon the authority
of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits, schedules and supplements thereto)
on Form S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, the Company is required to file
50
<PAGE> 53
electronic versions to 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.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements. The Company also intends
to make available to its stockholders, within 45 days after the end of each
fiscal quarter, reports for the first three quarters of each calendar year
containing interim unaudited financial information.
51
<PAGE> 54
MKS INSTRUMENTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996, and September 30,
1997............................................................................ F-3
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995, and
1996, and for the Nine Months Ended September 30, 1996 (unaudited) and 1997..... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, 1995, and 1996, and the Nine Months Ended September 30, 1997.............. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995,
and 1996, and for the Nine Months Ended September 30, 1996 (unaudited) and
1997............................................................................ F-6
Notes to Consolidated Financial Statements........................................ F-7
</TABLE>
F-1
<PAGE> 55
This is the form of the report that we expect to issue upon the filing of
an amendment to the Company's Articles of Organization effecting an increase in
the number of authorized shares of Common Stock and the authorization of
Preferred Stock as discussed in Note 2 of Notes to Consolidated Financial
Statements:
COOPERS & LYBRAND L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
MKS Instruments, Inc.:
We have audited the accompanying consolidated balance sheets of MKS
Instruments, Inc. as of December 31, 1995 and 1996, and September 30, 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years ended December 31, 1994, 1995 and 1996, and the nine month
period ended September 30, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MKS
Instruments, Inc. as of December 31, 1995 and 1996, and September 30, 1997, and
the consolidated results of its operations and its cash flows for the years
ended December 31, 1994, 1995 and 1996, and the nine month period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Boston, Massachusetts
October 28, 1997
F-2
<PAGE> 56
MKS INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
-------------------- ------------------------
1995 1996 ACTUAL PRO FORMA
-------- ------- -------- -----------
(NOTE 2)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 3,650 $ 3,815 $ 5,421 $ 5,421
Marketable equity securities................. 563 391 918 918
Trade accounts receivable, net of allowance
for doubtful accounts of $542 and $482 at
December 31, 1995 and 1996, respectively,
and $618 at September 30, 1997............ 28,804 21,734 32,018 32,018
Inventories.................................. 29,960 25,500 28,081 28,081
Deferred tax asset........................... 348 513 658 658
Other current assets......................... 3,755 541 462 462
-------- ------- -------- --------
Total current assets................. 67,080 52,494 67,558 67,558
Property, plant and equipment, net............. 33,210 38,007 34,343 34,343
Other assets................................... 4,221 4,499 4,784 4,784
-------- ------- -------- --------
Total assets......................... $104,511 $95,000 $106,685 $ 106,685
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................ $ 12,264 $12,825 $ 13,171 $ 13,171
Current portion of long-term debt............ 2,203 2,258 2,153 2,153
Current portion of capital lease
obligations............................... 725 1,041 1,048 1,048
Accounts payable............................. 8,895 4,776 7,999 7,999
Accrued compensation......................... 5,133 5,115 7,597 7,597
Other accrued expenses....................... 5,372 3,466 5,228 5,228
Income taxes payable......................... 286 609 883 883
Distribution payable......................... -- -- -- 30,183
-------- ------- -------- --------
Total current liabilities............ 34,878 30,090 38,079 68,262
Long-term debt................................. 18,617 16,278 14,436 14,436
Long-term portion of capital lease
obligations.................................. 1,845 2,621 1,912 1,912
Deferred tax liability......................... 214 109 126 126
Other liabilities.............................. 565 404 376 376
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000
shares authorized, no shares issued or
outstanding............................... -- -- -- --
Common Stock, Class A, no par value;
25,000,000 shares authorized, 5,177,940
issued and outstanding.................... 40 40 40 40
Common Stock, Class B (non voting) no par
value; 25,000,000 shares authorized,
6,857,500 issued and outstanding.......... 73 73 73 73
Additional paid-in capital................... 48 48 48 48
Unrealized gain on investments............... 246 115 562 562
Retained earnings............................ 45,550 43,553 50,045 19,862
Cumulative translation adjustment............ 2,435 1,669 988 988
-------- ------- -------- --------
Total stockholders' equity................ 48,392 45,498 51,756 21,573
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $104,511 $95,000 $106,685 $ 106,685
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 57
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ---------------------------
1994 1995 1996 1996 1997
-------- -------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $106,829 $157,164 $ 170,862 $ 136,097 $ 134,629
Cost of sales................. 59,813 87,703 102,008 81,078 78,456
-------- -------- ----------- -------- -----------
Gross profit.................. 47,016 69,461 68,854 55,019 56,173
Research and development...... 8,036 10,935 14,195 11,220 10,336
Selling, general and
administrative.............. 26,893 34,420 37,191 29,409 30,749
Restructuring................. -- -- 1,400 1,400 --
-------- -------- ----------- -------- -----------
Income from operations........ 12,087 24,106 16,068 12,990 15,088
Interest expense.............. 1,330 1,576 2,378 1,963 1,610
Interest income............... 46 128 92 152 144
Other income (expense), net... -- -- (479) (230) 460
-------- -------- ----------- -------- -----------
Income before income taxes.... 10,803 22,658 13,303 10,949 14,082
Provision for income taxes.... 800 1,000 800 658 1,190
-------- -------- ----------- -------- -----------
Net income.................... $ 10,003 $ 21,658 $ 12,503 $ 10,291 $ 12,892
======== ======== =========== ======== ===========
Pro forma data (unaudited):
Historical income before
income taxes............. $ 13,303 $ 14,082
Pro forma provision for
income taxes............. 5,055 5,351
----------- -----------
Pro forma net income........ $ 8,248 $ 8,731
=========== ===========
Pro forma net income per
share.................... $ 0.59 $ 0.62
=========== ===========
Pro forma weighted average
common shares
outstanding.............. 13,994 14,134
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 58
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
PREFERRED STOCK CLASS A CLASS B ADDITIONAL
----------------- ------------------ ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------- --------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,1993.................... 5,177,940 $ 40 6,857,500 $ 73 $ 48
Capital contribution...........................
Distributions to stockholders..................
Foreign currency translation adjustment........
Net income.....................................
------- ------- --------- --- --------- --- ---
Balance at December 31, 1994................... -- -- 5,177,940 40 6,857,500 73 48
Distributions to stockholders..................
Foreign currency translation adjustment........
Unrealized gain on investments.................
Net income.....................................
------- ------- --------- --- --------- --- ---
Balance at December 31, 1995................... -- -- 5,177,940 40 6,857,500 73 48
Distributions to stockholders..................
Foreign currency translation adjustment........
Unrealized loss on investments.................
Net income.....................................
------- ------- --------- --- --------- --- ---
Balance at December 31, 1996................... -- -- 5,177,940 40 6,857,500 73 48
Distributions to stockholders..................
Foreign currency translation adjustment........
Unrealized gain on investments.................
Net income.....................................
------- ------- --------- --- --------- --- ---
Balance at September 30, 1997.................. -- -- 5,177,940 $ 40 6,857,500 $ 73 $ 48
======= ======= ========= === ========= === ===
<CAPTION>
UNREALIZED CUMULATIVE TOTAL
GAIN ON RETAINED TRANSLATION STOCKHOLDERS'
INVESTMENTS EARNINGS ADJUSTMENT EQUITY
----------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at December 31,1993.................... $27,200 $1,604 $ 28,965
Capital contribution........................... 14 14
Distributions to stockholders.................. (2,575) (2,575)
Foreign currency translation adjustment........ 865 865
Net income..................................... 10,003 10,003
--- ------- ------ -------
Balance at December 31, 1994................... -- 34,642 2,469 37,272
Distributions to stockholders.................. (10,750) (10,750)
Foreign currency translation adjustment........ (34) (34)
Unrealized gain on investments................. $ 246 246
Net income..................................... 21,658 21,658
--- ------- ------ -------
Balance at December 31, 1995................... 246 45,550 2,435 48,392
Distributions to stockholders.................. (14,500) (14,500)
Foreign currency translation adjustment........ (766) (766)
Unrealized loss on investments................. (131) (131)
Net income..................................... 12,503 12,503
--- ------- ------ -------
Balance at December 31, 1996................... 115 43,553 1,669 45,498
Distributions to stockholders.................. (6,400) (6,400)
Foreign currency translation adjustment........ (681) (681)
Unrealized gain on investments................. 447 447
Net income..................................... 12,892 12,892
--- ------- ------ -------
Balance at September 30, 1997.................. $ 562 $50,045 $ 988 $ 51,756
=== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 59
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------------
1994 1995 1996 1996 1997
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 10,003 $ 21,658 $ 12,503 $ 10,291 $ 12,892
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property,
plant, and equipment.................... 3,027 3,925 5,920 4,339 4,267
Loss on disposal of assets................ -- -- -- -- 574
Deferred taxes............................ (178) (91) (277) (228) (235)
Provision for doubtful accounts........... 241 133 (20) 8 255
Unrealized loss (gain) on investments..... 37 (37) -- -- --
Forward exchange contract loss............ -- -- 302 44 431
Stock option compensation................. -- -- -- -- 40
Changes in operating assets and
liabilities:
(Increase) decrease in trade accounts
receivable............................ (5,637) (6,771) 6,119 2,624 (11,432)
(Increase) decrease in inventories...... (2,137) (10,956) 4,145 (1,956) (3,129)
(Increase) decrease in other current
assets................................ (188) (2,752) 3,239 2,075 294
Increase (decrease) in accrued
compensation.......................... 305 1,466 (220) 360 2,482
Increase (decrease) in other accrued
expenses.............................. 970 3,135 (1,520) (447) 1,724
Increase (decrease) in accounts
payable............................... 1,636 3,571 (4,221) (4,398) 3,192
Increase (decrease) in income taxes
payable............................... (365) (111) 331 212 387
------- -------- -------- -------- --------
Net cash provided by operating activities..... 7,714 13,170 26,301 12,924 11,742
------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of investments..................... (1,231) -- -- -- --
Proceeds from maturity of investments....... -- 1,000 -- -- --
Purchases of property, plant and
equipment................................. (1,922) (9,194) (9,417) (7,274) (1,904)
Proceeds from sale of property, plant and
equipment................................. -- -- -- -- 145
Increase in other assets.................... (824) (1,047) (443) (1,009) (368)
Cash used to settle forward exchange
contracts................................. -- -- (302) (44) (431)
Acquisition of business, net of cash
acquired.................................. -- (3,926) -- -- --
------- -------- -------- -------- --------
Net cash used in investing activities......... (3,977) (13,167) (10,162) (8,327) (2,558)
------- -------- -------- -------- --------
Cash flows from financing activities:
Net (payments) borrowings on demand notes
payable................................... (336) 1,407 224 6,510 625
Proceeds from short-term borrowings......... 5,020 7,819 11,025 11,173 12,714
Payments on short-term borrowings........... (2,670) (4,150) (9,628) (9,135) (12,698)
Proceeds from long-term debt................ -- 7,000 400 138 --
Principal payments on long-term debt........ (1,037) (1,156) (2,093) (1,530) (1,406)
Capital contributions....................... 14 -- -- -- --
Cash distributions to stockholders.......... (2,575) (10,750) (14,500) (11,500) (6,400)
Principal payments under capital lease
obligations............................... (722) (587) (982) (704) (702)
------- -------- -------- -------- --------
Net cash used in financing activities......... (2,306) (417) (15,554) (5,048) (7,867)
------- -------- -------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents............................ 240 5 (420) 30 289
------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents................................. 1,671 (409) 165 (421) 1,606
Cash and cash equivalents at beginning of
period...................................... 2,388 4,059 3,650 3,650 3,815
------- -------- -------- -------- --------
Cash and cash equivalents at end of period.... $ 4,059 $ 3,650 $ 3,815 $ 3,229 $ 5,421
======= ======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest.................................. $ 1,313 $ 1,535 $ 2,363 $ 1,713 $ 1,385
======= ======== ======== ======== ========
Income taxes.............................. $ 1,339 $ 1,194 $ 770 $ 936 $ 1,016
======= ======== ======== ======== ========
Noncash transactions during the period:
Equipment acquired under capital leases... $ 626 $ 1,612 $ 2,074 $ 1,852 $ 89
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 60
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
1. DESCRIPTION OF BUSINESS:
MKS Instruments, Inc. (the "Company") operates in one business segment. The
Company is a worldwide supplier of instruments and components used to measure,
control, analyze and isolate gases in semiconductor manufacturing processes, and
in the manufacture of flat panel displays, magnetic and optical storage media,
solar cells, fiber optic cables, optical coatings and other devices made
possible through advances in materials science. The Company is subject to risks
common to companies in the semiconductor industry including, but not limited to,
the highly cyclical nature of the semiconductor industry leading to recurring
periods of over supply, development by the Company or its competitors of new
technological innovations, dependence on key personnel and the protection of
proprietary technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company has reflected the
approximately 77.5% owned foreign subsidiaries as wholly-owned subsidiaries
pursuant to common control accounting. Upon the closing of the offering for
which these financial statements are being prepared, the shares of the foreign
subsidiaries owned directly by the ultimate stockholders will be contributed to
the Company. Prior to the effectiveness of a registration statement relating to
the initial public offering of the Common Stock of the Company, the Company will
effect a 2,110-for-one stock split, to be effected in the form of a stock
dividend of its Common Stock, increase the number of authorized shares of Common
Stock to 50,000,000 and authorize 2,000,000 shares of Preferred Stock.
Accordingly, all share and per share amounts have been adjusted to reflect the
stock split as though it had occurred at the beginning of the initial period
presented.
Interim Financial Information
The consolidated financial statements of the Company as of and for the nine
months ended September 30, 1996, and the related footnote information are
unaudited. All adjustments (consisting only of normal recurring adjustments)
have been made, which in the opinion of management, are necessary for a fair
presentation. Results of operations for the nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for any
future period.
Pro Forma Balance Sheet Presentation (Unaudited)
The Company intends to distribute the balance of its accumulated and
undistributed S Corporation earnings (the "S Corporation Distribution") from the
proceeds of the offering for which this registration statement is being
prepared. The unaudited pro forma balance sheet has been prepared assuming an
estimated $30,183,000 distribution was payable as of September 30, 1997. The
remaining balance in retained earnings represents accumulated earnings prior to
the Company converting from a C Corporation to an S Corporation in 1987.
Pro Forma Net Income Per Share (Unaudited)
Pro forma net income per share is based upon the weighted average number of
common and common equivalent shares (using the treasury stock method)
outstanding. Common equivalent shares are included in the per share calculations
where the effect of their inclusion would be dilutive. Common equivalent shares
consist of outstanding stock options. Pursuant to Securities and Exchange
Commission Staff Accounting
F-7
<PAGE> 61
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
Bulletin No. 83, all common and common equivalent shares issued at prices less
than the mid-point of the estimated initial public offering price range during
the twelve-month period prior to the initial filing of the Registration
Statement have been included in the calculation as if they were outstanding for
all periods using the treasury stock method and the mid-point of the estimated
initial public offering price.
Historical net income has been adjusted for the pro forma provision for
income taxes calculated assuming the Company was subject to income taxation as a
C Corporation, at a pro forma tax rate of 38%. In accordance with a regulation
of the Securities and Exchange Commission, pro forma net income per share has
been presented for the year ended December 31, 1996 and the nine months ended
September 30, 1997 to reflect the affect of the assumed issuance of that number
of shares of Common Stock of the Company necessary to be sold at the mid-point
of the estimated initial public offering price in order to fund the intended
distribution in the amount of the accumulated and undistributed S corporation
earnings as of January 1, 1997. Pro forma fully diluted net income per share is
not presented as it does not differ materially from pro forma net income per
share.
Historical net income per share is not presented as it is not meaningful
based upon the Company's planned conversion from an S Corporation to a C
Corporation upon the closing of the offering for which these financial
statements are being prepared.
Foreign Exchange
The functional currency of the Company's foreign subsidiaries is the
applicable local currency. For those subsidiaries, assets and liabilities are
translated to U.S. dollars at year-end exchange rates. Income and expense
accounts are translated at the average exchange rates prevailing for the year.
The resulting translation adjustments are accumulated in a separate component of
consolidated stockholders' equity.
The Company enters into forward exchange contracts and local currency
purchased options to mitigate its foreign currency exposures. Realized and
unrealized gains and losses on forward exchange contracts and local currency
purchased options that qualify for hedge accounting are recognized in earnings
in the same period as the underlying hedged item. Realized and unrealized gains
and losses on forward exchange contracts and local currency purchased option
contract that do not qualify for hedge accounting are recognized immediately in
earnings. The cash flows resulting from forward exchange contracts and local
currency purchased options that qualify for hedge accounting are classified in
the statement of cash flows as part of cash flows from operating activities.
Cash flows resulting from forward exchange contracts and local currency
purchased options that do not qualify for hedge accounting are classified in the
statement of cash flows as investing activities.
Revenue Recognition
The Company recognizes revenue upon shipment. The Company accrues for
anticipated returns and warranty costs upon shipment.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less at the date of purchase are considered to be cash equivalents. Cash
equivalents consist of money market instruments.
Investments
The appropriate classification of investments in debt and equity securities
is determined at the time of purchase. Debt securities that the Company has both
the intent and ability to hold to maturity are carried at
F-8
<PAGE> 62
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
amortized cost. Debt securities that the Company does not have the intent and
ability to hold to maturity or equity securities are classified either as
"available-for-sale" or as "trading" and are carried at fair value. Marketable
equity securities are carried at fair value and classified either as available
for sale or trading. Unrealized gains and losses on securities classified as
available-for-sale are carried as a separate component of stockholders' equity.
Unrealized gains and losses on securities classified as trading are reported in
earnings.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Equipment acquired under
capital leases is recorded at the present value of the minimum lease payments
required during the lease period. Expenditures for major renewals and
betterments that extend the useful lives of property, plant and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recognized in earnings.
Depreciation is provided on the straight-line method over the estimated
useful lives of 20 years for buildings and three to five years for machinery and
equipment. Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful life of the lease.
Research and Development
Research and development costs are expensed as incurred.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." This statement specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"), to simplify the existing
computational guidelines and increase comparability on an international basis.
The statement will be effective for interim and annual reporting periods ending
after December 15, 1997, and the Company will adopt its provisions during the
fourth quarter of 1997. This statement will replace "primary" EPS with "basic"
EPS, the principal difference being the exclusion of common stock equivalents in
the computation of basic EPS. In addition, this statement will require the dual
presentation of basic and diluted EPS on the face of the consolidated statements
of income. The Company does not expect this statement to have a material impact
on its net income per share as presented.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement requires that changes
in comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The statement will be
effective for fiscal years beginning after December 15, 1997 and the Company
will adopt its provisions in 1998. Reclassification for earlier periods is
required for comparative purposes. The Company is currently evaluating the
impact this statement will have on its financial statements; however, because
the statement requires only additional disclosure, the Company does not expect
the statement to have a material impact on its financial position or results of
operations. The additional disclosure will include comprehensive income, which
will differ from historical net income by the amount of the translation
adjustments and unrealized gain (loss) on investments included as separate
components of equity.
F-9
<PAGE> 63
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. The
statement will be effective for fiscal years beginning after December 15, 1997
and the Company will adopt its provisions in 1998. Reclassification for earlier
periods is required, unless impracticable, for comparative purposes. The Company
is currently evaluating the impact this statement will have on its financial
statements; however, because the statement requires only additional disclosure,
the Company does not expect the statement to have a material impact on its
financial position or results of operations.
Reclassification of Prior Year Balances
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current presentation.
3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
Foreign Exchange Risk Management
The Company uses forward exchange contracts and local currency purchased
options in an effort to reduce its exposure to currency fluctuations on future
U.S. dollar cash flows derived from foreign currency denominated sales
associated with the intercompany purchases of inventory. The Company has entered
into forward exchange contracts, and to a lesser extent, local currency
purchased options to hedge a portion of its probable anticipated, but not firmly
committed transactions. The Company plans to use local currency purchased
options prospectively to hedge probable anticipated, but not firmly committed
transactions. The Company has also used forward exchange contracts to hedge firm
commitments. Market value gains and losses on forward exchange contracts are
recognized immediately in earnings unless a firm commitment exists. Market value
gains and premiums on local currency purchased options on probable anticipated
transactions and market value gains and losses on forward exchange contracts
hedging firm commitments are recognized when the hedged transaction occurs.
These contracts, which relate primarily to Japanese and European currencies
generally have terms of eighteen months or less. The Company does not hold or
issue derivative financial instruments for trading purposes.
Forward exchange contracts with notional amounts totaling $25,700,000,
none, and $8,200,000 to exchange foreign currencies for U.S. dollars, were
outstanding at December 31, 1995 and 1996, and September 30, 1997, respectively.
Local currency purchased options with notional amounts totaling none, $3,722,000
and none to exchange foreign currencies for U.S. dollars were outstanding at
December 31, 1995 and 1996 and September 30, 1997, respectively.
Foreign exchange losses of $479,000 and foreign exchange gains of $460,000
on forward exchange contracts that did not qualify for hedge accounting were
recognized in earnings during 1996, and the nine months ended September 30,
1997, respectively, and are classified in other income. Gains on forward
exchange contracts that qualify for hedge accounting of $3,061,000 and $978,000
were deferred and classified in other accrued expenses at December 31, 1995 and
1996, respectively. Gains of local currency purchased options deferred at
December 31, 1996 that qualify for hedge accounting of $200,000 were deferred in
other accrued expenses. Gains on forward exchange contracts and local currency
purchased options that qualify for hedge accounting are classified in cost of
goods sold and totaled $927,000, $1,928,000, $2,476,000, and $1,554,000, and
$978,000 for the years ended December 31, 1994, 1995, 1996, and the nine months
ended
F-10
<PAGE> 64
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
September 30, 1996 and 1997, respectively. There are no forward exchange
contracts outstanding at September 30, 1997 which qualify for hedge accounting.
The fair value of forward exchange contracts at September 30, 1997,
determined by applying period end currency exchange rates to the notional
contract amounts, amounted to $525,000. The fair value of local currency
purchased options at December 31, 1996, obtained through dealer quotes, totaled
approximately $200,000.
The market risk exposure from forward exchange contracts is assessed in
light of the underlying currency exposures and is controlled by the initiation
of additional or offsetting foreign currency contracts. The market risk exposure
from options is limited to the cost of such investments. Credit risk exposure
from forward exchange contract and local currency purchased option are minimized
as these instruments are contracted with a major financial institution. The
Company monitors the credit worthiness of this financial institution and full
performance is anticipated.
Interest Rate Risk Management
The Company utilizes an interest rate swap to fix the interest rate on
certain variable rate term loans in order to minimize the effect of changes in
interest rates on earnings. In 1993, the Company entered into a five-year
interest rate swap agreement with a major financial institution for the notional
amount of $5,000,000 equal to one half of the term loan described in Note 6.
Under the agreement, the Company pays a fixed rate of 5.1% on the notional
amount and receives the London Interbank Offering Rate ("LIBOR"). The interest
differential paid or received on the swap agreement is recognized as an
adjustment to interest expense. At September 30, 1997 the fair value of this
interest rate swap, which represents the amount the Company would receive or pay
to terminate the agreement, is a net receivable of $15,000, based on dealer
quotes.
The market risk exposure from the interest rate swap is assessed in light
of the underlying interest rate exposures. Credit risk exposure from the swap is
minimized as the agreement is with a major financial institution. The Company
monitors the creditworthiness of this financial institution and full performance
is anticipated.
Concentrations of Credit Risk
The Company's significant concentrations of credit risk consist principally
of cash and cash equivalents and trade accounts receivable. The Company
maintains cash and cash equivalents with financial institutions including the
bank it has borrowings with. Concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number of geographically
dispersed customers. Credit is extended for all customers based on financial
condition and, collateral is not required.
Fair Value of Financial Instruments
The fair value of the term loans, including the current portion,
approximates its carrying value given its variable rate interest provisions. The
fair value of mortgage notes is based on borrowing rates for similar instruments
and approximates its carrying value. For all other balance sheet financial
instruments, the carrying amount approximates fair value because of the short
period to maturity of these instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
F-11
<PAGE> 65
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Raw material..................................... $ 10,839 $ 10,337 $ 10,292
Work in process.................................. 8,833 6,177 7,066
Finished goods................................... 10,288 8,986 10,723
------- ------- -------
$ 29,960 $ 25,500 $ 28,081
======= ======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Land............................................. $ 7,923 $ 8,295 $ 8,581
Buildings........................................ 22,728 26,885 26,387
Machinery and equipment.......................... 22,202 24,711 24,025
Furniture and fixtures........................... 5,412 8,046 9,372
Leasehold improvements........................... 816 1,184 896
-------- -------- --------
59,081 69,121 69,261
Less: accumulated depreciation and
amortization................................... 25,871 31,114 34,918
-------- -------- --------
$ 33,210 $ 38,007 $ 34,343
======== ======== ========
</TABLE>
6. DEBT:
Credit Agreements and Short-term Borrowings
In February 1996, the Company entered into a loan agreement with a bank
which provides access to a revolving credit loan and term loan. This agreement
has since been amended. The revolving credit facility provides for
uncollateralized borrowings up to $20,000,000, which expires on June 30, 1999.
Interest on borrowings is payable quarterly at varying rates based, subject to
the Company's option, at the bank's base rate, or money market rate, or LIBOR.
At December 31, 1995 and 1996 and September 30, 1997, the interest rate in
effect was the bank's base rate of 8.5%, 8.25%, and 8.5%, respectively. At
December 31, 1995 and 1996 and September 30, 1997, the Company had $1,525,000,
$1,875,000, and $2,500,000, respectively, of borrowings, under this revolving
credit loan.
Additionally, certain of the Company's foreign subsidiaries have lines of
credit and short-term borrowing arrangements with various financial institutions
which provide for aggregate borrowings as of September 30, 1997 of up to
$13,300,000, which generally expire and are renewed at six month intervals. At
December 31, 1995 and 1996 and September 30, 1997, total borrowings outstanding
under these arrangements were $10,739,000, $10,950,000, and $10,671,000,
respectively, at interest rates ranging from 1.3% to 13.7%, 1.3% to
F-12
<PAGE> 66
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
15.5%, and 1.3% to 14.5%, respectively. Foreign short-term borrowings are
generally collateralized by certain trade accounts receivable and are guaranteed
by a domestic bank.
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Term loans......................................... $15,528 $13,861 $12,611
Mortgage notes..................................... 5,292 4,675 3,978
------- ------- -------
Total long-term debt............................... 20,820 18,536 16,589
Less: current portion.............................. 2,203 2,258 2,153
------- ------- -------
Long-term debt less current portion................ $18,617 $16,278 $14,436
======= ======= =======
</TABLE>
The term loan facility of the loan agreement entered into on November 1,
1993, provided for borrowings of $10,000,000. Principal payments are payable in
equal monthly installments of $56,000 through October 1, 2000, with the
remaining principal payment due on November 1, 2000. The loan is collateralized
by certain land, buildings, and equipment.
On October 31, 1995, the Company entered a loan agreement with the same
bank which provided additional uncollateralized term loan borrowings of
$7,000,000. Principal payments on the additional term loan borrowings are
payable in equal monthly installments of $83,000 through June 1, 2002, with the
remaining principal payment due on June 30, 2002.
Interest on the term loan borrowings is payable monthly at varying rates
based, subject to the Company's option, at the bank's base rate, or money market
rate, or LIBOR. At December 31, 1995 and 1996 and September 30, 1997, the
interest rates in effect for these borrowings were 7.1%, 7.375%, and 6.925%,
respectively.
The terms of the loan agreements, as amended, contain, among other
provisions, requirements for maintaining certain levels of tangible net worth
and other financial ratios. The agreement also contains restrictions with
respect to acquisitions. Under the most restrictive covenant, the operating cash
flow to debt service ratio for a fiscal quarter shall not be less than 1.25 to
1.0. In the event of default of these covenants or restrictions, any obligation
then outstanding under the loan agreement shall become payable upon demand by
the bank. The Company was in compliance with these covenants and restrictions at
September 30, 1997.
The Company has loans outstanding from various foreign banks in the form of
mortgage notes at interest rates ranging from 2.1% to 10.75%. Principal and
interest are payable in monthly installments through 2010. The loans are
collateralized by mortgages on certain of the Company's foreign properties.
F-13
<PAGE> 67
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
Aggregate maturities of long-term debt over the next five years are as
follows:
<TABLE>
<CAPTION>
AGGREGATE
MATURITIES
---------
<S> <C>
October 1, 1997 to December 31, 1997............................... $ 577
Year ending December 31, 1998...................................... 2,095
Year ending December 31, 1999...................................... 2,037
Year ending December 31, 2000...................................... 7,322
Year ending December 31, 2001...................................... 1,384
Year ending December 31, 2002...................................... 1,307
Thereafter......................................................... 1,867
-------
$ 16,589
=======
</TABLE>
7. LEASE COMMITMENTS:
The Company leases certain of its facilities and machinery and equipment
under capital and operating leases expiring in various years through 2002 and
thereafter. Generally, the facility leases require the Company to pay
maintenance, insurance and real estate taxes. Rental expense under operating
leases totaled $1,506,000, $1,985,000 and $2,487,000, for the years ended
December 31, 1994, 1995 and 1996, respectively, and $1,919,000 and $1,876,000
for the nine month period ended September 30, 1996 and 1997, respectively.
Minimum lease payments under operating and capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL
OPERATING LEASES LEASES
------------------------- ---------
REAL ESTATE EQUIPMENT EQUIPMENT
----------- --------- ---------
<S> <C> <C> <C>
October 1, 1997 to December 31, 1997............... $ 523 $ 149 $ 313
Year ending December 31, 1998...................... 1,073 447 1,187
Year ending December 31, 1999...................... 362 268 915
Year ending December 31, 2000...................... 78 82 691
Year ending December 31, 2001...................... 9 33 209
Year ending December 31, 2002...................... -- 19 9
Thereafter......................................... -- 29 --
------ ------ -------
Total minimum lease payments....................... $ 2,045 $ 1,027 3,324
====== ======
Less: amounts representing interest................ 364
-------
Present value of minimum lease payments............ 2,960
Less: current portion.............................. 1,048
-------
Long-term portion.................................. $ 1,912
=======
</TABLE>
8. STOCKHOLDERS' EQUITY:
Prior to the effectiveness of a registration statement relating to the
initial public offering of Common Stock of the Company, the Company will effect
a 2,110 to one stock split, to be effected in the form of a stock dividend, of
its common stock, increase the number of authorized shares of common stock to
50,000,000 and will authorize 2,000,000 shares of $0.01 par value Preferred
Stock. Accordingly, all share data has been restated to reflect the Common Stock
split.
F-14
<PAGE> 68
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
Common Stock
The Company has two classes of Common Stock. Stockholders of Class A Common
Stock are entitled to voting rights with one vote for each share of Common
Stock. Stockholders of Class B Common Stock are not entitled to voting rights.
Upon the closing of the offering for which this Registration Statement is
being prepared each outstanding share of Class A and Class B Common Stock of the
Company will be converted into an aggregate of 12,035,440 shares of Common
Stock.
Stock Option Plans
The Company grants options to employees under the 1995 Stock Incentive Plan
(the "Plan") and to Directors under the 1996 Directors' Stock Plan (the
"Directors' Plan").
Under the Plan, options to purchase 1,804,050 shares of the Company's
authorized but unissued Common Stock may be granted. Under the Director's Plan,
42,200 such options may be granted. Stock options are granted at 100% of the
fair value of the Company's Common Stock as determined by the Board of Directors
on the date of grant. In reaching the determination of fair value at the time of
each grant, the Board considered a range of factors, including the Company's
current financial position, its recent revenues, results of operations and cash
flows, its assessment of the Company's competitive position in its markets and
prospects for the future, the status of the Company's product development and
marketing efforts, current valuations for comparable companies and the
illiquidity of an investment in the Company's common stock. Generally, stock
options under the Plan vest 20% after one year and 5% per quarter thereafter,
and expire 10 years after the grant date. Under the Directors' Plan, the options
granted in 1996 vest over three years and options granted in 1997 and later vest
at the earlier of (a) the next annual meeting, (b) 13 months from date of grant
or (c) the effective date of an acquisition as defined in the Directors' Plan.
The following table presents the activity for options under the Plan.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ ------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of period.... -- -- 405,513 $16.59 540,292 $ 6.64
Granted............................... 405,513 $16.59 540,292 6.64 502,669 6.64
Exercised............................. -- -- -- -- -- --
Forfeited or Expired.................. -- -- (405,513) 16.59 (21,100) 6.64
------- ------ ------- ------ ------- ------
Outstanding -- end of period.......... 405,513 $16.59 540,292 $ 6.64 1,021,861 $ 6.64
Exercisable at end of period.......... -- -- 76,521 $ 6.64 274,980 $ 6.64
</TABLE>
At September 30, 1997, Plan options for 1,021,861 shares were outstanding
at an exercise price of $6.64. The weighted average remaining contractual life
of these options was 8.5 years.
During 1996, 18,088 options were granted at an exercise price of $6.64 per
share under the Directors' Plan and were outstanding at December 31, 1996. Of
these options, 3,016 were exercisable. During 1997, options for 2,412 shares
were granted at an exercise price of $6.64 per share. At September 30, 1997,
20,500 options were outstanding with 7,536 exercisable at the $6.64 per share
price.
F-15
<PAGE> 69
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation" for the year ended December 31, 1996. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Company's stock at the date of grant over the
amount an employee must pay to acquire the stock.
The disclosures required under SFAS No. 123 have been omitted as they are
not meaningful based upon the Company's planned conversion from an S Corporation
to a C Corporation upon the closing of the offering for which these financial
statements are being prepared. Had the fair value based method prescribed in
SFAS No. 123 been used to account for stock-based compensation cost, there would
have been no change in pro forma net income and pro forma earnings per share
from that reported.
9. INCOME TAXES:
The Company has elected to be taxed as an S Corporation for federal and
certain states income tax purposes and, as a result, is not subject to Federal
taxation but is subject to state taxation on income in certain states. The
stockholders are liable for individual Federal and certain state income taxes on
their allocated portions of the Company's taxable income.
The components of income before income taxes and the historical related
provision for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Income before income taxes:
United States............................. $ 9,888 $21,183 $11,953 $13,101
Foreign................................... 915 1,475 1,350 981
------- ------- ------- -------
$10,803 $22,658 $13,303 $14,082
======= ======= ======= =======
Current taxes:
State..................................... $ 368 $ 434 $ 285 $ 853
Foreign................................... 610 657 792 572
------- ------- ------- -------
978 1,091 1,077 1,425
------- ------- ------- -------
Deferred taxes:
State..................................... (55) (88) (156) (128)
Foreign................................... (123) (3) (121) (107)
------- ------- ------- -------
(178) (91) (277) (235)
------- ------- ------- -------
Provision for income taxes.................. $ 800 $ 1,000 $ 800 $ 1,190
======= ======= ======= =======
</TABLE>
As the Company is not subject to Federal income taxes, a reconciliation of
the effective tax rate to the Federal statutory rate is not meaningful.
F-16
<PAGE> 70
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
At December 31, 1995, 1996, and September 30, 1997 the components of the
deferred tax asset and deferred tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Inventory............................................. $143 $234 $ 314
Intercompany profits.................................. 125 160 193
Compensation.......................................... 62 72 103
Investment booked under the equity method............. (17) (28) (41)
Other................................................. (179) (34) (37)
---- ---- ----
Total......................................... $134 $404 $ 532
==== ==== ====
</TABLE>
10. EMPLOYEE BENEFIT PLANS:
The Company has a 401(k) profit-sharing plan for U.S. employees meeting
certain requirements in which eligible employees may contribute from 1% up to
12% of their compensation. The Company, at its discretion, may provide a
matching contribution which will generally match up to the first 2% of each
participant's compensation, plus 25% of the next 4% of compensation. At the
discretion of the Board of Directors, the Company may also make additional
contributions for the benefit of all eligible employees. The Company's
contributions are generally paid annually, and were $1,324,000, $1,850,000, and
$2,170,000 for the years ended December 31, 1994, 1995, and 1996. Approximately
$2,100,000 has been accrued as the Company's contribution for the nine month
period ended September 30, 1997 and is included in accrued compensation.
The Company maintains a bonus plan which provides cash awards to key
employees, at the discretion of the Board of Directors, based upon operating
results and employee performance. Bonus expense to key employees was $1,231,000,
$764,000, and none, for the years ended December 31, 1994, 1995, and 1996,
respectively, and none and $956,000 for the nine months ended September 30, 1996
and 1997, respectively.
On September 30, 1995, the Board of Directors voted to terminate the
Company's stock appreciation plan covering certain key employees. Performance
shares awarded under the Plan entitled the employee to a pro rata share increase
in the adjusted net book value of the Company. The Company recorded compensation
expense of $160,000 and $199,000 under this plan for the years ended December
31, 1994 and 1995, respectively.
11. RESTRUCTURING:
In 1996, the Company recorded a restructuring charge of $1,400,000,
primarily related to reduction of personnel and the closure of facilities in
Phoenix, AZ and San Jose, CA. These charges include $425,000 of severance pay,
$710,000 of lease commitments, and $265,000 for the write-off of leasehold
improvements. The closure concluded during fiscal year 1997. The remaining
balance of the restructuring charge of approximately $400,000 for lease
commitments is included in "Other Accrued Expenses" in the accompanying balance
sheet as of September 30, 1997.
F-17
<PAGE> 71
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
12. GEOGRAPHIC FINANCIAL INFORMATION AND SIGNIFICANT CUSTOMER:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER
---------------------------------- 30,
1994 1995 1996 1997
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers:
United States...................... $ 72,006 $107,003 $119,423 $ 97,080
Europe............................. 12,076 17,696 18,735 13,505
Asia............................... 21,140 30,987 31,066 22,848
Canada............................. 1,607 1,478 1,638 1,196
-------- -------- -------- --------
Total net sales...................... $106,829 $157,164 $170,862 $134,629
======== ======== ======== ========
Transfers between geographic areas
(eliminated in consolidation):
United States...................... $ 18,543 $ 28,420 $ 34,100 $ 25,925
Europe............................. 983 1,700 1,426 577
Asia............................... 118 233 199 204
-------- -------- -------- --------
Total transfers...................... $ 19,644 $ 30,353 $ 35,725 $ 26,706
======== ======== ======== ========
Income from operations:
United States...................... $ 10,680 $ 22,013 $ 14,406 $ 14,312
Europe............................. 337 974 881 284
Asia............................... 934 1,062 653 255
Canada............................. 136 57 128 237
-------- -------- -------- --------
Income from operations............... $ 12,087 $ 24,106 $ 16,068 $ 15,088
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER
------------------------------------ 30,
1994 1995 1996 1997
------- ------------ ------- ------------
<S> <C> <C> <C> <C>
Identifiable assets:
United States...................... $43,521 $ 71,171 $65,957 $ 76,616
Europe............................. 8,812 10,174 9,883 9,502
Asia............................... 19,344 22,678 18,524 20,162
Canada............................. 643 488 636 405
------- -------- ------- --------
Total assets......................... $72,320 $104,511 $95,000 $106,685
======= ======== ======= ========
</TABLE>
Export sales were less than 10% for all periods presented. Net sales to
unaffiliated customers is based on the location of the operation which generated
the sale. Transfers between geographic areas are at negotiated transfer prices
and have been eliminated from consolidated net sales. Income from operations
consists of total net sales less operating expenses, and does not include either
interest income, interest expense, or income taxes. United States income from
operations is net of corporate expenses. Identifiable assets of geographic areas
are those assets related to the Company's operations in each area.
The Company had one customer comprising 9%, 14%, 15%, and 21% of net sales
for the years ended December 31, 1994, 1995 and 1996 and for the nine month
period ended September 30, 1997, respectively.
F-18
<PAGE> 72
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED.
13. SUBSEQUENT EVENT (UNAUDITED)
On January 14, 1998, the Company amended their Articles of Organization to
increase the number of authorized shares of Class A Common Stock, no par value
per share, from 10,000 shares to 6,000,000 shares and to increase the number of
authorized shares of Class B Common Stock, no par value per share from 10,000 to
10,000,000 shares. In addition, the Company effected a 2,110 for 1 stock split
in the form of a stock dividend.
F-19
<PAGE> 73
INSIDE BACK COVER (PG.5):
The inside back cover graphically depicts MKS Instruments' message of being a
worldwide provider of process control solutions. It is produced in four-color
process. In the center of the page is a photo of the Earth, with the tag line
"Providing Solutions Around the Process, Around the World" wrapping around the
photo. The background of the page is dark, with the MKS logo appearing at the
top, knocking out to white. Photos of MKS products surround the globe
image--above, below, left, and right--and include MKS Baratron Capacitance
Manometers, a Throttling Poppet Valve, a Pressure Controller, Mass Flow
Controllers, an In Situ Flow Verifier, a Direct Liquid Injection Subsystem, and
a Residual Gas Analyzer.
<PAGE> 74
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
Offering 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 or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities other than the shares of Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction in which such an offer
or solicitation is unlawful. Neither the delivery of this Prospectus nor any
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......................... 5
Use of Proceeds...................... 10
S Corporation and Termination of
S Corporation Status............... 11
Dividend Policy...................... 11
Capitalization....................... 12
Dilution............................. 13
Selected Consolidated Financial
Data............................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Business............................. 23
Management........................... 38
Certain Transactions................. 44
Principal Stockholders............... 45
Description of Capital Stock......... 46
Shares Eligible for Future Sale...... 48
Underwriting......................... 49
Legal Matters........................ 50
Experts.............................. 50
Additional Information............... 50
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions
======================================================
======================================================
4,000,000 SHARES
MKS INSTRUMENTS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NATIONSBANC MONTGOMERY
SECURITIES, INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWE BBER INCORPORATED
, 1998
======================================================
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses payable in connection with the sale of the Common Stock
offered hereby are as follows:
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $20,209
NASD Filing Fee........................................................... 7,400
Printing, Engraving and Mailing Expenses.................................. *
Nasdaq Listing Fee........................................................ *
Legal Fees and Expenses................................................... *
Accounting Fees and Expenses.............................................. *
Blue Sky Fees and Expenses................................................ *
Transfer Agent and Registrar Fees......................................... *
Miscellaneous............................................................. *
-------
Total........................................................... $ *
=======
</TABLE>
- ---------------
* To be filed by amendment
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of Chapter 156B of the Massachusetts General Laws provides that
a corporation may indemnify its directors and officers to the extent specified
in or authorized by (i) the articles of organization; (ii) a by-law adopted by
the stockholders; or (iii) a vote adopted by the holders of a majority of the
shares of stock entitled to vote on the election of directors. In all instances,
the extent to which a corporation provides indemnification to its directors and
officers under Section 67 is optional. In its Amended and Restated Articles of
Organization (the "Articles of Organization"), the Registrant has elected to
commit to provide indemnification to its directors and officers in specified
circumstances. Generally, Article 6 of the Registrant's Articles of Organization
provides that the Registrant shall indemnify directors and officers of the
Registrant against liabilities and expenses arising out of legal proceedings
brought against them by reason of their status as directors or officers or by
reason of their agreeing to serve, at the request of the Registrant, as a
director or officer with another organization. Under this provision, a director
or officer of the Registrant shall be indemnified by the Registrant for all
costs and expenses (including attorneys' fees), judgments, liabilities and
amounts paid in settlement of such proceedings, even if he is not successful on
the merits, if he acted in good faith in the reasonable belief that his action
was in the best interests of the Registrant. The Board of Directors may
authorize advancing litigation expenses to a director or officer at his request
upon receipt of an undertaking by any such director of officer to repay such
expenses if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Article 6 of the Registrant's Articles of Organization eliminates the
personal liability of the Registrant's directors to the Registrant or its
stockholders for monetary damages for breach of a director's fiduciary duty,
except to the extent Chapter 156B of the Massachusetts General Laws prohibits
the elimination or limitation of such liability.
The Underwriting Agreement, a form of which is filed at Exhibit 1.1 to this
Registration Statement on Form S-1 (the "Underwriting Agreement"), provides that
the Underwriters are obligated under certain circumstances to indemnify
directors, officers and controlling persons of the Registrant against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Reference is made to the form of Underwriting Agreement.
II-1
<PAGE> 76
The Company has obtained directors and officers liability insurance for the
benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
Registrant has not sold any securities. The registrant has awarded to employees
and directors options to purchase 1,042,361 shares of Common Stock. The grant of
options were exempt from registration under the Securities Act by virtue of the
provisions of Section 4(2) of the Securities Act or Rule 701 thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EX. NO. DESCRIPTION
-------- --------------------------------------------------------------------------------
<C> <S>
+1.1 Form of Underwriting Agreement
3.1 Restated Articles of Organization, as amended
3.2 Form of Amended and Restated Articles of Organization
+3.3 By-laws, as amended
3.4 Form of Amended and Restated By-laws
4.1 Specimen certificate representing the Common Stock
*5.1 Opinion of Hale and Dorr LLP
10.1 Amended and Restated 1995 Stock Incentive Plan
10.2 1996 Director Stock Option Plan, as amended
10.3 1997 Director Stock Option Plan
10.4 1997 Employee Stock Purchase Plan
+10.5 Amended and Restated Employment Agreement dated as of December 15, 1995 between
Leo Berlinghieri and the Registrant
+10.6 Amended and Restated Employment Agreement dated as of December 15, 1995 between
John J. Sullivan and the Registrant
+10.7 Amended and Restated Employment Agreement dated as of December 15, 1995 between
Ronald C. Weigner and the Registrant
+10.8 Amended and Restated Employment Agreement dated as of December 15, 1995 between
William D. Stewart and the Registrant
+10.9 Loan Agreement dated as of October 31, 1995, as amended February 23, 1996, by
and between the First National Bank of Boston and the Registrant
+10.10 Lease Agreement dated as of October 12, 1989, as extended October 14, 1994, by
and between Aspen Industrial Park Partnership and the Registrant
+10.11 Loan Agreement dated as of November 1, 1993, as last amended February 4, 1997
between the First National Bank of Boston and the Registrant
+10.12 Lease dated as of September 21, 1995 by and between General American Life
Insurance Company and the Registrant
+10.13 Loan Agreement dated as of February 23, 1996, as last amended February 4, 1997
between the First National Bank of Boston, Chemical Bank and the Registrant
+10.14 Revolving Credit Note ($8,000,000) dated February 23, 1996 between Chemical
Bank, The First National Bank of Boston and the Registrant
+10.15 Revolving Credit Note ($12,000,000) dated February 23, 1996 between Chemical
Bank, The First National Bank of Boston and the Registrant
+10.16 Promissory Note dated as of August 1990 between Jefferson National Life
Insurance Company and the Registrant
+**10.17 Purchase Agreement dated June 1, 1996 by and between Applied Materials, Inc. and
the Registrant
</TABLE>
II-2
<PAGE> 77
<TABLE>
<CAPTION>
EX. NO. DESCRIPTION
-------- --------------------------------------------------------------------------------
<C> <S>
+10.18 Management Incentive Program
+10.19 Lease dated as of December 21, 1989, as last amended December 1996, between
Walpole Park South II Trust and the Registrant
+10.20 Lease dated as of January 1, 1996 between MiFuji Kanzai Co. Ltd. and the
Registrant (covering Floor 5)
+10.21 Lease dated as of April 21, 1997 between MiFuji Kanzai Co. Ltd. and the
Registrant (covering Floors 1 and 2)
+10.22 Split-Dollar Agreement dated as of September 12, 1991 between the Registrant,
John R. Bertucci and Claire R. Bertucci and Richard S. Chute, Trustees of the
John R. Bertucci Insurance Trust of January 10, 1986
+10.23 Split-Dollar Agreement dated as of September 12, 1991 between the Registrant,
John R. Bertucci and John R. Bertucci and Thomas H. Belknap, Trustees of the
Claire R. Bertucci Insurance Trust of January 10, 1986
10.24 Tax Indemnification and S Corporation Distribution Agreement
+11.1 Statement re Computation of Per Share Earnings
+21.1 Subsidiaries of the Registrant
*23.1 Consent of Hale and Dorr LLP (contained in Exhibit 5.1)
+23.2 Consent of Coopers & Lybrand L.L.P.
+24 Power of Attorney (included on Page II-4)
+27 Financial Data Schedule
</TABLE>
- ---------------
+ Previously filed.
* To be filed by amendment.
** Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
(b) FINANCIAL STATEMENTS SCHEDULES
Report of Independent Accountants on Schedule II -- Valuation and
Qualifying Accounts
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer and controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offer
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby further undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to it Registration Statement (File No.
333-40269) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Andover, Commonwealth of Massachusetts, on this 15th
day of January, 1998.
MKS INSTRUMENTS, INC.
By: /s/ JOHN R. BERTUCCI
------------------------------------
JOHN R. BERTUCCI
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<C> <S> <C>
/s/ JOHN R. BERTUCCI Chairman of the Board of January 15, 1998
- ------------------------------------------ Directors, President and Chief
JOHN R. BERTUCCI Executive Officer (Principal
Executive Officer)
* Vice President and Chief January 15, 1998
- ------------------------------------------ Financial Officer (Principal
RONALD C. WEIGNER Financial and Accounting
Officer)
* Director January 15, 1998
- ------------------------------------------
RICHARD S. CHUTE
* Director January 15, 1998
- ------------------------------------------
OWEN W. ROBBINS
* Director January 15, 1998
- ------------------------------------------
ROBERT J. THERRIEN
* Director January 15, 1998
- ------------------------------------------
LOUIS P. VALENTE
*By /s/ JOHN R. BERTUCCI
----------------------------------------
JOHN R. BERTUCCI
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
EX. NO. DESCRIPTION
-------- --------------------------------------------------------------------------------
<C> <S>
+1.1 Form of Underwriting Agreement
3.1 Restated Articles of Organization, as amended
3.2 Form of Amended and Restated Articles of Organization
+3.3 By-laws, as amended
3.4 Form of Amended and Restated By-laws
4.1 Specimen certificate representing the Common Stock
*5.1 Opinion of Hale and Dorr LLP
10.1 Amended and Restated 1995 Stock Incentive Plan
10.2 1996 Director Stock Option Plan, as amended
10.3 1997 Director Stock Option Plan
10.4 1997 Employee Stock Purchase Plan
+10.5 Amended and Restated Employment Agreement dated as of December 15, 1995 between
Leo Berlinghieri and the Registrant
+10.6 Amended and Restated Employment Agreement dated as of December 15, 1995 between
John J. Sullivan and the Registrant
+10.7 Amended and Restated Employment Agreement dated as of December 15, 1995 between
Ronald C. Weigner and the Registrant
+10.8 Amended and Restated Employment Agreement dated as of December 15, 1995 between
William D. Stewart and the Registrant
+10.9 Loan Agreement dated as of October 31, 1995, as amended February 23, 1996, by
and between the First National Bank of Boston and the Registrant
+10.10 Lease Agreement dated as of October 12, 1989, as extended October 14, 1994, by
and between Aspen Industrial Park Partnership and the Registrant
+10.11 Loan Agreement dated as of November 1, 1993, as last amended February 4, 1997
between the First National Bank of Boston and the Registrant
+10.12 Lease dated as of September 21, 1995 by and between General American Life
Insurance Company and the Registrant
+10.13 Loan Agreement dated as of February 23, 1996, as last amended February 4, 1997
between the First National Bank of Boston, Chemical Bank and the Registrant
+10.14 Revolving Credit Note ($8,000,000) dated February 23, 1996 between Chemical
Bank, The First National Bank of Boston and the Registrant
+10.15 Revolving Credit Note ($12,000,000) dated February 23, 1996 between Chemical
Bank, The First National Bank of Boston and the Registrant
+10.16 Promissory Note dated as of August 1990 between Jefferson National Life
Insurance Company and the Registrant
+**10.17 Purchase Agreement dated June 1, 1996 by and between Applied Materials, Inc. and
the Registrant
+10.18 Management Incentive Program
+10.19 Lease dated as of December 21, 1989, as last amended December 1996, between
Walpole Park South II Trust and the Registrant
+10.20 Lease dated as of January 1, 1996 between MiFuji Kanzai Co. Ltd. and the
Registrant (covering Floor 5)
+10.21 Lease dated as of April 21, 1997 between MiFuji Kanzai Co. Ltd. and the
Registrant (covering Floors 1 and 2)
+10.22 Split-Dollar Agreement dated as of September 12, 1991 between the Registrant,
John R. Bertucci and Claire R. Bertucci and Richard S. Chute, Trustees of the
John R. Bertucci Insurance Trust of January 10, 1986
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EX. NO. DESCRIPTION
-------- --------------------------------------------------------------------------------
<C> <S>
+10.23 Split-Dollar Agreement dated as of September 12, 1991 between the Registrant,
John R. Bertucci and John R. Bertucci and Thomas H. Belknap, Trustees of the
Claire R. Bertucci Insurance Trust of January 10, 1986
*10.24 Tax Indemnification and S Corporation Distribution Agreement
+11.1 Statement re Computation of Per Share Earnings
+21.1 Subsidiaries of the Registrant
*23.1 Consent of Hale and Dorr LLP (contained in Exhibit 5.1)
+23.2 Consent of Coopers & Lybrand L.L.P.
+24 Power of Attorney (included on Page II-4)
+27 Financial Data Schedule
</TABLE>
- ---------------
+ Previously filed.
* To be filed by amendment.
** Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT A
LM
- ------------ The Commonwealth of Massachusetts EXHIBIT 3.1
Examiner
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
FEDERAL IDENTIFICATION No. 04-2277512
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the
Commonwealth of Massachusetts.
-------------
We, John R. Bertucci, President, and
Richard S. Chute, Clerk of
MKS Instruments, Inc.
- -------------------------------------------------------------------------------
(Name of Corporation)
located at 34 Third Avenue, Burlington, Massachusetts 01803
--------------------------------------------------------------------
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted and authorized by unanimous written consent
of all the Directors dated January 15, 1982.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. The name by which the corporation shall be known is:
MKS Instruments, Inc.
2. The purposes for which the corporation is formed are as follows:
See Continuation Sheets 2A and 2B.
12
- ----------
P.C.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions
to more than one article may be continued on a single sheet so long as each
article requiring each such addition is clearly indicated.
<PAGE> 2
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ---------
<S> <C> <C> <C>
Preferred None None None
Class A Common 10,000 None None
Class B Common 10,000 None None
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
See Continuation Sheet 4A.
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
See Continuation Sheets 5A, 5B, 5C and 5D.
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution,
or for limiting, defining, or regulating the powers of the corporation,
or of its directors or stockholders, or of any class of stockholders:
See Continuation Sheet 6A.
*If there are no such provisions state "None".
<PAGE> 3
Continuation Sheet 2A
2. The purposes for which the corporation is formed are as follows:
To design, manufacture, sell, lease and license instruments of all kinds,
including electromechanical, electronic and mechanical gauges for the
measurement of pressure, temperature, acceleration, flow and level of liquids
and gases; to design, manufacture, sell, lease and license control systems
incorporating measuring devices, and control systems separate from measuring
devices, for the control of production processes and operations of all kinds; to
design, manufacture, sell, lease and license instrumentation for military use;
to design, manufacture, sell, lease and license instrumentation for use in
research laboratories, in industry, in educational institutions, for medical
purposes and for use elsewhere and for other purposes; and in general to design,
manufacture, sell, lease and license electro-mechanical, electronic and
mechanical devices of all kinds.
To buy and sell at wholesale and retail, or otherwise, to manufacture,
produce, adapt, repair, dispose of, export, import and in any other manner to
deal in goods, wares, merchandise, articles and things of manufacture or
otherwise of all materials, supplies and other articles and things necessary or
convenient for use in connection with any of said businesses or any other
business or any part thereof; and to manufacture, repair, purchase, sell, lease,
dispose of and otherwise deal in machinery, tools, and appliances which are or
may be used in connection with the purchase, sale, production, adaption, repair,
disposition of, export, import or other dealings in said goods, wares,
merchandise, articles and things.
To purchase, lease or otherwise acquire as a going concern or otherwise all
or any part of the franchises, rights, property, assets, business, good will or
capital stock of any persons, firm, corporation, trust or association engaged in
whole or in part in any business in which this corporation is empowered to
engage, or in any other business; to pay for the same in whole or in part in
cash, stock, bonds, notes, securities or other evidence of indebtedness of this
corporation or in any other manner; to assume as part of the consideration or
otherwise any and all debts, contracts or liabilities, matured or unmatured,
fixed or contingent, of any such person, firm or corporation, trust or
association; and to operate, manage, develop and generally to carry on the whole
or any part of any such business under any name or names which it may select or
designate.
<PAGE> 4
Continuation Sheet 2B
To construct, lease, hire, purchase or otherwise acquire and hold or
maintain, and to rebuild, enlarge, improve, furnish, equip, alter, operate and
dispose of warehouses, factories, offices and other buildings, real estate,
structures or parts thereof, and appliances for the preparation, manufacture,
purchase, sale and distribution of goods, wares, merchandise, things, and
articles of all kinds.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of,
mortgage, or otherwise dispose of franchises, letters patent of the United
States or of any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, systems, copyrights, trade-marks and
trade names, relating to, or useful in connection with, any business of this
corporation.
To buy or otherwise acquire, to sell, assign, pledge, or otherwise
dispose of and deal in stocks, bonds, securities, notes and other obligations
of any person, firm or corporation, including this corporation, organized for
or engaged in similar or cognate purposes; also stocks, bonds, securities,
notes, and other obligations of any person, firm, or corporation, including
this corporation, which it may be found or deemed necessary, valuable, or
convenient for this corporation to acquire and deal in, in pursuance or
furtherance of or in connection with the businesses herein specified, or any
other business.
To borrow money and contract indebtedness for all proper corporate
purposes, to issue bonds, notes, and other evidences of indebtedness, to secure
the same by pledge, mortgage, or lien on all or any part of the property of the
corporation, tangible or intangible; and to assume or guarantee or secure in
like manner or otherwise, the leases, contracts, or other obligations, fixed or
contingent, or the payment of any dividends on any stock or shares or of the
principal or interest on any bonds, notes, or other evidences of indebtedness
of any person, firm, corporation, trust, or association in which this
corporation has a financial interest.
To enter into, make, and perform contracts of every name, nature, and
kind with any person, firm, association, or corporation which may be deemed
valuable, expedient, or convenient for this corporation in pursuance of or in
furtherance of or in connection with any of the objects of incorporation of
this corporation or in connection with any of the businesses or purposes herein
specified.
The enumeration of specific powers herein shall not be construed as
limiting or restricting in any way the general powers herein set forth, but
nothing herein contained shall be construed as authorizing the business of
banking.
<PAGE> 5
Continuation Sheet 4A
4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
The holders of shares of Class B Common stock of the corporation shall
not be entitled to vote for the election of Officers or Directors or with
respect to any other aspect of the business of the corporation, or any matter
or thing which may come or be brought before any meeting of the Stockholders of
the corporation; and said Class B Common stock shall not be deemed to be a
class of stock entitled to vote for any purpose whatsoever. In all other
respects, however, the Class B Common stock and the Class A Common stock of the
corporation, and the respective rights and preferences thereof shall be equal,
and neither class shall have any priority over the other with respect to the
payment of dividends or to distributions in liquidation.
<PAGE> 6
Continuation Sheet 5A
5. The restrictions, if any, imposed by the articles of organization
upon the transfer of shares of stock of any class are as follows:
Section 5. Restrictions. None of the corporation's stock, of any
class, may be transferred except as hereinafter provided:
(a) Before making any proposed disposition of any of the
corporation's stock, the holder of the stock shall give written notice
to the Board of Directors specifying in detail the nature of the
proposed disposition and its terms, the class and number of the shares
involved, and the consideration for the proposed disposition, if any.
Such notice shall constitute an offer by the holder to sell the shares
involved to the corporation at their Agreed Value, as determined
hereunder, or, if such proposed disposition is one for a pecuniary
consideration less than the Agreed Value of the shares involved, such
notice shall constitute an offer to sell the shares to the corporation
for such proposed pecuniary consideration.
(b) Within thirty days after receipt of such notice, the Board of
Directors shall give written notice to the offering holder stating
whether the corporation accepts or rejects the holder's offer. If the
offer is accepted, such notice by the corporation shall state the price
to be paid for the shares and shall specify whether the corporation
elects to pay a part of the purchase price by means of the
corporation's note, as provided for in subsection (d) hereof. The
offering holder of such shares shall deliver the shares to the
corporation, suitably endorsed, within ten days after receipt of the
corporation's notice of acceptance, and upon receipt of the shares, the
corporation shall make payment therefor in the manner hereinafter
provided.
If such offer is rejected by the corporation, the Directors shall
transmit forthwith such offer to the record owners of the Class A
Common Stock of the corporation who shall, subject to the provisions of
this subsection (b), have the right to purchase the offered shares, in
amounts proportionate to their respective holdings of said Class A
Common stock, upon all of the same terms and conditions upon which the
corporation might have purchased said offered shares, except that
payment for offered shares shall be made in cash unless otherwise
agreed upon between the parties. Each such owner to whom such shares
are offered shall have the right within thirty (30) days of such offer
to purchase the entire number of shares apportioned to him as above or
to purchase none, and such acceptance shall be extended by written
notice to the Board of Directors given within such time. If any owner
of Class A Common stock shall
<PAGE> 7
Continuation Sheet 5B
not accept such offer, the Board of Directors shall forthwith notify the
remaining shareholders of Class A Common stock that they may purchase in
proportion to their respective holdings of such stock the shares which such
owner was entitled to purchase. Each such shareholder to whom such shares are
offered shall have the right within ten (10) days of such offer to purchase the
entire number of shares apportioned to him as above or to purchase none. Within
three days after the expiration of said ten-day period the Board of Directors
shall give written notice to the offering holder advising him in detail of the
elections made with respect to the offered shares by the owners of the Class A
Common stock. If the offer has been accepted with respect to all of the offered
shares, then the offering holder of such shares shall deliver the same to the
corporation, suitably endorsed, for the account of the accepting owners, within
ten days after receipt of said last-mentioned notice from the Board of Directors
and upon receipt of the shares by the corporation the accepting owners of the
Class A Common stock shall make payment therefor in accordance with the terms of
their respective acceptances.
If such offer is rejected by the corporation and if such offer to the
holders of the Class A Common stock is rejected, in whole or in part, the
offering shareholder, at any time within six months after receipt of any such
notice of rejection, may effect the disposition of the shares which was set
forth in such offering shareholder's notice to the Board.
(c) The Agreed Value of the stock of the corporation shall be such as may
from time to time be determined by the unanimous agreement in writing of the
holders of the corporation's Class A Common stock, such determination to be
reviewed and either confirmed or adjusted at reasonable intervals. The Agreed
Value of the Class B Common stock shall be ninety (90) percent of the Agreed
Value of the Class A Common stock, to reflect the fact that the Class B Common
stock is not entitled to vote.
The Agreed Value of the stock of the corporation shall be reviewed as
herein provided at six-month intervals following the adoption of this by-law and
at the expiration of any such six-month period, if no agreement is arrived at,
any owner of stock may demand from the owners of Class A Common stock that an
agreement be reached and in the absence of such agreement within ten days
thereafter, such value shall be determined by an arbitrator appointed by the
President, or by some other appropriate official, of the American Arbitration
Association, upon written request for such appointment made by any owner of
stock of the corporation. The decision of such arbitrator shall be binding upon
the parties, and may be enforced by any court having jurisdiction, but each
owner of stock of the corporation shall
<PAGE> 8
Continuation Sheet 5c
be entitled to appear before such arbitrator, to be represented by counsel, and
to present evidence. The expenses of arbitration, other than expenses for
counsel and witnesses, shall be borne pro rata, according to the number of
shares held, by the owners of the stock of the corporation.
(d) In the event the corporation shall elect to accept the offer of the
holder of its stock, as herein provided, the corporation may pay the full
purchase price for such stock in cash at the time of the delivery of the stock
to the corporation or, at the corporation's sole election, it may pay said
purchase price partly in cash and partly in the form of an unsecured note of
the corporation. If the corporation shall make the latter election, then in
such event the corporation shall pay at least one-third (1/3) of the purchase
price for the stock at the time the stock is delivered to the corporation, and
the corporation shall then deliver to the selling shareholder the note of the
corporation for the unpaid balance of the purchase price for the stock, bearing
interest at the rate of 6% per annum on the unpaid principal balance and
payable in or within two years from its date.
(e) Each share of stock of the corporation is subject to the requirements
and restrictions upon the transfer of such shares set forth in this Section 5,
and the same shall constitute a contract of each shareholder with the
corporation, shall be binding upon each shareholder and his heirs, assigns,
executors, administrators, or other legal representatives and upon all other
persons succeeding to or standing in the place of or holding under the
shareholder, whether by act of the shareholder or by operation of law. These
provisions shall not be discharged by any transfer of shares which may be made
in compliance with the provisions hereof, but shall apply anew to such shares in
the hands of the new holder thereof. These provisions shall not restrict the
making of a bona fide pledge of any shares to secure an indebtedness, but shall
apply fully with respect to any proposed transfer from the name of the
shareholder pursuant to such pledge, whether upon foreclosure or otherwise and
whether to the pledgee or to any other person. These provisions shall not
restrict the transfer of shares, without consideration, to the transferor's
spouse or to the transferor's issue or to the spouses or the transferor's issue,
or any of them (or to a form of joint ownership between the transferor and the
transferees described next above, or any of them, or to a trust for the sole
benefit of the transferor and the transferees described next above or any of
them), but shall apply fully with respect to any proposed disposition by any
such transferee, except as provided in this and the preceding sentence.
<PAGE> 9
Continuation Sheet 5D
(f) The determination of the Board of Directors under the provisions of
this Section 5 shall be made by majority vote except that no waiver of the
provisions of this Section 5 in the case of any proposed disposition of stock
shall be granted by the vote of less than eighty (80) percent of the members
of the Board of Directors. No Director shall be disqualified from voting on any
matter arising under the provisions of this Section 5 by reason of such
Director's ownership of stock of the corporation which might, directly or
indirectly, be affected by such vote.
(g) In the event of any breach of any of the provisions of this Section 5
by any holder of any of the corporation's stock, none of the rights or
privileges attaching to such stock (including, without limitation, voting
rights and rights to dividends) may be exercised or enjoyed with respect to
such stock by such holder or by any purported transferee from such holder while
such breach shall continue, but nothing herein contained shall be deemed to
preclude lawful action by the corporation to enforce the provisions of this
Section 5.
<PAGE> 10
Continuation Sheet 6A
6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
Pre-Emptive Rights. No stockholder shall, by reason of ownership of stock
of the corporation, have any pre-emptive right to purchase unissued stock of
the corporation, or to subscribe to stock of the corporation, or to purchase
stock of the corporation previously issued and held in the treasury of the
corporation, and, subject to the provisions of applicable law, the authorized
and unissued stock of the corporation shall be issued to such person, firm,
corporation or other legal entity, in such amounts, at such times, and for such
consideration as a majority of the Board of Directors may from time to time
determine.
<PAGE> 11
*We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended,
None
- -----------------------------------------------------------------------------
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
None
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 15th day of January in the year 1982.
/s/ John R. Bertucci
- --------------------------------------------------- President
John R. Bertucci
/s/ Richard S. Chute
- --------------------------------------------------- Clerk
Richard S. Chute
<PAGE> 12
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within restated articles of
organization and, the filing fee in the amount of
$15.00 having been paid, said articles are deemed to
have been filed with me this 19th day of January, 1982.
/s/ Michael Joseph Connolly
----------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO: Richard S. Chute, Esquire
Hill & Barlow
225 Franklin Street
Boston, Massachusetts 02110
Telephone 617/423-6200
[SEAL OF WILLIAM FRANCIS GALVIN
Copy Mailed SECRETARY OF THE COMMONWEALTH
DATED 2/20/96]
<PAGE> 13
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
CG SECRETARY OF STATE
- -------- ONE ASHBURTON PLACE FEDERAL IDENTIFICATION
EXAMINER BOSTON, MASS. 02108 NO. 04-2277512
ARTICLES OF
MERGER OF PARENT AND SUBSIDIARY CORPORATIONS
PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 82
The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114.
Make check payable to the Commonwealth of Massachusetts.
We, John R. Bertucci and Richard S. Chute, President*/and Clerk*/ of
MKS Instruments, Inc. 042277512
--------------------------------
name of corporation
organized under the laws of the Commonwealth of Massachusetts and herein called
the parent corporation, do hereby certify as follows:
1. That the subsidiary corporation(s) to be merged into the parent
corporations is as follows*:
<TABLE>
<CAPTION>
Name State of Date of
Organization Organization
<S> <C> <C>
MKS Disc, Inc. 046311363 Massachusetts 10/31/72
</TABLE>
2. That the parent corporation owns at least ninety per cent of the outstanding
shares of each class of the stock of each subsidiary corporation to be merged
into the parent corporation.
3.
______________
*Delete the inapplicable words. In case the parent corporation is organized
under the laws of a state other than Massachusetts these articles are to be
signed by officers having corresponding powers and duties.
<PAGE> 14
4. That at a meeting of the directors of the parent corporation the
following vote, pursuant to subsection (a) of General Laws, Chapter 156B,
Section 82, was duly adopted:
VOTED: That MKS Disc, Inc., a Massachusetts corporation and a
wholly-owned subsidiary corporation of the Corporation,
be merged with and into the Corporation in accordance
with the provisions of Section 82 of the Massachusetts
Business Corporation Law, the effective date of the
merger to be the date of filing of the Articles of
Merger of Parent and Subsidiary Corporations with the
State Secretary of the Commonwealth of Massachusetts;
that the President and Clerk of the Corporation be and
hereby are authorized in the name and on behalf of
the Corporation to execute the Articles of Merger of
Parent and Subsidiary Corporations attached hereto (the
"Articles of Merger") and to file the Articles of
Merger with the State Secretary of the Commonwealth of
Massachusetts; and in furtherance thereof that the
President, any Vice President, Treasurer, Clerk, and
Assistant Clerk of the Corporation or any one or more
of them be and hereby are authorized in the name and on
behalf of the Corporation to execute and deliver any
and all documents and instruments and to take any and
all action as they or any one or more of them may deem
necessary or appropriate to effectuate the merger of
MKS Disc, Inc. with and into the Corporation.
<PAGE> 15
5. The effective date of the merger as specified in the vote set out
under Paragraph 4 is the date of filing of these articles of merger of parent
and subsidiary corporations.
6.
IN WITNESS WHEREOF and under the penalties of perjury we have hereto signed
our names this 15th day of December, 1986.
/s/ John R. Burtucci President*
-----------------------------------------
/s/ Richard S. Chute Clerk*
-----------------------------------------
*Delete the inapplicable words. In case the parent corporation is organized
under the laws of a state other than Massachusetts these articles are to be
signed by officers having corresponding powers and duties.
<PAGE> 16
COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS
(General Laws, Chapter 156B, Section 82)
I hereby approve the within articles of merger of parent and subsidiary
corporations and, the filing fee in the amount of $200.00 having been paid, said
articles are deemed to have been filed with me this 15th day of December, 1986.
/s/ Michael J. Connolly
-----------------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo Copy of Merger To Be Sent
TO: Richard S. Chute, Esquire
Hill & Barlow
-----------------------------------------------
225 Franklin Street
-----------------------------------------------
Boston, MA 02110
-----------------------------------------------
Telephone 617-423-6200
--------------------------------------
[SEAL OF WILLIAM FRANCIS GALVIN
Copy Mailed SECRETARY OF THE COMMONWEALTH
DATED 2/20/96]
<PAGE> 17
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
FEDERAL IDENTIFICATION
Secretary of State
NO. 04-2277512
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
This certificate must be submitted to the Secretary of the
Commonwealth within sixty days after the date of the vote of
stockholders adopting the amendment. The fee for filing this
certificate is prescribed by General Laws, Chapter 156B, Section
114. Make check payable to the Commonwealth of Massachusetts.
-------------
We, John R. Bertucci , President and
Richard S. Chute , Clerk of
MKS Instruments, Inc.
---------------------------------------------------------------------
(Name of Corporation)
located at 34 Third Avenue, Burlington, Massachusetts 01803
- ------ do hereby certify that the following amendment to the restated
Name articles of organization of the corporation was duly adopted by
Approved written consent dated December 15, 1986, by vote of
2454 shares of Class A Common out of 2454 shares outstanding,
(Class of Stock)
CROSS OUT being all of each class outstanding and entitled to vote thereon.(2)
INAPPLICABLE
CLAUSE
C / /
P / /
M / /
(1)For amendments adopted pursuant to Chapter 156B, Section 70.
(2)For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form
4 is insufficient, additions shall be set forth on separate 8 1/2 - 11
- ---------- sheets of paper leaving a left hand margin of at least 1 inch for
P.C. binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE> 18
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
(------shares preferred ) with par value
(------shares common )
The total amount of capital stock :
already authorized is (------shares preferred ) without par value
(------shares common )
(------shares preferred ) with par value
(------shares common )
The amount of additional capital :
stock authorized is (------shares preferred ) without par value
(------shares common )
<PAGE> 19
Voted: That the Restated Articles of Organization of the Corporation be
and hereby are amended by deleting and striking in their entirety
the restrictions upon the transfer of shares of stock contained in
article 5. of the Restated Articles of Organization of the
Corporation so that there are no restrictions imposed by the
articles of organization of the Corporation upon the transfer of
shares of stock of any class of the Corporation; that the President
and Clerk of the Corporation be and hereby are authorized in the
name and on behalf of the Corporation to execute Articles of
Amendment to effectuate such amendment of the Restated Articles of
Organization of the Corporation, a copy of which is attached hereto
(the "Articles of Amendment"), and to file the Articles of
Amendment with the State Secretary of the Commonwealth of
Massachusetts; and in furtherance thereof that the President, any
Vice President, Treasurer, Clerk, and Assistant Clerk of the
Corporation or any one or more of them be and hereby are
authorized in the name and on behalf of the Corporation to execute
and deliver any and all documents and instruments and to take any
and all action as they or any one or more of them may deem
necessary or appropriate to effectuate such amendment of the
Restated Articles of Organization of the Corporation.
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 15th day of December, in the year 1986
/s/ John R. Bertucci President
- -----------------------------------------------------
John R. Bertucci
/s/ Richard S. Chute Clerk
- -----------------------------------------------------
Richard S. Chute
<PAGE> 20
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment
and, the filing fee in the amount of $75.00
having been paid, said articles are deemed to have
been filed with me this 16th
day of December, 1986.
/s/ Michael Joseph Connolly
----------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO: Richard S. Chute
Hill & Sarlow
---------------------------
225 Franklin Street
---------------------------
Boston, MA 02110
---------------------------
Telephone 617-423-6200
---------------------------
Copy Mailed
[STATE SEAL]
<PAGE> 21
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS. 02180
- ---------- FEDERAL IDENTIFICATION
EXAMINER NO. 04-2277512
------------------
N/A
- ----------
Name
Approved
C [ ]
P [ ]
M [ ]
4
- ----------
P.C.
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
---------------
We, John R. Bertucci , President and
Richard S. Chute , Clerk of
MKS Instruments, Inc.
- --------------------------------------------------------------------------------
(Name of Corporation)
located at Six Shattuck Road, Andover, Massachusetts 01810
- --------------------------------------------------------------------------------
do hereby certify that the following amendment to the restated articles of
organization of the corporation was duly adopted by written consent dated
January 8, 1987, by vote of
2454 shares of Class A Common out of 2454 shares outstanding,
- -------- ------------------------ --------
(Class of Stock)
3250 shares of Class B Common out of 3250 shares outstanding,
- -------- ------------------------ --------
(Class of Stock)
being all of each class outstanding and entitled to vote thereon and of each
class of series of stock whose rights are adversely affected thereby:
(1) for amendments adopted pursuant in Chapter 156B, Section 70.
(2) for amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated
<PAGE> 22
TO CHANGE the number of shares and the par value, if any, of each class of
stock within the corporation fill in the following:
The total presently authorized is:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
PREFERRED
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
CHANGE the total to:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
PREFERRED
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
VOTED: That the Restated Articles of Organization of the Corporation be and
hereby are amended by adding the following provision to article 6 of the
Restated Articles of Organization of the Corporation so that article 6
of the Restated Articles of Organization of the Corporation shall
contain the following provision:
"A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director notwithstanding any provision of law
imposing such liability, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 61 or 62 of the Massachusetts Business Corporation
Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
<PAGE> 23
If the Massachusetts Business Corporation Law is amended, after
approval by the stockholders of the corporation of this provision,
to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of
the corporation shall be eliminated or limited to the fullest extent
permitted by the Massachusetts Business Corporation Law, as so
amended. Any amendment, repeal, or modification of this provision by
the stockholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at the
time of such amendment, repeal, or modification."
; that the President and Clerk of the Corporation be and hereby are
authorized in the name and on behalf of the Corporation to execute Articles
of Amendment to effectuate such amendment of the Restated Articles of
Organization of the Corporation, a copy of which is attached hereto (the
"Articles of Amendment"), and to file the Articles of Amendment with the
State Secretary of the Commonwealth of Massachusetts; and in furtherance
thereof that the President, any Vice President, Treasurer, Clerk, and
Assistant Clerk of the Corporation or any one or more of them be and hereby
are authorized in the name and on behalf of the Corporation to execute and
deliver any and all documents and instruments and to take any and all
action as they or any one or more of them may deem necessary or appropriate
to effectuate such amendment of the Restated Articles of Organization of
the Corporation.
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which
event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 9th day of February, in the year 1987.
/s/ John R. Bertucci President
- ----------------------------------------------------------------
John R. Bertucci
/s/ Richard S. Chute Clerk
- ----------------------------------------------------------------
Richard S. Chute
<PAGE> 24
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee in
the amount of $75.00 having been paid, said articles are deemed to have been
filed with me this 11th day of February, 1987.
/s/ Michael J. Connolly
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO: Richard S. Chute, Esq.
Hill & Barlow
----------------------------------
225 Franklin Street
Boston, MA 02110
----------------------------------
----------------------------------
Telephone (617) 423-6200
-------------------------
Copy Mailed
[SEAL OF WILLIAM FRANCIS GALVIN,
SECRETARY OF THE COMMONWEALTH
DATED 2/20/96]
<PAGE> 25
The Commonwealth of Massachusetts
WILLIAM FRANCIS GALVIN
- ------------ Secretary of the Commonwealth
Examiner ONE ASHBURTON PLACE
BOSTON, MASS. 02108
FEDERAL IDENTIFICATION NO. 004-2277512
ARTICLES OF
MERGER OF PARENT AND SUBSIDIARY CORPORATIONS
PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 82
The fee for filing this certificate is prescribed by
General Laws, Chapter 156B, Section 114.
Make check payable to the Commonwealth of Massachusetts.
* * * *
We, John R. Bertucci and Richard S. Chute, President* and Clerk* of
MKS Instruments, Inc.
- -------------------------------------------------------------------------------
name of corporation
organized under the laws of Massachusetts and herein called the parent
corporation, do hereby certify as follows:
1. That the subsidiary corporation(s) to be merged into the parent
corporations are/is as follows:
State of Date of
Name Organization Organization
UTI Instruments Company CA 09/26/73
2. That the parent corporation owns at least ninety per cent of the
outstanding shares of each class of the stock of each subsidiary corporation to
be merged into the parent corporation.
3. That in the case of each of the above-named corporations the laws of
the state of its organization, if other than Massachusetts, permit the merger
herein provided for and that all action required under the laws of each such
state in connection with this merger has been duly taken. (If all the
corporations are organized under the laws of Massachusetts and if General Laws,
Chapter 156B is applicable to them, then Paragraph 3 may be deleted.)
* Delete the inapplicable words. In case the parent corporation is organized
under the laws of a state other than Massachusetts these articles are to be
signed by officers having corresponding powers and duties.
<PAGE> 26
4. That at a meeting of the directors of the parent corporation the
following vote, pursuant to subsection (a) of General Laws, Chapter 156B,
Section 82, was duly adopted:
VOTED: That the Corporation merge into itself UTI
----- Instruments Company, a California corporation,
with the Corporation surviving the merger
(the "Merger"), in accordance with the
provisions of Section 82 of Chapter 156B of the
Massachusetts General Laws.
FURTHER
VOTED: That the effective date of the Merger shall be
------- the date of filing of appropriate Articles of
Merger with the Secretary of State of Massachusetts.
FURTHER
VOTED: That any officer of the Corporation, acting singly,
------- be and he hereby is, authorized and directed to
take any further actions, and to execute and deliver
any further documents and certificates, which may
be necessary or appropriate to effectuate the Merger
described herein.
<PAGE> 27
5. The effective date of the merger as specified in the vote set out under
Paragraph 4 is
IN WITNESS WHEREOF and under the penalties of perjury we have hereto signed
our names this 17th day of November, 1995.
/s/ John R. Bertucci
------------------------ President*
John R. Bertucci
/s/ Richard S. Chute
------------------------ Clerk*
Richard S. Chute
* Delete the inapplicable words. In case the parent corporation is organized
under the laws of a state other than Massachusetts these articles are to be
signed by officers having corresponding powers and duties.
<PAGE> 28
COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS
(General Laws, Chapter 156B, Section 82)
I hereby approve the within articles of merger of parent and subsidiary
corporations and, the filing fee in the amount of $250 having been paid, said
articles are deemed to have been filed with me this 17th day of November, 1995.
/s/ William Francis Galvin
William Francis Galvin
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photo Copy of Merger To Be Sent
TO: Terrence W. Mahoney, Esq.
Hill & Barlow
------------------------------
One International Place
------------------------------
Boston, MA 02110
------------------------------
Telephone 617-428-3000
--------------------
<PAGE> 29
FEDERAL IDENTIFICATION
NO. 04-2277512
----------
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, John R. Bertucci , *President,
----------------------------------------------------------------
and Richard S. Chute , *Clerk,
--------------------------------------------------------------------
of MKS Instruments, Inc. ,
-----------------------------------------------------------------------------
(Exact name of corporation)
located at Six Shattuck Road, Andover, MA 01810
---------------------------------------------------------------------,
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered: 3
3
- --------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
January 9 , 1998 by vote of:
- ---------- --,
2,454 shares of Class A Common of 2,454 shares outstanding,
- -------- ------------------------------ -------
(type, class & series, if any)
3,250 shares of Class B Common of 3,250 shares outstanding,
- -------- ------------------------------ -------
(type, class & series, if any)
and
shares of of shares outstanding,
- -------- ------------------------------ -------
(type, class & series, if any)
(1)**being all and of each type, class or series of stock whose rights are
adversely affected thereby:
*Delete the inapplicable words. **Delete the inapplicable clause.
(1)For amendments adopted pursuant to Chapter 156B, Section 70.
(2)For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more
than one article may be made on a single sheet so long as each article
requiring each addition is clearly indicated.
<PAGE> 30
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS | WITH PAR VALUE STOCKS
- -----------------------------------|--------------------------------------------
TYPE | NUMBER OF SHARES | TYPE | NUMBER OF SHARES | PAR VALUE
- ------------|----------------------|------------|-------------------|-----------
Common: | Class A 10,000 | Common: | None | None
- ------------|----------------------|------------|-------------------|-----------
| Class B 10,000 | | None | None
- ------------|----------------------|------------|-------------------|-----------
Preferred: | None | Preferred: | None | None
- ------------|----------------------|------------|-------------------|-----------
| | | |
- --------------------------------------------------------------------------------
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS | WITH PAR VALUE STOCKS
- -----------------------------------|--------------------------------------------
TYPE | NUMBER OF SHARES | TYPE | NUMBER OF SHARES | PAR VALUE
- ------------|----------------------|------------|-------------------|-----------
Common: | Class A 6,000,000 | Common: | None | None
- ------------|----------------------|------------|-------------------|-----------
| Class B 10,000,000 | | None | None
- ------------|----------------------|------------|-------------------|-----------
Preferred: | None | Preferred: | None | None
- ------------|----------------------|------------|-------------------|-----------
| | | |
- --------------------------------------------------------------------------------
</TABLE>
VOTED: To amend the Restated Articles of Organization, as amended,
to increase the authorized Class A Common Stock, no par
value per share, of the Corporation from 10,000 shares to
6,000,000 shares and to increase the authorized Class B
Common Stock, no par value per share of the Corporation from
10,000 shares to 10,000,000 shares, so that after the
effective date of such amendment the total authorized
capital stock of the Corporation shall consist of 6,000,000
shares of Class A Common Stock, no par value per share, and
10,000,000 shares of Class B Common Stock, no par value per
share.
<PAGE> 31
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: _____________________.
SIGNED UNDER THE PENALTIES OF PERJURY, this 14th day of January , 1998,
-------- -------------
/s/ John R. Bertucci , *President
- --------------------------------------------------------------------
/s/ Richard S. Chute , *Clerk
- ------------------------------------------------------------------------
*Delete the inapplicable words.
<PAGE> 32
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
=====================================================
I hereby approve the within Articles of Amendment and,
the filing fee in the amount of $15,980 having been
paid, said articles are deemed to have been filed
with me this 14th day of January 1998.
Effective date: January 14, 1998
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Richard N. Kimball, Esq.
----------------------------------------------
Hale and Dorr LLP
60 State Street
----------------------------------------------
Boston, MA 02109
----------------------------------------------
Tel: (617) 526-6000
<PAGE> 1
Exhibit 3.2
FORM CD-74-10M-10-79-152328
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY FEDERAL IDENTIFICATION
Secretary of State No. 04-2277512
ONE ASHBURTON PLACE, BOSTON, MASS: 02108
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles or organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the
Commonwealth of Massachusetts.
----------------
We, John R. Bertucci , President and
Richard S. Chute , Clerk
MKS Instruments, Inc.
- --------------------------------------------------------------------------------
(Name of Corporation)
located at SIX SHATTUCK ROAD, ANDOVER, MASSACHUSETTS 01810 do hereby certify
that the following amendment and restatement of the articles or organization of
the corporation was duly adopted by a vote of the stockholders on January 9,
1998, by vote of _____ shares of ______________ out of _____ shares outstanding,
(Class of Stock)
2454 shares of CLASS A COMMON out of 2454 shares outstanding, and
(Class of Stock)
3250 shares of CLASS B COMMON out of 3250 shares outstanding,
(Class of Stock)
being at least two-thirds of each class of stock outstanding and entitled to
vote and of each class or series of stock adversely affected thereby:-
1. The name by which the corporation shall be known is: --
MKS Instruments, Inc.
2. The purposes for which the corporation is formed are as follows: --
See Continuation Sheets 2A and 2B.
C [ ]
P [ ]
M [ ]
RA [ ]
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one article may be continued on a
single sheet so long as each article requiring each such addition
is clearly indicated.
<PAGE> 2
CONTINUATION SHEET 2A
2. THE PURPOSES FOR WHICH THE CORPORATION IS FORMED ARE AS FOLLOWS:
To design, manufacture, sell, lease and license instruments of all kinds,
including electromechanical, electronic and mechanical gauges for the
measurement of pressure, temperature, acceleration, flow and level of liquids
and gases; to design, manufacture, sell, lease and license control systems
incorporating measuring devices, and control systems separate from measuring
devices, for the control of production processes and operations of all kinds; to
design, manufacture, sell, lease and license instrumentation for military use;
to design, manufacture, sell, lease and license instrumentation for use in
research laboratories, in industry, in educational institutions, for medical
purposes and for use elsewhere and for other purposes; and in general to design,
manufacture, sell, lease and license electro-mechanical, electronic and
mechanical devices of all kinds.
To buy and sell at wholesale and retail, or otherwise, to manufacture,
produce, adapt, repair, dispose of, export, import and in any other manner to
deal in goods, wares, merchandise, articles and things of manufacture or
otherwise of all materials, supplies and other articles and things necessary or
convenient for use in connection with any of said businesses or any other
business or any part thereof; and to manufacture, repair, purchase, sell, lease,
dispose of and otherwise deal in machinery, tools, and appliances which are or
may be used in connection with the purchase, sale, production, adaption, repair,
disposition of, export, import or other dealings in said goods, wares,
merchandise, articles and things.
To purchase, lease or otherwise acquire as a going concern or otherwise all
or any part of the franchises, rights, property, assets, business, good will or
capital stock of any persons, firm, corporation, trust or association engaged in
whole or in part in any business in which this corporation is empowered to
engage, or in any other business; to pay for the same in whole or in part in
cash, stock, bonds, notes, securities or other evidence of indebtedness of this
corporation or in any other manner; to assume as part of the consideration or
otherwise any and all debts, contracts or liabilities, matured or unmatured,
fixed or contingent, of any such person, firm or corporation, trust or
association; and to operate, manage, develop and generally to carry on the whole
or any part of any such business under any name or names which it may select or
designate.
<PAGE> 3
CONTINUATION SHEET 2B
To construct, lease, hire, purchase or otherwise acquire and hold or
maintain, and to rebuild, enlarge, improve, furnish, equip, alter, operate and
dispose of warehouses, factories, offices and other buildings, real estate,
structures or parts thereof, and appliances for the preparation, manufacture,
purchase, sale and distribution of goods, wares, merchandise, things, and
articles of all kinds.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of,
mortgage, or otherwise dispose of franchises, letters patent of the United
States or of any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, systems, copyrights, trade-marks and
trade names, relating to, or useful in connection with, any business of this
corporation.
To buy or otherwise acquire, to sell, assign, pledge, or otherwise dispose
of and deal in stocks, bonds, securities, notes and other obligations of any
person, firm or corporation, including this corporation, organized for or
engaged in similar or cognate purposes; also stocks, bonds, securities, notes,
and other obligations of any person, firm, or corporation, including this
corporation, which it may be found or deemed necessary, valuable, or convenient
for this corporation to acquire and deal in, in pursuance or furtherance of or
in connection with the businesses herein specified, or any other business.
To borrow money and contract indebtedness for all proper corporate
purposes, to issue bonds, notes, and other evidences of indebtedness, to secure
the same by pledge, mortgage, or lien on all or any part of the property of the
corporation, tangible or intangible; and to assume or guarantee or secure in
like manner or otherwise, the leases, contracts, or other obligations, fixed or
contingent, or the payment of any dividends on any stock or shares or of the
principal or interest on any bonds, notes, or other evidences of indebtedness of
any person, firm, corporation, trust, or association in which this corporation
has a financial interest.
To enter into, make, and perform contracts of every name, nature, and kind
with any person, firm, association, or corporation which may be deemed valuable,
expedient, or convenient for this corporation in pursuance of or in furtherance
of or in connection with any of the objects of incorporation of this corporation
or in connection with any of the businesses or purposes herein specified.
The enumeration of specific powers herein shall not be construed as
limiting or restricting in any way the general powers herein set forth, but
nothing herein contained shall be construed as authorizing the business of
banking.
<PAGE> 4
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue as follows:
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ---------
Preferred 2,000,000 $.01
Common 50,000,000
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
See Continuation Sheets 4A, 4B and 4C
*5. The restrictions, if any, imposed by the articles of organization upon the
transfer of shares of stock of any class are as follows:
None.
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Continuation Sheets 6A, 6B, 6C, 6D, 6E, 6F and 6G
* If there are no such provisions, state "None".
<PAGE> 5
CONTINUATION SHEET 4A
The total number of shares of all classes of stock which the corporation
shall have authority to issue is 52,000,000 shares, consisting of (i) 50,000,000
shares of Common Stock, no par value per share ("Common Stock"), and (ii)
2,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"). Upon the filing of the corporation's Amended and Restated Articles of
Organization on February __, 1998 (the "Mandatory Conversion Date") each share
of Class A Common Stock, no par value per share, and each share of Class B
Common Stock, no par value per share (together with the Class A Common Stock,
the "Class Common Stock"), shall be converted into one share of Common Stock, no
par value per share. All holders of record of shares of Class Common Stock shall
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Class Common Stock
pursuant to this provision. Such notice need not be given in advance of the
occurrence of the Mandatory Conversion Date. Such notice shall be sent by first
class or registered mail, postage prepaid, to each record holder of Class Common
Stock at such holder's address last shown on the records of the transfer agent
for the Class Common Stock (or the records of the corporation, if it serves as
its own transfer agent). Upon receipt of such notice, each holder of shares of
Class Common Stock shall surrender his or its certificate or certificates for
all such shares to the corporation at the place designated in such notice, and
shall thereafter receive certificates for the number of shares of Common Stock
equal to the number of shares of Class Common Stock represented by such
certificates. On the Mandatory Conversion Date, all rights with respect to the
Class Common Stock so converted, including the rights, if any, to receive
notices and vote (other than as a holder of Common Stock) will terminate, except
only the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such Class Common Stock has been converted, and payment
of any declared but unpaid dividends thereon. If so required by the corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Class
Common Stock, the corporation shall cause to be issued and delivered to such
holder, or on his or its written order, a certificate or certificates for the
number of full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof.
All certificates evidencing shares of Class Common Stock which are required
to be surrendered for conversion in accordance with the provisions hereof shall,
from and after the Mandatory Conversion Date, be deemed to have been retired and
cancelled and the shares of Class Common Stock represented thereby converted
into Common Stock for all purposes, notwithstanding the failure of the holder or
holders thereof to surrender such certificates on or prior to such date.
<PAGE> 6
CONTINUATION SHEET 4B
The following is a statement of the designation and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
<PAGE> 7
CONTINUATION SHEET 4C
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by Chapter 156B of the Massachusetts General Laws. Without
limiting the generality of the foregoing, the resolutions providing for issuance
of any series of Preferred Stock may provide that such series shall be superior
or rank equally or be junior to the Preferred Stock of any other series to the
extent permitted by law. No vote of the holders of the Preferred Stock or Common
Stock shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the Articles
of Organization, the right to have such vote being expressly waived by all
present and future holders of the capital stock of the corporation.
<PAGE> 8
CONTINUATION SHEET 6A
6A. LIMITATION OF DIRECTOR LIABILITY
Except to the extent that Chapter 156B of the Massachusetts General Laws
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
6B. INDEMNIFICATION
1. ACTIONS SUITS AND PROCEEDINGS. The corporation shall indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was, or has agreed to become, a director or officer of the corporation, or is or
was serving, or has agreed to serve, at the request of the corporation, as a
director or officer of, or in a similar capacity with, another organization or
in any capacity with respect to any employee benefit plan of the corporation
(all such persons being referred to hereafter as an "Indemnitee"), or by reason
of any action alleged to have been taken or omitted in such capacity, against
all expenses (including attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, unless the Indemnitee shall be finally adjudicated in such action,
suit or proceeding not to have acted in good faith in the reasonable belief that
his action was in the best interests of the corporation or, to the extent such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
Notwithstanding anything to the contrary in this Article, except as set forth in
Section 6 below, the corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
the Indemnitee unless the initiation thereof was approved by the Board of
Directors of the
<PAGE> 9
CONTINUATION SHEET 6B
corporation. Notwithstanding anything to the contrary in this Article, the
corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the corporation
makes any indemnification payments to an Indemnitee and the Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the corporation to the extent
of such insurance reimbursement.
2. SETTLEMENTS AND COMPROMISE. The right to indemnification conferred in
this Article shall include the right to be paid by the corporation for amounts
paid in settlement or compromise of any such action, suit or proceeding and any
appeal therefrom, and all expenses (including attorneys' fees) incurred in
connection with such settlement or compromise, pursuant to a consent decree or
otherwise, unless and to the extent it is determined pursuant to Section 5 below
that the Indemnitee did not act in good faith in the reasonable belief that his
action was in the best interests of the corporation or, to the extent such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
3. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the corporation is so
notified, the corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
corporation to the Indemnitee of its election so to assume such defense, the
corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 3. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
<PAGE> 10
CONTINUATION SHEET 6C
between the corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the corporation, except
as otherwise expressly provided by this Article. The corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
4. ADVANCE OF EXPENSES. Subject to the provisions of Section 5 below, in
the event that the corporation does not assume the defense pursuant to Section 3
of this Article of any action, suit, proceeding or investigation of which the
corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the corporation in advance of the final disposition of such matter; PROVIDED,
HOWEVER, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
5. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2 or 4 of this Article, the
Indemnitee shall submit to the corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the corporation of the written request
of the Indemnitee, unless the corporation determines within such 60-day period
that the Indemnitee did not meet the applicable standard of conduct set forth in
Section 1 or 2, as the case may be. Such determination shall be made in each
instance by (a) a majority vote of a quorum of the directors of the corporation,
(b) a majority vote of a
<PAGE> 11
CONTINUATION SHEET 6D
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the corporation), or (d) a court of competent
jurisdiction.
6. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 5. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the corporation. Neither the failure of the corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
corporation pursuant to Section 5 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the corporation.
7. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of Chapter 156B of the Massachusetts
General Laws or any other applicable laws shall affect or diminish in any way
the rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
8. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
directors or otherwise, both
<PAGE> 12
CONTINUATION SHEET 6E
as to action in his official capacity and as to action in any other capacity
while holding office for the corporation, and shall continue as to an Indemnitee
who has ceased to be a director or officer, and shall inure to the benefit of
the estate, heirs, executors and administrators of the Indemnitee. Nothing
contained in this Article shall be deemed to prohibit, and the corporation is
specifically authorized to enter into, agreement with officers and directors
providing indemnification rights and procedures different from those set forth
in this Article. In addition, the corporation may, to the extent authorized from
time to time by its Board of Directors, grant indemnification rights to other
employees or agents of the corporation or other persons serving the corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
9. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement or compromise actually and reasonably incurred by him or on
his behalf in connection with any action, suit, proceeding or investigation and
any appeal therefrom but not, however, for the total amount thereof, the
corporation shall nevertheless indemnify the Indemnitee for the portion of such
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement or compromise to which the Indemnitee is entitled.
10. INSURANCE. The corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another organization or employee benefit plan against any
expense, liability or loss incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under Chapter 156B
of the Massachusetts General Laws.
11. MERGER OR CONSOLIDATION. If the corporation is merged into or
consolidated with another corporation and the corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
<PAGE> 13
CONTINUATION SHEET 6F
12. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement or
compromise in connection with any action, suit, proceeding or investigation,
whether civil, criminal or administrative, including an action by or in the
right of the corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
13. SUBSEQUENT LEGISLATION. If the Massachusetts General Laws are amended
after adoption of this Article to expand further the indemnification permitted
to Indemnitees, then the corporation shall indemnify such persons to the fullest
extent permitted by the Massachusetts General Laws, as so amended.
6C. OTHER PROVISIONS
(a) The directors may make, amend, or repeal the By-Laws in whole or in
part, except with respect to any provision of such By-Laws which by law or these
Articles of Organization or the By-Laws requires action by the stockholders.
(b) Meetings of the stockholders of the corporation may be held anywhere
in the United States.
(c) The corporation shall have the power to be a partner in any business
enterprise which this corporation would have the power to conduct by itself.
(d) The corporation, by vote of at least sixty-six and two-thirds (66 2/3)
of the stock outstanding and entitled to vote thereon (or if there are two or
more classes of stock entitled to vote as separate classes, then by vote of at
least sixty-six and two-thirds (66 2/3) of each such class of stock
outstanding), may (i) authorize any amendment to its Articles of Organization
pursuant to Section 71 of Chapter 156B of the Massachusetts General Laws, as
amended from time to time, (ii) authorize the sale, lease or exchange of all or
substantially all of its property and assets, including its goodwill, pursuant
to
<PAGE> 14
CONTINUATION SHEET 6G
Section 75 of Chapter 156B of the Massachusetts General Laws, as amended from
time to time, and (iii) approve an agreement of merger or consolidation pursuant
to Section 78 of Chapter 156B of the Massachusetts General Laws, as amended from
time to time; PROVIDED, however, that if any such (i) amendment to its Articles
of Organization, (ii) sale, lease, or exchange or (iii) merger or consolidation
(each as more fully described above) has been approved by a majority of the
Board of Directors of the corporation, then the corporation may authorize or
approve such action by vote of a majority of the stock outstanding and entitled
to vote thereon (or if there are two or more classes of stock entitled to vote
as separate classes, then by vote of a majority of each such class outstanding).
(e) Chapter 110F of the Massachusetts General Laws, as it may be amended
from time to time, shall not apply to the corporation.
<PAGE> 15
* We further certify that the foregoing restated articles of organization effect
no amendments to the articles of organization of the corporation as heretofore
amended, except amendments to the following articles 3, 4 and 6.
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
Article 3. Is amended to: (i) eliminate authorized shares of Class A Common
Stock, no par value per share ("Class A Common Stock"), and Class
B Common Stock, no par value per share ("Class B Common Stock");
(ii) increase the authorized number of shares of Common Stock, no
par value per share ("Common Stock") to 50,000,000 shares and;
(iii) authorize issuance of up to 2,000,000 shares of Preferred
Stock.
Article 4. Is amended to: (i) delete the paragraph relating to rights and
preferences of Class A Common Stock and Class B Common Stock ;
(ii) provide that each outstanding share of Class A Common Stock
and Class B Common Stock has been converted into one share of
Common Stock; (iii) provide a statement of the designation and
the powers, privileges and rights, and the qualification,
limitations or restrictions thereof in respect of each class of
capital stock of the corporation; and (iv) authorize the Board of
Directors to issue Preferred Stock in one or more series and
create any such series of Preferred Stock without requiring a
vote of the holders of Preferred Stock or Common Stock as a
prerequisite to the issuance of any shares of any such Preferred
Stock and restate Article 4 in its entirety.
Article 6. Is amended to (i) delete the provision relating to limitation of
director liability and replace with Section 6A, "Limitation of
Director Liability;" (ii) add Section 6B "Indemnification;" and
(iii) add Section 6C "Other Provisions."
<PAGE> 16
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this day of
in the year 1998.
______________________________________________________ President/Vice President
______________________________________________________ Clerk/Assistant Clerk
<PAGE> 1
Exhibit 3.4
AMENDED AND RESTATED
BY-LAWS
OF
MKS INSTRUMENTS, INC.
<PAGE> 2
AMENDED AND RESTATED
BY-LAWS
OF
MKS INSTRUMENTS, INC.
ARTICLE I
NAME, LOCATION, CORPORATE SEAL, AND FISCAL YEAR
Section 1. NAME. The name of the corporation is MKS Instruments, Inc.
Section 2. LOCATION. The principal office of the corporation in
Massachusetts shall be located at the place set forth on the form of the
Articles of Organization or on a certificate filed with the State Secretary. The
Board of Directors may change the location of the principal office in
Massachusetts and establish such other offices as it deems appropriate.
Section 3. CORPORATE SEAL. The Board of Directors may adopt and alter
the form of seal of the corporation.
Section 4. FISCAL YEAR. Except as otherwise determined from time to
time by the Board of Directors, the fiscal year of the corporation shall in each
year end on December 31.
ARTICLE II
STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of stockholders shall be
held within six months after the end of each fiscal year of the corporation on a
date to be fixed by the Board of Directors or the President (which date shall
not be a legal
<PAGE> 3
holiday in the place where the meeting is to be held) at the time and place to
be fixed by the Board of Directors or the President and stated in the notice of
the meeting. The purposes for which the annual meeting is to be held, in
addition to those prescribed by law, by the Articles of Organization or by these
By-Laws, may be specified by the Board of Directors or the President. If no
annual meeting is held in accordance with the foregoing provisions, a special
meeting may be held in lieu of the annual meeting, and any action taken at that
special meeting shall have the same effect as if it had been taken at the annual
meeting, and in such case all references in these By-Laws to the annual meeting
of stockholders shall be deemed to refer to such special meeting.
Section 2. BUSINESS AT ANNUAL MEETINGS. Except as otherwise provided by
law, at an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must give timely notice thereof in writing to the
Clerk of the corporation. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than 60 days nor more than 90 days prior to the meeting; PROVIDED;
HOWEVER, that in the event that
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<PAGE> 4
less than 40 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the Clerk shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. No later than the tenth
day following the date of receipt of a stockholder notice pursuant to this
Section 2, the Chairman of the Board of Directors of the corporation shall, if
the facts warrant, determine and notify in writing the stockholder submitting
such notice that such notice was not made in accordance with the time limits
and/or other procedures prescribed by these By-Laws. If no such notification is
mailed to such stockholder within such ten-day period, such stockholder notice
containing a matter of business shall be deemed to have been made in accordance
with the provisions of this Section 2. Notwithstanding anything in these By-Laws
to the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2.
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<PAGE> 5
Section 3. SPECIAL MEETINGS. Special meetings of stockholders may be
called by the President or by the Board of Directors. In addition, upon written
application of one or more stockholders who are entitled to vote and who hold at
least the Required Percentage (as defined below) of the capital stock entitled
to vote at the meeting, special meetings shall be called by the Clerk, or in
case of the death, absence, incapacity or refusal of the Clerk, by any other
officer.
For purposes of this Section 3, the "Required Percentage" shall be (i)
10% at any time at which the corporation shall not have a class of voting stock
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and (ii) 40% at any time at which the corporation shall have a class of
voting stock registered under the Exchange Act.
Any request for a call of a special meeting of stockholders (a "Call")
by the holders of the Required Percentage of the capital stock entitled to vote
at the meeting (the "Voting Stock") shall be governed by and subject to the
following:
(a) Any stockholder of record seeking to solicit requests for
a Call pursuant to this Section 3 shall so notify the corporation in writing to
the Clerk of the corporation and such written notification shall set forth the
reason or reasons for the Call and the purpose or purposes of such special
meeting.
(b) No solicitation of stockholder requests for a Call (a
"Call Solicitation") may be commenced (i) before the Call Request Record Date
(as defined in paragraph (c) of this Section 3) or (ii) during the period of 90
days following the most recent meeting of the stockholders of the corporation.
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<PAGE> 6
(c) In order that the corporation may determine the
stockholders entitled to request a Call, the Board of Directors of the
corporation shall fix a record date (the "Call Request Record Date"). Any
stockholder of record seeking to solicit stockholder requests for a Call shall,
with delivery to the corporation of the written information specified in
paragraph (a), request in writing that the Board of Directors fix the Call
Request Record Date. The Board of Directors shall, within 10 days after the date
on which such request is received, adopt a resolution fixing the Call Request
Record Date and such Call Request Record Date shall be not more than 10 days
after the date upon which such resolution is adopted by the Board of Directors.
(d) All requests for a Call and revocations thereof shall be
delivered to the corporation no later than the 30th day (the "Delivery Date")
after the Call Request Record Date.
(e) Any stockholder may revoke a prior request for a Call or
opposition to a Call by an instrument in writing delivered prior to the Delivery
Date.
(f) Promptly after the Delivery Date, requests for a Call and
revocations thereof shall be counted and verified by an independent party
selected by the corporation.
(g) If, in response to any Call Solicitation, the holders of
record of the Required Percentage of the Voting Stock as of the Call Request
Record Date submit valid and unrevoked requests for a Call no later than the
Delivery Date, the Board of Directors of the corporation shall fix a record date
pursuant to Section 6 of Article V hereof and a meeting date for the special
meeting; PROVIDED that the date to be fixed
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<PAGE> 7
for such meeting shall be no earlier than 60 days or later than 90 days after
the Delivery Date; and PROVIDED FURTHER that the Board of Directors shall not be
obligated to fix a meeting date or to hold any meeting of stockholders within 60
days of the next scheduled meeting of the stockholders of the corporation.
(h) In the absence of a quorum at any special meeting called
pursuant to a Call Solicitation, such special meeting may be postponed or
adjourned from time to time only by the officer of the corporation entitled to
preside at such meeting.
Section 4. TIME AND PLACE OF MEETINGS. All meetings of stockholders
shall be held at a suitable time at the principal office of the corporation or
at such other suitable place within Massachusetts or, to the extent permitted by
the Articles of Organization, elsewhere in the United States, as shall be
selected by the President or the Board of Directors in the case of an annual
meeting and, in the case of a special meeting, by the President, the Board of
Directors or the applying stockholders calling such meeting.
Section 5. NOTICE OF MEETINGS. A written notice of each meeting of
stockholders containing the place, date and hour, and the purposes for which it
is to be held, shall be given by the Clerk or, in the case of the death,
absence, incapacity, or refusal of the Clerk, by any other officer, at least
seven days before the date of the meeting, to each stockholder entitled to vote
at the meeting and to each stockholder who is otherwise entitled by law or by
the Articles of Organization or these By-Laws to such notice, by leaving such
notice with him or at his residence or usual place of
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<PAGE> 8
business or by mailing it postage prepaid and addressed to each stockholder at
his address as it shall appear in the stock and transfer records of the
corporation. Notice of a meeting need not be given to a stockholder if a written
waiver of notice, executed before or after the meeting by such stockholder or
his attorney thereunto authorized, is filed with the records of the meeting.
Section 6. QUORUM. The holder or holders of a majority in interest of
all stock issued, outstanding, and entitled to vote at a meeting, present in
person or represented by proxy, shall constitute a quorum, but the majority of a
lesser interest so present may, from time to time, postpone to a new time or
place any meeting and the postponed meeting may be held without further notice.
Section 7. VOTING AND PROXIES. Each stockholder entitled to vote shall
have one vote, to be exercised in person or by proxy, for each share of stock
held by him, and a proportionate vote for a fractional share. When a quorum is
present at any meeting the vote of the holders of a majority in interest of the
stock represented which is entitled to vote and voting shall decide any matter
properly brought before the meeting, except in the case of elections by
stockholders, which shall be decided by a plurality of the votes cast by
stockholders entitled to vote at the election, and except when a larger vote is
required by law, the articles of organization or these by-laws. No vote need be
taken by ballot unless so requested by any stockholder entitled to vote thereon.
Proxies must be in writing and filed with the clerk of the meeting before being
voted. The person named in a proxy may vote at any adjournment of the meeting
for which the proxy was given, but the proxy shall
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<PAGE> 9
terminate after final adjournment of the meeting. No proxy dated more than six
months before the meeting named in it shall be valid. A proxy purporting to be
executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by any one of them unless at or
prior to the exercise of the proxy the corporation receives a specific notice to
the contrary from any one of them. Inspectors of election, if any, shall be
appointed by the Board of Directors or, in the absence of such appointment, by
the officer presiding at any meeting of the stockholders.
Section 8. ACTION BY CONSENT. Any action required or permitted to be
taken by stockholders may be taken without a meeting if all stockholders
entitled to vote on the matter consent in writing to the action and such written
consents are filed with the records of the meetings of stockholders. Such
consents shall be treated for all purposes as a vote at a meeting.
ARTICLE III
THE BOARD OF DIRECTORS
Section 1. NUMBER, ELECTION AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be determined by vote
of the stockholders or the Board of Directors, but shall consist of not less
than three directors (except that whenever there shall be only two stockholders
the number of directors shall be not less than two and whenever there shall be
only one stockholder
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<PAGE> 10
or prior to the issuance of any stock, there shall be at least one director).
The number of directors may be decreased at any time and from time to time
either by the stockholders or by a majority of the directors then in office, but
only to eliminate vacancies existing by reason of the death, resignation,
removal or expiration of the term of one or more directors. The directors shall
be elected at the annual meeting of stockholders by such stockholders as have
the right to vote on such election. No director need be a stockholder of the
corporation.
Notwithstanding the foregoing provisions, if the corporation is a
"registered corporation" within the meaning of Section 50A of the Massachusetts
Business Corporation Law, as amended, and has not elected, pursuant to paragraph
(b) of such Section 50A, to be exempt from the provisions of paragraph (a) of
such Section 50A, then:
(i) In accordance with paragraph (d), clause (iv) of such
Section 50A, the number of directors shall be fixed only by vote of the Board of
Directors.
(ii) In accordance with paragraph (a) of such Section 50A,
the directors of the corporation shall be classified with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible; the term of office of those of the first class ("Class I
Directors") to continue until the first annual meeting following the date the
corporation becomes subject to such paragraph (a) and until their successors are
duly elected and qualified; the term of office of those of the second class
("Class II Directors") to continue until the second annual meeting following the
date the corporation becomes subject to such
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<PAGE> 11
paragraph (a) and until their successors are duly elected and qualified; and the
term of office of those of the third class ("Class III Directors") to continue
until the third annual meeting following the date the corporation becomes
subject to such paragraph (a) and until their successors are duly elected and
qualified. At each annual meeting of the corporation, the successors to the
class of directors whose term expires at that meeting shall be elected to hold
office for a term continuing until the annual meeting held in the third year
following the year of their election and until their successors are duly elected
and qualified.
Section 2. ENLARGEMENT OF THE BOARD. The number of directors may be
increased at any time and from time to time by a majority of the directors then
in office. Notwithstanding the foregoing provisions, if the directors of the
corporation are classified with respect to the time for which they severally
hold office pursuant to paragraph (a) of Section 50A of the Massachusetts
Business Corporation Law, as it may be amended from time to time, the Board of
Directors may be enlarged only in accordance with the provisions of paragraph
(d) of such Section 50A.
Section 3. TENURE. Except as otherwise provided by law, these By-Laws
or the Articles of Organization, each director shall hold office until the next
annual meeting or stockholders and until his successor is elected and qualified,
or until his earlier death, resignation or removal.
Section 4. VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a majority
of the directors present
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<PAGE> 12
at any meeting of directors at which a quorum is present. Each such successor
shall hold office for the unexpired term of his predecessor and until his
successor is chosen and qualified or until his earlier death, resignation or
removal. Notwithstanding the foregoing provisions, if the directors of the
corporation are classified with respect to the time for which they severally
hold office pursuant to paragraph (a) of Section 50A of the Massachusetts
Business Corporation Law, as it may be amended from time to time, any vacancy in
the Board of Directors, however occurring, shall be filled solely in accordance
with the provisions of paragraph (d) of such Section 50A.
Section 5. RESIGNATION. Any director may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Clerk. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
Section 6. REMOVAL. A director may be removed from office with or
without cause by vote of the holders of a majority of the shares entitled to
vote in the election of directors. However, the directors elected by the holders
of a particular class or series of stock may be removed from office with or
without cause only by vote of the holders of a majority of the outstanding
shares of such class or series. In addition, a director may be removed from
office for cause by vote of a majority of the directors then in office. A
director may be removed for cause only after reasonable notice and opportunity
to be heard before the body proposing to remove him. Notwithstanding the
foregoing provision, if the directors of the corporation are classified with
respect to the time for which they severally hold office pursuant to paragraph
(a) of
- 11 -
<PAGE> 13
Section 50A of the Massachusetts Business Corporation Law, as it may be amended
from time to time, directors may only be removed for cause pursuant to
paragraph (c) of such Section 50A.
Section 7. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the procedures set forth in this Section 7 shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by, or at
the direction of, the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 7. Any such
nomination by a stockholder shall be made pursuant to timely notice in writing
to the Clerk of the corporation. To be timely, a stockholder's notice shall be
delivered to the principal executive offices of the corporation not less than 30
days nor more than 90 days prior to the date of the meeting; PROVIDED, HOWEVER,
that in the event that less than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, timely notice by the
stockholder must be received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made. Such stockholder's notice shall set forth
(a) as to each person whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such person; (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and
- 12 -
<PAGE> 14
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors or is otherwise
required in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including without limitation such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving the notice, (i) the
name and address, as they appear on the corporation's books, of such stockholder
and (ii) the class and number of shares of the corporation which are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Clerk of the corporation that information required
to be set forth in a stockholder's notice of nomination which pertains to the
nominee. No later than the tenth day following the date of receipt of a
stockholder nomination submitted pursuant to this Section 7, the Chairman of the
Board of Directors of the corporation shall, if the facts warrant, determine and
notify in writing the stockholder making such nomination that such nomination
was not made in accordance with the time limits and/or other procedures
prescribed by these By-Laws. If no such notification is mailed to such
stockholder within such ten-day period, such nomination shall be deemed to have
been made in accordance with the provisions of this Section 7.
Section 8. POWERS. The business of the corporation shall be managed by
a Board of Directors, who may exercise all the powers of the corporation except
as otherwise provided by law, by the Articles of Organization or by these
By-Laws. In
- 13 -
<PAGE> 15
the event of a vacancy in the Board of Directors, the remaining Directors,
except as otherwise provided by law, may exercise the powers of the full Board
until the vacancy is filled.
Section 9. CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The
Board of Directors may appoint a Chairman of the Board. If the Board of
Directors appoints a Chairman of the Board, he shall perform such duties and
possess such powers as are assigned to him by the Board of Directors. If the
Board of Directors appoints a Vice-Chairman of the Board, he shall, in the
absence or disability of the Chairman of the Board, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be vested in him
by the Board of Directors.
Section 10. REGULAR MEETINGS. Regular meetings of the Directors may be
held without call or notice at such places, within or without Massachusetts, and
at such times as the Directors may from time to time determine, provided that
any Director who is absent when such determination is made shall be given notice
of the determination. A regular meeting of the Directors may be held without a
call or notice immediately after and at the same place as the annual meeting of
stockholders.
Section 11. SPECIAL MEETINGS. Special meetings of the Directors may be
held at any time and place, within or without Massachusetts, designated in a
call by the Chairman of the Board, President, Treasurer, two or more Directors
or by one Director in the event that there is only a single Director in office.
- 14 -
<PAGE> 16
Section 12. MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or
members of any committee designated by the Board of Directors may participate in
a meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
Section 13. NOTICE OF SPECIAL MEETINGS. Notice of any special meeting
of the Board of Directors shall be given to each director by the Clerk or by the
officer or one of the directors calling the meeting. Notice shall be duly given
to each director (i) by notice given to such director in person or by telephone
at least 24 hours in advance of the meeting, (ii) by sending a telegram or
telex, or by delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. Notice need not be given to any director if a written
waiver of notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any director who attends the meeting without
protesting prior to the meeting or at its commencement the lack of notice to
him. A notice or waiver of notice of a Board of Directors meeting need not
specify the purposes of the meeting. If notice is given in person or by
telephone, an affidavit of the Clerk, officer or director who gives such notice
that the notice has been duly given shall, in the absence of fraud, be
conclusive evidence that such notice was duly given.
- 15 -
<PAGE> 17
Section 14. QUORUM. At any meeting of the Board of Directors, a
majority of the directors then in office shall constitute a quorum. Less than a
quorum may adjourn any meeting from time to time without further notice.
Section 15. ACTION AT MEETING. At any meeting of the Board of Directors
at which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, by
the Articles of Organization or by these By-Laws.
Section 16. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all of the directors consent to the action in writing and such consents are
filed with the records of the meetings of the Board of Directors. Such consents
shall be treated for all purposes as a vote at a meeting.
Section 17. COMMITTEES. The Board of Directors may, by vote of a
majority of the directors then in office, elect from their number an executive
committee or other committees and may by like vote delegate to committees so
elected some or all of their powers to the extent permitted by law. Except as
the Board of Directors may otherwise determine, any such committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided by these By-Laws for the directors.
The Board of Directors shall have the power at any time to fill vacancies in any
such committee, to change its membership or to discharge the committee.
- 16 -
<PAGE> 18
Section 18. COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
OFFICERS
Section 1. DESIGNATION AND QUALIFICATION. The officers of the
corporation shall consist of a President, a Treasurer, a Clerk, and such other
officers including one or more Vice Presidents, Assistant Treasurers and
Assistant Clerks as the Board of Directors may elect. No officer need be a
stockholder or a director. The Clerk shall be a resident of The Commonwealth of
Massachusetts unless the corporation has a resident agent appointed to accept
service of process. A person may hold more than one office at the same time
provided that the President and Clerk may not be the same person except when
there is only one stockholder. Any officer may be required by the Board of
Directors to give bond for the faithful performance of his duties to the
corporation in such amount and with such sureties as the Board of Directors may
determine.
Section 2. ELECTION AND TERM. The President, Treasurer and Clerk shall
be elected annually by the Board of Directors at the annual meeting of the Board
of Directors and shall hold office until the next annual meeting of the Board of
Directors and until their respective successors are chosen and qualified. All
other officers may
- 17 -
<PAGE> 19
be elected by the Board of Directors at any time and shall hold office for such
term as the Board of Directors determines.
Section 3. PRESIDENT. The President shall be the chief executive
officer of the corporation, except as the Board of Directors may otherwise
provide, and shall have general supervision and control of the business of the
corporation subject to the direction of the Board of Directors. The President
shall also have such other powers and duties as the Board of Directors may
decide. It shall be his duty, and he shall have the power, to see that all
orders and resolutions of the directors are carried into effect. Unless the
Board of Directors provides otherwise, the President or his designee shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. Unless otherwise directed by the Board of Directors, the President
may on behalf of the corporation vote or consent to any action with respect to
or in connection with any interest that the corporation may hold or have in any
other corporation or in any partnership, joint venture, association, trust,
proprietorship, business entity or common undertaking whatsoever, and may
appoint any other person or persons to act as proxy or attorney-in-fact for the
corporation, with or without power of substitution. The Board of Directors may
from time to time confer like powers upon any other officer.
Section 4. VICE PRESIDENT. The Vice President or Vice Presidents, if
any, shall have such powers and perform such duties as may be assigned to them
by the Board of Directors or the President. In the absence of the President or
in the event of his inability to act, the Vice President, if any, or, if there
is more than one Vice President,
- 18 -
<PAGE> 20
the First Vice President, or, if no First Vice President has been designated,
the Vice President senior in office, shall have and may exercise all the powers
and duties of the President.
Section 5. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall
have, subject to the direction of the Board of Directors, general charge of the
financial affairs of the corporation and shall keep full and accurate records
thereof, which shall always be open to the inspection of the President or of any
director. He shall render to the President or to the Board of Directors,
whenever either may require it, a statement of the accounts of his transactions
as Treasurer and of the financial condition of the corporation. The Treasurer
shall perform such duties and have such powers additional to the foregoing as
the directors may designate.
Any Assistant Treasurer shall have such powers and duties as the Board
of Directors may decide.
Section 6. CLERK AND ASSISTANT CLERKS. The Clerk shall record in books
kept for that purpose all votes, consents and the proceedings of all meetings of
the stockholders and of the Board of Directors. Record books of stockholders'
meetings shall be open at all reasonable times to the inspection of any
stockholder. The Clerk shall notify the stockholders and directors of all
meetings in accordance with the By-Laws.
In the absence of the Clerk from any meeting of the stockholders or
from any meeting of the directors, the Assistant Clerk, if one be elected, or,
if there be more than one, the one designated for the purpose by the directors,
and otherwise a
- 19 -
<PAGE> 21
temporary clerk designated by the person presiding at the meeting, shall perform
the duties of the Clerk.
Any Assistant Clerks shall have such other powers and duties as the
Board of Directors may decide.
Section 7. VACANCIES. A vacancy in any office may be filled by the
Board of Directors by the election of a successor to hold office for the
unexpired term of the officer whose place is vacant and until his successor is
chosen and qualified.
Section 8. REMOVAL. All officers may be removed from their respective
offices with or without cause by vote of a majority of the directors then in
office. An officer may be removed for cause only after a reasonable notice and
opportunity to be heard before the Board of Directors.
Section 9. RESIGNATION. Any officer may at any time resign his office
by delivering a written resignation to the Board of Directors, the President or
the Clerk. Such resignation, unless a later date is specified therein, shall
take effect upon receipt by the addressee or at the principal office of the
corporation, and acceptance thereof shall not be necessary to make it effective.
Section 10. SALARIES. Officers of the corporation shall be entitled to
such salaries, compensation or reimbursement as shall be fixed or allowed from
time to time by the Board of Directors.
- 20 -
<PAGE> 22
ARTICLE V
CAPITAL STOCK
Section 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to
a certificate in the form approved by the Board of Directors stating the number,
class, and designation of series, if any, of the shares held by him. Such
certificate shall be signed by the President or a Vice President and by the
Treasurer or an Assistant Treasurer. Such signatures may be facsimiles if the
certificate is countersigned by a transfer agent, or by a registrar of
transfers, other than a director, officer or employee of the corporation. In
case any officer who has signed or whose facsimile signature has been placed on
such certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the time of its issue.
Every certificate for shares of stock subject to any restriction on
transfer pursuant to the Articles of Organization, these By-Laws, or any
agreement to which the corporation is a party shall have the restriction noted
conspicuously on the certificate and shall also set forth on the face or back
either the full text of the restriction or a statement of the existence of such
restriction and a statement that the corporation will furnish a copy to the
holder of such certificate upon written request and without charge. If the
corporation is authorized to issue more than one class or series of stock, every
certificate issued shall set forth on its face or back either the full text of
the preferences, voting powers, qualifications and special and relative rights
of the shares of each class and series authorized to be issued or a statement of
the
- 21 -
<PAGE> 23
existence of such preferences, powers, qualification and rights, and a statement
that the corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.
Section 2. TRANSFER. Shares of stock shall be transferred of record on
the books of the corporation only upon the surrender to the corporation or its
transfer agent of the certificate therefor properly endorsed for transfer (or
accompanied by a written assignment and power of attorney properly executed for
transfer), and only upon compliance with provisions, if any, respecting
restrictions on transfer contained in the Articles of Organization, these
By-Laws or any agreement to which the corporation is a party. The corporation
may require proof of the genuineness of the signature and the capacity of the
party presenting the certificate for transfer.
It shall be the duty of each stockholder to notify the corporation of
his post office address and of his taxpayer identification number.
Section 3. INTERESTS NOT RECOGNIZED. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and shall not be bound to recognize any other claim to or interest
in such share or shares on the part of any other person except as may be
otherwise expressly provided by law.
Section 4. LOST, MUTILATED, OR DESTROYED CERTIFICATES. Subject to
Section 8-405 of the Massachusetts Uniform Commercial Code, as amended from time
to time, the Board of Directors may determine the conditions upon which a new
certificate of stock may be issued in place of any certificate alleged to have
been lost, mutilated or
- 22 -
<PAGE> 24
destroyed. It may, in its discretion, require the owner of a lost, mutilated or
destroyed certificate, or his legal representative, to give a bond, with or
without surety, sufficient in its opinion to indemnify the corporation against
any loss, claim or expense which may arise by reason of the issuance of a new
certificate in place of such lost, mutilated or destroyed stock certificate.
Section 5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint a transfer agent or a registrar, or both, and require all stock
certificates to bear the signature or facsimile thereof of any such transfer
agent or registrar. Unless the Board of Directors shall appoint a transfer
agent, registrar or other officer or officers for the purpose, the Clerk shall
be charged with the duty of keeping, or causing to be kept, accurate records of
all stock outstanding, stock certificates issued, and stock transfers. Subject
to any other rules which may be adopted from time to time by the Board of
Directors, such records may be kept solely in the stock certificate books.
Section 6. SETTING RECORD DATE AND CLOSING TRANSFER RECORDS. The Board
of Directors may fix in advance a time not more than sixty days before (i) the
date of any meeting of the stockholders or (ii) the date for the payment of any
dividend or the making of any distribution to stockholders or (iii) the last day
on which the consent or dissent of stockholders may be effectively expressed for
any purpose, as the record date for determining the stockholders having the
right to notice of, and to vote at such meeting or any adjournment thereof, or
the right to receive such dividend or distribution, or the right to give such
consent or dissent. If a record date is fixed by the Board of Directors, only
stockholders of record on such date shall have
- 23 -
<PAGE> 25
such rights notwithstanding any transfer of stock on the records of the
corporation after such date. Without fixing such record date, the Board of
Directors may close the transfer records of the corporation for all or any part
of such sixty-day period.
If no record date is fixed and the transfer books are not closed, then
the record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and the record date for
determining stockholders for any other purpose shall be at the close of business
on the date on which the Board of Directors acts with respect thereto.
Section 7. ISSUE OF STOCK. Unless otherwise voted by the stockholders,
the whole or any part of any unissued balance of the authorized capital stock of
the corporation or the whole or any part of the capital stock of the corporation
held in its treasury may be issued or disposed of by vote of the Board of
Directors, in such manner, for such consideration and on such terms as the
directors may determine.
ARTICLE VI
INSPECTION OF RECORDS
The original, or attested copies of the Articles of Organization,
By-Laws and records of all meetings of the incorporators and stockholders, and
the stock and transfer records, which shall contain the names of all
stockholders and the record address and the amount of stock held by each, shall
be kept in The Commonwealth of Massachusetts at the principal office of the
corporation, or at an office of its transfer agent or of the Clerk or of its
resident agent. Said copies and records need
- 24 -
<PAGE> 26
not all be kept in the same office. They shall be available at all reasonable
times to the inspection of any stockholder for any proper purpose but not to
secure a list of stockholders for the purpose of selling said list or copies
thereof or of using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
ARTICLE VII
CHECKS, NOTES, DRAFTS AND OTHER INSTRUMENTS
Checks, notes, drafts and other instruments for the payment of money
drawn or endorsed in the name of the corporation may be signed by any officer or
officers or person or persons authorized by the directors to sign the same. No
officer or person shall sign any such instrument as aforesaid unless authorized
by the directors to do so.
ARTICLE VIII
AMENDMENTS
These By-Laws may be amended by vote of the holders of a majority of
the shares of each class of the capital stock at the time outstanding and
entitled to vote at any annual or special meeting of stockholders, if notice of
the substance of the proposed amendment is stated in the notice of such meeting.
If authorized by the Articles of Organization, the Board of Directors, by a
majority of their number then in office, may also make, amend or repeal these
By-Laws, in whole or in part, except with respect to (a) the provisions of these
By-Laws governing (i) the removal of directors and (ii) the amendment of these
By-Laws and (b) any provision of these By-
- 25 -
<PAGE> 27
Laws which by law, the Articles of Organization or these By- Laws requires
action by the stockholders.
Not later than the time of giving notice of the meeting of stockholders
next following the making, amending or repealing by the Board of Directors of
any By-Law, notice stating the substance of such change shall be given to all
stockholders entitled to vote on amending the By-Laws.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 1. TRANSACTIONS WITH INTERESTED PARTIES.
(a) A director who has a financial, family or other
interest in a contract or other transaction may be counted for purposes of
establishing the existence of a quorum at a meeting of the Board of Directors
(or of a committee of the Board of Directors) at which action with respect to
the transaction is taken and may vote to approve the transaction and any related
matters.
(b) A contract or other transaction in which a director
or officer has a financial, family or other interest shall not be void or
voidable for that reason, if any one of the following is met:
(1) The material facts as to the director's or
officer's interest are disclosed or are known to the Board of Directors
or committee of the Board of Directors acting on the transaction, and
the Board of Directors or committee authorizes, approves or ratifies
the transaction by the affirmative vote of a majority of the
disinterested directors (or, if applicable, the sole disinterested
- 26 -
<PAGE> 28
director) on the Board of Directors or committee, as the case may be,
even though the disinterested directors be less than a quorum; or
(2) The material facts as to the director's or
officer's interest are disclosed or are known to the holders of the
shares of the corporation's capital stock then entitled to vote for
directors and such holders, voting such shares as a single class, by a
majority of the votes cast on the question, specifically authorize,
approve or ratify the transaction; or
(3) The transaction was fair to the corporation as of
the time it was entered into by the corporation.
A failure to meet any of the requirements in subparagraphs (1), (2) or
(3) shall not create an inference that the transaction is void or voidable for
that reason.
Section 2. MASSACHUSETTS CONTROL SHARE ACQUISITION ACT. The provisions
of Chapter 110D of the Massachusetts General Laws shall not apply to the
corporation.
Section 3. EVIDENCE OF AUTHORITY. A certificate by the Clerk or an
Assistant Clerk or a temporary Clerk as to any action taken by the stockholders,
the Board of Directors, any committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
Section 4. ARTICLES OF ORGANIZATION. All references in these By-Laws to
the Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to time.
- 27 -
<PAGE> 29
Section 5. SEVERABILITY. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these By-Laws.
Section 6. PRONOUNS. All pronouns used in these By-Laws shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
Approved as Amended and Restated by the
Board of Directors on December 31, 1997
Approved as Amended and Restated by the
Stockholders on January 9, 1998
- 28 -
<PAGE> 1
Exhibit 4.1
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[LOGO] MKS
INSTRUMENTS, INC.
NUMBER SHARES
----------------------- ---------------------
MKS MKS INSTRUMENTS, INC.
----------------------- ---------------------
COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS
IN BOSTON, MA OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS CUSIP 55306N 10 4
-----------------------------------------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
-----------------------------------------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE OF
====================================================== MKS INSTRUMENTS, INC. ======================================================
transferable only the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented hereby are issued under and subject to the laws of
The Commonwealth of Massachusetts and to the Articles of Organization and By-laws of the Corporation, all as amended from time to
time. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by the facsimile signatures of its duly authorized
officers and a facsimile of its corporate seal to be hereunto affixed.
Dated:
/s/ Robert J. O'Brien /s/ John R. Bertucci
TREASURER [SEAL] PRESIDENT
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------
AMERICAN BANK NOTE COMPANY DEC 10, 1997 fm
3504 ATLANTIC AVENUE
SUITE 12 053699fc
LONG BEACH, CA 90807
(562) 989-2333
(FAX) (562) 426-7450 270-19x Proof X REV 3
- ------------------------------------------------
<PAGE> 2
MKS INSTRUMENTS, INC.
The Corporation has more than one class of stock authorized to be issued. The
Corporation will furnish without charge to each stockholder upon written
request, a copy of the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class of
stock (and any series thereof) authorized to be issued by the Corporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____ Guardian ____
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act ________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
--------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ---------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------
(Signature) _________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature Guaranteed: _________________________________________________________
ALL GUARANTEES MUST BE MADE BY A FINANCIAL INSTITUTION
(SUCH AS A BANK OR BROKER) WHICH IS A PARTICIPANT IN THE
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM ("STAMP"),
THE NEW YORK STOCK EXCHANGE, INC. MEDALLION SIGNATURE
PROGRAM ("MSP") OR THE STOCK EXCHANGES MEDALLION PROGRAM
("SEMP") AND MUST NOT BE DATED. GUARANTEES BY A NOTARY
PUBLIC ARE NOT ACCEPTABLE.
- ----------------------------------------------
AMERICAN BANK NOTE COMPANY NOV 12, 1997 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 053699bk
(562) 989-2333
(FAX) (562) 426-7450 Proof X NEW
- ----------------------------------------------
<PAGE> 1
Exhibit 10.1
MKS INSTRUMENTS, INC.
AMENDED AND RESTATED 1995 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this Amended and Restated 1995 Stock Incentive Plan (the
"Plan") of MKS Instruments, Inc., a Massachusetts corporation (the "Company"),
is to advance the interests of the Company's stockholders by enhancing the
Company's ability to attract, retain and motivate persons who make (or are
expected to make) important contributions to the Company by providing such
persons with equity ownership opportunities and performance-based incentives and
thereby better aligning the interests of such persons with those of the
Company's stockholders. Except where the context otherwise requires, the term
"Company" shall include any present or future subsidiary corporations of MKS
Instruments, Inc. as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant."
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
<PAGE> 2
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers. The Chief Executive Officer
of the Company may grant Awards to non-executive officer employees of the
Company in amounts not to exceed 300,000 shares in the aggregate or 20,000
shares to any one employee.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
Common Stock (as defined below in Section 4(d)) is registered under the
Securities Exchange Act of 1934 (the "Exchange Act"), the Board shall appoint
one such Committee of not less than two members, each member of which shall be
an "outside director" within the meaning of Section 162(m) of the Code and a
"non-employee director" as defined in Rule 16b-3 promulgated under the Exchange
Act." All references in the Plan to the "Board" shall mean the Board or a
Committee of the Board or the executive officer referred to in Section 3(b) to
the extent that the Board's powers or authority under the Plan have been
delegated to such Committee or executive officer.
4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 2,500,000 shares of Common Stock (as
defined below in Section 4(d)). If any Award expires or is terminated,
surrendered or canceled without having been fully exercised or is forfeited in
whole or in part or results in any Common Stock not being issued, the unused
Common Stock (as defined below in Section 4(d)) covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as hereinafter defined), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares. All share amounts set
forth in this plan reflect the 2,110-for-1 stock split approved by the Board of
Directors of the Company on December 31, 1997 (the "1997 Stock Split").
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 4(c),
for Awards granted after the Common Stock (as defined below in Section 4(d)) is
registered under the Exchange Act, the maximum number of shares with respect to
which an Award may be granted to any Participant under the Plan shall be 900,000
per calendar year. The per-participant limit described in this Section 4(b)
shall be construed and applied consistently with Section 162(m) of the Code.
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<PAGE> 3
(c) ADJUSTMENT TO COMMON STOCK. In the event, at any time after the
1997 Stock Split, of any stock split, stock, dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in capitalization or event, or any
distribution to holders of Common Stock (as defined below in Section 4(d)) other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option, (iii) the repurchase price per
security subject to each outstanding Restricted Stock Award and (iv) the terms
of each other outstanding stock-based Award shall be appropriately adjusted by
the Company (or substituted Awards may be made, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate. If this Section 4(c) applies and Section 8(e)(1)
also applies to any event, Section 8(e)(1) shall be applicable to such event and
this Section 4(c) shall not be applicable.
(d) DEFINITION OF COMMON STOCK. "Common Stock" means (i) prior to the
closing of the Company's initial public offering of common stock pursuant to an
effective registration statement under the Securities Act of 1933 ("IPO"), the
Class B Common Stock, no par value per share, of the Company, and (ii) from and
after the closing of the IPO, the Common Stock, no par value per share, of the
Company.
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable
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<PAGE> 4
option agreement. No Option will be granted for a term in excess of 10 years.
(e) EXERCISE OF OPTION. Options may be exercised only by delivery
to the Company of a written notice of exercise signed by the proper person
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows:
(i) in cash or by check, payable to the order of the
Company;
(ii) except as the Board may otherwise provide in an
Option Agreement, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price, or
by delivery of shares of Common Stock owned by the Participant valued at the
fair market value as determined by the Board in good faith ("Fair Market
Value"), which Common Stock was owned by the Participant at least six months
prior to such delivery;
(iii) to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of a promissory note of the
Participant to the Company on terms determined by the Board, or (ii) by payment
of such other lawful consideration as the Board may determine; or
(iv) any combination of the above permitted forms of
payment.
6. RESTRICTED STOCK
(a) GRANTS. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each,
"Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together
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<PAGE> 5
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the
Common Stock, having such terms and conditions as the Board may determine
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
type of Award may be made alone or in addition or in relation to any other type
of Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
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<PAGE> 6
(e) ACQUISITION EVENTS
(1) CONSEQUENCES OF ACQUISITION EVENTS. Upon the occurrence of
an Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Awards: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such Options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code; (ii) if the acquisition or succeeding corporation refuses or
is unable to assume outstanding Options or grant Options in substitution
therefor pursuant to clause (i), upon written notice to the Participants,
provide that all then unexercised Options will become exercisable in full as of
a specified time (the "Acceleration Time") prior to the Acquisition Event and
will terminate immediately prior to the consummation of such Acquisition Event,
except to the extent exercised by the Participants between the Acceleration Time
and the consummation of such Acquisition Event; (iii) in the event of an
Acquisition Event under the terms of which holders of Common Stock will receive
upon consummation thereof a cash payment for each share of Common Stock
surrendered pursuant to such Acquisition Event (the "Acquisition Price"),
provide that all outstanding Options shall terminate upon consummation of such
Acquisition Event and each Participant shall receive, in exchange therefor, a
cash payment equal to the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to such outstanding
Options (whether or not then exercisable), exceeds (B) the aggregate exercise
price of such Options; (iv) provide that all Restricted Stock Awards then
outstanding shall become free of all restrictions prior to the consummation of
the Acquisition Event; and (v) provide that any other stock-based Awards
outstanding (A) shall become exercisable, realizable or vested in full, or shall
be free of all conditions or restrictions, as applicable to each such Award,
prior to the consummation of the Acquisition Event, or (B), if applicable, shall
be assumed, or equivalent Awards shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 50% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; or (c) the complete liquidation
of the Company.
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<PAGE> 7
(2) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) WITHHOLDING. Each Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in connection with Awards to such Participant no later than
the date of the event creating the tax liability. The Board may allow
Participants to satisfy such tax obligations in whole or in part in shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to a Participant.
(g) AMENDMENT OF AWARD. The Board may amend, modify or terminate
any outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) CONDITIONS ON DELIVERY OF STOCK. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i)
all conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) ACCELERATION. The Board may at any time provide that any
Options shall become immediately exercisable in full or in part, that any
Restricted Stock Awards shall be free of all restrictions or that any other
stock-based Awards may become exercisable in full or in part or free of some or
all restrictions or conditions, or otherwise realizable in full or in part, as
the case may be.
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<PAGE> 8
9. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
(e) STOCKHOLDER APPROVAL. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.
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<PAGE> 9
(f) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
The Commonwealth of Massachusetts, without regard to any applicable conflicts of
law rules or provisions.
Adopted by the Board of Directors
on November 30, 1995
Adopted by the Stockholders on
May 17, 1996
Approved as Amended and Restated
by the Board of Directors on
December 31, 1997
Approved as Amended and Restated
by the Stockholders on January 9,
1998
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<PAGE> 1
Exhibit 10.2
MKS INSTRUMENTS, INC.
AMENDED AND RESTATED 1996 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this Amended and Restated 1996 Director Stock Option Plan
(the "Plan") of MKS Instruments, Inc., a Massachusetts corporation (the
"Company"), is to encourage ownership in the Company by outside directors of the
Company whose continued services are considered essential to the Company's
future progress and to provide them with a further incentive to remain as
directors of the Company.
2. ADMINISTRATION
The Board of Directors shall supervise and administer the Plan. Grants of
stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
of interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be issued under the Plan
shall be 20 shares of the Company s Class B Common Stock, no par value per share
(the "Common Stock"). From and after the closing of the Company s initial public
offering of Common Stock pursuant to an effective Registration Statement under
the Securities Act of 1933, all references herein to "Common Stock" shall be
deemed to be references to the Company s Common Stock, and all references to
numbers of shares of Common Stock in the Plan and in outstanding options under
the Plan shall be adjusted to reflect the rate at which outstanding shares of
Class B Common Stock are exchanged for shares of Common Stock pursuant to the
recapitalization effected in connection with such public offering.
(b) If any outstanding option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares allocable to
the
<PAGE> 2
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be nonstatutory options
not entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended to date and as it may be amended from time to time (the
"Code").
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) OPTION GRANT DATES.
Options will be granted in accordance with the following:
(i) CURRENT OUTSIDE DIRECTORS. An option for 2.1429 shares
shall automatically be granted to each non-employee director of the Company on
the date of the original adoption of the Plan by the Board of Directors (the
"Adoption Date").
(ii) FUTURE OUTSIDE DIRECTORS. An option for 2.1429 shares
shall automatically be granted to each non-employee director elected to the
Board of Directors after the Adoption Date upon his initial election to the
Board.
(ii) ANNUAL GRANTS. An option for 0.2857 shares shall
automatically be granted on the date of each annual meeting of stockholders of
the Company (commencing with the annual meeting to be held in 1997) to each
non-employee director of the Company, PROVIDED that he was elected to serve as a
director of the Company at least six months prior to the date of such meeting.
(b) OPTION EXERCISE PRICE. The option exercise price per share for
each option granted under the Plan shall equal (i) the last reported sales price
per share of the Company s Common Stock on the Nasdaq National Market (or, if
the Common Stock is traded on a national securities exchange on the date of
grant, the reported closing sales price per share of the Common Stock on such
exchange) on the date of grant (or if no such price is reported on such date
such price as reported on the nearest preceding day) or (ii) if the Common Stock
is not traded on the Nasdaq National Market or a national securities exchange,
the fair market value per share on the date of grant as determined by the Board
of Directors on such date. If at any time, in the good faith judgment of the
Board of Directors, the Board of Directors
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<PAGE> 3
determines that the fair market value of the shares of the Company's Common
Stock is less than the exercise price of any options granted under the Plan, it
may change the exercise price of such options to the fair market value of the
Common Stock on the date of such determination; provided that, similar exercise
price adjustments (or replacement options are issued) with respect to options
issued pursuant to the Company's other option plans.
(c) OPTIONS NON-TRANSFERABLE. Each option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will, or
by the laws of descent and distribution, and shall be exercised during the
lifetime of the optionee only by him. No option or interest therein may be
transferred, assigned, pledged or hypothecated by the optionee during his
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(d) EXERCISE PERIOD. Each option granted pursuant to paragraphs
(a)(i) and (ii) of this Section 5 shall become exercisable in twelve (12) equal
quarterly installments following the date of grant. Each option granted pursuant
to paragraph (a)(iii) of this Section 5 shall become fully exercisable on the
day prior to the first annual meeting of stockholders of the Company following
the date of grant (or if no such meeting is held within thirteen (13) months
after the date of grant, on the thirteen-month anniversary of the date of
grant).
(e) TERMINATION. Upon termination of an optionee s service as a
director of the Company, each option held by him may be exercised during the
three month period following such termination of service, as to the exercisable
portion of such option as of the date of termination, PROVIDED that (i) no
option may be exercised more than ten (10) years after the date of grant, and
(ii) in the event an optionee ceases to serve as a director due to his death or
disability (within the meaning of Section 22(e)(3) of the Code or any successor
provision), each option may be exercised, within the period of 180 days
following the date the optionee ceases to serve as a director, by the optionee
or by the person to whom the option is transferred by will, by the laws of
descent and distribution, or by written notice, as to the portion of the option
that is exercisable on the date of death or disability and as to the additional
portion that would have become exercisable on the next anniversary date of the
date of grant of such option.
(f) EXERCISE PROCEDURE. Options may be exercised only by written
notice to the Company at its principal office accompanied by (i) payment in cash
of the full consideration for the shares as to which they are exercised or (ii)
an irrevocable undertaking, in form and substance satisfactory to the Company,
by a broker to deliver promptly to the Company sufficient funds to pay the
exercise price or delivery of irrevocable instructions, in form and substance
satisfactory to the Company, to a broker to deliver promptly to the Company cash
or a check sufficient to pay the exercise price.
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<PAGE> 4
(g) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. An
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the director's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. ASSIGNMENTS
The rights and benefits of participants under the Plan may not be
assigned, whether voluntarily or by operation of law, except as provided in
Section 5(g).
7. EFFECTIVE DATE
The Plan shall become effective immediately upon its adoption by the
Board of Directors, but all grants of options shall be conditional upon the
approval of the Plan by the stockholders of the Company within 12 months after
adoption of the Plan by the Board of Directors.
8. LIMITATION OF RIGHTS
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain the optionee as a director for any period of time.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his options until
the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 9) for which the record date is prior to the date such certificate is
issued.
9. CHANGES IN COMMON STOCK
(a) If the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all of
the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other distribution with
respect to such shares of Common Stock, or
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<PAGE> 5
other securities, an appropriate and proportionate adjustment will be made in
(i) the maximum number and kind of shares reserved for issuance under the Plan,
(ii) the number and kind of shares or other securities subject to then
outstanding options under the Plan and (iii) the price for each share subject to
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. No fractional shares
will be issued under the Plan on account of any such adjustments.
(b) In the event of (i) a consolidation, merger or other
reorganization in which all of the outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity or (ii) any sale of all or substantially all of the Company's
assets (in either event, an "Acquisition"), all options outstanding under the
Plan immediately prior to the effective date of such Acquisition shall become
automatically exercisable in full upon the effective date of such Acquisition.
10. AMENDMENT OF THE PLAN
The Board of Directors may suspend or discontinue the Plan or revise
or amend it in any respect whatsoever; provided, however, that without approval
of the stockholders of the Company no revision or amendment shall change the
number of shares subject to the Plan (except as provided in Section 9).
11. NOTICE
Any written notice to the Company required by any of the provisions
of the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
12. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of The Commonwealth of Massachusetts.
Adopted by the Board of Directors
and Stockholders on May 17, 1996
Approved as Amended and Restated by the
Board of Directors on December 31, 1997
Approved as Amended and Restated by the
Stockholders on January 9, 1998
- --------------
1. Share amounts set forth herein do not reflect the 2,110-for-1
stock split approved by the Board of Directors of the Company on December
31, 1997 (the "Split"), therefore, amounts reflected herein should be
appropriately adjusted in accordance with Section 9 to reflect the Split.
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<PAGE> 1
Exhibit 10.3
MKS INSTRUMENTS, INC.
1997 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1997 Director Stock Option Plan (the "Plan") of MKS
Instruments, Inc., a Massachusetts corporation (the "Company"), is to encourage
ownership in the Company by non-employee directors of the Company whose
continued services are considered essential to the Company's future progress and
to provide them with a further incentive to remain as directors of the Company.
2. ADMINISTRATION
The Board of Directors shall supervise and administer the Plan. Grants
of stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
of interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors of the Company who are not employees of the Company
or any subsidiary of the Company shall be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) DEFINITION OF COMMON STOCK. "Common Stock" means (i) prior
to the closing of the Company's initial public offering of common stock pursuant
to an effective registration statement under the Securities Act of 1933 ("IPO"),
the Class B Common Stock, no par value per share, of the Company, and (ii) from
and after the closing of the IPO, the Common Stock, no par value per share, of
the Company.
(b) The maximum number of shares of the Company's Common Stock
which may be issued under the Plan shall be 200,000 shares, subject to
adjustment as provided in Section 7. All share amounts set forth in this Plan
reflect the 2,110-for-1 stock split approved by the Board of Directors of the
Company on December 31, 1997 (the "1997 Stock Split").
<PAGE> 2
(c) If any outstanding option under the Plan for any
reason expires or is terminated without having been exercised in full, the
shares allocable to the unexercised portion of such option shall again become
available for grant pursuant to the Plan.
(d) All options granted under the Plan shall be
nonstatutory options not entitled to special tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended to date and as it may be amended
from time to time (the "Code").
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a
written agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) OPTION GRANT DATES. Options shall automatically be
granted to all eligible outside directors as follows:
(i) each person who is an eligible outside
director on the date upon which the Company enters into an underwriting
agreement for its first underwritten public offering of Common Stock (the
"Public Offering Price") pursuant to an effective registration statement under
the Securities Act of 1933, as amended, (the "Pricing Date"), shall be granted
an option to purchase 7,000 shares of Common Stock at an exercise price equal to
the Public Offering Price;
(ii) each person who first becomes an eligible
outside director after the Pricing Date shall be granted an option to purchase
7,500 shares of Common Stock on the date of his or her initial election to the
Board of Directors; and
(iii) each eligible outside director then in
office on the date of each annual meeting of stockholders of the Company shall
be granted an additional option to purchase 4,000 shares of Common Stock on the
date of each such annual meeting of stockholders, PROVIDED that he was elected
to serve as a director of the Company at least six months prior to the date of
such meeting.
(b) OPTION EXERCISE PRICE. The option exercise price per
share for each option granted under the Plan shall equal (i) the last reported
sales price per share of the Company's Common Stock on the Nasdaq National
Market (or, if the Common Stock is traded on a national securities exchange on
the date of grant, the reported closing sales price per share of the Common
Stock on such exchange) on the date of grant (or if no such price is reported on
such date such price as reported on the nearest preceding day), (ii) if the
Common Stock is not traded on the Nasdaq
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<PAGE> 3
National Market or a national securities exchange, the fair market value per
share on the date of grant as determined by the Board of Directors or (iii) the
average of the closing bid and asked prices in the over-the-counter market.
(c) TRANSFERABILITY OF OPTIONS. Except as the Board of
Directors of the Company may otherwise determine or provide in a written
agreement entered into in connection with the grant of an option under the Plan,
options shall not be sold, assigned, transferred, pledged or otherwise
encumbered by the Optionee, either voluntarily or by operation of law except by
will or the laws of descent and distribution, and during the life of the
optionee and shall be exercisable only by him. Reference to an optionee, to the
extent relevant in the context, shall include references to authorized
transferees.
(d) EXERCISE PERIOD. Except as the Board may otherwise
determine or provide in a written agreement entered into in connection with the
grant of an option under the Plan, each option granted pursuant to paragraphs
(a)(i) and (ii) of this Section 5 shall become exercisable in twelve (12) equal
quarterly installments following the date of grant. Each option granted pursuant
to paragraph (a)(iii) of this Section 5 shall become fully exercisable on the
day prior to the first annual meeting of stockholders of the Company following
the date of grant (or if no such meeting is held within thirteen (13) months
after the date of grant, on the thirteen-month anniversary of the date of
grant).
(e) TERMINATION. Upon termination of an optionee's service as
a director of the Company, each option held by him may be exercised during the
three month period following such termination of service, as to the exercisable
portion of such option as of the date of termination, PROVIDED that (i) no
option may be exercised more than ten (10) years after the date of grant and
(ii) in the event an optionee ceases to serve as a director due to his death or
disability (within the meaning of Section 22(e)(3) of the Code or any successor
provision), each option may be exercised, within the period of 180 days
following the date the optionee ceases to serve as a director, by the optionee
or by the person to whom the option is transferred by will, by the laws of
descent and distribution, or by written notice, as to the portion of the option
that is exercisable on the date of death or disability and as to the additional
portion that would have become exercisable on the next anniversary date of the
date of grant of such option.
(f) EXERCISE PROCEDURE. Options may be exercised only by
written notice to the Company at its principal office accompanied by (i) payment
in cash of the full consideration for the shares as to which they are exercised
or (ii) an irrevocable undertaking, in form and substance satisfactory to the
Company, by a broker to deliver promptly to the Company sufficient funds to pay
the exercise price or delivery of irrevocable instructions, in form and
substance satisfactory to the
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<PAGE> 4
Company, to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price.
(g) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. An
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the director's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. LIMITATION OF RIGHTS
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor
the granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain the optionee as a director for any period of time.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall
have no rights as a stockholder with respect to the shares covered by his
options until the date of the issuance to him of a stock certificate therefor,
and no adjustment will be made for dividends or other rights (except as provided
in Section 7) for which the record date is prior to the date such certificate is
issued.
7. CHANGES IN COMMON STOCK
(a) If, at any time after the 1997 Stock Split, the
outstanding shares of Common Stock are increased, decreased or exchanged for a
different number or kind of shares or other securities, or if additional shares
or new or different shares or other securities are distributed with respect to
such shares of Common Stock or other securities, through merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect to such shares of Common Stock, or
other securities, an appropriate and proportionate adjustment will be made in
(i) the maximum number and kind of shares reserved for issuance under the Plan,
(ii) the number and kind of shares or other securities subject to then
outstanding options under the Plan and (iii) the price for each share subject to
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. No fractional shares
will be issued under the Plan on account of any such adjustments.
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<PAGE> 5
(b) In the event of (i) a consolidation, merger or other
reorganization in which all of the outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity or (ii) any sale of all or substantially all of the Company's
assets (in either event, an "Acquisition"), all options outstanding under the
Plan immediately prior to the effective date of such Acquisition shall become
automatically exercisable in full upon the effective date of such Acquisition.
8. AMENDMENT OF THE PLAN
The Board of Directors may suspend or discontinue the Plan or
revise or amend it in any respect whatsoever; provided, however, that without
approval of the stockholders of the Company no revision or amendment shall
change the number of shares subject to the Plan (except as provided in Section
7).
9. NOTICE
Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Chief Financial Officer of the
Company and shall become effective when it is received.
10. GOVERNING LAW
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of The Commonwealth of
Massachusetts.
Adopted by the Board of Directors
on December 31, 1997
Approved by the Stockholders
on January 9, 1998
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<PAGE> 1
Exhibit 10.4
MKS INSTRUMENTS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of MKS
Instruments, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's Common Stock, no par value per
share (the "Common Stock"), commencing on June 1, 1998; provided, that at such
time the Company's Common Stock shall be listed for trading on the Nasdaq
National Market or a national securities exchange. Three hundred thousand
(300,000) shares of Common Stock in the aggregate have been approved for this
purpose. All share amounts set forth in this Plan reflect the 2,110-for-1 stock
split approved by the Board of Directors of the Company on December 31, 1997
(the "1997 Stock Split").
1. ADMINISTRATION. The Plan will be administered by the Company's
Board of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. Participation in the Plan will neither be
permitted nor denied contrary to the requirements of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder. All employees of the Company, including Directors who are employees,
and all employees of any subsidiary of the Company (as defined in Section 424(f)
of the Code) designated by the Board or the Committee from time to time (a
"Designated Subsidiary"), are eligible to participate in any one or more of the
offerings of Options (as defined in Section 9) to purchase Common Stock under
the Plan provided that:
(a) they are customarily employed by the Company or a
Designated Subsidiary for more than 20 hours a week and for more than
six months in a calendar year; and
(b) they have been employed by the Company or a
Designated Subsidiary for at least six months prior to enrolling in
the Plan; and
(c) they are employees of the Company or a Designated
Subsidiary on the first day of the applicable Plan Period (as defined
below).
<PAGE> 2
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
3. OFFERINGS. The Company will make one or more offerings ("Offerings")
to employees to purchase stock under this Plan. Offerings will begin each June 1
and December 1, or the first business day thereafter (the "Offering Commencement
Dates"). Each Offering Commencement Date will begin a six (6) month period (a
"Plan Period") during which payroll deductions will be made and held for the
purchase of Common Stock at the end of the Plan Period. The Board or the
Committee may, at its discretion, choose a different Plan Period of twelve (12)
months or less for subsequent Offerings.
4. PARTICIPATION. An employee eligible on the Offering Commencement
Date of any Offering may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the employee's appropriate
payroll office at least 30 days prior to the applicable Offering Commencement
Date. The form will authorize a regular payroll deduction from the Compensation,
as defined below, received by the employee during the Plan Period. Unless an
employee files a new form or withdraws from the Plan, his deductions and
purchases will continue at the same rate for future Offerings under the Plan as
long as the Plan remains in effect. The term "Compensation" means the amount of
money reportable on the employee's Federal Income Tax Withholding Statement,
including overtime, shift premium, incentives, bonus awards and commissions, and
excluding reimbursements for expenses such as relocation allowances for travel
expenses, income or gains on the exercise of Company stock options or stock
appreciation rights, and similar items, whether or not shown on the employee's
Federal Income Tax Withholding Statement, but including, in the case of
salespersons, sales commissions to the extent determined by the Board or the
Committee.
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any whole percent amount up to
a maximum of 10% (or such lower percentage as may be established by the Board or
the Committee) of the Compensation he or she receives during the Plan Period or
such shorter period during which deductions from payroll are made. The minimum
payroll deduction is such percentage of compensation as may be established from
time to time by the Board or the Committee.
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<PAGE> 3
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. DEDUCTION CHANGES. An employee may decrease, subject to section 5
hereof or discontinue his payroll deduction once during any Plan Period, by
filing a new payroll deduction authorization form. However, an employee may not
elect to increase his payroll deduction during a Plan Period. If an employee
elects to discontinue his payroll deductions during a Plan Period, but does not
elect to withdraw his funds pursuant to Section 8 hereof, funds deducted prior
to his election to discontinue will be applied to the purchase of Common Stock
on the Exercise Date (as defined below).
7. INTEREST. Interest will not be paid on employee accounts.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close
of business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by dividing $12,500 by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
THE WALL STREET JOURNAL. If no sales of Common Stock were made on such a day,
the price of the Common Stock for
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<PAGE> 4
purposes of clauses (a) and (b) above shall be the reported price for the next
preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date and shall be deemed to have purchased from the Company the number
of full shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for, but not in excess of
the maximum number determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee, except that
any balance which is less than the purchase price of one share of Common Stock
will be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Company's sole discretion) in
the name of a brokerage firm, bank or other nominee holder designated by the
employee. The Company may, in its sole discretion and in compliance with
applicable laws, authorize the use of book entry registration of shares in lieu
of issuing stock certificates.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
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<PAGE> 5
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
14. Application of Funds. All funds received or held by the Company
under this Plan may be combined with other corporate funds and may be used for
any corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event,
at any time after the 1997 Stock Split, of a subdivision of outstanding shares
of Common Stock, or the payment of a dividend in Common Stock, the number of
shares approved for this Plan, and the share limitation set forth in Section 9,
shall be increased proportionately, and such other adjustment shall be made as
may be deemed equitable by the Board or the Committee. In the event of any other
change affecting the Common Stock, such adjustment shall be made as may be
deemed equitable by the Board or the Committee to give proper effect to such
event.
16. MERGER. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of
any such transaction and all payroll deductions shall be paid out to the
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<PAGE> 6
participating employees; or (c) all outstanding Options may be cancelled by the
Board or the Committee as of the effective date of any such transaction,
provided that notice of such cancellation shall be given to each holder of an
Option, and each holder of an Option shall have the right to exercise such
Option in full based on payroll deductions then credited to his account as of a
date determined by the Board or the Committee, which date shall not be less than
ten (10) days preceding the effective date of such transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan exceeds
the maximum number of shares issuable under this Plan, the Board or the
Committee will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market and the approval of all
governmental authorities required in connection with the authorization, issuance
or sale of such stock.
21. GOVERNING LAW. The Plan shall be governed by Massachusetts law
except to the extent that such law is preempted by federal law.
22. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
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<PAGE> 7
24. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take
effect on June 1, 1998 if at such time the Common Stock is listed for trading on
the Nasdaq National Market or a national securities exchange.
Adopted by the Board of Directors
on December 31, 1997
Approved by the Stockholders
on January 9, 1998
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EXHIBIT 10.24
DRAFT
TAX INDEMNIFICATION AND S CORPORATION DISTRIBUTION
AGREEMENT
This TAX INDEMNIFICATION AND S CORPORATION DISTRIBUTION AGREEMENT (the
"Agreement") is entered into as of February ___, 1998 between MKS INSTRUMENTS,
INC., a Massachusetts corporation (the "Company"), and the persons listed on
Schedule A attached hereto (individually a "Stockholder" and collectively the
"Stockholders"). Capitalized terms not otherwise defined have the meanings
ascribed to them in Section 1.1.
WHEREAS, the Company and the Stockholders have entered into this
Agreement as a condition to the Public Offering;
WHEREAS, the Company has been an "S corporation" (as defined in Section
1361(a)(1) of the Code) for federal tax purposes since July 1, 1987;
WHEREAS, the Company and the Stockholders understand that the Company's
S corporation status will terminate upon the date of the Public Offering (the
"Termination Date"), and, as a result, the Company will be a "C corporation" (as
defined in Section 1361(a)(2) of the Code) beginning on the Termination Date;
WHEREAS, the Company will declare the AAA Dividend which will be
payable on the Closing Date;
WHEREAS, the Company and the Stockholders wish to provide for certain
tax related payments in connection with the Company's status as an S corporation
and for the adjustment of the amount of the AAA Dividend in certain events;
WHEREAS, the Company and the Stockholders wish to terminate this
Agreement such that it has no effect should the Public Offering not occur;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"AA Account" means the Company's "accumulated adjustments
account," as defined in Section 1368(e)(1) of the Code, as of the close of
business on the day before the Termination Date.
<PAGE> 2
"AAA Dividend" means the dividend to be declared by the Company
prior to the Closing Date which shall be payable to the stockholders of record
on the day immediately prior to the Closing Date in an amount equal to [$ ].
"AAA Settlement Date" means the later of (i) March 15, 1999 or
(ii) the last day of the "post-termination transition period," as defined in
Section 1377(b) of the Code, of the Company.
"Adjustment Amount" means the net increase in taxable income of
one or more of the Stockholders or the Company based on a Final Determination
and which gives rise to a payment pursuant to Section 3.3 or Section 3.4 hereof.
"Affected Stockholder" means a Stockholder whose tax returns are
adjusted in a manner which gives rise to an obligation of the Company pursuant
to Section 3.3 hereof.
"Blended Rate" means a percentage which equals the sum of the
maximum marginal federal and state individual income tax rates for an individual
residing in Massachusetts (after giving effect to the full deductibility of
state income taxes for federal income tax purposes) in effect for the year of
the adjustment to a tax return of the Company or such Stockholder that gives
rise to a correlative adjustment to a tax return of such Stockholder or the
Company, respectively. For example, if an adjustment that results in an amount
due from the Stockholders hereunder, the year of the Company's return that was
adjusted shall determine the Blended Rate to be used in computing the amount
due.
"Closing Date" means the date on which the Public Offering
closes.
"Code" means the Internal Revenue Code of 1986, as amended.
"C Short Year" means that portion of the S Termination Year of
the Company beginning on the Termination Date and ending on the last day of the
S Termination Year.
"C Taxable Year" means any taxable year (or portion thereof) of
the Company, including the C Short Year, during which it is subject to taxation
as a C corporation as defined in Section 1361(a)(2) of the Code.
"Final Determination" means the first to occur of
(i) the expiration of 30 days after IRS acceptance of a Waiver
of Restrictions on Assessment and Collection of Deficiency of Tax and
Acceptance of Overassessment on IRS Form 870 or 870-AD;
2
<PAGE> 3
(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review
and has become final;
(iii) the execution of a closing agreement under Section 7121 of
the Code or the acceptance by the IRS of an offer in compromise under
Section 7122 of the Code, or comparable agreements under the laws of
other jurisdictions;
(iv) the expiration of the time for filing a claim for refund
or for instituting suit in respect for a claim for refund disallowed in
whole or in part by the IRS or other relevant tax authority;
(v) any other final disposition of the tax liability for such
period by reason of the expiration of the applicable statute of
limitations; or
(vi) any other event that the parties agree is final and
irrevocable determination of the liability at issue.
"Public Offering" means the public offering of the
Company's Common Stock pursuant to the Registration Statement on Form S-1
originally filed by the Company with the Securities and Exchange Commission on
November 14, 1997.
"Record Date" means the day immediately preceding the
Closing Date.
"S Short Year" means that portion of the S Termination
Year beginning on the first day of such taxable year and ending on the day
immediately preceding the Termination Date.
"S Taxable Year" means any taxable year (or portion
thereof) of the Company, including the S Short Year, during which it is subject
to taxation as an S corporation as defined in Section 1361(a)(1) of the Code.
"S Termination Year" shall mean the fiscal year of the
Company that includes the Termination Date.
"Taxing Authority" means the United States Internal
Revenue Service and any comparable state or foreign taxing authority.
"Termination Date" means the date on which the S
corporation status of the Company will terminate pursuant to Section 1362(d) of
the Code, which is expected to be the Closing Date.
3
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ARTICLE II
TERMINATION OF S CORPORATION STATUS, ALLOCATION OF INCOME,
DECLARATION OF AAA DIVIDEND AND ADJUSTMENT OF AAA DIVIDEND
2.1 TERMINATION OF S CORPORATION STATUS. The Company and the
Stockholders understand that the Company's S corporation status will terminate
upon the consummation of the Public Offering.
2.2 PRO RATA ALLOCATION OF TAX ITEMS. The Company shall be required
to allocate the tax items described in Section 1362(e)(2)(A) of the Code between
the S Short Year and the C Short Year pursuant to the pro rata allocation rules
set forth in Section 1362(e)(2)(B) of the Code.
2.3 DECLARATION OF AAA DIVIDEND. Prior to the Closing Date, the
Company declared that the AAA Dividend would be payable on the Closing Date,
subject to the closing of the Public Offering, to the stockholders of record on
the Record Date.
2.4 ADJUSTMENT TO AAA DIVIDEND.
(a) The parties acknowledge that the amount of the AAA Dividend
will be based on good faith determinations by the Company of the amount of AA
Account as of the Closing Date.
(b) The parties agree that if the Company determines after the
Termination Date and on or before the AAA Settlement Date that the amount of the
AA Account as of the Termination Date does not equal the amount of the AAA
Dividend, then:
(i) if the amount of the AAA Dividend exceeds the amount
of AA Account as of the Termination Date, the Stockholders who
received the AAA Dividend shall immediately thereafter remit to
the Company their pro-rata share of such excess; and
(ii) if the amount of the AA Account as of Termination
Date exceeds the amount of the AAA Dividend, the Company shall
immediately thereafter distribute to the Stockholders their
pro-rata shares of such excess.
(c) The Company shall notify the Stockholders no later than
five (5) days prior to the AAA Settlement Date in the event the Stockholders are
required to remit any amount to the Company pursuant to this Section 2.4.
Payments pursuant to this Section 2.4 shall be made no later than thirty (30)
days following the AAA Settlement Date.
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(d) No payment shall be due, and no party shall have a claim
against the other party, under this Agreement if the relevant determination of
the amount of the AA Account occurs after the applicable AAA Settlement Date.
(e) Any payment due under this section shall be increased by
interest on the amount of such payment computed from the date of the payment of
the AAA Dividend until the date of payment pursuant to this section. The
interest rate shall be the Prime Rate of BankBoston as of the AAA Settlement
Date.
ARTICLE III
TAX PAYMENTS AND INDEMNIFICATION OBLIGATIONS
3.1 LIABILITY FOR TAXES INCURRED DURING S SHORT YEAR. Each
Stockholder covenants and agrees that: (i) the Stockholder will duly include, in
his own federal and state income tax returns, all items of income, gain, loss,
deduction, or credit attributable to the S Short Year in a manner consistent
with the Form 1120S and the schedules thereto (and the corresponding state
income tax forms and schedules) to be filed by the Company with respect to such
period; (ii) such returns shall be filed no later than the due date (including
extensions, if any) for filing such returns; and (iii) each Stockholder shall
pay any and all taxes required to be paid for its taxable year that includes the
S Short Year.
3.2 LIABILITY FOR TAXES INCURRED DURING S SHORT YEAR AND C SHORT
YEAR. The Company covenants and agrees that: (i) the Company shall be
responsible for and shall effect the filing of all federal and state income tax
returns for the Company with respect to the S Short year and the C Short Year;
(ii) such Company returns shall be accurately prepared and timely filed; and
(iii) the Company shall pay any and all taxes required to be paid by the Company
for the periods covered by such returns as required by applicable law.
3.3 COMPANY'S INDEMNIFICATION OF STOCKHOLDERS FOR TAX LIABILITIES. In
the event of an adjustment to one or more tax returns of the Company for an S
Taxable Year based on a Final Determination which results in a net increase in
taxable income of a Stockholder and a corresponding adjustment to one or more
tax returns of the Company for a C Taxable year based on a Final Determination
which results in a net decrease in taxable income of the Company, the Company
shall pay to any Affected Stockholder an amount equal to the Adjustment Amount
multiplied by the Blended Rate. In addition, provided the Affected Stockholder
originally reported its distributive share of income and other items of the
Company from an S Taxable Year consistently with the Schedule K-1 provided to
him by the Company, the Company shall pay to the Affected Stockholder any
penalties or interest actually paid by the
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Affected Stockholder as a result of the adjustment to such items giving rise to
the Company's liability hereunder. The Company shall pay the amount due to the
Affected Stockholder within thirty (30) business days after the receipt of
notice from the Affected Stockholder that a payment is due by such party to the
appropriate Taxing Authority.
The Company acknowledges that it shall be solely responsible for any
federal, state, and local taxes (including interest and penalties) relating to
built in gains tax imposed by Section 1374 of the Code and any tax on excess
passive income imposed by Section 1375 of the Code.
3.4 STOCKHOLDERS INDEMNIFICATION OF COMPANY FOR TAX LIABILITIES.
(a) ADJUSTMENTS TO COMPANY'S TAXABLE INCOME. In the event of an
adjustment of one or more tax returns of the Company for a C Taxable Year based
on a Final Determination which results in a net increase in taxable income of
the Company for a C Taxable Year and a corresponding adjustment to one or more
tax returns of the Company for an S Taxable Year based on a Final Determination
which results in a net decrease in taxable income of the Company for the S
Taxable Year, the Stockholders, severally (according to the percentage of the
outstanding shares of the Company's stock owned by each Stockholder for the
years of adjustment) and not jointly, agree to contribute to the capital of the
Company an amount equal to the Adjustment Amount multiplied by the Blended Rate.
In addition, the Stockholders shall contribute to the capital of the Company an
amount equal to any penalties and interest to be paid by the Company to any
Taxing Authority as a result of such determination.
(b) ADJUSTMENTS ATTRIBUTABLE TO COMPANY'S S STATUS. If, based
on a Final Determination, the Company is deemed to have been a C corporation for
federal, state or local income tax purposes during any period in which it
reported (or intends to report) its taxable income as an S corporation, the
Stockholders agree to contribute to the capital of the Company, subject to the
limitations contained in the last sentence of this Section 3.4(b) and in Section
3.4(c), an amount equal to the Adjustment Amount with respect to such year
multiplied by the Blended Rate. Each Stockholder's obligation under this Section
3.4(b) shall be several and not joint and shall be limited to that percentage of
the tax and interest due and payable by the Company equal to the fraction,
expressed as a percentage, the numerator of which is the total distributions to
such Stockholder made by the Company from July 1, 1987 through and including the
Termination Date, plus the AAA Dividend and any adjustment thereto pursuant to
this Agreement, and the denominator of which is the total distributions made by
the Company to all Stockholders from July 1, 1987 through and including the
Termination Date, plus the AAA Dividend and any adjustment thereto pursuant to
this Agreement.
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(c) LIMIT ON INDEMNIFICATION AMOUNT. Any payment by any
Affected Stockholder to the Company pursuant to this Section 3.4 shall not
exceed the lesser of (A) the amount of the refund from any Taxing Authority
attributable to the reduction in such Affected Stockholder's tax liability
attributable to adjustments established pursuant to the Final Determination and
(B) the amount of the total distributions to such Stockholder as determined
under Section 3.4(b). For purposes of this Section 3.4(c), the amount of the
refund shall include refunds or abatements of taxes, interest on such refunds or
abatements, and any other amount actually received by the Affected Stockholder
from the Taxing Authority with respect to such determination.
(d) TIME OF INDEMNIFICATION PAYMENT. The Stockholders shall
contribute to the capital of the Company amounts set forth in this Section 3.4
within thirty (30) business days after the later of (a) the receipt of the
refund from the Taxing Authority attributable to such adjustment or (b) notice
from the Company that a payment is due by the Company to the appropriate Taxing
Authority.
3.5 CONTESTS/COOPERATION.
(a) CONTESTS. Each of the Company and the Stockholders agree
that (i) in the event that any of them receives notice, whether orally or in
writing, of any federal, state, local or foreign tax examinations, claims,
settlements, proposed adjustments or related matters that may affect in any way
the liability of a party under this Agreement, it shall within ten days notify
the other parties in writing thereof (provided that any failure to give such
notice shall not reduce a party's right to indemnification under this Agreement
except to the extent of actual damage incurred by the other parties as a result
of such failure), and (ii) the party or parties (the "Indemnifying Party") who
would be required to indemnify the other party or parties (the "Indemnified
Party") shall be entitled at its reasonable discretion and sole expense to
handle, control and compromise or settle the defense of any matter which may
give rise to a liability under this Agreement, provided that the Indemnifying
Party from time to time provides assurances reasonably satisfactory to the
Indemnified Party that (1) the Indemnifying Party is financially capable of
pursuing such defense to its conclusion, and (2) such defense is actually being
pursued in a reasonable manner.
(b) COOPERATION. The parties will make available to one
another, as reasonably requested, and to any Taxing Authority, all information,
records or documents relating to the liability for taxes covered by this
Agreement and will preserve such information, records or documents until the
expiration of any applicable statute of limitations or extensions thereof. The
party requesting such information shall reimburse the other party for all
reasonable out-of-pocket costs incurred in producing such information.
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(c) CLAIMS FOR REFUND. Each party hereto agrees to file a
properly completed claim with the appropriate Taxing Authority for a refund or
an abatement of taxes paid with respect to any matter which may give rise to a
liability under Sections 3.3 or 3.4 of this Agreement.
3.6 COSTS. Except to the extent otherwise provided herein, each party
shall bear its own costs in administering this Agreement.
3.7 CORRECTION OF A FINAL DETERMINATION. In the event a party makes a
payment pursuant to this Agreement based on the expected outcome of a Final
Determination which subsequently is determined to have been incorrect, the
parties shall adjust the payments hereunder in order to reflect the subsequent
determination as if it was the Final Determination upon which the original
payment was based.
ARTICLE IV
MISCELLANEOUS
4.1 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute an instrument representing the
Agreement between the parties hereto.
4.2 CONSTRUCTION OF TERMS. Nothing herein expressed or implied is
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
4.3 GOVERNING LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the
substantive laws of the Commonwealth of Massachusetts without regard to
Massachusetts choice of law rules.
4.4 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement executed by the parties.
4.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties, nor
is this Agreement intended to confer upon any other person except the parties
any rights or remedies hereunder.
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4.6 INTERPRETATION. The title, article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
4.7 SEVERABILITY. In the event that any one or more of the provisions
of this Agreement shall be held to be illegal, invalid or unenforceable in any
respect, the same shall not in any respect affect the validity, legality or
enforceability of the remainder of this Agreement, and the parties shall use
their best efforts to replace such illegal, invalid or unenforceable provisions
with an enforceable provision approximating, to the extent possible, the
original intent of the parties.
4.8 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding of the parties hereto in respect to the subject matter
contained herein. There are no representations, promises, warranties, covenants,
or undertakings, other than those expressly set forth or referred to herein.
This Agreement supersedes all prior agreements and the understandings between
the parties with respect to such subject matter.
4.9 FEES. In any action or proceeding brought to enforce or interpret
any provision of this Agreement, the successful party shall be entitled to
reasonable fees of attorneys, accountants and other professionals as well as
other costs incurred in connection with such action or proceeding.
4.10 INTEREST ON OVERDUE PAYMENTS. Any payment pursuant to this
Agreement not made when due under this Agreement shall bear interest at the rate
of 10% per annum until paid.
4.11 NOTICES. All notices provided for in this Agreement shall be
validly given if in writing and delivered personally or sent by registered mail,
postage prepaid
if to the Company, to:
General Counsel
MKS Instruments, Inc.
6 Shattuck Road
Andover, MA 01810
copy to:
[Company Counsel]
[Address]
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if to any Stockholder, to:
Name of Stockholder
c/o John R. Bertucci
President
MKS Instruments, Inc.
6 Shattuck Road
Andover, MA 01810
4.12 TERMINATION OF AGREEMENT. This Agreement shall terminate and be
void, as if it never had been executed, if the Closing Date shall occur after
December 31, 1998.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MKS INSTRUMENTS, INC.
By: __________________________________
Chief Financial Officer
STOCKHOLDERS
______________________________________
John R. Bertucci
______________________________________
Claire R. Bertucci
Claire R. Bertucci Second Family Trust
of December 15, 1986 FBO Carol B. Bertucci
By: __________________________________
Trustee
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Claire R. Bertucci Second Family Trust
of December 15, 1986 FBO Janet C. Bertucci
By: __________________________________
Trustee
John R. Bertucci Second Family Trust
of December 15, 1986 FBO Carol B. Bertucci
By: __________________________________
Trustee
John R. Bertucci Second Family Trust
of December 15, 1986 FBO Janet C. Bertucci
By: __________________________________
Trustee
Claire R.. Bertucci CBS Retained
Annuity Trust of 1997
By: __________________________________
Trustee
Claire R. Bertucci JCB Retained
Annuity Trust of 1997
By: __________________________________
Trustee
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John R. Bertucci CBS Retained Annuity
Trust of 1997
By: __________________________________
Trustee
John R. Bertucci Family Retained
Annuity Trust of 1997
By: __________________________________
Trustee
John R. Bertucci JCB Retained Annuity
Trust of 1997
By: __________________________________
Trustee
______________________________________
John J. Sullivan
John J. Sullivan Retained Annuity Trust
of 1997
By: __________________________________
Trustee
______________________________________
Cheryl A. Sweeting
______________________________________
John F. Sullivan
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______________________________________
Kathleen M. Davis
______________________________________
Thomas J. Sullivan
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SCHEDULE A
List of Stockholders
John R. Bertucci
Claire R. Bertucci
Claire R. Bertucci Second Family Trust of December 15, 1986 FBO Carol B.
Bertucci
Claire R. Bertucci Second Family Trust of December 15, 1986 FBO Janet C.
Bertucci
John R. Bertucci Second Family Trust of December 15, 1986 FBO Carol B. Bertucci
John R. Bertucci Second Family Trust of December 15, 1986 FBO Janet C. Bertucci
Claire R.. Bertucci CBS Retained Annuity Trust of 1997
Claire R. Bertucci JCB Retained Annuity Trust of 1997
John R. Bertucci CBS Retained Annuity Trust of 1997
John R. Bertucci Family Retained Annuity Trust of 1997
John R. Bertucci JCB Retained Annuity Trust of 1997
John J. Sullivan
John J. Sullivan Retained Annuity Trust of 1997
Cheryl A. Sweeting
John F. Sullivan
Kathleen M. Davis
Thomas J. Sullivan
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