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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-23621
MKS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2277512
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Six Shattuck Road, Andover, Massachusetts 01810
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 975-2350
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR
VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by referenced in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant as of February 11, 2000: $331,073,252
Number of shares outstanding of the issuer's Common Stock, no par value, as of
February 11, 2000: 24,770,231
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the MKS 1999 Annual Report for the year ended December 31, 1999 are
incorporated by reference into Parts I, II and IV of this Form 10-K.
Portions of the definitive Proxy Statement for MKS' Annual Meeting of
Stockholders to be held on May 17, 2000 are incorporated by reference into Part
III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
MKS is a leading worldwide developer, manufacturer and supplier of
instruments, components and subsystems used to measure, control and analyze
gases in semiconductor manufacturing and similar industrial manufacturing
processes. MKS offers a comprehensive line of products which are used to
manufacture, among other things:
- semiconductors
- optical filters and fiber optics cables for data and telecommunications
- flat panel displays
- magnetic and optical storage devices and media, including:
- compact disks
- hard disk storage devices
- magnetic devices for reading disk data
- digital video disks
- optical storage disks or laser readable disks
- solar panels
- eyeglasses
- architectural glass
- cutting tools
- freeze-dried pharmaceuticals
Products
MKS supplies products in three principal product areas. We also provide
value-added integrated subsystems combining these products. Our products
include:
- Pressure Measurement and Control Products
- Material Delivery and Analysis Products
- Vacuum Products
PRESSURE MEASUREMENT AND CONTROL PRODUCTS. MKS designs and manufactures a
wide range of gas pressure measurement and control instrumentation. Each product
line consists of products which are designed for a variety of pressure ranges
and accuracies.
Baratron Pressure Measurement Products. MKS's Baratron pressure measurement
products are high precision pressure measurement instruments. MKS has five
Baratron product families 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
chambers, to measure process chamber pressures and to measure pressures between
process chambers, vacuum pumps and exhaust lines. Baratron instruments measure
pressures at ranges from two hundred times atmospheric pressure to one billionth
of atmospheric pressure. MKS believes it offers the widest range of gas pressure
measurement instruments in the semiconductor and advanced thin-film materials
processing industries.
A key feature of Baratron instruments is the ability to 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 instruments enable users
to achieve
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a highly precise, accurate and repeatable measurement of gas pressure. Pressure
measurement, independent of gas composition, is also useful during process steps
used to remove atmospheric gases as well as those used to introduce specific
amounts of various types of gases. Such processes are used to manufacture
fluorescent bulbs and to fabricate gas lasers.
Automatic Pressure and Vacuum Control Products. MKS's automatic 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, MKS's Baratron pressure measurement instruments provide the
pressure input to the automatic pressure control device. Together, these
components create an integrated automatic pressure control system. MKS's
pressure control products can also accept inputs from other measurement
instruments, enabling the automatic control of gas input or exhaust based on
parameters other than pressure.
MKS has recently introduced a line of integrated pressure controllers that
combine the functions of its Baratron pressure measurement instrument, flow
measurement instrument, control electronics and valve into a four-inch long
instrument which can be placed directly on a gas line to control pressure
downstream of the instrument while indicating the gas flow rate. This addresses
the need for smaller components, saving valuable clean room space.
MATERIALS DELIVERY AND ANALYSIS PRODUCTS. MKS designs and manufactures a
wide range of flow and composition analysis measurement and control
instrumentation. Each product line consists of products which are designed for
a variety of flow and composition ranges and accuracies.
Flow Measurement and Control Products. MKS'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 automatically control the mass flow rate of gases and vapors into
the process chamber. MKS's broad product lines include products that allow the
precise, automatic flow control of inert or corrosive gases, the automatic
control of low vapor pressure gases and heated liquid source materials, and the
automatic control of delicate, advanced technology liquid sources and vaporized
solid sources for next generation devices.
MKS's line of thermal-based mass flow controllers, which control gas flow
based on the molecular weight of gases, 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. MKS 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.
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, MKS has designed a direct liquid injection
subsystem which pumps a precise volume of liquid into a vaporizer, which in turn
supplies a controlled flow of vapor into the process chamber. The direct liquid
injection subsystem pump and vaporizer are presently used principally for
research and development applications for next generation semiconductor device
conductors, diffusion barriers and insulators, such as copper, titanium nitride
and dielectric materials.
MKS's flow measurement products also include a calibration system which
independently measures mass flow and compares this measurement to that of the
process chamber mass flow controller. The demand for the MKS 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.
Gas Composition Analysis Instruments. MKS's gas analysis instruments are
sold primarily to the semiconductor industry. The residual gas analysis product
lines include a quadrapole mass spectrometer sensor, which is a device that
separates gases based on molecular weight. MKS's quadrapole mass spectrometer
sensors include built-in electronics to analyze the composition of background
and process gases in the process chamber. MKS's ORION process monitoring system
is a sophisticated quadrapole mass spectrometer process analyzer for statistical
process monitoring of
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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 and are sold at prices ranging up to $80,000. 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. MKS'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 semiconductor
manufacturing processes, with smaller circuit patterns and larger wafer sizes,
are expected to require sophisticated gas analysis instruments and/or monitoring
equipment to ensure tighter process control and earlier diagnosis of equipment
malfunction.
VACUUM PRODUCTS. MKS designs and manufactures a wide variety of vacuum
technology products, including vacuum gauges, vacuum valves and components.
Vacuum Gauging Products. MKS 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. Unlike Baratron pressure measurement instruments,
vacuum gauges 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. MKS's indirect pressure gauges
use thermal conductivity and ionization gauge technologies to measure pressure
from atmospheric pressure to one trillionth of atmospheric pressure. MKS'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 two hundred times atmospheric pressure to
one trillionth of atmospheric pressure.
MKS 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. MKS offers both analog and digital versions of these
vacuum gauge transducers.
Vacuum Valves and Components. MKS's vacuum valves are used on the gas lines
between the process chamber and the pump downstream of the process chamber.
MKS's vacuum components consist of flanges, fittings, 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 circuit patterns cannot
tolerate contamination from atmospheric leaks or particles. MKS's vacuum
components are designed to minimize such contamination and thus increase yields
and uptimes.
MARKETS AND APPLICATIONS
MKS estimates that approximately two-thirds of its sales in 1999 were made
to the semiconductor industry. MKS's products are also used in other markets and
applications including the manufacture of, among other things:
- optical filters and fiber optic cables for data and telecommunications
- flat panel displays
- magnetic and optical storage media
- solar panels
- gas lasers
- eyeglasses
- architectural glass
- cutting tools
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- freeze-dried pharmaceuticals
MKS sells its products primarily through its direct sales force in 22
offices in France, Germany, Japan, Korea, The Netherlands, Singapore, Taiwan,
the United Kingdom and the United States. This direct sales force is
supplemented by sales representatives and agents in Canada, China, India,
Israel, and Italy and in selected U.S. cities. The major markets for MKS's
products include:
Semiconductor Manufacturing
MKS's products are sold to semiconductor capital equipment manufacturers and
semiconductor device manufacturers. MKS's products are used in the major
semiconductor processing steps such as:
- depositing materials onto substrates
- etching circuit patterns
- implanting positively charged atoms into a substrate to alter
electrical characteristics
MKS's products are also used for process facility applications such as gas
distribution, pressure control and vacuum distribution in clean rooms where
semiconductor manufacturing takes place. MKS 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 capital equipment manufacturers are concentrated in the United
States, Japan and Europe.
Optical Filters, Optical Fibers and Other Coating
MKS's products are used in optical filter, optical fiber and other optical
thin-film coating processes. MKS's products are sold both to coating equipment
manufacturers and to manufacturers of products made using optical thin-film
coating processes. Optical filters and fibers used for data transmission are
manufactured using processes to deposit chemical vapors which are similar to
those used in semiconductor manufacturing. The requirement for greater data
transmission is driving the need for tighter control of optical filters and
fiber coating processes. Optical thin films for eyeglasses, solar panels and
architectural glass are deposited using processes to deposit chemical vapors and
gaseous metals similar to those used in semiconductor manufacturing. Optical
filter, optical fiber and other optical thin-film processing are concentrated in
the United States, Japan and Europe.
Flat Panel Display Manufacturing
MKS's products are used in the manufacture of flat panel displays, which
require the same or similar fabrication processes as semiconductor
manufacturing. MKS sells its products both to flat panel original equipment
manufacturers 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. The major manufacturers for
flat panel displays and flat panel display equipment are concentrated in Japan.
Magnetic and Optical Storage Media
MKS's products are used in the manufacture of:
- magnetic storage media which store and read data magnetically
- optical storage media which store and read data using laser technology
- compact disks
- hard disks
- data storage devices
- digital video or versatile disks
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-
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Pacific region and storage media capital equipment manufacturers are
concentrated in the United States, Japan and Europe.
Other Coating Markets
MKS's pressure and flow measurement and control instruments are also used in
processes for the application of thin films to harden tool bit surfaces, for the
application of diamond thin films to enhance surface hardness and durability and
for coatings used for food container packaging, jewelry and ornaments. The major
equipment and process providers are concentrated in the United States, Japan and
Europe.
Other Markets
MKS's products are used 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.
MKS's products are also sold to government, university and industrial
laboratories for vacuum applications involving research and development in
materials science, physical chemistry and electronics materials. The major
equipment and process providers and research laboratories are concentrated in
the United States, Japan and Europe.
SALES, MARKETING AND SUPPORT
MKS's worldwide sales, marketing and support organization is critical to its
strategy of maintaining close relationships with semiconductor capital equipment
manufacturers and semiconductor device manufacturers. MKS sells its products
primarily through its direct sales force. As of December 31, 1999, MKS had 126
sales employees in 22 offices in France, Germany, Japan, Korea, The
Netherlands, Singapore, Taiwan, the United Kingdom and the United States. This
direct sales force is supplemented by sales representatives and agents in
Canada, China, India, Israel, and Italy and in selected U.S. cities. MKS
maintains a marketing staff 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, MKS 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 worldwide. MKS provides warranties from one to three years,
depending upon the type of product. In addition, MKS offers training programs
for its customers in a wide range of vacuum and gas processing technologies.
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RESEARCH AND DEVELOPMENT
MKS's research and development efforts are directed toward developing and
improving MKS'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.
MKS 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. MKS's employees also
work closely with its customers' development personnel. These relationships help
MKS identify and define future technical needs on which to focus its research
and development efforts. In addition, MKS participates in S.I.S.A.
(Semiconductor Industry Suppliers Association), 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.
COMPETITION
The market for MKS's products is highly competitive. Principal competitive
factors include:
- historical customer relationships
- product quality, performance and price
- breadth of product line
- manufacturing capabilities
- customer service and support
While MKS believes that it competes favorably with respect to these factors,
there can be no assurance that it will continue to do so.
MKS encounters substantial competition in each of its product lines from a
number of competitors, although no one competitor competes with MKS across all
product lines. Certain of MKS's competitors have greater financial and other
resources than MKS. In some cases, the competitors are smaller than MKS, but
well-established in specific product niches. Millipore Corporation offers
products that compete with MKS's pressure and flow products. Aera Corporation,
STEC, and Unit Instruments, each offer products that compete with MKS's mass
flow control products. Nor-Cal Products, Inc. and MDC Vacuum Products, Inc.,
each offer products that compete with MKS's vacuum components. Leybold-Inficon,
Inc., offers products that compete with MKS's vacuum measuring and gas analysis
products. Helix Technology Corporation offers products that compete with MKS's
vacuum gauging products. Spectra International LLC offers products that compete
with MKS's gas analysis products.
In some cases, particularly with respect to mass flow controllers,
semiconductor device manufacturers may direct semiconductor capital equipment
manufacturers to use a specified supplier's product in their equipment.
Accordingly, MKS's success depends in part on its ability to have semiconductor
device manufacturers specify that its products be used at their fabrication
facilities and MKS may encounter difficulties in changing established
relationships of competitors with a large installed base of products at such
customers' fabrication facilities. In addition, MKS'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 MKS's products.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
MKS relies on a combination of patent, copyright, trademark and trade
secret laws and license agreements to establish and protect its proprietary
rights. As of December 31, 1999, MKS held 55 U.S. patents and had 13 pending
U.S. patent applications. Foreign counterparts of certain of these applications
have been filed or may be filed at the appropriate time. While MKS believes that
certain
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patents may be important for certain aspects of its business, MKS believes that
its success depends more upon close customer contact, innovation, technological
expertise, responsiveness and worldwide distribution.
The Company is not engaged in any material disputes with other parties with
respect to the ownership or use of the Company's proprietary technology.
However, there can be no assurance that other parties will not assert technology
infringement claims or other claims against the Company in the future. The
litigation of such a claim may involve significant expense and management time.
In addition, if any such claim were successful, the Company could be required to
pay monetary damages and may also be required to either refrain from
distributing the infringing product or obtain a license from the party asserting
the claim (which license may not be available on commercially reasonable terms).
EMPLOYEES
As of December 31, 1999, MKS employed 1,006 persons. Management believes
that MKS's ongoing success depends upon its continued ability to attract and
retain highly skilled employees. None of MKS's employees is represented by a
labor union or party to a collective bargaining agreement. MKS believes that its
employee relations are good.
FACTORS AFFECTING FUTURE OPERATING RESULTS
MKS believes that this document contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks and uncertainties and are based on the beliefs
and assumptions of management of MKS, based on information currently available
to MKS' management. Use of words such as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "should," "likely" or similar expressions,
indicate a forward looking statement. Forward-looking statements involve risks,
uncertainties and assumptions. Certain of the information contained in this
Annual Report on Form 10-K consists of forward-looking statements. Important
factors that could cause actual results to differ materially from the
forward-looking statements include the following:
Cyclicality of the Semiconductor Industry
MKS estimates that approximately 66% of its sales during 1999 were to
semiconductor capital equipment manufacturers and semiconductor device
manufacturers, and MKS expects that sales to such customers will continue to
account for a substantial majority of its sales. MKS'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. Periodic reductions in demand for the
products manufactured by semiconductor capital equipment manufacturers and
semiconductor device manufacturers may adversely affect MKS's business,
financial condition and results of operations. Historically, the semiconductor
market has been highly cyclical and has experienced periods of overcapacity,
resulting in significantly reduced demand for capital equipment. For example, in
1996 and 1998 the semiconductor industry experienced a significant decline,
which caused a number of MKS's customers to reduce their orders. MKS cannot be
certain that semiconductor downturns will not recur. A decline in the level of
orders as a result of any future downturn or slowdown in the semiconductor
industry could have a material adverse effect on MKS's business, financial
condition and results of operations.
Fluctuations in Operations Results
A substantial portion of MKS's shipments occur shortly after an order is
received and therefore MKS operates with a low level of backlog. As a
consequence of the just-in-time nature of shipments and the low level of
backlog, a decrease in demand for MKS's products from one or more customers
could occur with limited advance notice and could have a material adverse effect
on MKS's results of operations in any particular period.
A significant percentage of MKS's expenses are relatively fixed and based in
part on expectations of future net sales. The inability to adjust spending
quickly enough to compensate for any shortfall would magnify the adverse impact
of a shortfall in net sales on MKS's results of operations. Factors that could
cause fluctuations in MKS's net sales include:
- The timing of the receipt of orders from major customers
- Shipment delays
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- Disruption in sources of supply
- Seasonal variations of capital spending by customers
- Production capacity constraints
- Specific features requested by customers
For example, MKS was in the process of increasing production capacity when the
semiconductor capital equipment market began to experience a significant
downturn in 1996. This downturn had a material adverse effect on MKS's operating
results in the second half of 1996 and the first half of 1997. After an increase
in business in the latter half of 1997, the market experienced another downturn
in 1998, which had a material adverse effect on MKS's 1998 and first quarter
1999 operating results. As a result of the factors discussed above, it is likely
that MKS will in the future experience quarterly or annual fluctuations and
that, in one or more future quarters, MKS's operating results will fall below
the expectations of public market analysts or investors. In any such event, the
price of MKS's common stock could decline significantly.
Customer Concentration
MKS's five largest customers in 1999 and 1998 accounted for approximately 33%
and 24%, respectively, of its net sales. 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 MKS's
business, financial condition and results of operations. During 1999, one
customer, Applied Materials, Inc., accounted for approximately 22% of MKS's net
sales. While the Company has entered into a purchase contract with Applied
Materials, Inc. that expires in 2000 unless it is extended by mutual agreement,
none of MKS's significant customers, including Applied Materials, Inc., has
entered into an agreement requiring it to purchase any minimum quantity of MKS's
products. The demand for MKS's products from its semiconductor capital equipment
customers depends in part on orders received by them from their semiconductor
device manufacturer customers.
Attempts to lessen the adverse effect of any 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
MKS's ability to maintain relationships with existing key customers, MKS's
ability to attract new customers, and the success of MKS's customers in creating
demand for their capital equipment products which incorporate MKS's products.
Competition
The markets for MKS's products are highly competitive. The Company's competitive
success often depends upon factors outside of its control. For example, in some
cases, particularly with respect to mass flow controllers, semiconductor device
manufacturers may direct semiconductor capital equipment manufacturers 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 the Company's products be used at their
semiconductor fabrication facilities. In addition, MKS may encounter
difficulties in changing established relationships of competitors that already
have a large installed base of products within such semiconductor fabrication
facilities.
Technological Changes
New products designed by semiconductor capital equipment manufacturers typically
have a lifespan of five to ten years. MKS's success depends on its products
being designed into new generations of equipment for the semiconductor industry.
The Company must develop products that are technologically current so that they
are positioned to be chosen for use in each successive new generation of
semiconductor equipment. If its products are not chosen by its customers, the
Company's net sales may be reduced during the lifespan of its customers'
products.
Expansion into New Markets
MKS plans to build upon its experience in manufacturing and selling gas
measurement, control and analysis products used
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by the semiconductor industry by designing and selling such products for
applications in other industries which use production processes similar to those
used in the semiconductor industry. For example, MKS plans to expand its
business to the manufacture of, among other things, hard coatings to minimize
wear on cutting tools. Any failure by the Company to penetrate additional
markets would limit its ability to reduce its vulnerability to downturns in the
semiconductor industry and could have a material adverse effect on MKS's
business, financial condition and results of operations.
MKS has limited experience selling its products in certain markets outside the
semiconductor industry. The Company cannot be certain that it will be successful
in the expansion of its business outside the semiconductor industry.
MKS's future success will depend in part on its ability to:
- identify new applications for MKS's products
- adapt MKS's products for such applications
- market and sell such products to customers
Expansion of Manufacturing Capacity
MKS's ability to increase sales of certain products depends in part upon its
ability to expand manufacturing capacity for such products in a timely manner.
If the Company is unable to expand manufacturing capacity on a timely basis or
to manage such expansion effectively, its customers could seek such products
from others and its market share could be reduced. Because the semiconductor
industry is subject to rapid demand shifts which are difficult to foresee, MKS
may not be able to increase capacity quickly enough to respond to a rapid
increase in demand in the semiconductor industry. Additionally, capacity
expansion could increase the Company's fixed operating expenses and if sales
levels do not increase to offset the additional expense levels associated with
any such expansion, the Company's business, financial condition and results of
operations could be materially adversely affected.
International Operations and Sales
International sales, which include sales by MKS's foreign subsidiaries, but
exclude direct export sales which were less than 10% of total net sales,
accounted for approximately 31% of net sales in 1999, and 32% of net sales in
1998. MKS anticipates that international sales will continue to account for a
significant portion of net sales. In addition, certain of MKS's key domestic
customers derive a significant portion of their revenues from sales in
international markets. Therefore, MKS's sales and results of operations could be
adversely affected by economic slowdowns and other risks associated with
international sales.
Exchange rate fluctuations could have an adverse effect on MKS's net sales and
results of operations and the Company could experience losses with respect to
its hedging activities. Unfavorable currency fluctuations could require MKS to
increase prices to foreign customers which could result in lower net sales to
such customers. Alternatively, if MKS does not adjust the prices for its
products in response to unfavorable currency fluctuations, its results of
operations could be adversely affected. In addition, sales made by MKS's foreign
subsidiaries are denominated in the currency of the country in which these
products are sold and the currency MKS receives in payment for such sales could
be less valuable at the time of receipt as a result of exchange rate
fluctuations. While MKS enters into forward exchange contracts and local
currency purchased options to reduce currency exposure arising from intercompany
sales of inventory, MKS cannot be certain that its efforts will be adequate to
protect the Company against significant currency fluctuations or that such
efforts will not expose MKS to additional exchange rate risks.
Need to Retain and Attract Key Employees
MKS's success depends to a large extent upon the efforts and abilities of a
number of key employees and officers, particularly those with expertise in the
semiconductor manufacturing and similar industrial manufacturing industries. The
loss of key employees or officers could have a material and adverse effect on
MKS's business, financial condition and results of operations. MKS 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 MKS cannot be certain that it
will be successful in attracting and retaining such personnel.
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Intellectual Property Matters
Although MKS seeks to protect its intellectual property rights through patents,
copyrights, trade secrets and other measures, MKS cannot be certain that:
- it will be able to protect its technology adequately
- competitors will not be able to develop similar technology
independently
- any of its pending patent applications will be issued
- intellectual property laws will protect its intellectual property
rights
- third parties will not assert that MKS's products infringe patent,
copyright or trade secrets of such parties
Litigation may be necessary in order to enforce MKS's patents, copyrights or
other intellectual property rights, to protect its 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 effect on the Company's
business, financial condition and results of operations.
MARKET RISK AND SENSITIVITY ANALYSIS
Foreign Exchange Rate Risk
MKS enters into forward exchange contracts and local currency purchased options
to reduce currency exposure arising from intercompany sales of inventory. The
potential fair value loss for a hypothetical 10% adverse change in forward
currency exchange rates on MKS's forward exchange contracts at December 31, 1999
would be $502,000. The potential loss was estimated by calculating the fair
value of the forward exchange contracts at December 31, 1999 and comparing that
with those calculated using the hypothetical forward currency exchange rates.
The value of the local currency purchased options at December 31, 1999 was
immaterial.
At December 31, 1999, MKS had $12,423,000 related to short-term borrowings
denominated in Japanese yen. The carrying value of these short-term borrowings
approximates fair value due to their short period to maturity. Assuming a
hypothetical 10% adverse change in the Japanese yen to U.S. dollar year end
exchange rate, the fair value of these short-term borrowings would increase by
$1,381,000. The potential increase in fair value was estimated by calculating
the fair value of short-term borrowings at December 31, 1999 and comparing that
with the fair value using the hypothetical year end exchange rate.
Interest Rate Risk
MKS is exposed to fluctuations in interest rates in connection with its variable
rate term loans. In order to minimize the effect of changes in interest rates on
earnings, MKS entered into an interest rate swap that fixed the interest rate on
its variable rate term loans. Under the swap agreement, MKS pays a fixed rate of
5.85% on the notional amount and receives LIBOR. At December 31, 1999, the
notional amount of the interest rate swap was equal to the principal amount of
the variable rate term loans. The potential increase in the fair value of term
loans when adjusting for the interest rate swap paying at a fixed rate resulting
from a hypothetical 10% decrease in interest rates was not material.
Due to its short-term duration the fair value of the Company's cash and
investment portfolio at December 31, 1999 approximated its carrying value.
Interest rate risk was estimated as the potential decrease in fair value
resulting from a hypothetical 10% increase in interest rates for securities
contained in the investment portfolio. The resulting hypothetical fair value was
not materially different from the year-end carrying value.
11
<PAGE> 12
ITEM 2. PROPERTIES
The following table provides information concerning MKS's principal and
certain other owned and leased facilities as of December 31, 1999:
<TABLE>
<CAPTION>
LEASE
LOCATION SQ. FT. ACTIVITY PRODUCTS MANUFACTURED EXPIRES
<S> <C> <C> <C> <C>
Andover, Massachusetts 82,000 Headquarters, Pressure measurement and (1)
Manufacturing, Customer control products
Support and Research &
Development
Boulder, Colorado 86,000 Manufacturing, Customer Vacuum products (2)
Support, Service and
Research & Development
Methuen, Massachusetts 85,000 Manufacturing, Customer Pressure measurement and (1)
Support, Service and control products; Materials
Research & Development delivery and analysis products
Lawrence, Massachusetts 40,000 Manufacturing Pressure measurement and (1)
control products
Tokyo, Japan 20,700 Manufacturing, Sales, Materials delivery and (3)
Customer Support, analysis products
Service and Research &
Development
Richardson, Texas 14,600 Manufacturing, Sales, Pressure measurement and 8/31/01
Customer Support and control products
Service
Santa Clara, California 13,000 Sales, Customer Support Not applicable (4)
and Service
Munich, Germany 14,100 Manufacturing, Sales, Pressure measurement and (1)
Customer Support, control products; Materials
Service and Research & delivery and analysis products
Development
Le Bourget, France 13,700 Sales, Customer Support Not applicable (1)
and Service
Austin, Texas 8,200 Sales, Customer Support Not applicable 1/30/03
and Service
Seoul, Korea 4,760 Manufacturing, Sales, Materials delivery and 5/30/00*
Customer Support and analysis products
Service
Cheshire, U.K. 2,200 Manufacturing, Sales, Materials delivery and 10/5/09
Customer Support and analysis products
Service
Singapore 2,050 Sales, Customer Support Not applicable 3/25/01
and Service
Taiwan 2,050 Sales, Customer Support Not applicable 12/31/01
and Service
</TABLE>
- ----------
(1) This facility is owned by MKS.
(2) MKS leases one facility which has 39,000 square feet of space and a lease
term which expires 10/31/01 and owns a second and third facility with
28,000 and 19,000 square feet of space, respectively.
(3) MKS leases a facility which has 14,000 square feet of space and a lease
term which expires 4/30/01 and owns another facility with 6,700 square feet
of space.
(4) MKS 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 1/30/03. MKS owns a third facility of 5,000 square feet.
12
<PAGE> 13
* MKS has an option to extend this lease for a period of two years.
In addition to manufacturing and other operations conducted at the foregoing
leased or owned facilities, MKS provides worldwide sales, customer support and
services from various other leased facilities throughout the world not listed in
the table above. See "Business -- Sales, Marketing and Support."
ITEM 3. LEGAL PROCEEDINGS
MKS is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of Fiscal 1999 through the solicitation of proxies of otherwise.
PART II
ITEM 5. MARKETS FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information required by this item is set forth under the caption
"Supplemental Stockholders Information" on page 28 of our 1999 Annual Report and
is incorporated herein by reference and is filed herewith as Exhibit 13.1.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information required by this item is set forth under the caption
"Selected Consolidated Financial Data" on page 20 of our 1999 Annual Report and
is incorporated herein by reference and is filed herewith as Exhibit 13.1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required by this item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" on pages 21 through 27 of our 1999 Annual Report and is incorporated
herein by reference and is filed herewith as Exhibit 13.1.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is set forth under the caption "Market
Risk and Sensitivity Analysis" on page 27 of our 1999 Annual Report and is
incorporated herein by reference and is filed herewith as Exhibit 13.1.
ITEM 8. FINANCIAL STATEMENTS
The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, Independent Accountants, dated January 28, 2000, and
appearing on pages 29 through 43 of our 1999 Annual Report is incorporated
herein by reference and is filed herewith as Exhibit 13.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the captions
"Election of Directors" and "Executive Officers" in our Proxy Statement for the
2000 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" in our Proxy Statement for the 2000 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in our Proxy
Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Certain Relationships and Related Transactions" in our Proxy Statement for the
2000 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report
(1) FINANCIAL STATEMENTS:
PART IV
MKS INSTRUMENTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ANNUAL REPORT
TITLE PAGE NUMBER
----- -----------
<S> <C>
Report of Independent Accountants 29
Consolidated Balance Sheets at December 31, 1999 and 1998 30
Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 31
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 32
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 33
Notes to Consolidated Financial Statements 34
</TABLE>
The consolidated financial statements and related notes, together with the
report thereon of PricewaterhouseCoopers LLP dated January 28, 2000, listed in
the above index that are included in our 1999 Annual Report which is filed
herewith as Exhibit 13.1 are hereby incorporated by reference. With the
exception of the pages listed in the above index and the portion of such report
referred to in Items 5, 6, 7, 7A, and 8 of this Form 10-K, our 1999 Annual
Report is not to be deemed filed as part of this report.
(2) FINANCIAL STATEMENT SCHEDULE:
The following financial statement schedule of MKS Instruments,
Inc. for the years ended December 31, 1999, 1998 and 1997 is filed as
part of this Form 10-K and should be read in conjunction with our
Consolidated Financial Statements included in Item 8 of this Report on
Form 10-K.
14
<PAGE> 15
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT CHARGED TO
BEGINNING COSTS AND CHARGED TO BALANCE AT
DESCRIPTION OF YEAR EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF YEAR
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts............. $482,000 $258,000 $ ---- $130,000 $610,000
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts............. 610,000 253,000 ---- 207,000 656,000
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts............. 656,000 257,000 ---- (21,000) 934,000
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of MKS Instruments, Inc.:
Our audits of the consolidated financial statements referred to in
our report dated January 28, 2000 appearing in the 1999 Annual Report
to Shareholders of MKS Instruments, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 28, 2000
All other financial statement schedules have been omitted because
they are inapplicable, not required, or the information is included
elsewhere in the Consolidated Financial Statements or Notes thereto.
(3) EXHIBITS:
(i) The Exhibits listed in the Exhibit Index immediately
preceeding such Exhibits are filed as part of this Annual
Report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<S> <C>
+3.2 Amended and Restated Articles of Organization
+3.4 Amended and Restated By-Laws
+4.1 Specimen certificate representing the common stock
+10.1 Amended and Restated 1995 Stock Incentive Plan
+10.2 1996 Amended and Restated 1996 Director Stock Option Plan
+10.3 1997 Director Stock Option Plan
+10.4 1999 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
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C>
+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 last amended January 1, 2000, by
and between the First National Bank of
Boston and the Registrant
+10.10 Lease Agreement dated as of October 12,
1989, as extended November 1, 1998, by and
between Aspen Industrial Park Partnership
and the Registrant
10.11 Loan Agreement dated as of November 1,
1993, as last amended January 1, 2000,
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 January 28, 1999,
between BankBoston, N.A., 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 Comprehensive Supplier Agreement #982812 dated October 23,
1998 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
+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 Form of Tax Indemnification and S Corporation Distribution
Agreement
+10.25 Employment Agreement dated March 7, 1997 between Joseph
Maher and the Registrant
+10.26 Form of Contribution Agreement
*10.27 MKS Instruments, Inc. International
Employee Stock Purchase Plan
10.28 Loan Agreement dated as of January 1, 2000 between BankBoston, N.A., The Chase
Manhattan Bank, and the Registrant
10.29 Employment Agreement dated as of May 17, 1999 between Peter Younger and the Registrant
10.30 Employment Agreement dated as of December 6, 1999 between Robert Klimm and the
Registrant
13.1 1999 Annual Report to Shareholders (which
shall be deemed filed only with respect to
those portions specifically incorporated
by reference herein)
21.1 Subsidiaries of the Registrant
23.2 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
* Incorporated by reference to the Registration Statement on
Form S-8 (file No. 333-31224) filed with the Securities and
Exchange Commission on February 28, 2000.
16
<PAGE> 17
** Confidential materials omitted and filed separately with the
Securities and Exchange Commission.
+ Incorporated by reference to the Registration Statement on
Form S-1 (file No. 333-71363) filed with the Securities and
Exchange Commission on January 28, 1999, as amended.
(b) Reports on Form 8-K.
No reports filed on Form 8-K were filed during the last quarter of the
fiscal year ended December 31, 1999.
(c) Exhibits.
The Company hereby files as exhibits to our Annual Report on Form 10-K
those exhibits listed in Item 14(a)(3) above.
(d) Financial Statement Schedules.
Not Applicable.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MKS INSTRUMENTS, INC.
By: /s/ John R. Bertucci
-----------------------------------
John R. Bertucci
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ John R. Bertucci Chairman of the Board of Directors and Chief
- -------------------------------------------- Executive Officer (Principal Executive Officer) 3/29/00
John R. Bertucci
/s/ Ronald C. Weigner Vice President and Chief Financial Officer
- -------------------------------------------- (Principal Financial and Accounting Officer) 3/29/00
Ronald C. Weigner
/s/ Richard S. Chute
- -------------------------------------------- Director 3/29/00
Richard S. Chute
/s/ Owen W. Robbins
- -------------------------------------------- Director 3/29/00
Owen W. Robbins
/s/ Robert J. Therrien
- -------------------------------------------- Director 3/29/00
Robert J. Therrien
/s/ Louis P. Valente
- -------------------------------------------- Director 3/29/00
Louis P. Valente
</TABLE>
18
<PAGE> 1
Exhibit 10.9
MKS INSTRUMENTS, INC.
FIFTH AMENDMENT
TO LOAN AGREEMENT
This Fifth Amendment (the "Amendment") dated as of January 1, 2000 concerns
the Loan Agreement dated as of October 31, 1995 (the "Loan Agreement"), between
MKS Instruments, Inc. (the "Borrower") and BankBoston, N.A. (f/k/a The First
National Bank of Boston, the "Lender"), as amended on February 23, 1996,
February 4, 1997, February 3, 1998 and January 28, 1999. Capitalized terms used
herein but not otherwise defined shall have the meanings assigned to them in the
Loan Agreement.
WHEREAS, the Borrower has requested that the Lender agree to change certain
provisions of the Loan Agreement; and
WHEREAS, the Lender is willing, on the terms, subject to the conditions and
to the extent set forth below, to amend the Loan Agreement to effect such
changes;
NOW, THEREFORE, the Lender and the Borrower agree as follows:
Section 1. Amendment of the Loan Agreement.
(a) Section 1.1 of the Loan Agreement is hereby amended by deleting the
definition of "Consolidated Tangible Net Worth" and replacing it with the
following:
"Consolidated Tangible Net Worth" shall mean, at any time, the
stockholders' equity of the Borrower and its Subsidiaries determined
in accordance with generally accepted accounting principles excluding
the book amount of all minority interests in Affiliates and any
foreign exchange translation adjustment, with no upward adjustments
due to a reevaluation of assets (other than any such upward adjustment
as may be required under generally accepted accounting principles in
connection with the acquisition by the Borrower or any Subsidiary of
another company or entity) minus the following items (without
duplication of deductions) appearing on the balance sheet of the
Borrower and its Subsidiaries:
(a) the book amount of all assets (including, without limitation,
goodwill, patents, trademarks, copyrights, organizational expense and
unamortized debt discount) that would be treated as intangibles under
generally accepted accounting principles;
<PAGE> 2
(b) treasury stock; and
(c) any write-up in the book amount of any asset or Investment
subsequent to the Closing Date, resulting from a reevaluation or
reappraisal thereof from the amount entered in accordance with
generally accepted accounting principles by the Borrower or any
Subsidiary on its books with respect to its acquisition of the asset
or Investment.
(b) Section 6.1(d) of the Loan Agreement is hereby amended by deleting the
word "thirty" and replacing it with the words "forty-five".
(c) Section 7.1 of the Loan Agreement is hereby amended by deleting Section
7.1(a) in its entirety and replacing it with the following:
(a) Sale of Assets. The Borrower will not, except in the ordinary
course of business, sell, transfer or otherwise dispose of, to any
Person any assets (including the securities of any Subsidiary) other
than assets having an aggregate fair market value less than seven
percent of Borrower's Consolidated Tangible Net Worth.
(d) Section 7.1(b) of the Loan Agreement is hereby amended and restated as
follows:
(b) Mergers, Etc. Neither the Borrower nor any Subsidiary will
consolidate with or merge into any other Person or permit any other
Person to consolidate with or merge into it, or acquire all or
substantially all of the capital stock or assets of any Person, or
sell, assign, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all
of its assets to any Person, except that
(1) a Subsidiary may consolidate with or merge into the
Borrower or another Subsidiary; and
(2) the Borrower or any of its Subsidiaries may acquire all
or substantially all of the capital stock or assets of any Person
or consolidate or merge with any Person provided (i) such Person
is engaged in a line of business substantially similar to one or
more of Borrower's existing lines of business, (ii) the aggregate
purchase price liability incurred in any calendar year, including
all contingent liabilities, when aggregated with all such
acquisitions and any Investments permitted under Section 7.4(3)
in any calendar year shall not exceed 25% of Consolidated
Tangible Net Worth as of the end of the most recent fiscal
quarter or, if 80% or more of the purchase price is paid in
capital stock of the Borrower, 50% of Consolidated Tangible Net
Worth as of the end of the most recent fiscal quarter and (iii)
based on a pro forma calculation of the ratios set forth in
Section 7.7 as of the date such acquisition is closed, assuming
-2-
<PAGE> 3
consolidation of the acquired business with the Borrower for the
four full fiscal quarters ended immediately preceding such
closing and pro forma debt and debt service payments based on
scheduled principal payments, including acquisition borrowings,
if any, and pro forma interest on total debt at then prevailing
borrowing rates, Borrower is in compliance with the financial
covenants set forth in Section 7.7:
(e) Section 7.4 of the Loan Agreement is hereby amended and restated as
follows:
7.4 Investments. Except as permitted by Section 7.1, neither the
Borrower nor any Subsidiary will make or maintain any investments, made in
cash or by delivery of property or assets, (a) in any Person, whether by
acquisition of capital stock, Indebtedness, or other obligations or
securities, or by loan or capital contribution, or otherwise, or (b) in any
property, whether real or personal, (items (a) and (b) being herein called
"Investments") except the following:
(1) Investments in direct obligations of, or guaranteed by, the
United States government, its agencies or any public instrumentality
thereof and backed by the full faith and credit of the United States
government with maturities not to exceed (or an unconditional right to
compel purchase within) three years from the date of acquisition;
(2) Repurchase agreements collateralized by securities of the
U.S. Government and U.S. Government-sponsored securities;
(3) Investments in or to any Subsidiary or other Affiliate,
provided Borrower remains in compliance with Section 7.1(b);
(4) Investments and obligations issued by the United States
government, any agency thereof, any state of the United States or any
political subdivision of any such state or any public instrumentality
thereof with maturities not to exceed (or an unconditional right to
compel purchase within) three years from the date of acquisition that
are rated AA- or higher by at least one nationally recognized rating
agency;
(5) Investments and obligations issued by any company (other than
a bank) with maturities not to exceed three years from the date of
acquisition with a long-term debt rating of A or higher or a
short-term debt rating of A1 or P1 by at least one nationally
recognized rating agency;
(6) Investments in demand and time deposits with, Eurodollar
deposits with, certificates of deposit issued by, or obligations or
securities fully backed by letters of credit issued by (x) any bank
organized under the laws of the United States, any state thereof, the
District of Columbia or Canada having combined capital and surplus
aggregating at least
-3-
<PAGE> 4
$500,000,000, or (y) any other bank organized under the laws of a
state that is a member of the European Economic Community (or any
political subdivision thereof), Japan, the Cayman Islands, or British
West Indies having as of any date of determination combined capital
and surplus of not less than $500,000,000 or the equivalent thereof
(determined in accordance with generally accepted accounting
principles);
(7) Shares of money market mutual funds registered under the
Investment Company Act of 1940, as amended;
(8) Foreign currency swaps and hedging arrangements entered into
in the ordinary course of business to protect against currency losses,
and interest rate swaps and caps entered into in the ordinary course
of business to protect against interest rate exposure on Indebtedness
bearing interest at a variable rate;
(9) Investments in mutual funds (other than money market mutual
funds) that in the aggregate shall not exceed $5,000,000; and
(10) Other Investments existing on the Closing Date and listed on
the Disclosure Schedule.
(f) Section 7.7 of the Loan Agreement is hereby amended by deleting
subsection (a) and replacing it with the following:
(a) Tangible Net Worth Test. The Consolidated Tangible Net Worth
as of the end of each fiscal quarter of the Borrower shall not be less
than the sum of (i) $100,000,000, plus (ii) 50% of Consolidated Net
Income (excluding losses) minus (iii) all Sub S Dividends paid between
January 1, 2000 and September 15, 2000 in an aggregate amount not to
exceed $6,000,000, for each consecutive fiscal quarter of the Borrower
beginning with the quarter ending December 31, 1999, on a cumulative
basis.
Section 2. Representations and Warranties. The Borrower hereby represents
and warrants as follows:
(a) The execution and delivery of this Amendment and the
performance of this Amendment, the Loan Agreement as amended hereby and each of
the other Loan Documents, and the transactions contemplated hereby and thereby,
have been authorized by all necessary corporate actions of the Borrower. This
Amendment, the Loan Agreement as amended hereby and each of the other Loan
Documents constitute the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
(b) The Borrower has all requisite corporate power and authority
to execute, deliver and perform its obligations under this Amendment, the Loan
Agreement as amended
-4-
<PAGE> 5
hereby and each of the other Loan Documents. Neither the authorization,
execution, delivery or performance by the Borrower of this Amendment nor the
performance of the Loan Agreement as amended hereby or any other Loan Document
nor the performance of the transactions contemplated hereby or thereby violates
or will violate any provision of the corporate charter or by-laws of the
Borrower, or does or will, with the passage of time or the giving of notice or
both, result in a breach of or a default under, or require any consent under or
result in the creation of any lien, charge or encumbrance upon any property or
assets of the Borrower pursuant to, any material instrument, agreement or other
document to which the Borrower is a party or by which the Borrower or any of its
properties may be bound or affected.
(c) The execution and delivery by the Borrower of this Amendment and the
performance by the Borrower of the Loan Agreement as amended hereby and the Loan
Documents do not and will not violate any provision of law or regulation
applicable to the Borrower, or any writ, order or decree of any court or
governmental or regulatory authority or agency applicable to the Borrower.
Section 3. Loan Documents. This Amendment shall be a Loan Document for all
purposes.
Section 4. Conditions to Effectiveness. The effectiveness of this Amendment
is conditioned on the following:
(a) The Borrower and the Lender shall each have executed and delivered
a counterpart of this Amendment;
(b) The representations and warranties contained in Article IV of the
Loan Agreement shall be true and correct in all material respects as of the date
hereof as though made on and as of the date hereof;
(c) No Default or Event of Default under the Loan Agreement shall have
occurred and be continuing;
(d) The Lender shall have received, in form and substance satisfactory
to the Lender:
(i) an opinion of independent counsel to the Borrower with
respect to this Amendment;
(ii) a certificate as to the Borrower's legal existence and good
standing under the laws of The Commonwealth of Massachusetts and;
(iii) a certificate of the Borrower's Clerk as to (x) no changes
in its charter documents and by-laws as amended, (y) corporate votes
authorizing the execution and delivery of this Amendment and (z)
incumbency of the officers authorized to execute this Amendment on
behalf of the Borrower.
-5-
<PAGE> 6
(e) The conditions set forth in Sections 5.2-5.5 of the Loan Agreement
shall have been met as of the date hereof, provided that for purposes thereof
and Section 4.5 of the Loan Agreement, the "Balance Sheet Date" shall mean
September 30, 1999 and the financial statements referred to therein shall mean
the unaudited statements for the period ended September 30, 1999, that have been
furnished to the Lender.
Section 5. Miscellaneous.
(a) On and after the date hereof, each reference in the Loan Agreement
to "this Agreement" or words of like import shall mean and be deemed to be a
reference to the Loan Agreement as amended hereby.
(b) Except as amended and modified hereby, the Loan Agreement is in all
respects ratified and confirmed as of the date hereof, and the terms, covenants
and agreements therein shall remain in full force and effect.
(c) This Amendment and the modifications to the Loan Agreement set
forth herein shall be deemed to be a document executed under seal and shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
(d) This Amendment may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same document.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date and the year first above written.
MKS INSTRUMENTS, INC.
By: /s/ William P. Donlan
Title: Treasurer
BANKBOSTON, N.A.
By:
Title:
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<PAGE> 7
(e) The conditions set forth in Sections 5.2-5.5 of the Loan Agreement
shall have been met as of the date hereof, provided that for purposes thereof
and Section 4.5 of the Loan Agreement, the "Balance Sheet Date" shall mean
September 30, 1999 and the financial statements referred to therein shall mean
the unaudited statements for the period ended September 30, 1999, that have been
furnished to the Lender.
Section 5. Miscellaneous.
(a) On and after the date hereof, each reference in the Loan Agreement
to "this Agreement" or words of like import shall mean and be deemed to be a
reference to the Loan Agreement as amended hereby.
(b) Except as amended and modified hereby, the Loan Agreement is in all
respects ratified and confirmed as of the date hereof, and the terms, covenants
and agreements therein shall remain in full force and effect.
(c) This Amendment and the modifications to the Loan Agreement set
forth herein shall be deemed to be a document executed under seal and shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
(d) This Amendment may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same document.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date and the year first above written.
MKS INSTRUMENTS, INC.
By: /s/ William P. Donlan
Title:
BANKBOSTON, N.A.
By: /s/ Sharon A. Stone
Title: Director
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<PAGE> 1
Exhibit 10.11
MKS INSTRUMENTS, INC.
TENTH AMENDMENT
TO LOAN AGREEMENT
This Tenth Amendment (the "Amendment") dated as of January 1, 2000 concerns
the Loan Agreement dated as of November 1, 1993 (the "Loan Agreement"), between
MKS Instruments, Inc. (the "Borrower") and BankBoston, N.A. (f/k/a The First
National Bank of Boston; the "Lender"), as amended. Capitalized terms used
herein but not otherwise defined shall have the meanings assigned to them in the
Loan Agreement.
WHEREAS, the Borrower has requested that the Lender agree to change certain
provisions of the Loan Agreement; and
WHEREAS, the Lender is willing, on the terms, subject to the conditions and
to the extent set forth below, to amend the Loan Agreement to effect such
changes;
NOW, THEREFORE, the Lender and the Borrower agree as follows:
Section 1. Amendment of the Loan Agreement.
(a) Section 1.1 of the Loan Agreement is hereby amended by deleting the
definition of "Consolidated Tangible Net Worth" and replacing it with the
following:
"Consolidated Tangible Net Worth" shall mean, at any time, the
stockholders' equity of the Borrower and its Subsidiaries determined in
accordance with generally accepted accounting principles excluding the book
amount of all minority interests in Affiliates and any foreign exchange
translation adjustment, with no upward adjustments due to a reevaluation of
assets (other than any such upward adjustment as may be required under
generally accepted accounting principles in connection with the acquisition
by the Borrower or any Subsidiary of another company or entity) minus the
following items (without duplication of deductions) appearing on the
balance sheet of the Borrower and its Subsidiaries:
(a) the book amount of all assets (including, without limitation,
goodwill, patents, trademarks, copyrights, organizational expense and
unamortized debt discount) that would be treated as intangibles under
generally accepted accounting principles;
(b) treasury stock; and
<PAGE> 2
(c) any write-up in the book amount of any asset or Investment
subsequent to the Closing Date, resulting from a reevaluation or
reappraisal thereof from the amount entered in accordance with generally
accepted accounting principles by the Borrower or any Subsidiary on its
books with respect to its acquisition of the asset or Investment.
(b) Section 7.1(d) of the Loan Agreement is hereby amended by deleting the
word "thirty" and replacing it with the words "forty-five".
(c) Section 8.1 of the Loan Agreement is hereby amended by deleting Section
8.1(a) in its entirety and replacing it with the following:
(a) Sale of Assets. The Borrower will not, except in the ordinary
course of business, sell, transfer or otherwise dispose of, to any Person
any assets (including the securities of any Subsidiary) other than assets
having an aggregate fair market value less than seven percent of Borrower's
Consolidated Tangible Net Worth.
(d) Section 8.1(b) of the Loan Agreement is hereby amended and restated as
follows:
(b) Mergers, Etc. Neither the Borrower nor any Subsidiary will
consolidate with or merge into any other Person or permit any other Person
to consolidate with or merge into it, or acquire all or substantially all
of the capital stock or assets of any Person, or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets to any Person, except
that
(1) a Subsidiary may consolidate with or merge into the Borrower
or another Subsidiary; and
(2) the Borrower or any of its Subsidiaries may acquire all or
substantially all of the capital stock or assets of any Person or
consolidate or merge with any Person provided (i) such Person is
engaged in a line of business substantially similar to one or more of
Borrower's existing lines of business, (ii) the aggregate purchase
price liability incurred in any calendar year, including all
contingent liabilities, when aggregated with all such acquisitions and
any Investments permitted under Section 8.4(3) in any calendar year
shall not exceed 25% of Consolidated Tangible Net Worth as of the end
of the most recent fiscal quarter or, if 80% or more of the purchase
price is paid in capital stock of the Borrower, 50% of Consolidated
Tangible Net Worth as of the end of the most recent fiscal quarter and
(iii) based on a pro forma calculation of the ratios set forth in
Section 8.7 as of the date such acquisition is closed, assuming
consolidation of the acquired business with the Borrower for the four
full fiscal quarters ended immediately preceding such closing and pro
forma
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<PAGE> 3
debt and debt service payments based on scheduled principal payments,
including acquisition borrowings, if any, and pro forma interest on
total debt at then prevailing borrowing rates, Borrower is in
compliance with the financial covenants set forth in Section 8.7.
(e) Section 8.4 of the Loan Agreement is hereby amended and restated as
follows:
8.4 Investments. Except as permitted by Section 8.1, neither the
Borrower nor any Subsidiary will make or maintain any investments,
made in cash or by delivery of property or assets, (a) in any Person,
whether by acquisition of capital stock, Indebtedness, or other
obligations or securities, or by loan or capital contribution, or
otherwise, or (b) in any property, whether real or personal, (items
(a) and (b) being herein called "Investments") except the following:
(1) Investments in direct obligations of, or guaranteed by, the
United States government, its agencies or any public instrumentality
thereof and backed by the full faith and credit of the United States
government with maturities not to exceed (or an unconditional right to
compel purchase within) three years from the date of acquisition;
(2) Repurchase agreements collateralized by securities of the
U.S. Government and U.S. Government-sponsored securities;
(3) Investments in or to any Subsidiary or other Affiliate,
provided Borrower remains in compliance with Section 8.1(b);
(4) Investments and obligations issued by the United States
government, any agency thereof, any state of the United States or any
political subdivision of any such state or any public instrumentality
thereof with maturities not to exceed (or an unconditional right to
compel purchase within) three years from the date of acquisition that
are rated AA- or higher by at least one nationally recognized rating
agency;
(5) Investments and obligations issued by any company (other than
a bank) with maturities not to exceed three years from the date of
acquisition with a long-term debt rating of A or higher or a
short-term debt rating of A1 or P1 by at least one nationally
recognized rating agency;
(6) Investments in demand and time deposits with, Eurodollar
deposits with, certificates of deposit issued by, or obligations or
securities fully backed by letters of credit issued by (x) any bank
organized under the laws of the United States, any state thereof, the
District of Columbia or Canada having combined capital and surplus
aggregating at least $500,000,000, or (y) any other bank organized
under the laws of a state that is a member of the European Economic
Community (or any political subdivision thereof), Japan, the Cayman
Islands, or
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<PAGE> 4
British West Indies having as of any date of determination combined
capital and surplus of not less than $500,000,000 or the equivalent
thereof (determined in accordance with generally accepted accounting
principles);
(7) Shares of money market mutual funds registered under the
Investment Company Act of 1940, as amended;
(8) Foreign currency swaps and hedging arrangements entered into
in the ordinary course of business to protect against currency losses,
and interest rate swaps and caps entered into in the ordinary course
of business to protect against interest rate exposure on Indebtedness
bearing interest at a variable rate;
(9) Investments in mutual funds (other than money market mutual
funds) that in the aggregate shall not exceed $5,000,000; and
(10) Other Investments existing on the Closing Date and listed on
the Disclosure Schedule.
(f) Section 8.7 of the Loan Agreement is hereby amended by deleting
subsection (a) and replacing it with the following:
(a) Tangible Net Worth Test. The Consolidated Tangible Net Worth
as of the end of each fiscal quarter of the Borrower shall not be less
than the sum of (i) $100,000,000, plus (ii) 50% of Consolidated Net
Income (excluding losses) minus (iii) all Sub S Dividends paid between
January 1, 2000 and September 15, 2000 in an aggregate amount not to
exceed $6,000,000, for each consecutive fiscal quarter of the Borrower
beginning with the quarter ending December 31, 1999, on a cumulative
basis.
Section 2. Representations and Warranties. The Borrower hereby represents
and warrants as follows:
(a) The execution and delivery of this Amendment and the performance of
this Amendment, the Loan Agreement as amended hereby and each of the other Loan
Documents, and the transactions contemplated hereby and thereby, have been
authorized by all necessary corporate actions of the Borrower. This Amendment,
the Loan Agreement as amended hereby and each of the other Loan Documents
constitute the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms.
(b) The Borrower has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Amendment, the Loan
Agreement as amended hereby and each of the other Loan Documents. Neither the
authorization, execution, delivery or performance by the Borrower of this
Amendment nor the performance of the Loan Agreement as amended hereby or any
other Loan Document nor the performance of the transactions contemplated hereby
or thereby violates or will violate any provision of the corporate charter or
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<PAGE> 5
by-laws of the Borrower, or does or will, with the passage of time or the giving
of notice or both, result in a breach of or a default under, or require any
consent under or result in the creation of any lien, charge or encumbrance upon
any property or assets of the Borrower pursuant to, any material instrument,
agreement or other document to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or affected.
(c) The execution and delivery by the Borrower of this Amendment and
the performance by the Borrower of the Loan Agreement as amended hereby and the
Loan Documents do not and will not violate any provision of law or regulation
applicable to the Borrower, or any writ, order or decree of any court or
governmental or regulatory authority or agency applicable to the Borrower.
Section 3. Loan Documents. This Amendment shall be a Loan Document for all
purposes.
Section 4. Conditions to Effectiveness. The effectiveness of this Amendment
is conditioned on the following:
(a) The Borrower and the Lender shall each have executed and delivered
a counterpart of this Amendment;
(b) The representations and warranties contained in Article V of the
Loan Agreement shall be true and correct in all material respects as of the date
hereof as though made on and as of the date hereof;
(c) No Default or Event of Default under the Loan Agreement shall have
occurred and be continuing; and
(d) The Lender shall have received, in form and substance satisfactory
to it:
(i) an opinion of independent counsel to the Borrower with
respect to this Amendment;
(ii) a certificate as to the Borrower's legal existence and good
standing under the laws of The Commonwealth of Massachusetts; and
(iii) a certificate of the Borrower's Clerk as to (x) no changes
in its charter documents and by-laws as amended, (y) corporate votes
authorizing the execution and delivery of this Amendment and (z)
incumbency of the officers authorized to execute this Amendment on
behalf of the Borrower;
(e) The conditions set forth in clauses (b) - (e) of Section 6.1 of
the Loan Agreement shall have been met as of the date hereof, provided that for
purposes thereof and Section 5.5 of the Loan Agreement, the "Balance Sheet Date"
shall mean September 30, 1999
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<PAGE> 6
and the financial statements referred to therein shall mean the unaudited
statements for the period ended September 30, 1999, that have been furnished to
the Lender.
Section 5. Miscellaneous
(a) On and after the date hereof, each reference in the Loan Agreement
to "this Agreement" or words of like import shall mean and be deemed to be a
reference to the Loan Agreement as amended hereby.
(b) Except as amended and modified hereby, the Loan Agreement is in all
respects ratified and confirmed as of the date hereof, and the terms, covenants
and agreements therein shall remain in full force and effect.
(c) This Amendment and the modifications to the Loan Agreement set
forth herein shall be deemed to be a document executed under seal and shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
(d) This Amendment may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same document.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date and the year first above written.
MKS INSTRUMENTS, INC.
By: William P. Donlan
Title: Treasurer
BANKBOSTON, N.A.
By: /s/ Sharon A. Stone
Title: Director
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<PAGE> 7
and the financial statements referred to therein shall mean the unaudited
statements for the period ended September 30, 1999, that have been furnished to
the Lender.
Section 5. Miscellaneous
(a) On and after the date hereof, each reference in the Loan Agreement
to "this Agreement" or words of like import shall mean and be deemed to be a
reference to the Loan Agreement as amended hereby.
(b) Except as amended and modified hereby, the Loan Agreement is in all
respects ratified and confirmed as of the date hereof, and the terms, covenants
and agreements therein shall remain in full force and effect.
(c) This Amendment and the modifications to the Loan Agreement set
forth herein shall be deemed to be a document executed under seal and shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
(d) This Amendment may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same document.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date and the year first above written.
MKS INSTRUMENTS, INC.
By:
Title:
BANKBOSTON, N.A.
By: /s/ Sharon A. Stone
Title: Director
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<PAGE> 1
Exhibit 10.28
FIRST AMENDED AND RESTATED
LOAN AGREEMENT
by and among
MKS INSTRUMENTS, INC.,
as Borrower,
BANKBOSTON, N.A.,
as Agent and as Lender,
and
THE CHASE MANHATTAN BANK,
as Lender
Dated as of January 1, 2000
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
Page
<S> <C>
1.1. Definitions ................................................................ 1
1.2. Accounting Terms ........................................................... 7
1.3. Other Definitional Provisions .............................................. 7
ARTICLE II
REVOLVING CREDIT FACILITY
2.1. Revolving Credit ........................................................... 7
2.2. Advances ................................................................... 8
2.3. Revolving Loan Account ..................................................... 8
2.4. Interest ................................................................... 9
2.5. Interest Periods ........................................................... 10
2.6. Unused Commitment Fee ...................................................... 10
2.7. Deficiency Advances ........................................................ 11
ARTICLE III
ADDITIONAL TERMS
3.1. Payments ................................................................... 11
3.2. Capital Adequacy ........................................................... 12
3.3. Special Provisions Governing LIBOR Loans ................................... 13
3.4. Taxes ...................................................................... 14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
4.1. Organization, Existence and Power .......................................... 15
4.2. Authorization of Loan Documents; Binding Effect ............................ 15
4.3. Authority .................................................................. 15
4.4. Capital Structure .......................................................... 16
4.5. Financial Condition ........................................................ 16
4.6. Pending Litigation ......................................................... l7
4.7. Certain Agreements; Material Contracts ..................................... 17
4.8. Authorization, Etc. ........................................................ 17
4.9. No Violation ............................................................... 17
4.10. Payment of Taxes............................................................ 18
4.11. Transactions With Affiliates, Officers, Directors and 1% Shareholders ...... 18
4.12. ERISA ...................................................................... 18
4.13. Ownership of Properties; Liens ............................................. 18
4.14. Employment Matters ......................................................... 19
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4.15. Insurance ........................................................ 19
4.16. Indebtedness ..................................................... 19
4.17. Securities Law Compliance ........................................ 19
4.18. Accuracy of Information .......................................... 19
ARTICLE V
CONDITIONS TO ADVANCES
5.1. Each Advance ...................................................... 19
5.2. First Advance ..................................................... 20
ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
6.1. Reporting Requirements ............................................ 21
6.2. Loan Proceeds ..................................................... 22
6.3. Maintenance of Business and Properties; Insurance ................. 23
6.4. Payment of Taxes .................................................. 23
6.5. Compliance with Laws, etc. ........................................ 23
6.6. Books, Records and Accounts ....................................... 24
6.7. Further Assurances ................................................ 24
6.8. Bank Accounts ..................................................... 24
ARTICLE VII
NEGATIVE COVENANTS OF THE BORROWER
7.1. Sale of Assets; Mergers, Etc. ..................................... 24
7.2. Liens and Encumbrances ............................................ 25
7.3. Sales and Leasebacks .............................................. 27
7.4. Investments ....................................................... 27
7.5. Transactions with Affiliates ...................................... 28
7.6. ERISA Compliance .................................................. 29
7.7. Financial Covenants ............................................... 29
7.8. Contracts Prohibiting Compliance with Agreement ................... 29
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Default ........................................................... 29
8.2. Agent to Act ...................................................... 31
8.3. Cumulative Rights ................................................. 32
8.4. No Waiver ......................................................... 32
8.5. Allocation of Proceeds ............................................ 32
</TABLE>
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<PAGE> 4
\
<TABLE>
<CAPTION>
ARTICLE IX
THE AGENT
<S> <C>
9.1. Appointment ........................................................ 32
9.2. Limitation on Liability ............................................ 33
9.3. Reliance ........................................................... 33
9.4. Notice of Default .................................................. 33
9.5. No Representations ................................................. 34
9.6. Indemnification .................................................... 34
9.7. The Agent in its Individual Capacity ............................... 34
9.8. Resignation ........................................................ 35
9.9. Sharing of Payments, Etc. .......................................... 35
9.10. Fees ............................................................... 36
ARTICLE X
MISCELLANEOUS
10.1. Assignments and Participations .................................... 36
10.2. Survival of Representations, Etc. ................................. 37
10.3. Right of Setoff ................................................... 37
10.4. Indemnity; Costs, Expenses and Taxes .............................. 38
10.5. Notices ........................................................... 38
10.6. MASSACHUSETTS LAW ................................................. 39
10.7. Counterparts ...................................................... 40
10.8. JURISDICTION, SERVICE OF PROCESS .................................. 40
10.9. Limit on Interest ................................................. 40
10.10. Amendments ........................................................ 41
10.11. Headings .......................................................... 41
10.12. WAIVER OF NOTICE, ETC. ............................................ 41
10.13. Severability ...................................................... 42
10.14. Entire Agreement .................................................. 42
10.15. Compliance with Covenants ......................................... 42
10.16. Termination ....................................................... 42
10.17. WAIVER OF TRIAL BY JURY ........................................... 42
</TABLE>
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<PAGE> 5
FIRST AMENDED AND RESTATED
LOAN AGREEMENT
This First Amended and Restated Loan Agreement (the "Agreement") is entered
into as of the 1st day of January, 2000, by and among BankBoston, N.A. (f/k/a
The First National Bank of Boston; "BankBoston"), The Chase Manhattan Bank
(f/k/a Chemical Bank; "Chase"; hereinafter BankBoston and Chase may be referred
to individually as a "Lender" or collectively as the "Lenders"), BankBoston in
its capacity as agent for the Lenders (in such capacity, together with any
successor agent appointed in accordance with the terms of Section 9.8, the
"Agent"), and MKS Instruments, Inc., a Massachusetts corporation ("Borrower").
PREMISES:
WHEREAS, the Borrower and the Lenders entered into a Loan Agreement as of
February 23, 1996, which was amended on October 18, 1996, February 4, 1997,
February 2, 1998, February 3, 1998 and January 28, 1999 (as amended, the "Loan
Agreement"); and
WHEREAS, the Borrower has requested that the Lenders agree to certain
changes to the Loan Agreement and the Lenders are willing to make such changes
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereto hereby agree to amend and restate the Loan
Agreement as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. In addition to terms defined elsewhere in this Agreement,
the following terms shall have the meanings indicated, which meanings shall be
equally applicable to both the singular and plural forms of such terms:
"Adjusted LIBOR Rate" shall have the meaning set forth in Section
2.4.1.
"Advance" shall mean the drawing down by the Borrower of a Base Rate
Loan or a LIBOR Loan on any given Advance Date.
"Advance Date" shall mean the date as of which an Advance is
consummated.
"Affiliate" of any Person shall mean any other Person which, directly
or indirectly, controls, or is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of any Person shall mean
the power, directly or indirectly, either to (i) vote 10% or more of the
securities having ordinary voting power for the election of directors of such
Person or (ii) direct the management and policies of such Person, whether by
<PAGE> 6
contract or otherwise. As to the Borrower, the term "Affiliate" shall include,
without limitation, any partnership or joint venture of which the Borrower or
any Affiliate of the Borrower is a general partner or is a limited partner with
more than a ten percent (10%) interest, and any director or executive officer of
the Borrower.
"Applicable Commitment Percentage" shall mean, with respect to each
Lender at any time, a fraction, the numerator of which shall be such Lender's
Revolving Credit Commitment and the denominator of which shall be the Total
Revolving Credit Commitment, which Applicable Commitment Percentage for each
Lender as of the Closing Date is as set forth in Exhibit A; provided, however,
that the Applicable Commitment Percentage of each Lender shall be increased or
decreased to reflect any assignments to or by such Lender effected in accordance
with Section 10.1.
"Assignment and Acceptance" shall mean an Assignment and Acceptance in
the form of Exhibit B (with blanks appropriately filled in) delivered to the
Agent in connection with an assignment of a Lender's interest under this
Agreement pursuant to Section 10.1.
"Base Rate" shall mean the higher of (a) the annual rate of interest
announced from time to time by BankBoston at BankBoston's office at 100 Federal
Street, Boston, Massachusetts, as its "base rate" or (b) one-half of one percent
(1/2%) above the Federal Funds Effective Rate. For the purposes of this
definition, "Federal Funds Effective Rate" shall mean, for any day, the rate per
annum equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York, or
if such rate is not so published for any day that is a Business Day, the average
of the quotations for such day on such transactions received by BankBoston from
three funds brokers of recognized standing selected BankBoston.
"Base Rate Loan" shall mean an Advance that is specified as such in the
Notice of Borrowing with respect to such Advance and that bears interest at the
Base Rate.
"Borrowing" shall mean the incurrence of one or more Advances on a
given date.
"Business Day" shall mean a day on which commercial banks are required
to be open for business in Boston, Massachusetts.
"Cash Flow Ratio" shall have the meaning set forth in Section 7.7(c).
"Closing Date" shall mean the date of this Agreement.
"Compliance Certificate" shall have the meaning set forth in Section 6.
l(c).
"Consolidated Debt Service" shall mean for any period the sum (without
duplication) of Interest Expense, the interest portion of Financing Lease
Obligations and required principal payments on long-term debt of the Borrower
and its Subsidiaries, determined on a consolidated basis.
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<PAGE> 7
"Consolidated Indebtedness" shall mean the Indebtedness of the Borrower
and its Subsidiaries, determined on a consolidated basis.
"Consolidated Net Income" shall mean for any period the net income (or
loss) for such period (before extraordinary items and excluding the net income
of any business entity that is not a Subsidiary in which the Borrower or one of
its Subsidiaries has an ownership interest unless such net income shall have
actually been received by such company in the form of cash distributions) of the
Borrower and its Subsidiaries after deducting all operating expenses,
depreciation and amortization, Interest Expense, the interest portion of
Financing Lease Obligations, all taxes in respect of income and profits paid or
payable and all other proper deductions, all determined on a consolidated basis.
"Consolidated Operating Cash Flow" shall mean for any period, the net
income (or loss) for such period (before extraordinary items and excluding the
net income of any business entity that is not a Subsidiary in which the Borrower
or one of its Subsidiaries has an ownership interest unless such net income
shall have actually been received by the Borrower or Subsidiary, as the case may
be, in the form of cash distributions) of the Borrower and its Subsidiaries
before deducting Interest Expense and taxes and after restoring thereto
depreciation of real and personal property and leasehold improvements and
amortization and after deducting cash taxes paid, and capital expenditures
incurred, provided that capital expenditures shall not include real estate
purchases funded by debt.
"Consolidated Tangible Net Worth" shall mean, at any time, the
stockholders' equity of the Borrower and its Subsidiaries determined in
accordance with generally accepted accounting principles excluding the book
amount of all minority interests in Affiliates and any foreign exchange
translation adjustment, with no upward adjustments due to a reevaluation of
assets (other than any such upward adjustment as may be required under generally
accepted accounting principles in connection with the acquisition by the
Borrower or any Subsidiary of another company or entity) minus the following
items (without duplication of deductions) appearing on the balance sheet of the
Borrower and its Subsidiaries:
(a) the book amount of all assets (including, without limitation,
goodwill, patents, trademarks, copyrights, organizational expense and
unamortized debt discount) that would be treated as intangibles under generally
accepted accounting principles;
(b) treasury stock; and
(c) any write-up in the book amount of any asset or Investment
subsequent to the Closing Date, resulting from a reevaluation or reappraisal
thereof from the amount entered in accordance with generally accepted accounting
principles by the Borrower or any Subsidiary on its books with respect to its
acquisition of the asset or Investment.
"Costs" shall have the meaning set forth in Section 10.4.
"Debt-to-Net Worth Ratio" shall have the meaning set forth in Section
7.7(b).
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"Default" shall mean any event that, with the lapse of time, the giving
of notice, or both, would become an Event of Default hereunder.
"Event of Default" shall have the meaning set forth in Section 8.1
hereof.
"Existing Loan Agreements" shall mean the Loan Agreements between the
Borrower and BankBoston dated November 1, 1993 and October 31, 1995,
respectively, as amended.
"Financing Lease" shall mean any lease of the Borrower or a Subsidiary,
as lessee, that is shown or is required to be shown in accordance with generally
accepted accounting principles as a liability on the balance sheet of the lessee
thereunder.
"Financing Lease Obligation" shall mean for any period the monetary
obligation of the lessee under a Financing Lease. The amount of a Financing
Lease Obligation at any date is the amount at which the lessee's liability under
the Financing Lease would be required to be shown on its balance sheet at such
date.
"Hazardous Substances" shall mean any hazardous waste, as defined by 42
U.S.C. Section 6903(5), any hazardous substances, as defined by 42 U.S.C.
Section 9601(14), any pollutant or contaminant, as defined by 42 U.S.C. Section
9601(33), or any toxic substance, oil or hazardous materials or other chemicals
or substances regulated by any laws or regulations relating to the discharge of
air pollutants, water pollutants, or processed wastewater.
"Indebtedness" shall mean, for any Person, (a) all obligations of such
Person that in accordance with generally accepted accounting principles would be
reflected on the balance sheet of such Person as a liability, (b) all
obligations of any other Person the payment or collection of which such Person
has guaranteed (except by reason of endorsement for collection in the ordinary
course of business) or in respect of which such Person is liable, contingently
or otherwise, including, without limitation, liable by way of agreement to
purchase, to provide funds for payment, to supply funds to or otherwise to
invest in such other Person, or otherwise to assure a creditor against loss, (c)
all obligations of any other Person for borrowed money or for the deferred
purchase price of property or services secured by (or for which the holder of
such indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, or other encumbrance upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, whether or not
such Person has assumed or become liable for the payment of such indebtedness or
obligations, and (d) Financing Lease Obligations of such Person.
"Interest Expense" shall mean for any period the aggregate amount
of interest recorded, in accordance with generally accepted accounting
principles, on the financial statements for that period by the Borrower and its
Subsidiaries in respect of Consolidated Indebtedness incurred for borrowed
money.
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"Interest Period" shall mean the period designated by the Borrower as
such in the Notice of Borrowing with respect to any LIBOR Loan pursuant to and
subject to the limitations set forth in Section 2.5.
"Interest Rate Determination Date" shall mean the third Business Day
prior to the first day of the related Interest Period for a LIBOR Loan.
"Interim Maturity Date" shall mean the last day of any Interest Period.
"Investments" shall have the meaning set forth in Section 7.4.
"IPO" shall mean the initial underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of the Borrower's Common Stock for the
account of the Borrower.
"LIBOR Loan" shall mean an Advance that is specified as such in the
Notice of Borrowing with respect to such Advance and that bears interest at the
adjusted LIBOR Rate.
"LIBOR Rate" shall mean for any Interest Rate Determination Date, the
rate obtained by dividing (i) the quotation offered by the Agent in the
interbank Eurodollar market for U.S. dollar deposits of amounts in immediately
available funds comparable to the principal amount of the LIBOR Loan for which
the LIBOR Rate is being determined with a maturity comparable to the Interest
Period for which such LIBOR Rate will apply as of approximately noon (Boston
time) three Business Days prior to the commencement of such Interest Period by
(ii) a percentage equal to 100% minus the stated maximum rate of all reserves
required to be maintained against "Eurocurrency liabilities" as specified in
Regulation D (or against any other category of liabilities that includes
deposits by reference to which the interest rate on LIBOR Loans is determined)
as applicable on such date to any member bank of the Federal Reserve System.
"Licenses" shall have the meaning set forth in Section 4.8.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether the
interest is based on common law, statute or contract (including the security
interest lien arising from a mortgage, encumbrance, pledge, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes). For
the purposes of this Agreement, the Borrower or a Subsidiary shall be deemed to
be the owner of any property that it has acquired or holds subject to a
Financing Lease or a conditional sale agreement or other arrangement pursuant to
which title to the property has been retained by or vested in some other Person
for security purposes, and such retention or vesting shall be deemed to be a
Lien.
"Loan Documents" shall mean each of this Agreement, the Notes and any
other document or instrument executed by the Borrower in favor of the Lenders in
connection with the transactions contemplated hereby.
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"Note" shall mean a Revolving Credit Note.
"Notice of Borrowing" shall have the meaning set forth in Section
2.2.1.
"Obligations" shall mean, without limitation, any and all liabilities,
debts, and obligations of the Borrower to each of the Lenders, of each and every
kind, nature and description, arising under this Agreement or any other Loan
Document, whether now existing or hereafter incurred. "Obligations" also means,
without limitation, any and all obligations of the Borrower to act or to refrain
from acting in accordance with the terms, provisions and covenants of this
Agreement or of any other Loan Document.
"Permitted Liens" shall have the meaning set forth in Section 7.2.
"Person" shall mean any natural person, corporation, unincorporated
organization, trust, joint-stock company, joint venture, association, company,
partnership or government, or any agency or political subdivision of any
government.
"Required Lenders" shall mean, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 66-2/3% of the
aggregate Credit Exposures of all the Lenders on such date. For purposes of the
preceding sentence, the "Credit Exposure" of each Lender shall mean the
aggregate principal amount of the Advances owing to such Lender plus the
aggregate unutilized amounts of such Lender's Revolving Credit Commitment.
"Revolver Termination Date" shall mean December 31, 2000 or any
subsequent anniversary thereof if the Total Revolving Credit Commitment shall
have been renewed by the Lenders.
"Revolving Credit Commitment" means, with respect to each Lender, the
obligation of such Lender to make Advances to the Borrower up to an aggregate
principal amount at any one time outstanding equal to such Lender's Applicable
Commitment Percentage of the Total Revolving Credit Commitment.
"Revolving Credit Facility" shall mean the loan arrangement described
in Article II of this Agreement, subject to all other applicable terms of this
Agreement.
"Revolving Credit Note" shall have the meaning set forth in Section
2.3.
"Revolving Credit Outstandings" means, as of any date of determination,
the aggregate principal amount of all Advances then outstanding and all interest
accrued thereon.
"Revolving Loan Account" shall mean the account on the books of the
Agent in the name of the Borrower in which the following shall be recorded:
Advances made by the Lenders to and for the account of the Borrower pursuant to
Section 2 of this Agreement; all other charges, expenses and other items
properly chargeable to the Borrower with respect to such Advances; all Costs
with respect to such Advances; all payments made by the Borrower on
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account of Indebtedness evidenced by the Revolving Credit Notes; and other
appropriate debits and credits.
"Subsidiary" shall mean any Person of which the Borrower at the time
owns, directly or indirectly, through another Subsidiary or otherwise, 50% or
more of the equity interests.
"Sub S Dividends" shall mean one or more distributions by the Borrower
to its shareholders who were shareholders prior to the IPO in an aggregate
amount equal to the Borrower's "accumulated adjustments account", as defined in
Section 1368(a)(1) of the Internal Revenue Code of 1986, as of the date of the
IPO.
"Total Revolving Credit Commitment" shall mean a principal amount equal
to $30,000,000.
1.2. Accounting Terms. Accounting terms not specifically defined in this
Agreement shall have the meanings given to them under generally accepted
accounting principles.
1.3. Other Definitional Provisions. The words "hereof," "herein" and
"hereunder," and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement.
Any Article, Section, Exhibit or Schedule references are to this Agreement
unless otherwise specified.
ARTICLE II
REVOLVING CREDIT FACILITY
2.1. Revolving Credit. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Advances from time to time to
the Borrower during the period from the date hereof to the Revolver Termination
Date on a pro rata basis as to the total Borrowing requested by the Borrower on
any day determined by such Lender's Applicable Commitment Percentage up to but
not exceeding the Revolving Credit Commitment of such Lender, provided, however,
that the Lenders will not be required and shall have no obligation to make any
such Advance (i) so long as a Default or an Event of Default has occurred and is
continuing or (ii) if the Agent has accelerated the maturity of any of the Notes
as a result of an Event of Default; provided further, however, that immediately
after giving effect to each such Advance, the aggregate principal amount of
Revolving Credit Outstandings shall not exceed the Total Revolving Credit
Commitment. Within such limits and subject to the terms and conditions hereof,
the Borrower may borrow, repay and reborrow under the Revolving Credit Facility
on any Business Day from the Closing Date until, but (as to borrowings and
reborrowings) not including, the Revolver Termination Date. All Advances shall
be due and payable no later than the Revolver Termination Date. Each Advance
shall, at the option of the Borrower, be a Base Rate Loan or a LIBOR Loan
provided, however, that no LIBOR Loan having an Interest Period of 2, 3 or 6
months shall be made at any time in a principal amount of less than $1,250,000
and
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no LIBOR Loan having an Interest Period of 1 month shall be made at any time in
a principal amount of less than $1,000,000.
2.2. Advances.
2.2.1. Whenever the Borrower desires to obtain a LIBOR Loan hereunder,
it may request that the Agent provide quotes as of any specified Interest Rate
Determination Date as to the LIBOR Rate for any or all Interest Periods, and the
Agent shall promptly provide such quotes. The Borrower shall give the Agent
prior telecopied or telephone notice (given not later than 11:00 a.m. (Boston
time)) on the day of any Borrowing with respect to a Base Rate Loan and at least
three Business Days prior to the day of any Borrowing with respect to a LIBOR
Loan. Each such notice (each a "Notice of Borrowing") shall specify the
principal amount of each Advance to be made, the date of the Borrowing (which
shall be a Business Day), whether each Advance being made is to be initially
maintained as a Base Rate Loan or a LIBOR Loan and, in the case of a LIBOR Loan,
the initial Interest Period applicable thereto. If such notice is given by
telephone, it shall be immediately confirmed in writing. Notice of receipt of a
Notice of Borrowing, together with the amount of each Lender's portion of an
Advance requested thereunder, shall be provided by the Agent to each Lender by
facsimile transmission with reasonable promptness on the day the Agent receives
the Notice of Borrowing. No more than one Base Rate Loan shall be outstanding at
any time, but the Borrower may increase the principal amount of any Base Rate
Loan at any time by giving a Notice of Borrowing as set forth above.
2.2.2. No later than 3:00 p.m. on the Advance Date, each Lender shall,
pursuant to the terms and subject to the conditions of this Agreement, make the
amount of the Advance or Advances to be made by it on such day available by wire
transfer to the Agent in the amount of its pro rata share, determined according
to such Lender's Applicable Commitment Percentage of the Advance or Advances to
be made on such day. Such wire transfer shall be directed to the Agent and shall
be in the form of Dollars constituting immediately available funds. The amount
so received by the Agent shall, subject to the terms and conditions of this
Agreement, promptly be made available to the Borrower on the date so specified
by delivery of the proceeds thereof to the Revolving Loan Account or otherwise
as shall be directed in the applicable Notice of Borrowing and reasonably
acceptable to the Agent.
2.2.3. Upon the Interim Maturity Date of any LIBOR Loan, unless the
Borrower (i) shall have given the Agent a Notice of Borrowing in accordance with
Section 2.2.1 requesting that a new LIBOR Loan be made on such Interim Maturity
Date or (ii) shall have repaid such LIBOR Loan on such Interim Maturity Date,
the Borrower shall be deemed to have requested that the Lenders make a Base Rate
Loan to the Borrower on such Interim Maturity Date in an aggregate principal
amount equal to the aggregate principal amount of the LIBOR Loan maturing on
such Interim Maturity Date.
2.3. Revolving Loan Account. The Advances made by each Lender from time
to time to the Borrower under this Agreement shall be evidenced by a Revolving
Credit Note in the form of Exhibit C hereto (each, a "Revolving Credit Note") in
the amount of such Lender's Revolving Credit Commitment. The Advances and the
amounts of all payments on the Revolving Credit
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Notes shall be recorded by the Agent in the Revolving Loan Account of the
Borrower. The debit balance of the Revolving Loan Account shall represent the
amount of the Borrower's indebtedness to the Lenders from time to time by reason
of Advances and other appropriate charges hereunder. All statements regarding
the Revolving Loan Account shall be deemed to be accurate absent manifest error
or unless objected to by the Borrower within 30 days after receipt. The Borrower
agrees to review each such statement promptly after receipt and to bring any
errors or discrepancies to the Agent's attention promptly.
2.4. Interest.
2.4.1. The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Advance from the date the proceeds thereof are made
available to the Borrower until maturity (whether by acceleration, voluntary
prepayment or otherwise) as follows. Each Advance shall bear interest at the
Base Rate in effect from time to time unless the Borrower elects and qualifies
to pay interest on such Advance at the following rate (the "Adjusted LIBOR
Rate"):
(i) During any period in which the Borrower maintains a
Debt-to-Net Worth Ratio of less than 1.25 to 1:
(a) and a Cash Flow Ratio of less than 1.75 to 1, the LIBOR
Rate plus 1.125%;
(b) and a Cash Flow Ratio of 1.75 to 1 or greater up to and
including 2.5 to 1, the LIBOR Rate plus .875%; or
(c) and a Cash Flow Ratio in excess of 2.5 to 1, the LIBOR
Rate plus .625%;
(ii) During any period in which the Borrower maintains a
Debt-to-Net Worth Ratio equal to or greater than 1.25 to 1 but less
than 1.5 to 1:
(a) and a Cash Flow Ratio of less than 1.75 to 1, the LIBOR
Rate plus 1.25%;
(b) and a Cash Flow Ratio of 1.75 to 1 or greater up to and
including 2.5 to 1, the LIBOR Rate plus 1.00%; or
(c) and a Cash Flow Ratio in excess of 2.5 to 1, the LIBOR
Rate plus .75%.
Notwithstanding the preceding clauses (i) and (ii), if at any time and
during any such period as the outstanding Advances exceed $7,500,000, each of
the percentages set forth in such clauses shall be increased by an additional
.25%. The availability of the preceding clauses (i) and (ii) and the effect of
any change to the Borrower's Debt-to-Net Worth Ratio or Cash Flow Ratio on the
interest rate available pursuant to the preceding clauses (i) and (ii) shall
take effect
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on the first day of the month immediately following the month in which the
Borrower delivers its financial statements pursuant to Section 6.1(a) or (b)
and Compliance Certificate pursuant to Section 6.1(c).
2.4.2. Overdue principal and (to the extent permitted by law) overdue
interest in respect of each Base Rate Loan and each LIBOR Loan (to the extent
not converted into a Base Rate Loan) shall bear interest, payable on demand,
after as well as before judgment, at a rate per annum equal to the Base Rate in
effect from time to time plus 3% per annum.
2.4.3. Interest shall accrue from and including the date of any Advance
and shall be payable by the Borrower on each Advance in arrears on the last day
of each of the Borrower's fiscal quarters, on any prepayment (on the amount
prepaid), on any maturity date (whether by acceleration or otherwise), and after
such maturity, on demand. Interest shall be calculated on the basis of actual
days elapsed and a 360-day year.
2.5. Interest Periods. At the time it gives any Notice of Borrowing with
respect to a LIBOR Loan, the Borrower shall elect the Interest Period applicable
to the related Advance, which Interest Period shall, at the option of the
Borrower, be a period of 1, 2, 3 or 6 months. Notwithstanding anything to the
contrary contained herein:
(i) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business
Day of such calendar month;
(ii) if any Interest Period would otherwise expire on a day that
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that if any Interest Period would
otherwise expire on the day that is not a Business Day but is a day of
the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iii) no Interest Period shall extend beyond the Revolver
Termination Date.
2.6. Unused Commitment Fee. For the period beginning on the Closing Date
and ending on the Revolver Termination Date, the Borrower agrees to pay to the
Agent, for the pro rata benefit of the Lenders based on their Applicable
Commitment Percentages, an unused commitment fee equal to 0.35% per annum
multiplied by the average daily amount by which (a) the Total Revolving Credit
Commitment exceeds (b) the Revolving Credit Outstandings less all accrued and
unpaid interest. Such fees shall be due in arrears on the last Business Day of
each March, June, September and December commencing March 31, 2000 to and on the
Revolver Termination Date. Notwithstanding the foregoing, so long as any Lender
fails to make available any portion of its Revolving Credit Commitment when
requested, such Lender shall not be entitled to receive payment of its pro rata
share of such fee for so long as such Lender shall not
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have made available such portion. Such fee shall be calculated on the basis of a
year of 360 days for the actual number of days elapsed.
2.7. Deficiency Advances. No Lender shall be responsible for any default of
any other Lender in respect to such other Lender's obligation to make any
Advance nor shall the Revolving Credit Commitment of any Lender hereunder be
increased as a result of such default of any other Lender. Without limiting the
generality of the foregoing, in the event any Lender shall fail to advance funds
to the Borrower as herein provided, the Agent may in its discretion, but shall
not be obligated to, advance under the Revolving Credit Note in its favor as a
Lender all or any portion of such amount or amounts (each, a "deficiency
advance") and shall thereafter be entitled to payments of principal of and
interest on such deficiency advance in the same manner and at the same interest
rate or rates to which such other Lender would have been entitled had it made
such advance under its Revolving Credit Note; provided that, upon payment to the
Agent from such other Lender of the entire outstanding amount of each such
deficiency advance, together with accrued and unpaid interest thereon, from the
most recent date or dates interest was paid to the Agent by the Borrower on each
Advance comprising the deficiency advance at the rate of interest payable by the
Borrower and payment by such other Lender to Agent of customary late fees, then
such payment shall be credited against the applicable Revolving Credit Note of
the Agent in full payment of such deficiency advance and the Borrower shall be
deemed to have borrowed the amount of such deficiency advance from such other
Lender as of the most recent date or dates, as the case may be, upon which any
payments of interest were made by the Borrower thereon.
ARTICLE III
ADDITIONAL TERMS
3.1. Payments.
3.1.1. The Borrower shall have the right to prepay the Notes, in whole
at any time or in part from time to time, without premium or penalty, provided
that, except as set forth in Section 3.3, no Advance, either in whole or in
part, may be prepaid on the Advance Date of such Advance. The Borrower shall
give notice (by telex or telecopier, or by telephone (confirmed in writing
promptly thereafter)) to the Agent of each proposed prepayment hereunder prior
to 11:00 a.m. (Boston time), (x) with respect to Base Rate Loans, upon the
Business Day of the proposed prepayment and (y) with respect to LIBOR Loans, at
least three Business Days prior to the Business Day of the proposed prepayment,
which notice in each case shall specify the proposed prepayment date (which
shall be a Business Day), the aggregate principal amount of the proposed
prepayment and which Advances are to be prepaid. LIBOR Loans that are
voluntarily prepaid before the last day of the applicable Interest Period shall
be subject to the additional compensation requirements set forth in Section 3.3,
and each prepayment of a LIBOR Loan shall be in an aggregate principal amount of
not less than the total principal amount outstanding at such time under such
LIBOR Loan. If at any time the outstanding principal amount of the Advances
exceeds $30,000,000, the Borrower will immediately prepay the Advances by the
amount of such excess.
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3.1.2. All payments of principal and interest due under the Notes
(including prepayments), and any other amounts owing to the Lenders under this
Agreement shall be made by the Borrower not later than 2:30 p.m., Boston time,
on the day due in lawful money of the United States of America to the Agent at
its Boston, Massachusetts office in immediately available funds. The Borrower
hereby authorizes the Agent to charge such payments as they become due, if not
otherwise paid by the Borrower, to any account of the Borrower with the Agent as
the Agent may elect.
3.1.3. Whenever any payment to be made hereunder or under any other
Loan Document shall be stated to be due on a day that is not a Business Day,
such payment may be made on the next succeeding Business Day, and such extension
of time shall in such case be included in computing interest or other fees or
charges provided for under this Agreement or any other Loan Document; provided,
however, that with respect to LIBOR Loans, if the next succeeding Business Day
falls in another calendar month, such payment shall be made on the next
preceding Business Day.
3.1.4. All payments made by the Borrower on the Notes shall be applied
by the Agent (a) first, to the payment of Costs with respect to the Notes, (b)
second, to the payment of accrued and unpaid interest on the Notes, until all
such accrued interest has been paid, and (c) third, to the payment of the unpaid
principal amount of the Notes. Except as otherwise provided herein, (a) each
payment on account of the principal of and interest on the Notes and the fees
described in Section 2.6 shall be made to the Agent for the account of the
Lenders pro rata based on their Applicable Commitment Percentages, (b) all
payments to be made by the Borrower for the account of each of the Lenders on
account of principal, interest and fees, shall be made without diminution,
setoff, recoupment or counterclaim, and (c) the Agent will promptly distribute
to the Lenders in immediately available funds payments received in fully
collected, immediately available funds from the Borrower.
3.2. Capital Adequacy.
3.2.1. If, after the date of this Agreement, a Lender shall have
reasonably determined in good faith that the adoption or effectiveness after the
date hereof of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Lender with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of materially reducing the rate
of return on such Lender's capital or assets as a consequence of its commitments
or obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's then current policies with respect to capital
adequacy), then from time to time, subject to Section 3.2.2, within 15 days
after demand, the Borrower shall pay to the Agent for the account of such Lender
such additional amount or amounts as will compensate such Lender for such
reduction (after such Lender shall have allocated the same fairly and equitably
among all of its customers or any class generally affected thereby).
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3.2.2. The Agent will notify the Borrower of any event occurring after
the date of this Agreement that will entitle a Lender to any additional payment
under this Section 3.2 as promptly as practicable. The Agent will furnish to the
Borrower with such notice a certificate signed by an officer of the Lender
requesting payment certifying that such Lender is entitled to payment under this
Section 3.2 and setting forth the basis (in reasonable detail) and the amount of
each request by such Lender for any additional payment pursuant to this Section
3.2. Such certificate shall be conclusive in the absence of manifest error. The
Borrower shall not be obligated to compensate such Lender pursuant to this
Section for amounts accruing prior to the date that is 180 days before such
Agent notifies the Borrower of its obligations to compensate such Lender for
such amounts.
3.3. Special Provisions Governing LIBOR Loans. Notwithstanding any other
provisions of this Agreement, the following provisions shall govern with respect
to LIBOR Loans as to the matters covered:
3.3.1. Increased Costs, Illegality, etc. (a) In the event that the
Agent shall have determined (which determination shall, if made in good faith
and absent manifest error, be final, conclusive and binding upon all parties):
(i) on any Interest Rate Determination Date, that by reason of
any changes arising after the date of this Agreement affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of LIBOR Rate; or
(ii) at any time during any Interest Period, that the Lenders
shall incur increased costs (including taxes) or reductions in the
amounts received or receivable hereunder with respect to a LIBOR Loan
by reason of (x) any change since the Interest Rate Determination Date
for the Interest Period in question in any applicable law or
governmental rule, regulation, guideline or order (or any
interpretation thereof and including the introduction of any new law
or governmental rule, regulation, guideline or order) (such as, for
example but not limited to, a change in official reserve requirements,
but excluding reserve requirements that have been included in
calculating the LIBOR Rate for such Interest Period) and/or (y) other
circumstances affecting any Lender, the interbank Eurodollar market or
the position of any Lender in the relevant market; or
(iii) at any time, that the making or continuance of any LIBOR
Loan has become unlawful by compliance by the Lenders in good faith
with any law, governmental rule, regulation, guideline or order, or
has become impracticable as a result of a contingency occurring after
the date of this Agreement;
then and in any such event, the Agent shall promptly after making such
determination give notice (by telephone confirmed in writing) to the Borrower of
such determination. Thereafter (x) in the case of clause (i) above, any Notice
of Borrowing given by the Borrower with respect to a LIBOR Loan that has not yet
been incurred shall be deemed rescinded by the Borrower and
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LIBOR Loans shall no longer be available until such time as the Agent notifies
the Borrower that the circumstances giving rise to such notice no longer exist
or that, notwithstanding such circumstances, LIBOR Loans will again be made
available hereunder, (y) in the case of clause (ii), the Borrower shall pay to
the Agent, upon written demand therefor (but only with respect to any LIBOR Loan
made pursuant to a Notice of Borrowing issued after the giving of the written
notice that LIBOR Loans will again be made available hereunder referred to in
clause (x) above), such additional amounts (in the form of an increased rate of,
or a different method of calculating, interest or otherwise as the Agent in its
sole discretion shall determine) as shall be required to compensate the Lenders
for such increased cost or reduction in amount received (a written notice as to
additional amounts owed the Lenders, showing the basis for such calculation
thereof, shall be given to the Borrower by the Agent and shall, absent manifest
error, be final; conclusive and binding upon the parties hereto), and (z) in the
case of clause (iii), the Borrower shall take one of the actions specified in
Section 3.3.1 (b) as promptly as possible and, in any event, within the time
period required by law.
(b) At any time that any LIBOR Loan is affected by the circumstances
described in Section 3.3.1 (a)(ii) or (iii), the Borrower may (and in the case
of a LIBOR Loan affected pursuant to Section 3.3.1 (a)(iii) shall) either (x) if
the affected LIBOR Loan is then being made, withdraw the related Notice of
Borrowing by giving the Agent telephonic (confirmed in writing) notice thereof
on the same date that the Borrower was notified by the Agent pursuant to Section
3.3. l(a), or (y) if the affected LIBOR Loans are then outstanding, upon at
least three Business Days' written notice to the Agent, require the Agent to
convert each LIBOR Loan so affected into a Base Rate Loan.
3.3.2. Compensation. The Borrower shall compensate the Lenders, upon
the Agent's written request (which request shall set forth the basis for
requesting such amounts), for all reasonable losses, expenses and liabilities
(including, without limitation, any interest paid by the Lender to lenders of
funds borrowed by it to make or carry its LIBOR Loans to the extent not
recovered by the Lenders in connection with the re-employment of such funds) and
any loss sustained by any Lender in connection with the re-employment of the
funds (including, without limitation, a return on such re-employment that would
result in such Lender's receiving less than it would have received had such
LIBOR Loan remained outstanding until the last day of the Interest Period
applicable to such LIBOR Loan) that such Lender may sustain: (i) if for any
reason (other than a default by or negligence of any Lender) a LIBOR Loan is not
advanced on a date specified therefor in a Notice of Borrowing (unless timely
withdrawn pursuant to Section 3.3.1 (b)(x) above), (ii) if any payment or
prepayment of any LIBOR Loans occurs for any reason whatsoever (including,
without limitation, by reason of Section 3.3.1 (b)) on a date that is prior to
the last day of an Interest Period applicable thereto, (iii) if any prepayment
of any of its LIBOR Loans is not made on the date specified in a notice of
payment given by the Borrower pursuant to Section 3.1 or (iv) as a consequence
of an election made by the Borrower pursuant to Section 3.3.1(b)(y).
3.4. Taxes. All payments made by the Borrower under this Agreement and any
Notes shall be made free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any
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governmental authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on any Lender as a result of a present or
former connection between such Lender and the jurisdiction of the governmental
authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from such
Lender's having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or any Note). If any such
non-excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Lenders hereunder or under any Note, the amounts so payable to
the Lenders shall be increased to the extent necessary to yield to the Lenders
(after payment of all Non-Excluded Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement.
Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as
possible thereafter the Borrower shall send to the Agent a certified copy of an
original official receipt received by the Borrower showing payment thereof, if
the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Lenders for any
incremental taxes, interest or penalties that may become payable to any Lenders
as a result of any such failure. The agreements in this subsection shall survive
the termination of this Agreement and the payment of the Advances and all other
amounts payable hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Lenders to enter into this Agreement and to make the
loans provided for herein, the Borrower makes the following representations and
warranties to the Lenders, all of which shall survive the execution and delivery
of this Agreement and the Notes.
4.1. Organization, Existence and Power. The Borrower is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. The Borrower has the corporate power necessary to conduct the
business in which it is engaged, to own the properties owned by it and to
consummate the transactions contemplated by the Loan Documents. The Borrower is
duly qualified or licensed to transact business in all places where the nature
of the properties owned by it or the business conducted by it makes such
qualification necessary and where the failure to be so qualified or licensed
would have a material adverse effect upon the consolidated financial condition,
assets or results of operations of the Borrower and its Subsidiaries taken as a
whole.
4.2. Authorization of Loan Documents; Binding Effect. The execution and
delivery of this Agreement and the other Loan Documents and the performance of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate actions of the Borrower. Each of the Loan Documents
constitutes the legal, valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms.
4.3. Authority. The Borrower has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Loan
Documents. Neither the authorization, exe-
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<PAGE> 20
cution, delivery, or performance by the Borrower of this Agreement or of any
other Loan Document nor the performance of the transactions contemplated hereby
or thereby violates or will violate any provision of the corporate charter or
by-laws of the Borrower, or does or will, with the passage of time or the giving
of notice or both, result in a breach of or a default under, or require any
consent under or result in the creation of any lien, charge or encumbrance upon
any property or assets of the Borrower pursuant to, any material instrument,
agreement or other document to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or affected.
4.4. Capital Structure. The number of shares of stock of which the
Borrower's authorized capital stock consists, the par value per share of such
stock, the number of shares of such stock that have been issued and are
outstanding and the number of shares that have been issued and are held by the
Borrower as treasury shares are all disclosed on the Disclosure Schedule. Set
forth in the Disclosure Schedule is a complete and accurate list of all
Subsidiaries of the Borrower. The Disclosure Schedule indicates the jurisdiction
of incorporation or organization of each of the Subsidiaries, the number of
shares or units of each class of capital stock or other equity of the
Subsidiaries authorized, and the number of such shares or units outstanding and
the percentage of each class of such equity owned (directly or indirectly) by
the Borrower. No shares of stock or units of equity interests of the Borrower or
any of its Subsidiaries are covered by outstanding options, warrants, rights of
conversion or purchase or similar rights granted or created by the Borrower
except as set forth on the Disclosure Schedule. All the outstanding capital
stock of the Borrower has been validly issued and is fully paid and
nonassessable. All the stock or units of equity interests of the Borrower's
Subsidiaries that are owned by the Borrower or any Subsidiary of the Borrower
are owned free and clear of all mortgages, deeds of trust, pledges, liens,
security interests and other charges or encumbrances.
4.5. Financial Condition. The audited consolidated balance sheet of the
Borrower and its Subsidiaries dated as of December 31, 1998 and the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries dated as of
September 30, 1999 (the "Balance Sheet Date") and the related audited and
unaudited, respectively, statements of operations, cash flows and stockholders'
equity of the Borrower and its Subsidiaries for the periods ending on such
dates, including any related notes (the "Financial Statements"), all of which
were heretofore furnished to the Lenders, are true, correct and complete in all
material respects and fairly present in all material respects the financial
condition of the Borrower and its Subsidiaries as of the date of each such
statement and have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except, in the case of unaudited statements, for the absence of footnotes and
subject to normal year-end adjustments that shall not be materially adverse in
the aggregate. Other than as reflected in such Financial Statements and except
for liabilities incurred in the ordinary course of business since the date
thereof, the Borrower has no Indebtedness that is or would be material to the
financial condition of the Borrower, nor any material unrealized or
unanticipated losses from any commitments. Since the Balance Sheet Date there
has been no material adverse change in the consolidated financial condition (as
set forth in the Financial Statements) or results of operations of the Borrower
and its Subsidiaries taken as a whole.
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<PAGE> 21
4.6. Pending Litigation. Except as set forth in the Disclosure Schedule,
there are no suits or proceedings pending or, to the knowledge of the Borrower,
threatened before any court or arbitration tribunal or by or before any
governmental or regulatory authority, commission, bureau or agency or public
regulatory body against the Borrower that if adversely determined would have a
material adverse effect on the consolidated financial condition, assets or
results of operations of the Borrower and its Subsidiaries taken as a whole.
4.7. Certain Agreements; Material Contracts. The Borrower is not a party to
any agreement or instrument or subject to any court order or governmental decree
adversely affecting in any material respect the business, properties, assets or
financial condition of the Borrower and its Subsidiaries taken as a whole.
4.8. Authorization, Etc. All authorizations, consents, approvals,
accreditations, certifications and licenses required under the corporate charter
or by-laws of the Borrower or under applicable law or regulation for the
ownership or operation of the property owned or operated by the Borrower or the
conduct of any business or activity conducted by the Borrower, including
provision of services for which reimbursement is made by third party payors,
other than authorizations, consents, approvals, accreditations, certifications
or licenses the failure to obtain and/or maintain which would not have a
material adverse effect on the consolidated financial condition, assets or
results of operations of the Borrower and its Subsidiaries taken as a whole
(collectively, "Licenses") have been duly issued and are in full force and
effect. The Borrower has fulfilled and performed all of its material obligations
with respect to such Licenses (to the extent now required to be fulfilled or
performed) and no event has occurred that would allow, with or without the
passage of time or the giving of notice or both, revocation or termination
thereof or would result in any other material impairment of the rights of the
holder of any such License. All filings or registrations with any governmental
or regulatory authority required for the conduct of the business or activity
conducted by the Borrower have been made, other than any such filings or
registrations as to which the failure to make same would not have a material
adverse effect on the consolidated financial condition, assets or results of
operations of the Borrower and its Subsidiaries, taken as a whole. Except as
expressly contemplated hereby, no approval, consent or authorization of or
filing or registration with any governmental commission, bureau or other
regulatory authority or agency is required with respect to the execution,
delivery or performance of any of the Loan Documents.
4.9. No Violation. The execution, delivery and performance by the Borrower
of the Loan Documents do not and will not violate any provision of law or
regulation applicable to the Borrower, or any writ, order or decree of any court
or governmental or regulatory authority or agency applicable to the Borrower.
The Borrower is not in default, nor has any event occurred that with the passage
of time or the giving of notice, or both, would constitute a default, in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement, instrument or other document to which the
Borrower is a party, which default would have a material adverse effect on the
consolidated assets, financial condition or results of operations of the
Borrower and its Subsidiaries, taken as a whole. The Borrower is not in
violation of any applicable federal, state or local law, rule or regulation or
any writ, order or decree, which violation would have a material adverse effect
on the consolidated assets, financial condition or results of operations of the
Borrower and its Subsidiaries, taken as a whole.
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<PAGE> 22
Except as otherwise set forth in the Disclosure Schedule under the caption
"Litigation," the Borrower has not received notice of any violation of any
federal, state or local environmental law, rule or regulation or assertion that
the Borrower has any obligation to clean up or contribute to the cost of
cleaning up any waste or pollutants.
4.10. Payment of Taxes. The Borrower and its Subsidiaries have properly
prepared and filed or caused to be properly prepared and filed all federal tax
returns and all material state and local tax returns that are required to be
filed and have paid all taxes shown thereon to be due and all other taxes,
assessments and governmental charges or levies' imposed upon the Borrower and
its Subsidiaries, their income or profits or any properties belonging to the
Borrower. No extensions of any statute of limitations are in effect with respect
to any tax liability of the Borrower or any Subsidiary of the Borrower. No
deficiency assessment or proposed adjustment of the federal income taxes of the
Borrower or any Subsidiary of the Borrower is pending and the Borrower has no
knowledge of any proposed liability of a substantial nature for any tax to be
imposed upon any of its properties or assets.
4.11. Transactions With Affiliates, Officers, Directors and 1%
Shareholders. Except as set forth on the Disclosure Schedule., the Borrower has
no Indebtedness to or material contractual arrangement or understanding with any
Affiliate, officer or director of the Borrower, nor any shareholder holding of
record at least 1% of the equity of the Borrower nor, to the best of the
Borrower's knowledge (without independent inquiry), any of their respective
relatives.
4.12. ERISA. The Borrower has never established or maintained any funded
employee pension benefit plan as defined under Section 3(2)(A) of the Employee
Retirement Income Security Act of 1974, as amended and in effect on the date
hereof ("ERISA"), other than the plans described on the Disclosure Schedule. No
employee benefit plan established or maintained, or to which contributions have
been made, by the Borrower or any Subsidiary of the Borrower that is subject to
Part 3 of Title I-B of ERISA, had an accumulated funding deficiency (as such
term is defined in Section 302 of ERISA) as of the last day of the fiscal year
of such plan ended most recently prior to the date hereof, or would have had an
accumulated funding deficiency (as so defined) on such day if such year were the
first year of the plan to which Part 3 of Title I-B of ERISA applied. No
material liability to the Pension Benefit Guaranty Corporation has been incurred
or is expected by the Borrower to be incurred by it or any Subsidiary of the
Borrower with respect to any such plan or otherwise. The execution, delivery and
performance of this Agreement and the other Loan Documents will not involve on
the part of the Borrower any prohibited transaction within the meaning of ERISA
or Section 4975 of the Internal Revenue Code. The Borrower has never maintained,
contributed to or been obligated to contribute to any "multiemployer plan," as
defined in Section 3(37) of ERISA. The Borrower has never incurred any
"withdrawal liability" calculated under Section 4211 of ERISA, and there has
been no event or circumstance that would cause it to incur any such liability.
4.13. Ownership of Properties: Liens. The Borrower has good and marketable
title to all its material properties and assets, real and personal, that are now
carried on its books, including, without limitation, those reflected in the
Financial Statements (except those disposed of in the ordinary course since the
date thereof), and has valid leasehold interests in its properties and assets,
real and personal, which it purports to lease, subject in either case to no
mortgage,
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<PAGE> 23
security interest, pledge, lien, charge, encumbrance or title retention or other
security agreement or arrangement of any nature whatsoever other than Permitted
Liens and those specified in the Disclosure Schedule. All of the Borrower's
material leasehold interests and material obligations with respect to real
property are described on the Disclosure Schedule.
4.14. Employment Matters. Except as set forth on the Disclosure Schedule,
there are no material grievances, disputes or controversies pending or, to the
knowledge of the Borrower, threatened between the Borrower and its employees,
nor is any strike, work stoppage or slowdown pending or threatened against the
Borrower.
4.15. Insurance. The Borrower maintains in force fire, casualty,
comprehensive liability and other insurance coveting its properties and business
that is adequate and customary for the type and scope of its properties and
business.
4.16. Indebtedness. Except as reflected in the Financial Statements or set
forth in the Disclosure Schedule, and other than Indebtedness incurred in the
ordinary course of business since the Balance Sheet Date, the Borrower has no
outstanding Indebtedness.
4.17. Securities Law Compliance. The Borrower is not an "investment
company" as defined in the Investment Company Act of 1940, as amended. All of
the Borrower's outstanding stock was offered, issued and sold in compliance with
all applicable state and federal securities laws.
4.18. Accuracy of Information. None of the information furnished to the
Lenders by or on behalf of the Borrower for purposes of this Agreement or any
Loan Document or any transaction contemplated hereby or thereby contains, and
none of such information hereinafter furnished will contain any material
misstatement of fact, nor does or will any such information omit any material
fact necessary to make such information not misleading at such time.
ARTICLE V
CONDITIONS TO ADVANCES
The Lenders shall not be obligated to make any Advances unless the
following conditions have been satisfied:
5.1. Each Advance. The obligations of the Lenders to make each Advance are
subject to the following conditions precedent, each of which shall have been met
or performed on or before the Advance Date or the Closing Date, as the case may
be:
(a) No Default. No Default or Event of Default shall have occurred and
be continuing or will occur upon the making of the Advance.
(b) Correctness of Representations. The representations and warranties
made by, the Borrower in this Agreement shall be true and correct with the same
force and effect as though such representations and warranties had been made on
and as of the Advance Date (i) except to
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<PAGE> 24
the extent that the representations and warranties set forth in Article IV of
this Agreement untrue as a result of circumstances that have changed subsequent
to the date hereof, which change has caused no non-compliance by the Borrower
with the covenants, conditions and agreements in this Agreement and (ii) except
that the references in Section 4.5 of this Agreement to the financial statements
and the term "Balance Sheet Date" are deemed to refer to the most recent
financial statements (inclusive of consolidated balance sheets and statements of
operations, cash flows and stockholders' equity of the Borrower and its
Subsidiaries) furnished to the Lenders pursuant to Section 6.1 (a) and (b) of
this Agreement and the date of such financial statements, respectively.
(c) No Litigation; Certain Other Conditions. There shall be no suit or
proceeding (other than suits or proceedings disclosed on the Disclosure Schedule
on the date of this Agreement) pending or threatened before any court or
arbitration tribunal or by or before any governmental or regulatory authority,
commission, bureau or agency or public regulatory body that, if determined
adversely to the Borrower or any Subsidiary of the Borrower, is reasonably
likely to have a material adverse effect on the consolidated financial condition
or results of operations of the Borrower and its Subsidiaries taken as a whole.
(d) No Material Adverse Change. There shall have been no material
adverse change in the consolidated financial condition or results of operations
of the Borrower and its Subsidiaries taken as a whole since the Balance Sheet
Date.
(e) Loan Documents. All Loan Documents shall be in full force and
effect.
5.2. First Advance. The obligations of the Lenders to make the first
Advance after the Closing Date are subject to the following additional
conditions precedent, each of which shall have been met or performed on or
before the Closing Date:
(a) Deliveries. The Agent shall have received, in form and substance
satisfactory to the Agent and Lenders, the following:
(i) an opinion or opinions of independent counsel to the Borrower with
respect to the Loan Documents and the transactions contemplated thereby;
(ii) certificates as to the Borrower's legal existence and good
standing under the laws of The Commonwealth of Massachusetts, and
certificates as to the Borrower's authority to do business as a foreign
corporation in the States of Arizona, California, Colorado, Connecticut,
Illinois, Maryland, New Mexico, New York, Oregon, Pennsylvania and Texas,
each dated as of a recent date;
(iii) a certificate of the Borrower's Clerk or Assistant Clerk as to
(i) its charter documents and by-laws, as amended, (ii) corporate votes
authorizing the execution and delivery of the Loan Documents, and (iii)
incumbency of the officers authorized to execute the Loan Documents on
behalf of the Borrower;
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<PAGE> 25
(iv) a Revolving Credit Note to the order of each Lender, each duly
executed by the Borrower and otherwise appropriately completed;
(v) a certificate duly executed by the Borrower's chief financial
officer dated the Advance Date or Closing Date, as the case may be, to the
effect that each of the conditions set forth in the foregoing Section 5.1
has been met as of such date.
(b) All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or on the Closing Date in connection with the transactions
contemplated by this Agreement, and all documents and exhibits related thereto,
shall be reasonably satisfactory in form and substance to the Agent and the
Lenders.
(c) Additional Documents. The Borrower shall have delivered to the
Agent all additional opinions, documents and certificates that the Agent or any
Lender may reasonably require.
ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower covenants and agrees that from the date of execution of this
Agreement and until the payment in full of the principal of and interest upon
the Notes and payment and performance of all other Obligations, unless the
Required Lenders shall otherwise consent in writing:
6.1. Reporting Requirements. The Borrower shall furnish to the Lenders:
(a) As soon as available and in any event within forty-five days after
the end of each of the first three quarters of each fiscal year of the Borrower
and its Subsidiaries, (i) a consolidated and consolidating balance sheet of the
Borrower and its Subsidiaries as of the end of such quarter and (ii)
consolidated and consolidating statements of operations, cash flows and
stockholders' equity of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end of
such quarter, all in reasonable detail and duly certified by the chief financial
officer of the Borrower as having been prepared in accordance with generally
accepted accounting principles consistently applied (subject to addition of
notes and ordinary year-end audit adjustments), together with a certificate of
the chief financial officer of the Borrower stating that no Default or Event of
Default has occurred and is continuing or, if a Default or an Event of Default
has occurred and is continuing, a statement as to the nature thereof and the
action that the Borrower proposes to take with respect thereto;
(b) As soon as available and in any event within ninety days after the
end of each fiscal year of the Borrower, the audited consolidated balance sheet
of the Borrower and its Subsidiaries as of the end of such fiscal year and the
audited consolidated statements of operations, cash flows and stockholders'
equity of the Borrower and its Subsidiaries for such fiscal year, in each case
accompanied by the unqualified opinion with respect thereto of the Borrower's
independent public accountants and a certification by such accountants stating
that
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<PAGE> 26
they have reviewed this Agreement and whether, in making their audit, they have
become aware of any Default or Event of Default and if so, describing its
nature, along with the related unaudited consolidating balance sheet of the
Borrower and its Subsidiaries as of the end of such fiscal year and the
unaudited consolidating statements of operations, cash flows and stockholders'
equity of the Borrower and its Subsidiaries for such fiscal year;
(c) Concurrent with, and no later than the required date for delivery
of the financial information outlined in Sections 6.1 (a) and (b), a certificate
signed by the chief financial officer of the Borrower substantially in the form
of Exhibit D hereto (the "Compliance Certificate");
(d) Not later than forty-five days after the end of each fiscal year of
the Borrower, the Borrower's representative forecast for the next fiscal year on
a consolidated basis, including, at a minimum, projected statements of profit
and loss and projected cash flow, prepared in accordance with generally accepted
accounting principles consistently applied;
(e) Promptly upon receipt thereof, one copy of each other report
submitted to the Borrower or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the books
of the Borrower or any Subsidiary;
(f) Promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court, arbitration tribunal or governmental
regulatory authority, commission, bureau, agency or public regulatory body that,
if determined adversely to the Borrower or any Subsidiary of the Borrower, would
be reasonably likely to have a material adverse effect on the consolidated
financial condition or results of operations of the Borrower and its
Subsidiaries taken as a whole;
(g) As soon as possible, and in any event within five days after the
Borrower shall know of the occurrence of any Default or Event of Default, the
written statement of the chief financial officer of the Borrower setting forth
details of such Default or Event of Default and action that the Borrower
proposes to take with respect thereto;
(h) As soon as possible, and in any event within five days after the
occurrence thereof, written notice as to any other event of which the Borrower
becomes aware that with the passage of time, the giving of notice or otherwise,
is reasonably likely to result in a material adverse change in the consolidated
financial condition or results of operations of the Borrower and its
Subsidiaries taken as a whole; and
(i) Such other information respecting the business or properties or the
condition or operations, financial or otherwise, of the Borrower as any Lender
may from time to time reasonably request.
6.2. Loan Proceeds. The Borrower shall use the proceeds of the Advances
only for the purpose of general working capital, acquisitions not prohibited
hereby and capital expenditures; provided, however, that the Borrower may use
proceeds of the Advances to repurchase its
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<PAGE> 27
outstanding capital stock so long as it does not make aggregate purchases with
such exceeding $6,000,000.
6.3. Maintenance of Business and Properties; Insurance.
(a) The Borrower will continue to engage in business of the same
general nature as the business currently engaged in by the Borrower. The
Borrower will at all times maintain, preserve and protect all material
franchises and trade names and preserve all the Borrower's material tangible
property used or useful in the conduct of its business and keep the same in good
repair, working order and condition, ordinary wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
betterments, and improvements thereto so that the business carded on in
connection therewith may be conducted properly and advantageously at all times.
(b) The Borrower will keep all of its insurable properties now or
hereafter owned adequately insured at all times against loss or damage by fire
or other casualty to the extent customary with respect to like properties of
companies conducting similar businesses and to the extent available at
commercially reasonable rates; and will maintain public liability and workmen's
compensation insurance insuring the Borrower to the extent customary with
respect to companies conducting similar businesses and to the extent available
at commercially reasonable rates, all by financially sound and reputable
insurers. The Borrower shall furnish to the Agent from time to time at the
Agent's request copies of all such insurance policies and certificates
evidencing such insurance coverage. Notwithstanding the foregoing, the Borrower
may self-insure workmen's compensation to the extent permitted by law and may
also self-insure other risks to the extent reasonably deemed prudent by the
Borrower.
6.4. Payment of Taxes. The Borrower shall pay and discharge, or cause to,
be paid and discharged, all material taxes, assessments, and governmental
charges or levies imposed upon the Borrower and its Subsidiaries or their income
or profits, or upon any other properties belonging to the Borrower prior to the
date on which penalties attach thereto, and all lawful claims that, if unpaid,
might become a lien or charge upon any material properties of the Borrower,
excerpt for such taxes, assessments, charges, levies or claims as are being
contested by the Borrower in good faith by appropriate proceedings promptly
initiated and diligently prosecuted, for which adequate book reserves have been
established in accordance with generally accepted accounting principles, as to
which no foreclosure, distraint, sale or other similar proceedings shall have
been commenced, or, if commenced, have been effectively stayed.
6.5. Compliance with Laws, etc. The Borrower shall comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, and obtain or maintain all Licenses required under
applicable law or regulation for the operation of the Borrower's business, where
noncompliance or failure to obtain or maintain would have a material adverse
effect on the consolidated financial condition, assets, or results of operations
of the Borrower and its Subsidiaries taken as a whole; provided, however, that
such compliance or the obtaining of such Licenses may be delayed while the
applicability or validity of any such taw, rule, regulation or order or the
necessity for obtaining any such License is being contested by the Borrower in
good faith by appropriate proceedings promptly initiated and diligently
prosecuted.
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<PAGE> 28
6.6. Books, Records and Accounts. The Borrower shall keep true and correct
books, records and accounts, in which entries will be made in accordance with
generally accepted accounting principles consistently applied, and that shall
comply with the requirements of the Foreign Corrupt Practices Act of 1977 to the
extent applicable to the Borrower. Each Lender or its representatives shall upon
reasonable notice to the Borrower be afforded, during normal business hours,
access to and the right to examine and copy any such books, records and accounts
and the right to inspect the Borrower's premises and business operations. All
financial and other information with respect to the Borrower and/or any of its
Subsidiaries now or hereafter obtained by any Lender under this Agreement or
otherwise in connection with any of the transactions contemplated hereunder
shall be held in confidence and shall not be released or made available to any
other Person, except (i) to governmental agencies (and examiners employed by
same) having oversight over the affairs of such Lender, (ii) pursuant to
subpoena or similar process issued by a court or governmental agency of
competent jurisdiction, or (iii) as otherwise directed by order of any court or
governmental agency of competent jurisdiction.
6.7. Further Assurances. The Borrower shall execute and deliver, at the
Borrower's expense, all notices and other instruments and documents and take all
actions, including, but not limited to, making all filings and recordings, that
any Lender shall reasonably request in order to assure to the Lenders all rights
given to the Lenders hereby or under any other Loan Document.
6.8. Bank Accounts. The Borrower shall maintain its principal operating
accounts with the Agent.
ARTICLE VII
NEGATIVE COVENANTS OF THE BORROWER
The Borrower covenants and agrees that from the date of execution of this
Agreement and until the payment in full of the principal of and interest upon
the Notes and payment and performance of all other Obligations, unless the
Required Lenders shall otherwise consent in writing:
7.1. Sale of Assets; Mergers, Etc.
(a) Sale of Assets. The Borrower will not, except in the ordinary
course of business, sell, transfer, or otherwise dispose of, to any Person any
assets (including the securities of any Subsidiary) other than assets having an
aggregate fair market value less than seven percent of Borrower's Consolidated
Tangible Net Worth.
(b) Mergers, Etc. Neither the Borrower nor any Subsidiary will
consolidate with or merge into any other Person or permit any other Person to
consolidate with or merge into it, or acquire all or substantially all of the
capital stock or assets of any Person, or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets to any Person, except that
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(1) a Subsidiary may consolidate with or merge into the Borrower or
another Subsidiary; and
(2) the Borrower or any of its Subsidiaries may acquire all or
substantially all of the capital stock or assets of any Person or
consolidate or merge with any Person provided (i) such Person is engaged in
a line of business substantially similar to one or more of Borrower's
existing lines of business, (ii) the aggregate purchase price liability
incurred in any calendar year, including all contingent liabilities, when
aggregated with all such acquisitions and any Investments permitted under
Section 7.4(3) in any calendar year shall not exceed 25% of Consolidated
Tangible Net Worth as of the end of the most recent fiscal quarter or, if
80% or more of the purchase price is paid in capital stock of the Borrower,
50% of Consolidated Tangible Net Worth as of the end of the most recent
fiscal quarter and (iii) based on a pro forma calculation of the ratios set
forth in Section 7.7 as of the date such acquisition is closed, assuming
consolidation of the acquired business with the Borrower for the four full
fiscal quarters ended immediately preceding such closing and pro forma debt
and debt service payments based on scheduled principal payments, including
acquisition borrowings, if any, and pro forma interest on total debt at
then prevailing borrowing rates, Borrower is in compliance with the
financial covenants set forth in Section 7.7.
7.2. Liens and Encumbrances.
(a) Neither the Borrower nor any Subsidiary will (a) cause or permit or
(b) agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise), any of its real or personal property, whether now
owned or subsequently acquired, to be subject to any Lien other than Liens
described below (which may herein be referred to as "Permitted Liens"):
(1) Liens securing the payment of taxes, assessments or governmental
charges or levies or the demands of suppliers, mechanics, carriers,
warehousers, landlords and other like Persons, which payments are not yet
due and payable or (as to taxes) may be paid without interest or penalty;
provided, that, if such payments are due and payable, such Liens shall be
permitted hereunder only to the extent that (A) all claims that the Liens
secure are being actively contested good faith and by appropriate
proceedings, (B) adequate book reserves have been established with respect
thereto to the extent required by generally accepted accounting principles,
and (C) such Liens do not in the aggregate materially interfere with the
owning company's use of property necessary or material to the conduct of
the business of the Borrower and its Subsidiaries taken as a whole;
(2) Liens incurred or deposits made in the ordinary course of business
(A) in connection with worker's compensation, unemployment insurance,
social security and other like laws, or (B) to secure the performance of
letters of credit, bids, tenders, sales contracts, leases, statutory
obligations, surety, appeal and
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performance bonds and other similar obligations, in each case not incurred
in connection with the borrowing of money, the obtaining of advances or the
payment of the deferred purchase price of property;
(3) Liens not otherwise described in Section 7.2(a)(1) or (2) that are
incurred in the ordinary course of business and are incidental to the
conduct of its business or ownership of its property, were not incurred in
connection with the borrowing of money, the obtaining of advances or the
payment of the deferred purchase price of property and do not in the
aggregate materially detract from the value of, or materially interfere
with the owning company's use of, property necessary or material to the
conduct of the business of the Borrower and its Subsidiaries taken as a
whole;
(4) Liens in favor of the Agent for the benefit of the Lenders;
(5) Liens permitted under Existing Loan Agreements;
(6) Judgment liens or attachments that shall not have been in
existence for a period longer than 30 days after the creation thereof, or
if a stay of execution shall have been obtained, for a period longer than
30 days after the expiration of such stay or if such an attachment is being
actively contested in good faith and by appropriate proceedings, for a
period longer than 30 days after the creation thereof;
(7) Liens existing as of the Closing Date and disclosed on the
Disclosure Schedule hereto;
(8) Liens provided for in equipment or Financing Leases (including
financing statements and undertakings to file financing statements)
provided that they are limited to the equipment subject to such leases and
the proceeds thereof;
(9) Leases or subleases with third parties or licenses and sublicenses
granted to third parties not interfering in any material respect with the
business of the Borrower or any Subsidiary of the Borrower;
(10) Any Lien on any asset of any corporation existing at the time
such corporation is merged into or consolidated with the Borrower or a
Subsidiary of the Borrower and not created in contemplation of such event;
(11) Any Lien existing on any asset prior to the acquisition thereof
by the Borrower or any Subsidiary of the Borrower and not created in
contemplation of such event;
(12) Liens in respect of any purchase money obligations for tangible
property used in its business, which obligations shall not at any time
exceed 5% of Consolidated Tangible Net Worth, provided that any such
encumbrances shall not
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extend to property and assets of the Borrower or any Subsidiary not
financed by such a purchase money obligation;
(13) Easements, rights of way, restrictions and other similar charges
or Liens relating to real property and not interfering in a material way
with the ordinary conduct of its business; and
(14) Liens on its property or assets created in connection with the
refinancing of Indebtedness secured by Permitted Liens on such property,
provided that the amount of Indebtedness secured by any such Lien shall not
be increased as a result of such refinancing and no such Lien shall extend
to property and assets of the Borrower or any Subsidiary not encumbered
prior to any such refinancing.
(b) In case any property is subjected to a Lien in violation of Section
7.2(a), the Borrower will make or cause to be made provision whereby the Notes
will be secured equally and ratably with all other obligations secured by such
property, and in any case the Notes shall have the benefit, to the full extent
that the holders may be entitled thereto under applicable law, of an equitable
Lien equally and ratably securing the Notes. Such violation of Section 7.2(a)
shall constitute an Event of Default hereunder, whether or not any such
provision is made pursuant to this Section 7.2(b).
(c) Neither the Borrower nor any Subsidiary will agree with any third
party not to cause or permit any of its real or personal property, whether now
owned or subsequently acquired, to be subject to Liens (with or without
exceptions).
7.3. Sales and Leasebacks. The Borrower and its Subsidiaries will not sell
or transfer any of their property and become, directly or indirectly, liable as
the lessee under a lease of such property (other than such transactions between
the Subsidiaries and transfers of capital equipment that will be leased pursuant
to Financing Leases).
7.4. Investments. Except as permitted by Section 7.1, neither the Borrower
nor any Subsidiary will make or maintain any investments, made in cash or by
delivery of property or assets, (a) in any Person, whether by acquisition of
capital stock, Indebtedness, or other obligations or securities, or by loan or
capital contribution, or otherwise, or (b) in any property, whether real or
personal, (items (a) and (b) being herein called "Investments") except the
following (but only with funds other than proceeds of Advances):
(1) Investments in direct obligations of, or guaranteed by, the United
States government, its agencies or any public instrumentality thereof and
backed by the full faith and credit of the United States government with
maturities not to exceed (or an unconditional right to compel purchase
within) three years from the date of acquisition;
(2) Repurchase agreements collateralized by securities of the U.S.
Government and U.S. Government-sponsored securities;
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(3) Investments in or to any Subsidiary or other Affiliate, provided
Borrower remains in compliance with Section 7.1(b);
(4) Investments and obligations issued by the United States
government, any agency thereof, any state of the United States or any
political subdivision of any such state or any public instrumentality
thereof with maturities not to exceed (or an unconditional right to compel
purchase within) three years from the date of acquisition that are rated
AA- or higher by at least one nationally recognized rating agency;
(5) Investments and obligations issued by any company (other than a
bank) with maturities not to exceed three years from the date of
acquisition with a long-term debt rating of A or higher or a short-term
debt rating of A1 or P1 by at least one nationally recognized rating
agency;
(6) Investments in demand and time deposits with, Eurodollar deposits
with, certificates of deposit issued by, or obligations or securities fully
backed by letters of credit issued by (x) any bank organized under the laws
of the United States, any state thereof, the District of Columbia or Canada
having combined capital and surplus aggregating at least $500,000,000, or
(y) any other bank organized under the laws of a state that is a member of
the European Economic Community (or any political subdivision thereof),
Japan, the Cayman Islands, or British West Indies having as of any date of
determination combined capital and surplus of not less than $500,000,000 or
the equivalent thereof(determined in accordance with generally accepted
accounting principles);
(7) Shares of money market mutual funds registered under the
Investment Company Act of 1940, as amended;
(8) Foreign currency swaps and hedging arrangements entered into in
the ordinary course of business to protect against currency losses, and
interest rate swaps and caps entered into in the ordinary course of
business to protect against interest rate exposure on Indebtedness bearing
interest at a variable rate;
(9) Investments in mutual funds (other than money market mutual funds)
that in the aggregate shall not exceed $5,000,000; and
(10) Other Investments existing on the Closing Date and listed on the
Disclosure Schedule.
7.5. Transactions with Affiliates. Neither the Borrower nor any Subsidiary
will enter into any transaction (including the purchase, sale or exchange of
property or the rendering of any service) with any Affiliate except upon fair
and reasonable terms that are at least as favorable to the Borrower or the
Subsidiary as would be obtained in a comparable arm's-length transaction with a
non-Affiliate.
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7.6. ERISA Compliance. Neither the Borrower nor any of its Subsidiaries
wil1 at any time permit any employee pension benefit plan (as such term is
defined in Section 3 of ERISA) maintained by the Borrower or any of its
Subsidiaries or in which employees of the Borrower or any of its Subsidiaries is
entitled to participate to:
(a) engage in any "prohibited transaction" as such term is defined in
Section 4975 of the Internal Revenue Code of 1986, as amended, or
described in Section 406 of ERISA;
(b) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA, whether or not waived; or
(c) terminate under circumstances that could result in the imposition
of a Lien on the property of the Borrower or any Subsidiary of
the Borrower pursuant to Section 4068 of ERISA.
7.7. Financial Covenants. The Borrower covenants and agrees that:
(a) Tangible Net Worth Test. The Consolidated Tangible Net Worth as of
the end of each fiscal quarter of the Borrower shall not be less than the sum of
(i) $100,000,000, plus (ii) 50% of Consolidated Net Income (excluding losses),
minus (iii) all Sub S Dividends paid between January 1, 2000 and September 15,
2000 in an aggregate amount not to exceed $6,000,000, for each consecutive
fiscal quarter of the Borrower beginning with the quarter ending December 31,
1999, on a cumulative basis.
(b) Debt-to-Net Worth Ratio. The ratio ("Debt-to-Net Worth Ratio") of
the Consolidated Indebtedness (excluding all guaranties except guaranties with
respect to borrowed money) as of the end of each fiscal quarter of the Borrower
beginning with the fiscal quarter ending December 31, 1999 to its Consolidated
Tangible Net Worth as of the end of each fiscal quarter of the Borrower
beginning with the fiscal quarter ending December 31, 1999 shall not exceed 1.5
to 1.
(c) Cash Flow Ratio. The ratio (the "Cash Flow Ratio") as of the end of
each fiscal quarter of the Borrower of (i) Consolidated Operating Cash Flow for
the four consecutive fiscal quarters then ended to (ii) Consolidated Debt
Service for the four consecutive fiscal quarters then ended shall not be less
than 1.25 to 1.00.
7.8. Contracts Prohibiting Compliance with Agreement. The Borrower will not
enter into any contract or other agreement that would prohibit or in any way
restrict the ability of the Borrower to comply with any provision of this
Agreement.
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Default. If any one of the following events ("Events of Default")
shall occur:
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(a) Any representation or warranty made by the Borrower herein or in
any other Loan Document, or in any certificate or report furnished by the
Borrower hereunder or thereunder, shall prove to have been incorrect in any
material respect when made;
(b) Payment of any principal or interest due under any Note shall not
be made on or before the date due;
(c) A final judgment or settlement for in excess of $2,000,000 shall be
rendered against or agreed to by the Borrower or any of its Subsidiaries for the
payment of money after deducting the amount of any insurance proceeds paid or
payable to or on behalf of the Borrower or its Subsidiary in connection with
such judgment or settlement, as the case may be, is in excess of $2,000,000, and
such judgment shall remain undischarged for a period of thirty (30) days, during
which period execution shall not effectively be stayed, or such settlement shall
remain unpaid for a period of thirty days after the agreed payment date unless
such delay has been agreed to by the other party. If a dispute exists with
respect to the liability of any insurance underwriter under any insurance policy
of the Borrower or its Subsidiary, no deduction under this subsection shall be
made for the insurance proceeds that are the subject of such dispute;
(d) The Borrower or any Subsidiary shall (1) voluntarily terminate
operations or apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of such Person or of
all or a substantial part of the assets of such Person, (2) admit in writing its
inability, or be generally unable, to pay its debts as the debts become due, (3)
make a general assignment for the benefit of its creditors, (4) commence a
voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect), (5) file a petition seeking to take advantage of any other law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, (6) fail to controvert in a timely and appropriate manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
under the Federal Bankruptcy Code or applicable state bankruptcy laws or (7)
take any corporate action for the purpose of effecting any of the foregoing;
(e) Without its application, approval or consent, a proceeding shall be
commenced, in any court of competent jurisdiction, seeking in respect of the
Borrower or any Subsidiary: the liquidation, reorganization, dissolution,
winding-up, or composition or readjustment of debt, the appointment of a
trustee, receiver, liquidator or the like of such Person or of all or any
substantial part of the assets of such Person, or other like relief in respect
of such Person under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts; and, if the proceeding is
being contested in good faith by such Person, the same shall continue
undismissed, or unstayed and in effect for any period of 45 consecutive days, or
an order for relief against such Person shall be entered in any case under the
Bankruptcy Code or applicable state bankruptcy laws;
(f) Any foreclosure or other proceedings shall be commenced to enforce,
execute or realize upon any lien, encumbrance, attachment, trustee process,
mortgage or security interest for payment of an amount in excess of $250,000
against the Borrower or any Subsidiary;
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(g) Default shall be made in the due observance or performance of any
covenant or agreement under Article VII;
(h) Default shall be made in the due observance or performance of any
covenant or agreement contained herein (and not constituting an Event of Default
under any other clause in this Article VIII) or in any other Loan Document or in
any other agreement between any Lender and the Borrower evidencing or securing
borrowed monies and such default shall continue and shall not have been remedied
within thirty days after the date on which such default occurred;
(i) There shall occur any default under any instrument or agreement
evidencing any indebtedness for money borrowed in excess of $100,000 by the
Borrower or any of its Subsidiaries;
(j) The transfer by John R. Bertucci and/or his Affiliates of
securities of the Borrower or the voting power related to such securities as a
result of which the power to elect, appoint or cause the election or appointment
of at least a majority of the members of the board of directors of the Borrower
shall no longer be held by John R. Bertucci and/or his Affiliates;
Borrower;
(k) There shall occur any material adverse change in the financial
condition of the Borrower;
(l) There shall occur any Event of Default under either of the Existing
Loan Agreements;
then, and in any such event and at any time thereafter, if such Event of Default
or any other Event of Default shall have not been waived, any or all of the
following actions may be taken: (i) the Agent (A) with the consent of the
Required Lenders, may, and at the direction of the Required Lenders shall,
declare any obligation of the Lenders to make further Advances terminated,
whereupon the obligation of each Lender to make further Advances hereunder shall
terminate immediately, and (B) the Agent shall at the direction of the Required
Lenders, at their option, declare by notice to the Borrower any or all of the
Obligations to be immediately due and payable, and the same, including all
interest accrued thereon and all other obligations of the Borrower to the Agent
and the Lenders, shall forthwith become immediately due and payable without
presentment, demand, protest, notice or other formality of any kind, all of
which are hereby expressly waived, anything contained herein or in any
instrument evidencing the Obligations to the contrary notwithstanding; provided,
however, that notwithstanding the above, if there shall occur an Event of
Default under clause (d) or (e) above, then the obligation of the Lenders to
make Advances shall automatically terminate and any and all of the Obligations
shall be immediately due and payable without the necessity of any action by the
Agent or the Required Lenders or notice to the Agent or the Lenders; and (ii)
the Agent and each of the Lenders shall have all of the rights and remedies
available under each of the Loan Documents or under any applicable law.
8.2. Agent to Act. In case any one or more Events of Default shall occur
and not have been waived, the Agent may, and at the direction of the Required
Lenders shall, proceed to protect and enforce their rights or remedies either by
suit in equity or by action at law, or both,
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whether for the specific performance of any covenant, agreement or other
provision contained herein or in any other Loan Document, or to enforce the
payment of the Obligations or any other legal or equitable right or remedy.
8.3. Cumulative Rights. No right or remedy herein conferred upon the
Lenders or the Agent is intended to be exclusive of any other rights or remedies
contained herein or in any other Loan Document, and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
8.4. No Waiver. No course of dealing between the Borrower and any Lender or
the Agent or any failure or delay on the part of any Lender or the Agent in
exercising any rights or remedies under any Loan Document or otherwise available
to it shall operate as a waiver of any rights or remedies and no single or
partial exercise of any rights or remedies shall operate as a waiver or preclude
the exercise of any other rights or remedies hereunder or of the same right or
remedy on a future occasion.
8.5. Allocation of Proceeds. If an Event of Default has occurred and not
been waived, and the maturity of the Notes has been accelerated pursuant to this
Article VIII, all payments received by the Agent hereunder, in respect of any
principal of or interest on the Obligations or any other amounts payable by the
Borrower hereunder, shall be applied by the Agent in the following order:
(a) amounts due to the Lenders pursuant to Sections 2.6 and 10.4;
(b) amounts due to the Agent pursuant to Section 9.10;
(c) payments of interest on Notes to be applied for the
ratable benefit of the Lenders;
(d) payments of principal of Notes to be applied for the
ratable benefit of the Lenders;
(e) payments of all other amounts due under any of the Loan Documents,
if any, to be applied for the ratable benefit of the Lenders; and
(f) any surplus remaining after application as provided for herein, to
the Borrower or otherwise as may be required by applicable law.
ARTICLE IX
THE AGENT
9.1. Appointment. Each Lender hereby irrevocably designates and appoints
BankBoston as the Agent for the Lenders under this Agreement, and each of the
Lenders hereby irrevocably authorizes BankBoston as the Agent for such Lender,
to take such action on its behalf under the
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provisions of this Agreement and the other Loan Documents and to exercise such
powers as are expressly delegated to the Agent by the terms of this Agreement
and such other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Agent shall not have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
of the Lenders, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent.
9.2. Limitation on Liability. Neither the Agent nor any of its officers,
directors, employees, agents or attorneys-in-fact shall be liable to the Lenders
for any action lawfully taken or omitted to be taken by it or them under or in
connection with the Loan Documents except for its or their own gross negligence
or willful misconduct. Neither the Agent nor any of its affiliates shall be
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any officer or
representative thereof contained in any Loan Document, or in any certificate,
report, statement or other document referred to or provided for in or received
by the Agent under or in connection with any Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any Loan
Document, or for any failure of the Borrower to perform its obligations under
any Loan Document, or for any recitals, statements, representations or
warranties made, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any collateral. The Agent shall not be under
any obligation to any of the Lenders to ascertain or to inquire as to the
observance or performance of any of the terms, covenants or conditions of any
Loan Document on the part of the Borrower or to inspect the properties, books or
records of the Borrower or its Subsidiaries.
9.3. Reliance. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent
certificate, affidavit, letter, cablegram, telegram, telefacsimile or telex
message, statement, order or other document or conversation reasonably believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless an
Assignment and Acceptance shall have been filed with and accepted by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first receive advice or concurrence of the
Lenders or the Required Lenders as provided in this Agreement or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense that may be incurred by it by reason of taking or continuing to take
any such action. The Agent shall in all cases be fully protected in acting, or
in refraining from acting, under the Loan Documents in accordance with a request
of the Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all present and
future holders of the Notes.
9.4. Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives
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such a notice, the Agent shall promptly give notice thereof to the Lenders. The
Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Lenders; provided that, unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Event of Default as it shall deem advisable in the best
interests of the Lenders.
9.5. No Representations. Each Lender expressly acknowledges that neither
the Agent nor any of its affiliates has made any representations or warranties
to it and that no act by the Agent hereafter taken, including any review of the
affairs of the Borrower or its Subsidiaries, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the financial
condition, creditworthiness, affairs, status and nature of the Borrower and made
its own decision to enter into this Agreement. Each Lender also represents that
it will, independently and without reliance upon the Agent or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under the Loan Documents and to make such
investigation as it deems necessary to inform itself as to the status and
affairs, financial or otherwise, of the Borrower or its Subsidiaries. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower or its
Subsidiaries which may come into the possession of the Agent or any of its
Affiliates.
9.6. Indemnification. Each of the Lenders agrees to indemnify the Agent in
its capacity as such (to the extent not reimbursed by the Borrower and without
limiting any obligations of the Borrower to do so), ratably according to the
respective principal amount of the Notes held by them (or, if no Notes are
outstanding, ratably in accordance with their respective Applicable Commitment
Percentages as then in effect) from and against any and all liabilities,
obligations, losses (excluding any losses suffered by the Agent as a result of
Borrower's failure to pay any fee owing to the Agent), damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may at any time (including without limitation at any time
following the payment of the Notes) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of any Loan Document or
any other Document contemplated by or referred to therein or the transactions
contemplated. or any action taken or omitted by the Agent under or in connection
with any of the foregoing; provided that no Lender shall be liable for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Obligations and the termination of
this Agreement.
9.7. The Agent in its Individual Capacity. With respect to its Advances
made or renewed by it and any Note issued to it, the Agent shall have the same
rights and powers under this
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Agreement as any Lender and may exercise the same as though it were not the
Agent, and the terms "Lender" and "Lenders" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though the Agent were not the Agent
hereunder. The Agent may apply any amount obtained by it through exercise of a
right of banker's lien, set-off, counterclaim or otherwise to satisfaction of
any obligations owed it by the Borrower whether under this Agreement or any
Existing Loan Agreement and shall have the right to determine the order in which
amounts are applied to such obligations.
9.8. Resignation. If the Agent shall resign as Agent under this Agreement,
then the Required Lenders may appoint, with the consent, so long as there shall
not have occurred and be continuing a Default or Event of Default, of the
Borrower, which consent shall not be unreasonably withheld, a successor Agent
for the Lenders, which successor Agent shall be a commercial bank organized
under the laws of the United States or any state thereof, having a combined
surplus and capital of not less than $500,000,000, whereupon such successor
Agent shall succeed to the rights, powers and duties of the former Agent and the
obligations of the former Agent shall be terminated and canceled, without any
other or further act or deed on the part of such former Agent or any of the
parties to this Agreement; provided, however, that the former Agent's
resignation shall not become effective until such successor Agent has been
appointed and has succeeded of record to all right, title and interest in any
collateral held by the Agent; provided, further, that if the Required Lenders
and, if applicable, the Borrower cannot agree as to a successor Agent within
ninety (90) days after such resignation, the Agent shall appoint a successor
Agent that satisfies the criteria set forth above in this Section 9.8 for a
successor Agent and the parties hereto agree to execute whatever documents are
necessary to effect such action under this Agreement or any other Document
executed pursuant to this Agreement; provided, however, that in such event all
provisions of the Loan Documents, shall remain in full force and effect. After
any retiring Agent's resignation hereunder as Agent, the provisions of this
Article IX shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
9.9. Sharing of Payments, Etc. Each Lender agrees that if it shall, through
the exercise a right of banker's lien, set-off, counterclaim or otherwise,
obtain payment with respect to its Obligations (other than pursuant to Article
V) that results in its receiving more than its pro rata share of the aggregate
payments with respect to all of the Obligations (other than any payment pursuant
to Section 3.2 or 3.3), then (a) such Lender shall be deemed to have
simultaneously purchased from the other Lenders a share in their Obligations so
that the amount of the Obligations held by each of the Lenders shall be pro rata
and (b) such other adjustments shall made from time to time as shall be
equitable to insure that the Lenders share such payments ratably; provided,
however, that for purposes of this Section 9.9, the term "pro rata" shall be
determined with respect to the Revolving Credit Commitment after subtraction of
amounts, if any, by which any such Lender has not funded its share of the
outstanding Advances and Obligations. If all or any portion of any such excess
payment is thereafter recovered from the Lender that received the same, the
purchase provided in this Section 9.9 shall be rescinded to the extent of such
recovery, without interest. The Borrower expressly consents to the foregoing
arrangements and agrees that each Lender so purchasing a portion of the other
Lenders' Obligations may exercise all rights of payment (including, without
limitation, all rights of set-off,
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<PAGE> 40
banker's lien or counterclaim) with respect to such portion as fully as if such
Lender were direct holder of such portion.
9.10. Fees. The Borrower agrees to pay to the Agent, for its individual
account, an annual Agent's fee as from time to time agreed to by the Borrower
and Agent in writing.
ARTICLE X
MISCELLANEOUS
10.1. Assignments and Participations. (a) At any time after the Closing
Date each Lender may, with the prior consent of the Borrower (so long as no
Event of Default has occurred and is continuing) and the Agent, which consents
shall not be unreasonably withheld, assign to one or more banks or financial
institutions all or a portion of its rights and obligations under the Loan
Documents (including, without limitation, all or a portion of any Note payable
to its order); provided, that (i) each such assignment shall be of a constant
and not a varying percentage of all of the assigning Lender's rights and
obligations hereunder, (ii) for each assignment involving the issuance and
transfer of a Note, the assigning Lender shall execute an Assignment and
Acceptance and the Borrower hereby agrees to execute a replacement Note to give
effect to the assignment, (iii) the minimum aggregate amount of a Revolving
Credit Commitment that shall be assigned is $5,000,000, (iv) such assignee shall
have an office located in the United States, and (v) no consent of the Borrower
or the Agent shall be required in connection with any assignment by a Lender to
another Lender or to an Affiliate of any Lender. Upon such execution, delivery,
approval and acceptance, from and after the effective date specified in each
Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder or under any such Note
have been assigned or negotiated to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and a holder
of such Note and (y) the assignor thereunder shall, to the extent that rights
and obligations hereunder or under such Note have been assigned or negotiated by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement.
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other hereto as follows: (i) the assignment made under such
Assignment and Acceptance is made under such Assignment and Acceptance without
recourse; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial of the Borrower or its
Subsidiaries or the performance or observance by the Borrower of any of its
obligations under any Loan Document or any other instrument or Document
furnished pursuant hereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
delivered pursuant to Section 4.5 or Section 6.1, as the case may be, and
such other Loan Documents and other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in
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<PAGE> 41
taking or not taking action under any Loan Document; (v) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under the Loan Documents as are delegated to the Agent by
the terms hereof and thereof, together with such powers as are reasonably
incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of the Loan
Documents are required to be performed by it as a Lender and a holder of a Note.
(c) The Agent shall maintain at its address referred to herein a copy of
each Assignment and Acceptance delivered to and accepted by it.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, the Agent shall give prompt notice thereof to Borrower.
(e) Nothing herein shall prohibit any Lender from pledging or assigning,
without notice to or consent of the Borrower, any Note to any Federal Reserve
Bank in accordance with applicable law.
(f) Each Lender may sell participations at its expense to one or more banks
or other entities as to all or a portion of its rights and obligations under
this Agreement; provided, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any Note issued to it for the
purpose of this Agreement, (iv) the Borrower, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and with regard to
any and all payments to be made under this Agreement and (v) the sale of any
such participations that require Borrower to file a registration statement with
the Securities and Exchange Commission or under the securities regulations or
laws of any state shall not be permitted.
(g) The Borrower may not assign any rights, powers, duties or obligations
under this Agreement or the other Loan Documents without the prior written
consent of all the Lenders.
10.2. Survival of Representations, Etc. All representations, warranties and
covenants made herein or in any Loan Document shall survive the making of any
Advance hereunder and the delivery of the Notes and the consummation of all
other transactions contemplated hereby or thereby.
10.3. Right of Setoff. In addition to any rights now or hereafter granted
under applicable law or otherwise and not by way of limitation of any such
rights, upon the occurrence and during the unremedied continuation of an Event
of Default, the Agent and each Lender is hereby authorized at any time or from
time to time, without presentment, demand, protest or other notice of any kind
to the Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by the Agent or
any Lender to or for the credit or the account of the Borrower against and on
account of the Obligations, and all other claims of any nature or description
arising out of or connected with this Agreement or any other Loan
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<PAGE> 42
Document, irrespective of whether or not such Agent or Lender shall have made
any demand hereunder and although said Obligations, liabilities or claims, or
any of them, shall be contingent or unmatured.
10.4. Indemnity; Costs, Expenses and Taxes. The Borrower hereby agrees to
indemnify the Lenders and their legal representatives, successors, assigns and
agents against, and agrees to protect, save and keep harmless each of them from
and to pay upon demand, any and all liabilities, obligations, taxes (including
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of any Loan Documents), liens,
charges, losses, damages, penalties, claims, actions, suits, costs, indemnities,
expenses and disbursements (including, without limitation, reasonable legal
fees, costs and expenses, including without limitation reasonable costs of
attending and preparing for depositions and other court proceedings), of
whatsoever kind and nature, imposed upon, incurred by or asserted against such
indemnified party in any way relating to or arising out of the execution,
delivery, enforcement, performance and administration of this Agreement or any
other Loan Documents (all of the foregoing, collectively, "Costs") except to the
extent arising by reason of any Lender's gross negligence, misconduct or breach
hereof. Without limiting the foregoing, the Borrower agrees to pay on demand (a)
all out-of-pocket costs and expenses of the Agent in connection with the
preparation, execution and delivery of this Agreement and any other Loan
Documents, including without limitation the reasonable fees and out-of-pocket
expenses of Foley, Hoag & Eliot, special counsel for the Agent, with respect
thereto, as well as (b) the reasonable fees and all out-of-pocket expenses of
legal counsel, independent public accountants and other outside experts retained
by the Lenders in connection with any request by the Borrower for consents,
waivers or other action or forbearance by the Lenders hereunder, for the
modification or amendment hereof, or other like matters relating to the
administration of this Agreement; and (c) all reasonable costs and expenses, if
any, of the Lenders incurred after the occurrence of any Event of Default
hereunder in connection with the enforcement of any of the Loan Documents or the
protection of any of the Lenders' rights thereunder, including, without
limitation, any internal costs, including personnel costs of the Lenders
incurred in connection with such administration and enforcement or protection.
10.5. Notices.
(a) Unless telephonic notice is specifically permitted pursuant to the
terms of this Agreement, any notice or other communication hereunder to any
party hereto shall be by telegram, telecopier, telex, delivery in hand or by
courier, or registered or certified mail (return receipt requested) and shall be
deemed to have been given or made when telegraphed, telexed, telecopied (and
confirmed received), delivered in hand or by courier, or three days after being
deposited in the mails, postage prepaid, registered or certified, addressed to
the party as follows (or at any other address that such party may hereafter
specify to the other parties in writing):
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<PAGE> 43
(a) If to the Agent:
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attn: Ms. Sharon A. Stone, Director
Telecopier No. (617) 434-0819
with a copy to:
Arlene L. Bender, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopier No. (617) 832-7000
(b) If to the Borrower:
MKS Instruments, Inc.
Six Shattuck Road
Andover, Massachusetts 01810
Attn: Mr. William P. Donlan, Treasurer
Telecopier No. (978) 975-7663
with a copy to:
Richard S. Chute, Esq.
Hill & Barlow
One International Place
Boston, Massachusetts 02110
Telecopier No. (617) 428-3500
(c) if to the Lenders:
At the addresses set forth on the signature pages hereof and on
the signature page of each Assignment and Acceptance.
10.6. MASSACHUSETTS LAW. THIS AGREEMENT AND EACH OF THE LOAN DOCUMENTS
SHALL BE DEEMED A CONTRACT MADE UNDER THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS AND SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF SAID STATE (WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICT OF LAWS).
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<PAGE> 44
10.7. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which when taken together shall constitute one and the same instrument.
10.8. JURISDICTION, SERVICE OF PROCESS.
(a) ANY SUIT, ACTION OR PROCEEDING AGAINST THE BORROWER WITH RESPECT TO
ANY OF THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT OF ANY
THEREOF SHALL BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS
LOCATED IN SUFFOLK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN
DISTRICT OF MASSACHUSETTS, AS THE LENDERS (IN THEIR SOLE DISCRETION) MAY ELECT,
AND THE BORROWER HEREBY ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR
THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING AND AGREES NOT TO ASSERT ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS.
(b) IN ADDITION, THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT
THEREOF BROUGHT IN SUFFOLK COUNTY IN THE COMMONWEALTH OF MASSACHUSETTS, AND
HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING
BROUGHT IN SUFFOLK COUNTY IN THE COMMONWEALTH OF MASSACHUSETTS HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
10.9. Limit on Interest. It is the intention of the Lenders and the
Borrower to comply strictly with all applicable usury laws; and, accordingly, in
no event and upon no contingency shall the Lenders ever be entitled to receive,
collect, or apply as interest under any Note any interest, fees, charges or
other payments equivalent to interest, in excess of the maximum rate that the
Lenders may lawfully charge under applicable statutes and laws from time to time
in effect; and, in the event that the Lenders ever receive, collect or apply as
interest on the Notes, any such excess, such amount that, but for this
provision, would be excessive interest shall be applied to the reduction of the
principal amount of the indebtedness evidenced by the Notes; and, if the
principal amount of indebtedness evidenced by the Notes, and all lawful interest
thereon, is paid in full, any remaining excess shall forthwith be paid to the
Borrower, or other party lawfully entitled thereto. In determining whether or
not the interest paid or payable, under any specific contingency exceeds the
highest contract rate permitted by applicable law from time to time in effect,
the Borrower and the Lenders shall, to the maximum extent permitted under
applicable law, characterize any non-principal payment as a reasonable loan
charge, rather than as interest. Any provision of any Note, or of any other
agreement between the Lenders and the Borrower, that operates to bind, obligate,
or compel the Borrower to pay interest in excess of such
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<PAGE> 45
maximum lawful contract rate shall be construed to require the payment of the
maximum rate only. The provisions of this Section 10.9 shall be given precedence
over any other provisions contained in the Notes or in any other agreement
between the Lenders and the Borrower that is in conflict with the provisions of
this Section 10.9.
10.10. Amendments. No amendment, modification or waiver of any provision of
any Loan Document and no consent by the Lenders to any departure therefrom by
the Borrower shall be effective unless such amendment, modification or waiver
shall be in writing and signed by the Agent, shall have been approved by the
Required Lenders through their written consent, and the same shall then be
effective only for the period and on the conditions and for the specific
instances and purposes specified in such writing; provided, however, that, no
such amendment, modification or waiver
(i) that changes, extends or waives any provision of Section 3.1.4,
Section 9.9 or this Section 10.10, the amount of or the due date of any
scheduled principal installment of or the rate of interest payable on or
fees payable with respect to any Obligation, that changes the definition of
Required Lenders, that permits an assignment by the Borrower of its
Obligations under any Loan Document, that reduces the required consent of
the Lenders provided hereunder, that increases, decreases (other than
pursuant to the express terms hereof) or extends (other than pursuant to
the express terms hereof) the Revolving Credit Commitment of any Lender or
the Total Revolving Credit Commitment or that waives any condition to the
making of any Advance, shall be effective unless in writing and signed by
each of the Lenders; or
(ii) that affects the rights, privileges, immunities or indemnities of
the Agent shall be effective unless in writing and signed by the Agent.
Notwithstanding any provision of the other Loan Documents to the contrary, as
between the Agent and the Lenders, execution by the Agent shall not be deemed
conclusive evidence that the Agent has obtained the written consent of the
Required Lenders. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances, except as otherwise expressly provided herein. No delay or
omission on any Lender's or the Agent's part in exercising any right, remedy or
option shall operate as a waiver of such or any other right, remedy or option or
of any Default or Event of Default.
10.11. Headings. The headings of this Agreement are for convenience only
and are to affect the construction of or to be taken into account in
interpreting the substance of Agreement.
10.12. WAIVER OF NOTICE. ETC. THE BORROWER WAIVES DEMAND NOTICE, PROTEST,
NOTICE OF ACCEPTANCE OF THIS AGREEMENT, NOTICE OF LOANS MADE, CREDIT EXTENDED,
COLLATERAL RECEIVED OR DELIVERED OR OTHER ACTION TAKEN IN RELIANCE HEREON AND
ALL OTHER DEMANDS AND NOTICE OF ANY DESCRIPTION, EXCEPT AS REQUIRED HEREBY. WITH
RESPECT BOTH TO THE OBLIGATIONS AND COLLATERAL,
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<PAGE> 46
THE BORROWER ASSENTS TO ANY EXTENSION OR POSTPONEMENT OF THE TIME OF PAYMENT OR
ANY OTHER INDULGENCE, TO ANY SUBSTITUTION, EXCHANGE OR RELEASE OF COLLATERAL, TO
THE ADDITION OR RELEASE OF ANY PARTY OR PERSONS PRIMARILY OR SECONDARILY LIABLE,
TO THE ACCEPTANCE OF PRETRIAL PAYMENT THEREON AND THE SETTLEMENT, COMPROMISING
OR ADJUSTING OF ANY THEREOF, ALL IN SUCH MANNER AND AT SUCH TIME OR TIMES AS THE
LENDERS MAY DEEM ADVISABLE. THE BORROWER AGREES THAT NO ACTIONS TAKEN BY ANY
PERSON EXCEPT THE LENDERS SHALL IMPAIR OR OTHERWISE AFFECT ITS OBLIGATIONS
HEREUNDER UNTIL ALL OBLIGATIONS OF THE BORROWER HEREUNDER ARE SATISFIED IN FULL.
10.13. Severability. In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
10.14. Entire Agreement. This Agreement and the other Loan Documents
constitute the full and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof and shall supersede all
prior agreements and understandings, whether written or oral, between the
parties with respect to the subject matter hereof and thereof.
10.15. Compliance with Covenants. All computations determining compliance
with Articles 6 and 7 shall utilize accounting principles in conformity with
those used in the preparation of the financial statements referred to in Section
4.5. If any subsequent financial reports of the Borrower shall be prepared in
accordance with accounting principles different from those used in the
preparation of the financial statements referred to in Section 4.5, the Borrower
shall inform the Agent of the changes in accounting principles and shall provide
the Agent with such reports, such supplemental reconciling financial information
as may be required to ascertain compliance by the Borrower with the covenants
contained in this Agreement.
10.16. Termination. This Agreement may be terminated by the Borrower at any
time upon written notice of such termination to the Agent; provided, however,
that, unless and until all loans made by the Lenders hereunder and all other
Obligations hereunder of the Borrower to any Lender existing (whether or not
due) as of the time of the receipt of such notice by the Agent shall have been
paid in full, such termination shall in no way affect the rights and powers
granted to the Lenders in connection with this Agreement, and until such payment
in full all rights and powers hereby granted to the Lenders hereunder shall be
and remain in full force and effect.
10.17. WAIVER OF TRIAL BY JURY. THE BORROWER WAIVES ANY AND ALL RIGHTS THAT
IT MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM OR ACTION, OF ANY NATURE WHATSOEVER,
RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
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<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as an agreement under seal as of the date first above written.
Witness: MKS INSTRUMENTS, INC.
Scot A. Martel
By: William P. Donlan
Title: Treasurer
BANKBOSTON, N.A.
By:
Title:
Address: 100 Federal Street
Boston, MA 02110
THE CHASE MANHATTAN BANK
By:
Title:
Address: 999 Broad Street
Bridgeport, CT 06604
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<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as an agreement under seal as of the date first above written.
Witness: MKS INSTRUMENTS, INC.
By:
Title:
BANKBOSTON, N.A.
By: Sharon A. Stone
Title: Director
Address: 100 Federal Street
Boston, MA 02110
THE CHASE MANHATTAN BANK
By:
Title:
Address: 999 Broad Street
Bridgeport, CT 06604
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<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as an agreement under seal as of the date first above written.
Witness: MKS INSTRUMENTS, INC.
By:
Title:
BANKBOSTON, N.A.
By:
Title:
Address: 100 Federal Street
Boston, MA 02110
THE CHASE MANHATTAN BANK
By: Joan Considine
Title: Vice President
Address: 999 Broad Street
Bridgeport, CT 06604
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<PAGE> 50
EXHIBIT A
<TABLE>
<CAPTION>
Revolving Applicable
Credit Commitment
Lender Commitment Percentage
- ------ ---------- ----------
<S> <C> <C>
BankBoston, N.A. $18,000,000 60%
The Chase Manhattan Bank $12,000,000 40%
----------- ---
$30,000,000 100%
</TABLE>
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<PAGE> 1
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated May 17, 1999 ("Employment Agreement") by and between
MKS Instruments, Inc., a Massachusetts Corporation (the "Corporation"), and
Peter Younger of Newton Centre, MA (the "Employee").
WHEREAS, the Corporation and the Employee desire to provide for the employment
of the Employee by the Corporation:
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, the Corporation and the Employee hereby agree as follows:
(1) Term of Employment: The Corporation hereby employs the Employee, and
the Employee hereby accepts employment with the Corporation, for a period
commencing as of May 17, 1999 and continuing thereafter until terminated as
provided in this Section (1). Either the Corporation or the Employee may
terminate the employment of the Employee under this Employment Agreement at any
time after May 17, 1999 by giving written notice to the other party stating its
or his election to terminate the employment of the Employee under this
Employment Agreement. The employment of the Employee under this Employment
Agreement shall terminate thirty (30) days after the date of receipt by the
other party of such notice; provided, however, that the employment of the
Employee under this Employment Agreement is subject to prior termination as
hereinafter provided in Section (5).
(2) Capacity: The Employee shall be employed by the Corporation in the
position of President and Chief Operating Officer and shall perform such duties
as shall be assigned to Employee by the Chairman and CEO of the Corporation. The
Employee shall also perform such duties as are customary and appropriate in such
capacity or office, including the following: Overseeing the day to day operation
of the Corporation including but not limited to, product development,
manufacturing and operations, marketing and sales, customer service and
satisfaction, quality, human resources and internal financial control.
(3) Extent of Services: During the term of employment of the Employee under
this Employment Agreement, the Employee shall devote his full time to, and use
his best efforts in the furtherance of, the business of the Corporation and
shall
<PAGE> 2
Peter Younger
not engage in any other business activity which interferes in any way with the
Employee's performance of his duties to the Corporation, whether or not such
business activity is pursued for gain or any other pecuniary advantage, without
the prior written consent of the Corporation.
(4) Compensation: In consideration of the services to be rendered by the
Employee under this Employment Agreement, the Corporation agrees to pay, and the
Employee agrees to accept, the following compensation:
(a) Base Salary: A base salary at the rate of two hundred twenty-five
thousand dollars ($225,000) per year for the term of employment of the Employee
under this Employment Agreement. The base salary shall be payable in equal
biweekly installments subject to usual withholding requirements. This salary
will be reviewed annually according to the established practices of the company
provided, however, that upon review the Employee's salary may be increased but
not decreased, unless such decrease is part of an overall cost savings program
which may be in effect from time to time. No overtime pay will be paid to the
Employee by the Corporation.
(b) Incentive: For each calendar year of the corporation during the
term of employment of the Employee under this Employment Agreement, the Employee
shall be entitled to participate in a Management Incentive Program pursuant to
the terms of which the Employee may receive compensation in addition to his base
salary if the Corporation attains its consolidated financial goals during such
calendar year of the Corporation. The "targeted" additional compensation goal
for the Employee shall be 60% of his earnings. The Management Incentive Program,
including the consolidated financial goals established by the Corporation for
the calendar year and the formula to be used to determine the payment of amounts
under the Management Incentive Program, will be communicated to the Employee in
writing prior to the beginning of each calendar year of the Corporation.
If there shall be any disagreement between the Corporation and the
Employee as to the calculation of the Management Incentive Bonus in any calendar
year of the Corporation during the term of employment of the Employee under this
Employment Agreement, the decision of the independent Public Accounting firm of
the corporation as to the amount of the Management Incentive Bonus of the
Corporation shall be conclusive and binding on the corporation and the Employee.
2
<PAGE> 3
Peter Younger
The Employee shall be entitled to inspect any certificate of such independent
public accounting firm as to the calculation of the Management Incentive Bonus
of the Corporation in any calendar year of the Corporation during the term of
employment of the Employee under this Employment Agreement.
Incentive payments shall be payable to the Employee on or before March
31 after the end of each calendar year of the Corporation during the term of
employment of the Employee under this Employment Agreement.
The Employee will not receive any payment under the Management
Incentive Program for any calendar year in which the Employee is not actively
employed on the last day of that calendar year, but the Employee need not be
actively employed at the time the payment is actually made. The Employee shall
be entitled to participate in the Management Incentive Program in 1999 even
though his employment commenced on May 17, 1999.
(c) MKS Instruments Profit Sharing and Retirement Savings Plan: The
Employee shall be eligible to become a participant under the profit sharing plan
of the Corporation on fulfilling the conditions set forth in the MKS Instruments
Profit Sharing and Retirement Savings Plan of the Corporation.
(d) Vacation: The Employee shall be entitled to an annual vacation
leave of 20 days at full pay during each year of this Employment Agreement,
subject to the Employee arranging such vacation so as not to affect adversely
the ability of the Corporation to transact its necessary business. Vacation
shall accrue at the rate of 1.667 days per month.
(e) Life Insurance: The Corporation shall provide, and pay all of the
premiums for, term life insurance in the amount of $250,000 for the Employee
during the term of employment of the Employee under this Employment Agreement in
accordance with the term life insurance plan of the Corporation.
(f) Medical/Dental Insurance: The Corporation shall provide group
medical/dental insurance for the Employee and his eligible family members under
the Plans of the Corporation applicable to the Employee during the term of
employment of the Employee under this Employment Agreement. In addition, the
Corporation shall provide to the Employee a supplemental medical/dental plan
that
3
<PAGE> 4
Peter Younger
will reimburse the Employee for the cost of any medically necessary services not
paid under the primary medical/dental insurance plans, subject to an annual
limit of $2500.
(g) Stock Options: The Corporation hereby grants to the Employee an
option to purchase 150,000 shares of common stock; no par value, of the
Corporation at the fair market value of the stock at close of business on May
17, 1999. The foregoing options shall be issued pursuant to and subject to the
terms of the Corporation's Amended and Restated 1995 Stock Incentive Plan.
(h) Company Car Allowance: The Corporation shall pay the Employee $650
per month during the term of his employment as a company car allowance.
(i) Other Benefits: The Corporation shall provide other benefits for
the employee under the Plans of the Corporation applicable to the Employee
during the term of employment of the Employee under this Employment Agreement.
(5) Termination: The employment of the Employee under this Employment
Agreement shall terminate:
(a) On the expiration of the period of employment as provided in
Section (1).
(b) Upon the death of the Employee.
(c) At the election of the Corporation (i) if the Employee shall fail,
or refuse, to perform the services required of him under this Employment
Agreement, or (ii) if the Employee shall fail, or refuse, to perform the other
covenants and agreements required of him under this Employment Agreement, or
(iii) "for cause", which term shall mean acts or actions detrimental to the best
interests of the Corporation.
(6) Payment Upon Termination:
(a) If the employment of the Employee is terminated by the Corporation
"Without Cause", the Employee shall be entitled to compensation as follows:
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Peter Younger
(i) If termination "Without Cause" occurs within the first month of
employment the Corporation shall pay the Employee a termination benefit of
twelve (12) months compensation. If termination "Without Cause" occurs after the
first month of employment, the Corporation shall reduce the termination benefit
by one month's salary for each full month of employment completed thereafter
until the termination benefit has reached six (6) months compensation. The
termination benefit will then remain at six (6) months compensation for the
duration of this agreement.
(ii) If the Employee is terminated by the Corporation "Without Cause",
the Employee will be paid all accrued, but unpaid, salary, bonus, vacation and
other benefits.
(iii) If the Employee is terminated by the Corporation "Without
Cause", the Corporation shall continue to provide the Employee life insurance,
medical insurance, and dental insurance for the duration of the Employee's
termination benefit.
(b) If the employment of the Employee is terminated by death, the
Corporation shall pay to the estate of the Employee all accrued, but unpaid,
salary, bonus, vacation and other benefits which would otherwise be payable to
the Employee at the end of the month in which his death occurs.
(c) In the event the employment of the Employee is terminated at the
election of the Corporation pursuant to Section (5) (c) hereof, the Employee
shall be paid all accrued, but unpaid, salary, bonus, vacation and other
benefits.
(d) If the Employee is terminated by voluntary resignation by the
Employee, the Employee will be paid all accrued, but unpaid, salary, bonus,
vacation and other benefits earned as of his effective date of termination.
(7) Trade Secrets: The Employee covenants and agrees that he will
communicate to the Corporation, and will not divulge or communicate to any other
person, partnership, corporation or other entity without the prior written
consent of the Corporation, any trade secrets of the Corporation or confidential
information relating to the business of the Corporation or any one connected
with the Corporation, and that such trade secrets and confidential information
shall not be used by the Employee either on his own behalf or for the benefit of
others or
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Peter Younger
disclosed by the Employee to any one, except to the Corporation, during or after
the term of employment of the Employee under this Employment Agreement.
(8) Inventions and Patents:
(a) The Employee shall make prompt full disclosure in writing to the
Corporation of all inventions, improvements and discoveries, whether or not
patentable, which the Employee conceives, devises, makes, discovers, develops,
perfects or first reduces to practice, either alone or jointly with others,
during the term of employment of the Employee under this Employment Agreement,
which relate in any way to the fields, products or business of the Corporation,
including development and research, whether during or out of the usual hours of
work or on or off the premises of the Corporation or by use of the facilities of
the Corporation or otherwise and whether at the request or suggestion of the
Corporation or otherwise (all such inventions, improvements and discoveries
being hereinafter called the "Inventions"), including any Inventions, whether or
not patentable, conceived, devised, made, discovered, developed, perfected or
first reduced to practice by the Employee after the employment of the Employee
under this Employment Agreement is terminated if the Inventions were conceived
by the Employee during the term of employment of the Employee under this
Employment Agreement. Any Inventions, whether or not patentable, conceived,
devised, made, discovered, developed, perfected or first reduced to practice by
the Employee within six (6) months of the date of termination of the employment
of the Employee under this Employment Agreement shall be conclusively presumed
to have been conceived during the term of employment of the Employee under this
Employment Agreement.
(b) The Employee agrees that the Inventions shall be the sole and
exclusive property of the Corporation.
(c) The Employee agrees to assist the Corporation and its nominees in
every reasonable way (entirely at its or their expense) to obtain for the
benefit of the Corporation letters patent for the Inventions and trademarks,
trade names and copyrights relating to the Inventions, and any renewals,
extensions or reissues thereof, in any and all countries, and agrees to make,
execute, acknowledge and deliver, at the request of the Corporation, all written
applications for letters patent, trademarks, trade names and copyrights relating
to the Inventions and any
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<PAGE> 7
Peter Younger
renewals, extensions or reissues thereof, in any and all countries, and all
documents with respect thereto, and all powers of attorney relating thereto and,
without further compensation, to assign to the Corporation or its nominee all
the right, title and interest of the Employee in and to such applications and to
any patents, trademarks, trade names or copyrights which shall thereafter issue
on any such applications, and to execute, acknowledge and deliver all other
documents deemed necessary by the Corporation to transfer to or vest in the
Corporation all of the right, title and interest of the Employee in and to the
Inventions, and to such trademarks, trade names, patents and copyrights together
with exclusive rights to make, use, license and sell them throughout the world.
(d) The Employee agrees that even though his employment is terminated
under this Employment Agreement he will, at any time after such termination of
employment, carry out and perform all of the agreements of Subsections (8) (a)
and (8) (c) above, and will at any time and at all times cooperate with the
Corporation in the prosecution and/or defense of any litigation which may arise
in connection with the Inventions, provided, however, that should such services
be rendered after termination of employment of the Employee under this
Employment Agreement, the Employee shall be paid reasonable compensation on a
per diem basis.
(e) The Employee agrees to make and maintain adequate and current
written records of all Inventions in the form of notes, sketches, drawings, or
reports relating thereto, which records shall be and remain the property of, and
available to, the Corporation at all times.
(f) The Employee agrees that he will, upon leaving the employment of
the Corporation, promptly deliver to the Corporation all originals and copies of
disclosures, drawings, prints, letters, notes, and reports either typed,
handwritten or otherwise memorialized, belonging to the Corporation which are in
his possession or under his control and the Employee agrees that he will not
retain or give away or make copies of the originals or copies of any such
disclosures, drawings, prints, letters, notes or reports.
(9) Property of Corporation: All files, records, reports, documents,
drawings, specifications, equipment, and similar items relating to the business
of the Corporation, whether prepared by the Employee or otherwise coming into
his
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<PAGE> 8
Peter Younger
possession, shall remain the exclusive property of the Corporation and shall not
be removed by the Employee from the premises of the Corporation under any
circumstances whatsoever without the prior written consent of the Corporation.
Provided, however, the Employee may remove such files and other items from the
premises of the Corporation if required to do so during the course of his duties
or if required to work at home.
(10) Non-Competition:
(a) During the term of employment of the Employee under this Employment
Agreement, and during a period of one (1) year after termination of employment
of the Employee under this Employment Agreement without regard to the cause of
termination of employment and whether or not such termination of employment was
caused by the Employee or by the Corporation, (i) the Employee shall not engage,
either directly or indirectly, in any manner or capacity, in any business or
activity which is competitive with any business or activity conducted by the
Corporation; (ii) the Employee shall not work for or employ, directly or
indirectly, or cause to be employed by another, any person who was an employee,
officer or agent of the Corporation or of any of its subsidiaries at any time
during a period of twelve (12) months prior to the termination of the employment
of the Employee under this Employment Agreement nor shall the Employee form any
partnership with, or establish any business venture in cooperation with, any
such person which is competitive with any business or activity of the
Corporation; (iii) the Employee shall not give, sell or lease any goods or
services competitive with the goods or services of the Corporation or its
subsidiaries to any person, partnership, corporation or other entity who
purchased goods or services from the Corporation or its subsidiaries within one
(1) year before the termination of the employment of the Employee under this
Employment Agreement; (iv) the Employee shall not have any financial interest,
or participate as a director, officer, stockholder, partner, employee,
consultant or otherwise, in any corporation, partnership or other entity which
is competitive with any business or activity conducted by the Corporation.
(b) The Corporation and the Employee agree that the services of the
Employee are of a personal, special, unique and extraordinary character, and
cannot be replaced by the Corporation without great difficulty, and that the
violation by the Employee of any of his agreements under this Section (10) would
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<PAGE> 9
Peter Younger
damage the goodwill of the Corporation and cause the Corporation irreparable
harm which could not reasonably or adequately be compensated in damages in an
action at law, and that the agreements of the Employee under this Section (10)
may be enforced by the Corporation in equity by an injunction or restraining
order in addition to being enforced by the Corporation at law.
(c) In the event that this Section (10) shall be determined by any
court of competent jurisdiction to be unenforceable by reason of its extending
for too long a period of time or over too great a range of activities, it shall
be interpreted to extend only over the maximum period of time or range of
activities as to which it may be enforceable.
(11) Notice: Any and all notices under this Employment Agreement shall be
in writing and, if to the Corporation, shall be duly given if sent to the
Corporation by registered or certified mail, postage prepaid, return receipt
requested, at the address of the Corporation set forth under its name below or
at such other address as the Corporation may hereafter designate to the Employee
in writing for the purpose, and if to the Employee, shall be duly given if
delivered to the Employee by hand or if sent to the Employee by registered or
certified mail, postage prepaid, return receipt requested, at the address of the
Employee set forth under his name below or at such other address as the Employee
may hereafter designate to the Corporation in writing for the purpose.
(12) Assignment: The rights and obligations of the Corporation under this
Employment Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Corporation. The rights and obligations of the
Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the heirs, executors and legal representatives of the
Employee.
(13) Entire Agreement and Severability:
(a) This Employment Agreement and the MKS offer of employment letter
dated 4/30/99 (and the documents referenced herein) supersede any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Employee by the Corporation and contain all of the
covenants and agreements between the parties with respect to such employment.
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Peter Younger
Each party to this Employment Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or any one acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement or promise not contained in this
Employment Agreement or referenced herein, or as amended, shall be valid and
binding. Any modification of this Employment Agreement will be effective only if
it is in writing signed by both parties to this Employment Agreement.
(b) If any provision in this Employment Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way.
(c) All pronouns used herein shall include the masculine, feminine, and
neuter gender as the context requires.
(14) Governing Law: This Employment Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of The Commonwealth
of Massachusetts without reference to conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have executed, in the Commonwealth of
Massachusetts, this Employment Agreement as a sealed instrument, all as of the
day, month and year first written above.
MKS INSTRUMENTS, INC.
By: /s/ John R. Bertucci
----------------------------------
John R. Bertucci, Chairman and CEO
6 Shattuck Road
Andover, MA 01810
/s/ Peter Younger
----------------------------
Peter Younger
Address: 57 Dudley Road
Newton, Centre, MA 02459
10
<PAGE> 1
Exhibit 10.30
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated December 6, 1999 ("Employment Agreement") by and
between MKS Instruments, Inc., a Massachusetts Corporation (the "Corporation"),
and Robert L. Klimm of Acton, MA (the "Employee").
WHEREAS, the Corporation and the Employee desire to provide for the employment
of the Employee by the Corporation:
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, the Corporation and the Employee hereby agree as follows:
(1) Term of Employment: The Corporation hereby employs the Employee, and
the Employee hereby accepts employment with the Corporation, for a period
commencing as of December 6, 1999 and continuing thereafter until terminated as
provided in this Section (1). Either the Corporation or the Employee may
terminate the employment of the Employee under this Employment Agreement at any
time after December 6, 1999 by giving written notice to the other party stating
its or his election to terminate the employment of the Employee under this
Employment Agreement. The employment of the Employee under this Employment
Agreement shall terminate thirty (30) days after the date of receipt by the
other party of such notice; provided, however, that the employment of the
Employee under this Employment Agreement is subject to prior termination as
hereinafter provided in Section (5).
(2) Capacity: The Employee shall be employed by the Corporation in the
position of Corporate Vice President and General Manager of Flow Products and
shall perform such duties as shall be assigned to Employee by the President &
COO of the Corporation.
(3) Extent of Services: During the term of employment of the Employee under
this Employment Agreement, the Employee shall devote his full time to, and use
his best efforts in the furtherance of, the business of the Corporation and
shall not engage in any other business activity which interferes in any way with
the Employee's performance of his duties to the Corporation, whether or not such
business activity is pursued for gain or any other pecuniary advantage, without
the prior written consent of the Corporation.
<PAGE> 2
(4) Compensation: In consideration of the services to be rendered by the
Employee under this Employment Agreement, the Corporation agrees to pay, and the
Employee agrees to accept, the following compensation:
(a) Base Salary: A base salary at the rate of one hundred ninety
thousand dollars ($190,000) per year for the term of employment of the Employee
under this Employment Agreement. The base salary shall be payable in equal
biweekly installments subject to usual withholding requirements. This salary
will be reviewed annually according to the established practices of the company.
No overtime pay will be paid to the Employee by the Corporation.
(b) Incentive: Beginning January 1, 2000 for each calendar year of the
corporation during the term of employment of the Employee under this Employment
Agreement, the Employee shall be entitled to participate in a Management
Incentive Program pursuant to the terms of which the Employee may receive
compensation in addition to his base salary if the Corporation attains its
consolidated financial goals during such calendar year of the Corporation. The
"targeted" additional compensation goal for the Employee shall be 40% of his
earnings. The Management Incentive Program, including the consolidated financial
goals established by the Corporation for the calendar year and the formula to be
used to determine the payment of amounts under the Management Incentive Program,
will be communicated to the Employee in writing prior to the beginning of each
calendar year of the Corporation.
If there shall be any disagreement between the Corporation and the
Employee as to the calculation of the Management Incentive Bonus in any calendar
year of the Corporation during the term of employment of the Employee under this
Employment Agreement, the decision of the independent Public Accounting firm of
the corporation as to the amount of the Management Incentive Bonus of the
Corporation shall be conclusive and binding on the corporation and the Employee.
The Employee shall be entitled to inspect any certificate of such independent
public accounting firm as to the calculation of the Management Incentive Bonus
of the Corporation in any calendar year of the Corporation during the term of
employment of the Employee under this Employment Agreement.
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<PAGE> 3
Incentive payments shall be payable to the Employee on or before March
31 after the end of each calendar year of the Corporation during the term of
employment of the Employee under this Employment Agreement.
The Employee will not receive any payment under the Management
Incentive Program for any calendar year in which the Employee is not actively
employed on the last day of that calendar year, but the Employee need not be
actively employed at the time the payment is actually made.
(c) MKS Instruments Profit Sharing and Retirement Savings Plan: The
Employee shall be eligible to become a participant under the profit sharing plan
of the Corporation on fulfilling the conditions set forth in the MKS Instruments
Profit Sharing and Retirement Savings Plan of the Corporation.
(d) Vacation: The Employee shall be entitled to an annual vacation
leave of 15 days at full pay during each year of this Employment Agreement,
subject to the Employee arranging such vacation so as not to affect adversely
the ability of the Corporation to transact its necessary business. Vacation
shall accrue at the rate of 1.25 days per month.
(e) Life Insurance: The Corporation shall provide, and pay all of the
premiums for, term life insurance in the amount of $250,000 for the Employee
during the term of employment of the Employee under this Employment Agreement in
accordance with the term life insurance plan of the Corporation.
(f) Medical/Dental Insurance: The Corporation shall provide group
medical/dental insurance for the Employee and his eligible family members under
the Plans of the Corporation applicable to the Employee during the term of
employment of the Employee under this Employment Agreement. In addition, the
Corporation shall provide to the Employee a supplemental medical/dental plan
that will reimburse the Employee for the cost of any medically necessary
services not paid under the primary medical/dental insurance plans, subject to
an annual limit of $2500.
(g) Stock Options: The Corporation hereby grants to the Employee an
option to purchase 75,000 shares of common stock, no par value, of the
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<PAGE> 4
Corporation at the fair market value of the stock at close of business on
December 6, 1999. The foregoing options shall be issued pursuant to and subject
to the terms of the Corporation's Amended and Restated 1995 Stock Incentive
Plan.
(h) Company Car Allowance: The Corporation shall pay the Employee $650
per month during the term of his employment as a company car allowance.
(i) Other Benefits: The Corporation shall provide other benefits for
the employee under the Plans of the Corporation applicable to the Employee
during the term of employment of the Employee under this Employment Agreement.
(5) Termination: The employment of the Employee under this Employment
Agreement shall terminate:
(a) On the expiration of the period of employment as provided in
Section (1).
(b) Upon the death of the Employee.
(c) At the election of the Corporation (i) if the Employee shall fail,
or refuse, to perform the services required of him under this Employment
Agreement, or (ii) if the Employee shall fail, or refuse, to perform the other
covenants and agreements required of him under this Employment Agreement, or
(iii) "for cause", which term shall mean acts or actions detrimental to the best
interests of the Corporation.
(6) Payment Upon Termination:
(a) (i) If the employment of the Employee is terminated by the
Corporation "Without Cause", the Employee shall be entitled to a termination
benefit of six (6) months compensation for the duration of this agreement.
(ii) If the Employee is terminated by the Corporation "Without
Cause", the Employee will be paid all accrued, but unpaid, salary, bonus,
vacation and other benefits.
(iii) If the Employee is terminated by the Corporation "Without
Cause", the Corporation shall continue to provide the Employee life insurance,
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<PAGE> 5
medical insurance, and dental insurance for the duration of the Employee's
termination benefit.
(b) If the employment of the Employee is terminated by death, the
Corporation shall pay to the estate of the Employee all accrued, but unpaid,
salary, bonus, vacation and other benefits which would otherwise be payable to
the Employee at the end of the month in which his death occurs.
(c) In the event the employment of the Employee is terminated at the
election of the Corporation pursuant to Section (5) (c) hereof, the Employee
shall be paid all accrued, but unpaid, salary, bonus, vacation and other
benefits.
(d) If the Employee is terminated by voluntary resignation by the
Employee, the Employee will be paid all accrued, but unpaid, salary, bonus,
vacation and other benefits earned as of his effective date of termination.
(7) Trade Secrets: The Employee covenants and agrees that he will
communicate to the Corporation, and will not divulge or communicate to any other
person, partnership, corporation or other entity without the prior written
consent of the Corporation, any trade secrets of the Corporation or confidential
information relating to the business of the Corporation or any one connected
with the Corporation, and that such trade secrets and confidential information
shall not be used by the Employee either on his own behalf or for the benefit of
others or disclosed by the Employee to any one, except to the Corporation,
during or after the term of employment of the Employee under this Employment
Agreement.
(8) Inventions and Patents:
(a) The Employee shall make prompt full disclosure in writing to the
Corporation of all inventions, improvements and discoveries, whether or not
patentable, which the Employee conceives, devises, makes, discovers, develops,
perfects or first reduces to practice, either alone or jointly with others,
during the term of employment of the Employee under this Employment Agreement,
which relate in any way to the fields, products or business of the Corporation,
including development and research, whether during or out of the usual hours of
work or on or off the premises of the Corporation or by use of the facilities of
the Corporation or
5
<PAGE> 6
otherwise and whether at the request or suggestion of the Corporation or
otherwise (all such inventions, improvements and discoveries being hereinafter
called the "Inventions"), including any Inventions, whether or not patentable,
conceived, devised, made, discovered, developed, perfected or first reduced to
practice by the Employee after the employment of the Employee under this
Employment Agreement is terminated if the Inventions were conceived by the
Employee during the term of employment of the Employee under this Employment
Agreement. Any Inventions, whether or not patentable, conceived, devised, made,
discovered, developed, perfected or first reduced to practice by the Employee
within six (6) months of the date of termination of the employment of the
Employee under this Employment Agreement shall be conclusively presumed to have
been conceived during the term of employment of the Employee under this
Employment Agreement.
(b) The Employee agrees that the Inventions shall be the sole and
exclusive property of the Corporation.
(c) The Employee agrees to assist the Corporation and its nominees in
every reasonable way (entirely at its or their expense) to obtain for the
benefit of the Corporation letters patent for the Inventions and trademarks,
trade names and copyrights relating to the Inventions, and any renewals,
extensions or reissues thereof, in any and all countries, and agrees to make,
execute, acknowledge and deliver, at the request of the Corporation, all written
applications for letters patent, trademarks, trade names and copyrights relating
to the Inventions and any renewals, extensions or reissues thereof, in any and
all countries, and all documents with respect thereto, and all powers of
attorney relating thereto and, without further compensation, to assign to the
Corporation or its nominee all the right, title and interest of the Employee in
and to such applications and to any patents, trademarks, trade names or
copyrights which shall thereafter issue on any such applications, and to
execute, acknowledge and deliver all other documents deemed necessary by the
Corporation to transfer to or vest in the Corporation all of the right, title
and interest of the Employee in and to the Inventions, and to such trademarks,
trade names, patents and copyrights together with exclusive rights to make, use,
license and sell them throughout the world.
(d) The Employee agrees that even though his employment is terminated
under this Employment Agreement he will, at any time after such
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termination of employment, carry out and perform all of the agreements of
Subsections (8) (a) and (8) (c) above, and will at any time and at all times
cooperate with the Corporation in the prosecution and/or defense of any
litigation which may arise in connection with the Inventions, provided, however,
that should such services be rendered after termination of employment of the
Employee under this Employment Agreement, the Employee shall be paid reasonable
compensation on a per diem basis.
(e) The Employee agrees to make and maintain adequate and current
written records of all Inventions in the form of notes, sketches, drawings, or
reports relating thereto, which records shall be and remain the property of, and
available to, the Corporation at all times.
(f) The Employee agrees that he will, upon leaving the employment of
the Corporation, promptly deliver to the Corporation all originals and copies of
disclosures, drawings, prints, letters, notes, and reports either typed,
handwritten or otherwise memorialized, belonging to the Corporation which are in
his possession or under his control and the Employee agrees that he will not
retain or give away or make copies of the originals or copies of any such
disclosures, drawings, prints, letters, notes or reports.
(9) Property of Corporation: All files, records, reports, documents,
drawings, specifications, equipment, and similar items relating to the business
of the Corporation, whether prepared by the Employee or otherwise coming into
his possession, shall remain the exclusive property of the Corporation and shall
not be removed by the Employee from the premises of the Corporation under any
circumstances whatsoever without the prior written consent of the Corporation.
Provided, however, the Employee may remove such files and other items from the
premises of the Corporation if required to do so during the course of his duties
or if required to work at home.
(10) Non-Competition:
(a) During the term of employment of the Employee under this Employment
Agreement, and during a period of one (1) year after termination of employment
of the Employee under this Employment Agreement without regard to the cause of
termination of employment and whether or not such termination of
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<PAGE> 8
employment was caused by the Employee or by the Corporation, (i) the Employee
shall not engage, either directly or indirectly, in any manner or capacity, in
any business or activity which is competitive with any business or activity
conducted by the Corporation; (ii) the Employee shall not work for or employ,
directly or indirectly, or cause to be employed by another, any person who was
an employee, officer or agent of the Corporation or of any of its subsidiaries
at any time during a period of twelve (12) months prior to the termination of
the employment of the Employee under this Employment Agreement nor shall the
Employee form any partnership with, or establish any business venture in
cooperation with, any such person which is competitive with any business or
activity of the Corporation; (iii) the Employee shall not give, sell or lease
any goods or services competitive with the goods or services of the Corporation
or its subsidiaries to any person, partnership, corporation or other entity who
purchased goods or services from the Corporation or its subsidiaries within one
(1) year before the termination of the employment of the Employee under this
Employment Agreement; (iv) the Employee shall not have any financial interest,
or participate as a director, officer, stockholder, partner, employee,
consultant or otherwise, in any corporation, partnership or other entity which
is competitive with any business or activity conducted by the Corporation.
(b) The Corporation and the Employee agree that the services of the
Employee are of a personal, special, unique and extraordinary character, and
cannot be replaced by the Corporation without great difficulty, and that the
violation by the Employee of any of his agreements under this Section (10) would
damage the goodwill of the Corporation and cause the Corporation irreparable
harm which could not reasonably or adequately be compensated in damages in an
action at law, and that the agreements of the Employee under this Section (10)
may be enforced by the Corporation in equity by an injunction or restraining
order in addition to being enforced by the Corporation at law.
(c) In the event that this Section (10) shall be determined by any
court of competent jurisdiction to be unenforceable by reason of its extending
for too long a period of time or over too great a range of activities, it shall
be interpreted to extend only over the maximum period of time or range of
activities as to which it may be enforceable.
8
<PAGE> 9
(11) Notice: Any and all notices under this Employment Agreement shall be
in writing and, if to the Corporation, shall be duly given if sent to the
Corporation by registered or certified mail, postage prepaid, return receipt
requested, at the address of the Corporation set forth under its name below or
at such other address as the Corporation may hereafter designate to the Employee
in writing for the purpose, and if to the Employee, shall be duly given if
delivered to the Employee by hand or if sent to the Employee by registered or
certified mail, postage prepaid, return receipt requested, at the address of the
Employee set forth under his name below or at such other address as the Employee
may hereafter designate to the Corporation in writing for the purpose.
(12) Assignment: The rights and obligations of the Corporation under this
Employment Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Corporation. The rights and obligations of the
Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the heirs, executors and legal representatives of the
Employee.
(13) Entire Agreement and Severability:
(a) This Employment Agreement and the MKS offer of employment letter
dated 11/4/99 (and the documents referenced herein) supersede any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Employee by the Corporation and contain all of the
covenants and agreements between the parties with respect to such employment.
Each party to this Employment Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or any one acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement or promise not contained in this
Employment Agreement or referenced herein, or as amended, shall be valid and
binding. Any modification of this Employment Agreement will be effective only if
it is in writing signed by both parties to this Employment Agreement.
(b) If any provision in this Employment Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way.
9
<PAGE> 10
(c) All pronouns used herein shall include the masculine, feminine, and
neuter gender as the context requires.
(14) Governing Law: This Employment Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of The Commonwealth
of Massachusetts without reference to conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have executed, in the Commonwealth of
Massachusetts, this Employment Agreement as a sealed instrument, all as of the
day, month and year first written above.
MKS INSTRUMENTS, INC.
By: /s/ Peter R. Younger
---------------------------------
Peter R. Younger, President & COO
6 Shattuck Road
Andover, MA 01810
/s/ Robert L. Klimm
---------------------------------
Robert L. Klimm
Address: 13 Knowlton Dr.
Acton, MA 01720
10
<PAGE> 1
20
Selected Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statement of Income Data
Net sales $187,083 $139,763 $188,080 $170,862 $157,164
Gross profit 79,855 55,979 80,474 68,854 69,461
Income from operations 27,611 9,135 23,963 16,068 24,106
Net income $ 24,037 $ 7,186 $ 20,290 $ 12,503 $ 21,658
Historical net income per share - Diluted $ 1.00 $ 0.38 $ 1.10 $ 0.69 $ 1.20
Pro Forma Statement of Income Data (1)
Pro forma net income $ 18,412 $ 5,044 $ 13,806 $ 8,248 $ 13,821
Pro forma net income per share - Diluted $ 0.77 $ 0.27 $ 0.76 $ 0.46 $ 0.77
Balance Sheet Data
Cash and cash equivalents $ 35,714 $ 11,188 $ 2,511 $ 3,815 $ 3,650
Working capital 87,088 31,493 30,321 22,404 32,202
Total assets 174,605 96,232 106,536 95,000 104,511
Short-term obligations 20,828 12,819 13,852 16,124 15,192
Long-term obligations, less current portion 5,662 13,786 15,624 18,899 20,462
Stockholders' equity 119,169 54,826 52,848 45,498 48,392
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Statement of Income Data
Net sales $46,163 $34,026 $28,834 $30,740
Gross profit 19,406 13,761 10,694 12,118
Income from operations 5,500 1,609 318 1,708
Net income 4,279 1,232 142 1,533
Historical net income per share - Diluted $ 0.23 $ 0.07 $ 0.01 $ 0.08
Pro Forma Statement of Income Data (1)
Pro forma net income $ 3,003 $ 865 $ 100 $ 1,076
Pro forma net income per share - Diluted $ 0.16 $ 0.05 $ 0.01 $ 0.06
1999
Statement of Income Data
Net sales $37,910 $44,209 $50,621 $54,343
Gross profit 15,353 18,659 21,745 24,098
Income from operations 3,541 5,907 7,999 10,164
Net income 3,129 7,576 6,037 7,295
Historical net income per share - Diluted $ 0.16 $ 0.30 $ 0.24 $ 0.28
Pro Forma Statement of Income Data (1)
Pro forma net income $ 2,150 $ 3,806 $ 5,677 $ 6,779
Pro forma net income per share - Diluted $ 0.11 $ 0.15 $ 0.22 $ 0.26
</TABLE>
(1) Data is computed on the same basis as Note 2 of Notes to Consolidated
Financial Statements. The historical net income per share data does not
include provisions for federal income taxes because prior to its
initial public offering in 1999, MKS was treated as an S corporation
for federal income tax purposes. The Pro Forma Statement of Income Data
presents net income and net income per share data as if MKS had been
subject to federal income taxes as a C corporation during the periods
presented.
<PAGE> 2
21 MKS Instruments 1999
Management's Discussion and Analysis of Financial Condition and Results of
Operations
When used in this Annual Report, including this Management's Discussion and
Analysis, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements reflect management's current opinions and are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those stated or implied. MKS Instruments, Inc. (the "Company" or
"MKS" ) assumes no obligation to update this information. Risks and
uncertainties include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis - Trends, Risks and
Uncertainties."
Overview
MKS was founded in 1961. MKS develops, manufactures and supplies instruments and
components used to measure, control and analyze gases in semiconductor
manufacturing and similar industrial manufacturing processes. During 1999, MKS
estimates that approximately 66% of its net sales were to semiconductor capital
equipment manufacturers and semiconductor device manufacturers. MKS expects that
sales to such customers will continue to account for a substantial majority of
its sales. MKS's customers include semiconductor capital equipment
manufacturers, semiconductor device manufacturers, industrial manufacturing
companies and university, government and industrial research laboratories. In
1999, 1998 and 1997, sales to MKS's top five customers accounted for
approximately 33%, 24% and 32%, respectively, of MKS's net sales. During 1999,
Applied Materials, Inc. accounted for approximately 22% of MKS's net sales. MKS
typically enters into contracts with its semiconductor equipment manufacturer
customers that provide for quantity discounts. MKS recognizes revenue, and
accrues for anticipated returns and warranty costs, upon completion of delivery
obligations.
A significant portion of MKS's sales are to operations in international markets.
International sales by MKS's foreign operations, located in Japan, Korea,
Europe, Singapore and Taiwan, were 31.3% and 32.4% of net sales for 1999 and
1998, respectively. Sales by MKS's Japan subsidiary comprised 16.4% and 15.1% of
net sales in 1999 and 1998, respectively. MKS does not classify export sales
made directly by MKS as international sales. Such export sales have generally
been less than 10% of net sales. MKS currently uses, and plans to continue to
use, forward exchange contracts and local currency purchased options to reduce
currency exposure arising from foreign currency denominated intercompany sales
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 3 of Notes
to Consolidated Financial Statements.
MKS was treated as an S corporation for federal income tax purposes prior to its
initial public offering in 1999. MKS's S corporation status terminated upon the
closing of the offering, at which time MKS became 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% in 1997 and 1998, and 37.1% in
1999 to reflect federal and state income taxes which would have been payable had
MKS been taxed as a C corporation for each period.
On April 5, 1999 MKS closed the initial public offering of its Common Stock. In
connection with this offering and the exercise of an over-allotment option by
the underwriters, the Company sold 6,375,000 shares of Common Stock at a price
of $14.00 per share. The net proceeds to the Company were approximately
$82,000,000. Offering costs were approximately $1,000,000.
On April 5, 1999 MKS distributed $40,000,000, which was the estimated amount of
the Company's undistributed S Corporation earnings as of the day prior to the
closing of the offering.
Results of Operations
The following table sets forth for the periods indicated the percentage of total
net sales of certain line items included in MKS's consolidated statement of
income data:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 57.3 59.9 57.2
------ ------ ------
Gross profit 42.7 40.1 42.8
Research and development 7.1 8.7 7.8
Selling, general and administrative 20.8 24.9 22.3
------ ------ ------
Income from operations 14.8 6.5 12.7
Interest income (expense), net 0.4 (0.8) (1.0)
Other income, net 0.4 0.1 0.1
------ ------ ------
Income before income taxes 15.6 5.8 11.8
Provision for income taxes 2.8 0.7 1.0
------ ------ ------
Net income 12.8% 5.1% 10.8%
====== ====== ======
Pro forma data:
Historical income before income taxes 15.6 5.8 11.8
Pro forma provision for income taxes 5.8 2.2 4.5
------ ------ ------
Pro forma net income 9.8% 3.6% 7.3%
====== ====== ======
</TABLE>
<PAGE> 3
22
Year Ended 1999 Compared to 1998
Net Sales
Net sales increased 33.9% to $187.1 million for 1999 from $139.8 million for
1998. International net sales were approximately $58.5 million in 1999 or 31.3%
of net sales and $45.3 million in 1998 or 32.4% of net sales. The increase in
net sales was primarily due to increased sales volume of MKS's existing products
in the United States and in Asia which resulted primarily from increased sales
to the Company's semiconductor capital equipment manufacturing and semiconductor
device manufacturer customers.
Gross Profit
Gross profit as a percentage of net sales increased to 42.7% for 1999 from 40.1%
in 1998. The increase was primarily due to fuller utilization of existing
manufacturing capacity as a result of increased net sales.
Research and Development
Research and development expenses increased 9.0% to $13.2 million or 7.1% of net
sales for 1999 from $12.1 million or 8.7% of net sales for 1998. The increase
was due to increased spending for development materials.
Selling, General and Administrative
Selling, general and administrative expenses increased 12.4% to $39.0 million or
20.8% of net sales from $34.7 million or 24.9% of net sales for 1998. The
increase was due primarily to increased incentive compensation expense of $3.3
million, professional fees, and other selling expenses.
Interest Income (Expense), Net
During 1999, the Company generated net interest income of $0.8 million primarily
from the invested net proceeds of the initial public offering, offset by
interest expense on outstanding debt. Net interest expense of $1.2 million for
1998 represents interest on outstanding loans, offset by interest income earned
on cash and cash equivalents and short-term investments.
Other Income (Expense), Net
Other income of $0.8 million for 1999 includes a distribution of $0.7 million
from one of MKS's mutual insurance carriers upon the initial public offering of
the insurance carrier, and also includes gains recorded from foreign exchange
contracts which did not qualify for hedge accounting. Other income of $0.2
million in 1998 primarily represents foreign exchange translation gains on
intercompany payables of $1.0 million offset by $0.7 million for costs
associated with MKS's planned initial public offering in early 1998.
Effective April 1, 1999 MKS adopted Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. The adoption of SFAS No. 133 did not have a
material impact on MKS's financial position or results of operations. The
derivative instruments currently held by MKS which have been designated as
hedges, including forward exchange contracts, local currency purchased options,
and an interest rate swap, qualify for hedge accounting under SFAS No. 133, and
changes in their fair value will be recorded as a component of other
comprehensive income until the hedged transaction occurs.
Pro Forma Provision for Income Taxes
Prior to the closing of its initial public offering in April, 1999 MKS was
treated as an S corporation for tax purposes. As an S corporation, MKS was not
subject to federal, and certain state, income taxes. Upon the closing of its
initial public offering on April 5, 1999, MKS's status as an S corporation was
terminated and it became subject to taxes as a C corporation. The pro forma
provision for income taxes reflects the estimated tax expense MKS would have
incurred had it been subject to federal and state income taxes as a C
corporation. The pro forma provision differs from the federal statutory rate due
primarily to the effects of state and foreign taxes and certain tax credits. The
pro forma provision for 1999 reflects a pro forma tax rate of 37.1%. This rate
differs from the pro forma tax rate of 38% for 1998 due to increased tax credits
and lower nondeductable expenses in 1999.
Year Ended 1998 Compared to 1997
Net Sales
Net sales decreased 25.7% to $139.8 million for 1998 from $188.1 million for
1997. International net sales were approximately $45.3 million in 1998 or 32.4%
of net sales and $51.4 million in 1997 or 27.3% of net sales. The decrease in
net sales was primarily due to decreased sales volume of MKS's existing products
in the United States and in Asia caused by the 1998 downturn in the
semiconductor capital equipment market.
Gross Profit
Gross profit as a percentage of net sales decreased to 40.1% for 1998 from 42.8%
in 1997. The change was primarily due to manufacturing overhead costs being a
higher percentage of net sales due to lower sales volume in 1998.
Research and Development
Research and development expenses decreased 17.3% to $12.1 million or 8.7% of
net sales for 1998 from $14.7 million or 7.8% of net sales for 1997. The
decrease was due to reduced spending for development materials primarily related
to certain projects that were completed during 1998.
Selling, General and Administrative
Selling, general and administrative expenses decreased 17.0% to $34.7 million or
24.9% of net sales for 1998 from $41.8 million or 22.3% of net sales for 1997.
The decrease was due primarily to a decrease of approximately $4.2 million in
compensation expense resulting from the reduction in personnel during 1998 and
reduced incentive compensation. Additionally, expenses were reduced as a result
of lower spending on advertising, travel, and other selling and administrative
costs.
Interest Expense, Net
Net interest expense decreased to $1.2 million for 1998 from $1.9 million for
1997 primarily due to lower debt outstanding during 1998.
<PAGE> 4
23 MKS Instruments 1999
Other Income (Expense), Net
Other income of $0.2 million in 1998 primarily represents foreign exchange
translation gains on intercompany payables of $1.0 million offset by $0.7
million for costs associated with MKS's planned initial public offering in early
1998 which was postponed at that time. Other income of $0.2 million in 1997
represents gains of $1.2 million from foreign exchange contracts that did not
qualify for hedge accounting, offset by a foreign exchange translation loss on
an intercompany payable.
Pro Forma Provision for Income Taxes
The pro forma provision for income taxes for 1998 reflects the estimated tax
expense MKS would have incurred had it been subject to federal and state income
taxes as a C corporation under the Internal Revenue Code. The pro forma
provision reflects a pro forma 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.
Liquidity and Capital Resources
MKS 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. On April 5, 1999 the Company completed
the initial public offering of its Common Stock. In connection with this
offering and the exercise of an over-allotment option by the underwriters, the
Company sold 6,375,000 shares of Common Stock at a price of $14.00 per share.
The net proceeds to the Company were approximately $82,000,000 and were received
in the second quarter of 1999. Underwriting discounts and commissions were
approximately $6,200,000, and other offering costs were approximately
$1,000,000. On April 5, 1999 MKS distributed $40,000,000, which was the
estimated amount of its undistributed S Corporation earnings as of the day prior
to the closing of the offering.
Operations provided cash of $17.1 million for 1999 primarily from generating net
income. This cash flow was impacted by depreciation and changes in the levels of
accounts payable, accrued expenses, accounts receivable and a non-cash deferred
tax credit. Investing activities utilized cash of $33.4 million for 1999
primarily from purchasing short-term investments with the net proceeds from the
initial public offering and for the purchase of property and equipment.
Financing activities provided cash of $41.2 million, with net proceeds from the
initial public offering of $82.1 million offset by the distribution to
stockholders of $40.0 million.
Working capital was $87.1 million as of December 31, 1999, an increase of $55.6
million from December 31, 1998. MKS has a combined $30.0 million line of credit
with two banks, expiring December 31, 2000, all of which is available.
Prior to its initial public offering, the Company entered into a Tax
Indemnification and S Corporation Distribution Agreement with its then existing
stockholders (the "Pre-IPO stockholders"). The agreement includes provisions for
the payment, with interest, by the Pre-IPO stockholders or MKS, as the case may
be, for the difference between the $40,000,000 distributed as an estimate of the
amount of the accumulated adjustments account as of April 4, 1999, which is the
date the Company's S Corporation status was terminated, and the actual amount of
the accumulated adjustments account on that day. The actual amount of the
accumulated adjustments account cannot be determined until MKS calculates the
amount of its taxable income for the year ending December 31, 1999. Based on the
Company's estimate of the taxable income for the year ending December 31, 1999,
MKS believes that an additional distribution to the Pre-IPO stockholders will be
required under this agreement. The amount of the additional distribution, prior
to interest, is currently estimated to be $3,350,000. The amount of the
additional distribution payable has been charged directly to retained earnings
and had no impact on net income or earnings per share. No shareholders, other
than the Pre-IPO stockholders, are parties to the Tax Indemnification and S
Corporation Distribution Agreement.
Recently Issued Accounting Pronouncements
See Note 2 of Notes to Consolidated Financial Statements for a discussion of the
impact of recently issued accounting pronouncements.
MKS believes that its working capital, 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 24 months.
Trends, Risks and Uncertainties
Year 2000 Compliance
The Year 2000 problem stems from the fact that many currently installed computer
systems include software and hardware products that are unable to distinguish
21st century dates from those in the 20th century. As a result, computer
software and/or hardware used by many companies and governmental agencies may
need to be upgraded to comply with Year 2000 requirements or risk system failure
or miscalculations causing disruptions to normal business activities. In
addition, despite the fact that many computer systems are currently processing
21st century dates correctly, companies, including MKS, could experience future
Year 2000 problems.
During the past few years, MKS designed and implemented a multi-phase Year 2000
project. MKS believes it has taken steps in its multi-phase Year 2000 project to
identify and remediate material Year 2000 related issues. MKS has not
experienced any significant disruption to normal business activities or product
noncompliance related to the Year 2000 problem. However, there can be no
assurance that MKS has identified and remediated all material Year 2000 related
issues. Additionally, there can be no assurance that unexpected delays or
problems will not occur that would have a material adverse effect on the
Company's financial condition or results of operations.
<PAGE> 5
24
MKS's multi-phase Year 2000 project consisted of:
- - assessment of the corporate systems and operations including both
information technology and non-information technology that could be
affected by the Year 2000 problem
- - remediation of non-compliant systems and components
- - testing of systems and components following remediation
MKS, under the guidance of its Information Technology Steering Committee,
focused its Year 2000 review on four areas:
- - internal computer software and hardware
- - product compliance
- - facilities and manufacturing equipment
- - third-party compliance
Internal Computer Software and Hardware. MKS uses information technology for its
internal infrastructure, which consists of its main enterprise systems which
include the systems used, in part, for purchase orders, invoicing, shipping and
accounting, and individual workstations, including personal computers, and its
network systems.
Because MKS's business and manufacturing systems, such as its main enterprise
systems, are essential to its business, financial condition and results of
operations, MKS began its assessment of these systems prior to its other
non-critical information technology systems. MKS began its assessment in the
fall of 1997, and in November 1997, MKS developed a remediation plan for all
identified noncompliant business and manufacturing systems. This remediation
plan was implemented in January 1998. By July 1998, MKS had installed new
systems or upgraded existing systems. Based upon post-implementation testing and
review, management believes that all business and manufacturing systems are Year
2000 compliant.
MKS's personal computer based systems were assessed in early 1998. MKS believes
that all non-compliant hardware and software was identified by March 1998, at
which time it made a list prioritizing databases to be remedied. Critical
databases were identified and were scheduled for remediation prior to other
databases. Remediation plans to convert the databases were initiated in November
1998. MKS believes its critical and non-critical personal computer based systems
are Year 2000 compliant.
Product Compliance. Throughout 1998, MKS assessed and addressed the Year 2000
compliance of its products. This assessment resulted in the identification of
MKS's products that were compliant and non-compliant. The substantial majority
of MKS's products were deemed to be compliant.
The date related functions of all non-compliant products, other than certain
residual gas analysis products, are believed by MKS to be non-critical in that
such noncompliance would not affect the independent performance of the product;
would not cause the MKS product to cease operating on any particular date; and
independently would not pose a safety risk. MKS believes that Year 2000 problems
associated with non-compliant residual gas analysis products will also be
non-critical. However, these products contain components of other manufacturers
and cannot be tested and therefore it is possible that such products could cause
unanticipated performance problems. MKS made available to its customers a list
which describes Year 2000 readiness of its products.
Facilities and Manufacturing Equipment. Some aspects of MKS's facilities and
manufacturing equipment may include embedded technology, such as
microcontrollers. The Year 2000 problem could cause a system failure or
miscalculation in such facilities or manufacturing equipment which could disrupt
MKS's operations. Affected areas include security systems, elevator controls,
voice mail and phone systems, cleanroom environmental controls, numerically
controlled production machinery and computer based production equipment. MKS
organized a team of experienced managers in November 1998 to assess the
potential problems in these areas. An assessment of all facilities and
manufacturing equipment was conducted through December 1998, and a remediation
plan was developed in January 1999. MKS believes its facilities and
manufacturing equipment are Year 2000 compliant.
Third-Party Compliance. MKS has relationships with third-parties including
customers and vendors and suppliers of goods, services and computer interfaces.
The failure of such persons to implement and execute Year 2000 compliance
measures in a timely manner, if at all, could, among other things:
- - adversely affect MKS's ability to obtain components in a timely manner
- - cause a reduction in the quality of components obtained by MKS
- - cause a reduction, delay or cancellation of customer orders received by
MKS or a delay in payments by its customers for products shipped
- - result in the loss of services that would be necessary for MKS to
operate in the normal course of business
MKS assessed which of these third-party goods, services and interfaces were
critical to its operations and developed and mailed a standard survey to each
third-party deemed critical in January 1998. Based on this survey and its review
of survey data, MKS believes all critical third-parties have achieved
satisfactory compliance.
<PAGE> 6
25 MKS Instruments 1999
Costs
MKS's costs to date associated with assessment, remediation and testing
activities concerning the Year 2000 problem have been approximately $3.1
million. MKS has funded these activities principally through cash provided by
operations and existing leasing lines of credit. It is not possible for MKS to
completely estimate the costs incurred in its remediation effort as many of its
employees have focused significant efforts in evaluating MKS's Year 2000 state
of readiness and in remediating problems that have arisen from such evaluation.
Contingency Plan
MKS has not formulated contingency plans related to the failure of its or a
third-party's Year 2000 remediation efforts. Contingency plans for the failure
to implement compliance procedures have not been completed because MKS believes
it completed all required modifications and tested the modifications thoroughly
prior to December 31, 1999.
MKS believes it has taken steps in its multi-phase Year 2000 project to identify
and remediate material Year 2000 related issues. MKS has not experienced any
significant disruption to normal business activities or product noncompliance
related to the Year 2000 problem. However, there can be no assurance that MKS
has identified and remediated all material Year 2000 related issues.
Additionally, there can be no assurance that unexpected delays or problems will
not occur that would have a material adverse effect on the Company's financial
condition or results of operations.
Factors That May Affect Future Results
Cyclicality of the Semiconductor Industry
MKS estimates that approximately 66% of its sales during 1999 were to
semiconductor capital equipment manufacturers and semiconductor device
manufacturers, and MKS expects that sales to such customers will continue to
account for a substantial majority of its sales. MKS'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. Periodic reductions in demand for the
products manufactured by semiconductor capital equipment manufacturers and
semiconductor device manufacturers may adversely affect MKS's business,
financial condition and results of operations. Historically, the semiconductor
market has been highly cyclical and has experienced periods of overcapacity,
resulting in significantly reduced demand for capital equipment. For example, in
1996 and 1998 the semiconductor industry experienced a significant decline,
which caused a number of MKS's customers to reduce their orders. MKS cannot be
certain that semiconductor downturns will not recur. A decline in the level of
orders as a result of any future downturn or slowdown in the semiconductor
industry could have a material adverse effect on MKS's business, financial
condition and results of operations.
Fluctuations in Operating Results
A substantial portion of MKS's shipments occur shortly after an order is
received and therefore MKS operates with a low level of backlog. As a
consequence of the just-in-time nature of shipments and the low level of
backlog, a decrease in demand for MKS's products from one or more customers
could occur with limited advance notice and could have a material adverse effect
on MKS's results of operations in any particular period.
A significant percentage of MKS's expenses are relatively fixed and based in
part on expectations of future net sales. The inability to adjust spending
quickly enough to compensate for any shortfall would magnify the adverse impact
of a shortfall in net sales on MKS's results of operations. Factors that could
cause fluctuations in MKS's net sales include:
- - The timing of the receipt of orders from major customers
- - Shipment delays
- - Disruption in sources of supply
- - Seasonal variations of capital spending by customers
- - Production capacity constraints
- - Specific features requested by customers
For example, MKS was in the process of increasing production capacity when the
semiconductor capital equipment market began to experience a significant
downturn in 1996. This downturn had a material adverse effect on MKS's operating
results in the second half of 1996 and the first half of 1997. After an increase
in business in the latter half of 1997, the market experienced another downturn
in 1998, which had a material adverse effect on MKS's 1998 and first quarter
1999 operating results. As a result of the factors discussed above, it is likely
that MKS will in the future experience quarterly or annual fluctuations and
that, in one or more future quarters, MKS's operating results will fall below
the expectations of public market analysts or investors. In any such event, the
price of MKS's common stock could decline significantly.
Customer Concentration
MKS's five largest customers in 1999 and 1998 accounted for approximately 33%
and 24%, respectively, of its net sales. 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 MKS's
business, financial condition and results of operations. During 1999, one
customer, Applied Materials, Inc., accounted for approximately 22% of MKS's net
sales. While the Company has entered into a purchase contract with Applied
Materials, Inc. that expires in 2000 unless it is extended by mutual agreement,
none of MKS's significant customers, including Applied Materials, Inc., has
entered into an agreement requiring it to purchase any minimum quantity of MKS's
products. The demand for MKS's products from its semiconductor capital equipment
customers depends in part on orders received by them from their semiconductor
device manufacturer customers.
<PAGE> 7
26
Attempts to lessen the adverse effect of any 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
MKS's ability to maintain relationships with existing key customers, MKS's
ability to attract new customers, and the success of MKS's customers in creating
demand for their capital equipment products which incorporate MKS's products.
Competition
The markets for MKS's products are highly competitive. The Company's competitive
success often depends upon factors outside of its control. For example, in some
cases, particularly with respect to mass flow controllers, semiconductor device
manufacturers may direct semiconductor capital equipment manufacturers 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 the Company's products be used at their
semiconductor fabrication facilities. In addition, MKS may encounter
difficulties in changing established relationships of competitors that already
have a large installed base of products within such semiconductor fabrication
facilities.
Technological Changes
New products designed by semiconductor capital equipment manufacturers typically
have a lifespan of five to ten years. MKS's success depends on its products
being designed into new generations of equipment for the semiconductor industry.
The Company must develop products that are technologically current so that they
are positioned to be chosen for use in each successive new generation of
semiconductor equipment. If its products are not chosen by its customers, the
Company's net sales may be reduced during the lifespan of its customers'
products.
Expansion into New Markets
MKS plans to build upon its experience in manufacturing and selling gas
measurement, control and analysis products used by the semiconductor industry by
designing and selling such products for applications in other industries which
use production processes similar to those used in the semiconductor industry.
For example, MKS plans to expand its business to the manufacture of, among other
things, hard coatings to minimize wear on cutting tools. Any failure by the
Company to penetrate additional markets would limit its ability to reduce its
vulnerability to downturns in the semiconductor industry and could have a
material adverse effect on MKS's business, financial condition and results of
operations.
MKS has limited experience selling its products in certain markets outside the
semiconductor industry. The Company cannot be certain that it will be successful
in the expansion of its business outside the semiconductor industry. MKS's
future success will depend in part on its ability to:
- - identify new applications for MKS's products
- - adapt MKS's products for such applications
- - market and sell such products to customers
Expansion of Manufacturing Capacity
MKS's ability to increase sales of certain products depends in part upon its
ability to expand manufacturing capacity for such products in a timely manner.
If the Company is unable to expand manufacturing capacity on a timely basis or
to manage such expansion effectively, its customers could seek such products
from others and its market share could be reduced. Because the semiconductor
industry is subject to rapid demand shifts which are difficult to foresee, MKS
may not be able to increase capacity quickly enough to respond to a rapid
increase in demand in the semiconductor industry. Additionally, capacity
expansion could increase the Company's fixed operating expenses and if sales
levels do not increase to offset the additional expense levels associated with
any such expansion, the Company's business, financial condition and results of
operations could be materially adversely affected.
International Operations and Sales
International sales, which include sales by MKS's foreign subsidiaries, but
exclude direct export sales which were less than 10% of total net sales,
accounted for approximately 31% of net sales in 1999, and 32% of net sales in
1998. MKS anticipates that international sales will continue to account for a
significant portion of net sales. In addition, certain of MKS's key domestic
customers derive a significant portion of their revenues from sales in
international markets. Therefore, MKS's sales and results of operations could be
adversely affected by economic slowdowns and other risks associated with
international sales.
Exchange rate fluctuations could have an adverse effect on MKS's net sales and
results of operations and the Company could experience losses with respect to
its hedging activities. Unfavorable currency fluctuations could require MKS to
increase prices to foreign customers which could result in lower net sales to
such customers. Alternatively, if MKS does not adjust the prices for its
products in response to unfavorable currency fluctuations, its results of
operations could be adversely affected. In addition, sales made by MKS's foreign
subsidiaries are denominated in the currency of the country in which these
products are sold and the currency MKS receives in payment for such sales could
be less valuable at the time of receipt as a result of exchange rate
fluctuations. While MKS enters into forward exchange contracts and local
currency purchased options to reduce currency exposure arising from intercompany
sales of inventory, MKS cannot be certain that its efforts will be adequate to
protect the Company against significant currency fluctuations or that such
efforts will not expose MKS to additional exchange rate risks.
<PAGE> 8
27 MKS Instruments 1999
Need to Retain and Attract Key Employees
MKS's success depends to a large extent upon the efforts and abilities of a
number of key employees and officers, particularly those with expertise in the
semiconductor manufacturing and similar industrial manufacturing industries. The
loss of key employees or officers could have a material and adverse effect on
MKS's business, financial condition and results of operations. MKS 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 MKS cannot be certain that it
will be successful in attracting and retaining such personnel.
Intellectual Property Matters
Although MKS seeks to protect its intellectual property rights through patents,
copyrights, trade secrets and other measures, MKS cannot be certain that:
- - it will be able to protect its technology adequately
- - competitors will not be able to develop similar technology
independently
- - any of its pending patent applications will be issued
- - intellectual property laws will protect its intellectual property
rights
- - third parties will not assert that MKS's products infringe patent,
copyright or trade secrets of such parties
Litigation may be necessary in order to enforce MKS's patents, copyrights or
other intellectual property rights, to protect its 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 effect on the Company's
business, financial condition and results of operations.
Market Risk and Sensitivity Analysis
Foreign Exchange Rate Risk
MKS enters into forward exchange contracts and local currency purchased options
to reduce currency exposure arising from intercompany sales of inventory. The
potential fair value loss for a hypothetical 10% adverse change in forward
currency exchange rates on MKS's forward exchange contracts at December 31, 1999
would be $502,000. The potential loss was estimated by calculating the fair
value of the forward exchange contracts at December 31, 1999 and comparing that
with those calculated using the hypothetical forward currency exchange rates.
The value of the local currency purchased options at December 31, 1999 was
immaterial.
At December 31, 1999, MKS had $12,423,000 related to short-term borrowings
denominated in Japanese yen. The carrying value of these short-term borrowings
approximates fair value due to their short period to maturity. Assuming a
hypothetical 10% adverse change in the Japanese yen to U.S. dollar year end
exchange rate, the fair value of these short-term borrowings would increase by
$1,381,000. The potential increase in fair value was estimated by calculating
the fair value of the short-term borrowings at December 31, 1999 and comparing
that with the fair value using the hypothetical year end exchange rate.
Interest Rate Risk
MKS is exposed to fluctuations in interest rates in connection with its variable
rate term loans. In order to minimize the effect of changes in interest rates on
earnings, MKS entered into an interest rate swap that fixed the interest rate on
its variable rate term loans. Under the swap agreement, MKS pays a fixed rate of
5.85% on the notional amount and receives LIBOR. At December 31, 1999, the
notional amount of the interest rate swap was equal to the principal amount of
the variable rate term loans. The potential increase in the fair value of term
loans when adjusting for the interest rate swap paying at a fixed rate resulting
from a hypothetical 10% decrease in interest rates was not material.
Due to its short-term duration the fair value of the Company's cash and
investment portfolio at December 31, 1999 approximated its carrying value.
Interest rate risk was estimated as the potential decrease in fair value
resulting from a hypothetical 10% increase in interest rates for securities
contained in the investment portfolio. The resulting hypothetical fair value was
not materially different from the year-end carrying value.
<PAGE> 9
28
Supplemental Stockholder Information
Price Range of Common Stock
The Common Stock of MKS is traded on the Nasdaq National Market under the symbol
MKSI. On February 11, 2000, the closing price of the Company's Common Stock, as
reported on the Nasdaq National Market, was $38.00 per share. The following
table sets forth for the periods indicated the high and low closing sales prices
per share of the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
1999 High Low
- -------------------------------------------------------------
<S> <C> <C>
First Quarter 14.0625 13.3750
Second Quarter 19.3750 12.0000
Third Quarter 22.2500 18.1250
Fourth Quarter 36.1250 19.3750
</TABLE>
On February 11, 2000, MKS had approximately 1800 stockholders of record.
Dividend Policy
We currently intend, subject to our contractual obligations under the Tax
Indemnification and S Corporation Distribution Agreement, to retain earnings for
the continued development of our business. 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 our Board of Directors.
<PAGE> 10
29 MKS Instruments 1999
Report of Independent Accountants
To the Board of Directors and Stockholders of
MKS Instruments, Inc.:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of MKS Instruments,
Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No.133, "Accounting for
Derivative Instruments and Hedging Activities" in 1999.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
January 28, 2000
<PAGE> 11
30
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
--------------------------
(in thousands, except share data) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 35,714 $ 11,188
Short-term investments 28,132 538
Trade accounts receivable, net of allowance for doubtful accounts of $934 and
$656 at December 31, 1999 and 1998, respectively 36,857 20,674
Inventories 27,650 24,464
Deferred tax asset 4,119 698
Other current assets 3,378 971
--------- ---------
Total current assets 135,850 58,533
Property, plant and equipment, net 32,826 32,725
Long-term investments 1,063 --
Other assets 4,866 4,974
--------- ---------
Total assets $ 174,605 $ 96,232
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 12,423 $ 9,687
Current portion of long-term debt 7,346 2,058
Current portion of capital lease obligations 1,059 1,074
Accounts payable 7,683 3,677
Accrued compensation 9,202 3,985
Other accrued expenses 6,314 5,280
Income taxes payable 1,385 1,279
Distribution payable 3,350 --
--------- ---------
Total current liabilities 48,762 27,040
Long-term debt 4,340 12,042
Long-term portion of capital lease obligations 1,322 1,744
Deferred tax liability 522 117
Other liabilities 490 463
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred Stock, $0.01 par value, 2,000,000 shares authorized; none issued and outstanding -- --
Common Stock, no par value, 50,000,000 shares authorized; 24,632,849 shares issued and
outstanding at December 31, 1999 113 --
Common Stock, Class A, no par value; 11,250,000 shares authorized;
7,766,910 shares issued and outstanding at December 31, 1998 -- 40
Common Stock, Class B (non voting) no par value; 18,750,000 shares authorized; 10,286,257
shares issued and outstanding at December 31, 1998 -- 73
Additional paid-in capital 84,713 48
Retained earnings 33,166 52,479
Shareholder receivable (856) --
Accumulated other comprehensive income 2,033 2,186
--------- ---------
Total stockholders' equity 119,169 54,826
--------- ---------
Total liabilities and stockholders' equity $ 174,605 $ 96,232
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 12
31 MKS Instruments 1999
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
(in thousands, except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $187,083 $139,763 $188,080
Cost of sales 107,228 83,784 107,606
-------- -------- --------
Gross profit 79,855 55,979 80,474
Research and development 13,230 12,137 14,673
Selling, general and administrative 39,014 34,707 41,838
-------- -------- --------
Income from operations 27,611 9,135 23,963
Interest expense 1,346 1,483 2,132
Interest income 2,154 296 271
Other income, net 849 187 166
-------- -------- --------
Income before income taxes 29,268 8,135 22,268
Provision for income taxes (Note 9) 5,231 949 1,978
-------- -------- --------
Net income $ 24,037 $ 7,186 $ 20,290
======== ======== ========
Historical net income per share:
Basic $ 1.05 $ 0.40 $ 1.12
-------- -------- --------
Diluted $ 1.00 $ 0.38 $ 1.10
-------- -------- --------
Historical weighted average common shares outstanding:
Basic 22,784 18,053 18,053
-------- -------- --------
Diluted 23,954 18,720 18,388
-------- -------- --------
Pro forma data (unaudited):
Historical income before income taxes $ 29,268 $ 8,135 $ 22,268
Pro forma provision for income taxes assuming C corporation tax 10,856 3,091 8,462
-------- -------- --------
Pro forma net income $ 18,412 $ 5,044 $ 13,806
======== ======== ========
Pro forma net income per share:
Basic $ 0.81 $ 0.28 $ 0.76
-------- -------- --------
Diluted $ 0.77 $ 0.27 $ 0.76
-------- -------- --------
Pro forma weighted average common shares outstanding:
Basic 22,784 18,053 18,053
-------- -------- --------
Diluted 23,786 18,538 18,262
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 13
32
Consolidated Statements of Stockholders'
Equity For the years ended December 31, 1999, 1998 and 1997 (in thousands,
except share data)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------------------------------------
Class A Class B Common Stock Paid-In
-------------------------- ------------------------- --------------------------
Shares Amount Shares Amount Shares Amount Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 7,766,910 $ 40 10,286,255 $ 73 $ 48
Distributions to stockholders
Comprehensive income
Net income
Other comprehensive income,
net of taxes:
Foreign currency translation
adjustment
Unrealized gain on investments
Comprehensive income
------------------------------------------------------------------------------------------------
Balance at December 31, 1997 7,766,910 40 10,286,255 73 48
Distributions to stockholders
Issuance of common stock 2
Comprehensive income
Net income
Other comprehensive income,
net of taxes:
Foreign currency translation
adjustment
Unrealized loss on investments
Comprehensive income
------------------------------------------------------------------------------------------------
Balance at December 31, 1998 7,766,910 40 10,286,257 73 48
Distributions to stockholders
Distributions payable
to stockholders
Conversion to Common Stock (7,766,910) (40) (10,286,257) (73) 18,053,167 113
Issuance of common stock from
Initial Public Offering 6,375,000 82,062
Issuance of common stock from
exercise of stock options and
Employee Stock Purchase Plan 204,682 1,230
Tax benefit from exercise of
stock options 1,112
Stock option compensation 261
Shareholder receivable
Comprehensive income:
Net income
Other comprehensive income,
net of taxes:
Non-recurring deferred tax
charge to comprehensive
income (Note 9)
Impact of adopting
SFAS No. 133
Changes in value of financial
instruments designated as
cash flow hedges
Foreign currency translation
adjustment
Unrealized gain (loss) on
investments
Comprehensive income
------------------------------------------------------------------------------------------------
Balance at December 31, 1999 -- $ -- -- $ -- 24,632,849 $ 113 $ 84,713
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Retained Shareholder Comprehensive Comprehensive Stockholders'
Earnings Receivable Income Income Equity
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 43,553 $ 1,784 $ 45,498
Distributions to stockholders (12,400) (12,400)
Comprehensive income
Net income 20,290 20,290 20,290
Other comprehensive income,
net of taxes:
Foreign currency translation
adjustment (786) (786) (786)
Unrealized gain on investments 246 246 246
-----------
Comprehensive income $ 19,750
------------------------------------------------===========---------------
Balance at December 31, 1997 51,443 1,244 52,848
Distributions to stockholders (6,150) (6,150)
Issuance of common stock
Comprehensive income
Net income 7,186 7,186 7,186
Other comprehensive income,
net of taxes:
Foreign currency translation
adjustment 992 992 992
Unrealized loss on investments (50) (50) (50)
-----------
Comprehensive income $ 8,128
------------------------------------------------===========---------------
Balance at December 31, 1998 52,479 2,186 54,826
Distributions to stockholders (40,000) (40,000)
Distributions payable
to stockholders (3,350) (3,350)
Conversion to Common Stock
Issuance of common stock from
Initial Public Offering 82,062
Issuance of common stock from
exercise of stock options and
Employee Stock Purchase Plan 1,230
Tax benefit from exercise of
stock options 1,112
Stock option compensation 261
Shareholder receivable (856) (856)
Comprehensive income:
Net income 24,037 24,037 24,037
Other comprehensive income,
net of taxes:
Non-recurring deferred tax
charge to comprehensive
income (Note 9) (660) (660) (660)
Impact of adopting
SFAS No. 133 (16) (16) (16)
Changes in value of financial
instruments designated as
cash flow hedges (212) (212) (212)
Foreign currency translation
adjustment (80) (80) (80)
Unrealized gain (loss) on
investments 815 815 815
-----------
Comprehensive income $ 23,884
------------------------------------------------===========---------------
Balance at December 31, 1999 $ 33,166 $ (856) $ 2,033 $ 119,169
================================================ ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 14
33 MKS Instruments 1999
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 24,037 $ 7,186 $ 20,290
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant, and equipment 6,209 6,242 5,712
(Gain) loss on disposal of property, plant and equipment (181) 48 552
Deferred taxes (266) (32) (145)
Non-recurring deferred tax credit (3,770) -- --
Provision for doubtful accounts 257 253 258
Forward exchange contract loss (gain) realized 9 (1,211) 132
Stock option compensation 261 -- 95
Changes in operating assets and liabilities:
Trade accounts receivable (15,922) 12,908 (12,509)
Inventories (2,908) 6,479 (5,930)
Other current assets (1,000) 554 (1,261)
Accrued compensation 5,217 (3,516) 2,386
Accrued expenses 1,019 (1,602) 3,312
Accounts payable 4,022 (3,682) 2,638
Income taxes payable 106 (647) 1,283
-------- -------- --------
Net cash provided by operating activities 17,090 22,980 16,813
-------- -------- --------
Cash flows from investing activities:
Purchases of short-term and long-term investments (45,999) -- --
Maturities and sales of short-term and long-term investments 18,654 -- --
Purchases of property, plant and equipment (5,505) (3,137) (3,269)
Proceeds from sale of property, plant and equipment 318 60 203
Increase in other assets (853) (270) (123)
Cash received (used) to settle forward exchange contracts (9) 1,211 (132)
-------- -------- --------
Net cash used in investing activities (33,394) (2,136) (3,321)
-------- -------- --------
Cash flows from financing activities:
Net payments on demand notes payable -- -- (1,875)
Proceeds from short-term borrowings 11,250 15,242 24,110
Payments on short-term borrowings (9,825) (17,569) (22,938)
Principal payments on long-term debt (2,424) (2,057) (2,217)
Proceeds from issuance of common stock, net of issuance costs 82,062 -- --
Proceeds from exercise of stock options and Employee Stock
Purchase Plan 1,230 -- --
Cash distributions to stockholders (40,000) (6,150) (12,400)
Principal payments under capital lease obligations (1,050) (1,257) (870)
-------- -------- --------
Net cash provided by (used in) financing activities 41,243 (11,791) (16,190)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (413) (376) 1,394
-------- -------- --------
Increase (decrease) in cash and cash equivalents 24,526 8,677 (1,304)
Cash and cash equivalents at beginning of period 11,188 2,511 3,815
-------- -------- --------
Cash and cash equivalents at end of period $ 35,714 $ 11,188 $ 2,511
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,377 $ 1,526 $ 2,030
======== ======== ========
Income taxes $ 10,017 $ 1,608 $ 1,078
======== ======== ========
Noncash transactions during the period:
Equipment acquired under capital leases $ 762 $ 1,138 $ 145
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 15
Notes to Consolidated Financial Statements
(Tables in thousands, except per share data)
1} Description of Business
MKS Instruments, Inc. (the "Company" or "MKS") is a worldwide developer,
manufacturer, and supplier of instruments and components that are used to
measure, control and analyze gases in semiconductor manufacturing and similar
industrial manufacturing processes. The Company's products include pressure and
flow measurement and control instruments; vacuum gauges, valves and components;
and gas analysis instruments. 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.
Historical and Pro Forma (Unaudited) Net Income Per Share
The Company computes basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per
Share." SFAS 128 requires both basic earnings per share, which is based on the
weighted average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted average number of common shares
outstanding and all dilutive potential common equivalent shares outstanding. The
dilutive effect of options is determined under the treasury stock method using
the average market price for the period. Common equivalent shares are included
in the per share calculations where the effect of their inclusion would be
dilutive.
Historical net income per share is not meaningful because of the Company's
conversion from an S corporation to a C corporation upon the closing of its
initial public offering. 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 38.0% in 1998 and
1997, and at a pro forma tax rate of 37.1% in 1999.
The following is a reconciliation of basic to diluted pro forma and historical
net income per share:
<TABLE>
<CAPTION>
For the Year Ended December 31
--------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
Pro forma Historical Pro forma Historical Pro forma Historical
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $18,412 $24,037 $5,044 $7,186 $13,806 $20,290
Shares used in net income per
common share-- basic 22,784 22,784 18,053 18,053 18,053 18,053
Effect of dilutive securities:
Employee and director stock options 1,002 1,170 485 667 209 335
-------------------------------------------------------------------------
Shares used in net income per
common share-- diluted 23,786 23,954 18,538 18,720 18,262 18,388
=========================================================================
Net income per common share-- basic $0.81 $1.05 $0.28 $0.40 $0.76 $1.12
=========================================================================
Net income per common share-- diluted $0.77 $1.00 $0.27 $0.38 $0.76 $1.10
=========================================================================
</TABLE>
For purposes of computing diluted earnings per share, weighted average common
share equivalents do not include stock options with an exercise price greater
than the average market price of the common shares during the period. Options to
purchase 33,500, 24,643 and zero shares of common stock were outstanding during
1999, 1998, and 1997, respectively, but were not included in the calculation of
diluted net income per common share because the option price was greater than
the average market price of the common shares during the period.
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 included in accumulated other comprehensive income
in consolidated stockholders' equity.
Revenue Recognition
The Company recognizes revenue, and accrues for anticipated returns and warranty
costs, upon completion of delivery obligations.
<PAGE> 16
35 MKS Instruments 1999
Cash and Cash Equivalents and Investments
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 the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and Money Market Instruments $22,156 $11,188
Commercial Paper 5,558 --
Federal Government and Government Agency Obligations 6,000 --
Corporate Obligations 2,000 --
---------------------
$35,714 $11,118
====================
</TABLE>
Short-term available-for-sale investments maturing within one year consist of
the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Government and Government Agency Obligations $16,245
Corporate Obligations 5,501
Commercial Paper 4,641
Equity Securities 1,745 $538
--------------------
$28,132 $538
====================
</TABLE>
Long-term available-for-sale investments maturing within two years consist of
the following at December 31, 1999:
Federal Government and Government Agency Obligations $1,063
======
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 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
included in accumulated other comprehensive income in consolidated stockholders'
equity. Unrealized gains and losses on securities classified as trading are
reported in earnings. The cost of securities sold is based on the specific
identification method.
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 leased asset.
Research and Development
Research and development costs are expensed as incurred.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. The Company
adopted the provisions of SFAS No. 133 effective April 1, 1999. The impact of
adopting SFAS No. 133 was the recording of an unrealized loss of $16,000, net of
taxes, in other comprehensive income.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No 101 ("SAB 101"), "Revenue Recognition". SAB 101 summarizes the
staff's view in applying generally accepted accounting principles to revenue
recognition. The application of the guidance in SAB 101 will be required in the
Company's first quarter of the fiscal year 2000. Any effect of applying this
guidance will be reported as a cumulative effect adjustment resulting from a
change in accounting principle. The Company does not expect the application to
have a material affect on its financial statements.
<PAGE> 17
36
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
3} Financial Instruments and Risk Management
Foreign Exchange Risk Management
The Company adopted the provisions of SFAS No. 133 effective April 1, 1999. The
Company hedges a portion of its forecasted foreign currency denominated
intercompany sales of inventory, over a maximum period of fifteen months, using
forward exchange contracts and currency options primarily related to Japanese
and European currencies. These derivatives are designated as cash-flow hedges,
and changes in their fair value are carried in accumulated other comprehensive
income until the underlying forecasted transaction occurs. Once the underlying
forecasted transaction is realized, the appropriate gain or loss from the
derivative designated as a hedge of the transaction is reclassified from
accumulated other comprehensive income to cost of sales. The Company utilizes an
interest rate swap to fix the interest rate on certain variable term loans in
order to minimize the effect of changes in interest rates on earnings. Since the
adoption of SFAS No. 133 on April 1, 1999, net realized losses recorded in
earnings were $104,000. As of December 31, 1999 the amount that will be
reclassified from accumulated other comprehensive income to earnings over the
next twelve months is an unrealized loss of $228,000, net of taxes. The
ineffective portion of the derivatives is primarily related to option premiums,
and was $307,000 in 1999.
Prior to the adoption of SFAS No. 133, the Company entered into forward exchange
contracts and local currency purchased options to hedge a portion of its
probable anticipated, but not firmly committed transactions. The anticipated
transactions whose risks were being hedged were the intercompany sales of
inventory by the U.S. parent to the foreign subsidiary payable in the foreign
subsidiary's local currency. The time period of the anticipated transactions
that were hedged generally approximated one year. The Company also used forward
exchange contracts to hedge firm commitments. Market value gains and losses on
forward exchange contracts were recognized immediately in earnings unless a firm
commitment existed. 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 were recognized when the
hedged transaction occurred. These contracts, which related primarily to
Japanese and European currencies generally had terms of twelve months or less.
Forward exchange contracts received hedge accounting on firmly committed
transactions when they were designated as a hedge of the designated currency
exposure and were effective in minimizing such exposure. Options received hedge
accounting on probable anticipated transactions when they were designated as a
hedge of the currency exposure and were effective in minimizing such exposure.
Realized and unrealized gains and losses on forward exchange contracts and local
currency purchased option contracts 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. The
company does not hold or issue derivative financial instruments for trading
purposes.
Forward exchange contracts with notional amounts totaling $4,000,000,
$8,000,000, and $9,800,000 to exchange foreign currencies for U.S. dollars were
outstanding at December 31, 1999, 1998, and 1997, respectively. Of such forward
exchange contracts, $4,000,000, $7,800,000 and $6,900,000 to exchange Japanese
yen for U.S. dollars, were outstanding at December 31, 1999, 1998, and 1997,
respectively. Local currency purchased options with notional amounts totaling
$11,800,000, $10,221,000, and $12,738,000 to exchange foreign currencies for
U.S. dollars were outstanding at December 31, 1999, 1998, and 1997,
respectively.
Foreign exchange gains of $415,000, foreign exchange losses of $168,000, and
foreign exchange gains of $1,166,000 on forward exchange contracts which did not
qualify for hedge accounting were recognized in earnings during 1999, 1998, and
1997, respectively, and are classified in Other income, net. Gains and losses on
forward exchange contracts and local currency purchased options that qualify for
hedge accounting are classified in cost of goods sold and totaled a loss of
$104,000 and gains of $310,000 and $1,178,000 for the years ended December 31,
1999, 1998, and 1997, respectively.
The fair values of forward exchange contracts at December 31, 1999 and 1998,
determined by applying period end currency exchange rates to the notional
contract amounts, amounted to an unrealized loss of $547,000 and $349,000,
respectively. The fair values of local currency purchased options at December
31, 1999 and 1998, which were obtained through dealer quotes were immaterial.
The Company recorded a foreign exchange translation gain on intercompany
payables of $1,000,000 and a foreign exchange translation loss on intercompany
payables of $1,000,000 in Other income, net in 1998 and 1997, respectively.
During 1999 the Company has hedged certain intercompany payables with currency
options. Since these derivatives hedge existing amounts that are denominated in
foreign currencies, the options do not qualify for hedge accounting under SFAS
No. 133.
<PAGE> 18
37 MKS Instruments 1999
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.
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 1998, the Company entered into a four-year interest rate
swap agreement on a declining notional amount basis which coincides with the
scheduled principal payments with a major financial institution for the notional
amount of $10,528,000 equal to the term loans described in Note 6. Under the
agreement, the Company pays a fixed rate of 5.85% on the notional amount and
receives LIBOR. The interest differential payable or accruable on the swap
agreement is recognized on an accrual basis as an adjustment to interest
expense. The criteria used to apply hedge accounting for this interest rate swap
is based upon management designating the swap as a hedge against the variable
rate debt combined with the terms of the swap matching the underlying debt
including the notional amount, the timing of the interest reset dates, the
indices used and the paydates. At December 31, 1999, 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 $49,000, based on dealer
quotes. The variable rate received on the swap at December 31, 1999 was 6.48%.
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 credit worthiness 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 investments, forward exchange contracts, and trade accounts
receivable. The Company maintains cash and cash equivalents with financial
institutions including the bank it has borrowings with. The Company maintains
cash investments primarily in U.S. Treasury and government agency securities and
corporate debt securities, rated AA or higher, which have minimal credit risk.
The Company places forward currency contracts with high credit-quality financial
institutions in order to minimize credit risk exposure. Concentrations of credit
risk with respect to accounts receivable are limited due to the large number of
diverse and 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 marketable securities is based on quoted market prices. 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.
4} Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
-------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw material $6,644 $7,544
Work in process 7,026 5,718
Finished goods 13,980 11,202
--------------------
$27,650 $24,464
====================
</TABLE>
5} Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $9,100 $8,834
Buildings 26,081 26,020
Machinery and equipment 30,175 27,394
Furniture and fixtures 12,968 10,578
Leasehold improvements 1,966 1,814
--------------------
80,290 74,640
Less: accumulated depreciation and amortization 47,464 41,915
--------------------
$32,826 $32,725
====================
</TABLE>
6} Debt
Credit Agreements and Short-Term Borrowings
In February 1996, the Company entered into loan agreements with two banks, which
provided access to a revolving credit facility. The revolving credit facility
provided for uncollateralized borrowings up to $30,000,000, and expired on
December 31, 1999. Interest on borrowings was payable quarterly at either the
banks' base rate or the LIBOR Rate, as defined in the agreement, at the
Company's option. At December 31, 1999 and 1998, the Company had no borrowings
under this revolving credit facility.
<PAGE> 19
38
Effective January 1, 2000, the Company entered into a loan agreement with the
same two banks, which provides access to a revolving credit facility. The
revolving credit facility provides for uncollateralized borrowings up to
$30,000,000, and expires December 31, 2000. Interest on borrowings is payable
quarterly at either the banks' base rate, or the LIBOR Rate, as defined in the
agreement.
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 December 31, 1999 of up to $17,289,000,
which generally expire and are renewed at six month intervals. At December 31,
1999 and 1998, total borrowings outstanding under these arrangements were
$12,423,000, and $9,687,000, respectively, at interest rates ranging from 1.2%
to 1.7%, and 1.3% to 1.7%, 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
-------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Term loans $8,862 $10,528
Mortgage notes 2,824 3,572
-------------------
Total long-term debt 11,686 14,100
Less: current portion 7,346 2,058
-------------------
Long-term debt less current portion $4,340 $12,042
===================
</TABLE>
On November 1, 1993, the Company entered into a term loan agreement with a bank,
which 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. Interest is payable monthly at either
the bank's base rate, at a rate based on the long-term funds rate, or at the
LIBOR Rate, as defined in the agreement, at the Company's option. On October 31,
1995, the Company also entered into a term loan agreement with the same bank,
which provided additional uncollateralized borrowings of $7,000,000. Principal
payments are payable in equal monthly installments of $83,000 through June 1,
2002, with the remaining principal payment due on June 30, 2002. Interest is
payable monthly at either the bank's base rate or at the LIBOR Rate, as defined
in the agreement, at the Company's option.
At December 31, 1999 and 1998, the interest rates in effect for the term loan
borrowings were 7.40% and 7.131%, respectively.
The terms of the revolving credit facility and term 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 has loans outstanding from various foreign banks in the form of
mortgage notes at interest rates ranging from 1.9% to 6.2%. Principal and
interest are payable in monthly installments through 2010. The loans are
collateralized by mortgages on certain of the Company's foreign properties.
Aggregate maturities of long-term debt over the next five years are as follows:
<TABLE>
<CAPTION>
Year ending December 31 Aggregate Maturities
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $7,346
2001 1,406
2002 1,327
2003 414
2004 419
Thereafter 774
-------
$11,686
=======
</TABLE>
7} Commitments and Contingencies
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 $2,950,000, $2,388,000, and $2,478,000 for the years ended
December 31, 1999, 1998, and 1997, respectively.
<PAGE> 20
39 MKS Instruments 1999
Minimum lease payments under operating and capital leases are as follows:
<TABLE>
<CAPTION>
Capital
Operating Leases Leases
------------------------ ---------
Year ending December 31, Real Estate Equipment Equipment
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $1,875 $515 $1,203
2001 1,062 329 684
2002 207 176 450
2003 130 78 234
2004 52 45 86
Thereafter -- 41 --
-----------------------------------
Total minimum lease payments $3,326 $1,184 $2,657
===================================
Less: amounts representing interest 276
Present value of minimum lease payments 2,381
Less: current portion 1,059
------
Long-term portion $1,322
======
</TABLE>
Prior to its initial public offering, the Company entered into a Tax
Indemnification and S Corporation Distribution Agreement with its then existing
stockholders (the "Pre-IPO stockholders"). The agreement includes provisions for
the payment, with interest, by the pre-IPO stockholders or MKS, as the case may
be, for the difference between the $40,000,000 distributed as an estimate of the
amount of the accumulated adjustments account as of April 4, 1999, which is the
date the Company's S Corporation status was terminated, and the actual amount of
the accumulated adjustments account on that day. The actual amount of the
accumulated adjustments account cannot be determined until MKS calculates the
amount of its taxable income for the year ending December 31, 1999. Based on the
Company's estimate of the taxable income for the year ending December 31, 1999,
MKS believes that an additional future distribution to the Pre-IPO stockholders
will be required under this agreement. The amount of the additional
distribution, prior to interest, is currently estimated to be $3,350,000. The
amount of the additional distribution payable has been charged directly to
retained earnings and had no impact on net income or earnings per share. No
shareholders, other than the Pre-IPO stockholders, are parties to the Tax
Indemnification and S Corporation Distribution Agreement.
8} Stockholders' Equity
Common Stock
In March 1999, the Company amended its Articles of Organization to: i) eliminate
the authorized shares of Class A Common Stock and Class B Common Stock; ii)
increase the authorized number of shares of Common Stock to 50,000,000 shares;
iii) authorize 2,000,000 shares of Preferred Stock, $0.01 par value per share;
and iv) provide that each outstanding share of Class A Common Stock and Class B
Common Stock be converted into one share of Common Stock.
On April 5, 1999 the Company closed the initial public offering of its Common
Stock. In connection with this offering and the exercise of an over-allotment
option by the underwriters, the Company sold 6,375,000 shares of Common Stock at
a price of $14.00 per share. The net proceeds to the Company were approximately
$82,000,000. Underwriting discounts and commissions were approximately
$6,200,000 and other offering costs were approximately $1,000,000.
On April 5, 1999 the Company distributed $40,000,000, which was the estimated
amount of the Company's undistributed S corporation earnings as of the day prior
to the closing of the offering.
Stock Purchase Plan
The Company's Amended and Restated 1999 Employee Stock Purchase Plan (the
"Purchase Plan") authorizes the issuance of up to an aggregate of 450,000 shares
of Common Stock to participating employees. Offerings under the Purchase Plan
commence on June 1 and December 1 and terminate, respectively, on November 30
and May 31. Under the Purchase Plan, eligible employees may purchase shares of
Common Stock through payroll deductions of up to 10% of their compensation. The
price at which an employee's option is exercised is the lower of (1) 85% of the
closing price of the Common Stock on the NASDAQ National Market on the day that
each offering commences or (2) 85% of the closing price on the day that each
offering terminates. On November 30, 1999 the Company issued 36,520 shares of
Common Stock to employees who participated in the Purchase Plan, at an exercise
price of $12.94 per share. As of December 31, 1999 there were 413,480 shares
reserved for issuance.
Stock Option Plans
On January 9, 1998, the stockholders of the Company approved the following: (1)
an increase in the number of shares that may be granted under the 1995 Stock
Incentive Plan to 3,750,000 shares of common stock; (2) the adoption of the 1997
Director Stock Option Plan pursuant to which options may be granted to purchase
up to an aggregate of 300,000 shares of common stock; (3) the adoption of the
1997 Employee Stock Purchase Plan pursuant to which the Company may issue up to
an aggregate of 450,000 shares of common stock; and (4) that 3,750,000 shares,
300,000 shares, and 450,000 shares of common stock be reserved for issuance
under the 1995 Stock Incentive Plan, the 1997 Director Stock Option Plan, and
the 1997 Employee Stock Purchase Plan, respectively. The 1997 Employee Stock
Purchase Plan was amended and restated on April 22, 1999, and the Plan's name
was changed to the Amended and Restated 1999 Employee Stock Purchase Plan.
<PAGE> 21
40
The Company grants options to employees under the 1995 Stock Incentive Plan (the
"Plan") and to directors under the 1996 Director Stock Option Plan and the 1997
Director Stock Option Plan (the "Director Plans").
At December 31, 1999, 1,029,613 options to purchase shares of the Company's
common stock were reserved for issuance under the Plan. At December 31, 1999,
under the Director Plans, options to purchase 234,000 shares of common stock
were reserved for issuance. Stock options are granted at 100% of the fair value
of 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 Director Plans, certain options granted in 1999 vest
immediately. The remainder of the options granted in 1997 and later vest at the
earlier of (1) the next annual meeting, (2) 13 months from date of grant, or (3)
the effective date of an acquisition as defined in the Director Plans.
The following table presents the activity for options under the Plan.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------------------------
1999 1998 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 2,098,207 $5.20 1,564,449 $4.50 810,442 $4.43
Granted 678,971 16.40 629,969 6.80 785,657 4.57
Exercised (168,162) 4.56 (2) 4.43 -- --
Forfeited or Expired (56,793) 5.76 (96,209) 4.43 (31,650) 4.43
-----------------------------------------------------------------------------------
Outstanding-- end of period 2,552,223 $8.21 2,098,207 $5.20 1,564,449 $4.50
Exercisable at end of period 1,047,748 $4.82 778,473 $4.46 476,451 $4.43
</TABLE>
The following table summarizes information with respect to options outstanding
and exercisable under the Plan at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number of Exercise Contractual Life Number of Exercise
Range of Exercise Prices Shares Price (In Years) Shares Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.43 - $8.00 1,881,152 $5.27 7.45 1,047,748 $4.82
$13.56 - $14.50 524,571 $14.13 9.28 -- --
$19.00 - $27.25 146,500 $24.63 9.81 -- --
------------------------------------------------------------------------
2,552,223 $8.21 7.96 1,047,748 $4.82
</TABLE>
The following table presents activity for options under the Director Plans:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------------------------
1999 1998 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 34,368 $4.81 30,748 $4.43 27,128 $4.43
Granted 66,000 14.15 3,620 8.00 3,620 4.43
---------------------------------------------------------------------------------
Outstanding-- end of period 100,368 $10.95 34,368 $4.81 30,748 $4.43
Exercisable at end of period 76,368 $9.86 26,228 $4.43 13,564 $4.43
</TABLE>
The following table summarizes information with respect to options outstanding
and exercisable under the Director Plans at December 31, 1999
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number of Exercise Contractual Life Number of Exercise
Range of Exercise Prices Shares Price (In Years) Shares Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.43 - $8.00 34,368 $4.81 6.86 34,368 $4.81
$14.00 - $14.40 66,000 $14.15 9.20 42,000 $14.00
-------------------------------------------------------------------
100,368 $10.95 8.40 76,368 $9.86
</TABLE>
<PAGE> 22
41 MKS Instruments 1999
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation." 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. The Company is required to disclose pro forma net
income and net income per common share amounts had compensation cost for the
Company's stock based compensation plans been determined based on the fair value
at the grant date for awards under the plans. Had compensation expense for the
stock based compensation plans been consistent with the method of SFAS No.
123, the amounts reported for 1999 would have been:
<TABLE>
<CAPTION>
Pro forma for
As Reported SFAS No. 123
- -----------------------------------------------------------------------------------
<S> <C> <C>
Historical net income $24,037 $23,098
Historical net income per share:
Basic $1.05 $1.01
Diluted $1.00 $0.96
Pro forma net income $18,412 $17,559
Pro forma net income per share:
Basic $0.81 $0.77
Diluted $0.77 $0.74
</TABLE>
The weighted average fair value of options at the date of grant was estimated
using the Black-Scholes model and was $9.54 with the following assumptions in
1999: expected life of 5 years, weighted average interest rate of 5.49%,
expected volatility of 64%, and no dividend yield. Had the fair value based
method prescribed in SFAS No. 123 been used to account for stock-based
compensation cost in 1998 and 1997, there would have been no change in net
income and net income per share from that reported based on the following
assumptions: dividend yield of 8%, interest rate of 5.44% and an expected life
of 8 years.
The fair value of purchase rights granted in 1999 under the Purchase Plan was
$5.11. The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumption in 1999: expected life of 6
months, interest rate of 4.87%, expected volatility of 64%, and no dividend
yield.
Accumulated Other Comprehensive Income
The balance of accumulated other comprehensive income was comprised of the
following:
<TABLE>
<CAPTION>
Financial
Cumulative Unrealized Instruments Accumulated
Translation Gain on Designated as Other Comprehensive
Adjustments Investments Cash Flow Hedges Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $1,875 $311 -- $2,186
Non-recurring deferred tax charge (497) (163) -- (660)
Foreign currency translation adjustment, net of taxes of $(55) (80) -- -- (80)
Unrealized gain on investments, net of taxes of $377 -- 815 -- 815
Changes in value of financial instruments designated as cash
flow hedges, net of taxes of $(232) -- -- (228) (228)
--------------------------------------------------------------
Balance at December 31, 1999 $1,298 $963 $(228) $2,033
==============================================================
</TABLE>
Shareholder Receivable
The Company has an agreement with certain shareholders whereby the Company has
paid the premiums for life insurance policies of the shareholders. The agreement
provides for the reimbursement of the premiums to the Company upon receipt of
proceeds from the policies. The present value discount related to the premiums
is $856,000.
9} Income Taxes
Prior to its initial public offering, the Company was treated as an S
corporation for federal income tax purposes. As an S corporation, the Company
was not subject to federal, and certain state, income taxes. The Company
terminated its S corporation status upon the closing of its initial public
offering in 1999 and became subject to taxes at C corporation tax rates. This
change in tax status and tax rates resulted in a non-recurring, non-cash
deferred tax credit to net income of $3,770,000 and a deferred tax charge to
other comprehensive income of $660,000.
<PAGE> 23
42
The Pre-IPO stockholders are liable for individual Federal, and certain state,
income taxes on their allocated portions of the Company's taxable income as an S
corporation. For the tax year ending December 31, 1999, the Pre-IPO stockholders
will be allocated a portion of the Company's 1999 taxable income. A
reconciliation of the Company's 1999 effective tax rate to the U.S. federal
statutory rate follows:
<TABLE>
<S> <C>
U.S. Federal income tax statutory rate 35.0%
Non-recurring deferred tax credit (12.8)
Pre-IPO stockholder 1999 allocated taxable income (6.8)
State income taxes, net of federal benefit 2.5
Effect of foreign operations taxed at various rates 2.1
Foreign sales corporation tax benefit (1.6)
Other (0.5)
------
17.9%
======
</TABLE>
As the Company was not subject to Federal income taxes in 1998 and 1997, a
reconciliation of the effective tax rate to the Federal statutory rate is not
meaningful for those years.
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
---------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes:
United States $25,590 $6,169 $21,858
Foreign 3,678 1,966 410
--------------------------------
29,268 8,135 22,268
Current taxes:
United States Federal 6,269 -- --
State 1,192 197 1,331
Foreign 1,806 784 792
--------------------------------
9,267 981 2,123
--------------------------------
Deferred taxes:
United States Federal (4,025) -- --
State (27) (39) (72)
Foreign 16 7 (73)
--------------------------------
(4,036) (32) (145)
--------------------------------
Provision for income taxes $5,231 $949 $1,978
================================
</TABLE>
At December 31, 1999, 1998, and 1997 the components of the deferred tax asset
and deferred tax liability were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Inventories $1,434 $265 $344
Intercompany profits 1,362 152 214
Depreciable assets 746 (234) (20)
Compensation 362 127 77
Investment booked under the equity method (557) (59) (41)
Other 250 330 (25)
--------------------------------
Total $3,597 $581 $549
================================
</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 $1,182,000 and $2,500,000 for the years ended December
31, 1998 and 1997. Approximately $2,316,000 has been accrued as the estimated
Company contribution for the year ended December 31, 1999 and is included in
accrued compensation.
The Company maintains a bonus plan which provides cash awards to key employees,
at the discretion of the Compensation Committee of the Board of Directors, based
upon operating results and employee performance. Bonus expense to key employees
was $3,213,000, none and $1,425,000, for the years ended December 31, 1999,
1998, and 1997, respectively.
11} Geographic Financial Information and Significant Customer
See Note 1 for a brief description of the Company's business. The Company is
organized around two similar product lines domestically and by geographic
locations internationally and has three reportable segments: North America, Far
East, and Europe. Net sales to unaffiliated
<PAGE> 24
43 MKS Instruments 1999
customers are based on the location in which the sale originated. 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. The Company had one customer comprising 22%,
16% and 22% of net sales for the years ended December 31, 1999, 1998, and 1997,
respectively. This data is presented in accordance with SFAS 131, "Disclosures
About Segments of an Enterprise and Related Information," which the Company has
retroactively adopted for all periods presented.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------
North America Far East Europe Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers $128,562 $38,734 $19,787 $187,083
Intersegment net sales 36,884 706 986 38,576
Depreciation and amortization 5,543 252 414 6,209
Income from operations 24,608 1,413 1,590 27,611
Segment assets 132,971 31,272 10,362 174,605
Long-lived assets 29,656 6,524 2,575 38,755
Capital expenditures 5,013 241 251 5,505
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------
North America Far East Europe Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers $95,607 $23,902 $20,254 $139,763
Intersegment net sales 26,657 290 1,015 27,962
Depreciation and amortization 5,627 210 405 6,242
Income from operations 6,319 1,298 1,518 9,135
Segment assets 65,560 20,768 9,904 96,232
Long-lived assets 28,960 5,655 3,084 37,699
Capital expenditures 2,635 179 323 3,137
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------------
North America Far East Europe Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers $138,186 $31,559 $18,335 $188,080
Intersegment net sales 35,429 225 749 36,403
Depreciation and amortization 5,096 259 357 5,712
Income from operations 22,847 886 230 23,963
Segment assets 77,302 19,906 9,328 106,536
Long-lived assets 30,738 4,904 3,015 38,657
Capital expenditures 2,899 128 242 3,269
</TABLE>
Included in North America are the United States and Canada. Net sales to
unaffiliated customers from the United States were $128,560,000, $94,449,000 and
$136,653,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Long-lived assets within the United States amounted to $28,729,000, $28,902,000
and $30,667,000 at December 31, 1999, 1998, and 1997, respectively.
Included in the Far East are Japan, Korea, Singapore and Taiwan. Included in
Europe are Germany, France and the United Kingdom. Net sales to unaffiliated
customers from Japan were $30,696,000, $21,153,000 and $28,184,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Long-lived assets within
Japan amounted to $6,266,000, $5,431,000 and $4,792,000 at December 31, 1999,
1998 and 1997, respectively.
<PAGE> 25
44
Corporate Information
Board of Directors
John R. Bertucci, Chairman and Chief Executive Officer
MKS Instruments, Inc.
Richard S. Chute, Esquire
Hill & Barlow
Owen W. Robbins, Executive Vice President (retired)
Teradyne, Inc.
Robert J. Therrien, President and Chief Executive Officer
Brooks Automation, Inc.
Louis P. Valente, Chairman and Chief Executive Officer
Palomar Medical Technologies, Inc.
Management
John R. Bertucci, Chairman of the Board and Chief
Executive Officer
Dr. Peter R. Younger, President and Chief Operating Officer
Ronald C. Weigner, Vice President and Chief Financial Officer
John J. Sullivan, Executive Vice President, Technology
William D. Stewart, Corporate Vice President and General Manager, Vacuum
Products
Joseph A. Maher, Jr., Corporate Vice President and General Manager, Pressure
Measurement and Control Products
Robert L. Klimm, Corporate Vice President and General Manager, Materials
Delivery and Analysis Products
Leo Berlinghieri, Corporate Vice President,
Customer Support Operations
Paul A. Blackborow, Corporate Vice President, Marketing
Gerald G. Colella, Corporate Vice President,
Business Operations
George E. Manning, Corporate Vice President,
Human Resources
William P. Donlan, Treasurer and Corporate Controller
Business Operations
MKS Instruments, Inc.
Pressure Measurement and Control Products Group
Andover, Massachusetts
MKS Instruments, Inc.
Materials Delivery and Analysis Products Group
Methuen, Massachusetts
MKS Instruments, Inc.
Vacuum Products Group
Boulder, Colorado
MKS Instruments, Inc.
Austin, Texas
MKS Instruments, Inc.
Santa Clara, California
MKS Instruments France s.a.
Le Bourget, France
MKS Instruments Deutschland GmbH
Munich, Germany
MKS Instruments Benelux
Delft, The Netherlands
MKS Instruments, U.K. Ltd.
Altricham, England
Livingston, Scotland
Kildare, Republic of Ireland
MKS Japan, Inc.
Tokyo, Japan
MKS Korea Co., Ltd.
Seoul, Korea
MKS Instruments, Inc. Singapore
Singapore
MKS Instruments, Inc. Taiwan
Hsinchu, Taiwan
Shareholder Information
Stock Listing
NASDAQ National Market, Symbol: MKSI
Transfer Agent and Registrar
BankBoston, N.A.
Boston, Massachusetts
Independent Auditors
PricewaterhouseCoopers LLP
Boston, Massachusetts
Outside Counsel
Hale and Dorr LLP
Boston, Massachusetts
Hill and Barlow
Boston, Massachusetts
Inquiries Concerning the Company
Stockholder inquiries about MKS Instruments may be addressed to Ronald Weigner,
Vice President and Chief Financial Officer, Six Shattuck Road, Andover, MA
01810; or inquiries may be sent through the MKS website at
http://www.mksinst.com.
Licensed Trademarks
Baratron,(R) Mass-Flo,(R) and Orion(R) are registered trademarks of MKS
Instruments, Inc., Andover, MA and are used under license. HPS(TM) is a
trademark of MKS Instruments, Inc., Andover, MA and is used under license.
DeviceNet(TM) is a trademark of the Open DeviceNet Vendor Association. SDS(R) is
a registered trademark of Matheson Tri-Gas and ATMI, Inc.
Annual Meeting
The Company's 2000 Annual Meeting of the shareholders will be held at 10:00 A.M.
on May 17, 2000 at the Andover Country Club, 60 Canterbury Street, Andover,
Massachusetts 01810.
<PAGE> 1
EXHIBIT 21. LIST OF SUBSIDIARIES
- - MKS International, Inc.
- - MKS Instruments Deutschland GmbH
- - MKS Instruments France S.A.
- - MKS Instruments Canada Ltd.
- - MKS Instruments, U.K. Limited
- - MKS East, Inc.
- - MKS Japan, Inc.
- - MKS Korea Co., Ltd.
- - MKS FSC, Inc.
- - MKS MSC, Inc.
19
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333 - 78069, 333 - 78071, 333 - 78073, 333 - 31224)
of MKS Instruments, Inc. of our report dated January 28, 2000 relating to the
financial statements, which appears in the Annual Report to Shareholders, which
is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated January 28, 2000 relating to the
financial statement schedules, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 27, 2000
20
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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0
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