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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN XTAL TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3674 94-3031310
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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4311 SOLAR WAY
FREMONT, CALIFORNIA 94538
(510) 683-5900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MORRIS S. YOUNG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN XTAL TECHNOLOGY, INC.
4311 SOLAR WAY
FREMONT, CALIFORNIA 94538
(510) 683-5900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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PETER M. ASTIZ, ESQ. FRANCIS S. CURRIE, ESQ.
DAVID A. HUBB, ESQ. JOHN T. SHERIDAN, ESQ.
GRAY CARY WARE & FREIDENRICH, LLP WILSON SONSINI GOODRICH & ROSATI
400 HAMILTON AVENUE PROFESSIONAL CORPORATION
PALO ALTO, CALIFORNIA 94301-1825 650 PAGE MILL ROAD
(650) 328-6561 PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is to be filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, $0.001 par value.... 2,875,000 $10.00 $28,750,000 $8,482.00
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(1) Includes 375,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purposes of computing the amount of the
registration fee in accordance with Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, (AS AMENDED) OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED MARCH 17, 1998
PROSPECTUS
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2,500,000 Shares
[AXT LOGO] [AMERICAN XTAL TECHNOLOGY, INC. MARK]
Common Stock
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All of the 2,500,000 shares of common stock, par value $0.001 per share (the
"Common Stock"), offered hereby (the "Offering"), are being sold by American
Xtal Technology, Inc. ("AXT" or the "Company"). Prior to this Offering, there
has been no public market for the Common Stock of the Company. It is currently
anticipated that the initial public offering price will be between $8.00 and
$10.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price.
The Company has applied to have the Common Stock approved for inclusion in The
Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the
symbol "AXTI."
SEE "RISK FACTORS" ON PAGES 6 TO 15 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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======================================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(1) Company(2)
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Per Share............................... $ $ $
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Total(3)................................ $ $ $
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(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $900,000.
(3) The Company has granted to the several Underwriters a 30-day over-allotment
option to purchase up to 375,000 additional shares of the Common Stock on
the same terms and conditions as set forth above. If all such additional
shares are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ and the total Proceeds to Company will be $ . See
"Underwriting."
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The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the shares of Common Stock to the Underwriters is expected to be made through
the facilities of the Depository Trust Company, New York, New York on or about
, 1998.
PRUDENTIAL SECURITIES INCORPORATED COWEN & COMPANY
, 1998
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS, AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
American Xtal Technology, Inc. and its logo are trademarks of the Company.
This Prospectus contains trademarks of other companies.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information under "Risk Factors," and the Consolidated
Financial Statements and Notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information contained in this Prospectus: (i)
gives effect to the reincorporation of the Company in Delaware prior to the
effective date of this Prospectus; (ii) reflects the conversion of all
outstanding preferred stock, par value $.001 (the "Preferred Stock") to Common
Stock upon the closing of the Offering; and (iii) assumes that the Underwriters'
over-allotment option will not be exercised. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Risk Factors."
THE COMPANY
American Xtal Technology, Inc. uses a proprietary vertical gradient freeze
("VGF") technique to produce high-performance compound semiconductor base
materials, or substrates, for use in a variety of electronic and opto-electronic
applications. The Company primarily manufactures and sells compound
semiconductor substrates composed of gallium arsenide ("GaAs"). Sales of GaAs
substrates accounted for 94.9% of the Company's product revenues for the year
ended December 31, 1997. The Company also manufactures and sells indium
phosphide ("InP") and germanium ("Ge") substrates and is currently developing
other high-performance compound substrates such as gallium phosphide ("GaP") and
gallium nitride ("GaN"). The Company manufactures substrates from crystals grown
using the Company's proprietary VGF technique and then slices the substrates
into wafers. The Company's substrates are sold to semiconductor device
manufacturers for use in applications such as wireless and fiber optic
telecommunications, lasers, light-emitting diodes ("LEDs"), satellite solar
cells and consumer electronics. The Company's customers include EMCORE
Corporation ("EMCORE"), Hewlett Packard Company ("Hewlett Packard"), Motorola,
Inc. ("Motorola"), NEC Kansai, Ltd. ("NEC"), Nortel, Siemens AG ("Siemens"),
Sony Corporation ("Sony"), Spectrolab, Inc. (a Hughes Electronics Company)
("Spectrolab") and TRW, Inc. ("TRW").
In recent years, semiconductor device manufacturers have increasingly
utilized substrates other than silicon to improve the performance of
semiconductor devices or to enable new applications. These alternative
substrates are composed of a single element such as Ge, or multiple elements
which may include, among others, gallium, aluminum, indium, arsenic, phosphorus
and nitrogen. Substrates that consist of more than one element are referred to
as "compound substrates" and include GaAs, InP, GaP and GaN. GaAs is currently
the most widely used compound substrate. Compound substrates have electrical
properties which allow semiconductor devices to operate at much higher speeds
than silicon-based devices or at the same speed with lower power consumption.
For example, electrons move up to five times faster in GaAs than in silicon.
Compound substrates also have better opto-electronic characteristics than
silicon which enable them to convert energy into light and lasers, or to detect
light and convert light into electrical energy.
The Company believes that its proprietary VGF technique, which it has
developed over the past 11 years, provides certain significant advantages over
traditional manufacturing methods for growing crystals for the production of
high-performance semiconductor substrates. The Company believes that its
proprietary technique produces high-quality crystals which are characterized by
greater physical and chemical uniformity and fewer defects than crystals grown
by competing methods. This may result in substrates with lower breakage rates,
which increases manufacturing yields and reduces manufacturing costs for the
Company and its customers. The Company believes that it is currently the only
high-volume supplier of GaAs substrates manufactured using the VGF technique and
is positioned to become a leading manufacturer and supplier of other
high-performance substrates.
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<PAGE> 5
Key elements of the Company's business strategy include the following:
- Advance its leadership in VGF technology through continued investment in
research and development and participation in government sponsored
research programs.
- Extend its leadership in the GaAs market by continuing to provide
high-quality, price-competitive substrates and leveraging its
demonstrated success in certain segments of the GaAs market to further
increase sales.
- Leverage its VGF technology as a platform to rapidly develop and
cost-effectively manufacture high-quality substrates for emerging
applications in various markets.
- Target high-volume markets by increasing its manufacturing capacity in
order to lower unit production costs and provide high-performance
substrates at competitive prices.
- Leverage existing customer relationships by supplying customers with
high-performance substrates in addition to GaAs and establishing
arrangements to jointly develop GaAs and other substrates.
For the years ended December 31, 1995, 1996 and 1997, the Company generated
total revenues of $14.5 million, $16.2 million and $25.3 million, respectively,
and during the same period, generated net income of $2.7 million, $2.0 million
and $3.3 million, respectively.
The Company was incorporated in the State of California in December 1986.
The Company will reincorporate in the State of Delaware in connection with the
Offering. The Company's executive offices and manufacturing facilities are
located at 4311 Solar Way, Fremont, California 94538, and its telephone number
is (510) 683-5900.
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THE OFFERING
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Common Stock Offered Hereby................................. 2,500,000 shares
Common Stock to be Outstanding after the Offering(1)........ 15,670,268 shares
Use of Proceeds............................................. For capital expenditures, product
development, sales and marketing
and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol...................... AXTI
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(1) Excludes 1,342,950 shares of Common Stock issuable upon exercise of
outstanding options at December 31, 1997 with a weighted average exercise
price of $4.77 per share. See "Management -- Benefit Plans" and Note 8 of
Notes to Consolidated Financial Statements.
RISK FACTORS
Investors should consider the material risk factors involved in connection
with an investment in the Common Stock and the impact to investors from various
events which could adversely affect the Company's business. See "Risk Factors."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
YEARS ENDED DECEMBER 31,
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1993 1994 1995 1996 1997
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STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 4,403 $ 7,457 $14,478 $16,227 $25,335
Gross profit........................................ 1,485 2,944 6,214 6,162 10,108
Income from operations.............................. 416 1,874 4,050 3,537 5,860
Net income.......................................... 125 1,161 2,739 2,046 3,258
Basic net income per share.......................... $ 0.05 $ 0.44 $ 0.97 $ 0.71 $ 1.11
Diluted net income per share........................ $ 0.01 $ 0.10 $ 0.23 $ 0.17 $ 0.25
Shares used in basic net income per share
calculations...................................... 2,555 2,634 2,821 2,882 2,938
Shares used in diluted net income per share
calculations...................................... 11,549 11,676 11,813 11,811 12,839
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DECEMBER 31, 1997
---------------------
AS
ACTUAL ADJUSTED(1)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,054 $23,079
Working capital............................................. 14,209 34,234
Total assets................................................ 30,613 50,683
Long-term debt, net of current portion...................... 7,728 7,728
Stockholders' equity........................................ 18,591 38,616
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(1) Reflects (i) the conversion of all outstanding shares of the Company's
Preferred Stock into 10,128,738 shares of Common Stock upon completion of
the Offering and (ii) the sale of 2,500,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share after
deducting the underwriting discounts and commissions and estimated Offering
expenses payable by the Company and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, as well as the other information set forth in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
This Prospectus contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things: (i)
the Company's revenues; (ii) the Company's research and development efforts;
(iii) potential acquisitions by the Company; (iv) the use of the proceeds of the
Offering; (v) the Company's financing plans; (vi) trends affecting the Company's
financial condition or results of operations; (vii) the Company's growth,
operating and financing strategies; and (viii) the declaration and payment of
dividends. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including, without
limitation, the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," identifies important factors that could cause such
differences.
FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly and annual
revenues and operating results have varied in the past, are difficult to
forecast, are subject to numerous factors both within and outside the Company's
control and may fluctuate significantly in the future. Although the Company has
been profitable on an annualized basis since 1990, there can be no assurance
that the Company will continue to be profitable in future periods. The Company
believes that period-to-period comparisons are not necessarily meaningful and
should not be relied upon as indicative of future operating results.
The financial markets in Japan, Singapore, South Korea, Taiwan and other
Asian nations have recently experienced significant turmoil. Such turmoil in the
financial markets may negatively impact and/or delay the decision by the
Company's customers to purchase the Company's substrates. Any reduction in the
value of Asian currencies, in particular the Japanese yen, would make it more
difficult for the Company to sell substrates into the Asian market and would
provide the Company's Asian competitors with the ability to compete more
effectively in the U.S. market. As a result, the turmoil in the Asian financial
markets may materially and adversely affect the Company's business, financial
condition and results of operations. In 1997, 23.5% of the Company's total
revenues were from customers located in Japan and other Asian countries.
The Company's expense levels are based in large part on its current
expectations for future revenues and its expected research and development and
marketing requirements. In the event revenues do not meet expectations, the
Company may be unable to adjust its spending levels on a timely basis to
compensate for unexpected revenue shortfalls. In addition, the Company has
significantly increased its expense levels to support its recent growth and
intends to continue to make significant investments in research and development,
facility expansion, capital equipment and customer service and support
capabilities worldwide. These investments will make it difficult for the Company
to reduce its operating expenses in a particular period if the Company's revenue
expectations for that period are not met. There can be no assurance that the
Company will achieve a rate of revenue growth in any future period commensurate
with its increased level of operating expenses and the failure to do so would
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's revenues and operating results are substantially dependent
upon the volume and timing of orders received by the Company from its customers.
The Company's lengthy sales cycle limits its visibility regarding future
financial performance. The Company's revenue is subject to demand for GaAs
substrates and is also subject to the risks to which the markets for its
customers' products are subject, including technological or other changes in
those markets. In addition, the ordering patterns of some of the Company's
existing large customers have been unpredictable in the past, and the Company
expects ordering patterns of such customers will continue to be unpredictable in
the future. Because the Company's customers may cancel or reschedule orders
without significant penalty and because such orders are often large and intended
to satisfy customers'
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long-term needs, backlog is not necessarily indicative of future product sales.
The Company has in the past experienced customer cancellations and reschedulings
of orders, or returns of such orders, for reasons beyond the Company's control,
and significant cancellations or returns could occur again at any time in the
future.
Other factors which may affect the Company's revenues and operating results
include the availability of raw materials; fluctuations in manufacturing yields;
changes in product mix; the Company's ability to develop and bring to market new
products on a timely basis; introduction of products and technologies by the
Company's competitors; funds received from the federal government for research
and development; market acceptance of the Company's and its customers' products;
timing of investments in research and development and sales and marketing;
fluctuations in exchange rates; changes in the international business climate
and economic conditions generally.
The Company's operating results in a future quarter or quarters may fall
below the expectations of public market analysts or investors. In such event,
the price of the Company's Common Stock will likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
MARKET ACCEPTANCE OF VGF TECHNOLOGY. The traditional crystal growing
processes for producing semi-insulating and semi-conducting GaAs substrates are
the liquid-encapsulated Czochralski ("LEC") and horizontal Bridgman ("HB")
techniques, respectively. The Company currently believes it is the only high-
volume supplier of semi-insulating and semi-conducting GaAs substrates which are
produced utilizing VGF technology. In order to establish the VGF technique as a
preferred process for producing substrates, the Company must offer products with
superior price/performance characteristics on a timely basis and in sufficient
volumes to satisfy customers' requirements. A significant portion of the
Company's prospective customers are manufacturers of wireless communications,
fiber optic communications and other high-speed semiconductor devices that
generally use GaAs substrates produced using either the LEC or HB techniques.
The Company must overcome any reluctance of these customers to purchase the
Company's GaAs substrates because of perceived risks relating to the newer VGF
technology generally and concerns about the relative quality and
cost-effectiveness of the Company's GaAs substrates as compared to substrates
produced using the traditional LEC or HB techniques. In addition, potential GaAs
substrate customers may be reluctant to rely on a relatively small company for
critical materials used to manufacture their semiconductor devices. There can be
no assurance that additional companies will purchase the Company's products
using the VGF technique or that the companies that currently use AXT's VGF
produced substrates will continue to do so in the future. The failure to achieve
increased market acceptance of the Company's VGF technique by either current or
prospective customers would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Technology."
MANUFACTURING RISKS. The growing of crystals and the other steps required
to manufacture substrates are highly complex processes. Manufacturing yields can
be adversely affected by a number of factors, including chemical or physical
defects in the crystals, contamination of the manufacturing environment,
substrate breakage, equipment failure and the performance of manufacturing
personnel. A combination of these factors has, in the past, adversely affected
the Company's yields and resulted in product shipment delays. Because a
significant portion of the Company's manufacturing costs are fixed, increases in
the production volume of substrates and improvements of yields are critical to
reducing unit costs, increasing margins and maintaining and improving the
Company's results of operations. Yield decreases can result in substantially
higher unit costs, which could materially and adversely affect operating
results. There can be no assurance that the Company will not suffer periodic
yield problems, which could materially and adversely affect the Company's
business, financial condition and results of operations. In addition, the
Company has experienced and may continue to experience occasional difficulties
manufacturing substrates which satisfy its customers' requirements. There can be
no assurance that the Company will not experience such difficulties in the
future and its failure to resolve such difficulties with its customers could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company is in the process of significantly expanding its substrate
manufacturing capacity. The Company has also recently commenced production and
shipment of Ge and InP substrates. The Company
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also expects that it will need to successfully manufacture GaAs substrates in
commercial quantities with six inch diameters in the near future. To date, the
Company has only manufactured substrates with such size diameters on a test
basis. There can be no assurance that the Company will successfully manufacture
new or larger substrates in commercial volumes with acceptable yields. In the
event the Company experiences low yields as a result of any of the foregoing,
the Company's business, financial condition and results of operations would be
materially adversely affected.
The Company does not maintain any long-term supply agreements with any of
its suppliers, and a number of raw materials required to grow crystals are
obtained from a single or limited number of suppliers. For example, a single
entity has significant control over commercial sources of gallium. The Company's
reliance on a limited group of suppliers involves several risks, including the
potential inability to obtain an adequate supply of materials and reduced
control over pricing and delivery time. To date, the Company has from time to
time experienced delays in obtaining certain materials and may in the future
experience delays or increased costs as a result of shortages of materials, such
as gallium. Although the Company attempts to maintain adequate levels of
inventory of those materials which are supplied by limited sources to offset
supply interruptions and attempts to obtain additional suppliers, the Company
believes it will continue to be dependent upon a limited number of suppliers for
its critical raw materials. There can be no assurance that delays, shortages or
price increases caused by suppliers will not occur in the future. The failure to
obtain adequate and timely deliveries of materials and components could prevent
the Company from meeting scheduled shipment dates, which could damage
relationships with current and prospective customers and could materially
adversely affect the Company's business, financial condition and results of
operations.
The Company grows all of its crystals and manufactures all of its
substrates at its facility in Fremont, California. Due to the centralization of
its operations, the Company is susceptible to business interruptions resulting
from fire, natural disasters, equipment failures or other localized conditions.
Prolonged business interruptions could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Manufacturing."
LIMITATIONS OF EXISTING MANUFACTURING CAPACITY. The Company currently
produces all of its substrates at its approximately 50,000 square foot facility
located in Fremont, California. The Company is in the process of expanding the
size of this manufacturing facility by approximately 30,000 square feet to meet
its anticipated future production needs through 1999. The expansion is scheduled
for completion and operations are expected to commence in such space in the
third quarter of 1998. Any disruptions in manufacturing as a result of the
facility expansion could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company experienced
manufacturing disruptions in the summer of 1996 as a result of the move to its
current facility. In connection with the expansion of its current facility, the
Company will be required to purchase equipment and hire, train and manage
additional production personnel in order to successfully increase its production
capacity in accordance with its time schedule. In the event the Company's
expansion plans are not implemented on a timely basis for any reason, the
Company could become subject to production capacity constraints. Such
constraints could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is currently planning the construction of an additional
facility of up to 50,000 square feet in Northern California. The new facility is
expected to cost at least $10.0 million and take up to 15 months to construct.
The Company believes that this planned new facility will not begin commercial
production of substrates prior to the end of 1999. The Company anticipates that
it may finance the new planned facility with funds obtained from outside
sources. No assurance can be given that such funds will be available on terms
favorable to the Company or at all. The construction of a new facility entails
significant risks, including shortages of materials and skilled labor,
unavailability or late delivery of process equipment, unforeseen environmental
or engineering problems, work stoppages, weather interferences and unanticipated
cost increases, any of which could have a material adverse effect on the
construction and production start-up of the new facility. In addition,
unexpected charges or concessions required by local, state or federal regulatory
agencies with respect to necessary licenses, land use permits, site approvals
and building permits could involve significant additional costs and delay the
scheduled opening of the new facility. In the event the Company is unable to
successfully complete construction of and commence operations in the new
facility prior to the end
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of 1999, whether as a result of an inability to obtain required financing or any
other reason, the Company's business, financial condition and results of
operations could be materially adversely affected.
The operation of the expanded facility and the new facility will also
subject the Company to additional risks. For example, the Company will have
additional fixed operating expenses associated with the new facility which can
only be offset by sufficient increases in product revenues. There can be no
assurance that market demand for the Company's products will grow as currently
expected. If demand for the Company's products does not grow as the Company
anticipates, the Company would not be able to offset the costs of operating the
new facility and as a result, the Company's business, financial condition and
results of operations may be materially adversely affected. See "Use of
Proceeds" and "Business -- Manufacturing."
DEPENDENCE ON LIMITED PRODUCT OFFERINGS. To date, substantially all of the
Company's revenues have resulted from sales of its GaAs substrates and the
Company anticipates that a significant majority of its revenues for the next
several years will continue to be derived from sales of its GaAs substrates.
GaAs substrates are primarily used in electronic applications such as wireless
communications, fiber optic communications and other high-speed semiconductor
devices, as well as in opto-electronic applications such as lasers and LEDs. If
demand for GaAs substrates by semiconductor device manufacturers diminishes or
if new substrates for these electronic and opto-electronic applications are
developed and successfully introduced by competitors, the Company's business,
financial condition and results of operations could be materially adversely
affected. The Company is aware that other companies, including International
Business Machines Corp. ("IBM"), are actively involved in developing silicon
germanium ("SiGe") based devices for use in certain wireless and other
applications. SiGe-based devices could potentially provide the same high-
performance, power-efficient capabilities as GaAs-based devices at competitive
prices. If these SiGe-based devices are successfully developed and are adopted
by semiconductor device manufacturers, demand for GaAs substrates could
diminish, which could materially adversely affect the Company's business,
financial condition and results of operations. The Company's future success
depends on its ability to develop and introduce in a timely manner new
substrates and to continue to improve its current substrates to address customer
requirements and to compete effectively on the basis of price and performance.
Recently, the Company has begun commercial shipments of Ge and InP substrates
and is currently developing other substrates, including GaP and GaN. The success
of product improvements and new product introductions is dependent upon several
factors, including the development of markets for such improvements and
substrates, achievement of acceptable yields, and price and market acceptance.
No assurance can be given that the Company's product development efforts will be
successful or that its new products will achieve market acceptance. To the
extent that new product introductions do not achieve market acceptance, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Business -- Products" and "-- Research and
Development."
RAPID TECHNOLOGICAL CHANGE; RELIANCE UPON CONTINUED PRODUCT
DEVELOPMENT. The markets in which the Company and its customers compete are
characterized by rapid technological change and continuous improvements in
substrates. Accordingly, the Company's future success will depend upon whether
it can apply its proprietary VGF technique to develop new substrates for
existing and new markets that adequately address customer requirements and
compete effectively on the basis of quality, price and performance. There can be
no assurance that the Company's research and development efforts will result in
the timely development of new products or in products with sufficient
performance characteristics to meet market demands. If a competing process
technology emerges that permits production of substrates that are superior to
those produced using the Company's VGF technology, and if the Company is unable
to develop competitive or alternative products that are economically viable and
that can be delivered in sufficient quantity, the Company's business, financial
condition and results of operation could be materially adversely affected.
Because it is generally not possible to predict with accuracy the time required
and costs involved in reaching certain research, development and engineering
objectives, actual development costs could exceed budgeted amounts and estimated
product development schedules could require extension. The Company has
experienced product development delays in the past and may experience similar
delays in the future which could materially adversely affect the Company's
business, financial condition and results of operations. In addition, if new
products experience reliability or quality problems, the Company could encounter
a number of
9
<PAGE> 11
difficulties, including reduced orders, higher manufacturing costs, product
returns and additional service expense, all of which could materially adversely
affect the Company's business, financial condition and results of operations.
See "Business -- Products," "-- Research and Development" and "-- Competition."
LENGTHY SALES CYCLES. Sales of the Company's GaAs substrates depend, in
significant part, upon the decision of a prospective customer to choose products
developed using the Company's proprietary VGF technique instead of substrates
developed using the more traditional LEC and HB techniques. As a result, the
amount of time from the initial contact with the customer to the customer's
placement of an order, which typically ranges from three months to a year or
more, depends on such factors as the amount of time required to test and qualify
substrates from new vendors. Because the Company's substrates are generally
incorporated into a customer's products at the design stage, the customer's
decision to use the Company's substrates often precedes volume sales, if any, by
a significant period. If a customer decides at the design stage not to
incorporate the Company's substrates into its products, the Company may not have
another opportunity to sell its substrates for those products for many months or
years. The Company has experienced delays in obtaining orders while customers
evaluate the Company's GaAs substrates. For these and other reasons, the
Company's GaAs substrates typically have a lengthy sales cycle during which the
Company may expend substantial funds and sales, marketing and management effort.
The Company anticipates that sales of any future products currently under
development will have similarly lengthy sales cycles and will therefore be
subject to risks substantially similar to those inherent in the lengthy sales
cycle for its GaAs substrates. There can be no assurance that the Company's
expenditures or efforts during the lengthy sales process with any potential
customer will result in sales.
CUSTOMER CONCENTRATION. A small number of customers have historically
accounted for a substantial portion of the Company's revenues, and the Company
expects a significant portion of its future sales will remain concentrated
within a limited number of customers. The Company's top five customers accounted
for approximately 35.5% and 34.9% of the Company's revenues in 1996 and 1997,
respectively. The Company's customers are not presently obligated to purchase
any specified quantity of products or to provide the Company with binding
forecasts of product purchases for any period and may reduce, delay or cancel
orders at any time without significant penalty to the customer. The Company's
substrates are typically one of many components used in semiconductor devices
produced by the Company's customers. Demand for the Company's products is
therefore subject to many risks beyond the Company's control, including, among
others, demand for the Company's customers' products, competition faced by the
Company's customers in their particular industries, the technical, sales and
marketing and management capabilities of the Company's customers, and the
financial and other resources of the Company's customers. The Company has
experienced reductions, cancellations and delays in customer orders in the past
and there can be no assurance that any of the Company's customers will not
reduce, cancel or delay orders in the future. The reduction, delay or
cancellation of significant orders from one or more of the Company's major
customers could materially adversely affect the Company's business, financial
condition and results of operations. See "Business -- Customers."
COMPETITION. The markets for GaAs substrates are intensely competitive. The
Company's principal competitors in the market for semi-insulating GaAs
substrates currently include Freiberger Compound Materials GmbH ("Freiberger"),
Hitachi Cable, Ltd. ("Hitachi Cable"), Litton Airtron ("Litton") and Sumitomo
Electric Industries Ltd. ("Sumitomo Electric"). In the semi-conducting GaAs
substrate market, the Company's principal competitors currently are Sumitomo
Electric and Hitachi Cable. The Company also faces competition from
manufacturers that produce GaAs substrates for their own use. In addition, the
Company faces competition from companies such as IBM that are actively
developing alternative materials to GaAs. As the Company enters new markets,
such as the Ge and InP substrate markets, the Company expects to face
competitive risks similar to those for its GaAs substrates. Many of the
Company's competitors and potential competitors have been in the business longer
than the Company and have greater manufacturing experience, more established
technologies than the Company's VGF technique, broader name recognition and
significantly greater financial, technical and marketing resources than the
Company. There can be no assurance that the Company will compete successfully
against these competitors in the future or that the Company's competitors or
potential competitors will not develop enhancements to the LEC, HB or VGF
10
<PAGE> 12
techniques that will offer price and performance features that are superior to
those of the Company. Increased competitive pressure could also lead to
intensified price-based competition, resulting in lower prices and margins,
which would materially adversely affect the Company's business, financial
condition and results of operations.
The Company's ability to compete in its target markets also depends on such
factors as the timing and success of the development and introduction of new
products by the Company and its competitors, the availability of adequate
sources of raw materials, protection of Company products by effective
utilization of intellectual property laws and general economic conditions. In
order to remain competitive, the Company believes it must invest significant
resources in developing new substrates and in maintaining customer satisfaction
worldwide. There can be no assurance that the Company's products will continue
to compete favorably or that the Company will be successful in the face of
competition from existing competitors or new companies entering the Company's
target markets. Failure of the Company to compete successfully would materially
adversely affect the Company's business, financial condition and results of
operations. See "Business -- Competition."
DEPENDENCE ON SALES OUTSIDE THE UNITED STATES. International sales
represented 38.2% of the Company's total revenues in 1997. Sales to customers
located in Japan and other Asian countries represented 23.5% of the Company's
total revenues in 1997. The Company expects that a significant portion of its
revenues will continue to be from sales to customers outside of the United
States, including device manufacturers located in Japan and other Asian
countries who sell their products worldwide. These sales are subject to a
variety of risks including tariffs, import restrictions and other trade
barriers, unexpected changes in regulatory requirements, longer accounts
receivable payment cycles and export license requirements. In addition, the
Company is subject to the risks inherent in conducting business internationally,
including political and economic instability and unexpected changes in
diplomatic and trade relationships. In particular, the economies of Japan and
certain other Asian countries are currently experiencing considerable economic
instability and downturns. Because the Company's sales to date, except for sales
by the Company's Japanese subsidiary, have been denominated in U.S. dollars,
increases in the value of the dollar could increase the price in local
currencies of the Company's products in non-U.S. markets and make the Company's
products more expensive than competitors' products that are denominated in local
currencies. There can be no assurance that one or more of the factors described
above will not have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON KEY EMPLOYEES. The Company's success depends to a significant
extent upon the continued service of its executive officers and other key
management and technical personnel, and on its ability to continue to attract,
retain and motivate qualified personnel, such as experienced engineers. The
competition for such employees is intense. The loss of the services of one or
more of the Company's executive officers, engineers or other key personnel or
the Company's inability to recruit replacements for such personnel or to
otherwise attract, retain and motivate qualified personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company does not have long-term employment contracts and does
not maintain life insurance policies on any of its key employees. See
"Business -- Employees" and "Management."
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company relies on a combination
of patents, trade secret, copyright and trademark laws, nondisclosure
agreements, and other contractual provisions and technical measures to protect
its proprietary rights. There can be no assurance that such measures will be
adequate to safeguard the proprietary technology underlying the Company's VGF
technique and the Company's products, or that its agreements with employees,
consultants and others who participate in the development of its products will
not be breached, that the Company will have adequate remedies for any breach or
that the Company's proprietary information or trade secrets will not otherwise
become known. Moreover, notwithstanding the Company's efforts to protect its
intellectual property, there is no assurance that competitors will not be able
to develop substrates which are equal or superior to the Company's products
without infringing any of the Company's intellectual property rights. In
addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries. Accordingly, there can be no
11
<PAGE> 13
assurance that the Company's means of protecting its intellectual property will
be adequate or that the Company's competitors will not independently develop
similar technologies or products.
To date, Company has been issued one U.S. patent and has two patent
applications pending. The Company has one pending application for a Japanese
patent but no issued foreign patents. There can be no assurance that the
Company's pending U.S. applications or any future U.S. or foreign patent
applications will be approved, that any issued patents will protect the
Company's intellectual property or will not be challenged by third parties, or
that the patents of others will not have an adverse effect on the Company's
ability to do business. Moreover, the laws of certain foreign countries may not
protect the Company's intellectual property rights to the same extent as the
laws of the United States. The Company believes that, due to the rapid pace of
technological innovation in the GaAs and other substrate markets, the Company's
ability to establish and maintain a position of technology leadership in the
industry depends more on the skills of its development personnel than upon the
legal protections afforded its existing technologies.
Although there are currently no pending lawsuits against the Company or
unresolved notices that the Company is infringing intellectual property rights
of others, the Company may be notified in the future that it is infringing
certain patent and/or other intellectual property rights of others. Litigation
may be necessary in the future to enforce the Company's patents and other
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity, and there can be no
assurance that the Company would prevail in any future litigation. Any such
litigation, whether or not determined in the Company's favor or settled by the
Company, would be costly and would divert the efforts and attention of the
Company's management and technical personnel from normal business operations,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in litigation could
result in the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from third parties
or prevent the Company from licensing its technology, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Intellectual Property and Other
Proprietary Rights."
RISKS RELATED TO ENVIRONMENTAL REGULATIONS. The Company is subject to
federal, state and local laws and regulations concerning the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials used in its research and development and production
operations, as well as laws and regulations concerning environmental remediation
and employee health and safety. The growing of crystals and the production of
substrates involve the use of certain hazardous raw materials, including, but
not limited to, arsenic. There can be no assurance that the Company's control
systems will be successful in preventing a release of these materials or other
adverse environmental conditions. Any such release or other failure to comply
with present or future environmental laws and regulations could result in the
imposition of significant fines on the Company, the suspension of production or
a cessation of operations. In addition, there can be no assurance that existing
or future changes in laws or regulations will not require expenditures or
liabilities to be incurred by the Company, or in restrictions on the Company's
operations.
MANAGEMENT OF GROWTH. The Company's business is currently experiencing a
period of growth that has placed and is expected to continue to place a
significant strain on the Company's personnel and resources. The Company's
ability to manage future growth, if any, will depend on its ability to continue
to implement and improve operational, financial and management information and
control systems on a timely basis, together with maintaining effective cost
controls. To support any future growth, the Company will need to hire more
engineering, manufacturing, sales, marketing, support and administrative
personnel and expand customer service capabilities. Competition worldwide for
the necessary personnel in the Company's industry is intense. There can be no
assurance that the Company will be able to attract and retain the necessary
personnel in response to any future growth. Although the Company believes its
current management information systems are adequate to address its current
needs, the Company is in the process of implementing a new system to accommodate
any future growth in operations. The difficulty and costs associated with
implementing new management information systems may place a burden on the
Company's management and internal resources. In addition, international growth
may require the Company to expand its worldwide operations and enhance its
12
<PAGE> 14
communications infrastructure. The inability of the Company's management to
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
YEAR 2000 COMPLIANCE. The Company uses a significant number of computer
software programs and operating systems in its internal operations, including
applications used in financial business systems and various administration
functions. To the extent that these software applications contain source code
that is unable to appropriately interpret the upcoming calendar year "2000,"
some level of modification or even possibly replacement of such source code or
applications will be necessary. The Company is in the process of identifying the
software applications that are not "Year 2000" compliant. The new management
information system the Company is currently implementing will be "Year 2000"
compliant. Given the information known at this time about the Company's systems,
coupled with the Company's ongoing efforts to upgrade or replace business
critical systems as necessary, it is currently not anticipated that these "Year
2000" costs will have a material adverse impact on the Company's business,
financial condition and results of operations. However, the Company is still
analyzing its software applications and, to the extent they are not fully "Year
2000" compliant, there can be no assurance that the costs necessary to update
software or potential systems interruptions would not have a material adverse
effect on the Company's business, financial condition and results of operations.
POTENTIAL FUTURE ACQUISITIONS. As part of its business strategy, the
Company may make acquisitions of, or significant investments in, complementary
companies, products or technologies, although no such acquisitions or
investments are currently pending. Any such future acquisitions would be
accompanied by the risks commonly encountered in acquisitions of companies. Such
risks include, among other things, the difficulty of assimilating the operations
and personnel of the acquired companies, the potential disruption of the
Company's ongoing business, the inability of management to maximize the
financial and strategic position of the Company through the successful
incorporation of the acquired technology into the Company's products and
services, additional expense associated with amortization of acquired intangible
assets, the maintenance of uniform standards, controls, procedures and policies
and the impairment of relationships with employees and customers as a result of
any integration of new management personnel. There can be no assurance that the
Company would be successful in overcoming these risks or any other problems
encountered with such acquisitions. See "Use of Proceeds."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company
currently anticipates that its available cash resources will be sufficient to
meet its presently anticipated cash requirements through the next 12 months.
Thereafter, if available cash resources are insufficient to satisfy the
Company's working capital and capital expenditure requirements, the Company will
be required to raise additional funds. No assurance can be given that additional
financing will be available on terms favorable to the Company or its
stockholders. If additional funds are raised through the issuance of equity
securities, the percentage ownership of then current stockholders of the Company
will be reduced and such equity securities may have rights, preferences or
privileges senior to those of holders of the Company's Common Stock. If adequate
funds are not available to satisfy either short- or long-term capital
requirements, the Company may be required to limit its operations significantly.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CONCENTRATION OF SHARE OWNERSHIP AND VOTING POWER; ANTI-TAKEOVER
PROVISIONS. Upon the closing of the Offering (assuming no exercise of the
Underwriters' over-allotment option), officers, directors and affiliates of the
Company will beneficially own approximately 22.2% of the Company's outstanding
Common Stock. As a result, these stockholders as a group will be able to
substantially influence the management and affairs of the Company and, if acting
together, would be able to influence most matters requiring the approval by the
stockholders of the Company, including election of directors, any merger,
consolidation or sale of all or substantially all of the Company's assets and
any other significant corporate transactions. The concentration of ownership
could have the effect of delaying or preventing a change in control of the
Company and reducing the likelihood of any acquisition of the Company at a
premium price.
Upon the closing of the Offering, the Company's Board of Directors will
have the authority to issue up to 2,000,000 shares of Preferred Stock and to
determine the price, rights, preferences and privileges of those
13
<PAGE> 15
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of shares of Preferred Stock, while potentially providing
desirable flexibility in connection with possible acquisitions and for other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present intention to issue shares of Preferred
Stock. In addition, certain provisions of the Company's Certificate of
Incorporation, which will become effective upon consummation of the Offering,
may have the effect of delaying or preventing a change of control of the
Company, which could adversely affect the market price of the Company's Common
Stock. These provisions provide, among other things, that the Board of Directors
is divided into three classes to serve staggered three-year terms, that
stockholders may not take action by written consent, that the ability of
stockholders to call special meetings of stockholders and to raise matters at
meetings of stockholders is restricted and that certain amendments of the
Company's Certificate of Incorporation, and all amendments of the Company's
Bylaws, require the approval of holders of at least 66 2/3% of the voting power
of all outstanding shares. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which will prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. See "Principal Stockholders" and "Description of Capital
Stock."
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS. A significant portion of
the anticipated net proceeds to the Company from the Offering has not been
designated for specific uses. Accordingly, management of the Company will have
broad discretion with respect to the use of these funds. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE. Upon the closing of the Offering, the
Company will have a total of 15,670,268 shares of Common Stock outstanding
(16,045,268 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 2,500,000 shares of Common Stock offered hereby
(2,875,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradable without restriction or registration under the
Securities Act by persons other than "affiliates" of the Company, as defined
under the Securities Act. The remaining shares of Common Stock outstanding will
be "restricted securities" as that term is defined by Rule 144 as promulgated
under the Securities Act.
Under Rule 144 (and subject to the conditions thereof, including volume
limitations), all of the restricted shares will become eligible for sale after
the Offering. However, 12,466,028 of such restricted shares are also subject to
lock-up restrictions as described below. The Company, its executive officers and
directors and certain stockholders of the Company have agreed that they will
not, without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or any other securities convertible into, or exercisable or
exchangeable for, shares of Common Stock or other similar securities of the
Company, currently beneficially owned or hereafter acquired by such holders, for
a period of 180 days following the date of this Prospectus. After such 180-day
period, this restriction will expire and all the restricted shares will become
eligible for sale, subject to the limitations under Rule 144. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
prior notice, release all or any portion of the shares subject to such lock-up
agreements.
Prior to the Offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of additional shares of Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of its
equity securities. See "Management -- Benefit Plans" and "Shares Eligible for
Future Sale."
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<PAGE> 16
NO PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE. Prior to the Offering,
there has been no public market for the Common Stock, and there can be no
assurance that an active trading market will develop or, if developed, will
continue following the Offering, or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price for the Common Stock will be determined by negotiations among the
Company and the representatives of the Underwriters based on several factors,
and may not be indicative of the market price for the Common Stock after the
Offering. The Company believes that various factors unrelated to the Company's
performance, such as general economic conditions, changes or volatility in the
financial markets and changing market conditions, as well as various factors
related to the Company's performance, such as quarterly or annual variations in
the Company's financial results, announcements of technological innovations,
large customer orders, order cancellations or new product introductions by the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. In addition, in recent years the stock market in
general and the market for shares of small capitalization companies,
particularly semiconductor related companies, have experienced extreme price
fluctuations which have been unrelated to the operating performance of the
affected companies. See "Underwriting."
DILUTION. Purchasers of the Common Stock offered hereby will experience an
immediate and substantial dilution of $6.54 in the net tangible book value per
share of their Common Stock assuming an initial public offering price of $9.00
per share, while the net tangible book value of the shares of Common Stock owned
by the existing stockholders will increase by $1.05 per share. See "Dilution."
NO INTENT TO PAY DIVIDENDS. The Company has never declared or paid
dividends on its Common Stock since its formation. The Company currently does
not intend to declare or pay dividends in the foreseeable future. The Company
intends to retain any earnings for future growth. The payment of dividends, if
any, will be at the discretion of the Board of Directors and will require the
prior approval of certain financial institutions with whom the Company has
entered into loan agreements. See "Dividend Policy."
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<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered hereby are estimated to be approximately $20,025,000
(approximately $23,164,000 if the Underwriters' over-allotment option is
exercised in full) assuming an initial public offering price of $9.00 per share
and after deducting underwriting discounts and commissions and estimated
Offering expenses. The Company intends to use approximately $6.0 million of the
net proceeds for capital expenditures, approximately $4.0 million for product
development, and approximately $1.0 million for sales and marketing, with the
remainder of the net proceeds to be used for general working capital purposes.
Pending such uses, the Company intends to invest the net proceeds from the
Offering in short-term, investment-grade, interest-bearing securities or
guaranteed obligations of the United States government. The Company may also use
a portion of the net proceeds to acquire businesses, technologies or products
complementary to the Company's business. Although the Company has from time to
time engaged in discussions with respect to possible acquisitions, it has no
present understandings, commitments or agreements, nor is it currently engaged
in any discussions or negotiations with respect to any such transaction.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock since
its formation. The Company currently does not intend to declare or pay dividends
in the foreseeable future. The Company intends to retain any earnings for future
growth. In addition, the Company's loan agreements contain covenants that
expressly prohibit the payment of any cash dividends without prior bank
approval.
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<PAGE> 18
CAPITALIZATION
The following table sets forth as of December 31, 1997: (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
reflecting the conversion of all outstanding Preferred Stock into 10,128,737
shares of Common Stock, and (iii) the pro forma capitalization of the Company as
adjusted to give effect to the sale of 2,500,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share, after
deducting underwriting discounts and commissions and estimated Offering expenses
and the application of the estimated net proceeds therefrom. The information set
forth below should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, net of current portion(1).................. $ 7,728 $ 7,728 $ 7,728
Stockholders' equity:
Convertible Preferred Stock, no par value: 25,000,000
shares authorized, 10,128,737 shares issued and
outstanding, actual; $0.001 par value, 2,000,000
authorized, no shares issued and outstanding pro forma
and as adjusted....................................... 8,553 -- --
Common Stock, no par value: 100,000,000 shares
authorized, 3,041,531 shares issued and outstanding,
actual; $0.001 par value, 40,000,000 shares
authorized, 13,170,268 and 15,670,268 shares issued
and outstanding, pro forma and as adjusted,
respectively(2)....................................... 867 13 16
Additional paid in capital............................... -- 9,407 29,429
Deferred compensation.................................... (220) (220) (220)
Retained earnings........................................ 9,584 9,584 9,584
Cumulative translation adjustments....................... (193) (193) (193)
------- ------- -------
Total stockholders' equity............................... 18,591 18,591 38,616
------- ------- -------
Total capitalization.................................. $26,319 $26,319 $46,344
======= ======= =======
</TABLE>
- ---------------
(1) See Note 3 of Notes to Consolidated Financial Statements.
(2) Excludes 1,342,950 shares of Common Stock issuable upon exercise of
outstanding options at December 31, 1997 with a weighted average exercise
price of $4.77 per share. See "Management -- Benefit Plans" and Note 8 of
Notes to Consolidated Financial Statements.
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<PAGE> 19
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution of $6.54 per share (assuming an initial public offering
price of $9.00 per share) in the pro forma net tangible book value of the Common
Stock from the assumed initial public offering price. The pro forma net tangible
book value of the Company as of December 31, 1997 was $18.6 million or $1.41 per
share. Pro forma net tangible book value per share is determined by dividing the
net tangible book value of the Company (tangible assets less liabilities) by the
number of shares of the Company's Common Stock outstanding (assuming the
conversion of all then outstanding Preferred Stock into Common Stock) as of
December 31, 1997. After giving effect to the receipt of the net proceeds from
the sale of 2,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $9.00 per share and deducting the underwriting
discounts and commissions and estimated Offering expenses, the pro forma net
tangible book value of the Common Stock as of December 31, 1997 would have been
$38.6 million, or $2.46 per share. This represents an immediate dilution in pro
forma net tangible book value of $6.54 per share to new investors purchasing
shares in the Offering. The following table illustrates the per share dilution
as of December 31, 1997:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $9.00
Pro forma net tangible book value at December 31,
1997................................................. $1.41
Increase attributable to new investors................. 1.05
-----
Pro forma net tangible book value after the Offering........ 2.46
-----
Dilution to new investors................................... $6.54
=====
</TABLE>
The following table sets forth, on an as adjusted basis as of December 31,
1997, after giving effect to the conversion of all outstanding Preferred Stock
into Common Stock, the differences between the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by existing stockholders and purchasers of Common Stock in the
Offering at an assumed initial public offering price of $9.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)................. 13,170,268 84.0% $ 9,420,000 29.5% $0.72
New investors............................ 2,500,000 16.0 22,500,000 70.5 9.00
---------- ------ ----------- ------
Total.................................. 15,670,268 100.0% $31,920,000 100.0%
========== ====== =========== ======
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 2,875,000 shares, or
approximately 17.9% of the total number of shares to be outstanding after
the Offering.
The foregoing table assumes no exercise of stock options outstanding at
December 31, 1997 or of the Underwriters' over-allotment option. At December 31,
1997, there were 1,342,950 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $4.77 per
share. To the extent that outstanding options are exercised in the future, there
will be further dilution to new investors. See "Management -- Benefit Plans" and
Note 8 of Notes to Consolidated Financial Statements.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The consolidated balance sheet
data as of December 31, 1996 and 1997 and the consolidated statement of
operations data for the years ended December 31, 1995, 1996 and 1997 are derived
from the audited consolidated financial statements included herein. The
consolidated balance sheet data as of December 31, 1994 and 1995 and the
consolidated statement of operations data for the year ended December 31, 1994
are derived from audited consolidated financial statements of the Company not
included herein. The consolidated balance sheet data as of December 31, 1993 and
the consolidated statement of operations data for the year ended December 31,
1993 are derived from unaudited financial statements not included herein. In the
opinion of management, such unaudited financial statements have been prepared on
the same basis as the audited financial statements referred to above and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the Company's results of operations for the indicated
periods. Operating results for the year ended December 31, 1997 are not
necessarily indicative of the results that may be expected in future years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product revenues.......................................... $ 4,129 $ 5,666 $11,520 $14,222 $23,014
Contract revenues......................................... 274 1,791 2,958 2,005 2,321
------- ------- ------- ------- -------
Total revenues..................................... 4,403 7,457 14,478 16,227 25,335
Cost of revenues:
Cost of product revenues.................................. 2,672 3,091 6,030 9,270 13,674
Cost of contract revenues................................. 246 1,422 2,234 795 1,553
------- ------- ------- ------- -------
Total cost of revenues............................. 2,918 4,513 8,264 10,065 15,227
------- ------- ------- ------- -------
Gross profit................................................ 1,485 2,944 6,214 6,162 10,108
Operating expenses:
Selling, general and administrative....................... 826 921 1,716 2,033 2,959
Research and development.................................. 243 149 448 592 1,289
------- ------- ------- ------- -------
Total operating expenses........................... 1,069 1,070 2,164 2,625 4,248
------- ------- ------- ------- -------
Income from operations...................................... 416 1,874 4,050 3,537 5,860
Interest expense............................................ -- (3) (12) (170) (570)
Other income (expense)...................................... (60) 65 282 (72) (34)
------- ------- ------- ------- -------
Income before provision for income taxes.................... 356 1,936 4,320 3,295 5,256
Provision for income taxes.................................. 231 775 1,581 1,249 1,998
------- ------- ------- ------- -------
Net income.................................................. $ 125 $ 1,161 $ 2,739 $ 2,046 $ 3,258
======= ======= ======= ======= =======
Basic net income per share.................................. $ 0.05 $ 0.44 $ 0.97 $ 0.71 $ 1.11
======= ======= ======= ======= =======
Diluted net income per share................................ $ 0.01 $ 0.10 $ 0.23 $ 0.17 $ 0.25
======= ======= ======= ======= =======
Shares used in basic net income per share calculations...... 2,555 2,634 2,821 2,882 2,938
Shares used in diluted net income per share calculations.... 11,549 11,676 11,813 11,811 12,839
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 1,052 $ 1,446 $ 835 $ 756 $ 3,054
Working capital............................................. 1,821 2,859 3,760 5,542 14,209
Total assets................................................ 3,497 5,757 11,316 17,384 30,613
Long-term debt, net of current portion...................... -- -- 2,350 5,582 7,728
Stockholders' equity........................................ 3,014 4,213 7,005 8,999 18,591
</TABLE>
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
American Xtal Technology, Inc. uses a proprietary VGF technique to produce
high-performance compound semiconductor substrates for use in a variety of
electronic and opto-electronic applications. The Company was founded in 1986 and
commenced product sales in 1990. The Company currently sells GaAs, InP and Ge
substrates to manufacturers of semiconductor devices for use in applications
such as wireless and fiber optic telecommunications, lasers, LEDs, satellite
solar cells and consumer electronics.
The Company has been profitable on an annual basis since 1990 and its total
revenues were $14.5 million, $16.2 million and $25.3 million for the years ended
December 31, 1995, 1996 and 1997, respectively. Total revenues consist of
product revenues and contract revenues. The Company's product revenues were
$11.5 million, $14.2 million and $23.0 million for the years ended December 31,
1995, 1996 and 1997, respectively. Product revenues are generally recognized
upon shipment of products to customers. Historically, virtually all of the
Company's product revenues have been derived from sales of GaAs substrates,
which, in 1997, accounted for 94.9% of the Company's product revenues. The
Company began selling InP and Ge substrates to its customers in late 1997.
The Company's contract revenues were $3.0 million, $2.0 million and $2.3
million for the years ended December 31, 1995, 1996 and 1997, respectively.
Contract revenues are recognized under the percentage of completion method and
related research costs are included in cost of contract revenues. Contract
revenues consist of research and development contracts with U.S. government
agencies and customer-funded research projects. The largest of the government
contracts was a four-year U.S. Department of Defense Title III Program for
development of GaAs substrates (the "Title III GaAs contract"), which was
awarded to the Company in March 1994 and under which the Company was paid an
aggregate of $6.1 million. The Title III GaAs contract was completed in March
1998. The Company retains rights to the VGF and wafer fabrication technology
developed under these government and customer-funded research contracts and is
therefore able to leverage these programs to continue to broaden its product and
technology offerings.
In 1995, the Company established a wholly-owned subsidiary in Japan to
distribute the Company's products. This subsidiary serves primarily as a direct
sales and support office for the Company's customers in Japan. The Company also
utilizes independent sales representatives in France, Japan, South Korea, Taiwan
and the United Kingdom. Domestic sales are generated by the Company's direct
sales force. International sales accounted for 38.2% of total revenues for each
of the years ended December 31, 1996 and 1997, respectively. Except for sales in
Japan, which are denominated in yen, the Company denominates and collects its
international sales in U.S. dollars. Doing business in Japan subjects the
Company to fluctuations in exchange rates between the U.S. dollar and the
Japanese yen. The Company incurred foreign exchange losses of $114,000 and
$186,000 for the years ended December 31, 1996 and 1997, respectively.
Since July 1996, the Company has conducted all of its operations in a
50,000 square foot office and production facility located in Fremont,
California. Prior to transitioning its manufacturing operations to this
facility, the Company leased a manufacturing facility in Dublin, California. The
Company is in the process of expanding the size of its current manufacturing
facility by approximately 30,000 square feet to meet its anticipated future
production needs through 1999. The expansion is scheduled for completion and
operations are expected to commence in such space in the third quarter of 1998.
In addition, the Company is currently planning the construction of an additional
facility of up to 50,000 square feet in Northern California. The Company
believes that this planned new facility will not begin production of substrates
prior to the end of 1999.
20
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Product revenues.......................................... 79.6% 87.6% 90.8%
Contract revenues......................................... 20.4 12.4 9.2
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
Cost of revenues:
Cost of product revenues.................................. 41.6 57.1 54.0
Cost of contract revenues................................. 15.4 4.9 6.1
----- ----- -----
Total cost of revenues............................ 57.0 62.0 60.1
----- ----- -----
Gross margin................................................ 43.0 38.0 39.9
Operating expenses:
Selling, general and administrative....................... 11.9 12.5 11.7
Research and development.................................. 3.1 3.6 5.1
----- ----- -----
Total operating expenses.......................... 15.0 16.1 16.8
----- ----- -----
Income from operations...................................... 28.0 21.9 23.1
Interest expense............................................ (0.1) (1.0) (2.2)
Other income (expense)...................................... 1.9 (0.5) (0.1)
----- ----- -----
Income before provision for income taxes.................... 29.8 20.4 20.8
Provision for income taxes.................................. 10.9 7.7 7.9
----- ----- -----
Net income.................................................. 18.9% 12.7% 12.9%
===== ===== =====
</TABLE>
The following table sets forth product and contract gross profits and gross
margins for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Product gross profit........................................ $5,490 $4,952 $9,340
Product gross margin........................................ 47.7% 34.8% 40.6%
Contract gross profit....................................... $ 724 $1,210 $ 768
Contract gross margin....................................... 24.5% 60.3% 33.1%
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Total revenues increased 56.1% from $16.2 million for the year
ended December 31, 1996 to $25.3 million for the year ended December 31, 1997.
Product revenues increased 61.8% from $14.2 million for the year ended December
31, 1996 to $23.0 million for the year ended December 31, 1997. The increase in
product revenues reflected increased sales to existing domestic and
international customers across all GaAs substrate product lines, sales to new
customers and the introduction of Ge substrates in the fourth quarter of 1997.
International revenues were 38.2% of total revenues for each of the years
ended December 31, 1996 and 1997. Should revenues attributable to sales of Ge
substrates, which are expected to be sold exclusively within the U.S., increase
as a percentage of total revenues in future periods, international revenues will
decline as a percentage of total revenues in future periods.
21
<PAGE> 23
Contract revenues increased 15.8% from $2.0 million for the year ended
December 31, 1996 to $2.3 million for the year ended December 31, 1997. The
increase was primarily due to revenues recognized from a $1.2 million
customer-funded Ge research contract that was completed in 1997. This increase
was partially offset by a reduction in government contract revenues. Contract
revenues declined from 12.4% of total revenues for the year ended December 31,
1996 to 9.2% for the year ended December 31, 1997 as a result of product revenue
growth exceeding contract revenue growth. In future periods, the Company expects
contract revenues to continue to decline as a percentage of total revenues.
Gross Margin. Gross margin increased from 38.0% of total revenues for the
year ended December 31, 1996 to 39.9% of total revenues for the year ended
December 31, 1997. Product gross margin increased from 34.8% for the year ended
December 31, 1996 to 40.6% for the year ended December 31, 1997. The lower
product gross margin in 1996 resulted primarily from manufacturing start-up
costs relating to the transition to the new production facility.
Contract gross margin declined from 60.3% for the year ended December 31,
1996 to 33.1% for the year ended December 31, 1997. This decrease was due to a
shift in contract revenue mix from higher margin government research contracts
in 1996 to a lower margin customer-funded contract for Ge research. In addition,
in 1996 gross margin was favorably impacted by large incentive awards which were
paid to the Company upon completion of certain milestones of the Title III GaAs
contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 45.5% from $2.0 million for the year ended
December 31, 1996 to $3.0 million for the year ended December 31, 1997. The
increase resulted primarily from increased domestic and international sales
personnel and administrative expenses required to support increased sales
volume.
Research and Development Expenses. Research and development expenses
increased 117.7% from $592,000 for the year ended December 31, 1996 to $1.3
million for the year ended December 31, 1997. This increase resulted primarily
from the hiring of additional engineers to develop new products and to enhance
existing products. In addition to Company funded research and development, the
Company has incurred research and development expenses relating to government
and customer-funded research contracts, which are included in the cost of
contract revenues. For the year ended December 31, 1997, total research and
development costs, including both contract funded and internally funded research
and development expenses, totaled $2.8 million, or 11.2% of total revenues.
Interest Expense. Interest expense increased from $170,000 for the year
ended December 31, 1996 to $570,000 for the year ended December 31, 1997. This
increase resulted primarily from additional borrowings incurred in 1996 to
finance the Company's new manufacturing facility, the expansion of production
facilities in 1997 and related equipment purchases.
Other Income (Expense). Other expense decreased from $72,000 for the year
ended December 31, 1996 to $34,000 for the year ended December 31, 1997. This
decrease was due to higher interest income generated on investments from the
proceeds of a $5.9 million private equity financing completed in March 1997,
partially offset by foreign currency transaction losses incurred due to the
increase in the value of the U.S. dollar compared to the Japanese yen.
Provision for Income Taxes. Income tax expense was virtually unchanged from
37.9% of income before provision for income taxes for the year ended December
31, 1996 to 38.0% of income before provision for income taxes for the year ended
December 31, 1997.
Compensation Expense. During the year ended December 31, 1997, the Company
granted options for the purchase of 1,315,100 shares of Common Stock to
employees at a weighted average exercise price of $4.95 per share. Management
has calculated deferred compensation of $322,000 related to options granted
during the year ended December 31, 1997. Such deferred compensation will be
amortized over the vesting period relating to these options, of which $102,000
has been amortized during the year ended December 31, 1997.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Total revenues increased 12.1% from $14.5 million for the year
ended December 31, 1995 to $16.2 million for the year ended December 31, 1996.
Product revenues increased 23.5% from $11.5 million for
22
<PAGE> 24
the year ended December 31, 1995 to $14.2 million for the year ended December
31, 1996. This increase in product revenues was primarily attributable to
increased acceptance by both domestic and international customers of the
Company's VGF technology. Product revenues in the third quarter of 1996 were
adversely impacted by the Company's move from its former production facility
that was operating at full capacity to a new manufacturing facility, which
required significant start-up time.
International revenues increased from 36.0% of total revenues for the year
ended December 31, 1995 to 38.2% of total revenues for the year ended December
31, 1996. This increase was primarily attributable to the growth in the European
and Japanese markets.
Contract revenues decreased 32.2% from $3.0 million for the year ended
December 31, 1995 to $2.0 million for the year ended December 31, 1996 primarily
as a result of the Company's completion, in March 1996, of the first phase of
the Title III GaAs contract, under which it received a significant portion of
the total $6.1 million awarded to it. Following March 1996, the Company began
recognizing lower contract revenues under this contract than it had recognized
in 1995 and the first three months of 1996. As a result, contract revenues
declined from 20.4% of total revenues for the year ended December 31, 1995 to
12.4% for the year ended December 31, 1996.
Gross Margin. Gross margin decreased from 43.0% of total revenues for the
year ended December 31, 1995 to 38.0% of total revenues for the year ended
December 31, 1996. Product gross margin decreased from 47.7% for the year ended
December 31, 1995 to 34.8% for the year ended December 31, 1996. This decrease
was primarily due to manufacturing start-up costs relating to the transition to
the new production facility.
Contract gross margin increased from 24.5% for the year ended December 31,
1995 to 60.3% for the year ended December 31, 1996 because of the Company's
shift from the first to the second phase of the Title III GaAs contract. The
second phase of the Title III GaAs contract had higher margins because, during
that phase, the Company received significant incentive awards upon the
achievement of certain milestones.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 18.5% from $1.7 million for the year ended
December 31, 1995 to $2.0 million for the year ended December 31, 1996. The
increase was primarily attributable to the establishment of the Japanese
subsidiary and the hiring of additional sales and administrative staff to
support the overall increased sales volume.
Research and Development Expenses. Research and development expenses
increased 32.1% from $448,000 for the year ended December 31, 1995 to $592,000
for the year ended December 31, 1996. This increase resulted primarily from
increased staff levels for further development of GaAs substrates and the
initial research on InP substrates. For the year ended December 31, 1996,
research and development costs, including both contract funded and internally
funded research and development costs, totaled $1.4 million, or 8.5% of total
revenues.
Interest Expense. Interest expense increased from $12,000 for the year
ended December 31, 1995 to $170,000 for the year ended December 31, 1996. This
increase was primarily the result of additional borrowings incurred to finance
the Company's new manufacturing facility and related equipment. Prior to 1995,
the Company had not incurred any long-term debt.
Other Income (Expense). Other income (expense) decreased from income of
$282,000 for the year ended December 31, 1995 to $72,000 of expense for the year
ended December 31, 1996. The decrease resulted primarily from the realization in
1995 of gains on sales of equipment and investments of $232,000, and foreign
currency transaction losses recognized in 1996 which resulted from the increase
in value of the U.S. dollar compared to the Japanese yen.
Provision for Income Taxes. Income tax expense increased from 36.6% of
income before provision for taxes for the year ended December 31, 1995 to 37.9%
of income before provision for income taxes for the year ended December 31,
1996.
23
<PAGE> 25
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly results in dollars for
the eight quarters ended December 31, 1997. The Company believes that all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly such quarterly
information. The operating results for any quarter are not necessarily
indicative of results for any subsequent period.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues...................... $3,274 $3,543 $3,376 $4,029 $4,494 $5,360 $6,060 $7,100
Contract revenues..................... 739 508 332 426 600 842 447 432
------ ------ ------ ------ ------ ------ ------ ------
Total revenues................. 4,013 4,051 3,708 4,455 5,094 6,202 6,507 7,532
Cost of revenues:
Cost of product revenues.............. 2,153 2,400 2,201 2,516 2,805 3,167 3,604 4,098
Cost of contract revenues............. 321 179 126 169 498 654 210 191
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues......... 2,474 2,579 2,327 2,685 3,303 3,821 3,814 4,289
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............................ 1,539 1,472 1,381 1,770 1,791 2,381 2,693 3,243
Operating expenses:
Selling, general and administrative... 500 457 507 569 642 674 703 940
Research and development.............. 98 148 172 174 222 296 306 465
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses....... 598 605 679 743 864 970 1,009 1,405
------ ------ ------ ------ ------ ------ ------ ------
Income from operations.................. 941 867 702 1,027 927 1,411 1,684 1,838
Interest expense........................ (19) 17 (74) (94) (115) (151) (158) (146)
Other income (expense).................. 14 (33) (49) (4) (91) 77 (8) (12)
------ ------ ------ ------ ------ ------ ------ ------
Income before provision for income
taxes................................. 936 851 579 929 721 1,337 1,518 1,680
Provision for income taxes.............. 355 323 219 352 274 508 577 639
------ ------ ------ ------ ------ ------ ------ ------
Net income.............................. $ 581 $ 528 $ 360 $ 577 $ 447 $ 829 $ 941 $1,041
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth selected consolidated financial information
as a percentage of total revenues for each of the Company's last eight quarters.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues...................... 81.6% 87.5% 91.0% 90.4% 88.2% 86.4% 93.1% 94.3%
Contract revenues..................... 18.4 12.5 9.0 9.6 11.8 13.6 6.9 5.7
----- ----- ----- ----- ----- ----- ----- -----
Total revenues................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Cost of product revenues.............. 53.7 59.2 59.4 56.5 55.0 51.1 55.4 54.4
Cost of contract revenues............. 8.0 4.4 3.4 3.8 9.8 10.5 3.2 2.5
----- ----- ----- ----- ----- ----- ----- -----
Total cost of revenues......... 61.7 63.6 62.8 60.3 64.8 61.6 58.6 56.9
----- ----- ----- ----- ----- ----- ----- -----
Gross margin............................ 38.3 36.4 37.2 39.7 35.2 38.4 41.4 43.1
Operating expenses:
Selling, general and administrative... 12.5 11.3 13.7 12.8 12.6 10.8 10.8 12.5
Research and development.............. 2.4 3.7 4.6 3.9 4.4 4.8 4.7 6.2
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses....... 14.9 15.0 18.3 16.7 17.0 15.6 15.5 18.7
----- ----- ----- ----- ----- ----- ----- -----
Income from operations.................. 23.4 21.4 18.9 23.0 18.2 22.8 25.9 24.4
Interest expense........................ (0.5) 0.4 (2.0) (2.1) (2.3) (2.4) (2.4) (1.9)
Other income (expense).................. 0.3 (0.8) (1.3) (0.1) (1.7) 1.2 (0.2) (0.2)
----- ----- ----- ----- ----- ----- ----- -----
Income before provision for income
taxes................................. 23.2 21.0 15.6 20.8 14.2 21.6 23.3 22.3
Provision for income taxes.............. 8.8 8.0 5.9 7.9 5.4 8.2 8.9 8.5
----- ----- ----- ----- ----- ----- ----- -----
Net income.............................. 14.4% 13.0% 9.7% 12.9% 8.8% 13.4% 14.4% 13.8%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
24
<PAGE> 26
The following table sets forth product and contract gross profits and gross
margins for the eight quarters ended December 31, 1997.
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product gross profit............. $1,121 $1,143 $1,175 $1,513 $1,689 $2,193 $2,456 $3,002
Product gross margin............. 34.2% 32.3% 34.8% 37.6% 37.6% 40.9% 40.5% 42.3%
Contract gross profit............ $ 418 $ 329 $ 206 $ 257 $ 102 $ 188 $ 237 $ 241
Contract gross margin............ 56.6% 64.8% 62.0% 60.3% 17.0% 22.3% 53.0% 55.8%
</TABLE>
The Company's total revenues have increased in each of the eight quarters
ended December 31, 1997, except for the quarter ended September 30, 1996. These
quarterly increases reflect increased product shipments to both the
semi-insulating and semi-conducting GaAs markets. The decline in product
revenues for the quarter ended September 30, 1996 was primarily due to the
Company's move from a leased facility that was operating at full capacity to a
new manufacturing facility, which had significant start-up time. The decline in
contract revenues for the quarters ended June 30 and September 30, 1996 was
primarily due to completion of the first phase of the Title III GaAs contract in
the quarter ended March 30, 1996, under which the Company received a significant
portion of the total $6.1 million awarded to it. Contract revenues increased in
the quarters ended March 31 and June 30, 1997 primarily as a result of revenues
recognized from a $1.2 million customer-funded GE research contract. In the
quarter ended December 31, 1997, product revenues increased primarily because
the Company began selling Ge substrates.
The Company experienced lower product gross margins in the first three
quarters of 1996 primarily as a result of manufacturing start-up costs relating
to the transition to the new production facility. As a result of a recycling
program implemented in the quarter ended December 31, 1997, the Company was able
to recycle scrapped inventory that had accumulated over prior quarters. This
recycling program had a significant positive impact on the product gross margin
for the quarter ended December 31, 1997. While the Company will continue the
recycling program, the Company expects the program to have a less significant
impact on product gross margins in the future. The increase in product gross
margin in the quarter ended December 31, 1997 was partially offset by lower
product gross margins from sales of Ge substrates. The Company experienced
significantly lower contract gross margins for the quarters ended March 31, 1997
and June 30, 1997 due to a shift in contract revenue mix from higher margin
government research contracts in prior quarters to a lower margin
customer-funded contract for Ge research.
Selling, general and administrative expenses for the quarter ended June 30,
1996 were lower than for the quarter ended March 31, 1996 primarily due to
expenses incurred in the prior quarter associated with preparing for the closing
of the Company's Dublin facility. Selling, general and administrative expenses
for the quarters ended September 30, 1996, December 31, 1996 and March 30, 1997
were higher than previous quarters as a result of the Company's incurrence of
additional administrative costs relating to the transition to the new production
facility. Selling, general and administrative expenses for the quarter ended
December 31, 1997 were higher than the quarters ended June 30 and September 30,
1997, as the Company built its management infrastructure to support its
increased sales volume.
Research and development expenses for the quarter ended December 31, 1997
significantly increased primarily due to material purchased for research on InP
substrates and for the GaAs LED market.
The Company believes that its quarterly and annual revenues, expenses and
operating results could vary significantly in the future and that
period-to-period comparisons should not be relied upon as indications of future
performance. There can be no assurance that the Company's revenues will grow in
future periods or that it will sustain its level of total revenues or its rate
of revenue growth on a quarterly or annual basis. The Company may, in some
future quarter, have operating results that will be below the expectations of
stock market analysts and investors. In such event, the price of the Company's
Common Stock could be materially adversely affected. See "Risk
Factors -- Fluctuations in Operating Results."
25
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
During the past five years, the Company has funded its operations primarily
from cash provided by operations, short-term and long-term borrowings and a
private financing of $5.9 million for Preferred Stock completed in March 1997.
At December 31, 1997, the Company had working capital of $14.2 million,
including cash of $3.1 million, compared to working capital at December 31, 1996
of $5.5 million, including cash of $756,000, and working capital at December 31,
1995 of $3.8 million, including cash of $835,000.
During the year ended December 31, 1995, net cash provided by operations of
$744,000 was due primarily to net income of $2.7 million, depreciation of
$513,000 and an increase in accounts payable of $215,000, partially offset by
increases in accounts receivable, inventory, other assets and deferred income
taxes of $2.3 million and a decrease in accrued liabilities of $398,000. The
increases in accounts receivable and inventory were related to the 94.2%
increase in revenues from the prior year and the increase in other assets was
primarily the result of an increase in unbilled revenues for contract research
projects.
During the year ended December 31, 1996, net cash provided by operations of
$474,000 was due primarily to net income of $2.0 million, depreciation of
$867,000 and an increase in accounts payable and accrued liabilities of
$629,000, offset in part by increases in inventory of $2.3 million, and accounts
receivable and other assets of $727,000. The increase in inventory was primarily
due to increases in raw material and work-in-process inventory to provide an
adequate supply of material in anticipation of large orders for the upcoming
year. The increase in accounts receivable was primarily a result of increased
sales in Japan, which require a longer payment period.
During the year ended December 31, 1997, net cash used in operations of
$1.2 million was primarily due to increases in inventories of $4.4 million and
accounts receivable of $3.0 million, offset in part by net income of $3.3
million, depreciation of $1.2 million, increases in accounts payable and accrued
liabilities of $1.6 million. The increase in inventory during this period
included additional Ge inventory. The increases in accounts payable and accrued
liabilities, accounts receivable and inventory were primarily the result of a
56.1% increase in revenues from the prior year.
Net cash used in investing activities was $3.9 million, $3.9 million and
$4.9 million for the years ended December 31, 1995, 1996 and 1997, respectively
and was due primarily in each period to the purchase of property, plant and
equipment.
Net cash provided by financing activities was $3.0 million, $3.5 million
and $8.4 million for the years ended December 31, 1995, 1996 and 1997,
respectively. For the year ended December 31, 1995, net cash provided by
financing activities resulted primarily from long-term borrowings of $2.4
million for construction-in-progress of the Company's manufacturing facility and
short-term borrowings of $600,000 for general operating purposes. For the year
ended December 31, 1996, net cash provided by financing activities resulted
primarily from long-term borrowings of $3.5 million to complete the Company's
manufacturing facility. For the year ended December 31, 1997, net cash provided
by financing activities resulted primarily from the issuance of $5.9 million of
Preferred Stock and $2.7 million for long-term bank borrowings, partially offset
by the payment of $300,000 of short-term borrowings.
The Company has generally financed its equipment purchases through secured
equipment loans over five-year terms at interest rates ranging from 7.7% to 9.0%
per annum. The Company's manufacturing facility was financed by a $3.5 million
bank loan and a $1.0 million SBA loan. The bank loan has an interest rate of
8.3% per annum, matures in 2006 and is secured by the land and building. The
bank loan is subject to certain financial covenants regarding current financial
ratios and cash flow requirements, which have all been met as of December 31,
1997. The SBA loan has an interest rate of 7.3% per annum, matures in 2016 and
is subordinate to the bank loan. At December 31, 1997, $4.4 million was
outstanding under the bank and SBA loans.
The Company's addition of approximately 30,000 square feet to its
manufacturing facility currently in process is being financed by a construction
loan of $1.4 million. At December 31, 1997, $106,000 was outstanding under the
construction loan. The construction loan is subject to certain financial
covenants regarding current financial ratios and cash flow requirements, which
have all been met as of December 31,
26
<PAGE> 28
1997. The construction loan will convert into a term loan at the time of
building completion. This term loan will have a maturity of ten years with an
interest rate fixed at the nine-year U.S. Treasury Bond yield plus 2.3% and will
be secured by the land and building.
The Company currently has a $15.0 million line of credit with a commercial
bank at an interest rate equal to the prime rate plus one-half percent. This
line of credit is secured by all business assets, less equipment, and expires in
May 1999. The line of credit is subject to certain financial covenants regarding
current financial ratios and cash flow requirements, which have all been met as
of December 31, 1997. As of December 31, 1997, there was no outstanding
borrowing on this line of credit. See Note 3 to Notes to Consolidated Financial
Statements.
The Company anticipates that the combination of existing working capital
and the borrowings available under current credit agreements will be sufficient
to fund working capital and capital expenditure requirements for the next 12
months. The Company's future capital requirements will be depend on many
factors, including the rate of revenue growth, the Company's profitability, the
timing and extent of spending to support research and development programs, the
expansion of selling and marketing and administrative activities, and market
acceptance of the Company's products. The Company expects that it may need to
raise additional equity or debt financing in the future, although it is not
currently negotiating for additional financing nor does it have any plans to
obtain additional financing following the Offering. There can be no assurance
that additional equity or debt financing, if required, will be available on the
acceptable terms or at all. If the Company is unable to obtain such additional
capital, if needed, the Company may be required to reduce the scope of its
planned product development and selling and marketing activities, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. In the event that the Company does raise additional
equity financing, further dilution to investors in the Offering will result. See
"Risk Factors -- Future Capital Needs; Uncertainty of Additional Financing."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," and Statements of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information." The
adoption of both statements is required for fiscal years beginning after
December 15, 1997. Under SFAS 130, the Company is required to report in the
financial statements, in addition to net income, comprehensive income including,
as applicable, foreign currency items and unrealized gains and losses on certain
investments in debt and equity securities. The adoption of SFAS 130 will require
the Company to report comprehensive income including foreign currency items.
SFAS 131 requires that companies report separately, in the financial statements,
certain financial and descriptive information about operating segments, profit
or loss, certain specific revenue and expense items, and segment assets.
Additionally, companies are required to report information about the revenues
derived from their products and service groups, about geographic areas in which
the Company earns revenues and holds assets, and about major customers. The
adoption of SFAS 131 will not have any impact on the Company's financial
statements.
27
<PAGE> 29
BUSINESS
COMPANY OVERVIEW
American Xtal Technology, Inc. uses a proprietary VGF technique to produce
high-performance compound semiconductor substrates for use in a variety of
electronic and opto-electronic applications. The Company primarily manufactures
and sells compound semiconductor substrates composed of GaAs. Sales of GaAs
substrates accounted for 94.9% of the Company's product revenues for the year
ended December 31, 1997. The Company also manufactures and sells InP and Ge
substrates and is currently developing other high-performance compound
substrates such as GaP and GaN. The Company manufactures substrates from
crystals grown using the Company's proprietary VGF technique and then slices the
substrates into wafers. The Company's substrates are sold to semiconductor
device manufacturers for use in applications such as wireless and fiber optic
telecommunications, lasers, LEDs, satellite solar cells and consumer
electronics. The Company's customers include EMCORE, Hewlett Packard, Motorola,
NEC, Nortel, Siemens, Sony, Spectrolab and TRW.
INDUSTRY OVERVIEW
Recent advances in communications and information technologies have created
a growing need for power-efficient, high-performance electronic systems that
operate at very high frequencies, have increased computational and display
capabilities, and can be produced cost-effectively in commercial volumes. In the
past, electronic systems manufacturers have relied on advances in silicon
semiconductor technology to meet many of these demands. Silicon-based
semiconductor devices, however, have performance limitations in power efficient,
high-performance electronic applications. In addition, silicon-based
semiconductor devices currently do not possess the electrical properties
necessary to be used effectively in most opto-electronic applications such as
LEDs and lasers.
As a result of the limitations of silicon, semiconductor device
manufacturers are increasingly utilizing alternative substrates to improve the
performance of semiconductor devices or to enable new applications. These
alternative substrates are composed of a single element such as Ge, or multiple
elements which may include, among others, gallium, aluminum, indium, arsenic,
phosphorus and nitrogen. Substrates that consist of more than one element are
referred to as "compound substrates" and include GaAs, InP, GaP and GaN. GaAs is
currently the most widely used compound substrate. In comparison to silicon,
compound substrates have electrical properties which allow semiconductor devices
to operate at much higher speeds or at the same speed with lower power
consumption, or to generate light signals. For example, electrons move up to
five times faster in GaAs than in silicon. Compound substrates also have better
opto-electronic characteristics than silicon which allow them to convert energy
into light and lasers, or to detect light and convert light into electrical
energy. The GaAs substrate market is divided into two segments, semi-insulating
and semi-conducting.
Semi-Insulating GaAs Substrates. The market for semi-insulating GaAs
substrates is the fastest growing segment of the GaAs market. According to a
January 1997 Dataquest report, the market for semi-insulating GaAs substrates
was estimated at $95 million in 1997 and is expected to grow to approximately
$227 million by the year 2000. This growth is being driven by increasing demand
for semi-insulating GaAs substrates in a variety of power-efficient,
high-performance applications, including cellular phones, radars, satellite
communication systems and direct broadcast systems.
Manufacturers integrate semi-insulating GaAs substrates into devices using
either an ion implantation or epitaxial process. Ion implantation is the process
of implanting ions directly into the semi-insulating GaAs substrate to modify
the electrical parameters of the substrate so that it can be used to manufacture
many of today's high-performance electronic devices. This process requires the
electrical parameters of the substrate to be as uniform as possible. Epitaxy, a
more recently developed process, involves the growth of layers of other
materials onto the semi-insulating GaAs substrate. While generally more
expensive than the ion implantation process, the epitaxial process enables
devices to achieve even greater performance advantages. The epitaxial process
requires that the GaAs substrate have an extremely smooth surface, few physical
imperfections,
28
<PAGE> 30
uniform electrical properties and low dislocation density (i.e., a measurement
of the crystalline perfection of the substrate material).
Traditionally, crystals for semi-insulating GaAs substrates for the ion
implantation and epitaxy markets have been grown using the LEC technique. The
LEC technique requires a high temperature gradient in the manufacturing process.
Because the temperature gradient in the LEC technique is high, the resulting
crystals have a relatively high dislocation density which weakens a crystal's
physical structure and increases the risk of breakage of the GaAs substrate
during device manufacturing. In addition, as semi-insulating GaAs substrates
continue to grow in size to support increasingly complex devices, the
manufacturing challenges of the LEC technique increase.
Semi-Conducting GaAs Substrates. The Company believes that the market for
semi-conducting GaAs substrates was approximately $80 million in 1997 and
expects that the market will continue to grow. The market for semi-conducting
GaAs substrates is being driven by the demand for a number of opto-electronic
applications such as LEDs and lasers, which are incorporated into such products
as traffic lights, digital versatile discs ("DVDs"), CD players, CD-ROMs, laser
printers, automobile lights and electronic displays. In contrast to
semi-insulating GaAs substrates which undergo either an ion implantation or
epitaxial process, semi-conducting GaAs substrates only undergo an epitaxial
process. As with semi-insulating GaAs substrates, semi-conducting GaAs
substrates that undergo the epitaxial process must have a smooth surface, few
physical imperfections, uniform electrical properties and a low dislocation
density. The traditional method of growing crystals for producing
semi-conducting GaAs substrates is the HB technique. With the HB technique, the
crystal is grown in a semi-cylindrical container which results in a
semi-circular, or D-shaped, substrate. In order to produce a round
semi-conducting GaAs substrate, the HB technique requires that the D-shaped
substrate be cut into a circle, resulting in a large amount of discarded
substrate. In addition, crystals grown using the HB technique generally have a
relatively high dislocation density and less uniform electrical properties.
These and other inherent technical difficulties limit the ability of the HB
technique to be used to cost-effectively produce high-quality substrates greater
than three inches in diameter.
Other High-Performance Substrates. The Company believes there are
significant growth opportunities in manufacturing other high-performance
substrates. For example, the Company believes that the markets for InP and GaP
substrates, based on 1996 market data and annual growth rates projected by
Business Communications, were an aggregate of approximately $129 million in 1997
and the Company expects that these markets will continue to grow.
Semi-insulating InP substrates are used in power-efficient, high-performance
electronic applications such as wireless and high-bandwidth communications and
semi-conducting InP substrates are used in such applications as fiber optic
communications and lasers. GaP substrates are used by manufacturers of LEDs. The
traditional method for growing crystals for InP and GaP substrates has been the
LEC technique. In addition to compound substrates, the market for the element Ge
is developing in response to the growing demand for solar cells in satellite
communications. The Company believes that the market for Ge substrates used to
manufacture solar cells was approximately $50 million in 1997 and expects that
the market will continue to grow. This application requires the use of Ge
substrates which must be manufactured with few defects and minimal breakage. The
Company believes the further development of these markets depends on the ability
of suppliers to cost-effectively manufacture power-efficient, high-performance
compound and single-element substrates.
THE AXT SOLUTION
AXT uses a proprietary VGF technique to produce high-performance GaAs and
other substrates for use in a variety of electronic and opto-electronic
applications. The Company believes that its VGF technique, which it has
developed over the past 11 years, provides certain significant advantages over
traditional manufacturing methods for growing crystals used in the production of
semi-insulating and semi-conducting GaAs substrates. The Company believes that
it is currently the only high-volume supplier of GaAs substrates manufactured
using the VGF technique and is positioned to become a leading manufacturer and
supplier of other compound and Ge substrates.
29
<PAGE> 31
In the GaAs substrate market, crystals grown using the Company's
proprietary VGF technique have a dislocation density that is significantly lower
than crystals grown using the either the LEC or HB technique. As a result, the
Company believes its GaAs substrates have greater mechanical strength and
reduced breakage during the ion implantation and epitaxial growth processes.
Furthermore, the Company believes the low dislocation density of the Company's
semi-insulating and semi-conducting GaAs substrates translates into fewer
defects in the materials layered onto the substrate during the epitaxy process.
In addition, semi-insulating GaAs substrates, produced using the Company's VGF
technique have more uniform electrical properties than LEC-produced GaAs
substrates, which is important for the ion implantation process. In the
semi-conducting GaAs substrate market, VGF-grown crystals, unlike those grown
using the traditional HB technique, can be processed into round substrates with
minimal wasted material. Using its VGF technique, the Company has been able to
produce GaAs substrates as large as six inches in diameter.
In addition to the GaAs substrate market, the Company believes that it can
leverage its expertise in the VGF technique to manufacture and produce
commercial volumes of other compound and single-element substrates. For example,
in 1997, the Company began shipping InP and Ge substrates to customers and
delivered GaP substrates to certain customers for their evaluation.
STRATEGY
The Company's strategy is to be the leading developer and supplier of
high-performance GaAs substrates for both the semi-insulating and
semi-conducting markets, and to continue to expand into the development and
supply of other substrates. The key elements of the Company's strategy include:
Advance VGF Technology Leadership. The Company pioneered the commercial use
of the VGF technique and has continued to develop and enhance its technology
over the course of 11 years through substantial investments in research and
development. The Company's efforts have led to significant improvements in the
dislocation density, mechanical strength and uniformity of the electrical
properties of GaAs substrates. The Company believes that its experience and
expertise in VGF technology provides it with a competitive advantage over more
recent market entrants who are utilizing variations of the VGF technology. The
Company intends to continue to advance its VGF technology through continued
investment in research and development and participation in certain government
sponsored research programs.
Extend Leadership in GaAs Market. The Company is currently one of the
largest suppliers of GaAs substrates worldwide. Historically, the Company has
been a leading supplier of GaAs substrates in the epitaxy segment of the
semi-insulating market and in the semi-conducting market for GaAs substrates for
lasers. The Company intends to increase its share of these markets by continuing
to provide high-quality, price-competitive substrates. In addition, in the
semi-insulating GaAs substrate market, the Company intends to leverage its
demonstrated success in the epitaxy segment to further penetrate the ion
implantation segment. In the semi-conducting GaAs substrate market, the Company
also intends to leverage its leadership to further penetrate the high-volume,
cost-sensitive LED market.
Leverage VGF Technology to Manufacture Additional Substrates. The Company
believes its VGF technology is a platform which it can leverage to rapidly
develop and cost-effectively manufacture additional high-quality compound
substrates for emerging applications in markets such as wireless and fiber optic
communications. For example, the Company recently began shipping InP and Ge
substrates developed using its VGF technique to customers. Unlike the more
traditional methods of growing crystals, the Company can use its VGF technology
to grow the crystals for these other substrates without having to make a
significant investment in new capital equipment.
Increase Manufacturing Capacity to Target High-Volume Markets. The Company
is currently increasing its manufacturing capacity by approximately 30,000
square feet and expects that this additional space will be available in the
third quarter of 1998. In addition, the Company is planning the construction of
an additional facility of up to 50,000 square feet in Northern California and
does not believe this new facility will begin commercial production of
substrates prior to the end of 1999. The Company believes that the increased
production capacity will enable it to further lower unit production costs and
provide its high-performance substrates at competitive prices for high-volume
markets such as LEDs.
30
<PAGE> 32
Leverage Existing Customer Relationships. The Company currently sells its
GaAs substrates to over 200 customers, including EMCORE, Hewlett Packard,
Motorola, NEC, Nortel, Siemens, Sony, Spectrolab and TRW. The Company believes
its past success in providing high-quality GaAs substrates to these customers
will provide it with a competitive advantage in supplying them additional
substrates as their needs develop. For example, the Company recently began
shipments of InP substrates to TRW, which currently purchases a significant
portion of its GaAs substrates from the Company. In addition, the Company
intends to establish alliances and joint development arrangements with customers
to develop new products, increase manufacturing efficiencies and more
effectively serve its customers' needs. For example, the Company is currently
working with one customer to develop Ge substrates which can significantly
increase the energy efficiency of the customer's solar cells.
CUSTOMERS
The Company sold its products to over 200 customers during the Company's
last fiscal year. Each of the customers listed below purchased substrates in
excess of $500,000 during the Company's last fiscal year:
<TABLE>
<S> <C>
Alpha Industries, Inc. Opto Tech Corporation
EMCORE Siemens
Epitaxial Products International Ltd. Sony
Hewlett Packard Spectra-Physics Lasers, Inc.
Motorola Spectrolab
NEC Sumitomo Chemical Co., Ltd.
Nortel TRW
</TABLE>
The Company has historically entered into significant contracts with a
number of government agencies and customers for the development of certain
products. See "-- Research and Development."
No customer accounted for more than 10.0% of the Company's revenues in
1997. In 1996 and 1997, the Company's five largest customers accounted for 35.5%
and 34.9%, respectively, of the Company's total revenues. Generally, the Company
does not have long-term or other non-cancelable commitments from its customers
and usually sells products pursuant to customer purchase orders. The loss of any
major customer could have a material adverse effect on the Company.
31
<PAGE> 33
TECHNOLOGY
The Company's VGF Technique. The Company's proprietary VGF technique
produces high-quality crystals from which the Company produces high-performance
compound and single-element substrates for use in a variety of electronic and
opto-electronic applications. The diagram below illustrates the VGF technique:
[VGF DIAGRAM]
The Company's VGF technique is designed to allow control of the
crystal-growth process with minimal temperature variation. Unlike traditional
techniques, the Company's VGF technique places the hot GaAs melt above the cool
crystal, thereby reducing the turbulence of the GaAs melt which results when the
melt and crystal are inverted. The temperature gradient between the melt and the
crystal in the VGF technique is significantly lower than in traditional
techniques. These aspects of the VGF technique enable the Company to grow
crystals that have a relatively low dislocation density and high uniformity. One
of the benefits of these characteristics is that the crystal, and the substrate
into which the crystal is manufactured, are mechanically strong. The mechanical
strength may result in substrates with lower breakage rates during a customer's
manufacturing process.
In the VGF technique, the GaAs melt and growing crystal are contained in a
closed chamber. A number of benefits result from the use of this closed system.
Because the VGF system is sealed and the crystal growth
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<PAGE> 34
is isolated, both semi-insulating and semi-conducting crystals can be grown in
the same system without the time consuming and expensive process of completely
reconfiguring the system. The closed system isolates the crystal from the
outside environment during growth and significantly reduces potential
contamination of the crystal by impurities. The closed system also allows for
more precise control of the gallium-to-arsenic ratio which results in better
consistency and uniformity of the crystals. Therefore, crystals grown using the
VGF technique are consistently of a high quality. In addition, the use of
cylindrical crucibles, which are sized to meet a customer's requirements,
enables the Company to produce circular substrates with a minimum amount of
discarded material.
The VGF technique is highly automated and the temperature gradient is
controlled electronically rather than by physically moving the crystal or
furnace. As a result, there is no physical movement to disturb the sensitive
crystal. The entire crystal growth process is run under computer control with
minimal operator intervention. A single operator can supervise the control of
many VGF furnaces which results in significant cost savings.
The Company believes its VGF technology is a platform which it can leverage
to rapidly develop and cost-effectively manufacture additional high-quality
substrates. Unlike the more traditional methods of growing crystals, the Company
can use its VGF technology to grow the crystals for these other substrates
without having to make a significant investment in new capital equipment. For
example, the Company uses its proprietary VGF technique to manufacture InP and
Ge substrates.
VGF Compared to Traditional Techniques for Producing GaAs Substrates. The
Company believes that its proprietary VGF technique provides significant
advantages over the traditional crystal growth techniques. The LEC technique is
the traditional method for producing semi-insulating GaAs substrates. Unlike the
VGF technique, the LEC technique is designed so that the hotter GaAs melt is
located beneath the cooler crystal, which results in greater turbulence in the
melt. The LEC technique requires a temperature gradient between the GaAs melt
and the cool crystal which is approximately 50 to 200 times higher than the
temperature gradient of the VGF technique. The turbulence and the high
temperature gradient cause LEC-grown crystals to have a higher dislocation
density than VGF-grown crystals. This characteristic results in a higher rate of
breakage of the LEC-developed substrate during the device manufacturing process.
In addition, the LEC technique is essentially an open process whereby the melt
and growing crystal are exposed to the environment for the entire duration of
the crystal growth process. This exposure results in greater propensity for
impurity contamination as well as difficulty in controlling the ratio of gallium
to arsenic. Because the crystal is not contained in a crucible, fluctuations in
temperature cause the diameter of the crystal to vary. Thus, to ensure proper
size with the LEC technique, the crystal must be grown significantly larger than
the desired size of the resulting substrate. During the LEC process, the crystal
is grown by dipping a seed crystal through molten boric oxide into a melt and
slowly pulling the seed up into the cool zone above the boric oxide where the
crystal hardens. As the GaAs melt is consumed, the crucible containing the
remaining liquid must be raised in coordination with the pulling of the crystal.
These moving parts and the relative complexity of the system result in higher
maintenance costs. Unlike the VGF technique, the LEC technique uses large,
complex electro-mechanical systems that are expensive to acquire and require
highly skilled personnel to operate.
The HB technique is the traditional method for producing semi-conducting
GaAs substrates. The HB technique holds the GaAs melt in a semi-cylindrical
"boat." Because of the semi-cylindrical shape of the boat, semi-conducting GaAs
crystals grown using the HB technique have a semi-circular cross-section. As a
result of this semi-circular shape, more crystal material must be discarded to
cut the crystal ingot into a cylindrical shape from which round substrates can
be produced. Furthermore, crystals grown using the HB technique have a higher
dislocation density than VGF-grown crystals. These and other inherent technical
difficulties limit the ability of the HB technique to be used to
cost-effectively produce high-quality substrates greater than three inches in
diameter. Since the HB technique uses a quartz crucible during the growth
process which can contaminate the GaAs melt with silicon impurities, the HB
technique is also unsuitable for making semi-insulating GaAs substrates.
33
<PAGE> 35
PRODUCTS
The Company currently sells the compound substrates GaAs and InP, and the
single-element substrate Ge. In addition, the Company has delivered GaP
substrates to certain customers for their evaluation. The Company supplies
various sizes of substrates according to its customers' specifications and works
closely with its customers to ensure that it manufactures substrates to each
customer's particular specifications. See "Risk Factors -- Manufacturing Risks."
The table below sets forth the Company's products, their available sizes
and selected applications:
<TABLE>
<CAPTION>
SUBSTRATE MATERIAL DIAMETER (IN INCHES) APPLICATIONS
------------------ -------------------- ------------
<S> <C> <C>
GaAs Semi-Insulating 2, 3, 4, 6 Cellular phones, direct broadcast
television, high-performance
transistors, satellite
communications
GaAs Semi-Conducting 2, 3, 4 LEDs, lasers, optical couplers,
displays
InP Semi-Insulating 2, 3 Fiber optic communications,
satellite communications,
high-performance transistors,
automotive collision avoidance
radars
InP Semi-Conducting 2 Fiber optic communications, lasers
Ge 4 Solar cells
</TABLE>
MANUFACTURING
The Company's manufacturing operations, which include crystal growth,
slicing, testing, edge grinding, polishing, inspecting and packaging the
substrates for shipment, are located at the Company's headquarters in Fremont,
California. The Company's facility is ISO 9002 certified. Many of the Company's
manufacturing operations are computer monitored or controlled, enhancing
reliability and yield.
The Company depends on a single or limited number of suppliers for certain
critical materials, including gallium, for use in the production of substrates.
The Company generally purchases these materials through standard purchase orders
and not pursuant to long-term supply contracts. The Company seeks to maintain
sufficient levels of inventory for certain materials to guard against
interruptions in supply and to meet its near term needs. To date, the Company
has generally been able to obtain sufficient supplies of materials in a timely
manner. However, the Company's results of operations could be materially
adversely affected by a stoppage or delay in supply, receipt of defective or
contaminated materials, or increases in the pricing of such raw materials.
The Company owns an approximately 50,000 square foot facility, of which
approximately 45,000 square feet are used for manufacturing. The Company is in
the process of expanding the size of this facility by approximately 30,000
square feet to meet its anticipated future production needs through 1999. The
expansion is scheduled to be completed and operations are expected to commence
in the third quarter of 1998. In addition, the Company is planning the
construction in Northern California of an additional facility of up to 50,000
square feet to supplement its existing facility. The new facility is expected to
cost at least $10.0 million and take up to 15 months to construct. The
construction of a new facility entails significant risks, including shortages of
materials and skilled labor, unavailability or late delivery of process
equipment, unforeseen environmental or engineering problems, work stoppages,
weather interferences and unanticipated cost increases, any of which could have
a material adverse effect on the construction and start-up of the new facility.
Because the Company currently performs all steps in its manufacturing process at
its Fremont facility, any interruption resulting from earthquake, fire,
equipment failures or other causes would have a material adverse effect on the
Company's results of operations. See "Risk Factors -- Manufacturing Risks" and
"-- Limitations of Existing Manufacturing Capacity."
SALES AND MARKETING
The Company sells its products worldwide through its direct sales force as
well as through independent international sales representatives. The Company's
direct sales force consists of highly trained, technically
34
<PAGE> 36
sophisticated sales engineers who are knowledgeable in the manufacturing and use
of compound and single-element substrates. The Company's direct sales force
operates out of the Company's corporate office in Fremont, California and its
Japanese subsidiary. The Company's sales engineers work with customers during
all stages of the substrate manufacturing process, from developing the precise
composition of the substrate through manufacturing and processing the substrate
to the customer's exact specifications. The Company believes that maintaining a
close relationship with customers and providing customers with ongoing technical
support improves customer satisfaction and will provide the Company with a
competitive advantage in selling other substrates to its customers.
International sales as a percentage of total revenues in 1995, 1996 and
1997 were 36.0%, 38.2% and 38.2%, respectively. In addition to the Company's
direct sales force in Japan, the Company has independent sales representatives
in France, Japan, South Korea, Taiwan, and the United Kingdom. Except for sales
by its Japanese subsidiary, which are denominated in yen, the Company receives
all payments for products in U.S. dollars.
In order to raise market awareness of its products, the Company advertises
in trade publications, distributes promotional materials, publishes technical
articles, conducts marketing programs and participates in industry trade shows
and conferences. See "Risk Factors -- Dependence on Sales Outside the United
States."
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on developing
new substrates, improving the performance of existing products and processes,
and reducing costs in the manufacturing process. The Company has assembled a
multi-disciplinary team of highly skilled scientists, engineers and technicians
to meet its research and development objectives. Among other projects, the
Company has research and development projects involving the development of GaN
and high purity GaAs epitaxy substrates.
The Company's research and development expenses in 1995, 1996 and 1997 were
$448,000, $592,000 and $1.3 million, respectively. In addition to internally
funded research and development, the Company has also funded a significant
portion of its research and development efforts through contracts with the U.S.
government and customer funded research projects. In 1995, 1996 and 1997, the
Company received $3.0 million, $2.0 million and $2.3 million, respectively, from
U.S. government agencies and customer funded research contracts. Under the
Company's contracts, the Company retains rights to the VGF and wafer fabrication
technology which it developed. The U.S. government retains rights to utilize the
technologies that the Company develops for government purposes only.
The Company's total research and development costs, including both contract
funded and internally funded research and development expenses, for the years
ended December 31, 1995, 1996 and 1997 totaled $2.7 million, $1.4 million and
$2.8 million, respectively. The Company expects that it will continue to expend
substantial resources on research and development. The development of compound
and single-element substrates is highly complex. There can be no assurance that
the Company will successfully develop and introduce new products in a timely and
cost-effective manner or that its development efforts will successfully permit
the Company's products to meet changing market demands. See "Risk
Factors -- Rapid Technological Change; Reliance Upon Continued Product
Development" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
COMPETITION
The markets for GaAs substrates are intensely competitive. The Company's
principal competitors in the market for semi-insulating GaAs substrates
currently include Freiberger, Hitachi Cable, Litton and Sumitomo Electric. In
the semi-conducting GaAs substrate market, the Company's principal competitors
currently are Sumitomo Electric and Hitachi Cable. The Company also faces
competition from manufacturers that produce GaAs substrates for their own use.
In addition, the Company faces competition from companies such as IBM that are
actively developing alternative materials to GaAs. As the Company enters new
markets, such as the Ge and InP substrate markets, the Company expects to face
competitive risks similar to those for its GaAs
35
<PAGE> 37
substrates. Many of the Company's competitors and potential competitors have
been in the business longer than the Company and have greater manufacturing
experience, more established technologies than the Company's VGF technique,
broader name recognition and significantly greater financial, technical and
marketing resources than the Company. There can be no assurance that the Company
will compete successfully against these competitors in the future or that the
Company's competitors or potential competitors will not develop enhancements to
the LEC, HB or VGF techniques that will offer price and performance features
that are superior to those of the Company. Increased competitive pressure could
also lead to intensified price-based competition, resulting in lower prices and
margins, which would materially adversely affect the Company's business,
financial condition and results of operations.
The Company believes that the primary competitive factors in the markets in
which the Company's products compete are quality, price, performance and
customer support and satisfaction, as well as customer commitment to competing
technologies. The Company's ability to compete in its target markets also
depends on such factors as the timing and success of the development and
introduction of new products by the Company and its competitors, the
availability of adequate sources of raw materials, protection of Company
products by effective utilization of intellectual property laws and general
economic conditions. In order to remain competitive, the Company believes it
must invest significant resources in developing new substrates and in
maintaining customer satisfaction worldwide. There can be no assurance that the
Company's products will continue to compete favorably or that the Company will
be successful in the face of competition from existing competitors or new
companies entering the Company's target markets. Failure of the Company to
compete successfully would materially adversely affect the Company's business,
financial condition and results of operations. See "Risk
Factors -- Competition."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success and competitive position for its VGF technique
depends materially on its ability to maintain trade secrets, patents and other
intellectual property protections. In order to protect its trade secrets, the
Company takes certain measures to ensure their secrecy, such as executing
non-disclosure agreements with its employees, customers and suppliers. Despite
the Company's efforts, there can be no assurance that others will not gain
access to the Company's trade secrets, or that the Company can meaningfully
protect its intellectual property. In addition, effective trade secret
protection may be unavailable or limited in certain foreign countries. Although
the Company intends to protect its rights vigorously, there can be no assurance
that such measures will be successful.
To date, Company has been issued one U.S. patent and has two patent
applications pending. The Company has one pending application for a Japanese
patent but no issued foreign patents. There can be no assurance that the
Company's pending U.S. applications or any future U.S. or foreign patent
applications will be approved, that any issued patents will protect the
Company's intellectual property or will not be challenged by third parties, or
that the patents of others will not have an adverse effect on the Company's
ability to do business. Moreover, the laws of certain foreign countries may not
protect the Company's intellectual property rights to the same extent as the
laws of the United States. The Company believes that, due to the rapid pace of
technological innovation in the GaAs and other substrate markets, the Company's
ability to establish and maintain a position of technology leadership in the
industry depends more on the skills of its development personnel than upon the
legal protections afforded its existing technologies.
Although there are currently no pending lawsuits against the Company or
unresolved notices that the Company is infringing intellectual property rights
of others, the Company may be notified in the future that it is infringing
certain patent and/or other intellectual property rights of others. Litigation
may be necessary in the future to enforce the Company's patents and other
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity, and there can be no
assurance that the Company would prevail in any future litigation. Any such
litigation, whether or not determined in the Company's favor or settled by the
Company, would be costly and would divert the efforts and attention of the
Company's management and technical personnel from normal business operations,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in litigation could
result in the
36
<PAGE> 38
loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from licensing its technology, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
ENVIRONMENTAL REGULATIONS
The Company is subject to federal, state and local laws and regulations
concerning the use, storage, handling, generation, treatment, emission, release,
discharge and disposal of certain materials used in its research and development
and production operations, as well as laws and regulations concerning
environmental remediation and employee health and safety. The growing of
crystals and the production of substrates involve the use of certain hazardous
raw materials, including, but not limited to, arsenic. There can be no assurance
that the Company's control systems will be successful in preventing a release of
these materials or other adverse environmental conditions. Any such release or
other failure to comply with present or future environmental laws and
regulations could result in the imposition of significant fines on the Company,
the suspension of production or a cessation of operations. In addition, there
can be no assurance that existing or future changes in laws or regulations will
not require expenditures or liabilities to be incurred by the Company, or in
restrictions on the Company's operations.
BACKLOG
The Company includes in backlog only those customer orders which have been
accepted by the Company and which shipment is generally expected within 12
months. As of December 31, 1997, the Company's backlog was approximately $13.9
million. Backlog can fluctuate greatly based upon, among other matters, the
timing of orders. In addition, purchase orders in the Company's backlog are
subject to changes in delivery schedules or to reduction in size or cancellation
at the option of the purchaser without significant penalty. The Company has
experienced, and may continue to experience, cancellation, reduction and
rescheduled delivery of orders in its backlog. The Company's backlog may vary
significantly from time to time depending upon the level of capacity available
to satisfy unfilled orders. Accordingly, although useful for scheduling
production, backlog as of any particular date may not be a reliable indicator of
sales for any future period.
EMPLOYEES
At February 28, 1998, the Company had approximately 246 full-time
employees, of whom 204 were principally engaged in manufacturing, 25 in sales,
general and administration and 17 in research and development. The Company's
success is in part dependent on its ability to attract and retain highly skilled
workers, who are in high demand. None of the Company's employees is represented
by a union and the Company has never experienced a work stoppage. Management
considers its relations with its employees to be good. See "Risk
Factors -- Dependence on Key Employees."
FACILITIES
The Company owns approximately 50,000 square feet of office, research and
development and manufacturing space in Fremont, California. The Company is in
the process of expanding the size of this facility by approximately 30,000
square feet to meet its anticipated future production needs through 1999. The
expansion is scheduled for completion and operations are expected to commence in
such space in the third quarter of 1998. In addition, the Company is currently
planning the construction of an additional facility of up to 50,000 square feet
in Northern California. The Company believes that this planned new facility will
not begin commercial production of substrates prior to the end of 1999. See
"Risk Factors -- Limitations of Existing Manufacturing Capacity."
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of February 28, 1998
with respect to the executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Morris S. Young, Ph.D........ 53 Chairman of the Board of Directors,
President and Chief Executive Officer
Theodore S. Young, Ph.D...... 57 Senior Vice President, Marketing and Director
Davis Zhang.................. 42 Senior Vice President, Production
Hsing Kung, Ph.D............. 53 Senior Vice President, Engineering and Business
Development
Gary S. Young................ 55 Vice President, Sales
Guy D. Atwood................ 55 Vice President and Chief Financial Officer,
Treasurer and Secretary
Jesse Chen(1)(2)............. 40 Director
B.J. Moore(1)(2)............. 61 Director
Donald L. Tatzin(1)(2)....... 46 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Morris S. Young, Ph.D. co-founded the Company in 1986 and has served as the
Company's Chairman of the Board of Directors since February 1998 and President
and Chief Executive Officer, as well as a director of the Company since 1989.
From 1985 to 1989, Dr. Young was a physicist at Lawrence Livermore National
Laboratory. From 1979 to 1985, Dr. Young served as a member of the technical
staff with AT&T Bell Laboratories. Dr. Young holds a B.S. in Metallurgical
Engineering from Chengkung University, Taiwan, an M.S. in Metallurgy from
Syracuse University and a Ph.D. in Metallurgy from Polytechnic University.
Theodore S. Young, Ph.D. co-founded the Company in 1986 and has served as
the Company's Senior Vice President, Marketing since 1989 and served as the
Company's President from 1987 to 1989. He has also acted as a director since the
Company's inception, including as the Chairman of the Board of Directors from
January 1987 to January 1998. Dr. Young served as a senior physicist at Lawrence
Livermore National Laboratory and Physics International from 1984 to 1987 and
1974 to 1984, respectively. Dr. Young holds a B.S. in Physics from National
Taiwan University, an M.S. in Geophysics from the University of Alaska and a
Ph.D. in Plasma Physics from the Massachusetts Institute of Technology.
Davis Zhang co-founded the Company in 1986 and has served as its Senior
Vice President, Production since January 1994. From 1987 to 1993, Mr. Zhang
served as the Company's Senior Production Manager. Mr. Zhang owned and operated
Universal Construction Company, a California corporation, from 1986 to 1987.
From 1981 to 1985, Mr. Zhang also owned and operated a construction material
company in Beijing, China. Mr. Zhang holds a B.S. in Mechanical Engineering from
Northern Communication University, Beijing, China.
Hsing Kung, Ph.D. joined the Company in March 1997 as its Senior Vice
President, Engineering and Business Development. From July 1996 to February
1997, Dr. Kung served as Executive Vice President and a director of Actisys
Corporation, a computer peripherals company. Dr. Kung co-founded SDL, Inc., an
opto-electronic integrated circuit device company, in 1983 and served as its
Vice President, Manufacturing from 1983 to 1996. Dr. Kung holds a B.S. from
Chengkung University, an M.S. from the University of Texas, a Ph.D. from the
University of California-Berkeley, all in Electrical Engineering and an M.B.A.
from Santa Clara University.
Gary S. Young joined the Company in 1991 and has served as its Vice
President, Sales since July 1993. From 1991 to 1993, Mr. Young served as the
Company's Sales and Administrative Manager. From 1973 to 1991, Mr. Young worked
in various capacities with several companies, including as a Systems Engineer
for
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<PAGE> 40
IBM and software engineer for Boole & Babbage, Inc., an independent software
vendor. Mr. Young holds a B.S. in Mathematics from National Taiwan Normal
University, an M.A. in Mathematics from Northeast Missouri State University and
an M.S. in Operations Research from Purdue University.
GUY D. ATWOOD joined the Company in August 1997 as its Vice President and
Chief Financial Officer and has served as the Company's Treasurer and Secretary
since February 1998. From 1991 to August 1997, Mr. Atwood served at various
times as Chief Financial Officer for several private companies, most recently
the alumni association for the University of California at Berkeley and
AvenuSoftware, a film and video software company (of which he was also its
President). Mr. Atwood was self-employed as a financial consultant from 1994 to
1995, and also provided services in such capacity to the Company from June to
September 1995. Mr. Atwood holds a B.S. in Accounting from the University of
California at Berkeley.
JESSE CHEN has served as a director of the Company since February 1998.
Since May 1997, Mr. Chen has served as a Managing Director of Maton Venture, an
investment company. Prior to that, Mr. Chen co-founded BusLogic, Inc., a
computer peripherals company and served as its Chief Executive Officer from 1990
to 1996. Mr. Chen serves on the Board of Directors of several private companies.
Mr. Chen has a B.S. degree in Aeronautical Engineering from Chenkung University,
Taiwan and an M.S. in Electrical Engineering from Loyola Marymount University.
B.J. MOORE has served as a director of the Company since February 1998.
Since 1991, Mr. Moore has been self-employed as a consultant and has served as a
director to several technology-based companies. Mr. Moore currently serves on
the Board of Directors for Adaptec, Inc., a computer peripherals company and
Dionex Corporation, an ion chromatography systems company, as well as several
private companies. From 1986 to 1991, Mr. Moore served as President and Chief
Executive Officer of Outlook Technology, an electronics test equipment company.
Mr. Moore holds a B.S. and an M.S. degree in Electrical Engineering from the
University of Tennessee.
DONALD L. TATZIN has served as a director of the Company since February
1998. Since 1993, Mr. Tatzin has served as Executive Vice President of Showboat,
Inc., a gaming company. In addition, Mr. Tatzin served as a director for Sydney
Harbour Casino, an Australian gaming company from 1995 to 1996 and as its Chief
Executive Officer from April to October 1996. Prior to that, Mr. Tatzin was a
director and consultant with Arthur D. Little, Inc. from 1976 to 1993. Mr.
Tatzin holds an S.B. in Economics and an S.B. and masters degrees in City
Planning from the Massachusetts Institute of Technology and an M.S. in Economics
from Australian National University.
The Company's Bylaws currently authorize five directors, which number may
be changed from time to time by the Board of Directors. All directors hold
office until the next annual meeting of stockholders or until their successors
are duly elected and qualified. The Bylaws provide that, beginning with the
first annual meeting of stockholders following the Offering, the Board of
Directors will be divided into three classes, with each class serving staggered
three-year terms. There are no family relationships among the directors or
officers of the Company, except that Morris S. Young, Theodore S. Young and Gary
S. Young are brothers (collectively, the "Youngs"), and Davis Zhang is related
to the Youngs by marriage.
BOARD COMMITTEES
In February 1998, the Board of Directors established an Audit Committee.
The Audit Committee reviews the results and scope of the annual audit and other
services provided by the Company's independent auditors, reviews and evaluates
the Company's internal audit and control functions, and monitors transactions
between the Company and its employees, officers and directors. Messrs. Chen,
Moore and Tatzin are the members of the Audit Committee.
In February 1998, the Board of Directors established a Compensation
Committee. The Compensation Committee administers the Company's stock option and
stock purchase plans and designates compensation levels for the Company's
employees and consultants. Messrs. Chen, Moore and Tatzin are the members of the
Compensation Committee.
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<PAGE> 41
DIRECTOR COMPENSATION
The Company's non-employee directors each receive $500 per Board or
committee meeting, and are reimbursed for reasonable expenses. The directors are
eligible to receive option grants pursuant to the Company's 1997 Stock Option
Plan. See "-- Benefit Plans."
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the Company's other executive officers whose
salary and bonus for services in all capacities to the Company exceeded $100,000
during the fiscal year ended December 31, 1997 and Guy D. Atwood (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------- SECURITIES
ALL OTHER UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#)(2)
--------------------------- --------- -------- ------------------ -------------
<S> <C> <C> <C> <C>
Morris S. Young........................ $152,339 $15,000 $648 130,000
Chairman of the Board of Directors,
President and Chief Executive Officer
Theodore S. Young...................... 133,675 12,000 855 120,000
Senior Vice President, Marketing
Davis Zhang............................ 122,178 12,000 285 120,000
Senior Vice President, Production
Gary S. Young.......................... 104,067 8,000 860 100,000
Vice President, Sales
Guy D. Atwood(3)....................... 38,912 3,500 798 100,000
Vice President and Chief Financial
Officer, Treasurer and Secretary
</TABLE>
- ---------------
(1) Represents premiums paid by the Company for life insurance coverage.
(2) Such options were granted pursuant to the Company's 1997 Stock Option Plan.
(3) The salary amount shown for Guy D. Atwood reflects amount earned from August
18, 1997, his initial date of employment with the Company, to December 31,
1997, and is based on his annual salary of $110,000.
40
<PAGE> 42
OPTION GRANTS, EXERCISES AND HOLDINGS
Option Grants. The following table sets forth certain information regarding
options granted to the Named Executive Officers during the fiscal year ended
December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION OF
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR(%)(1) ($/SHARE)(2) DATE(3) 5%($) 10%($)
---- ---------- ----------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Morris S. Young(5)..... 130,000 9.9% $5.50 07/26/02 $197,541 $436,515
Theodore S. Young(5)... 120,000 9.1 5.00 07/26/07 377,337 956,245
Davis Zhang(5)......... 120,000 9.1 5.00 07/26/07 377,337 956,245
Gary S. Young(5)....... 100,000 7.6 5.00 07/26/07 314,447 796,871
Guy D. Atwood(5)....... 100,000 7.6 5.00 08/18/07 314,447 796,871
</TABLE>
- ---------------
(1) The Company granted options to employees to purchase an aggregate total of
1,315,100 shares of Common Stock pursuant to its 1997 Stock Option Plan and
1997 Employee Stock Purchase Plan during the year ended December 31, 1997.
(2) The exercise price may be paid in cash, check, cash equivalents, promissory
note, assignment of the proceeds of a sale or loan with respect to shares of
the Company's Common Stock being acquired upon exercise or shares of the
Company's Common Stock through a cashless exercise procedure or by any
combination of such methods.
(3) Options may terminate before their expiration date if the optionee's status
as an employee or consultant is terminated or upon optionees' death or
disability.
(4) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annual compound stock price appreciation of 5.0% and 10.0% from the date
the option was granted over the full option term. These assumed annual
compound rates of stock appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
(5) Each option vests at the rate of 25.0% of the shares subject to the option
at the end of 12 months and 2.1% of the shares subject to the option at the
end of each monthly period thereafter as long as such optionee's employment
has not terminated.
41
<PAGE> 43
Option Exercise and Holdings. The following table sets forth certain
information regarding exercised stock options during the year ended December 31,
1997 and unexercised options held as of December 31, 1997 by each of the Named
Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED YEAR-END(#)(1) FISCAL YEAR-END($)(2)
ON VALUE ----------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Morris S. Young.......... -- $ -- -- 130,000 $ -- $ --
Theodore S. Young........ -- -- -- 120,000 -- --
Davis Zhang.............. 12,500 38,750 6,250 126,250 19,375 --
Gary S. Young............ 3,750 11,625 7,500 103,750 23,250 --
Guy D. Atwood............ -- -- -- 100,000 -- --
</TABLE>
- ---------------
(1) The Company has a right of repurchase as to any unvested shares upon
optionee's termination of employment at their original exercise price.
(2) The value of "in-the-money" stock options represents the difference between
the exercise price of such stock options and the fair market value of Common
Stock as of December 31, 1997, as determined by the Company's Board of
Directors, multiplied by the total number of shares subject to such options
on December 31, 1997.
No compensation intended to serve as incentive for performance to occur
over a period longer than one fiscal year was paid pursuant to a long-term
incentive plan during the last fiscal year to any Named Executive Officer. The
Company does not have any defined benefit or actuarial plan under which benefits
are determined primarily by final compensation or average final compensation and
years of service with any of the Named Executive Officers.
BENEFIT PLANS
1993 Stock Option Plan. The 1993 Stock Option Plan (the "1993 Plan")
provides for the grant of stock options to employees (including officers),
directors and consultants of the Company and its subsidiaries. The 1993 Plan
provides for the grant of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") or
nonstatutory stock options, although incentive stock options may be granted only
to employees. The 1993 Plan is administered by the Board of Directors or a duly
approved committee (the "Administrator"). Subject to the provisions of the 1993
Plan, the Administrator determines the persons to whom options are to be
granted, the number of shares subject to each option and all other terms and
conditions of the options. As of December 31, 1997, options to purchase an
aggregate of 107,950 shares of Common Stock were outstanding under the 1993
Plan. Options granted under the 1993 Plan will remain outstanding in accordance
with their terms, but the Board of Directors has determined that no further
options will be granted under the 1993 Plan. In the event of certain changes in
control of the Company, the acquiror or successor corporation may assume or
substitute for options outstanding under the 1993 Plan. If the options
outstanding under the 1993 Plan are not assumed or substituted for, the Board of
Directors may, in its sole discretion, (i) cancel the options in exchange for a
cash payment to the optionee equal to the excess of the market value of the
shares subject to the option over the option exercise price, or (ii) except in
the event of a dissolution, liquidation or sale of substantially all of the
Company's assets, terminate the outstanding options, provided that the optionees
will be given at least 35 days' notice of the transaction and will have at least
30 days to exercise the unexpired options prior to the change in control.
1997 Employee Stock Purchase Plan. The 1997 Employee Stock Purchase Plan
(the "1997 ESPP") provides for the grant of stock purchase rights to full-time
employees of the Company and its subsidiaries. As of December 31, 1997, 67,000
shares of Common Stock had been issued pursuant to the exercise of stock
purchase rights granted under the 1997 ESPP and no shares remained available for
issuance thereunder.
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<PAGE> 44
1997 Stock Option Plan. The Company's 1997 Stock Option Plan (the "1997
Plan") was approved by the Board of Directors in July 1997 and by the
stockholders as of July 1997. The 1997 Plan provides for the grant of incentive
stock options to employees within the meaning of section 422 of the Code and for
grants of nonstatutory stock options to employees, non-employee directors and
consultants. Because non-employee directors are eligible to receive grants under
the 1997 Plan, the Company has not adopted a separate plan which provides for
the formula grant of stock options to nonemployee directors.
The 1997 Plan is administered by the Board of Directors or a committee
thereof. Subject to the provisions of the 1997 Plan, the Board or committee has
the authority to select the persons to whom options are granted and determine
the terms of each option, including (i) the number of shares of Common Stock
covered by the option, (ii) when the option becomes exercisable, (iii) the per
share option exercise price, which, in the case of incentive stock options, must
be at least 100% of the fair market value of a share of Common Stock as of the
date of grant, in the case of options granted to persons who own 10.0% or more
of the total combined voting power of the Company (or any parent or subsidiary
of the Company) (a "10.0% Stockholder"), must be at least 110% of the fair
market value of a share of Common Stock as of the date of grant, and, in the
case of nonstatutory stock options, must be at least 85.0% of the fair market
value of a share of Common Stock as of the date of grant, and (iv) the duration
of the option (which may not exceed ten years, or 5 years for incentive stock
options granted to 10.0% Stockholders). Generally, options granted under the
1997 Plan become exercisable as the shares vest pursuant to a schedule
established by the Board of Directors or committee thereof. Options granted
under the 1997 Plan are non-transferable other than by will or the laws of
descent and distribution. In the event of certain changes in control of the
Company, the acquiring or successor corporation may assume or substitute for
options outstanding under the 1997 Plan. To the extent that the options
outstanding under the 1997 Plan are not assumed, substituted for or exercised
prior to such change in control, they will terminate.
A total of 2,800,000 shares have been reserved for issuance under the 1997
Plan. Of the shares of Common Stock currently reserved for issuance under the
1997 Plan as of December 31, 1997, no shares have been issued upon the exercise
of options, options for the purchase of a total of 1,235,000 shares at a
weighted average exercise price of $5.05 per share were outstanding and a
maximum of 1,565,000 shares were available for future option grants.
1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was approved by the Board of Directors in
February 1998, subject to stockholder approval. A total of 250,000 shares of
Common Stock have been reserved for issuance under the Purchase Plan, none of
which have been issued as of the effective date of this Offering. The Purchase
Plan, which is intended to qualify under section 423 of the Code, is
administered by the Board of Directors or by a committee thereof. Employees
(including officers and employee directors of the Company) of the Company or any
subsidiary designated by the Board of Directors for participation in the
Purchase Plan are eligible to participate in the Purchase Plan if they are
customarily employed for more than 20 hours per week and more than five months
per year. The Purchase Plan will be implemented by overlapping 24-month
offerings, the first of which will commence on the effective date of this
Offering and the initial offering period will terminate on January 31, 2000.
Each offering will generally be comprised of four six-month purchase periods,
with shares purchased on the last day of each purchase period (a "Purchase
Date"). After the effective date of this Offering, offering periods under the
Purchase Plan will generally begin on February 1 and August 1 of each year. The
Board of Directors may change the dates or duration of one or more offerings,
but no offering may exceed 27 months. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions at a price no less
than 85.0% of the lower of the fair market value of the Common Stock on (i) the
first day of the offering, or (ii) the Purchase Date. Participants generally may
not purchase more than 5,000 shares in a 24-month offering or stock having a
value (measured at the beginning of the offering) greater than $25,000 in any
calendar year. In the event of certain changes in control of the Company, the
Board may accelerate the Purchase Date of the then current purchase period(s) to
a date prior to the change in control unless the acquiring corporation assumes
or replaces the purchase rights outstanding under the Purchase Plan.
401(k) Plan. The Company provides a tax-qualified employee savings and
retirement plan (the "401(k) Plan") which covers the Company's eligible
employees. Pursuant to the 401(k) Plan, employees may elect to
43
<PAGE> 45
reduce their current annual compensation up to the lesser of 15.0% or the
statutorily prescribed limit ($9,500 in calendar year 1997 and $10,000 in
calendar year 1998), and have the amount of such reduction ("elective
deferrals") contributed to the 401(k) Plan. The 401(k) Plan provides for
discretionary matching contributions by the Company in an amount not to exceed
66.7% of each participant's first 6.0% of elective deferrals, with a maximum
matching contribution of 4.0% of compensation for each 12 consecutive months,
ending on the 31st day of December. The 401(k) Plan is intended to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended, so
that contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions will be deductible by the Company
when made. The trustee of the 401(k) Plan invests the assets of the 401(k) Plan
in the various investment options as directed by the participants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
No interlocking relationship exists between any member of the Company's
Compensation Committee and any member of any other company's board of directors
or compensation committee. The Compensation Committee makes recommendations
regarding the Company's employee stock plans and makes decisions concerning
salaries and incentive compensation for employees and consultants of the
Company.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the provisions of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that directors of the Company
shall not be personally liable for monetary damages to the Company or its
stockholders for a breach of fiduciary duty as a director, except for liability
as a result of (i) a breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of
Delaware General Corporation Law, and (iv) transactions from which the director
derived an improper personal benefit. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the full extent permitted under Delaware law. The Company intends
to enter into separate indemnification agreements with its directors and
officers which may, in some cases, be broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers and may indemnify its employees to the fullest extent permitted by
law. The Company believes that indemnification under its Bylaws covers at least
negligence and gross negligence on the part of the indemnified party.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
44
<PAGE> 46
CERTAIN TRANSACTIONS
Since January 1995, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or is
to be a party in which the amount involved exceeds $60,000, and in which any
director, executive officer or holder of more than 5% of any class of voting
securities of the Company and members of such person's immediate family had or
will have a direct or indirect material interest other than the transactions
described below.
In March 1997, pursuant to a Series C Preferred Stock Purchase Agreement,
the Company issued an aggregate of 1,200,000 shares of Series C Preferred Stock
at a price of $5.00 per share to a group of investors (the "Series C
Financing"), including an aggregate of 200,000 shares to Hotung Venture Capital
Corporation ("Hotung") and its affiliates Daitung Venture Capital Corporation
("Daitung"), Litung Venture Capital Corporation ("Litung") and Futung Venture
Capital Corporation ("Futung"); an aggregate of 200,000 shares to Min-Chen Hsieh
and Min-Hui Hsieh; and 18,000 shares to the Lian Soung and Grace Soung Community
Property Trust dated 9/20/94. Hotung is a beneficial holder of more than 5% of a
class of the Company's voting securities, and S.C. Hong, a director of the
Company at the time of the Series C Financing, is the President of Hotung,
Daitung, Litung and Futung. S.C. Hsieh, a director of the Company at the time of
the Series C Financing, is Min-Chen Hsieh and Min-Hui Hsieh's father. Grace
Soung, a director of the Company at the time of the Series C Financing, is a
co-trustee of the Lian Soung and Grace Soung Community Property Trust dated
9/20/94.
Since January 1995, Morris Young, the Company's Chairman of the Board of
Directors, President and Chief Executive Officer, and/or Theodore Young, the
Company's Senior Vice President, Marketing and a director of the Company,
entered into certain agreements to guarantee, in part or in full, the
indebtedness incurred by the Company pursuant to the following loan
transactions:
(i) In September 1995, Morris Young and Theodore Young each entered
into a guaranty agreement with the Commercial Bank of Fremont ("CBF"),
which was subsequently acquired by U.S. Bank, in connection with a real
estate "bridge" loan from CBF to the Company in the principal amount of
$4.5 million (the "Bridge Loan");
(ii) The Company entered into a loan agreement with CBF in July 1996
and Bay Area Employment Development Company ("Bay Area") in August 1996 to
refinance the Bridge Loan. Morris Young and Theodore Young each entered
into a guaranty agreement with CBF and Bay Area in connection with such
refinancing;
(iii) In May 1997, Morris Young and Theodore Young each entered into
guaranty agreements with U.S. Bank in connection with a construction loan
and a line of credit from U.S. Bank to the Company in the aggregate
principal amount of $3.8 million; and
(iv) From December 1995 to July 1997, Morris Young or Theodore Young
entered into guaranty agreements with Belvedere Equipment Finance
Corporation, as agent on behalf of various lenders, in connection with
certain equipment financing loans to the Company in the aggregate principal
amount of $2.4 million.
Both Morris Young and Theodore Young have since been released from their
guaranty agreements with CBF and U.S. Bank.
Since January 1995, Equipment & Materials Inc. ("EMI"), a California
corporation engaged in international trading with the People's Republic of China
("China") and quartz fabrication, has supplied the Company with various raw
materials from China and also has manufactured quartz for the Company. Christina
X. Li, the sole shareholder and President of EMI, is the wife of Davis Zhang,
the Company's Senior Vice President, Production. The aggregate revenue received
by EMI from the Company for such supply and production up through December 1997
is $2.6 million, with $380,000, $760,000, and $1.5 million in revenue received
by EMI from the Company in 1995, 1996 and 1997, respectively.
45
<PAGE> 47
In January 1996, Davis Zhang, and in February 1996, George Liu, Morris
Young's father-in-law, each loaned the Company the principal amount of $50,000
and $224,000, respectively. The foregoing loans, plus interest, have since been
paid by the Company.
For a description of the compensation of officers and directors of the
Company and the eligibility of officers and directors of the Company to
participate in the Company's employee benefit plans, see "Management -- Director
Compensation," "-- Executive Compensation" and "-- Benefit Plans."
The Company believes that all transactions between the Company and its
officers, directors, principal stockholders and other affiliates have been and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties. To date, the Company has made no loans to officers,
directors, principal stockholders or other affiliates other than advances of
reimbursement expenses.
The Company intends to enter into indemnification agreements with each of
its executive officers and directors. See "Management -- Limitation on Liability
and Indemnification Matters."
46
<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1997, and as adjusted
to reflect the sale of the shares offered hereby, assuming no exercise of the
Underwriters' over-allotment option, (i) by each person who is known by the
Company to own beneficially more than 5% of the Company's Common Stock, (ii) by
each of the Named Executive Officers and by each of the Company's directors and
(iii) by all executive officers and directors as a group. Except pursuant to
applicable community property laws or as indicated in the footnotes to this
table, each stockholder identified in the table possesses sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such stockholder.
<TABLE>
<CAPTION>
PERCENTAGE OWNED(2)
--------------------
SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
--------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Morris S. Young(3)........................................ 1,956,800 14.9% 12.5%
Entities Affiliated with
Hotung Venture Capital Corporation(4)................... 1,076,470 8.2 6.9
10-F, 261 Sung Ching Road
Taipei, Taiwan, ROC
Gary S. Young(5).......................................... 669,500 5.1 4.3
Theodore S. Young......................................... 599,465 4.6 3.8
Davis Zhang(6)............................................ 254,750 1.9 1.6
Guy D. Atwood............................................. -- -- --
Jesse Chen................................................ -- -- --
B.J. Moore................................................ -- -- --
Donald L. Tatzin.......................................... -- -- --
All directors and executive officers as a group (9
persons)(7)............................................. 3,491,181 26.5 22.2
</TABLE>
- ---------------
(1) Unless otherwise indicated, the address of each of the named individuals is:
c/o American Xtal Technology, Inc. 4311 Solar Way, Fremont, California
94538.
(2) The amounts reported in this table include shares of Common Stock issuable
upon the automatic conversion of all Preferred Stock, which conversion will
occur upon the closing of the Offering. The calculations in the table are
based on 13,170,268 shares of Common Stock outstanding on an as-converted
basis as of December 31, 1997. A person is deemed to be the beneficial owner
of securities that can be acquired by such person within 60 days upon the
exercise of options. Calculations of percentages of beneficial ownership
assume the exercise by only the respective named stockholders of all options
for the purchase of Common Stock held by such stockholders which are
exercisable within 60 days of December 31, 1997.
(3) Includes 784,600 shares held by the Morris & Vicke Young Trust, 1,132,200
shares held by Morris S. Young Family Ltd. Partnership, and 20,000 shares
held by the minor children of Morris Young. Also includes 20,000 shares held
jointly by George Liu (Morris Young's father-in-law) and Vicke Young (Morris
Young's spouse), of which Morris Young disclaims beneficial ownership.
(4) Includes 916,470 shares held by Hotung, 60,000 shares held by Futung, 60,000
shares held by Litung and 40,000 shares held by Daitung.
(5) Includes 23,750 shares directly held by Gary Young, 446,087 shares held by
Gary Young Trust A, 190,163 shares held by Gary Young Trust B, 2,000 shares
held by Joanna Young (Gary Young's daughter), and 7,500 shares of Common
Stock subject to options exercisable within 60 days of December 31, 1997.
(6) Includes 187,500 shares directly held by Davis Zhang, 45,000 shares held by
Christina X. Li (Davis Zhang's spouse), 16,000 shares held by Mr. Zhang's
minor children and 6,250 shares of Common Stock subject to options
exercisable within 60 days of December 31, 1997.
(7) Includes 13,750 shares of Common Stock subject to options exercisable within
60 days of December 31, 1997.
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock and 2,000,000 shares
of Preferred Stock. The following summary of certain provisions of the Common
Stock and the Preferred Stock of the Company does not purport to be complete and
is subject to, and qualified in its entirety by, the Certificate of
Incorporation and Bylaws of the Company that are included as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.
COMMON STOCK
As of December 31, 1997, there were 13,170,268 shares of Common Stock
outstanding held of record by 175 stockholders, as adjusted to reflect the
conversion of the outstanding shares of Preferred Stock upon the closing of the
Offering. The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the holders of Common
Stock. Subject to preferences applicable to any outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any Preferred
Stock. Holders of Common Stock have no preemptive or subscription rights, and
there are no redemption or conversion rights with respect to such shares. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be issued upon the closing of the Offering will be
fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of the Offering, the Board of Directors will have the
authority to issue up to 2,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any unissued shares of Preferred Stock and to fix the number
of shares constituting any series and the designations of such series, without
any further vote or action by the stockholders. Although it presently has no
intention to do so, the Board of Directors, without stockholder approval, can
issue Preferred Stock with voting and conversion rights which could adversely
affect the voting power of the holders of Common Stock. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company. See "Risk Factors -- Concentration of Share
Ownership and Voting Power; Anti-Takeover Provisions."
DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and Bylaws could make more difficult the acquisition of the
Company by means of a tender offer, a proxy contest, or otherwise, and the
removal of incumbent officers and directors. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of the Company to first
negotiate with the Company. The Company believes that the benefits of increased
protection of the Company's potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure the Company
outweigh the disadvantages of discouraging such proposals, including proposals
that are priced above the then current market value of the Common Stock,
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date such stockholder
became an interested stockholder, unless: (i) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an
48
<PAGE> 50
interested stockholder; (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85.0% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders and not by written consent, by the affirmative vote of at least
66.7% of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10.0% or more of the assets of
the corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15.0% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
The Company's Certificate of Incorporation requires that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors or
holders of not less than 10.0% of all of the shares entitled to cast votes at
such meetings. The Certificate of Incorporation also provides that, beginning
upon the closing of the Offering, the Board of Directors will be divided into
three classes, with each class serving staggered three-year terms and that
certain amendments of the Company's Certificate of Incorporation, and all
amendments by the stockholders of the Company's Bylaws, require the approval of
holders of at least 66.7% of the voting power of all outstanding stock. These
provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American
Securities Transfer & Trust, Inc.
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have outstanding an
aggregate of 15,670,268 shares of Common Stock (16,045,268 if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,500,000
shares sold in the Offering (2,875,000 if the Underwriters' over-allotment
option is exercised in full) will be freely tradable without restriction or
further registration under the Securities Act, except for any shares purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act (whose sales would be subject to certain limitations and
restrictions described below). The remaining 13,170,268 shares of Common Stock
held by existing stockholders (the "Restricted Shares") were issued and sold by
the Company in reliance on exemptions from the registration requirements of the
Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) 1.0% of the number of
shares of Common Stock then outstanding (approximately 156,703 shares
immediately after this Offering) or (ii) generally, the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice filing provisions of Rule 144.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the Commission had indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this Prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its one-year minimum holding period requirements.
The Company, its officers and directors, and certain beneficial owners of
the Company's Common Stock, owning upon the closing of the Offering, in the
aggregate, 12,466,028 shares of Common Stock, have agreed that they will not,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) of any shares of Common Stock or other
capital stock of the Company or any other securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock, or other capital
stock of the Company, for a period of 180 days from the date of this Prospectus,
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be
salable until the agreements expire. Upon the expiration of these lock-up
agreements, all of the Restricted Shares will become eligible for sale, subject
in some cases to the limitations of Rule 144. Prudential Securities Incorporated
may, in its sole discretion, at any time and without notice, release all or any
portion of the securities subject to such lock-up agreements.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering the 3,483,919 shares subject to outstanding options or
reserved for issuance under the Company's 1993 Stock Option Plan, 1997 Stock
Option Plan and the 1998 Employee Stock Purchase Plan. Accordingly, shares
50
<PAGE> 52
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
except to the extent that such shares are subject to vesting restrictions with
the Company or the contractual restrictions described above. All of the shares
issuable upon exercise of outstanding options are subject to 180-day lock-up
agreements with the Company and/or representatives of the Underwriters.
Following the date 180 days after the date of this Prospectus, an aggregate of
408,711 shares will be issuable upon the exercise of currently outstanding
options. Such shares will be freely tradable in the public market upon exercise,
pursuant to such registration statement on Form S-8. See "Management -- Benefit
Plans."
Prior to the Offering, there has been no public market for the Company's
Common Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
51
<PAGE> 53
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Cowen & Company are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated..........................
Cowen & Company.............................................
---------
Total....................................................... 2,500,000
=========
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby, if any are
purchased.
The Underwriters, through their Representatives, have advised the Company
that they propose to offer the shares of Common Stock initially at the public
offering price set forth on the cover page of this Prospectus; that the
Underwriters may allow to selected dealers a concession of $ per share;
and that such dealers may reallow a concession of $ per share to
certain other dealers. After the initial public offering, the initial public
offering price and the concessions may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 375,000 additional shares of
Common Stock at the initial public offering price, less underwriting discounts
and commissions, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option to purchase is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to 2,500,000.
The Company has agreed to indemnify the several Underwriters and contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company, its officers and directors, and certain beneficial owners of
the Company's Common Stock and holders of options to purchase Common Stock have
agreed not to, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other sale or disposition) of any shares of Common Stock
or other capital stock or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock or other capital stock of the
Company, for a period of 180 days after the date of this Prospectus without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters. Prudential Securities Incorporated may, in its sole discretion, at
any time and without notice, release all or any portion of the securities
subject to such lock-up agreements.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations between the Company and the Representatives.
Among the factors to be considered in making such determination will be the
prevailing market conditions, the Company's financial and operating history and
condition, its prospects and the prospects for its industry in general, the
management of the Company and the market prices of securities for companies in
businesses similar to that of the Company.
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<PAGE> 54
In connection with the Offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following the closing of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 375,000 shares of Common Stock, by
exercising the Underwriters' over-allotment option referred to above. In
addition, Prudential Securities Incorporated, on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the Underwriters
whereby it may reclaim from an Underwriter (or dealer participating in the
Offering) for the account of the other Underwriters, the selling concession with
respect to Common Stock that is distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gray Cary Ware & Freidenrich, LLP, Palo Alto, California. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1996 and 1997 and for each of the three years in the period ended December 31,
1997 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is made
to the Registration Statement and to the exhibits and schedule filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected by anyone without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part of the Registration Statement
may be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission. The Commission maintains a World Wide Website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commissions. The address of the
website is http://www.sec.gov.
53
<PAGE> 55
AMERICAN XTAL TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997
and Pro Forma as of
December 31, 1997......................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996, and 1997......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
American Xtal Technology, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
American Xtal Technology, Inc., and its subsidiary at December 31, 1996 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
February 6, 1998
F-2
<PAGE> 57
AMERICAN XTAL TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ DECEMBER 31, 1997
1996 1997 (NOTE 1)
------- ------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 756 $ 3,054 $ 3,054
Accounts receivable, less allowance for doubtful
accounts of $100 and $100.......................... 2,992 6,005 6,005
Inventories........................................... 3,955 8,361 8,361
Prepaid expenses and other assets..................... 153 858 858
Deferred income taxes................................. 489 225 225
------- ------- -------
Total current assets.......................... 8,345 18,503 18,503
Property, plant and equipment, net...................... 8,409 12,101 12,101
Other assets............................................ 630 9 9
------- ------- -------
Total assets.................................. $17,384 $30,613 $30,613
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 828 $ 1,722 $ 1,722
Short-term bank borrowing............................. 300 -- --
Notes payable to related parties...................... 276 -- --
Accrued liabilities................................... 1,162 1,827 1,827
Current portion of long-term debt..................... 237 745 745
------- ------- -------
Total current liabilities..................... 2,803 4,294 4,294
Long-term debt, net of current portion.................. 5,582 7,728 7,728
------- ------- -------
Total liabilities............................. 8,385 12,022 12,022
------- ------- -------
Commitments and Contingencies
Stockholders' Equity:
Convertible Preferred Stock, no par value, 25,000,000
shares authorized, 8,928,737 and 10,128,737 shares
issued and outstanding, actual; $0.001 par value,
2,000,000 shares authorized, none issued and
outstanding pro forma.............................. 2,618 8,553 --
Common Stock, no par value, 100,000,000 shares
authorized, 2,897,706 and 3,041,531 shares issued
and outstanding, actual; $0.001 par value,
40,000,000 shares authorized, 13,170,268 issued and
outstanding pro forma.............................. 159 867 13
Additional paid in capital............................ -- -- 9,407
Deferred compensation................................. -- (220) (220)
Retained earnings..................................... 6,326 9,584 9,584
Cumulative translation adjustments.................... (104) (193) (193)
------- ------- -------
Total stockholders' equity.................... 8,999 18,591 18,591
------- ------- -------
Total liabilities and stockholders' equity.... $17,384 $30,613 $30,613
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 58
AMERICAN XTAL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenues:
Product revenues.......................................... $11,520 $14,222 $23,014
Contract revenues......................................... 2,958 2,005 2,321
------- ------- -------
Total revenues.................................... 14,478 16,227 25,335
Cost of revenues:
Cost of product revenues.................................. 6,030 9,270 13,674
Cost of contract revenues................................. 2,234 795 1,553
------- ------- -------
Total cost of revenues............................ 8,264 10,065 15,227
------- ------- -------
Gross profit................................................ 6,214 6,162 10,108
Operating expenses:
Selling, general and administrative....................... 1,716 2,033 2,959
Research and development.................................. 448 592 1,289
------- ------- -------
Total operating expenses.......................... 2,164 2,625 4,248
------- ------- -------
Income from operations...................................... 4,050 3,537 5,860
Interest expense............................................ (12) (170) (570)
Other income (expense)...................................... 282 (72) (34)
------- ------- -------
Income before provision for income taxes.................... 4,320 3,295 5,256
Provision for income taxes.................................. 1,581 1,249 1,998
------- ------- -------
Net income.................................................. $ 2,739 $ 2,046 $ 3,258
======= ======= =======
Net income per share:
Basic..................................................... $ 0.97 $ 0.71 $ 1.11
======= ======= =======
Diluted................................................... $ 0.23 $ 0.17 $ 0.25
======= ======= =======
Shares used in net income per share calculations (Notes 1
and 9):
Basic..................................................... 2,821 2,882 2,938
======= ======= =======
Diluted................................................... 11,813 11,811 12,839
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 59
AMERICAN XTAL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK CUMULATIVE
------------------- ------------------ DEFERRED RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT COMPENSATION EARNINGS ADJUSTMENTS TOTAL
---------- ------ --------- ------ ------------ --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... 8,928,737 $2,618 2,707,956 $ 54 $ -- $1,541 $ -- $ 4,213
Common Stock options exercised... -- -- 149,000 55 -- -- -- 55
Common Stock repurchased......... -- -- (8,000) (2) -- -- -- (2)
Net income....................... -- -- -- -- -- 2,739 -- 2,739
---------- ------ --------- ---- ----- ------ ----- -------
Balance at December 31, 1995..... 8,928,737 2,618 2,848,956 107 -- 4,280 -- 7,005
Common Stock options exercised... -- -- 40,750 52 -- -- -- 52
Currency translation
adjustment..................... -- -- -- -- -- -- (104) (104)
Net income....................... -- -- -- -- -- 2,046 -- 2,046
---------- ------ --------- ---- ----- ------ ----- -------
Balance at December 31, 1996..... 8,928,737 2,618 2,889,706 159 -- 6,326 (104) 8,999
Issuance of Series C Convertible
Preferred Stock in March 1997
at $5.00 per share, net of
issuance costs................. 1,200,000 5,935 -- -- -- -- -- 5,935
Common Stock options exercised... -- -- 151,825 386 -- -- -- 386
Deferred compensation............ -- -- -- 322 (322) -- -- --
Amortization of deferred
compensation................... -- -- -- -- 102 -- -- 102
Currency translation
adjustment..................... -- -- -- -- -- -- (89) (89)
Net income....................... -- -- -- -- -- 3,258 -- 3,258
---------- ------ --------- ---- ----- ------ ----- -------
Balance at December 31, 1997..... 10,128,737 $8,553 3,041,531 $867 $(220) $9,584 $(193) $18,591
========== ====== ========= ==== ===== ====== ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 60
AMERICAN XTAL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,739 $ 2,046 $ 3,258
Adjustments to reconcile net income to cash provided by
(used in) operations:
Depreciation and amortization........................ 513 867 1,164
Deferred income taxes................................ (358) (43) 264
Stock compensation................................... -- -- 102
Changes in assets and liabilities:
Accounts receivable............................... (914) (578) (3,013)
Inventory......................................... (626) (2,298) (4,406)
Other assets...................................... (427) (149) (84)
Accounts payable.................................. 215 247 894
Accrued liabilities............................... (398) 382 665
------- ------- -------
Net cash provided by (used in) operating
activities................................. 744 474 (1,156)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (4,597) (3,946) (4,856)
Proceeds from the sale of property, plant and equipment... 239 -- --
Proceeds from the sale of short-term investments.......... 411 -- --
------- ------- -------
Net cash used in investing activities........ (3,947) (3,946) (4,856)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Common Stock................ 53 52 386
Proceeds from the issuance of Convertible Preferred
Stock.................................................. -- -- 5,935
Proceeds from (payments of) short-term bank borrowings.... 600 (300) (300)
Proceeds from long-term debt borrowings................... 2,350 3,469 2,654
Proceeds from (payments of) notes payable to related
parties................................................ -- 276 (276)
------- ------- -------
Net cash provided by financing activities.... 3,003 3,497 8,399
------- ------- -------
Effect of exchange rate changes............................. -- (104) (89)
------- ------- -------
Net (decrease) increase in cash and cash equivalents........ (200) (79) 2,298
Cash and cash equivalents at beginning of year.............. 1,035 835 756
------- ------- -------
Cash and cash equivalents at end of year.................... $ 835 $ 756 $ 3,054
======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................. $ 12 $ 203 $ 579
======= ======= =======
Income taxes paid......................................... $ 2,651 $ 794 $ 1,814
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 61
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
American Xtal Technology, Inc. (the "Company") was incorporated in
California in December 1986. Upon completion of its initial public offering, the
Company will be reincorporated in Delaware. The Company uses a proprietary
vertical gradient freeze ("VGF") technique to produce high-performance compound
semiconductor base materials, or substrates, for use in a variety of electronic
and opto-electronic applications. The Company manufactures and sells Gallium
Arsenide ("GaAs"), Indium Phosphide ("InP") and Germanium ("Ge") substrates. The
Company also has research and development contracts with the U.S. Department of
Defense ("DOD") and other third parties for developing GaAs and other
substrates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned Japanese subsidiary. All material intercompany accounts and
transactions have been eliminated.
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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Foreign Currency Translation
The functional currency of the Company's Japanese subsidiary is the local
currency. Accordingly, the assets and liabilities of the subsidiary are
translated at the rates of exchange on the balance sheet date. Income and
expenses items are translated at an average rate of exchange. The Company does
not undertake any foreign currency hedging activities. The cumulative
translation adjustment in the years ended December 31, 1996 and 1997, resulted
from fluctuations in yen exchange rates and its effects on the translation of
balance sheet accounts. Gains and loss from foreign currency translation are
included as a separate component of stockholders' equity.
Revenue Recognition
Product revenues are generally recognized upon shipment. The Company
provides an allowance for estimated returns at the time revenue is recognized.
Contract revenues are recognized under the percentage of completion method based
on costs incurred relative to total contract costs. Costs associated with
contract revenues are included in cost of contract revenues.
Concentration of Credit Risk
The Company manufactures and distributes GaAs, InP and Ge substrates and
performs services under research and development contracts. Financial
instruments which potentially subject the Company to concentration of credit
risk consist primarily of trade accounts receivable. The Company invests
primarily in money market accounts and commercial paper instruments. Cash
equivalents are maintained with high quality institutions and their composition
and maturities are regularly monitored by management.
The Company performs ongoing credit evaluations of its customers' financial
condition and limits the amount of credit extended when deemed necessary, but
generally does not require collateral. No customer represented greater than
10.0% of product revenues in fiscal years 1995, 1996 and 1997. For fiscal years
1995 and 1996, one government entity represented 98.6% and 91.3%, respectively,
of contract revenues. For fiscal
F-7
<PAGE> 62
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
year 1997, one government entity and a third party represented 47.4% and 52.6%,
respectively, of contract revenues.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1996 and 1997, approximately $22,000 and $2,029,000, respectively, of money
market funds are included in cash and cash equivalents.
Inventory
Inventory is stated at the lower of cost, using the weighted average
method, or market.
Property, Plant and Equipment
Acquisitions of property, plant and equipment are stated at cost less
accumulated depreciation computed using the straight-line method over the
estimated economic lives of the assets, generally five years. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
term of the lease.
Impairment of Long-Lived Assets
Pursuant to Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), the Company reviews long-lived assets based upon a
gross cash flow basis and will reserve for impairment whenever events or changes
in circumstances indicate the carrying amount of the assets may not be fully
recoverable. Based on its most recent analysis, the Company believes that there
was no impairment of its property, plant and equipment as of December 31, 1997.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method as prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations thereof. Accordingly, compensation costs for stock options is
measured as the excess, if any, of the market price of the Company's stock at
the date of grant over the stock option exercise price. In addition, the Company
complies with the disclosure provisions of Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
Income Taxes
The Company accounts for deferred income taxes using the liability method,
under which the expected future tax consequences of timing differences between
the book and tax basis of assets and liabilities are recognized as deferred tax
assets and liabilities.
Net Income Per Share
Basic net income per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net income per share is
computed using the weighted average number of common and potential common shares
outstanding during the period, except if anti-dilutive. Potential common shares
consist of the incremental common shares issuable upon conversion of the
Convertible Preferred Stock (using the if-converted method) and shares issuable
upon the exercise of stock options (using the treasury stock method). (See Note
9 for a reconciliation of the numerators and denominators used in the
calculation).
F-8
<PAGE> 63
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130") and Statements of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). The
adoption of the both statements is required for fiscal years beginning after
December 15, 1997. Under SFAS 130, a company is required to report in the
financial statements, in addition to net income, comprehensive income including,
as applicable, foreign currency items and unrealized gains and losses on certain
investments in debt and equity securities. The adoption of SFAS 130 will require
the Company to report comprehensive income including foreign currency items.
SFAS 131 requires that companies report separately, in the financial statements,
certain financial and descriptive information about operating segments profit or
loss, certain specific revenue and expense items, and segment assets.
Additionally, companies are required to report information about the revenues
derived from their products and service groups, about geographic areas in which
the Company earns revenues and holds assets, and about major customers. The
adoption of SFAS 131 will not have any impact on the Company's financial
statements.
Pro Forma Balance Sheet (unaudited)
If the Offering is consummated, all shares of Convertible Preferred Stock
outstanding will automatically convert into an aggregate of 10,128,737 shares of
Common Stock. The pro forma effect of this conversion has been reflected in the
accompanying unaudited balance sheet as of December 31, 1997.
NOTE 2. BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials........................................... $1,865 $ 2,224
Work in process......................................... 1,968 5,623
Finished goods.......................................... 122 514
------ -------
$3,955 $ 8,361
====== =======
Property, plant and equipment:
Land.................................................... $1,120 $ 1,120
Building................................................ 4,731 4,731
Machinery and equipment................................. 4,350 8,121
Leasehold improvements.................................. 240 240
Construction in progress................................ 688 1,773
------ -------
11,129 15,985
Less: Accumulated depreciation and amortization......... 2,720 3,884
------ -------
$8,409 $12,101
====== =======
Accrued liabilities:
Accrued compensation.................................... $ 392 $ 690
Accrued income tax...................................... 461 282
Customer advances....................................... 57 260
Allowance for sales returns............................. 145 247
Other................................................... 107 348
------ -------
$1,162 $ 1,827
====== =======
</TABLE>
F-9
<PAGE> 64
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. DEBT
On September 11, 1995, the Company obtained a bank loan of up to $4.5
million to finance the construction of a new commercial building in Fremont,
California. The loan, which was due on September 11, 1996, was refinanced with
two new loans. On October 1, 1996, the Company obtained a loan for $3.5 million
from a commercial bank. The loan has an interest rate of 8.3% per annum, matures
in 2006 and is secured by the land and building. The loan is subject to certain
financial covenants regarding current financial ratios and cash flow
requirements, which have all been met as of December 31, 1997. On August 15,
1996, the Company obtained a $1.0 million debenture loan from the Bay Area
Employment Development Company guaranteed by the U.S. Small Business
Administration. The loan has an interest rate of 7.3% per annum, matures in 2016
and is subordinate to the $3.5 million bank loan. As of December 31, 1996 and
1997, an aggregate of $4.5 million and $4.4 million was outstanding under these
loans, respectively.
The Company obtained equipment loans totaling $1.4 million and $2.9 million
from several different banks through a financing company during 1996 and 1997,
respectively. These proceeds were used to purchase new manufacturing equipment
for the Company's Fremont, California facility. These loans have a maturity of
five years with interest rates ranging from 7.7% to 9.0% per annum. These loans
are secured by the machinery and equipment purchased with the loans. As of
December 31, 1996 and 1997, $1.3 million and $3.2 million was outstanding under
these loans, respectively.
In November 1996, the Company obtained a $3.0 million line of credit
("LOC") with a bank which expires in April 1998. In March 1998, the Company
obtained a $15.0 million LOC which expires in May 1999 to replace the $3.0
million LOC. The $15.0 LOC is secured by the Company's business assets,
excluding equipment. Borrowings under the $15.0 LOC bear interest at the bank's
prime interest rate plus one-half percent. The $15.0 LOC is subject to certain
financial covenants regarding current financial ratios and cash flow
requirements which have all been met as of December 31, 1997. At December 31,
1996 and 1997, $300,000 and no amount was outstanding under the $3.0 million
LOC, respectively.
In May 1997, the Company obtained a bank loan for $1.4 million to finance
construction. The loan consisted of two parts (i) a loan for $750,000 which
bears interest at the bank's prime rate plus one percent and is secured by
property and (ii) a loan for $690,000 which bears interest at the bank's prime
rate plus one-half percent and is secured by the Company's business assets,
excluding equipment, which was assumed under the $15.0 million LOC. The $750,000
loan will convert into a new term loan at the time of building completion and
will have a maturity of ten years with an interest rate fixed at the nine-year
U.S. Treasury Bond yield plus 2.3% and will be secured by the land and building.
At December 31, 1997, $106,000 was outstanding at an interest rate of 8.3% per
annum. The loan is subject to certain financial covenants regarding current
financial ratios and cash flow requirements, which have all been met as of
December 31, 1997.
The aggregate future repayments of long-term debt outstanding at December
31, 1997 are $1.4 million in 1998, $1.4 million in 1999, $1.4 million in 2000,
$1.5 million in 2001, $1.2 million in 2002 and $2.6 million thereafter.
NOTE 4. RESEARCH AND DEVELOPMENT CONTRACT
In March 1994, the Company was awarded a four-year, $6.1 million contract
under the DOD Title III program. The Title III contract is comprised of three
different contract components: A Cost-Plus-Fixed-Fee component totaling $1.2
million, a Firm-Fixed-Price ("FFP") component totaling $4.4 million and a
$500,000 component consisting of a bonus award. The bonus award may be earned
upon reaching specific contract milestones. Under the FFP component, 10.0% of
the cost reimbursement is withheld by the DOD until the completion of the
project in May 1998. The amounts related to this 10.0% withholding were
$265,000, $625,000 and $319,000 for the years ended December 31, 1995, 1996 and
1997, respectively.
F-10
<PAGE> 65
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 1995, 1996 and 1997, the Company has
recognized contract revenues of $2.4 million, $1.5 million, and $364,000,
respectively, under the Title III contract. For the years ended December 31,
1995, 1996 and 1997, the Company incurred costs of $1.4 million, $468,000 and
$211,000, respectively, under the Title III contract.
Certain products were manufactured under the Title III contract and the
costs were charged to such contracts. As permitted under the contract, the
products were sold to third parties, generating product revenues of $790,000 and
$95,000 for the years ended December 31, 1995 and 1996, respectively.
In January 1997, the Company was awarded a $1.2 million contract from a
third party. The contract was an FFP contract under which the Company was to
receive $1.2 million for its production of Ge substrates. The contract was
completed in July 1997. For the year ended December 31, 1997, the Company has
recognized contract revenues of $1.2 million and incurred contract costs of $1.1
million under the contract.
In May 1997, the Company was awarded a $4.3 million, 30-month contract
under the DOD Title III program. For the year ended December 31, 1997, the
Company has recognized contract revenues of $661,000 under this arrangement.
NOTE 5. INCOME TAXES
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $1,558 $1,116 $1,571
State.......................................... 381 178 79
Foreign........................................ -- -- 84
------ ------ ------
Total current.......................... 1,939 1,294 1,734
------ ------ ------
Deferred:
Federal........................................ (322) (36) 235
State.......................................... (36) (9) 29
------ ------ ------
Total deferred......................... (358) (45) 264
------ ------ ------
Total provision................... $1,581 $1,249 $1,998
====== ====== ======
</TABLE>
The following is a reconciliation of the effective income tax rates and the
U.S. statutory federal income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate................ 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefits....................................... 5.6 4.7 4.1
Foreign sales corporation benefit................ (3.5) (2.4) (1.7)
Foreign.......................................... -- -- 1.6
Other............................................ 0.2 1.6 0.0
------ ------ ------
Effective tax rate............................... 36.3% 37.9% 38.0%
====== ====== ======
</TABLE>
F-11
<PAGE> 66
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets (liabilities) are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Bad debt and inventory reserves............................ $ 79 $ 497
Vacation accrual........................................... 45 67
State taxes................................................ 62 13
Depreciation............................................... 303 --
------ ------
Deferred tax assets...................................... 489 577
Deferred tax liabilities:
Depreciation............................................... -- (352)
------ ------
Deferred tax liability................................... -- (352)
------ ------
Net deferred tax asset................................ $ 489 $ 225
====== ======
</TABLE>
NOTE 6. RETIREMENT SAVINGS PLAN
The Company has a 401(k) Savings Plan (the "Savings Plan") which qualifies
as a thrift plan under Section 401(k) of the Internal Revenue Code. All
full-time U.S. employees are eligible to participate in the Savings Plan after
one year from the date of hire. Participants may contribute up to 6.0% of their
earnings to the Savings Plan with a discretionary matching amount provided by
the Company. The Company's contributions to the Savings Plan for the years ended
December 31, 1995, 1996 and 1997 were $40,000, $69,000, and $87,000,
respectively.
NOTE 7. CONVERTIBLE PREFERRED STOCK
As of December 31, 1997, the Company had issued and outstanding a total of
10,128,737 shares of Convertible Preferred Stock, no par value, as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Series A, 4,924,817 shares authorized, 4,924,817
issued and outstanding......................... $ 658 $ 658 $ 658
Series B, 4,003,921 shares authorized, 4,003,920
issued and outstanding......................... 1,960 1,960 1,960
Series C, 1,200,000 shares authorized, 1,200,000
issued and outstanding......................... -- -- 5,935
------ ------ ------
$2,618 $2,618 $8,553
====== ====== ======
</TABLE>
Conversion
Each share of Series A, B and C Preferred Stock is convertible into one
share of Common Stock, at the option of the holder, subject to certain
adjustments, and automatically converts upon the completion of an underwritten
public offering of Common Stock with gross proceeds of at least $7.5 million.
F-12
<PAGE> 67
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Liquidation
In the event of a liquidation, the holders of Series C Preferred Stock are
entitled to receive, prior to and in preference to any distribution of any
assets or surplus funds of the Company to the holders of Series A and B
Preferred Stock and the Common Stock, the amount of $5.00 for each share of
Series C Preferred Stock then outstanding plus all declared and unpaid dividends
thereon. The holders of Series B Preferred Stock are entitled to receive, after
Series C preferences have been satisfied, the amount of $0.51 for each share
plus all declared and unpaid dividends thereon. The holders of Series A
Preferred Stock are entitled to receive, after Series C and B preferences have
been satisfied, the amount of $0.30 for each share plus all declared and unpaid
dividends thereon. The holders of Series A, B and C Preferred Stock are then
entitled to share ratably in the remaining assets in the Company with the common
stockholders on an as-if converted basis.
Dividend
Each holder of Series A, B and C Preferred Stock is entitled to receive,
prior to and in preference to any holder of Common Stock, dividends equivalent
to any declared for the Company's Common Stock on an as-if converted basis. Such
dividends are noncumulative and shall be paid only when and as declared by the
Board of Directors. The Company has never declared or paid dividends on its
Common Stock.
Voting Rights
Each share of the Series A, B and C Preferred Stock has voting rights equal
to that of Common Stock on an as-if converted basis.
NOTE 8. STOCK OPTION PLANS
In 1993, the Company adopted the 1993 Stock Option Plan ("1993 Plan") which
provides for granting of incentive and non-qualified stock options to employees,
consultants, and directors of the Company. Under the 1993 Plan, 880,000 shares
of Common Stock have been reserved for issuance as of December 31, 1997. Options
granted under the 1993 Plan are generally for periods not to exceed ten years
and are granted at the fair market value of the stock at the date of grant as
determined by the Board of Directors. Options granted under the 1993 Plan
generally vest 25.0% upon grant and 25.0% each year thereafter, with full
vesting occurring on the third anniversary of the grant date.
In May 1997, the Company adopted the 1997 Stock Option Plan ("1997 Plan")
which provides for granting of incentive and non-qualified stock options to
employees, consultants and directors of the Company. Under the 1997 Plan,
1,300,000 shares of common stock have been reserved for issuance as of December
31, 1997. Options granted under the 1997 Plan are generally for periods not to
exceed ten years (five years if the option is granted to a 10.0% stockholder)
and are granted at the fair market value of the stock at the date of grant as
determined by the Board of Directors. Options granted under the 1997 Plan
generally vest 25.0% at the end of one year and 2.1% each month thereafter, with
full vesting after four years.
Employee Stock Purchase Plan
In May 1997, the Company's Board of Directors approved an Employee Stock
Purchase Plan. Under this plan, employees of the Company can purchase Common
Stock with cash and are required to be exercised as of December 31, 1997. Under
the Employee Stock Purchase Plan, 67,000 shares of Common Stock were reserved
for issuance and purchase rights for 67,000 shares had been exercised as of
December 31, 1997. The Plan was approved by the Company's stockholders in May
1997.
F-13
<PAGE> 68
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarizes the Company's stock option activity under the 1993
Plan, 1997 Plan and the Employee Stock Purchase Plan and related weighted
average exercise price within each category for each of the years ended December
31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED
SHARES OPTIONS AVERAGE
AVAILABLE OUTSTANDING OPTION PRICE
---------- ----------- ------------
<S> <C> <C> <C>
Balance at December 31, 1994............ 44,994 163,500 $0.68
Additional shares authorized.......... 500,000 -- --
Granted............................... (231,400) 231,400 1.75
Exercised............................. -- (149,000) 0.38
Canceled.............................. 1,000 (1,000)
Repurchased........................... 8,000 -- --
---------- ---------
Balance at December 31, 1995............ 322,594 244,900 1.53
Granted............................... -- -- --
Exercised............................. -- (40,750) 1.26
Canceled.............................. -- -- --
---------- ---------
Balance at December 31, 1996............ 322,594 204,150 1.58
Additional shares authorized.......... 1,367,000 -- --
Granted............................... (1,315,100) 1,315,100 4.95
Exercised............................. -- (151,825) 2.54
Canceled.............................. 24,475 (24,475) 3.38
---------- ---------
Balance at December 31, 1997............ 398,969 1,342,950 $4.77
========== =========
</TABLE>
At December 31, 1995, 1996 and 1997, options for 86,800, 107,450 and 76,725
shares, respectively, were vested.
During the year ended December 31, 1997, the Company granted options for
the purchase of 1,315,100 shares of Common Stock to employees at a weighted
average exercise price of $4.95 per share. Management has calculated deferred
compensation of approximately $322,000 related to options granted during the
year ended December 31, 1997. Such deferred compensation will be amortized over
the vesting period relating to these options of which approximately $102,000 has
been amortized during the year ended December 31, 1997.
Information relating to stock options outstanding under the 1993 Plan, 1997
Plan and the Employee Stock Purchase Plan at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED
AVERAGE
NUMBER REMAINING WEIGHTED
OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
----------- ---------------- --------------
<S> <C> <C> <C>
Range of exercise prices:
$1.20 - $1.90..................... 107,950 1.5 years $1.60
$5.00 - $5.50..................... 1,235,000 9.6 years 5.05
$1.20 - $5.50..................... 1,342,950 8.9 years 4.77
</TABLE>
<TABLE>
<CAPTION>
OPTIONS VESTED
-------------------------
WEIGHTED
NUMBER AVERAGE
VESTED EXERCISE PRICE
------- --------------
<S> <C> <C>
Range of exercise prices:
$1.20 - $1.90...................................... 76,725 $1.50
</TABLE>
F-14
<PAGE> 69
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain Pro Forma Disclosures
In October 1995, SFAS 123, which established a fair value based method of
accounting for employee stock options plans. Had compensation cost for the
Company's option plans been determined based on the fair value at the grant
dates, as prescribed in SFAS 123, the Company's net income and pro forma net
income per share would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net income:
As reported.................................... $2,739 $2,046 $3,258
Pro forma net income........................... 2,725 2,032 3,111
Net income per share:
As reported:
Basic....................................... $ 0.97 $ 0.71 $ 1.11
Diluted..................................... 0.23 0.17 0.25
Pro forma net income:
Basic....................................... $ 0.97 $ 0.71 $ 1.06
Diluted..................................... 0.23 0.17 0.24
</TABLE>
The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1995 and 1997
(no options were granted during the year ended December 31, 1996); dividend
yield of 0.0% for both periods; risk-free interest rates of 5.7% and 6.1% for
options granted during the year ended December 31, 1995 and 1997, respectively;
and expected lives of 4.0 and 4.5 years for options granted during the years
ended December 31, 1995 and 1997, respectively.
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding paragraph and, because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of pro forma effects on reported net income
for future years.
NOTE 9. NET INCOME PER SHARE
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
requires a reconciliation of the numerators and denominators of the basic and
diluted net income per share calculations as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1995 1996 1997
--------------------------- --------------------------- --------------------------
PER PER PER
SHARE SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ --------- ------ ------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income available to common
stockholders................ $2,739 2,821 $0.97 $2,046 2,882 $0.71 $3,258 2,938 $1.11
Effect of dilutive securities
Common Stock options.......... -- 63 -- -- -- -- -- 72 --
Convertible Preferred Stock... -- 8,929 -- -- 8,929 -- -- 9,829 --
Diluted EPS
Net income available to common
stockholders................ $2,739 11,813 $0.23 $2,046 11,811 $0.17 $3,258 12,839 $0.25
</TABLE>
F-15
<PAGE> 70
AMERICAN XTAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the years ended December 31, 1995 and 1997, options to purchase
approximately 92,920 and 1,254,800 shares, respectively, at prices ranging from
$1.20 to $5.50 were outstanding but not included in the computation because the
exercise price was greater than the average market price of common shares issued
during the respective period.
NOTE 10. GEOGRAPHIC REPORTING AND SIGNIFICANT CUSTOMERS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues:
United States............................... $ 9,258 $10,028 $15,653
Europe...................................... 1,692 2,216 2,497
Canada...................................... 661 522 1,034
Japan....................................... 2,027 2,653 4,323
Asia Pacific and other...................... 840 808 1,828
------- ------- -------
Consolidated................................ $14,478 $16,227 $25,335
======= ======= =======
Identifiable assets:
United States............................... $10,927 $16,467 $28,967
Japan....................................... 389 917 1,646
------- ------- -------
Consolidated................................ $11,316 $17,384 $30,613
======= ======= =======
</TABLE>
NOTE 11. RELATED PARTY TRANSACTIONS
In January 1996, the Company obtained a loan for $226,000 from a family
member of an officer. At December 31, 1996, $226,000 was outstanding under this
loan at an interest rate of 10.0% per annum. All outstanding principal and
interest were paid in February 1997.
In February 1996, the Company obtained a loan for $50,000 from an officer.
At December 31, 1996, $50,000 was outstanding at an interest rate of 10.0% per
annum. All outstanding principal and interest were paid in March 1997.
During the years ended December 31, 1995, 1996 and 1997, the Company
purchased $380,000, $760,000 and $1,540,000, respectively, of raw materials and
manufactured quartz from a supplier which is owned by a family member of an
officer.
NOTE 12. SUBSEQUENT EVENT
In February 1998, the Company's Board of Directors approved, subject to
stockholder approval, an increase of 1.5 million shares of Common Stock to be
reserved for issuance under the 1997 Plan and the adoption of the 1998 Employee
Stock Purchase Plan with a reserve of 250,000 shares of Common Stock.
F-16
<PAGE> 71
COMPANY INTRODUCTION
American Xtal Technology, Inc. ("AXT") uses a proprietary vertical gradient
freeze ("VGF") technique to produce high-performance compound semiconductor
substrates for use in a variety of electronic and opto-electronic applications.
The Company manufactures and sells substrates composed of gallium arsenide
("GaAs"), indium phosphide ("InP") and germanium ("Ge") and is currently
developing other high-performance compound substrates such as gallium phosphide
("GaP") and gallium nitride ("GaN"). The Company believes that its VGF technique
provides certain significant advantages over traditional methods for growing
crystals for the production of high-performance semiconductor substrates.
OVERVIEW: APPLICATION OF AXT PRODUCTS AND TECHNOLOGY TO EVERYDAY LIFE
As a result of the limitations of silicon, semiconductor device
manufacturers are increasingly utilizing alternative substrates to improve the
performance of semiconductor devices or to enable new applications. These
alternative substrates are composed of a single element such as Ge, or multiple
elements, which may include, among others, gallium, aluminum, indium, arsenic,
phosphorous and nitrogen. Substrates that consist of more than one element are
referred to as "compound substrates." In comparison to silicon, compound
substrates have electrical properties which allow semiconductor devices to
operate at much higher speeds or at the same speed with lower power consumption,
or to generate light signals. Compound and Ge substrates are sold to
semiconductor device manufacturers for use in applications such as wireless and
fiber optic telecommunications, lasers, LEDs, satellite solar cells and consumer
electronics. As the products on this page indicate, semiconductor devices that
incorporate compound substrates are already deeply embedded in many aspects of
our daily lives. The Company believes that it is currently the only high-volume
supplier of GaAs substrates manufactured using the VGF technique and is
positioned to become a leading manufacturer and supplier of other compound and
Ge substrates.
WIRELESS TELECOMMUNICATIONS
The Company's GaAs substrates are used by semiconductor device
manufacturers for use in high-performance telecommunication applications.
FIBER OPTIC COMMUNICATIONS
The Company's InP substrates are used by semiconductor device manufacturers
in fiber optic communications.
DISPLAYS
Large full-color displays like this one in Tokyo, which have LEDs that
incorporate GaAs, GaP and GaN substrates, attract attention with news
broadcasts, sports events and commercial advertisements.
TRAFFIC SIGNALS
Extra bright and highly energy-efficient LEDs, which incorporate GaAs
substrates, are being used in traffic lights worldwide.
CD-ROM
Lasers manufactured from GaAs substrates are incorporated into most CD-ROM
and DVD drives for the reading and writing of digital data stored optically on
discs.
SOLAR CELLS
The Company's Ge substrates are incorporated into solar cells, which
require Ge substrates manufactured with few defects and minimal breakage, for
use in satellite communications.
CAPTION 1
AXT's proprietary VGF technique is designed to allow control of the
crystal-growth process with minimal temperature variation. As a result, the
Company is able to grow crystals that have a relatively low dislocation density
and high uniformity. AXT believes that its GaAs substrates manufactured from
such crystals are mechanically strong, which may result in substrates with lower
breakage rates during a customer's manufacturing process.
FREMONT FACILITY
CAPTION 2
At its ISO 9002-certified manufacturing facility located in Fremont,
California, AXT works closely with its customers to ensure that it manufactures
substrates to each customer's particular specifications. To ensure that every
substrate meets AXT's high standards of quality, the Company's Fremont facility
performs all manufacturing operations, which include crystal growth, slicing,
testing, edge rounding, polishing, inspection and packaging the substrates for
shipment.
<PAGE> 72
===============================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY THE SHARES
OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
UNTIL , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 6
Use of Proceeds.............................. 16
Dividend Policy.............................. 16
Capitalization............................... 17
Dilution..................................... 18
Selected Consolidated Financial Data......... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 20
Business..................................... 28
Management................................... 38
Certain Transactions......................... 45
Principal Stockholders....................... 47
Description of Capital Stock................. 48
Shares Eligible for Future Sale.............. 50
Underwriting................................. 52
Legal Matters................................ 53
Experts...................................... 53
Additional Information....................... 53
Index to Consolidated Financial Statements... F-1
</TABLE>
===============================================================
===============================================================
2,500,000 Shares
[AXT LOGO]
Common Stock
---------------------
PROSPECTUS
---------------------
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
, 1998
===============================================================
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All amounts shown are estimates except for
the registration fee, the NASD filing fee and the Nasdaq National Market fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
Securities and Exchange Commission registration fee......... $ 8,482
NASD filing fee............................................. 3,375
Nasdaq National Market application fee...................... 50,000
Blue sky qualification fees and expenses.................... 1,000
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 300,000
Printing and engraving expenses............................. 150,000
Transfer agent and registrar fees........................... 5,000
Director and Officer liability insurance.................... 100,000
Miscellaneous expenses...................................... 32,143
--------
Total.................................................. $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware Law")
permits the indemnification of officers, directors, and other corporate agents
under certain circumstances and subject to certain limitations. The Registrant's
Certificate of Incorporation (Exhibit 3.1) and Bylaws (Exhibit 3.3) provide that
the Registrant shall indemnify its directors, officers, employees, and agents to
the full extent permitted by Delaware Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements (Exhibit
10.1) with its directors and officers which should require the Registrant, among
other things, to indemnify them against certain liabilities which may arise by
reason of their status or service (other than liabilities arising from willful
misconduct of a culpable nature). These indemnification provisions may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act of 1933, as amended (the "Securities Act").
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1995, Registrant has sold and issued the following
unregistered securities:
(1) From January 1, 1995, to December 31, 1997, Registrant granted
options to purchase 151,400 shares of Common Stock pursuant to its 1993
Stock Option Plan at exercise prices ranging from $1.50 per share to $1.90
per share for a total offering price of $264,260.
(2) From January 1, 1995 to December 31, 1997, Registrant issued and
sold an aggregate of 274,575 shares of Common Stock to its employees,
directors and consultants for an aggregate consideration of $284,050, upon
exercise of stock options granted pursuant to Registrant's 1993 Stock
Option Plan at exercise prices ranging from $0.30 to $1.90.
II-1
<PAGE> 74
(3) In June 1997, Registrant granted purchase rights to purchase up
to, in the aggregate, 67,000 shares of Common Stock to its employees for
the purchase price of $3.75 per share pursuant to its 1997 Employee Stock
Purchase Plan, for a total offering price of $251,250.
(4) In November 1997, Registrant issued and sold an aggregate 67,000
shares of Common Stock to its employees for an aggregate consideration of
$251,250, upon exercise of purchase rights granted pursuant to Registrant's
1997 Employee Stock Purchase Plan (since terminated).
(5) In 1997, Registrant granted options to purchase 1,118,100 shares
of Common Stock at the exercise price of $5.00 per share and 130,000 shares
of Common Stock at $5.50 per share pursuant to its 1997 Stock Option Plan,
for a total offering price of $6,305,500.
(6) On March 31, 1997, Registrant issued and sold an aggregate of
1,200,000 shares of Series C Preferred Stock to a group of private
investors for aggregate cash consideration of $6,000,000.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of Prospectus included herein.
The issuances of Securities describe in Items 15(a)(1) through 15(a)(5)
were deemed to be exempt from registration under the Securities Act in reliance
on Rule 701 promulgated thereunder as transactions pursuant to a compensatory
benefit plan or a written contract relating to compensation. The issuance of
securities describe in item 15(a)(6) was deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between American Xtal
Technology, a California corporation, and American Xtal
Technology Delaware Corporation, a Delaware corporation.
3.1 Certificate of Incorporation of American Xtal Technology
Delaware Corporation, a Delaware corporation.
3.2 Form of Certificate of Amendment of Certificate of
Incorporation of American Xtal Technology, Inc., a
Delaware corporation.
3.3 Bylaws of American Xtal Technology Delaware Corporation, a
Delaware corporation.
5.1* Opinion of Gray Cary Ware & Freidenrich, LLP.
10.1 Form of Indemnification Agreement for directors and
officers.
10.2 1993 Stock Option Plan and forms of agreements thereunder.
10.3 1997 Stock Option Plan and forms of agreements thereunder.
10.4 1997 Employee Stock Purchase Plan and forms of agreements
thereunder.
10.5 1998 Employee Stock Purchase Plan and forms of agreements
thereunder.
10.6 Loan Agreement with U.S. Bank dated March 4, 1998.
21.1 List of subsidiaries.
</TABLE>
II-2
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4 of Registration Statement
filed on March 17, 1998.)
27.1 Financial Data Schedule (available in EDGAR format only).
</TABLE>
- ---------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
the Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statements relating to the securities
offered therein, and this Offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 76
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-1 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Fremont,
County of Alameda, State of California, on the 17th day of March 1998.
AMERICAN XTAL TECHNOLOGY, INC.
By: /s/ MORRIS S. YOUNG
------------------------------------
Morris S. Young
President and Chief Executive
Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Morris S. Young and Guy D. Atwood,
and each of them acting individually, as his attorney-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Registration
Statement
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MORRIS S. YOUNG President, March 17, 1998
- -------------------------------------------------------- Chief Executive Officer,
Morris S. Young and Chairman of the Board
(Principal Executive
Officer)
/s/ GUY D. ATWOOD Vice President, Chief March 17, 1998
- -------------------------------------------------------- Financial Officer
Guy D. Atwood (Principal Financial and
Accounting Officer)
/s/ THEODORE S. YOUNG Senior Vice President, March 17, 1998
- -------------------------------------------------------- Marketing, Director
Theodore S. Young
/s/ DONALD L. TATZIN Director March 17, 1998
- --------------------------------------------------------
Donald L. Tatzin
/s/ JESSE CHEN Director March 17, 1998
- --------------------------------------------------------
Jesse Chen
/s/ B.J. MOORE Director March 17, 1998
- --------------------------------------------------------
B.J. Moore
</TABLE>
II-4
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between American Xtal
Technology, a California corporation, and American Xtal
Technology Delaware Corporation, a Delaware corporation.
3.1 Certificate of Incorporation of American Xtal Technology
Delaware Corporation, a Delaware corporation.
3.2 Form of Certificate of Amendment of Certificate of
Incorporation of American Xtal Technology, Inc., a
Delaware corporation.
3.3 Bylaws of American Xtal Technology Delaware Corporation, a
Delaware corporation.
5.1* Opinion of Gray Cary Ware & Freidenrich, LLP.
10.1 Form of Indemnification Agreement for directors and
officers.
10.2 1993 Stock Option Plan and forms of agreements thereunder.
10.3 1997 Stock Option Plan and forms of agreements thereunder.
10.4 1997 Employee Stock Purchase Plan and forms of agreements
thereunder.
10.5 1998 Employee Stock Purchase Plan and forms of agreements
thereunder.
10.6 Loan Agreement with U.S. Bank dated March 4, 1998.
21.1 List of subsidiaries.
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4 of Registration Statement
filed on March 17, 1998.)
27.1 Financial Data Schedule (available in EDGAR format only).
</TABLE>
- ---------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
American Xtal Technology, Inc.
2,500,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
----------------------
_____________, 1998
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
American Xtal Technology, Inc. a Delaware corporation (the "Company"),
hereby confirms its agreement with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth below.
If you are the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained, the
Company proposes to issue and sell to the several Underwriters an aggregate of
2,500,000 shares (the "Firm Securities") of the Company's Common Stock, par
value $.001 per share ("Common Stock"). The Company also proposes to issue and
sell to the several Underwriters not more than 375,000 additional shares of
Common Stock if requested by the Representatives as provided in Section 3 of
this Agreement. Any and all shares of Common Stock to be purchased by the
Underwriters pursuant to such option are referred to herein as the "Option
Securities", and the Firm Securities and any Option Securities are collectively
referred to herein as the "Securities".
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-____) with
respect to the Securities, including a prospectus subject to completion, has
been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and one
or more amendments to such registration statement may have been so filed. After
the execution of this Agreement, the Company will file with the Commission
either (i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as
- --------------------
(1) Plus an option to purchase from American Xtal Technology up to 375,000
additional shares to cover over-allotments.
<PAGE> 2
hereinafter defined) relating to the Securities, that shall identify the
Preliminary Prospectus (as hereinafter defined) that it supplements containing
such information as is required or permitted by Rules 434, 430A and 424(b) under
the Act or (B) if the Company does not rely on Rule 434 under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by Rule
430A under the Act or permitted by Rule 424(b) under the Act, and in the case of
either clause (i)(A) or (i)(B) of this sentence as have been provided to and
approved by the Representatives prior to the execution of this Agreement, or
(ii) if such registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Representatives prior to the
execution of this Agreement. The Company may also file a related registration
statement with the Commission pursuant to Rule 462(b) under the Act for the
purpose of registering certain additional Securities, which registration shall
be effective upon filing with the Commission. As used in this Agreement, the
term "Original Registration Statement" means the registration statement
initially filed relating to the Securities, as amended at the time when it was
or is declared effective, including all financial schedules and exhibits thereto
and including any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined); the term "Rule
462(b) Registration Statement" means any registration statement filed with the
Commission pursuant to Rule 462(b) under the Act (including the Registration
Statement and any Preliminary Prospectus or Prospectus incorporated therein at
the time such Registration Statement becomes effective); the term "Registration
Statement" includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the Act, the
Term Sheet relating to the Securities that is first filed
pursuant to Rule 424(b)(7) under the Act, together with
the Preliminary Prospectus identified therein that such
Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act; or
(C) if the Company does not rely on Rule 434 under the Act
and if no prospectus is required to be filed pursuant to
Rule 424(b) under the Act, the prospectus included in the
Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or
suspending use of any Preliminary Prospectus. When any Preliminary Prospectus
was filed with the Commission it (i) contained all statements required to be
stated therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act
-2-
<PAGE> 3
and the rules and regulations of the Commission thereunder and (ii) did not or
will not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When the
Prospectus or any Term Sheet that is a part thereof or any amendment or
supplement to the Prospectus is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or part thereof or such amendment or supplement is
not required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
declared effective) and on the Firm Closing Date and any Option Closing Date
(both as hereinafter defined), the Prospectus, as amended or supplemented at any
such time, (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the
Rule 462(b) Registration Statement has not been declared effective, (i) the
Company has filed a Rule 462(b) Registration Statement in compliance with and
that is effective upon filing pursuant to Rule 462(b) and has received
confirmation of its receipt and (ii) the Company has given irrevocable
instructions for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in compliance with Rule
111 promulgated under the Act or the Commission has received payment of such
filing fee.
(d) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company and its subsidiaries, taken
as a whole.
(e) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions hereof
to be carried out by it.
(f) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and are owned beneficially by the Company free and clear of any
security interests, liens, encumbrances, equities or claims.
(g) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. The Firm Securities and the Option Securities
have been duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. No holders of
outstanding shares of capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Securities, and no holder
of securities of the Company has any
-3-
<PAGE> 4
right which has not been fully exercised or waived to require the Company to
register the offer or sale of any securities owned by such holder under the Act
in the public offering contemplated by this agreement. The Company owns all of
the capital stock of each of its subsidiaries.
(h) The capital stock of the Company conforms to the description
thereof contained in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(i) Except as disclosed in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), there are no
outstanding (A) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of the
Company or any such subsidiary, (B) warrants, rights or options to subscribe for
or purchase from the Company or any such subsidiary any such capital stock or
any such convertible or exchangeable securities or obligations, or (C)
obligations of the Company or any such subsidiary to issue any shares of capital
stock, any such convertible or exchangeable securities or obligations, or any
such warrants, rights or options.
(j) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the Company and
its consolidated subsidiaries and the results of operations and changes in
financial condition as of the dates and periods therein specified. Such
financial statements and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Consolidated Financial Data" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the Prospectus
(or such Preliminary Prospectus), the information included therein.
(k) Price Waterhouse LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
report with respect to the audited consolidated financial statements and
schedules included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), are
independent public accountants as required by the Act and the applicable rules
and regulations thereunder.
(l) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(m) No legal or governmental proceedings are pending to which the
Company or any of its subsidiaries is a party or to which the property of the
Company or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not described therein
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and no such proceedings have been threatened against the Company or
any of its subsidiaries or with respect to any of their respective properties;
and no contract or other document is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) or filed as required.
(n) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except
-4-
<PAGE> 5
such as have been obtained, such as may be required under state securities or
blue sky laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act, or (ii) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of their respective properties are
bound, or the charter documents or by-laws of the Company or any of its
subsidiaries, or any statute or any judgment, decree, order, rule or regulation
of any court or other governmental authority or any arbitrator applicable to the
Company or any of its subsidiaries.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus, neither the Company
nor any of its subsidiaries has sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane, accident
or other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding and there has not been any
material adverse change, or any development involving a prospective material
adverse change, in the condition (financial or otherwise), management, business
prospects, net worth, or results of the operations of the Company or any of its
subsidiaries, except in each case as described in or contemplated by the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus.
(p) The Company has not, directly or indirectly, (i) taken any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(q) The Company has not distributed and, prior to the later of
(i) the Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection with the
offering and sale of the Securities other than the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or other materials, if any permitted by the Act.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), (i) the Company and
its subsidiaries have not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the ordinary
course of business; (ii) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or distribution
of any kind on its capital stock; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the Company
and its consolidated subsidiaries, except in each case as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(s) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and marketable
title to all personal property owned by each of them, in each case free and
clear Of any security interests, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of such
property and do not interfere with the use made or proposed to be made of such
property by the Company or such subsidiary, and any real property and buildings
held under lease by the Company or any such subsidiary are held under valid,
subsisting and enforceable leases, with such exceptions as are not material and
do not interfere with the
-5-
<PAGE> 6
use made or proposed to be made of such property and buildings by the Company or
such subsidiary, in each case except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(t) No labor dispute with the employees of the Company or any of
its subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with
their respective businesses, and neither the Company nor any such subsidiary has
received any notice of infringement of or conflict with asserted rights of any
third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(w) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(x) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company, and its subsidiaries, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(y) The Company will conduct its operations in a manner that will
not subject it to registration as an investment company under the Investment
Company Act of 1940, as amended, and this transaction will not cause the Company
to become an investment company subject to registration under such act.
-6-
<PAGE> 7
(z) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the Company and its subsidiaries) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being contested in
good faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(aa) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to occupational
safety and health or to the storage, handling or transportation of hazardous or
toxic materials and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and regulations to conduct
their respective businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(bb) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
(cc) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the Company nor
any such subsidiary owns any shares of stock or any other equity securities of
any corporation or has any equity interest in any firm, partnership, association
or other entity, except as described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus).
(dd) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ee) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their respective properties is bound or may be
affected in any material adverse respect with regard to property, business or
operations of the Company and its subsidiaries.
3. Purchase, Sale and Delivery of the Securities. (a) On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Firm Securities to each of the Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company, at
a purchase price of $_________ per share, the number of Firm Securities set
forth opposite the name of such Underwriter in Schedule 1 hereto. One or more
certificates in definitive form for the Firm Securities that the several
-7-
<PAGE> 8
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Representatives
request upon notice to the Company at least 48 hours prior to the Firm Closing
Date, shall be delivered by or on behalf of the Company to the Representatives
for the respective accounts of the Underwriters, against payment by or on behalf
of the Underwriters of the purchase price therefor by wire transfer in same-day
funds (the "Wired Funds") to the account of the Company. Such delivery of and
payment for the Firm Securities shall be made at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94061, at 9:30
A.M., New York time, on ______, 1998, or at such other place, time or date as
the Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, such time and date of delivery against
payment being herein referred to as the "Firm Closing Date". The Company will
make such certificate or certificates for the Firm Securities available for
checking and packaging by the Representatives at the offices in New York, New
York of the Company's transfer agent or registrar or of Prudential Securities
Incorporated at least 24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3. The option granted hereby may be exercised as to all or any part of
the Option Securities from time to time within thirty days after the date of the
Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on
the next business day thereafter when the New York Stock Exchange is open for
trading). The Underwriters shall not be under any obligation to purchase any of
the Option Securities prior to the exercise of such option. The Representatives
may from time to time exercise the option granted hereby by giving notice in
writing or by telephone (confirmed in writing) to the Company setting forth the
aggregate number of Option Securities as to which the several Underwriters are
then exercising the option and the date and time for delivery of and payment for
such Option Securities. Any such date of delivery shall be determined by the
Representatives but shall not be earlier than two business days or later than
five business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time on such other date as the Representatives and the
Company may agree upon or as the Representatives may determine pursuant to
Section 9 hereof, is herein called the "Option Closing Date" with respect to
such Option Securities. Upon exercise of the option as provided herein, the
Company shall become obligated to sell to each of the several Underwriters, and,
subject to the terms and conditions herein set forth, each of the Underwriters
(severally and not jointly) shall become obligated to purchase from the Company,
the same percentage of the total number of the Option Securities as to which the
several Underwriters are then exercising the option as such Underwriter is
obligated to purchase of the aggregate number of Firm Securities, as adjusted by
the Representatives in such manner as they deem advisable to avoid fractional
shares. If the option is exercised as to all or any portion of the Option
Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (a) of this Section 3, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively.
(c) The Company hereby acknowledges that the wire transfer by or on
behalf of the Underwriters of the purchase price for any Shares does not
constitute closing of a purchase and sale of the Securities. Only execution and
delivery of a receipt for Securities by the Underwriters indicates completion of
the closing of a purchase of the Securities from the Company. Furthermore, in
the event that the Underwriters wire funds to the Company prior to the
completion of the closing of a purchase of Securities, the Company hereby
acknowledges that until the Underwriters execute and deliver a receipt for the
Securities, by facsimile or otherwise, the Company will not be entitled to the
wired funds and shall return the wired funds to the Underwriters as soon as
practicable (by wire transfer of same-day funds)
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<PAGE> 9
upon demand. In the event that the closing of a purchase of Securities is not
completed and the wire funds are not returned by the Company to the Underwriters
on the same day the wired funds were received by the Company, the Company agrees
to pay to the Underwriters in respect of each day the wire funds are not
returned by it in same-day funds, interest on the amount of such wire funds in
an amount representing the Underwriters' cost of financing as reasonably
determined by Prudential Securities Incorporated.
(d) It is understood that any of you, individually and not as one
of the Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
possible. If required, the Company will file the Prospectus or any Term Sheet
that constitutes a part thereof and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rules 434 and
424(b) under the Act. During any time when a prospectus relating to the
Securities is required to be delivered under the Act, the Company (i) will
comply with all requirements imposed upon it by the Act and the rules and
regulations of the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented, and
(ii) will not file with the Commission the prospectus, Term Sheet or the
amendment referred to in the second sentence of Section 2(a) hereof, any
amendment or supplement to such Prospectus, Term Sheet or any amendment to the
Registration Statement or any Rule 462(b) Registration Statement of which the
Representatives previously have been advised and furnished with a copy for a
reasonable period of time prior to the proposed filing and as to which filing
the Representatives shall not have given their consent. The Company will prepare
and file with the Commission, in accordance with the rules and regulations of
the Commission, promptly upon request by the Representatives or counsel for the
Underwriters, any amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or advisable in connection
with the distribution of the Securities by the several Underwriters, and will
use its best efforts to cause any such amendment to the Registration Statement
to be declared effective by the Commission as promptly as possible. The Company
will advise the Representatives, promptly after receiving notice thereof, of the
time when the Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendment or supplement thereto has
been filed and will provide evidence satisfactory to the Representatives of each
such filing or effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
(ii) the suspension of the qualification of the Securities for offering or sale
in any jurisdiction, (iii) the institution, threatening or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the Original Registration Statement or any Rule 462(b) Registration
Statement, for amending or supplementing the
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<PAGE> 10
Prospectus or for additional information. The Company will use its best efforts
to prevent the issuance of any such stop order and, if any such stop order is
issued, to obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the
Securities for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities, provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when
a prospectus relating to the Securities is required to be delivered under the
Act or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representatives thereof and, subject to Section 5(a) hereof, will prepare and
file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a conformed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) or any Rule 462(b)
Registration Statement, certified by the Secretary or an Assistant Secretary of
the Company to be true and complete copies thereof as filed with the Commission
by electronic transmission, (ii) to each other Underwriter, a conformed copy of
such registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Representatives may reasonably request; without
limiting the application of clause (iii) of this sentence, the Company, not
later than (A) 6:00 PM. New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to 10:00 A.M.,
New York City time, on such date or (B) 2:00 P.M., New York City time, on the
business day following the date of determination of the public offering price,
if such determination occurred after 10:00 A.M., New York City time, on such
date, will deliver to the Underwriters, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the Representatives may
reasonably request for purposes of confirming orders that are expected to settle
on the Firm Closing Date. The Company will provide or cause to be provided to
each of the Representatives, and to each Underwriter that so requests in
writing, a copy of each report on Form SR filed by the Company as required by
Rule 463 under the Act.
(f) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representatives a consolidated
earnings statement of the Company and its subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares
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<PAGE> 11
of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 180 days after the date
hereof, except pursuant to this Agreement and except for issuances pursuant to
the exercise of employee stock options outstanding on the date hereof or
pursuant to the terms of convertible securities of the Company outstanding on
the date hereof.
(i) The Company will not, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.
(j) The Company will obtain the agreements described in Section
7(f) hereof prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the Option
Closing Date, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your opinion the market price of the
Common Stock has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after notice from you advising
the Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 promulgated under the Act by the earlier of (i) 10:00 P.M. Eastern time on
the date of this Agreement and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(m) The Company will cause the Securities to be duly included for
quotation on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") prior to the Firm Closing Date. The Company will ensure that the
Securities remain included for quotation on the Nasdaq National Market following
the Firm Closing Date.
6. Expenses. The Company will pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the printing or other production of documents with respect to the transactions,
including any costs of printing the registration statement originally filed with
respect to the Securities and any amendment thereto, any Rule 462(b)
Registration Statement, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement and any blue sky memoranda, (ii)
all arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (iii) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by the Company, (iv)
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Securities, (vii) any
quotation of the Securities on the Nasdaq National Market, (viii) any meetings
with prospective investors in the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the
Underwriters), and (ix) advertising relating to the offering of the Securities
(other than as shall have been specifically
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<PAGE> 12
approved by the Representatives to be paid for by the Underwriters)]. If the
sale of the Securities provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth in Section 7 hereof
is not satisfied, because this Agreement is terminated pursuant to Section 11
hereof or because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on their part to
be performed or satisfied hereunder other than by reason of a default by any of
the Underwriters, the Company will reimburse the Underwriters severally upon
demand for all out-of-pocket expenses (including counsel fees and disbursements)
that shall have been incurred by them in connection with the proposed purchase
and sale of the Securities. The Company shall not in any event be liable to any
of the Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, to the accuracy of the statements of the Company's officers made pursuant
to the provisions hereof, to the performance by the Company of its covenants and
agreements hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any amendment
thereto filed prior to the Firm Closing Date has not been declared effective as
of the time of execution hereof, the Original Registration Statement or such
amendment and, if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have been declared effective not later than
the earlier of (i) 11:00 A.M., New York time, on the date on which the amendment
to the registration statement originally filed with respect to the Securities or
to the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Securities has been filed
with the Commission and (ii) the time confirmations are sent or given as
specified by Rule 462(b)(2), or with respect to the Original Registration
Statement, or such later time and date as shall have been consented to by the
Representatives; if required, the Prospectus or any Term Sheet that constitutes
a part thereof and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rules
434 and 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Representatives, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Gray Cary Ware & Freidenrich, counsel for the Company, to
the effect that:
(i) the Company and each of its subsidiaries listed in
Schedule 2 hereto (the "Subsidiaries") have been duly organized
and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation and
are duly qualified to transact business as foreign corporations
and are in good standing under the laws of all other
jurisdictions where the ownership or leasing of their respective
properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified
does not amount to a material liability or disability to the
Company and the Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have
corporate power to own or lease their respective properties and
conduct their respective businesses as described in the
Registration Statement and the Prospectus, and the Company has
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<PAGE> 13
corporate power to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it;
(iii) the issued shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned beneficially by the Company free and clear of any perfected security
interests or, to the best knowledge of such counsel, any other security
interests, liens, encumbrances, equities or claims;
(iv) the Company has an authorized, issued and outstanding capitalization
as set forth in the Prospectus; all of the issued shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, the
Firm Securities have been duly authorized by all necessary corporate action of
the Company and, when issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable; the Securities have been duly included for trading on the Nasdaq
National Market; no holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to subscribe for
any of the Securities; and no holders of securities of the Company are entitled
to have such securities registered under the Registration Statement;
(v) the statements set forth under the heading "Description of Capital
Stock" in the Prospectus, insofar as such statements purport to summarize
certain provisions of the capital stock of the Company, provide a fair summary
of such provisions;
(vi) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company and this Agreement
has been duly executed and delivered by the Company;
(vii) (A) no legal or governmental proceedings are pending to which the
Company or any of the Subsidiaries is a party or to which the property of the
Company or any of the Subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not described therein,
and, to the best knowledge of such counsel, no such proceedings have been
threatened against the Company or any of the Subsidiaries or with respect to any
of their respective properties and (B) no contract or other document is required
to be described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement that is not described therein or
filed as required;
(viii) the issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (A) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained and such as may be required under
state securities or blue sky laws, or (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, lease or other agreement or instrument,
known to such counsel, to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries or any of their
respective properties are bound, or the charter documents or by-laws of the
Company or any of the
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<PAGE> 14
Subsidiaries, or any statute or any judgment, decree, order, rule or regulation
of any court or other governmental authority or any arbitrator known to such
counsel and applicable to the Company or Subsidiaries;
(ix) the Company and each of its subsidiaries have good and marketable
title in fee simple to all items of real property and marketable title to all
personal property owned by each of them, in each case free and clear of any
security interests, liens, encumbrances, equities, claims and other defects,
except such as do not materially and adversely affect the value of such property
and do not interfere with the use made or proposed to be made of such property
by the Company or such subsidiary, and any real property and buildings held
under lease by the Company or any such subsidiary are held under valid,
subsisting and enforceable leases, with such exceptions as are not material and
do not interfere with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary, in each case except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus);
(x) the Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent applications, trademarks, service
marks, trade names, licenses, copyrights and proprietary or other confidential
information currently employed by them in connection with their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus);
(xi) no subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus);
(xii) to the best of such counsel's knowledge, the Company and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of the
Company, and its subsidiaries, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus);
(xiii) the Company is not an "investment company" or an entity "controlled"
by an "investment company", as such terms are defined in the Investment Company
Act of 1940;
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<PAGE> 15
(xiv) to the best of such counsel's knowledge, neither the Company nor any
of the Subsidiaries is in violation of any federal or state law or regulation
relating to occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company and the
Subsidiaries have received all permits, licenses or other approvals required of
them under applicable federal and state occupational safety and health and
environmental laws and regulations to conduct their respective businesses, and
the Company and each such subsidiary is in compliance with all terms and
conditions of any such permit, license or approval, except any such violation of
law or regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals which would not, singly or in the aggregate, result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus);
(xv) to the best of such counsel's knowledge, no default exists, and no
event has occurred which, with notice or lapse of time or both, would constitute
a default in the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or any of the Subsidiaries are a party or by
which the Company or any of the Subsidiaries or any of their respective
properties is bound or may be affected in any material adverse respect with
regard to property, business or operations of the Company and its subsidiaries;
(xvi) there are no holders of securities of the Company, who, by reason of
the filing of the Registration Statement have the right (and have not waived
such right) to request the Company to register under the Act, or to include in
the Registration Statement, securities held by them;
(xvii) the Registration Statement is effective under the Act; any required
filing of the Prospectus, or any Term Sheet that constitutes a part thereof,
pursuant to Rules 434 and 424(b) has been made in the manner and within the time
period required by Rules 434 and 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto has been
issued, and no proceedings for that purpose have been instituted or threatened
or, to the best knowledge of such counsel, are contemplated by the Commission;
and
(xviii) the Registration Statement originally filed with respect to the
Securities and each amendment thereto, any Rule 462(b) Registration Statement
and the Prospectus (in each case, other than the financial statements and other
financial information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the applicable
requirements of the Act and the rules and regulations of the Commission
thereunder.
(xix) if the Company elects to rely on Rule 434, the Prospectus is not
"materially different", as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time of its effectiveness or an
effective post-effective amendment thereto (including such information that is
permitted to be omitted pursuant to Rule 430A).
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<PAGE> 16
Such counsel shall also state that they have no reason to believe that
the Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the State of California or
the United States or the General Corporation Law of the State of Delaware, to
the extent satisfactory in form and scope to counsel for the Underwriters, upon
the opinion of [INSERT NAME OF LOCAL COUNSEL]. The foregoing opinion shall also
state that the Underwriters are justified in relying upon such opinion of
[INSERT NAME OF LOCAL COUNSEL], and copies of such opinion shall be delivered to
the Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters, with respect to the issuance and sale of the Firm Securities, the
Registration Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters. In rendering such opinion, such counsel
may rely as to all matters of law upon the opinion of [INSERT NAME OF LOCAL
COUNSEL] referred to in paragraph (b) above.
(d) The Representatives shall have received from Price Waterhouse
LLP a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance Satisfactory to the Representatives, to the
effect that:
(i) they are independent accountants with respect to the Company
and its consolidated subsidiaries within the meaning of the Act and the
applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules and pro forma financial statements examined by
them and included in the Registration Statement and the Prospectus
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations;
(iii) on the basis of a reading of the latest available interim
unaudited consolidated condensed financial statements of the Company and
its consolidated subsidiaries, carrying out certain specified procedures
(which do not constitute an examination made in accordance with
generally accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the shareholders, the
board of directors and any committees thereof of the Company and each of
its consolidated subsidiaries, and inquiries of certain officials of the
Company and its consolidated subsidiaries who have responsibility for
financial and accounting matters, nothing came to their attention that
caused them to believe that:
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<PAGE> 17
(A) the unaudited consolidated condensed financial
statements of the Company and its consolidated subsidiaries
included in the Registration Statement and the Prospectus do not
comply in form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations thereunder or are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited consolidated
financial statements included in the Registration Statement and
the Prospectus; and
(B) at a specific date not more than five business days
prior to the date of such letter, there were any changes in the
capital stock or long-term debt of the Company and its
consolidated subsidiaries or any decreases in not current assets
or stockholders' equity of the Company and its consolidated
subsidiaries, in each case compared with amounts shown on the
March 31, 1998 unaudited consolidated balance sheet included in
the Registration Statement and the Prospectus, or for the period
from April 1, 1998 to such specified date there were any
decreases, as compared with the period from March 31, 1997 to
______________, in total revenues, net income or net income per
share of the Company and its consolidated subsidiaries, except in
all instances for changes, decreases or increases set forth in
such letter: and
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting
records of the Company and its consolidated subsidiaries and are
included in the Registration Statement and the Prospectus and in Exhibit
11 to the Registration Statement, and have compared such amounts,
percentages and financial information with such records of the Company
and its consolidated subsidiaries and with information derived from such
records and have found them to be in agreement, excluding any questions
of legal interpretation; and
(v) any other statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered
according to Statement of Auditing Standards No. 72 (or any successor
bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the
Registration Statement and the Prospectus.
In the event that the letters referred to above set forth any such changes,
decreases or increases, it shall be a further condition to the obligations of
the Underwriters that (A) such letters shall be accompanied by a written
explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in this paragraph
(d) with respect to either letter referred to above shall include any amendment
or supplement thereto at the date of such letter.
(e) The Representatives shall have received a certificate, dated
the Firm Closing Date, of the principal executive officer and the principal
financial or accounting officer of the Company to the effect that:
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<PAGE> 18
(i) the representations and warranties of the Company in
this Agreement are true and correct as if made on and as of the Firm
Closing Date; the Registration Statement, as amended as of the Firm
Closing Date, does not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein not misleading, and the Prospectus, as amended or supplemented
as of the Firm Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; and the Company has performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to
the best of the Company's knowledge, are contemplated by the Commission:
and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries has sustained any
material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and there has not been any material
adverse change, or any development involving a prospective material
adverse change, in the condition (financial or otherwise), management,
business prospects, net worth or results of operations of the Company or
any of its subsidiaries, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto).
(f) The Representatives shall have received from each person who is a
director or officer of the Company or who owns _________ shares of Common Stock
an agreement to the effect that such person will not, directly or indirectly,
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant of an option to
purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 180 days after the date of this Agreement.
(g) On or before the Firm Closing Date, the Representatives and counsel
for the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
(h) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All opinions, certificates, letters and documents delivered pursuant to this
Agreement will comply with the provisions hereof only if they are reasonably
satisfactory in all material respects to the Representatives and counsel for the
Underwriters. The Company shall furnish to the Representatives such conformed
copies of such opinions, certificates, letters and documents in such quantities
as the Representatives and counsel for the Underwriters shall reasonably
request.
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<PAGE> 19
The respective obligations of the several Underwriters to purchase and pay for
any Option Securities shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.
8. Indemnification and Contribution. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act"), against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made
by the Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or (B) any application or other
document, or any amendment or supplement thereto, executed by the
Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to qualify the Securities
under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
any Application a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
(iv) any untrue statement or alleged untrue statement of
any material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including without
limitation, slides, videos, films, tape recordings,
and will reimburse, as incurred, each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Application in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein; and
provided, further, that the Company will not be liable to any Underwriter or any
person controlling such Underwriter with respect to any such untrue. statement
or omission made in any Preliminary Prospectus that is corrected in the
Prospectus (or any amendment or supplement thereto) if the person asserting any
such loss, claim, damage or liability purchased Securities from such Underwriter
but was not sent or given a copy of the Prospectus (as amended or supplemented)
at or prior to the written confirmation of the sale of such Securities to such
person in any case where such delivery of the Prospectus (as amended or
supplemented) is required by the Act,
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<PAGE> 20
unless such failure to deliver the Prospectus (as amended or supplemented) was a
result of noncompliance by the Company with Section 5(d) and (e) of this
Agreement. This indemnity agreement will be in addition to any liability which
the Company may otherwise have. The Company will not, without the prior written
consent of the Underwriter or Underwriters purchasing, in the aggregate, more
than fifty percent (50%) of the Securities, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act against
any losses, claims, damages or liabilities to which the Company, any such
director or officer of the Company, or controlling person of the Company may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application or (ii) the omission or the alleged omission to state therein
a material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company, any such director or officer
of the Company, or controlling person of the Company in connection with
investigating or defending any such loss, claim, damage, liability or any action
in respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party,
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from
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<PAGE> 21
the indemnifying party to such indemnified party of its election so to assume
the defense thereof and approval by such indemnified party of counsel appointed
to defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this Section
8, representing the indemnified parties under such paragraph (a) who are parties
to such action or actions) or (ii) the indemnifying party does not promptly
retain counsel satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party will not be liable for the
costs and expenses of any settlement of such action affected by such indemnified
party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Underwriters, The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree that it
would not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this paragraph
(d). Notwithstanding any other provision of this paragraph (d), no Underwriter
shall be obligated to make contributions hereunder that in the aggregate exceed
the total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed
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<PAGE> 22
by the provisions of the Prudential Securities Incorporated Master Agreement
Among Underwriters. For purposes of this paragraph (d), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company.
9. Default of Underwriters. If one or more Underwriters default in their
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as provided
in Section 10 hereof. In the event of any default by one or more Underwriters as
described in this Section 9, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and the several
Underwriters set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, any Underwriter or any controlling person referred to
in Section 8 hereof and (ii) delivery of and payment for the Securities. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6 and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing Date or such Option Closing Date,
respectively,
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<PAGE> 23
(i) the Company or any of its subsidiaries shall have, in
the sole judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company), in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except in
each case as described in or contemplated by the Prospectus (exclusive
of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended
by the Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or Nasdaq National Market shall
have been suspended or minimum or maximum prices shall have been
established on either such exchange;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have, been (A) an outbreak or escalation
of hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement, as amended as
of the date hereof,
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
12. Information Supplied by Underwriters. The statements set forth in the last
paragraph on the front cover page and under the heading "Underwriting" in any
Preliminary Prospectus or the Prospectus (to the extent such statements relate
to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Sections 2(b) and 8 hereof. The Underwriters confirm that such statements (to
such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if sent to
any of the Underwriters, shall be delivered or sent by mail, telex or facsimile
transmission and confirmed in writing to Prudential Securities Incorporated, One
New York Plaza, New York, New York 10292, Attention: Equity Transactions Group;
if sent to the Company, shall be delivered or sent by mail, telex or facsimile
transmission and confirmed in writing to the Company at 4311 Solar Way, Fremont,
California 94538.
14. Successors. This Agreement shall inure to the benefit of and shall be
binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in
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<PAGE> 24
Section 8 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act and (ii) the indemnities of the Underwriters
contained in Section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No
purchaser of Securities from any Underwriter shall be deemed a successor because
of such purchase.
15. Applicable Law. The validity and interpretation of this Agreement, and the
terms and conditions set forth herein, shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial proceedings
arising out of or relating to this Agreement may be brought in any state or
federal court of competent jurisdiction in the State of New York, and by
execution and delivery of this Agreement, the Company accepts for itself and in
connection with its properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts and waives any defense of forum non
conveniens and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement. The Company designates and appoints
________________, and such other persons as may hereafter be selected by the
Company irrevocably agreeing in writing to so serve, as its agent to receive on
its behalf service of all process in any such proceedings in any such court,
such service being hereby acknowledged by the Company to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to the Company at its address provided in Section 13
hereof; provided, however, that, unless otherwise provided by applicable law,
any failure to mail such copy shall not affect the validity of service of such
process. If any agent appointed by the Company refuses to accept service, the
Company hereby agrees that service of process sufficient for personal
jurisdiction in any action against the Company in the State of New York may be
made by registered or certified mail, return receipt requested, to the Company
at its address provided in Section 13 hereof, and the Company hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Company in the courts of any other jurisdiction.
17. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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<PAGE> 25
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company
and each of the several Underwriters.
Very truly yours,
AMERICAN XTAL TECHNOLOGY, INC.
By
-----------------------------------------
[TITLE]
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
By PRUDENTIAL SECURITIES INCORPORATED
By
-------------------------------------
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
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<PAGE> 26
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
<S> <C>
Prudential Securities Incorporated.........................................
Cowen & Company............................................................
------------
Total.......................................................
============
</TABLE>
<PAGE> 27
SCHEDULE 2
SUBSIDARIES
Name Jurisdiction of Incorporation
- ---- -----------------------------
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered
into as of __________, 1998 by and between American Xtal Technology, a
California corporation ("AXT California"), and American Xtal Technology Delaware
Corporation, a Delaware corporation ("AXT Delaware").
WITNESSETH:
WHEREAS, AXT Delaware is a corporation duly organized and existing
under the laws of the State of Delaware;
WHEREAS, AXT California is a corporation duly organized and existing
under the laws of the State of California;
WHEREAS, on the date of this Merger Agreement, AXT Delaware has
authority to issue 1,000 shares of Common Stock, par value $0.001 per share (the
"AXT Delaware Common Stock"), of which _____ shares are issued and outstanding
and owned by AXT California;
WHEREAS, on the date of this Merger Agreement, AXT California has
authority to issue 100,000,000 shares of Common Stock (the "AXT California
Common Stock"), of which ____ shares are issued and outstanding, and 25,000,000
shares of Preferred Stock (the "AXT California Preferred Stock"), of which
4,924,817 shares are designated as Series A Preferred Stock, 4,003,921 shares
are designated as Series B Preferred Stock and 1,200,000 shares are designated
as Series C Preferred Stock and 4,924,817 shares of Series A Preferred Stock are
issued and outstanding, 4,003,920 shares of Series B Preferred Stock are issued
and outstanding and 1,200,000 shares of Series C Preferred Stock are issued and
outstanding;
WHEREAS, the respective Boards of Directors for AXT Delaware and AXT
California have determined that, for the purpose of effecting the
reincorporation of AXT California in the State of Delaware, it is advisable and
to the advantage of said two corporations and their stockholders that AXT
California merge with and into AXT Delaware upon the terms and conditions herein
provided; and
WHEREAS, the respective Boards of Directors of AXT Delaware and AXT
California, the stockholders of AXT California, and the sole stockholder of AXT
Delaware have adopted and approved this Merger Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, AXT California and AXT Delaware hereby agree to merge as
follows:
1. Merger. AXT California shall be merged with and into AXT Delaware,
and AXT Delaware shall survive the merger ("Merger"), effective upon the date
when this Merger Agreement is made effective in accordance with applicable law
(the "Effective Date").
1
<PAGE> 2
2. Governing Documents. The Certificate of Incorporation of AXT Delaware
shall be amended to read in full as follows:
FIRST: The name of the Corporation is American Xtal Technology,
Inc. (hereinafter sometimes referred to as the
"Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is Incorporating Services, Ltd., 15
East North Street, in the City of Dover, County of Kent.
The name of the registered agent at that address is
Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized
under the General Corporation Law of Delaware.
FOURTH:
STOCK
This Corporation is authorized to issue two classes of shares, which
shall be known as Common Stock and Preferred Stock. The total number of shares
of Common Stock which this Corporation is authorized to issue is 100,000,000,
$0.001 par value per share, and the total number of shares of Preferred Stock
which this Corporation is authorized to issue is 25,000,000, $0.001 par value
per share, of which 4,924,817 shares are designated as Series A Preferred Stock
(the "Series A Preferred"), 4,003,921 shares are designated as Series B
Preferred Stock (the "Series B Preferred"), and 1,200,000 shares are designated
as Series C Preferred Stock (the "Series C Preferred"). The remaining Preferred
Stock may be issued from time to time in one or more additional series. The
Board of Directors is authorized within the limitations and restrictions stated
in these Amended and Restated Certificate of Incorporation (i) to determine and
alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock other than the Series
A Preferred, the Series B Preferred and the Series C Preferred and the number of
shares constituting any such series and the designation thereof, or any of them;
and (ii) to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. If the number of shares of any such series
of Preferred Stock shall be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series. This Corporation shall
from time to time in accordance with the laws of the State of Delaware increase
the authorized amount of its Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit conversion of the Preferred Stock in accordance with the
applicable conversion provisions. References hereafter to "Preferred Stock"
shall mean the Series A Preferred, the Series B Preferred and the Series C
Preferred collectively.
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The rights, preferences, privileges and restrictions granted to or
imposed upon the respective classes of shares or the holders thereof are as
follows:
1. Dividend Preference. The holders of Preferred Stock shall be entitled
to receive, out of funds legally available therefor, dividends at the rate of
(i) $0.01 per annum for each share of Series A Preferred held by them, (ii)
$0.016 per annum for each share of Series B Preferred held by them, and (iii)
$0.15 per annum for each share of Series C Preferred held by them, payable, when
and as declared by the Board, in preference and priority to the payment of
dividends on any shares of Common Stock. The right to such dividends shall not
be cumulative, and no right shall accrue to the holders of Preferred Stock by
reason of the fact that dividends are not declared or paid in any previous
fiscal year were sufficient to pay such dividends in whole or in part. No
dividends may be paid on any series of Preferred Stock unless the same
percentage of the respective dividend preference is also paid to each other
series of Preferred Stock, in preference and priority to any payment of
dividends on the Common Stock. No shares of Common Stock shall receive any
dividend at a rate which is greater than the rate at which dividends are
simultaneously paid in respect of the Preferred Stock.
2. Liquidation Rights.
(a) Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the Corporation, whether voluntary or not, the
holders of Series C Preferred shall be entitled to receive, before any amount
shall be paid to holders of Series A Preferred, Series B Preferred or Common
Stock, an amount equal to $5.00 per share for each share of Series C Preferred
then held by such holder plus all declared and unpaid dividends, if any. If,
upon the occurrence of such event, the assets and funds available to be
distributed among the holders of Series C Preferred shall be insufficient to
permit the payment to such holders of the full preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of Series C Preferred in
proportion to the number of shares of Series C Preferred held by each. After
payment has been made to the holders of Series C Preferred of the full
preferential amounts to which they are entitled, the holders of Series B
Preferred shall be entitled to receive, before any amount shall be paid to
holders of Series A Preferred or Common Stock, an amount equal to $0.51 per
share for each share of Series B Preferred then held by such holder plus all
declared and unpaid dividends, if any. If, upon the occurrence of such event,
the assets and funds available to be distributed among the holders of Series B
Preferred shall be insufficient to permit the payment to such holders of the
full preferential amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of Series B Preferred in proportion to the number of shares of Series B
Preferred held by each. After payment has been made to the holders of Series B
Preferred of the full preferential amounts to which they are entitled, the
holders of Series A Preferred shall be entitled to receive an amount equal to
$0.30 per share for each share of Series A Preferred then held plus all declared
and unpaid dividends before any amount shall be paid to holders of Common Stock.
If the assets and funds available to be distributed among the holders of Series
A Preferred shall be insufficient to permit the payment to such holders of the
full preferential amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of Series A Preferred in proportion to the number of shares of Series A
Preferred held by each. After
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payment has been made to the holders of Preferred Stock of the full amounts to
which they shall be entitled as aforesaid, the remaining assets of the
Corporation available for distribution to shareholders shall be distributed
ratably among the holders of Preferred Stock and the holders of Common Stock
based on the number of shares of Common Stock held by each (assuming the
conversion into Common Stock of all Preferred Stock).
(b) Consolidation or Merger. A consolidation or merger of the
Corporation with or into any other corporation or corporations, or a sale of all
or substantially all of the assets of the Corporation, or a series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, shall not be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 2.
(c) Consent to Repurchases. Each holder of shares of Preferred Stock
shall be deemed to have consented to any repurchases by the Corporation of
shares of Common Stock issued to or held by employees, directors or consultants
pursuant to agreements providing for such repurchase upon the termination of
such person's service to this Corporation.
3. Nonredeemable. The shares of Common Stock and the shares of Preferred
Stock are nonredeemable.
4. Voting Rights. Except as otherwise provided by law, the holders of
Preferred Stock and the holders of Common Stock shall be entitled to notice of
any shareholders' meeting and to vote upon any matter submitted to the
shareholders for a vote, including the election of directors, as follows: (i)
the holders of Preferred Stock shall have one vote for each full share of Common
Stock into which their respective shares of Preferred Stock are convertible on
the record date for the vote, and (ii) the holders of Common Stock shall have
one vote per share of Common Stock.
5. Conversion Rights.
(a) Right to Convert. Each share of Series A Preferred, Series B
Preferred or Series C Preferred shall be convertible, at any time upon surrender
of the certificate therefor, into fully-paid and non-assessable shares of Common
Stock at the rate of one share of Common Stock for each share of Series A
Preferred, Series B Preferred or Series C Preferred, subject to adjustment in
accordance with Paragraph 5(b). No adjustment shall be made with respect to any
dividends which may be accrued and unpaid at the date of surrender for
conversion. The option to convert shall be exercised by surrendering to the
Corporation, at the office of the corporation or of any transfer agent for the
Common Stock or the Preferred Stock, certificates representing the shares to be
converted duly endorsed in blank or accompanied by proper instruments of
transfer. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to the holder of Preferred Stock certificates for the
number of full shares of Common Stock to which the holder is entitled. The
conversion shall be deemed to have been made as of the date of surrender of the
certificates for the Preferred Stock, and the person entitled to receive the
Common Stock therefor shall be treated for all purposes as the record holder of
such Common Stock upon such date.
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(b) Adjustments to Conversion Rate. The number of shares of Common
Stock into which the Series A, Series B and Series C Preferred may be converted
shall be subject to adjustments as follows:
(i) Subdivisions, Combinations, or Consolidations. If the
outstanding shares of Common Stock are subdivided, by stock split, stock
dividend combination, reclassification or otherwise, into a larger or smaller
number of shares, the number of shares of Common Stock into which the Series A,
Series B and Series C Preferred may be converted shall be increased or
decreased, concurrently with the effectiveness of such subdivision, combination,
or consolidation, in the same proportion as the increase or decrease in the
outstanding shares of Common Stock.
(ii) Merger; Reorganization. In case of any capital
reorganization, including any reclassification of the capital stock of the
Corporation or any merger of the Corporation with another corporation or the
sale or conveyance of all or substantially all of the assets of the Corporation
to another corporation, each share of Series A, Series B and Series C Preferred
shall thereafter be convertible into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Series A, Series B and Series C
Preferred would have been entitled upon such reorganization.
(c) Certificate of Adjustment. Whenever the Amount of Common Stock or
other securities deliverable upon the conversion of Series A Preferred, Series B
Preferred and Series C Preferred shall be adjusted pursuant to the provisions
hereof, the Corporation shall forthwith file, at its principal executive office
and with any transfer agent for its Common Stock or Preferred Stock, a statement
signed by the President and Treasurer of the Corporation stating the adjusted
amount of its Common Stock or other securities deliverable per share of Series A
Preferred, Series B Preferred and Series C Preferred calculated to the nearest
one-hundredth and setting forth in reasonable detail the method of calculation
and the facts requiring such adjustment and upon which such calculation is
based. Each adjustment shall remain in effect until a subsequent adjustment is
required hereunder.
(d) Automatic Conversion. The shares of Series A Preferred, Series B
Preferred and Series C Preferred shall be automatically converted into Common
Stock immediately prior to the closing of an underwritten public offering
pursuant to an effective registration statement filed for the corporation with
the Securities and Exchange Commission which results in gross proceeds in excess
of $7,500,000.
(e) Reservation of Common. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common Stock the full
number of shares deliverable upon conversion of all of the then outstanding
Preferred Stock and shall take all such action and obtain all such permits and
orders as may be necessary to enable the Corporation lawfully to issue such
Common Stock upon the conversion of the Preferred Stock.
(f) No Fractional Shares. No fractions of shares of Common Stock
shall be issued upon the conversion of the Preferred Stock. In lieu of any
fractional shares, the
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corporation shall pay to the holder an amount of cash equal to the fair market
value of such fractional shares as determined by the Board of Directors.
6. No Preemptive Rights. No holder of Preferred Stock shall have any
preemptive right to purchase and/or subscribe for any additional shares of any
class of stock which may be issued at any time by the Corporation.
7. Residual Rights. All rights accruing to the outstanding shares of the
Corporation not expressly provided to the Preferred Stock herein shall be vested
in the Common Stock.
8. Status of Converted Stock. In case any shares of Preferred Stock shall
be converted pursuant to Section 5 hereof, the shares so converted shall resume
the status of authorized but unissued shares of Preferred Stock.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and
for further definition, limitation and regulation of the powers
of the Corporation and of its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to
the powers and authority expressly conferred upon them by statute
or by this Certificate of Incorporation or the Bylaws of the
Corporation, the directors are hereby empowered to exercise all
such powers and do all such acts and things as may be exercised
or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. On and after the closing date of the first sale of the
Corporation's Common Stock pursuant to a firmly underwritten
registered public offering which results in the automatic
conversion of the Corporation's Preferred Stock (the "IPO"), any
action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders. Prior to
such sale, unless otherwise provided by law, any action which may
otherwise be taken at any meeting of the stockholders may be
taken without a meeting and without prior notice, if a written
consent describing such actions is signed by the holders of
outstanding shares having not less than the minimum number of
votes which would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were
present and voted.
D. Special meetings of stockholders of the Corporation may be called
only (1) by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors
(whether or not there
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exist any vacancies in previously authorized directorships at the
time any such resolution is presented to the Board for adoption)
or (2) by the holders of not less than ten percent (10%) of all
of the shares entitled to cast votes at the meeting.
SIXTH:
A. The number of directors shall initially be set at five (5) and,
thereafter, shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority
of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the
time any such resolution is presented to the Board for adoption).
Upon the closing of the IPO, the directors shall be divided into
three classes with the term of office of the first class (Class
I) to expire at the first annual meeting of the stockholders
following the IPO; the term of office of the second class (Class
II) to expire at the second annual meeting of stockholders held
following the IPO; the term of office of the third class (Class
III) to expire at the third annual meeting of stockholders; and
thereafter for each such term to expire at each third succeeding
annual meeting of stockholders after such election. Subject to
the rights of the holders of any series of Preferred Stock then
outstanding, a vacancy resulting from the removal of a director
by the stockholders as provided in Article SIXTH, Section C below
may be filled at a special meeting of the stockholders held for
that purpose. All directors shall hold office until the
expiration of the term for which elected, and until their
respective successors are elected, except in the case of the
death, resignation, or removal of any director.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting
from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death,
resignation or other cause (other than removal from office by a
vote of the stockholders) may be filled only by a majority vote
of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders at which the term of office
of the class to which they have been elected expires, and until
their respective successors are elected, except in the case of
the death, resignation, or removal of any director. No decrease
in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
C. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or
without cause, but only by the affirmative vote of the holders of
at least a majority of the voting power of all of the then
outstanding shares of capital stock of the Corporation
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entitled to vote generally in the election of directors, voting
together as a single class. Vacancies in the Board of Directors
resulting from such removal may be filled by a majority of the
directors then in office, though less than a quorum, or by the
stockholders as provided in Article SIXTH, Section A above.
Directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders at which the term of office
of the class to which they have been elected expires, and until
their respective successors are elected, except in the case of
the death, resignation, or removal of any director.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws of the Corporation by the Board of Directors
shall require the approval of a majority of the total number of
authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any resolution
providing for adoption, amendment or repeal is presented to the
Board). The stockholders shall also have power to adopt, amend or
repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws of the Corporation by the stockholders shall
require, in addition to any vote of the holders of any class or
series of stock of the Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then outstanding shares of the capital
stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability
of a director, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this
Article EIGHTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
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NINTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the
manner prescribed by the laws of the State of Delaware and all
rights conferred upon stockholders are granted subject to this
reservation; provided, however, that, notwithstanding any other
provision of this Certificate of Incorporation or any provision
of law which might otherwise permit a lesser vote or no vote, but
in addition to any vote of the holders of any class or series of
the stock of this Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders
of at least 66-2/3% of the voting power of all of the then
outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal
this Article NINTH, Article FIFTH, Article SIXTH, Article SEVENTH
or Article EIGHTH.
The Certificate of Incorporation of AXT Delaware, as amended herein,
shall continue to be the Certificate of Incorporation of AXT Delaware as the
surviving Corporation without change or amendment until further amended in
accordance with the provisions thereof and applicable laws. The Bylaws of AXT
Delaware, in effect on the Effective Date, shall continue to be the Bylaws of
AXT Delaware as the surviving Corporation without change or amendment until
further amended in accordance with the provisions thereof and applicable laws.
3. Directors and Officers. The directors and officers of AXT California
shall become the directors and officers of AXT Delaware upon the Effective Date
and any committee of the Board of Directors of AXT California shall become the
members of such committees for AXT Delaware.
4. Succession. On the Effective Date, AXT Delaware shall succeed to AXT
California in the manner of and as more fully set forth in Section 259 of the
General Corporation Law of the State of Delaware.
5. Further Assurances. From time to time, as and when required by AXT
Delaware or by its successors and assigns, there shall be executed and delivered
on behalf of AXT California such deeds and other instruments, and there shall be
taken or caused to be taken by it such further and other action, as shall be
appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in AXT Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of AXT California, and otherwise to carry out the purposes of this
Merger Agreement and the officers and directors of AXT Delaware are fully
authorized in the name and on behalf of AXT California or otherwise to take any
and all such action and to execute and deliver any and all such deeds and other
instruments.
6. Stock of AXT California.
a. Common Stock. Upon the Effective Date, by virtue of the Merger
and without any action on the part of the holder thereof, each share of AXT
California Common
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Stock outstanding immediately prior thereto shall be changed and converted into
one fully paid and nonassessable share of AXT Delaware Common Stock.
b. Preferred Stock. Upon the Effective Date, by virtue of the
Merger and without any action on the part of the holder thereof, each share of
each series of AXT California Preferred Stock outstanding immediately prior
thereto shall be changed and converted into one fully paid and nonassessable
share of AXT Delaware Preferred Stock of an equivalent series.
7. Stock Certificates. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of AXT
California stock shall be deemed for all purposes to evidence ownership of and
to represent the shares of AXT Delaware stock into which the shares of AXT
California stock represented by such certificates have been converted as herein
provided. The registered owner on the books and records of AXT Delaware or its
transfer agent of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted for
to AXT Delaware or its transfer agent, have and be entitled to exercise any
voting and other rights with respect to and to receive any dividend and other
distributions upon the shares of AXT Delaware stock evidenced by such
outstanding certificate as above provided.
8. Options. Upon the Effective Date, each outstanding option or other
right to purchase shares of AXT California stock, including those options
granted under the 1993 Stock Option Plan and the 1997 Stock Option Plan
(collectively, the "Option Plans") of AXT California, shall be converted into
and become an option or right to purchase the identical number of shares of AXT
Delaware stock at a price per share equal to the exercise price of the option or
right to purchase AXT California stock, and upon the same terms and subject to
the same conditions as set forth in the Option Plans and other agreements
entered into by AXT California pertaining to such options, warrants, or rights.
A number of shares of AXT Delaware stock shall be reserved for purposes of such
options and rights equal to the number of shares of AXT California stock so
reserved as of the Effective Date. As of the Effective Date, AXT Delaware shall
assume all obligations of AXT California under agreements pertaining to such
options and rights, including the Option Plans, and the outstanding options or
other rights, or portions thereof, granted pursuant thereto.
9. Other Employee Benefit Plans. As of the Effective Date, AXT Delaware
hereby assumes all obligations of AXT California under any and all employee
benefit plans in effect as of said date or with respect to which employee rights
or accrued benefits are outstanding as of said date, including but not limited
to the 1997 Employee Stock Purchase Plan and the 1998 Employee Stock Purchase
Plan. A number of shares of AXT Delaware stock shall be reserved for purposes of
such plans equal to the number of shares of AXT California stock so reserved as
of the Effective Date. As of the Effective Date, AXT Delaware shall assume all
obligations of AXT California under agreements pertaining to such plans, and the
outstanding rights granted pursuant thereto.
10. Outstanding Common Stock of AXT Delaware. Forthwith upon the
Effective Date, the one thousand (1,000) shares of AXT Delaware Common Stock
presently issued and outstanding in the name of AXT California shall be canceled
and retired and resume the status of
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authorized and unissued shares of AXT Delaware Common Stock, and no shares of
AXT Delaware Common Stock or other securities of AXT Delaware shall be issued in
respect thereof.
11. Covenants of AXT Delaware. AXT Delaware covenants and agrees that it
will, on or before the Effective Date:
a. Qualify to do business as a foreign corporation in the State
of California, and in all other states in which AXT California is so qualified
and in which the failure so to qualify would have a material adverse impact on
the business or financial condition of AXT Delaware. In connection therewith,
AXT Delaware shall irrevocably appoint an agent for service of process as
required under the provisions of Section 2105 of the California Corporations
Code and under applicable provisions of state law in other states in which
qualification is required hereunder.
b. File any and all documents with the California Franchise Tax
Board necessary to the assumption by AXT Delaware of all of the franchise tax
liabilities of AXT California.
12. Amendment. At any time before or after approval and adoption by the
stockholders of AXT California, this Merger Agreement may be amended in any
manner as may be determined in the judgment of the respective Boards of
Directors of AXT Delaware and AXT California to be necessary, desirable or
expedient in order to clarify the intention of the parties hereto or to effect
or facilitate the purposes and intent of this Merger Agreement.
13. Abandonment. At any time before the Effective Date, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either AXT California or AXT Delaware or both, notwithstanding
approval of this Merger Agreement by the sole stockholder of AXT Delaware and
the stockholders of AXT California.
14. Counterparts. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.
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IN WITNESS WHEREOF, this Merger Agreement, having first been duly
approved by resolution of the Board of Directors of AXT California and AXT
Delaware, is hereby executed on behalf of each of said two corporations by their
respective officers thereunto duly authorized.
AMERICAN XTAL TECHNOLOGY DELAWARE
CORPORATION,
a Delaware corporation
By:
----------------------------------------
Morris S. Young, President and Chief
Executive Officer
AMERICAN XTAL TECHNOLOGY,
a California corporation
By:
----------------------------------------
Morris S. Young, President and Chief
Executive Officer
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CERTIFICATE OF SECRETARY
OF
AMERICAN XTAL TECHNOLOGY DELAWARE CORPORATION
(a Delaware corporation)
I, ____________, the Secretary of American Xtal Technology Delaware
Corporation, a Delaware corporation (the "Corporation"), hereby certify that the
Agreement and Plan of Merger to which this Certificate is attached was duly
signed on behalf of the Corporation by its President under the corporate seal of
the Corporation and was duly approved and adopted by a unanimous vote of the
outstanding stock entitled to vote thereon by written consent of the sole
stockholder of the Corporation dated ________________, 1998.
Executed effective on the ___ day of _________, 1998.
--------------------------------
(Name)
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CERTIFICATE OF APPROVAL OF
AGREEMENT AND PLAN OF MERGER OF
AMERICAN XTAL TECHNOLOGY.
(a California corporation)
Morris S. Young and __________ certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of American Xtal Technology, a California corporation (the
"Corporation").
2. This Certificate is attached to the Agreement and Plan of Merger
dated as of _______________, 1998, providing for the merger of the Corporation
with and into American Xtal Technology Delaware Corporation, a Delaware
corporation.
3. The Agreement and Plan of Merger in the form attached hereto (the
"Merger Agreement") was approved by the Board of Directors of the Corporation at
a meeting duly noticed and held on _____________, 1998.
4. The total number of outstanding shares of the Corporation entitled to
vote on the merger was __________ shares of Common Stock, 4,924,817 shares of
Series A Preferred Stock, 4,003,921 shares of Series B Preferred Stock and
1,200,000 shares of Series C Preferred Stock.
5. The principal terms of the Merger Agreement were approved by an
affirmative vote which exceeded the vote required, such vote being a majority of
the total number of outstanding shares of Common Stock and a majority of the
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, voting separately as a class.
Dated: ____________________, 1998.
------------------------------------
Morris S. Young, President
------------------------------------
_____________, Secretary
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The undersigned, Morris S. Young and ___________, President and
Secretary, respectively, of American Xtal Technology, a California corporation,
declare under penalty of perjury under the laws of the State of California that
the matters set forth in this Certificate are true and correct of their own
knowledge.
Executed at Fremont, California, on ______________, 1998.
------------------------------------
Morris S. Young, President
------------------------------------
_____________, Secretary
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AMERICAN XTAL TECHNOLOGY DELAWARE CORPORATION
FIRST: The name of this corporation is American Xtal Technology Delaware
Corporation (hereinafter sometimes referred to as the "Corporation").
SECOND:The address of the registered office of the Corporation in the
State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the
City of Dover, County of Kent. The name of the registered agent at that address
is Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:The total number of shares of stock which the Corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock, par
value $0.001 per share (the "Common Stock").
FIFTH: The name and mailing address of the incorporator is:
Charlotte Fu
c/o Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
SIXTH: The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation. Election of directors need not be by
written ballot unless the Bylaws so provide.
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SEVENTH: The Board of Directors is authorized to make, adopt, amend, alter
or repeal the Bylaws of the Corporation. The stockholders shall also have power
to make, adopt, amend, alter or repeal the Bylaws of the Corporation.
EIGHTH: This Corporation reserves the right to amend or repeal any of the
provisions contained in this Certificate of Incorporation in any manner now or
hereafter permitted by law, and the rights of the stockholders of this
Corporation are granted subject to this reservation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
Law, a director of this Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of the foregoing provisions of this Article
NINTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this 11th day of November, 1997.
-----------------------------
Charlotte Fu
2
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION OF
AMERICAN XTAL TECHNOLOGY, INC.
We, Morris S. Young, President and Chief Executive Officer, and Guy
Atwood, Secretary of American Xtal Technology, Inc. (the "Corporation"), a
corporation duly organized and existing under the General Corporation Law of the
State of Delaware, in accordance with the provisions of Sections 228 and 242
thereof, DO HEREBY CERTIFY:
FIRST: That the amendment to the Corporation's Certificate of
Incorporation set forth in the following resolution has been approved in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
"RESOLVED, that Paragraph ONE of Article FOURTH of the Corporation's
Certificate of Incorporation is hereby amended to read in its entirety as
follows:
FOURTH:
STOCK
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock the Corporation shall have authority to issue is
12,128,738, $0.001 par value per share, and the total number of shares of Common
Stock the Corporation shall have authority to issue is ________, $0.001 par
value per share. Of the authorized shares of Preferred Stock, 4,924,817 shares
shall be designated as "Series A Preferred Stock," 4,003,921 shares shall be
designated as "Series B Preferred Stock,"and 1,200,000 shall be designated as
"Series C Preferred Stock." The remaining unauthorized shares of Preferred Stock
shall initially be undesignated.
<PAGE> 2
IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of
Incorporation has been executed on behalf of the Corporation by its President
and Chief Executive Officer and attested by Guy Atwood, its Secretary, this ____
day of __________, 1998.
AMERICAN XTAL TECHNOLOGY, INC.
By:
--------------------------------
Morris S. Young, President and
Chief Executive Officer
Attest:
By:
---------------------------------
Guy Atwood, Secretary
-2-
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
AMERICAN XTAL TECHNOLOGY DELAWARE CORPORATION
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I STOCKHOLDERS..........................................................1
Section 1.1 Annual Meeting...............................................................1
Section 1.2 Special Meetings.............................................................1
Section 1.3 Notice of Meetings...........................................................1
Section 1.4 Quorum.......................................................................1
Section 1.5 Conduct of the Stockholders' Meeting.........................................2
Section 1.6 Conduct of Business..........................................................2
Section 1.7 Notice of Stockholder Business...............................................2
Section 1.8 Proxies and Voting...........................................................3
Section 1.9 Stock List...................................................................3
ARTICLE II BOARD OF DIRECTORS....................................................4
Section 2.1 Number and Term of Office....................................................4
Section 2.2 Vacancies and Newly Created Directorships....................................4
Section 2.3 Removal......................................................................4
Section 2.4 Regular Meetings.............................................................5
Section 2.5 Special Meetings.............................................................5
Section 2.6 Quorum.......................................................................5
Section 2.7 Participation in Meetings by Conference Telephone............................5
Section 2.8 Conduct of Business..........................................................5
Section 2.9 Powers.......................................................................5
Section 2.10 Compensation of Directors....................................................6
Section 2.11 Nomination of Director Candidates............................................6
ARTICLE III COMMITTEES............................................................7
Section 3.1 Committees of the Board of Directors.........................................7
Section 3.2 Conduct of Business..........................................................8
ARTICLE IV OFFICERS..............................................................8
Section 4.1 Generally....................................................................8
Section 4.2 Chairman of the Board........................................................8
Section 4.3 President....................................................................8
Section 4.4 Vice President...............................................................8
Section 4.5 Treasurer....................................................................8
Section 4.6 Secretary....................................................................9
Section 4.7 Delegation of Authority......................................................9
Section 4.8 Removal......................................................................9
Section 4.9 Action With Respect to Securities of Other Corporations......................9
ARTICLE V STOCK.................................................................9
Section 5.1 Certificates of Stock........................................................9
Section 5.2 Transfers of Stock...........................................................9
Section 5.3 Record Date..................................................................9
Section 5.4 Lost, Stolen or Destroyed Certificates......................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
Section 5.5 Regulations.................................................................10
ARTICLE VI NOTICES..............................................................10
Section 6.1 Notices.....................................................................10
Section 6.2 Waivers.....................................................................10
ARTICLE VII MISCELLANEOUS........................................................10
Section 7.1 Facsimile Signatures........................................................10
Section 7.2 Corporate Seal..............................................................11
Section 7.3 Reliance Upon Books, Reports and Records....................................11
Section 7.4 Fiscal Year.................................................................11
Section 7.5 Time Periods................................................................11
ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS............................11
Section 8.1 Right to Indemnification....................................................11
Section 8.2 Right of Claimant to Bring Suit.............................................12
Section 8.3 Non-Exclusivity of Rights...................................................12
Section 8.4 Indemnification Contracts...................................................12
Section 8.5 Insurance...................................................................13
Section 8.6 Effect of Amendment.........................................................13
ARTICLE IX AMENDMENTS...........................................................13
Section 9.1 Amendment of Bylaws.........................................................13
</TABLE>
ii
<PAGE> 4
AMERICAN XTAL TECHNOLOGY DELAWARE CORPORATION
A DELAWARE CORPORATION
AMENDED AND RESTATED BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 1.2 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
only (i) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exists any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (ii) by the
holders of not less than 10% of all shares entitled to cast votes at the
meeting, voting together as a single class and shall be held at such place, on
such date, and at such time as they shall fix. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice.
Section 1.3 Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 1.4 Quorum. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law.
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If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 1.5 Conduct of the Stockholders' Meeting. At every meeting of
the stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in his absence the Vice President designated by
the President, or in the absence of such designation any Vice President, or in
the absence of the President or any Vice President, a chairman chosen by the
majority of the voting shares represented in person or by proxy, shall act as
Chairman. The Secretary of the Corporation or a person designated by the
Chairman shall act as Secretary of the meeting. Unless otherwise approved by the
Chairman, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 8 of these Bylaws to
act by proxy, and officers of the Corporation.
Section 1.6 Conduct of Business. The Chairman shall call the meeting to
order, establish the agenda, and conduct the business of the meeting in
accordance therewith or, at the Chairman's discretion, it may be conducted
otherwise in accordance with the wishes of the stockholders in attendance. The
date and time of the opening and closing of the polls for each matter upon which
the stockholders will vote at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule
on the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.6 and
Section 1.7, below. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.6 and
Section 1.7, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
Section 1.7 Notice of Stockholder Business. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board of
Directors, (c) properly brought before an annual meeting by a stockholder, or
(d) properly brought before a
2
<PAGE> 6
special meeting by a stockholder, but if, and only if, the notice of a special
meeting provides for business to be brought before the meeting by stockholders.
For business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder proposal to be presented at an
annual meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's predecessor's) proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a special meeting, notice by the stockholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual or
special meeting (a) a brief description of the business desired to be brought
before the annual or special meeting and the reasons for conducting such
business at the special meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Section 1.8 Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. No stockholder may
authorize more than one proxy for his shares.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
Section 1.9 Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within
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the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office. The number of directors shall be
Five (5) and, the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Upon the closing of the
first sale of the Corporation's common stock pursuant to a firmly underwritten
registered public offering (the "IPO"), the directors shall be divided into
three classes, with the term of office of the first class to expire at the first
annual meeting of stockholders held after the IPO, the term of office of the
second class to expire at the second annual meeting of stockholders held after
the IPO, the term of office of the third class to expire at the third annual
meeting of stockholders held after the IPO and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election. A vacancy resulting from the removal of a director by the stockholders
as provided in Article II, Section 2.3 below may be filled at special meeting of
the stockholders held for that purpose. All directors shall hold office until
the expiration of the term for which elected and until their respective
successors are elected, except in the case of the death, resignation or removal
of any director.
Section 2.2 Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification or other cause (other than removal
from office by a vote of the stockholders) may be filled only by a majority vote
of the directors then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the next annual meeting of
stockholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 2.3 Removal. Subject to the rights of holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by a majority of
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the directors then in office, though less than a quorum, or by the stockholders
as provided in Article II, Section 2.1 above. Directors so chosen shall hold
office until the new annual meeting of stockholders.
Section 2.4 Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
Section 2.5 Special Meetings. Special meetings of the Board of Directors
may be called by one-third of the directors then in office (rounded up to the
nearest whole number) or by the chief executive officer and shall be held at
such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not fewer than
five (5) days before the meeting or by telegraphing or personally delivering the
same not fewer than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 2.6 Quorum. At any meeting of the Board of Directors, a majority
of the total number of authorized directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 2.7 Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 2.8 Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the directors present, except as otherwise provided herein or
required by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
Section 2.9 Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(a) To declare dividends from time to time in accordance with
law;
(b) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
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(c) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(d) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(e) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(f) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(g) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(h) To adopt from time to time regulations, not inconsistent
with these bylaws, for the management of the Corporation's business and affairs.
Section 2.10 Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 2.11 Nomination of Director Candidates. Subject to the rights of
holders of any class or series of Preferred Stock then outstanding, nominations
for the election of Directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of Directors generally. However, any stockholder entitled
to vote in the election of Directors generally may nominate one or more persons
for election as Directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Corporation. To be timely, a stockholder
nomination for a director to be elected at an annual meeting shall be received
at the Corporation's principal executive offices not less than 120 calendar days
in advance of the date that the Corporation's (or the Corporation's
Predecessor's) Proxy statement was released to stockholders in connection with
the previous year's annual meeting of stockholders, except that if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than 30 calendar days from the date contemplated at the time of
the previous year's proxy statement, or in the event of a nomination for
director to be elected at a special meeting, notice by the stockholders to be
timely must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the special meeting was
mailed or such public disclosure was made. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the
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nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the Corporation entitled
to vote for the election of Directors on the date of such notice and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected.
In the event that a person is validly designated as a nominee in
accordance with this Section 2.11 and shall thereafter become unable or
unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may be, may
designate a substitute nominee upon delivery, not fewer than five days prior to
the date of the meeting for the election of such nominee, of a written notice to
the Secretary setting forth such information regarding such substitute nominee
as would have been required to be delivered to the Secretary pursuant to this
Section 2.11 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.11,
such nomination shall be void; provided, however, that nothing in this Section
2.11 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
ARTICLE III
COMMITTEES
Section 3.1 Committees of the Board of Directors. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law if the
resolution which designates the committee or a supplemental resolution of the
Board of Directors shall so provide.
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In the absence or disqualification of any member of any committee and any
alternate member in his place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 3.2 Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third of the authorized members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
Section 4.1 Generally. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. The Chairman of the Board, if there shall be such an officer, and the
President shall each be members of the Board of Directors. Any number of offices
may he held by the same person.
Section 4.2 Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or prescribed by
these bylaws.
Section 4.3 President. The President shall be the chief executive
officer of the Corporation. Subject to the provisions of these bylaws and to the
direction of the Board of Directors, he or she shall have the responsibility for
the general management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to him or her
by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
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Section 4.4 Vice President. Each Vice President shall have such powers
and duties as may be delegated to him or her by the Board of Directors. One Vice
President shall be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.
Section 4.5 Treasurer. Unless otherwise designated by the Board of
Directors, the Chief Financial Officer of the Corporation shall be the
Treasurer. The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation and shall have custody of all monies and
securities of the Corporation. He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe.
Section 4.6 Secretary. The Secretary shall issue all authorized notices
for, and shall keep, or cause to be kept, minutes of all meetings of the
stockholders, the Board of Directors, and all committees of the Board of
Directors. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
Section 4.7 Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.8 Removal. Any officer of the Corporation may be removed at
any time, with or without cause, by the Board of Directors.
Section 4.9 Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 5.1 Certificates of Stock. Each stockholder shall be entitled to
a certificate signed by, or in the name of the Corporation by, the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer, certifying the number of shares owned by
him or her. Any of or all the signatures on the certificate may be facsimile.
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Section 5.2 Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of Article V of these bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 5.3 Record Date. The Board of Directors may fix a record date,
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5.5 Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 6.1 Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid
telegram, mailgram, telecopy or commercial courier service. Any such notice
shall be addressed to such stockholder, director, officer, employee or agent at
his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or be telegram or mailgram.
Section 6.2 Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
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ARTICLE VII
MISCELLANEOUS
Section 7.1 Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 7.2 Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 7.3 Reliance Upon Books, Reports and Records. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 7.4 Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 7.5 Time Periods. In applying any provision of these bylaws
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a Partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the
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Corporation to the fullest extent authorized by Delaware Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment) against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts paid
or to be paid in settlement and amounts expended in seeking indemnification
granted to such person under applicable law, this bylaw or any agreement with
the Corporation) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that, except as
provided in Section 8.2 of this Article VIII, the Corporation shall indemnify
any such person seeking indemnity in connection with an action, suit or
proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, unless the Delaware General Corporation
Law then so prohibits, the payment of such expenses incurred by a director or
officer of the Corporation in his or her capacity as a director or officer (and
not in any other capacity in which service was or is tendered by such person
while a director or officer, including, without limitation, employee benefit
plan) in advance of the final disposition of such proceeding, shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Section or otherwise.
Section 8.2 Right of Claimant to Bring Suit. If a claim under Section
8.1 of this Article VIII is not paid in full by the Corporation within ninety
(90) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if such suit is not frivolous or
brought in bad faith, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. The burden of proving such claim shall be on the
claimant. It shall be a defense to any such action (other then an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any, has been
tendered to this Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its
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Board of Directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct.
Section 8.3 Non-Exclusivity of Rights. The rights conferred on any
person in Sections 8.1 and 8.2 shall not be exclusive of any other right which
such persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4 Indemnification Contracts. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 8.5 Insurance. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
Section 8.6 Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VIII by the stockholders and the directors of
the Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE IX
AMENDMENTS
Section 9.1 Amendment of Bylaws. The Board of Directors is expressly
empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the Board of Directors shall
require the approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the Board). The stockholders shall also have power to adopt, amend
or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of
Bylaws of the Corporation by the stockholders shall require, in addition to any
vote of the holders of any class or series of stock of the Corporation required
by law or by the Certificate of Incorporation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
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CERTIFICATE OF SECRETARY
I hereby certify that I am the duly elected and acting Secretary of
American Xtal Technology Delaware Corporation, a Delaware corporation (the
"Corporation"), and that the foregoing Bylaws, comprising thirteen (13) pages,
constitute the Bylaws of the Corporation as duly adopted by the unanimous
written consent at of the Board of Directors of the Corporation on ___________
__, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name on_____________ ,
1998.
________________________________________
Gary S. Young, Secretary
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EXHIBIT 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of __________, 1998, is made by and
between American Xtal Technology, Inc., a Delaware corporation (the "Company"),
and ___________________________ (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company
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and its subsidiaries, it is necessary for the Company to contractually indemnify
its directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the Company's
stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include
all out of pocket expenses costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided,
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however, that "expenses" shall not include any judgments, fines, ERISA excise
taxes or penalties, or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants
and agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
shall indemnify the Indemnitee as follows:
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(a) Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement)
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for which payment is actually made to Indemnitee under a valid and collectible
insurance policy of D&O Insurance, or under a valid and enforceable indemnity
clause, by-law or agreement.
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below, the
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense; or (C) the
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Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation
(including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that
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<PAGE> 7
such indemnification is improper, shall be a defense to the action or create a
presumption that Indemnitee is not entitled to indemnification under this
Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
(a) All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is an agent of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage
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<PAGE> 8
prepaid, on the third business day after the mailing date. Addresses for notice
to either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
17. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
18. Consent to Jurisdiction. The Company and the Indemnitee each hereby
consent to the jurisdiction of the courts of the State of Delaware with respect
to any action or proceeding which arises out of or relates to this Agreement.
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<PAGE> 9
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
AMERICAN XTAL TECHNOLOGY
By
----------------------------------
Morris Young
Its: President & CEO
Address: 4311 Solar Way
Fremont, CA 94538
INDEMNITEE:
------------------------------------
[NAME]
Address:
------------------------------------
------------------------------------
9
<PAGE> 1
EXHIBIT 10.2
1993 STOCK OPTION PLAN
OF
BESTAL CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PURPOSES OF THE PLAN....................................................1
2. ELIGIBLE PERSONS........................................................1
3. STOCK SUBJECT TO THIS PLAN..............................................1
4. ADMINISTRATION..........................................................2
5. GRANTING OF OPTIONS; OPTION AGREEMENT...................................2
6. TERMS AND CONDITIONS OF OPTIONS.........................................3
6.1 Terms and Conditions to Which All Options Are Subject............3
6.1.1 Changes in Capital Structure..............................3
6.1.2 Corporate Transactions....................................3
6.1.3 Time of Option Exercise...................................4
6.1.4 Option Grant Date.........................................4
6.1.5 Nonassignability of Option Rights.........................4
6.1.6 Payment...................................................4
6.1.7 Termination of Employment.................................5
6.1.8 Repurchase of Stock.......................................6
6.1.9 Withholding and Employment Taxes..........................6
6.1.10 Other Provisions..........................................6
6.1.11 Determination of Value....................................7
6.1.12 Option Term...............................................7
6.2 Terms and Conditions to Which Only NQOs Are Subject..............8
6.2.1 Exercise Price............................................8
6.3 Terms and Conditions to Which Only ISOs Are Subject..............8
6.3.1 Exercise Price............................................8
6.3.2 Disqualifying Dispositions................................8
7. MANNER OF EXERCISE......................................................8
8. EMPLOYMENT OR CONSULTING RELATIONSHIP...................................9
9. FINANCIAL INFORMATION...................................................9
10. AMENDMENTS TO PLAN......................................................9
11. SHAREHOLDER APPROVAL; TERM..............................................9
</TABLE>
i
<PAGE> 3
1993 STOCK OPTION PLAN
OF
BESTAL CORPORATION
1. PURPOSES OF THE PLAN
The purposes of the Stock Option Plan (the "Plan") of Bestal
Corporation, a California corporation (the "Company") are to:
(a) Encourage selected employees, directors and consultants to improve
operations and increase profits of the company;
(b) Encourage selected employees, directors and consultants to accept or
continue employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the Requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an option is a full-time
employee of the Company or of any Affiliate (as defined below) of the Company is
eligible to receive NQOs or ISOs under this Plan. Every person who at the date
of grant is a consultant or non-employee director to the Company or to any
Affiliate (as defined below) of the Company is eligible to receive NQOs under
this Plan. The term "Affiliate" as used in the Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee, of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1.1 of the Plan, the maximum
aggregate number of shares of stock which may be granted pursuant to this Plan
is 300,000 shares of Common Stock. The shares covered by the portion of any
grant under the Plan which expires unexercised shall become available again for
grants under the Plan. Shares issued pursuant to an option granted under the
Plan which are repurchased by the Company in accordance with the terms of the
Plan shall become available again for grants as NQOs under the Plan.
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<PAGE> 4
4. ADMINISTRATION
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee (the "Committee") of at least two Board
members to which administration of the Plan is delegated (in either case, the
"Administrator").
(b) From and after such time as the Company registers a class of equity
securities under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), this Plan shall be administered in accordance with the
disinterested administration requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission ("Rule 16b-3"), or any successor rule
thereto.
(c) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its discretion: (i) to grant Options; (ii) to
determine the fair market value of the Common Stock subject to Options; (iii) to
determine the exercise price of Options granted; (iv) to determine the persons
to whom, and the time or times at which, Options shall be granted, and the
number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) or accelerate
the exercise date of any Option; (x) to authorize any person to execute on
behalf of the Company any instrument evidencing the grant of an Option; and (xi)
to make all other determinations deemed necessary or advisable for the
administration of this Plan. The Administrator may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper.
(d) All questions of interpretation, implementation, and application of
this Plan shall be determined by the Administrator. Such determinations shall be
final and binding on all persons.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after ten years from the
date of adoption of this Plan by the Board, or the date the Plan is approved by
the shareholders of the Company, whichever is earlier.
(b) Each option shall be evidenced by a written stock option agreement,
in form satisfactory to the Company, executed by the Company and the person to
whom such Option is granted; provided, however, that the failure by the Company,
the Optionee, or both to execute such an agreement shall not invalidate the
granting of an Option, although the exercise of each option shall be subject to
Section 6.1.4.
(c) The agreement shall specify whether each Option it evidences is a
NQO or an ISO.
(d) The Administrator may approve the grant of Options under this Plan
to persons who are expected to become employees, directors or consultants of the
Company, but are
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<PAGE> 5
not employees, directors or consultants at the date of approval. In such cases,
the Option shall be deemed granted, without further approval, on the date the
grantee assumes the employment or consulting relationship forming the basis for
such grant, and, in addition, satisfies all requirements of this Plan for
Options granted on that date.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be designated is an NQO or an
ISO. Each Option shall be subject to the terms and conditions set forth in
Section 6.1. NQOs shall be also subject to the terms and conditions set forth in
Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject
to the terms and conditions set forth in Section 6.3, but not those set forth in
Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All Options
granted under this Plan shall be subject to the following terms and conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, or recapitalization, combination or reclassification, or
converted into or exchanged for other securities as a result of a merger,
consolidation or reorganization, appropriate adjustments shall be made by the
Board in (a) the number and class of shares of stock Subject to this Plan and
each Option outstanding under this Plan, and (b) the exercise price of each
outstanding Option; provided, however, that the Company shall not be required to
issue fractional shares as a result of any such adjustments. Each such
adjustment shall be subject to approval by the Board in its sole Discretion.
6.1.2 Corporate Transactions. New option rights may be
substituted for the option rights granted under this Plan, or the Company's
obligations as to options outstanding under this Plan may be assumed, by an
employer corporation other than the Company, or by a parent or subsidiary of
such employer corporation, in connection with (i) any merger, consolidation,
acquisition, separation, or reorganization under which more than 50 percent of
the shares of the Company outstanding immediately before such event are
converted into cash or into another security, (ii) the dissolution or
liquidation of the Company, or (iii) any like occurrence in which the Company is
involved, in such manner that the then outstanding Options which are ISOs will
continue to be "incentive stock options" within the meaning of Section 422 of
the Code to the full extent permitted thereby. Notwithstanding the foregoing or
the provisions of Section 6.1.1, if such employer corporation, or parent or
subsidiary of such employer corporation, does not substitute new and
substantially equivalent option rights for the option rights granted hereunder,
or assume the option rights granted hereunder, the Administrator may, in its
absolute discretion, do one or more of the following: (i) accelerate any vesting
schedule to which an Option is subject; (ii) cancel Options upon payment to each
optionee in cash, with respect to each Option to the extent then exercisable, of
any amount which, in the absolute discretion of the Administrator, is determined
to be equivalent to any excess of the market value (at the effective time of
such event) of the consideration that such optionee would have received if the
option had been exercised before the effective time over the exercise price of
the Option; or (iii) except in case of a dissolution, liquidation, or sale of
all or substantially all of the Company's assets, terminate the
3
<PAGE> 6
period during which such options are exercisable provided, however, that each
optionee shall be mailed notice at least thirty-five (35) days prior to such
merger, consolidation, acquisition, separation, reorganization, or similar
occurrence, and shall have at least thirty (30) days after the mailing of such
notice to exercise any unexpired option rights granted hereunder.
6.1.3 Time of Option Exercise. Except as necessary to satisfy the
requirements of Section 422 of the Code and subject to Section 5, Options
granted under this Plan shall be exercisable (a) immediately as of the effective
date of the stock option agreement granting the Option, or (b) in accordance
with a schedule related to the date of the grant of the Option, the date of
first employment, or such other dates as may be set by the Administrator (in any
case, the "Vesting Base Date") and specified in the written stock option
agreement relating to such Option; provided, however, that (i) the right to
exercise an Option must vest at the rate of at least 20% per year over five
years from the date such option was granted and (ii) if the optionee is a
director or officer, as those terms are used in Section 16 of the Exchange Act,
such Option may not be exercisable, in whole or in part, at any time prior to
the six-month anniversary of the date of Option grant, unless the Administrator
determines that the foregoing provision is not necessary to comply with the
provisions of Rule 16b-3 or that Rule 16b-3 is not applicable to the Plan. No
Option shall be exercisable, however, until a written stock option agreement in
form satisfactory to the Company is executed by the Company and the optionee.
6.1.4 Option Grant Date. Except in the case of advance approvals
described in Section 5(d), the date of grant of an option under this Plan shall
be the date as of which the Administrator approves the grant.
6.1.5 Nonassignability of Option Rights. No Option granted under
this Plan shall be assignable or otherwise transferable by the optionee except
by will or by the laws of descent and distribution. During the life of the
optionee, an Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full, in
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion, may
authorize any one or more of the following additional methods of payment:
(a) Acceptance of the optionee's full recourse promissory note for
all or part of the Option price, payable on such terms and bearing
such interest rate as determined by the Administrator (but in no
event less than the minimum interest rate specified under the Code at
which no additional interest on debt instruments of such type would
be imputed), which promissory note may be either secured or unsecured
in such manner as the Administrator shall approve (including, without
limitation, by a security interest in the shares of the Company). In
making its determination to accept a promissory note from an employee
of the Company, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company; and
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<PAGE> 7
(b) Delivery by the optionee of Common Stock already owned by the
optionee for all or part of the Option price, provided the value
(determined as set forth in Section 6.1.11) of such Common Stock is
equal on the date of exercise to the Option price, or such portion
thereof as the optionee is authorized to pay by delivery of such
stock; provided, however, that if an optionee has exercised any
portion of any Option granted by the Company by delivery of Common
Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of
Common Stock; and
(c) Any other consideration and method of payment to the extent
permitted under Sections 408 and 409 of the California General
Corporation Law.
6.1.7 Termination of Employment. Unless determined otherwise
by the Administrator in its absolute discretion, to the extent not already
expired or exercised, an Option shall terminate: (i) for optionees who are
employees not subject to Section 16(b) of the Exchange Act, at the earlier of
(a) the Expiration Date (as defined in Section 6.1.12) or (b) three months after
termination of employment with the Company or any Affiliate; (ii) for optionees
who are consultants or non-employee directors, at the earlier of (a) the
Expiration Date or (b) seven months after the last day served as a consultant to
or director of the Company or any Affiliate; and (iii) for optionees who are
employees and either directors or otherwise subject to Section 16(b) of the
Exchange Act, at the earlier of (a) the Expiration Date, (b) three months after
termination of employment with the Company or any Affiliate in the case of ISOs,
and (c) in the case of NQOs, seven months after the later of termination of
employment with the Company or any Affiliate or the last day served as a
director or consultant of the Company or any Affiliate; provided, that an Option
shall be exercisable after the date of termination of employment or service as a
director or consultant only to the extent exercisable on the date of
termination. Notwithstanding the foregoing, if termination of employment or
service as a director or consultant is due to the optionee's death or
"disability" (as determined in accordance with Section 22(e)(3) of the Code),
the optionee, or the optionee's personal representative (or any other person who
acquires the Option from the optionee by will or the applicable laws of descent
and distribution), may at any time within 12 months after the termination of
employment or service as a director or consultant (or such lesser period as is
specified in the stock option agreement but in no event after the Expiration
date of the Option), exercise the rights to the extent they were exercisable on
the date of the termination. A transfer of an Optionee from the Company to an
Affiliate or vice versa, or from one Affiliate to another, or a leave of absence
due to sickness, military service, or other cause duly approved by the Company,
shall not be deemed a termination of employment or the consulting relationship
for purposes of this Plan. For the purpose of this Section 6.1.7, "employment"
means engagement with the company or any subsidiary of the Company either (i) as
an employee, (ii) as a director, or (iii) as a consultant on a basis determined
by the President of the Company in his or her sole discretion to be
substantially equivalent to employment.
6.1.8 Repurchase of Stock. At the option of the
Administrator, the stock to be delivered pursuant to the exercise of any Option
granted to an employee, director or consultant under this Plan may be subject to
a right of repurchase in favor of the Company with respect to any employee, or
director or consultant whose employment, or director or Consulting relationship
with the Company is terminated. Such right of repurchase shall be at the Option
5
<PAGE> 8
exercise price and shall expire at the faster of (i) the rate of 20% per year
over five years from the date the Option is granted (without respect to the date
the Option was exercised or became exercisable) or (ii) in accordance with a
schedule related to the Vesting Base Date with respect to each Option grant, as
determined by the Administrator. Determination of the number of shares subject
to such right of repurchase shall be made as of the date the employee's
employment by, director's director relationship with, or consultant's consulting
relationship with, the Company terminates, not as of the date that any Option
granted to such employee, director or consultant is thereafter exercised. Such
right of repurchase must be exercised for cash or cancellation of purchase money
indebtedness within 90 days of termination of the employment, director or
consulting relationship with the Company.
6.1.9 Withholding and Employment Taxes. At the time of
exercise of an Option (or at such later time(s) as the Company may prescribe),
the optionee shall remit to the Company in cash all applicable federal and state
withholding and employment taxes. The Administrator may, in the exercise of its
sole discretion, permit an optionee to pay some or all of such taxes by means of
a promissory note on such terms as the Administrator deems appropriate. If
authorized by the Administrator in its sole discretion, an optionee may elect to
have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company or to tender to the Company other shares of Common Stock
or other securities of the Company owned by the optionee on the date of
determination of the amount of tax to be withheld as a result of the exercise of
such Option (the "Tax Date") to pay the amount of tax that is required by law to
be withheld by the Company as a result of the exercise of such Option, provided
that such election satisfies the following requirements:
(a) such election shall be irrevocable; and
(b) such election shall be subject to the disapproval of the
Administrator at any time.
Any securities so withheld or tendered shall be valued by the Company as of the
Tax Date.
6.1.10 Other Provisions. Each Option granted under this Plan
may contain such other terms, provisions, and conditions not inconsistent with
this Plan as may be determined by the Administrator, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify the Option as an "incentive stock option" within the meaning of Section
422 of the Code. If Options provide for a right of first refusal in favor of the
Company with respect to stock acquired by employees, directors or consultants,
such Options shall provide (a) that the right of first refusal applies only
where there is a bona fide third-party offerer and the employee, director or
consultant desires to sell the stock; (b) such right of first refusal requires
the Company to make its election to purchase the stock subject to such right of
first refusal, if at all, by giving notice of such election no more than 30 days
after receipt of notice of such right of first refusal; and (c) upon the
exercise of a right of first refusal, the Company must purchase all (but not
less than all, unless the selling employee, director or consultant consents) of
the offered stock on the same terms offered by the bona-fide third party
offerer, within sixty days after receipt of the notice of such right of first
refusal, unless a longer period is offered by the bona fide third-party offerer.
Such Options shall further provide that the right of first refusal shall
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<PAGE> 9
terminate upon the earlier of (i) the closing of the Company's initial
registered public offering to the public generally, or (ii) the date ten (10)
years after the grant date as set forth in Section 6.1.4.
6.1.11 Determination of Value. For purposes of the Plan, the
value of Common Stock or other securities of the Company shall be determined as
follows:
(a) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers Automated Quotation System, its fair market value shall be the closing
sales price for such stock or the closing bid if no sales were reported, as
quoted on such system or exchange (or the largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in the
Wall Street Journal or similar publication.
(b) If the stock of the Company is regularly quoted
by a recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(c) In the absence of an established market for the
stock, the fair market value thereof shall be determined by the Administrator,
with reference to the Company's net worth, prospective earning power,
dividend-paying capacity, and other relevant factors, including the goodwill of
the Company, the economic outlook in the Company's industry, the Company's
position in the industry and its management, and the values of stock of other
corporations in the same or a similar line of business.
6.1.12 Option Term. No option shall be exercisable more than
120 months after the date of grant, or such lesser period of time as is set
forth in the stock option agreement (the end of the maximum exercise period
stated in the stock option agreement is referred to in this Plan as the
"Expiration Date"). No ISO granted to a Ten Percent Shareholder (as defined in
Section 6.2.1) shall be exercisable more than five ears after the date of grant.
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
6.2.1 Exercise Price. The exercise price of a NQO shall be
not less than 85 percent of the fair market value (determined in accordance with
Section 6.1.11) of the stock subject to the option on the date of grant, except
that the exercise price of a NQO granted to any person who owns, directly or by
attribution, stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Affiliate (a "Ten Percent
Shareholder"), shall in no event be less than 110 percent of such fair market
value.
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6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section 6.2.1,
the exercise price of an ISO shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the fair
market value (determined in accordance with Section 6.1.11) of the stock covered
by the Option at the time the Option is granted, except that the exercise price
of an ISO granted to any Ten Percent Shareholder shall in no event be less than
110 percent of such fair market value.
6.3.2 Disqualifying Dispositions. If stock acquired upon
exercise of an ISO is disposed of in a "disqualifying disposition" within the
meaning of Section 422 of the Code, the holder of the stock immediately before
the disposition shall notify the Company in writing of the date and terms of the
disposition and comply with any other requirements imposed by the Company in
order to enable the Company to secure any related income tax deduction to which
it is entitled.
7. MANNER OF EXERCISE
An optionee wishing to exercise an Option shall give written notice to
the Company at its principal executive office, to the attention of the officer
of the Company designated by the Administrator, accompanied by payment of the
exercise price as provided in Section 6.1.6. The date the Company receives
written notice of an exercise hereunder accompanied by payment of the exercise
price and, if required, by payment of any federal or state withholding or
employment taxes required to be withheld by virtue of exercise of the Option
will be considered as the date such Option was exercised.
Promptly after receipt of written notice of exercise of an Option, the
Company shall, without stock issue or transfer taxes to the optionee or other
person entitled to exercise the Option, deliver to the optionee or such other
person a certificate or certificates for the requisite number of shares of
stock. An optionee or transferee of an optionee shall not have any privileges as
a shareholder with respect to any stock covered by the Option until the date of
issuance of a stock certificate.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted thereunder shall interfere
with or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. FINANCIAL INFORMATION
The Company shall provide to each optionee during the period such
optionee holds an outstanding Option a copy of the financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements
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<PAGE> 11
shall be delivered as soon as practicable following the end of the Company's
fiscal year during the period Options are outstanding.
10. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may adversely affect Outstanding Options except to
conform this Plan and ISOs granted under this Plan to federal or other tax laws
relating to incentive stock options. No amendment shall require shareholder
approval unless (a) shareholder approval is required to preserve incentive stock
option treatment for federal income tax purposes, (b) from and after such time
as the Company registers a class of equity securities under Section 12 of the
Exchange Act, shareholder approval shall be required to meet the exemptions
provided by Rule 16b-3, or any successor rule thereto, or (c) the Board
otherwise concludes that shareholder approval is advisable.
11. SHAREHOLDER APPROVAL; TERM
This Plan shall become effective upon adoption by the Board of
Directors, provided, however, that no Option shall be Exercisable unless and
until unanimous written consent of the shareholders of the Company, or approval
by a majority of shareholders of the Company present, or represented, and
entitled to vote at a validly called shareholders' meeting at which a Quorum is
present (or such greater number as may be required by law or applicable
governmental regulations or orders) is obtained within 12 months before or after
adoption by the Board. This Plan shall terminate ten years after adoption by the
Board unless terminated earlier by the Board. The Board may terminate this Plan
at any time without shareholder approval. No Options shall be granted after
termination of this Plan, but termination shall not affect rights and
obligations under then outstanding Options.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 12
Options may be granted and exercised under this Plan only after there has been
compliance with all applicable federal and state securities laws.
Plan adopted by the Board of Directors as of March 12, 1993.
Plan approved by Shareholders on April 20, 1993
10
<PAGE> 13
BESTAL CORPORATION
1993 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
(A) Name of Optionee:___________________
(B) Grant Date:_________________________
(C) Number of Shares:___________________
(D) Exercise Price:_____________________
(E) Vesting Base Date:__________________
(F) Effective Date:_____________________
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement"), is made and
entered into as of the date set forth in Item F above between Bestal
Corporation, a California corporation (the "Company") and the person named in
Item A above ("Optionee") .
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option; Effective Date; Vesting Base Date.
1.1 Grant. The Company hereby grants to optionee pursuant to the
Company's 1993 Stock Option Plan (the "Plan"), a copy of which is attached to
this Agreement as Exhibit 1, an incentive stock option (the "ISO") to purchase
all or any part of an aggregate of the number of shares (the "ISO Shares") of
the Company's Common Stock (the "Common Stock") listed in Item C above on the
terms and conditions set forth herein and in the Plan, the terms and conditions
of the Plan being hereby incorporated into this Agreement by reference.
1.2 Vesting Base Date. The parties hereby establish the date set forth
in Item E above as the Vesting Base Date (as defined in Section 6.1.3 of the
Plan).
2. Exercise Price. The exercise price for purchase of each share of Common
Stock covered by this ISO shall be the price set forth in Item D above.
3. Term. Unless otherwise specified on Exhibit 3 attached hereto, if any
(the absence of such Exhibit indicating that no such Exhibit was intended), this
ISO shall expire as provided in Section 6.1.12 of the Plan.
4. Adjustment of ISOs. The Company shall adjust the number and kind of
shares and the exercise price thereof in certain circumstances in accordance
with the provisions of Section 6.1.1 of the Plan.
5. Exercise of Options.
5.1 Vesting; Time of Exercise. This ISO shall be exercisable according to
the schedule set forth on Exhibit 5.1 attached hereto.
<PAGE> 14
5.2 Exercise After Termination of Status as an Employee, Director or
Consultant. In the event of termination of Optionee's continuous status as an
employee, director or consultant, this ISO may be exercised only in accordance
with the provisions of Section 6.1.7 of the Plan.
5.3 Manner of Exercise. Optionee may exercise this ISO, or any portion of
this ISO, by giving written notice to the Company at its principal executive
office, to the attention of the officer of the Company designated by the Plan
Administrator, accompanied by a copy of the 1993 Stock Option Plan Stock
Purchase Agreement in substantially the form attached hereto as Exhibit 5.3
executed by Optionee (or at the option of the Company such other form of stock
purchase agreement as shall then be acceptable to the Company), payment of the
exercise price and payment of any applicable withholding or employment taxes.
The date the Company receives written notice of an exercise hereunder
accompanied by payment will be considered as the date this ISO was exercised.
Promptly after receipt of written notice of exercise of the ISO, the
Company shall, without stock issue or transfer taxes to the Optionee or other
person entitled to exercise, deliver to the Optionee or other person a
certificate or certificates for the requisite number of ISO Shares. An Optionee
or transferee of an Optionee shall not have any privileges as a shareholder with
respect to any ISO Shares covered by the option until the date of issuance of a
stock certificate.
5.4 Payment. Except as provided in Exhibit 5.4 attached hereto, if any
(the absence of such Exhibit indicating that no Exhibit was intended), payment
in full, in cash, shall be made for all ISO Shares purchased at the time written
notice of exercise of the ISO is given to the Company, and proceeds of any
payment shall constitute general funds of the Company.
6. Nonassignability of ISO. This ISO is not assignable or transferable by
Optionee except by will or by the laws of descent and distribution. During the
life of Optionee, the ISO is exercisable only by the Optionee. Any attempt to
assign, pledge, transfer, hypothecate or otherwise dispose of, this ISO in a
manner not herein permitted, and any levy of execution, attachment, or similar
process on this ISO, shall be null and void.
7. Company's Right of First Refusal.
7.1 Right of First Refusal. In the event that the Optionee proposes to
sell, pledge, or otherwise transfer any ISO Shares or any interest in such
shares to any person or entity, the Company shall have a right of first refusal
(the "Right of First Refusal") with respect to such ISO Shares. If Optionee
desires to transfer ISO Shares, Optionee shall give a written notice (the
"Transfer Notice") to the Company describing fully the proposed transfer,
including the number of ISO Shares proposed to be transferred, the proposed
transfer price, and the name and address of the proposed transferee. The
Transfer Notice shall be signed both by Optionee and by the proposed transferee
and must constitute a binding commitment of both such parties for the transfer
of such ISO Shares. The Company may elect to purchase all, but not less than
all, of the ISO Shares subject to the Transfer Notice by delivery of a notice of
exercise of the Company's Right of First Refusal within 30 days after the date
the Transfer Notice is delivered to the
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<PAGE> 15
Company. The purchase price paid by the Company shall be the price per share
equal to the proposed per share transfer price, and shall be paid to the
Optionee within 60 days after the date the Transfer Notice is received by the
Company, unless a longer period for payment was offered by the proposed
transferee, in which case the Company shall pay the purchase price within such
longer period. The Company's rights under this Section 7.1 shall be freely
assignable, in whole or in part.
7.2 Transfer of ISO Shares. If the Company fails to exercise the Right of
First Refusal within 30 days after the date the Transfer Notice is delivered to
the Company, the optionee may, not later than 75 days following delivery to the
Company of the Transfer Notice, conclude a transfer of the ISO Shares subject to
the Transfer Notice on the terms and conditions described in the Transfer
Notice. Any proposed transfer on terms and conditions different from those
described in the Transfer Notice, as well as any subsequent proposed transfer by
the Optionee, shall again be subject to the Right of First Refusal and shall
require compliance by the Optionee with the procedure described in Section 7.1
of this Agreement. If the Company exercises the Right of First Refusal, the
parties shall consummate the sale of ISO Shares on the terms, other than price,
as applicable under Section 7.1, set forth in the Transfer Notice; provided,
however, in the event the Transfer Notice provides for payment for the ISO
Shares other than in cash, the Company shall have the option of paying for the
ISO Shares by the discounted cash equivalent of the consideration described in
the Transfer Notice.
7.3 Binding Effect. The Right of First Refusal shall inure to the benefit
of the successors and assigns of the Company and shall be binding upon any
transferee of ISO Shares other than a transferee acquiring ISO Shares in a
transaction where the Company failed to exercise the Right of First Refusal (a
"Free Transferee") or a transferee of a Free Transferee.
7.4 Termination of Company's Right of First Refusal. Notwithstanding
anything in this Section 7, the Company shall have no Right of First Refusal,
and Optionee shall have no obligation to comply with the procedures in Sections
7.1 through 7.3 after the earlier of (i) the closing of the Company's initial
registered public offering of Common Stock to the public generally, or (ii) the
date ten (10) years after the Effective Date.
8. Market Standoff. Optionee hereby agrees that if so requested by the
Company or any representative of the Underwriters in connection with any
registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), Optionee shall not
sell or otherwise transfer the ISO Shares for a period of 180 days following the
effective date of a Registration Statement filed under the Securities Act;
provided, that such restriction shall apply only to the first two registration
statements of the Company to become effective under the Securities Act which
include securities to be sold on behalf of the Company in an underwritten
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to the ISO Shares subject to the foregoing
restrictions until the end of each such 180-day period.
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<PAGE> 16
9. Restriction on Issuance of Shares.
9.1 Legality of Issuance. The Company shall not be obligated to sell or
issue any ISO Shares pursuant to this agreement if such sale or issuance, in the
opinion of the Company and the Company's counsel, might constitute a violation
by the Company of any provision of law, including without limitation the
Provisions of the Securities Act.
9.2 Registration or Qualification of Securities. The Company may, but
shall not be required to, register or qualify the sale of this ISO or any ISO
Shares under the Securities Act or any other applicable law. The Company shall
lot be obligated to take any affirmative action in order to cause the grant or
exercise of this option or the issuance or sale of any ISO Shares pursuant
thereto to comply with any law.
10. Restriction on Transfer. Regardless whether the sale of the ISO Shares
has been registered under the Securities Act or has been registered or qualified
under the securities laws of any state, the Company may impose restrictions upon
the sale, pledge or other transfer of ISO Shares (including the placement of
appropriate legends on stock certificates) if, in the judgment of the Company
and the Company's counsel, such restrictions are necessary or desirable in order
to achieve compliance with the Provisions of the Securities Act, the securities
laws of any state, or any other law.
11. Stock Certificate Restrictive Legends. Stock certificates evidencing ISO
Shares may bear such restrictive legends as the Company and the Company's
counsel deem necessary or advisable under applicable law or pursuant to this
Agreement, including, without limitation, the following legends:
"The offering and sale of the securities represented hereby have not
been registered under the Securities Act of 1933, as amended (the "Act"). Any
transfer of such securities will be invalid unless a registration statement
under the Act is in effect as to such transfer or in the opinion of counsel for
the Company such registration is unnecessary in order for such transfer to
comply with the Act."
"The securities represented hereby are subject to a right of first
refusal by the Company pursuant to the provisions of the Company's 1993 Stock
Option Plan and a purchase agreement relating to such securities, and may not be
sold or otherwise transferred except in compliance with the terms of such right
of first refusal."
"The securities represented hereby are subject to restrictions on
transfer for a period of 180 days following the effective date of a registration
statement under the Securities Act of 1933, as amended, for an offering of the
Company's securities as more fully provided in an agreement between the Company
and the original purchaser relating to the option to purchase such securities."
12. Disqualifying Dispositions. If stock acquired by exercise of this ISO
is disposed of within two years after the Effective Date or within one year
after date of such exercise (as determined under Section 5.3 of this Agreement),
the Optionee immediately prior to the
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<PAGE> 17
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.
13. Representations, Warranties, Covenants, and Acknowledgments of
Optionee Upon Exercise of ISO. Optionee hereby agrees that in the event that the
Company and the Company's counsel deem it necessary or advisable in the exercise
of their discretion, the issuance of ISO Shares may be conditioned upon certain
representations, warranties, and acknowledgments by the person exercising the
ISO (the "Purchaser"), including, without limitation, those set forth in
Sections 13.1 through 13.8 inclusive:
13.1 Investment. Purchaser is acquiring the ISO Shares for
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the ISO Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regulating
securities.
13.2 Business Experience. Purchaser is capable of evaluating the
merits and risks of Purchaser's investment in the Company evidenced by purchase
of the ISO Shares.
13.3 Relation to Company. Purchaser is presently an officer,
director, or other employee of, or consultant to the Company, and in such
capacity has become personally familiar with the business, affairs, financial
condition, and results of operations of the Company.
13.4 Access to Information. Purchaser has had the opportunity to
ask questions of, and to receive answers from, appropriate executive officers of
the Company with respect to the terms and conditions of the transaction
contemplated hereby and with respect to the business, affairs, financial
condition, and results of operations of the Company. Purchaser has had access to
such financial and other information as is necessary in order for Purchaser to
make a fully-informed decision as to investment in the Company by way of
purchase of the ISO Shares, and has had the opportunity to obtain any additional
information necessary to verify any of such information to which Purchaser has
had access.
13.5 Speculative Investment. Purchaser's investment in the Company
represented by the ISO Shares is highly speculative in nature and is subject to
a high degree of risk of loss in whole or in part. The amount of such investment
is within Purchaser's risk capital means and is not so great in relation to
Purchaser's total financial resources as would jeopardize the personal financial
needs of Purchaser or Purchaser's family in the event such investment were lost
in whole or in part.
13.6 Registration. Purchaser must bear the economic risk of
investment for an indefinite period of time because the sale to Purchaser of the
ISO Shares has not been registered under the Securities Act and the ISO Shares
cannot be transferred by Purchaser unless such transfer is registered under the
Securities Act or an exemption from such registration is available. The Company
has made no agreements, covenants, or undertakings whatsoever to register the
transfer of any of the ISO Shares under the Securities Act. The Company has made
no Representations, warranties, or covenants whatsoever as to whether any
exemption from the
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<PAGE> 18
Securities Act, including without limitation any exemption for limited sales in
routine brokers' transactions pursuant to Rule 144, will be available; if the
exemption under Rule 144 is available at all, it may not be available until at
least two years after payment of cash for the ISO Shares and not then unless:
(i) a public trading market then exists in the Company's common stock; (ii)
adequate information as to the Company's financial and other affairs and
operations is then available to the public; and (iii) all other terms and
conditions of Rule 144 have been satisfied. Purchaser understands that the
resale provisions of Rule 701 will not apply until 90 days after the Company
becomes subject to the reporting obligations of the Securities Exchange Act of
1934 (typically 90 lays after the effective date of an initial public offering).
13.7 Public Trading. None of the Company's securities is presently
publicly traded, and the Company has made no representation, covenant, or
agreement as to whether there will be a public market for any of its securities.
13.8 Tax Advice. The Company has made no warranties or
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by the agreement pursuant to which the ISO Shares will
be purchased and Purchaser is in no manner relying on the Company or its
representatives for an assessment of such tax consequences.
14. Assignment; Binding Effect. Subject to the limitations set forth in this
Agreement, this Agreement shall be binding upon and inure to the benefit of the
executors, administrators, heirs, legal representatives, and successors of the
parties hereto; provided, however, that Optionee may not assign any of
Optionee's rights under this Agreement.
15. Damages. Optionee shall be liable to the Company for all costs and
damages, including incidental and consequential damages, resulting from a
disposition of ISO Shares which is not in conformity with the provisions of this
Agreement.
16. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.
17. Notices. All notices and other communications under this Agreement shall
be in writing. Unless and until the Optionee is notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
Bestal Corporation
6780 Sierra Court, Suite I
Dublin, California 94568
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for the Optionee and related to
this Agreement, if not delivered by hand, shall be mailed to Optionee's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
6
<PAGE> 19
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.
7
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Incentive
Stock Option Agreement as of the Effective Date.
BESTAL CORPORATION
By
----------------------------------
Title
----------------------------------
The Optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
-------------------------------------
Optionee
Dated:
--------------------------------
Optionee's spouse indicates by the execution of this Incentive Stock Option
Agreement his or her consent to be bound by the terms thereof as to his or her
interests, whether as community property or otherwise, if any, in the option
granted hereunder, and in any ISO Shares purchased pursuant to this Agreement.
------------------------------------
Optionee's Spouse
8
<PAGE> 21
BESTAL CORPORATION
1993 STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
(A) Name of Optionee:_____________________
(B) Grant Date:___________________________
(C) Number of Shares:_____________________
(D) Exercise Price:_______________________
(E) Vesting Base Date:____________________
(F) Effective Date:_______________________
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement"), is made and
entered into as of the date set forth in Item F above between Bestal
Corporation, a California corporation (the "Company"), and the person named in
Item A above ("Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option; Effective Date; Vesting Base Date.
1.1 Grant. The Company hereby grants to Optionee pursuant to the
Company's 1993 Stock Option Plan (the "Plan"), a copy of which is attached to
this Agreement as Exhibit 1, a nonqualified stock option (the "NQO") to purchase
all or any part of an aggregate of the number of shares (the "NQO Shares") of
the Company's Common Stock (the "Common Stock") listed in Item C above on the
terms and conditions set forth herein and in the Plan, the terms and conditions
of the Plan being hereby incorporated into this Agreement by reference.
1.2 Vesting Base Date. The parties hereby establish the date set
forth in Item E above as the Vesting Base Date (as defined in Section 6.1.3 of
the Plan).
2. Exercise Price. The exercise price for purchase of each share of
Common Stock covered by this NQO shall be the price set forth in Item D above.
3. Term. Unless otherwise specified on Exhibit 3 attached hereto, if any
(the absence of such exhibit indicating that no such exhibit was intended), this
NQO shall expire as provided in Section 6.1.12 of the Plan.
4. Adjustment of NQOs. The Company shall adjust the number and kind of
shares and the exercise price thereof in certain circumstances in accordance
with the provisions of Section 6.1.1 of the Plan.
5. Exercise of Options.
5.1 Vesting; Time of Exercise. This NQO shall be exercisable
according to the Schedule set forth on Exhibit 5.1 attached hereto.
<PAGE> 22
5.2 Exercise After Termination of Status as an Employee, Director
or Consultant. In the event of termination of Optionee's continuous status as an
employee, director or consultant, this NQO may be exercised only in accordance
with the provisions of Section 6.1.7 of the Plan.
5.3 Manner of Exercise. Optionee may exercise this NQO, or any
portion of this NQO, by giving written notice to the Company at its principal
executive office, to the attention of the officer of the Company designated by
the Plan Administrator, accompanied by a copy of the 1993 Stock Option Plan
Stock Purchase Agreement in substantially the form attached hereto as Exhibit
5.3 executed by Optionee (or at the option of the Company such other form of
stock purchase agreement as shall then be acceptable to the Company), payment of
the exercise price and payment of any applicable withholding or employment
taxes. The date the Company receives written notice of an exercise hereunder
accompanied by payment will be considered as the date this NQO was exercised.
Promptly after receipt of written notice of exercise of the NQO, the
Company shall, without stock issue or transfer taxes to the Optionee or other
person entitled to exercise, deliver to the Optionee or other person a
certificate or certificates for the requisite number of NQO Shares. An Optionee
or transferee of an Optionee shall not have any privileges as a shareholder with
respect to any NQO Shares covered by the option until the date of issuance of a
stock certificate.
5.4 Payment. Except as provided in Exhibit 5.4 attached hereto,
if any (the absence of such exhibit indicating that no exhibit was intended),
payment in full, in cash, shall be made for all NQO Shares purchased at the time
written notice of exercise of the NQO is given to the Company, and proceeds of
any payment shall constitute general funds of the Company.
6. Nonassignability of NQO. This NQO is not assignable or transferable
by Optionee except by will or by the laws of descent and distribution. During
the life of Optionee, the NQO is exercisable only by the Optionee. Any attempt
to assign, pledge, transfer, hypothecate or otherwise dispose of this NQO in a
manner not herein permitted, and any levy of execution, attachment, or similar
process on this NQO, shall be null and void.
7. Company's Right of First Refusal.
7.1 Right of First Refusal. In the event that the Optionee
proposes to sell, pledge, or otherwise transfer any NQO Shares or any interest
in such shares to a bona-fide third party offeror, the Company shall have a
right of first refusal (the "Right of First Refusal") with respect to such NQO
Shares. If Optionee desires to transfer NQO Shares, Optionee shall give a
written notice (the "Transfer Notice") to the Company describing fully the
proposed transfer, including the number of NQO Shares proposed to be
transferred, the proposed transfer price, and the name and address of the
bona-fide third party offeror. The Transfer Notice shall be signed both by
Optionee and by the bona-fide third party offeror and must constitute a binding
commitment of both such parties for the transfer of such NQO Shares. The Company
may elect to purchase all, but not less than all, of the NQO Shares subject to
the Transfer Notice by delivery of a notice of exercise of the Company's Right
of First Refusal within 30 days after the
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<PAGE> 23
date the Transfer Notice is delivered to the Company. The purchase price paid by
the Company shall be the price per share equal to the proposed per share
transfer price, and shall be paid to the Optionee within 60 days after the date
the Transfer Notice is received by the Company, unless a longer period for
payment was offered by the bona-fide third party offeror, in which case the
Company shall pay the purchase price within such longer period. The Company's
rights under this Section 7.1 shall be freely assignable, in whole or in part.
7.2 Transfer of NQO Shares. If the Company fails to exercise the
Right of First Refusal within 30 days after the date the Transfer Notice is
delivered to the Company, the Optionee may, not later than 75 days following
delivery to the Company of the Transfer Notice, conclude a transfer of the NQO
Shares subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Optionee, shall again be subject to the Right of First Refusal
and shall require compliance by the Optionee with the procedure described in
Section 7.1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of NQO Shares on the terms, other
than price, as applicable under Section 7.1, set forth in the Transfer Notice;
provided, however, in the event the Transfer Notice provides for payment for the
NQO Shares other than in cash, the Company shall have the option of paying for
the NQO Shares by the discounted cash equivalent of the consideration described
in the Transfer Notice.
7.3 Binding Effect. The Right of First Refusal shall inure to the
benefit of the successors and assigns of the Company and shall be binding upon
any transferee of NQO Shares other than a transferee acquiring NQO Shares in a
transaction where the Company failed to exercise the Right of First Refusal (a
"Free Transferee") or a transferee of a Free Transferee.
7.4 Termination of Company's Right of First Refusal.
Notwithstanding anything in this Section 7, the Company shall have no Right of
First Refusal, and Optionee shall have no obligation to comply with the
procedures in Sections 7.1 through 7.3 after the earlier of (i) the closing of
the Company's initial registered public offering of Common Stock to the public
generally, or (ii) the date ten years after the Effective Date.
8. Market Standoff. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters in connection with any
registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), Optionee shall not
sell or otherwise transfer the NQO Shares for a period of 180 days following the
effective date of a Registration Statement filed under the Securities Act;
provided, that such restriction shall apply only to the first two registration
statements of the Company to become effective under the Securities Act which
include securities to be sold on behalf of the Company in an underwritten
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to the NQO Shares subject to the foregoing
restrictions until the end of each such 180-day period.
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<PAGE> 24
9. Restriction on Issuance of Shares.
9.1 Legality of Issuance. The Company shall not be obligated to
sell or issue any NQO Shares pursuant to this Agreement if such sale or
issuance, in the opinion of the Company and the Company's counsel, might
constitute a violation by the Company of any provision of law, including without
limitation the provisions of the Securities Act.
9.2 Registration or Qualification of Securities. The Company may,
but shall not be required to, register or qualify the sale of this NQO or any
NQO Shares under the Securities Act or any other applicable law. The Company
shall not be obligated to take any affirmative action in order to cause the
grant or exercise of this option or the issuance or sale of any NQO Shares
pursuant thereto to comply with any law.
10. Restriction on Transfer. Regardless whether the sale of the NQO
Shares has been registered under the Securities Act or has been registered or
qualified under the securities laws of any state, the Company may impose
restrictions upon the sale, pledge or other transfer of NQO Shares (including
the placement of appropriate legends on stock certificates) if, in the judgment
of the Company and the Company's counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the Securities
Act, the securities laws of any state, or any other law.
11. Stock Certificate Restrictive Legends. Stock certificates evidencing
NQO Shares may bear such restrictive legends as the Company and the Company's
counsel deem necessary or advisable under applicable law or pursuant to this
Agreement, including, without limitation, the following legends:
"The offering and sale of the securities represented hereby have
not been registered under the Securities Act of 1933, as amended (the "Act").
Any transfer of such securities will be invalid unless a registration statement
under the Act is in effect as to such transfer or in the opinion of counsel for
the Company such registration is unnecessary in order for such transfer to
comply with the Act."
"The securities represented hereby are subject to a right of
first refusal by the Company pursuant to the provisions of the Company's 1993
Stock Option Plan and a purchase agreement relating to such securities, and may
not be sold or otherwise transferred except in compliance with the terms of such
right of first refusal."
"The securities represented hereby are subject to restrictions on
transfer for a period of 180 days following the effective date of a registration
statement under the Securities Act of 1933, as amended, for an offering of the
Company's securities as more fully provided in an agreement between the Company
and the original purchaser relating to the option to purchase such securities."
12. Disqualifying Dispositions. If stock acquired by exercise of this
ISO is disposed of within two years after the Effective Date or within one year
after date of such exercise (as determined under Section 5.3 of this Agreement),
the Optionee immediately prior to the
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<PAGE> 25
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.
13. Representations, Warranties, Covenants, and Acknowledgments of
Optionee Upon Exercise of NQO. Optionee hereby agrees that in the event that the
Company and the Company's counsel deem it necessary or advisable in the exercise
of their discretion, the issuance of NQO Shares may be conditioned upon certain
representations, warranties, and acknowledgments by the person exercising the
NQO (the "Purchaser"), including, without limitation, those set forth in
Sections 13.1 through 13.8 inclusive.
13.1 Investment. Purchaser is acquiring the NQO Shares for
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the NQO Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regulating
securities.
13.2 Business Experience. Purchaser is capable of evaluating the
merits and risks of Purchaser's investment in the Company evidenced by purchase
of the NQO Shares.
13.3 Relation to Company. Purchaser is presently an officer,
director, or other employee of, or consultant to the Company, and in such
capacity has become personally familiar with the business, affairs, financial
condition and results of operations of the Company.
13.4 Access to Information. Purchaser has had the opportunity to
ask questions of, and to receive answers from, appropriate executive officers of
the Company with respect to the terms and conditions of the transaction
contemplated hereby, and with respect to the business, affairs, financial
condition, and results of operations of the Company. Purchaser has had access to
such financial and other information as is necessary in order for Purchaser to
make a fully-informed decision as to investment in the Company by way of
purchase of the NQO Shares, and has had the opportunity to obtain any additional
information necessary to verify any of such information to which Purchaser has
had access.
13.5 Speculative Investment. Purchaser's investment in the
Company represented by the NQO Shares is highly speculative in nature and is
subject to a high degree of risk of loss in whole or in part. The amount of such
investment is within Purchaser's risk capital means and is not so great in
relation to Purchaser's total financial resources as would jeopardize the
personal financial needs of Purchaser or Purchaser's family in the event such
investment were lost in whole or in part.
13.6 Registration. Purchaser must bear the economic risk of
investment for an indefinite period of time because the sale to Purchaser of the
NQO Shares has not been registered under the Securities Act and the NQO Shares
cannot be transferred by Purchaser unless such transfer is registered under the
Securities Act or an exemption from such registration is available. The Company
has made no agreements, covenants, or undertakings whatsoever to register the
transfer of any of the NQO Shares under the Securities Act. The Company has made
no representations, warranties, or covenants whatsoever as to whether any
exemption from the
-5-
<PAGE> 26
Securities Act, including without limitation any exemption for limited sales in
routine brokers' transactions pursuant to Rule 144, will be available; if the
exemption under Rule 144 is available at all, it may not be available until at
least two years after payment of cash for the NQO Shares and not then unless:
(i) a public trading market then exists in the Company's common stock; (ii)
adequate information as to the Company's financial and other affairs and
operations is then available to the public; and (iii) all other terms and
conditions of Rule 144 have been satisfied. Purchaser understands that the
resale provisions of Rule 701 will not apply until 90 days after the Company
becomes subject to the reporting obligations of the Securities Exchange Act of
1934 (typically 90 days after the effective date of an initial public offering).
13.7 Public Trading. None of the Company's securities is
presently publicly traded, and the Company has made no representation, covenant
or agreement as to whether there will be a public market for any of its
securities.
13.8 Tax Advice. The Company has made no warranties or
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by the agreement pursuant to which the NQO Shares will
be purchased and Purchaser is in no manner relying on the Company or its
representatives for an assessment of such tax consequences.
14. Assignment; Binding Effect. Subject to the limitations set forth in
this Agreement, this Agreement shall be binding upon and inure to the benefit of
the executors, administrators, heirs, legal representatives, and successors of
the parties hereto; provided, however, that Optionee may not assign any of
Optionee's rights under this Agreement.
15. Damages. Optionee shall be liable to the Company for all costs and
damages, including incidental and consequential damages, resulting from a
disposition of NQO Shares which is not in conformity with the provisions of this
Agreement. 16. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California excluding those laws
that direct the application of the laws of another jurisdiction.
17. Notices. All notices and other communications under this Agreement
shall be in writing. Unless and until the Optionee is notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
Bestal Corporation
6780 Sierra Court, Suite I
Dublin, California 94568
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications and documents intended for the Optionee and related to
this Agreement, if not delivered by hand, shall be mailed to Optionee's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid;
-6-
<PAGE> 27
documents shall be mailed by registered mail, return receipt requested, postage
prepaid. All mailings and deliveries related to this Agreement shall be deemed
received when actually received, if by hand delivery, and two business days
after mailing, if by mail.
IN WITNESS WHEREOF, the parties have executed this Nonqualified Stock
Option Agreement as of the Effective Date.
BESTAL CORPORATION
By
-------------------------------
Title
---------------------------
The Optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
----------------------------------
Optionee
Dated:
---------------------------
Optionee's spouse indicates by the execution of this Nonqualified Stock Option
Agreement his or her consent to be bound by the terms thereof as to his or her
interests, whether as community property or otherwise, if any, in the option
granted hereunder, and in any NQO Shares purchased pursuant to this Agreement.
----------------------------------
Optionee's Spouse
-7-
<PAGE> 28
AMERICAN XTAL TECHNOLOGY
1993 STOCK OPTION PLAN
STOCK PURCHASE AGREEMENT
(A) Name of Purchaser:________________________
(B) Number of Plan Shares:____________________
(C) Exercise Price:___________________________
(D) Purchase Price:___________________________
(E) Date of Option Agreement:_________________
(F) Effective Date:___________________________
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of the date set forth in Item F above (the "Effective Date")
between AMERICAN XTAL TECHNOLOGY, a California corporation (the "Company"), and
the person named in Item A above (the "Purchaser").
THE PARTIES AGREE AS FOLLOWS:
1. Purchase of Shares. Pursuant to the Company's 1993 Employee
Stock Option Plan (the "Plan") and to a stock option agreement ("Option
Agreement") between the parties dated the date set forth in Item E above, the
Company hereby sells to Purchaser, and Purchaser hereby buys from the Company,
that number of shares (the "Plan Shares") of the Company's Common Stock ("Common
Stock") set forth in Item B above on the terms and conditions set forth herein
and in the Plan and the Option Agreement, the terms and conditions of the Plan
and the Option Agreement being hereby incorporated into this Agreement by
reference.
2. Purchase Price. Purchaser shall purchase the Plan Shares from
the Company, and the Company shall sell the Plan Shares to Purchaser, at a price
per share as set forth in Item C above (the "Exercise Price"), for a total
purchase price as set forth in Item D above (the "Purchase Price").
3. Manner of Payment. Purchaser shall pay the Purchase Price of
the Plan Shares in cash (or in the manner set forth in Exhibit 5.4 to the Option
Agreement evidencing the option, the absence of any Exhibit 5.4 indicating that
no such exhibit was intended).
4. Company's Right of First Refusal Respecting Plan Shares.
4.1 Right of First Refusal. In the event that Purchaser
proposes to sell, pledge, or otherwise transfer any Plan Shares or any interest
in such shares to a bona-fide third party offeror, the Company shall have a
right of first refusal (the "Right of First Refusal") with respect to such Plan
Shares. If Purchaser desires to transfer Plan Shares, Purchaser shall give a
written notice (the "Transfer Notice") to the Company describing fully the
proposed transfer, including the number of Plan Shares proposed to be
transferred, the proposed transfer price, and the name and address of the
bona-fide third party offeror. The Transfer Notice shall be signed both by
Purchaser and by the bona-fide third party offeror and must constitute a binding
commitment of both such parties for the transfer of such Plan Shares. The
Company may elect to purchase the Plan Shares subject to the Transfer Notice by
delivery of a notice of exercise of the
-1-
<PAGE> 29
Company's Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company. The purchase price paid by the Company shall
be the price per share equal to the proposed per share transfer price, and shall
be paid to the Purchaser within 60 days after the date the Transfer Notice is
received by the Company, unless a longer period for payment was offered by the
bona-fide third party offeror, in which case the Company shall pay the purchase
price within such longer period. The Company's rights under this Section 4.1
shall be freely assignable, in whole or in part.
4.2 Transfer of Plan Shares. If the Company fails to exercise
the Right of First Refusal within 30 days after the date the Transfer Notice is
delivered to the Company, Purchaser may, not later than 75 days following
delivery to the Company of the Transfer Notice, conclude a transfer of the Plan
Shares subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by Purchaser, shall again be subject to the Company's Right of First
Refusal and shall require compliance by Purchaser with the procedure described
in Section 4.1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of Plan Shares on the terms,
other than price, as applicable under Section 4.1, set forth in the Transfer
Notice, subject; provided, however, in the event the Transfer Notice provides
for payment for the Plan Shares other than in cash, the Company shall have the
option of paying for the Plan Shares by the discounted cash equivalent of the
consideration described in the Transfer Notice. If, at the time of exercise of
the right of first refusal, any notes are outstanding which represent any
portion of the Purchase Price of the Plan Shares, the repurchase price shall be
paid first by cancellation of any obligation for accrued but unpaid interest
under such notes, next by cancellation of principal under such notes, and
finally by payment of cash.
4.3 Binding Effect of Right of First Refusal. The Company's
Right of First Refusal shall inure to the benefit of the successors and assigns
of the Company and shall be binding upon any transferee of Plan Shares other
than a transferee acquiring Plan Shares in a transaction where the Company
failed to exercise the Right of First Refusal (a "Free Transferee") or a
transferee of a Free Transferee.
4.4 Termination of Company's Right of First Refusal.
Notwithstanding anything in this Section 4, the Company shall have no Right of
First Refusal, and Purchaser shall have no obligation to comply with the
procedures in Sections 4.1 through 4.3, after the earlier of (a) the closing of
the Company's initial registered public offering to the public generally, or (b)
the date ten (10) years after the Effective Date (as defined in the Option
Agreement).
5. Stock Certificate Restrictive Legends. Stock certificates evidencing Plan
Shares may bear such restrictive legends as the Company and the Company's
counsel deem necessary or advisable under applicable law or pursuant to this
Agreement, including without limitation, the following legends:
"The offering and sale of the securities represented hereby have not been
registered under the Securities Act of 1933 (the "Act"). Any transfer of such
securities will be invalid unless a registration statement under the Act is in
effect as to such transfer or in the opinion of counsel for the Company such
registration is unnecessary in order for such transfer to comply with the Act."
-2-
<PAGE> 30
"The securities represented hereby are subject to a right for first
refusal by the Company pursuant to the provisions of the Company's 1993 Stock
Option Plan and a purchaser agreement relating to such securities, and may not
be sold or otherwise transferred except in compliance with the terms of such
right of first refusal."
"The securities represented hereby are subject to restrictions on
transfer for a period of 180 days following the effective date of a registration
statement under the Securities Act of 1933, as amended, for an offering of the
Company's securities as more fully provided in an agreement between the Company
and the original purchaser relating to the option to purchase such securities."
6. Representations, Warranties, Covenants, and Acknowledgments of Purchaser.
Purchaser hereby represents, warrants, covenants, acknowledges, and agrees that:
6.1 Investment. Purchaser is acquiring the Plan Shares for Purchaser's
own account, and not for the account of any other person. Purchaser is acquiring
the Plan Shares for investment and not with a view to distribution or resale
thereof except in compliance with applicable laws regulating securities.
6.2 Business Experience. Purchaser is capable of evaluating the merits
and risks of Purchaser's investment in the Company evidenced by the purchase of
the Plan Shares.
6.3 Relation of Company. Purchaser is presently an officer, director, or
employee of, or consultant to, the Company and in such capacity has become
personally familiar with the business, affairs, financial condition, and results
of operations of the Company.
6.4 Access to Information. Purchaser has had the opportunity to ask
questions of, and to receive answers from, appropriate executive officers of the
Company with respect to the terms and conditions of the transactions
contemplated hereby and with respect to the business, affairs, financial
condition, and results of operations of the Company. Purchaser has had access to
such financial and other information as is necessary in order for Purchaser to
make a fully-informed decision as to investment in the Company by way of
purchase of the Plan Shares, and has had the opportunity to obtain any
additional information necessary to verify any of such information to which
Purchaser has had access.
6.5 Speculative Investment. Purchaser's investment in the Company
represented by the Plan Shares is highly speculative in nature and is subject to
a high degree of risk of loss in whole or in part. The amount of such investment
is within Purchaser's risk capital means and is not so great in relation to
Purchaser's total financial resources as would jeopardize the personal financial
needs of Purchaser or Purchaser's family in the event such investment were lost
in whole or in part.
6.6 Registration. Purchaser must bear the economic risk of investment for
an indefinite period of time because the sale to Purchaser of the Plan Shares
has not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and the Plan Shares cannot be transferred by Purchaser unless
such transfer is registered under the Securities Act or an exemption from such
registration is available. The Company has made no agreements,
-3-
<PAGE> 31
covenants or undertakings whatsoever to register the transfer of any of the
Shares under the Securities Act. The Company has made no representations,
warranties, or covenants whatsoever as to whether any exemption from the
Securities Act, including without limitation any exemption for limited sales in
routine brokers' transactions pursuant to Rule 144, will be available; if the
exemption under Rule 144 is available at all, it will not be available until at
least two years after payment of cash for the Plan Shares and not then unless:
(a) a public trading market then exists in the Company's Common Stock; (b)
adequate information as to the Company's financial and other affairs and
operations is then available to the public; and (c) all other terms and
conditions of Rule 144 have been satisfied. Purchaser understands that the
resale provisions of Rule 701 will not apply until 90 days after the Company
becomes subject to the reporting obligations of the Securities Exchange Act of
1934 (typically 90 days after the effective date of an initial public offering).
6.7 Public Trading. None of the Company's securities is
presently publicly traded, and the Company has made no representation, covenant,
or agreement as to whether there will be a public market for any of its
securities.
6.8 Tax Advice. The Company has made no warranties or
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by this Agreement and Purchaser is in no manner
relying on the Company or its representatives for an assessment of such tax
consequences.
7. Binding Effect. Subject to the limitations set forth in this Agreement,
this Agreement shall be binding upon, and inure to the benefit of, the
executors, administrators, heirs, legal representatives, successors, and assigns
of the parties hereto.
8. Taxes. Purchaser shall execute and deliver to the Company with this
executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Election Pursuant to Section 83(b) of the Internal Revenue Code (the
"Acknowledgment") attached hereto as Exhibit 8A. Purchaser shall execute and
submit with the Acknowledgment a copy of the Election Pursuant to Section 83(b)
of the Code, attached hereto as Exhibit 8B, if Purchaser has indicated in the
Acknowledgment his decision to make such an election. Purchaser should consult
his tax advisor to determine if there is a comparable election to file in the
state of his residence and whether such filing is desirable under the
circumstances. The Company may withhold from Purchaser's wages, or require
Purchaser to pay to the Company, any applicable withholding or employment taxes
resulting from the purchase of Plan Shares hereunder or from the lapse of any
restrictions imposed on the Plan Shares. .
9. Disqualifying Dispositions of ISO Stock. If stock acquired by exercise of
an ISO (as defined in Section 1 of the Plan) is disposed of within two years
after the Effective Date (as defined in the Option Agreement) or within one year
after such exercise, Purchaser immediately prior to the disposition shall
promptly notify the Company in writing of the date and terms of the disposition
and shall provide such other information regarding the disposition as the
Company may reasonably require.
10. Damages. Purchaser shall be liable to the Company for all costs and
damages, including incidental and consequential damages, resulting from a
disposition of Plan Shares which is not in conformity with the provisions of
this Agreement.
-4-
<PAGE> 32
11. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.
12. Notices. All notices and other communications under this Agreement shall
be in writing. Unless and until Purchaser is notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
American Xtal Technology
4311 Solar Way
Fremont, CA 94538
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for Purchaser and related to
this Agreement, if not delivered by hand, shall be mailed to Purchaser's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
AMERICAN XTAL TECHNOLOGY
By
----------------------------------
Title
---------------------------------
Purchaser hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
Purchaser
----------------------------
Purchaser's spouse indicates by the execution of this Agreement his or her
consent to be bound by the terms herein as to his or her interests, whether as
community property or otherwise, if any, in the Plan Shares hereby purchased.
Purchaser's Spouse
--------------------------
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<PAGE> 33
Exhibits
- --------
Exhibit 1A Employee Stock Option Plan
Exhibit 1B Option Agreement
Exhibit 8A Acknowledgment Regarding Election
Pursuant to Section 83(b)
Exhibit 8B Section 83(b) Election
<PAGE> 34
ACKNOWLEDGMENT AND STATEMENT
OF DECISION REGARDING ELECTION
PURSUANT TO SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned (which term includes the undersigned's spouse), a
purchaser of ________ shares of Common Stock of AMERICAN XTAL TECHNOLOGY (the
"Company"), pursuant to an option granted under the Company's 1993 Stock Option
Plan (the "Plan"), hereby states as follows:
1. The undersigned acknowledges receipt of a copy of a Stock Purchase
Agreement by and between the undersigned and the Company (the "Agreement")
effecting the purchase of shares, which the undersigned has carefully reviewed.
2. The undersigned either [check as applicable]:
_____ (a) has consulted, and has been fully advised by, the
undersigned's own tax advisor, _______________________________, whose business
address is _________________ ____________________________, regarding the income
tax consequences of purchasing shares under the Agreement, and particularly
regarding the advisability of making an election pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code"), and pursuant to the
corresponding provisions, if any, of applicable state laws (including without
limitation Section 17122.7(b) of the California Revenue and Taxation Code, as
amended (the "Rev. & Tax. Code") if applicable); or
_____ (b) has knowingly chosen not to consult a tax advisor.
3. The undersigned hereby avers that, with respect to the purchase of
shares, the undersigned [check as applicable]:
_____ (a) will make an election under Section 83(b) solely for purposes
of Section 56(b)(3) of the Code (and analogous state law, if any) relating to
the Alternative Minimum Tax, and a "protective" election under Section 83(b)
(and analogous state law, if any) for all other income tax purposes;
_____ (b) will not make an election under Section 83(b) of the Code (and
analogous state law, if any) for any purpose.
4. With respect to any election under Section 83(b) of the Code,
"protective" or otherwise, indicated in paragraph (3), above, the undersigned
herewith submits an executed copy of the appropriate form of election and
acknowledges that copies thereof have been duly and timely filed with the
appropriate offices of the Internal Revenue Service and applicable state taxing
authorities and that the undersigned will attach a copy of the form of election
to the
Exhibit 8A
<PAGE> 35
undersigned's federal income tax return for the year of the purchase and,
if required, to the undersigned's state income tax return(s) for the same
period.
5. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the
Agreement or of the making or failure to make an election pursuant to Section
83(b) of the Code or the corresponding provisions, if any, of applicable state
law.
Date:
----------------- -----------------------------
(Purchaser)
Date:
----------------- -----------------------------
(Spouse)
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<PAGE> 36
ELECTION PURSUANT TO SECTION 83(B) OF THE
INTERNAL REVENUE CODE WITH RESPECT TO PROPERTY
TRANSFERRED IN CONNECTION WITH THE PERFORMANCE OF SERVICES
--------------------------------------
The undersigned hereby makes the election, modified to the extent
described in Paragraph 9 below, authorized by Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder,
with respect to shares of Common Stock of AMERICAN XTAL TECHNOLOGY (the
"Company") described below acquired by the undersigned on the date shown below.
To the extent permitted, this election shall also serve as an election under
analogous state law. As required by the Treasury Regulations under Section
83(b), the undersigned supplies herewith the following information:
1. The undersigned's name and address are:
Name:
--------------------------------------
Address:
-----------------------------------
-----------------------------------
2. The undersigned has taxpayer identification number
______- _____- _____
3. The property with respect to which this protective election is
made consists of _________ shares of Common Stock, no par value,
of the Company.
4. The date on which the above-described property was transferred to
the undersigned was ______________, 19____.
5. As of the date of transfer, the property was subject to the
following substantial risk of forfeiture:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
6. The fair market value of the property at the time of transfer
(determined without regard to any restrictions other than
restrictions which by their terms will never lapse) was $______
per share.
7. The amount paid for the property by the undersigned was $______
per share.
Exhibit 8B
<PAGE> 37
8. A copy of this election has been furnished to the Company, and a
copy of this election will be attached to the undersigned's
federal income tax return for the year to which this election
relates.
9. If the property was acquired by the exercise of an Incentive Stock
Option within the meaning of Section 422 of the Code then, except
in the event of a "disqualifying disposition" of the property,
this election is protective only and does not constitute an
agreement to report or include as income subject to federal income
tax amounts which, but for this election, are not so reportable or
includible.
Date:
--------------- -----------------------------
(Purchaser)
-2-
<PAGE> 1
EXHIBIT 10.3
AMERICAN XTAL TECHNOLOGY
1997 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The American Xtal Technology 1997 Stock Option
Plan (the "PLAN") is hereby established effective as of July 26, 1997 (the
"EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its shareholders by providing an
incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from the
Effective Date.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means American Xtal Technology, a California
corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
1
<PAGE> 2
(f) "DIRECTOR" means a member of the Board or of the board
of directors of any other Participating Company.
(g) "DISABILITY" means the inability of the Optionee, in
the opinion of a qualified physician acceptable to the Company, to perform the
major duties of the Optionee's position with the Participating Company group
because of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value
of a share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market
for the Stock, the Fair Market Value of a share of Stock shall be the closing
sale price of a share of Stock (or the mean of the closing bid and asked prices
of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq
National Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market
for the Stock, the Fair Market Value of a share of Stock shall be as determined
by the Board without regard to any restriction other than a restriction which,
by its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended to
be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
2
<PAGE> 3
(n) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(o) "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "OPTIONEE" means a person who has been granted one or
more Options.
(q) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(t) "RULE 16B-3" means Rule 16b-3 under the Exchange Act,
as amended from time to time, or any successor rule or regulation.
(u) "SECTION 162(M)" means Section 162(m) of the Code, as
amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).
(v) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(w) "SERVICE" means an Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Optionee's Option Agreement. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Optionee performs Service ceasing to be a Participating Company.
Subject to the foregoing, the Company, in its sole discretion, shall determine
whether the Optionee's Service has terminated and the effective date of such
termination.
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(x) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(y) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(z) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at
the time an Option is granted to the Optionee, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
a Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan or of any
Option shall be determined by the Board, and such determinations shall be final
and binding upon all persons having an interest in the Plan or such Option. Any
officer of a Participating Company shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, determination or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such matter,
right, obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock
or other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof,
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including, without limitation, (i) the exercise price of the Option, (ii) the
method of payment for shares purchased upon the exercise of the Option, (iii)
the method for satisfaction of any tax withholding obligation arising in
connection with the Option or such shares, including by the withholding or
delivery of shares of stock, (iv) the timing, terms and conditions of the
exercisability of the Option or the vesting of any shares acquired upon the
exercise thereof, (v) the time of the expiration of the Option, (vi) the effect
of the Optionee's termination of Service with the Participating Company Group on
any of the foregoing, and (vii) all other terms, conditions and restrictions
applicable to the Option or such shares not inconsistent with the terms of the
Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or
otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
3.4 COMMITTEE COMPLYING WITH SECTION 162(m). If a
Participating Company is a "publicly held corporation" within the meaning of
Section 162(m), the Board may establish a Committee of "outside directors"
within the meaning of Section 162(m) to approve the grant of any Option which
might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the limit on employee remuneration
deductible for income tax purposes pursuant to Section 162(m).
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be __________________________ (__________)
and shall consist of authorized but unissued or reacquired shares of Stock or
any combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock
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acquired, subject to repurchase, upon the exercise of an Option are repurchased
by the Company, the shares of Stock allocable to the unexercised portion of such
Option, or such repurchased shares of Stock, shall again be available for
issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event, as defined in Section 8.1) shares of another corporation
(the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to
provide that such Options are exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the outstanding Options shall be adjusted in a fair and equitable
manner as determined by the Board, in its sole discretion. Notwithstanding the
foregoing, any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded up or down to the nearest whole number, as
determined by the Board, and in no event may the exercise price of any Option be
decreased to an amount less than the par value, if any, of the stock subject to
the Option. The adjustments determined by the Board pursuant to this Section 4.2
shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only
to Employees, Consultants, and Directors. For purposes of the foregoing
sentence, "employees," "consultants" and "directors" shall include prospective
Employees, prospective Consultants and prospective Directors to whom Options are
granted in connection with written offers of an employment or other service
relationship with the Participating Company Group. Eligible persons may be
granted more than one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an
Employee on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is
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granted. If the Code is amended to provide for a different limitation from that
set forth in this Section 5.3, such different limitation shall be deemed
incorporated herein effective as of the date and with respect to such Options as
required or permitted by such amendment to the Code. If an Option is treated as
an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by
reason of the limitation set forth in this Section 5.3, the Optionee may
designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. No Option or purported Option shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall have an exercise
price per share less than one hundred ten percent (110%) of the Fair Market
Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Incentive Stock Option shall be exercisable after the expiration of
ten (10) years after the effective date of grant of such Option, (b) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option and, (c) no Option granted to a prospective Employee,
prospective Consultant or prospective Director may become exercisable prior to
the date on which such person commences Service with a Participating Company.
Subject to the foregoing, unless otherwise specified by the Board in the grant
of an Option, any Option granted hereunder shall have a term of ten (10) years
from the Effective Date of grant of the Option.
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6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall
be permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to
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accept from the Optionee the tender of, a number of whole shares of Stock having
a Fair Market Value, as determined by the Company, equal to all or any part of
the federal, state, local and foreign taxes, if any, required by law to be
withheld by the Participating Company Group with respect to such Option or the
shares acquired upon the exercise thereof. Alternatively or in addition, in its
sole discretion, the Company shall have the right to require the Optionee,
through payroll withholding, cash payment or otherwise, including by means of a
Cashless Exercise, to make adequate provision for any such tax withholding
obligations of the Participating Company Group arising in connection with the
Option or the shares acquired upon the exercise thereof. The Company shall have
no obligation to deliver shares of Stock or to release shares of Stock from an
escrow established pursuant to the Option Agreement until the Participating
Company Group's tax withholding obligations have been satisfied by the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be
subject to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its sole discretion at
the time the Option is granted. The Company shall have the right to assign at
any time any repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the Company. Upon
request by the Company, each Optionee shall execute any agreement evidencing
such transfer restrictions prior to the receipt of shares of Stock hereunder and
shall promptly present to the Company any and all certificates representing
shares of Stock acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions.
6.6 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier termination
of the Option as otherwise provided herein, an Option shall be exercisable after
an Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service with
the Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer or shorter period of time as
determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "option expiration date").
(ii) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of six (6)
months (or such longer or shorter period of time as determined by the Board, in
its sole discretion) after the date on which the Optionee's Service terminated,
but in any event no later than the Option
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Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within one (1) month after the Optionee's
termination of Service.
(iii) OTHER TERMINATION OF SERVICE. If the
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within one (1) month (or such
longer or shorter period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.6(a) is prevented by the
provisions of Section 11 below, the Option shall remain exercisable until one
(1) month after the date the Optionee is notified by the Company that the Option
is exercisable, but in any event no later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "incentive
stock option" shall comply with and be subject to the terms and conditions set
forth in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by
the Board at the time the Option is granted, an Option designated as a
"nonstatutory stock option" shall comply with and be subject to the terms and
conditions set forth in the form of Nonstatutory Stock Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
7.3 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 7 either in connection with the grant
or amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and conditions
of any such new, revised or amended standard form or forms of Option Agreement
shall be in accordance with the terms of the Plan.
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8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the shareholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company
is a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Change in
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Change in Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Change in Control was entitled. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control shall
terminate and cease to be outstanding effective as of the date of the Change in
Control. Notwithstanding the foregoing, shares acquired
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upon exercise of an Option prior to the Change in Control and any consideration
received pursuant to the Change in Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
Furthermore, notwithstanding the foregoing, if the corporation the stock of
which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 8.1(a)(i) constituting a Change in Control is
the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation or by other corporations that
are members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the
outstanding Options shall not terminate unless the Board otherwise provides in
its sole discretion.
9. PROVISION OF INFORMATION.
Each Optionee shall be given access to information concerning the
Company equivalent to that information generally made available to the Company's
common shareholders.
10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
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12. INDEMNIFICATION.
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's shareholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's shareholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
14. SHAREHOLDER APPROVAL.
The Plan or any increase in the maximum number of shares of Stock
issuable thereunder as provided in Section 4.1 (the "Maximum Shares") shall be
approved by the shareholders of the Company within twelve (12) months of the
date of adoption thereof by the Board. Options granted prior to shareholder
approval of the Plan or in excess of the Maximum Shares previously approved by
the shareholders shall become exercisable no earlier than the date of
shareholder approval of the Plan or such increase in the Maximum Shares, as the
case may be.
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<PAGE> 14
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing is the American Xtal Technology 1997 Stock Option Plan as
duly adopted by the Board on July 26, 1997 and amended by the Board through
______________, 199__.
----------------------------------------
Secretary
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<PAGE> 15
PLAN HISTORY
July 26, 1997 Board adopts Plan, with an initial reserve of 1,300,000
shares.
July 26, 1997 Shareholders approve Plan, with an initial reserve of
1,300,000 shares.
___________, 1997 Board amends Plan, effective as of the Effective Date of the
Company's initial registration under Section 12 of the
Exchange Act, with a share reserve of ____________ shares.
___________, 1997 Shareholders approve amendment of Plan, with a share reserve
of _____________ shares.
<PAGE> 16
AMERICAN XTAL TECHNOLOGY
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made
and entered into as of ______________, 199_, by and between American Xtal
Technology and _________________________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the American Xtal
Technology 1997 Stock Option Plan (the "PLAN") an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means ____________________________ __,
199_.
(b) "NUMBER OF OPTION SHARES" means ________ shares of Stock, as
adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $______ per share of Stock, as adjusted
from time to time pursuant to Section 9.
(d) "INITIAL VESTING DATE" means the date occurring one (1) year
after (check one):
[ ] the Date of Option Grant.
[ ] __________________ __, 199_, the date the
Optionee's Service commenced.
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<PAGE> 17
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the 1/4
Optionee's Service has not terminated
prior to such date
Plus
----
For each full month of the Optionee's continuous 1/48
Service from the Initial Vesting Date until the Vested
Ratio equals 1/1, an additional
</TABLE>
(f) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
(g) "BOARD" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "BOARD"
also means such Committee(s).
(h) "CODE" means the Internal Revenue Code of 1986, as amended, and
any applicable regulations promulgated thereunder.
(i) "COMPANY" means American Xtal Technology, a California
corporation, or any successor corporation thereto.
(j) "CONSULTANT" means any person, including an advisor, engaged by
a Participating Company to render services other than as an Employee or a
Director.
(k) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(l) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company group because
of the sickness or injury of the Optionee.
(m) "EMPLOYEE" means any person treated as an employee (including
an officer or a Director who is also treated as an employee) in the records of a
Participating
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<PAGE> 18
Company; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Option Agreement.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of a share
of Stock or other property as determined by the Board, in its sole discretion,
or by the Company, in its sole discretion, if such determination is expressly
allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the Stock,
the Fair Market Value of a share of Stock shall be the closing sale price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the Stock,
the Fair Market Value of a share of Stock shall be as determined by the Board
without regard to any restriction other than a restriction which, by its terms,
will never lapse.
(p) "INSIDER" means an officer or a Director of the Company or any
other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(q) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in time, all
corporations collectively which are then Participating Companies.
(t) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(u) "SERVICE" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, the Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the
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<PAGE> 19
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining the Optionee's Vested Ratio. The Optionee's
Service shall be deemed to have terminated either upon an actual termination of
Service or upon the corporation for which the Optionee performs Service ceasing
to be a Participating Company. Subject to the foregoing, the Company, in its
sole discretion, shall determine whether the Optionee's Service has terminated
and the effective date of such termination. (NOTE: If the Option is exercised
more than three (3) months after the date on which the Optionee ceased to be an
Employee (other than by reason of death or a permanent and total disability as
defined in Section 22(e)(3) of the Code), the Option will be treated as a
Nonstatutory Stock Option and not as an Incentive Stock Option to the extent
required by Section 422 of the Code.)
(v) "STOCK" means the common stock of the Company, as adjusted from
time to time in accordance with Section 9.
(w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX STATUS OF OPTION.
This Option is intended to be an incentive stock option within the
meaning of Section 422(b) of the Code (an "Incentive Stock Option"), but the
Company does not represent or warrant that this Option qualifies as such. The
Optionee should consult with the Optionee's own tax advisor regarding the tax
effects of this Option and the requirements necessary to obtain favorable income
tax treatment under Section 422 of the Code, including, but not limited to,
holding period requirements. (NOTE: If the aggregate Exercise Price of the
Option (that is, the Exercise Price multiplied by the Number of Option Shares)
plus the aggregate exercise price of any other Incentive Stock Options held by
the Optionee (whether granted pursuant to the Plan or any other stock option
plan of the Participating Company Group) is greater than One Hundred Thousand
Dollars ($100,000), the Optionee should contact the Chief Financial Officer of
the Company to ascertain whether the entire Option qualifies as an Incentive
Stock Option.)
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<PAGE> 20
3. ADMINISTRATION.
All questions of interpretation concerning this Option Agreement shall be
determined by the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the Option
shall be exercisable on and after the Initial Vesting Date and prior to the
termination of the Option (as provided in Section 6) in an amount not to exceed
the Number of Option Shares multiplied by the Vested Ratio less the number of
shares previously acquired upon exercise of the Option. In no event shall the
Option be exercisable for more shares than the Number of Option Shares.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided
below, payment of the aggregate Exercise Price for the number of shares of Stock
for which the Option is being exercised shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by
the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the aggregate Exercise Price, (iii) by means of a
Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of
the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may
not be exercised by tender to the Company of shares of Stock to the extent such
tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company
5
<PAGE> 21
of shares of Stock unless such shares either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company.
(c) CASHLESS EXERCISE. A "Cashless Exercise" means the assignment in
a form acceptable to the Company of the proceeds of a sale or loan with respect
to some or all of the shares of Stock acquired upon the exercise of the Option
pursuant to a program or procedure approved by the Company (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System). The Company reserves, at any and all times, the right, in the Company's
sole and absolute discretion, to decline to approve or terminate any such
program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee hereby
authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price is
paid by means of a Cashless Exercise, the certificate for the shares as to which
the Option is exercised shall be registered in the name of the Optionee, or, if
applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant
of the Option and the issuance of shares of Stock upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal,
state or foreign law with respect to such securities. The Option may not be
exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, the Option may not be
exercised unless (i) a registration statement under the Securities Act shall at
the time of exercise of the Option be in effect with respect to the shares
issuable upon exercise of the Option or (ii) in the opinion of legal counsel to
the Company, the shares issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION
MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY,
THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE
6
<PAGE> 22
OPTION IS VESTED. The inability of the Company to obtain from any regulatory
body having jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance and sale of any shares subject to
the Option shall relieve the Company of any liability in respect of the failure
to issue or sell such shares as to which such requisite authority shall not have
been obtained. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee only by
the Optionee or the Optionee's guardian or legal representative and may not be
assigned or transferred in any manner except by will or by the laws of descent
and distribution. Following the death of the Optionee, the Option, to the extent
provided in Section 7, may be exercised by the Optionee's legal representative
or by any person empowered to do so under the deceased Optionee's will or under
the then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on the first to
occur of (a) the Option Expiration Date, (b) the last date for exercising the
Option following termination of the Optionee's Service as described in Section
7, or (c) a Change in Control to the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative) at any time prior to the expiration
of six (6) months after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. (NOTE: If the Option is
exercised more than three (3) months after the date on which the Optionee's
Service as an Employee terminated as a result of a Disability other than a
permanent and total disability as defined in Section 22(e)(3) of the Code, the
Option will be treated as a nonstatutory stock option and not as an Incentive
Stock Option to the extent required by Section 422 of the Code.)
(b) DEATH. If the Optionee's Service with the Participating Company
Group is terminated because of the death of the Optionee, the Option, to the
extent unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the
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<PAGE> 23
Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within one (1) month after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the
Participating Company Group terminates for any reason, except Disability or
death, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee within one (1) month (or such other longer period of time as determined
by the Board, in its sole discretion) after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until one (1) month after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the Optionee's own tax advisor as to the tax consequences of any such
delayed exercise.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the
foregoing, if a sale within the applicable time periods set forth in Section 7.1
of shares acquired upon the exercise of the Option would subject the Optionee to
suit under Section 16(b) of the Exchange Act, the Option shall remain
exercisable until the earliest to occur of (i) the tenth (10th) day following
the date on which a sale of such shares by the Optionee would no longer be
subject to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of Service, or (iii) the Option Expiration Date. The
Company makes no representation as to the tax consequences of any such delayed
exercise. The Optionee should consult with the Optionee's own tax advisor as to
the tax consequences of any such delayed exercise.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if
any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or series
of related transactions by the shareholders of the Company of more than fifty
percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all
of the assets of the Company; or
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<PAGE> 24
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a
series of related Ownership Change Events (collectively, the "Transaction")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in
Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "Acquiring Corporation"),
may either assume the Company's rights and obligations under the Option or
substitute for the Option a substantially equivalent option for the Acquiring
Corporation's stock. For purposes of this Section 8.2, the Option shall be
deemed assumed if, following the Change in Control, the Option confers the right
to purchase in accordance with its terms and conditions, for each share of Stock
subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. The Option shall terminate and cease to be outstanding effective as of
the date of the Change in Control to the extent that the Option is neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control.
Notwithstanding the foregoing, shares acquired upon exercise of the Option prior
to the Change in Control and any consideration received pursuant to the Change
in Control with respect to such shares shall continue to be subject to all
applicable provisions of this Option Agreement except as otherwise provided
herein. Furthermore, notwithstanding the foregoing, if the corporation the stock
of which is subject to the Option immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the surviving
or continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock
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<PAGE> 25
subject to the Option. If a majority of the shares which are of the same class
as the shares that are subject to the Option are exchanged for, converted into,
or otherwise become (whether or not pursuant to an Ownership Change Event)
shares of another corporation (the "New Shares"), the Board may unilaterally
amend the Option to provide that the Option is exercisable for New Shares. In
the event of any such amendment, the Number of Option Shares and the Exercise
Price shall be adjusted in a fair and equitable manner, as determined by the
Board, in its sole discretion. Notwithstanding the foregoing, any fractional
share resulting from an adjustment pursuant to this Section 9 shall be rounded
up or down to the nearest whole number, as determined by the Board, and in no
event may the Exercise Price be decreased to an amount less than the par value,
if any, of the stock subject to the Option. The adjustments determined by the
Board pursuant to this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a shareholder with respect to any
shares covered by the Option until the date of the issuance of a certificate for
the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions
or other rights for which the record date is prior to the date such certificate
is issued, except as provided in Section 9. If the Optionee is an Employee, the
Optionee understands and acknowledges that, except as otherwise provided in a
separate, written employment agreement between a Participating Company and the
Optionee, the Optionee's employment is "at will" and is for no specified term.
Nothing in this Option Agreement shall confer upon the Optionee any right to
continue in the Service of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's Service
as an Employee or Consultant, as the case may be, at any time.
11. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION.
The Optionee shall dispose of the shares acquired pursuant to the Option
only in accordance with the provisions of this Option Agreement. In addition,
the Optionee shall promptly notify the Chief Financial Officer of the Company if
the Optionee disposes of any of the shares acquired pursuant to the Option
within one (1) year after the date of the Optionee exercises all or part of the
Option or within two (2) years after the Date of Option Grant. Until such time
as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, unless otherwise expressly authorized by
the Company, the Optionee shall hold all shares acquired pursuant to the Option
in the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after the exercise of the Option and the two-year period
immediately after Date of Option Grant. At any time during the one-year or
two-year periods set forth above, the Company may place a legend on any
certificate representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
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<PAGE> 26
12. LEGENDS.
The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section.
13. RESTRICTIONS ON TRANSFER OF SHARES.
No shares acquired upon exercise of the Option may be sold, exchanged,
transferred (including, without limitation, any transfer to a nominee or agent
of the Optionee), assigned, pledged, hypothecated or otherwise disposed of,
including by operation of law, in any manner which violates any of the
provisions of this Option Agreement and any such attempted disposition shall be
void. The Company shall not be required (a) to transfer on its books any shares
which will have been transferred in violation of any of the provisions set forth
in this Option Agreement or (b) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such shares will have been so transferred.
14. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this Option
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
15. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any time;
provided, however, that except as provided in Section 8.2 in connection with a
Change in Control, no such termination or amendment may adversely affect the
Option or any unexercised portion hereof without the consent of the Optionee
unless such termination or amendment is necessary to comply with any applicable
law or government regulation or is required to enable the Option to qualify as
an Incentive Stock Option. No amendment or addition to this Option Agreement
shall be effective unless in writing.
16. NOTICES.
Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given (except to the extent that this Option
Agreement provides for effectiveness only upon actual receipt of such notice)
upon personal delivery or upon deposit in the United States Post Office, by
registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
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<PAGE> 27
17. INTEGRATED AGREEMENT.
This Option Agreement constitutes the entire understanding and agreement
of the Optionee and the Participating Company Group with respect to the subject
matter contained herein and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and the
Participating Company Group with respect to such subject matter other than those
as set forth or provided for herein. To the extent contemplated herein, the
provisions of this Option Agreement shall survive any exercise of the Option and
shall remain in full force and effect.
18. APPLICABLE LAW.
This Option Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within the State of California.
AMERICAN XTAL TECHNOLOGY
By:
------------------------------------
Title:
---------------------------------
Address: 4311 Solar Way
Fremont, CA 94538
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:
-------------------------------- ----------------------------------------
Optionee Address:
----------------------------------------
----------------------------------------
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Optionee:
------------------------------
Date:
----------------------------------
INCENTIVE STOCK OPTION
EXERCISE NOTICE
(Registered Shares)
American Xtal Technology
4311 Solar Way
Fremont, CA 94538
Attention: Chief Financial Officer
Ladies and Gentlemen:
1. Exercise of Option. I was granted an incentive stock option (the
"Option") to purchase shares of the common stock of American Xtal Technology
(the "COMPANY") on ___________________, 19___, pursuant to the Company's 1997
Stock Option Plan and pursuant to the Incentive Stock Option Agreement dated
__________________, 19___ (the "OPTION Agreement"). The Grant Number of the
Option is _____________. I hereby elect to exercise the Option as to a total of
__________________ shares of the common stock of the Company (the "SHARES"), all
of which have vested in accordance with the Option Agreement.
2. Payments. Enclosed herewith or arrangements have been made for full
payment in the aggregate amount of $_____________ (representing $_______ per
share) for the Shares in the manner set forth in the Option Agreement. I
authorize payroll withholding and otherwise will make adequate provision for
foreign, federal and state tax withholding obligations of the Company, if any.
3. Binding Effect. I agree that the Shares are being acquired in
accordance with and subject to the terms, provisions and conditions of the
Option Agreement, of which I hereby expressly assent. This Agreement shall inure
to the benefit of and be binding upon the my heirs, executors, administrators,
successors and assigns.
I agree that I will promptly notify the Chief Financial Officer of the
Company if I transfer any of the Shares acquired pursuant to the Option within
one (1) year from the date I exercise all or part of the Option or within two
(2) years of the date of grant of the Option.
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My address of record is:
-----------------------------------------------
-----------------------------------------------
My Social Security Number is:
------------------------
I understand that I am purchasing the Shares pursuant to the terms of my
Option Agreement, which I have received and carefully read and understand.
Very truly yours,
----------------------------------------
(Signature)
----------------------------------------
(Optionee's Name Printed)
Receipt of the above is hereby acknowledged.
AMERICAN XTAL TECHNOLOGY
By:
------------------------------------
Title:
---------------------------------
Dated:
---------------------------------
2
<PAGE> 30
AMERICAN XTAL TECHNOLOGY
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is
made and entered into as of _____________ __, 199_ , by and between American
Xtal Technology and (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the American Xtal
Technology 1997 Stock Option Plan (the "PLAN") an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means _________________ __, 199_ .
(b) "NUMBER OF OPTION SHARES" means ________ shares of Stock, as
adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $_________ per share of Stock, as
adjusted from time to ____________ time pursuant to Section 9.
(d) "INITIAL VESTING DATE" means the date occurring one (1) year
after (check one):
[ ] the Date of Option Grant.
[ ] __________________ __, 199_, the date the Optionee's
Service commenced.
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
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<PAGE> 31
(f) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
(g) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"BOARD" also means such Committee(s).
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the 1/4
Optionee's Service has not terminated
prior to such date
Plus
----
For each full month of the Optionee's continuous 1/48
Service from the Initial Vesting Date until the Vested
Ratio equals 1/1, an additional
</TABLE>
(h) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(i) "COMPANY" means American Xtal Technology., a California
corporation, or any successor corporation thereto.
(j) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(k) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(l) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company group because
of the sickness or injury of the Optionee.
(m) "EMPLOYEE" means any person treated as an employee (including
an officer or a Director who is also treated as an employee) in the records of a
Participating Company; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
purposes of the Option Agreement.
2
<PAGE> 32
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the Stock,
the Fair Market Value of a share of Stock shall be the closing sale price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(p) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to
be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
(r) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(s) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(t) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(u) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(v) "SERVICE" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, the Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the
3
<PAGE> 33
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining the Optionee's Vested Ratio. The Optionee's
Service shall be deemed to have terminated either upon an actual termination of
Service or upon the corporation for which the Optionee performs Service ceasing
to be a Participating Company. Subject to the foregoing, the Company, in its
sole discretion, shall determine whether the Optionee's Service has terminated
and the effective date of such termination.
(w) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 9.
(x) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX STATUS OF OPTION.
This Option is intended to be a nonstatutory stock option and shall
not be treated as an incentive stock option within the meaning of Section 422(b)
of the Code.
3. ADMINISTRATION.
All questions of interpretation concerning this Option Agreement
shall be determined by the Board. All determinations by the Board shall be final
and binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Vesting Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the
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<PAGE> 34
Vested Ratio less the number of shares previously acquired upon exercise of the
Option. In no event shall the Option be exercisable for more shares than the
Number of Option Shares.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), or (v) by any
combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment
in a form acceptable to the Company of the proceeds of a sale or loan with
respect to some or all of the shares of Stock acquired upon the exercise of the
Option pursuant to a program or procedure approved by the Company (including,
without limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of Governors of the
Federal Reserve System). The Company reserves, at any and all times, the right,
in the Company's sole and absolute discretion, to decline to approve or
terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole or
in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to
5
<PAGE> 35
make adequate provision for (including by means of a Cashless Exercise to the
extent permitted by the Company), any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Participating
Company Group, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, (iii) the operation of any law or
regulation providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired upon exercise of the Option. The
Optionee is cautioned that the Option is not exercisable unless the tax
withholding obligations of the Participating Company Group are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
even though the Option is vested, and the Company shall have no obligation to
issue a certificate for such shares.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
6
<PAGE> 36
5. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee only
by the Optionee or the Optionee's guardian or legal representative and may not
be assigned or transferred in any manner except by will or by the laws of
descent and distribution. Following the death of the Optionee, the Option, to
the extent provided in Section 7, may be exercised by the Optionee's legal
representative or by any person empowered to do so under the deceased Optionee's
will or under the then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on the
first to occur of (a) the Option Expiration Date, (b) the last date for
exercising the Option following termination of the Optionee's Service as
described in Section 7, or (c) a Change in Control to the extent provided in
Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative) at any time prior to the expiration
of six (6) months after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of six (6) months after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within one (1) month after
the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability or
death, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee within one (1) month (or such other longer period of time as determined
by the Board, in its sole discretion) after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until one (1)
7
<PAGE> 37
month after the date the Optionee is notified by the Company that the Option is
exercisable, but in any event no later than the Option Expiration Date.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the shareholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or
a series of related Ownership Change Events (collectively, the "Transaction")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change
in Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "Acquiring Corporation"),
may either assume the Company's
8
<PAGE> 38
rights and obligations under the Option or substitute for the Option a
substantially equivalent option for the Acquiring Corporation's stock. For
purposes of this Section 8.2, the Option shall be deemed assumed if, following
the Change in Control, the Option confers the right to purchase in accordance
with its terms and conditions, for each share of Stock subject to the Option
immediately prior to the Change in Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of Stock on
the effective date of the Change in Control was entitled. The Option shall
terminate and cease to be outstanding effective as of the date of the Change in
Control to the extent that the Option is neither assumed or substituted for by
the Acquiring Corporation in connection with the Change in Control nor exercised
as of the date of the Change in Control. Notwithstanding the foregoing, shares
acquired upon exercise of the Option prior to the Change in Control and any
consideration received pursuant to the Change in Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Change in Control is the surviving or continuing corporation and
immediately after such Ownership Change Event less than fifty percent (50%) of
the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "New Shares"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a shareholder with respect to
any shares covered by the Option until the date of the issuance of a certificate
for the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions
or other rights for which the record date is prior to the date such certificate
is issued, except as provided in Section 9. If the Optionee is an Employee, the
Optionee understands and
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<PAGE> 39
acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Option Agreement shall confer upon the Optionee any right to continue in the
Service of a Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's Service as an Employee
or Consultant, as the case may be, at any time.
11. LEGENDS.
The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section.
12. RESTRICTIONS ON TRANSFER OF SHARES.
No shares acquired upon exercise of the Option may be sold,
exchanged, transferred (including, without limitation, any transfer to a nominee
or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed
of, including by operation of law, in any manner which violates any of the
provisions of this Option Agreement and any such attempted disposition shall be
void. The Company shall not be required (a) to transfer on its books any shares
which will have been transferred in violation of any of the provisions set forth
in this Option Agreement or (b) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such shares will have been so transferred.
13. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this
Option Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
14. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any time;
provided, however, that except as provided in Section 8.2 in connection with a
Change in Control, no such termination or amendment may adversely affect the
Option or any unexercised portion hereof without the consent of the Optionee
unless such termination or amendment is necessary to comply with any applicable
law or government regulation. No amendment or addition to this Option Agreement
shall be effective unless in writing.
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<PAGE> 40
15. NOTICES.
Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given (except to the extent that this Option
Agreement provides for effectiveness only upon actual receipt of such notice)
upon personal delivery or upon deposit in the United States Post Office, by
registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
16. INTEGRATED AGREEMENT.
This Option Agreement constitutes the entire understanding and
agreement of the Optionee and the Participating Company Group with respect to
the subject matter contained herein and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and the
Participating Company Group with respect to such subject matter other than those
as set forth or provided for herein. To the extent contemplated herein, the
provisions of this Option Agreement shall survive any exercise of the Option and
shall remain in full force and effect.
17. APPLICABLE LAW.
This Option Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within the State of California.
AMERICAN XTAL TECHNOLOGY
By:
------------------------------------
Title:
---------------------------------
Address: 4311 Solar Way
Fremont, California 94538
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<PAGE> 41
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date: -------------------------------- ----------------------------------------
Optionee Address:
----------------------------------------
----------------------------------------
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Optionee:
------------------------------
Date: ------------------------------
NONSTATUTORY STOCK OPTION
EXERCISE NOTICE
(Registered Shares)
American Xtal Technology
4311 Solar Way
Fremont, California 94538
Attention: Chief Financial Officer
Ladies and Gentlemen:
1. Exercise of Option. I was granted a nonstatutory stock option (the
"Option") to purchase shares of the common stock of American Xtal Technology
(the "Company") on ___________________, 19___, pursuant to the Company's 1997
Stock Option Plan ("Plan") and pursuant to the Nonstatutory Stock Option
Agreement dated __________________, 19___ (the "Option Agreement"). The Grant
Number of the Option is _____________. I hereby elect to exercise the Option as
to a total of __________________ shares of the common stock of the Company (the
"SHARES"), all of which have vested in accordance with the Option Agreement.
2. Payments. Enclosed herewith or arrangements have been made for is
full payment in the aggregate amount of $_____________ (representing $_______
per share) for the Shares in the manner set forth in the Option Agreement. I
authorize payroll withholding and otherwise will make adequate provision for
foreign, federal and state tax withholding obligations of the Company, if any.
3. Binding Effect. I agree that the Shares are being acquired in
accordance with and subject to the terms, provisions and conditions of the
Option Agreement, of which I hereby expressly assent. This Agreement shall inure
to the benefit of and be binding upon the my heirs, executors, administrators,
successors and assigns.
My address of record is:
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My Social Security Number is:
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<PAGE> 43
I understand that I am purchasing the Shares pursuant to the terms of my
Option Agreement, which I have received and carefully read and understand.
Very truly yours,
----------------------------------------
(Signature)
----------------------------------------
(Optionee's Name Printed)
Receipt of the above is hereby acknowledged.
AMERICAN XTAL TECHNOLOGY
By:
------------------------------------
Title:
---------------------------------
Dated:
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2
<PAGE> 1
EXHIBIT 10.4
1997 EMPLOYEE STOCK PURCHASE PLAN
OF
AMERICAN XTAL TECHNOLOGY
1. PURPOSES OF THE PLAN
The purposes of the 1997 Employee Stock Purchase Plan (the "Plan") of
AMERICAN XTAL TECHNOLOGY, a California corporation (the "Company"), are to
encourage selected employees to continue employment with the Company, to improve
operations, and increase profits of the Company and to increase the interest in
the Company's welfare through participation in the growth in value of the common
stock of the Company (the "Common Stock").
2. ELIGIBLE PERSONS
Every person who at the date of grant of a stock purchase right
("Stock Purchase Right") is a full time employee of the Company or of any
affiliate (as defined below) of the Company is eligible to receive a Stock
Purchase Right under this plan. The term "Affiliate" as used in the Plan means a
parent or subsidiary corporation as defined in the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The term "employee"
includes an officer or director who is an employee, of the Company.
3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1 of the Plan, the total
number of shares of stock which may be issued under Stock Purchase Rights
granted pursuant to this Plan shall not exceed 67,000 shares of Common Stock.
The shares covered by the portion of any grant under the Plan which expires
unexercised shall become available again for grants under the Plan.
4. ADMINISTRATION
4.1 General. This Plan shall be administered by the Board of
Directors of the Company (the "Board") or, by a committee (the "Committee") of
at least two Board members to which Administration of the Plan, or of part of
the Plan, is delegated (in either case, the "Administrator").
4.2 Public Company. From and after such time as the Company registers
a class of equity securities under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Committee shall consist of Board
members who are "Non-Employee Directors" as defined under Rule 16b-3 promulgated
by the Securities and Exchange Commission ("Rule 16b-3"), or any successor rule
thereto.
4.3 Authority of Administrator. Subject to the other provisions of
this Plan, the Administrator shall have the authority, in its discretion: (i) to
grant Stock Purchase Rights; (ii) to determine the fair market value of the
Common Stock subject to Stock Purchase Rights; (iii) to determine the exercise
price of Stock Purchase Rights granted; (iv) to determine the person to whom,
and the time or times at which, Stock Purchase Rights shall be granted, and the
number of shares subject to each Stock Purchase Right (v) to interpret this
Plan; (vi) to prescribe, amend and
<PAGE> 2
rescind rules and regulations relating to this plan; (vii) to determine the
terms and provisions of each Stock Purchase Right granted; (viii) with the
consent of the holder, to modify or amend any Stock Purchase Right; (ix) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of a Stock Purchase Right; (x) to make all other
determinations deemed necessary or advisable for the administration of this
Plan. The administrator (A) may delegate to one or more officers of this Company
the authority to grant Stock Purchase Rights in an amount not exceed 10,000
shares of Common Stock to persons other than "executive officers" as defined in
the Exchange Act and the rules and regulations thereunder, to determine the fair
market value of Common Stock subject to such Stock Purchase Rights, and to
determine the exercise price of such Stock Purchase Rights granted and (B) may
delegate nondiscretionary administrative duties to such employees of the Company
as it deems proper.
4.4 Interpretation by Administrator. All questions of interpretation,
implementation, and application of this Plan shall be determined by the
Administrator. Such determinations shall be final and binding on all persons.
4.5 Rule 16b-3. With respect to persons subject to Section 16 of the
Exchange Act, if any, transactions under this plan are intended to comply with
the applicable conditions of Rule 16b-3, or any successor rule thereto. To the
extent a transaction under this Plan or action by the Administrator fails to so
comply, it shall, to the extent deemed advisable by the Administrator be
modified to comply with Rule 16b-3. Notwithstanding the above, it shall be the
responsibility of such persons, not of the Company or the Administrator, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Administrator shall be liable if this Plan or any transaction
under this Plan fails to comply with the applicable conditions of Rule 16b-3 or
any successor rule thereto, or if any such person incurs any liability under
Section 16 of the Exchange Act.
5. GRANTING OF STOCK PURCHASE RIGHTS; STOCK PURCHASE AGREEMENT
5.1 No Stock Purchase Right shall be granted under this Plan after
one year from the date of adoption of this Plan by the Board.
5.2 Each Stock Purchase Right shall be evidenced by a written Stock
Purchase Agreement in a form satisfactory to the Company, setting forth the
terms, conditions and restrictions relating to the offer, including the number
of shares of Common Stock which such person shall be entitled to purchase. Such
Stock Purchase Agreement shall be delivered to the holder at the time of the
grant of the Stock Purchase Right.
5.3 The offeree shall have six months, or such other period as
determined by the Administrator, from the date upon which the grant was approved
to accept the offer to purchase the shares of Common Stock subject to the Stock
Purchase Right. Acceptance of the offer shall be evidenced by execution of the
Stock Purchase Agreement by the holder and the Company and payment of the
purchase price pursuant to Section 6.5 below.
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<PAGE> 3
6. TERMS AND CONDITIONS OF OPTIONS
Each Stock Purchase Right granted under this Plan shall be subject to
the terms and conditions set forth in this Section 6.
6.1 Changes in Capital. If the stock of the Company is changed by
reason of a stock split, reverse stock split, stock dividend, or
recapitalization, combination or reclassification, appropriate adjustments shall
be made by the Board in (a) the number and class of shares of stock subject to
this Plan and each Stock Purchase Right outstanding under this Plan and (b) the
exercise price of each outstanding Stock Purchase Right; provided, however, that
the Company shall not be required to issue fractional shares as a result of any
such adjustments. Each such adjustment shall be subject to approval by the Board
in its sole discretion.
6.2 Corporate Transactions. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each holder at
least 30 days prior to such proposed action. To the extent not previously
exercised, all Stock Purchase Rights will terminate immediately prior to the
consummation of such proposed action. In the event of a merger or consolidation
of the Company with or into another corporation or entity in which the Company
does not survive, or in the event of a sale of all or substantially all of the
assets of the Company in which the stockholders of the Company receive
securities of the acquiring entity or an affiliate thereof, all Stock Purchase
Rights shall be assumed or equivalent rights shall be substituted by the
successor corporation (or other entity) or a parent or subsidiary of such
successor corporation (or other entity). If such successor does not agree to
assume the Stock Purchase Rights or to substitute equivalent options therefor,
unless the Administrator shall determine otherwise, the Stock Purchase Rights
shall be fully exercisable for a period of thirty (30) days from the date notice
is given under this Section 6.2 and shall terminate upon expiration of such
30-day period.
6.3 Stock Purchase Rights Grant Date. The date of grant of a Stock
Purchase Right under this Plan shall be the date as of which the Administrator
approves the grant.
6.4 Nonassignability of Stock Purchase Rights. No Stock Purchase
Right granted under this Plan shall be assignable or otherwise transferable by
the holder except by will or by the laws of descent and distribution. During the
life of the holder, a Stock Purchase Right shall be exercisable only by the
holder thereof.
6.5 Payment. Except as provided below, payment in full, in cash,
shall be made for all stock purchased at the time of the Stock Purchase
Agreement is executed by the holder and proceeds of any payment shall constitute
general funds of the Company.
6.6 Termination of Employment. If for any reason other than death or
disability, an optionee ceases to be employed by the Company or any of its
Affiliates (such event being called a "Termination"), Stock Purchase Rights held
at the date of Termination may be exercised in whole or in part at any time
within one (1) month of the date of such Termination, or such other period of
not less than thirty (30) days after the date of such Termination as is
specified by the Administrator, but in no event after the Stock Purchase Rights
expire pursuant to
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<PAGE> 4
Section 5.3. If an optionee dies or becomes disabled (within the meaning of
Section 22(c)(3) of the Code) while employed by the Company or an Affiliate or
with the period that the Stock Purchase Rights remain exercisable after
Termination, Stock Purchase Rights then held may be exercised, in whole or in
part, by the holder, by the holder's personal representative or by the person to
whom the Stock Purchase Right is transferred by devise or the laws of descent
and distribution, at any time before the Stock Purchase Right expires pursuant
to Section 5.3. For purposes of this Section 6.6, a holder's employment shall
not be deemed to terminate by reason of sick leave, military leave or other
leave of absence approved by the Administrator, if the period of any such leave
does not exceed 90 days or, if longer, if the holder's rights to reemployment by
the Company or any Affiliate is granted either contractually or by statute.
6.7 Repurchase of Stock. At the option of the Administrator, the
stock to be delivered pursuant to the exercise of any Stock Purchase Rights
granted to an employee under this Plan may be subject to a right of repurchase
in favor of the Company with respect to any employee whose employment
relationship with the Company is terminated. Such right of repurchase either:
(a) shall be at the Stock Purchase Right exercise price and (i)
shall lapse at the rate of at least 20% per year over five years from the date
the Stock Purchase Right is granted (without regard to the date it is
exercised), and must be exercised for cash or cancellation of purchase money
indebtedness within 90 days after such termination of employment (or in the case
of securities issued upon exercise of Stock Purchase Rights after the date of
termination, within 90 days after the date of exercise); or
(b) shall be at the higher of the Stock Purchase Right exercise
price of the fair market value (determined as set forth in Section 6.9) of the
stock being purchased on the date of termination, and must be exercised for cash
or cancellation of repurchase money indebtedness within 90 days after such
termination of employment (or in the case of securities issued upon exercise of
Stock Purchase Rights after the date of termination, within 90 days after the
date of exercise) and such right shall terminate when the Company's securities
become publicly traded.
Determination of the number of shares subject to any such right
of repurchase shall be made as of the date the employee's employment by the
Company terminates, not as of the date that any Stock Purchase Right granted to
such employee is thereafter exercised.
6.8 Withholding and Employment Taxes. At the time of exercise of a
Stock Purchase Right or at such other time as the amount of such obligations
becomes determinable (the "Tax Date"), the holder shall remit to the Company in
cash any applicable federal and state withholding and employment taxes. If
authorized by the Administrator in its sole discretion after considering any tax
or accounting consequences, a holder may elect to (i) tender to the Company
previously owned shares of Common Stock which are acquired upon exercise of the
Stock Purchase Right withheld by the Company as a result of the exercise of such
Stock Purchase Right.
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<PAGE> 5
Any election pursuant to clause (i) above, where the holder is
tendering Common Stock issued pursuant to the exercise of a Stock Purchase
Right, shall require that such shares be held at least six months prior to the
Tax Date.
Any securities tendered or withheld in accordance with this Section
6.8 shall be valued by the Company as of the Tax Date.
6.9 Determination of Value. For purposes of the Plan, the value of
Common Stock or other securities of the Company shall be determined as follows:
(a) If the stock of the Company is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System, its fair market value shall be the closing sales
price for such stock or the closing bid if no sales were reported, as quoted on
such system or exchange (or the largest such exchange) for the date the values
it to be determined (or if there are no sales for such date, the for the last
preceding business day on which there were sales), as reported in the Wall
Street Journal or similar publication.
(b) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(c) In the absence of an established market for the stock, the
fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend paying capacity, and other relevant facts, including the
goodwill of the Company, the economic outlook in the Company's industry and its
management, and the values of stock of other corporations in the same or a
similar line of business.
6.10 Exercise Price. The exercise price of a Stock Purchase Right
shall be determined in accordance with the applicable provisions of the Code and
shall in no event be less than 85% of the fair market value (determined in
accordance with Section 6.9) of the stock covered by the Stock Purchase Right at
the time the Stock Purchase is granted except that the exercise price of any
Stock Purchase Right granted to a person who owns, directly or by attribution,
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or any Affiliate, shall in no event be less than
110% of such fair market value.
7. MANNER OF EXERCISE
7.1 A holder wishing to exercise a Stock Purchase Right shall deliver
the executed Stock Purchase Agreement to the Company at is principal executive
office, to the attention of the officer of the Company designated by the
Administrator, accompanied by payment of the exercise price as provided in
Section 6.6. The date the Company receives the executed
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<PAGE> 6
Stock Purchase Agreement for exercise hereunder accompanied by payment of the
exercise price will be considered as the date such Stock Purchase Right was
exercised.
7.2 Promptly after receipt of a Stock Purchase Agreement accompanied
by payment, the Company shall, without stock issue or transfer taxes to the
holder or other person entitled to exercise the Stock Purchase Right, deliver to
the holder or such other person a certificate or certificates for the requisite
number of shares of stock. A holder or permitted transferee of a holder shall
not have any privileges as a stockholder with respect to any shares of stock
covered by the Stock Purchase Right until the date of issuance (as evidenced by
the appropriate entry on the books of the Company or a duly authorized transfer
agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Stock Purchase Right granted thereunder
shall interfere with or limit in any way the right of the Company or any of its
Affiliates to terminate any holder's employment at any time, nor confer upon any
holder any right to continue in the employ of the Company of any of its
Affiliates.
9. FINANCIAL INFORMATION
The Company shall provide to each holder of Common Stock acquired
upon exercise of Stock Purchase Rights granted under the Plan for so long as
such person is a holder of such Common Stock, annual financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall include, at a
minimum, a balance sheet and an income statement, and shall be delivered as soon
as practicable following the end of the Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to the exercise
of a Stock Purchase Right unless the exercise of such Stock Purchase Right and
the issuance and delivery of such shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended (the "Securities Act").
11. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any
limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options or rights other than under the Plan.
12. MARKET STANDOFF
Each holder, if so requested by the Company or any representative of
the underwriters in connection with any registration of the offering of any
securities of the company under the Securities Act shall not sell or otherwise
transfer any shares of Common Stock acquired upon exercise of Stock Purchase
Rights during the 120-day period following the effective date of
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<PAGE> 7
a registration statement of the Company filed under the Securities Act;
provided, however, that such restriction shall apply only to the first two
registration statements of the Company to become effective under the Securities
Act which includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restriction until the end of such 120-day period. In addition, any
certificate representing shares of Common Stock acquired upon exercise of a
Stock Purchase Right shall bear the following legend:
"The securities represented hereby are subject to restrictions or
transfer for a period of 120 days following the effective date of a
registration statement under the Securities Act of 1933 for an offering
of the Company's securities as more fully provided in an agreement
between the Company and the original purchaser of such securities."
13. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue the
Plan. Without the consent of a holder, no amendment, alteration, suspension or
discontinuance may adversely affect outstanding Stock Purchase Rights. No
amendment, alteration, suspension or discontinuance shall require stockholder
approval unless the Board concludes that stockholder approval is advisable.
14. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board
provided, however, that any shares purchased upon exercise of Stock Purchase
Rights shall be rescinded if written consent of the shareholders of the Company,
or approval of shareholders of the Company, is not obtained within 12 months
after adoption by the Board.
Approved by the Board of Directors on February 2, 1997.
Approved by the Shareholders on May 30, 1997.
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AMERICAN XTAL TECHNOLOGY
1997 EMPLOYEE STOCK PURCHASE PLAN
STOCK PURCHASE AGREEMENT
(A) Name of Purchaser:
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(B) Number of Shares:
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(C) Exercise Price:
----------------------------------
(D) Purchase Price:
----------------------------------
(E) Date of Grant:
-----------------------------------
(F) Expiration of Grant:
-----------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the date set forth in Item G above (the "Effective Date") between
AMERICAN XTAL TECHNOLOGY, a California corporation (the "Company"), and the
person named in Item A above (the "Purchaser").
THE PARTIES AGREE AS FOLLOWS:
1. Purchase of Shares. Pursuant to the Company's 1997 Employee Stock
Purchase Plan (the "Plan") under which the Purchaser was granted a Stock
Purchase Right on the date set forth in Item E above, the Company hereby sells
to Purchaser, and Purchaser hereby buys from the Company, that number of shares
(the "Plan Shares") of the Company's Common Stock (as defined in the Plan) set
forth in Item B above on the terms and conditions set forth herein and in the
Plan, the terms and conditions of the Plan being hereby incorporated into this
agreement by reference.
2. Purchase Price. Purchaser shall purchase the Plan Shares from the
Company, and the Company shall sell the Plan Shares to Purchaser, at a price per
share as set forth in Item C above (the "Exercise Price"), for a total purchase
price as set forth in Item D above (the "Purchase Price").
3. Payment. Purchaser shall pay the Purchase Price of the Plan Shares
by delivery of cash or check for the full amount of the Purchase Price.
4. Company's Repurchase Rights. The Plan Shares purchased hereunder
shall be subject to a right of repurchase in favor of the Company (the "Right of
Repurchase"). In the event the Purchaser's employment with the Company
terminates, the Company may exercise such Right of Repurchase by giving notice
within 90 days after such termination of employment. Pursuant to the Right of
Repurchase, the Company may purchase the Plan Shares (either by payment of cash)
for an amount equal to the higher of the price the Purchaser paid for such Plan
Shares (exclusive of any taxes paid upon acquisition of the stock) or the value
of Plan Shares on date of termination (determined as set forth in Section 6.9 of
the Plan). The Company shall include with such notice payment in full in cash or
by evidence of cancellation of purchase money indebtedness. The Purchaser may
not dispose of or transfer the Plan Shares while such shares are
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<PAGE> 9
subject to the Right of Repurchase and any such attempted transfer shall be null
and void. This Right of Repurchase shall terminate upon the closing of a
registered public offering of the Company's securities.
5. Company's Right of First Refusal Respecting Plan Shares.
5.1. Right of First Refusal. In the event that Purchaser proposes to
sell, pledge, or otherwise transfer any Plan Shares or any interest in such
shares to a bona-fide third party offeror, the Company shall have a right of
first refusal (the "Right of First Refusal") with respect to such Plan Shares.
If Purchaser desires to transfer Plan Shares, Purchaser shall give a written
notice (the "Transfer Notice") to the Company describing fully the proposed
transfer, including the number of Plan Shares proposed to be transferred, the
proposed transfer price, and name and address of the bona-fide third party
offeror. The Transfer Notice shall be signed both by Purchaser and by the
bona-fide third party offeror and must constitute a binding commitment of both
such parties for the transfer of such Plan Shares. The Company may elect to
purchase the Plan Shares subject to the Transfer Notice by delivery of a notice
of exercise of the Company's Right of First Refusal within 30 days after the
date the Transfer Notice is delivered to the Company. The purchase price paid by
the Company shall be the price per share equal to the proposed per share
transfer price, and shall be paid to the Purchaser within 60 days after the date
the Transfer Notice is received by the Company, unless a longer period for
payment was offered by the bona-fide third party offeror, in which case the
Company shall pay the purchase price within such longer period. The Company's
rights under this Section 5.1 shall be freely assignable, in whole or in part.
Notwithstanding the foregoing, the Right of First Refusal does not apply to a
transfer of Plan Shares by gift or devise to the Purchaser's immediate family
(i.e., parents, spouse or children or to a trust for the benefit of the
Purchaser or any of the Purchaser's immediate family members), but does apply to
any subsequent transfer of such Plan Shares by such immediate family members.
5.2. Transfer of Plan Shares. If the Company fails to exercise the
Right of First Refusal within 30 days after the date the Transfer Notice is
delivered to the Company, Purchaser may, not later than 75 days following
delivery to the Company of the Transfer Notice, conclude a transfer of the Plan
Shares subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by Purchaser, shall again be subject to the Company's Right of First
Refusal and shall require compliance by Purchaser with the procedure described
in Section 5.1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of Plan Shares on the terms,
other than price, as applicable under Section 5. 1, set forth the Transfer
Notice; provided, however, in the event the Transfer Notice provides for payment
for the Plan Shares other than in cash, the Company shall have the option of
paying for the Plan shares by paying in cash the present value of the
consideration described in the Transfer Notice; and further provided that if the
value of noncash consideration is to be paid, and the Purchaser disagrees with
the value determined by the Company, the Purchaser may request an independent
appraisal by an appraiser acceptable to the Purchaser and the Company, the costs
of such appraisal to be borne equally by the Purchaser and the Company. If, at
the time of exercise of the right of first refusal, any notes are outstanding
which represent any portion of the Purchase Price of the Plan Shares, the
2
<PAGE> 10
repurchase price shall be paid first by cancellation of any obligation for
accrued but unpaid interest under such notes, next by cancellation of principal
under such notes, and finally by payment of cash.
5.3. Binding Effect of Right of First Refusal. The Company's Right
of First Refusal shall inure to the benefit of the successors and assigns of the
Company and shall be binding upon any transferee of Plan Shares other than a
transferee acquiring Plan Shares in a transaction where the Company failed to
exercise the Right of First Refusal (a "Free Transferee") or a transferee of a
Free Transferee.
5.4. Termination of Company's Right of First Refusal.
Notwithstanding anything in this Section 5, the Company shall have no Right of
First Refusal, and Purchaser shall have no obligation to comply with the
procedures in Sections 5.1 through 5.3, after the earlier of (a) the closing of
the Company's initial registered public offering to the public generally, or (b)
the date ten years after the Date of the Grant specified in Item E above.
6. Stock Certificate Restrictive Legends. Stock certificates evidencing
Plan Shares may bear such restrictive legends as the Company and the Company's
counsel deem necessary or advisable under applicable law or pursuant to this
Agreement.
7. Representations, Warranties, Covenants, and Acknowledgments of
Purchaser. Purchaser hereby represents, warrants, covenants, acknowledges, and
agrees that:
7.1. Investment. Purchaser is acquiring the Plan Shares for
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the Plan Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regulating
securities.
7.2. Business Experience. Purchaser is capable of evaluating the
merits and risks of Purchaser's investment in the Company evidenced by the
purchase of the Plan Shares.
7.3. Relation of Company. Purchaser is presently an employee of the
Company and in such capacity has become personally familiar with the business,
affairs, financial condition, and results of operations of the Company.
7.4. Access to Information. Purchaser has had the opportunity to ask
questions of, and to receive answers from, appropriate executive officers of the
Company with respect to the terms and conditions of the transactions
contemplated hereby and with respect to business, affairs, financial condition,
and results of operations of the Company. Purchaser has had access to such
financial and other information as is necessary in order for Purchaser to make a
fully-informed decision as to investment in the Company by way of purchase of
the Plan Shares, and has had the opportunity to obtain any additional
information necessary to verify any of such information to which Purchaser has
had access.
7.5. Speculative Investment. Purchaser's investment in the Company
represented by the Plan Shares is highly speculative in nature and is subject to
a high degree of risk of loss in whole or in part. The amount of such investment
is within Purchaser's risk capital
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<PAGE> 11
means and is not so great in relation to Purchaser's total financial resources
as would jeopardize the personal financial needs of Purchaser or Purchaser's
family in the event such investment were lost in whole or in part.
7.6. Registration. Purchaser must bear the economic risk of
investment for an indefinite period of time because the sale to Purchaser of the
Plan Shares has not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and the Plan Shares cannot be transferred by Purchaser
unless such transfer is registered under the Securities Act or an exemption from
such registration is available. The Company has made no agreements, covenants or
undertakings whatsoever to register the transfer of any of the Plan Shares under
the Securities Act. The Company has made no representations, warranties, or
covenants whatsoever as to whether any exemption from the Securities Act,
including without limitation any exemption for limited sales in routine brokers'
transactions pursuant to Rule 144, will be available; if the exemption under
Rule 144 is available at all, it will not be available until at least one year
after payment of cash for the Plan Shares and not then unless: (a) a public
trading market then exists in the Company's Common Stock; (b) adequate
information as to the Company's financial and other affairs and operations is
then available to the public; and (c) all other terms and conditions of Rule 144
have been satisfied. Purchaser understands that the resale provisions of Rule
701 will not apply until 90 days after the Company becomes subject to reporting
obligations of the Securities Exchange Act of 1934 (typically upon the effective
date of an initial public offering).
7.7. Public Trading. None of the Company's securities is presently
publicly traded, and the Company has made no representation, covenant, or
agreement as to whether there will be a public market for any of its securities.
7.8. Tax Advice. The Company has made no warranties or
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by this Agreement and Purchaser is in no manner
relying on the Company or its representatives for an assessment of such tax
consequences.
8. Binding Effect. Subject to the limitations set forth in this
Agreement, this Agreement shall be binding upon, and inure to the benefit of,
the executors, administrators, heirs, legal representatives, successors, and
assigns of the parties hereto.
9. Damages. Purchaser shall be liable to the Company for all costs and
damages, including incidental and consequential damages, resulting from a
disposition of Plan Shares which is not in conformity with the provisions of
this Agreement.
10. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.
11. Notices. All notices and other communications under this Agreement
shall be in writing. Unless and until Purchaser is notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
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<PAGE> 12
American Xtal Technology
4311 Solar Way
Fremont, CA 94538
Attention: Controller
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for Purchaser and related to
this Agreement, if not delivered by hand, shall be mailed to Purchaser's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
AMERICAN XTAL TECHNOLOGY
By
-------------------------------------
Title
----------------------------------
Purchaser hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
Purchaser
------------------------------
Purchaser's spouse indicates by the execution of this Agreement his or
her consent to be bound by the terms herein as to his or her interests, whether
as community property or otherwise, if any, in the Plan Shares hereby purchased.
Purchaser's Spouse
---------------------
5
<PAGE> 13
Attachments
1997 Employee Stock Purchase Plan
Acknowledgment Regarding Election
Pursuant to Section 83(b)
Section 83(b) Election
6
<PAGE> 14
ACKNOWLEDGMENT AND STATEMENT
OF DECISION REGARDING ELECTION
PURSUANT TO SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned (which term includes the undersigned's spouse), a
purchaser of Shares of Common Stock of AMERICAN XTAL TECHNOLOGY (the "Company"),
pursuant to stock purchase right granted under the Company's 1997 Employee Stock
Purchase Plan (the "Plan"), hereby states as follows:
1. The undersigned acknowledges receipt of a copy of a Stock Purchase
Agreement by and between the undersigned and the Company (the "Agreement")
effecting the purchase of shares, which the undersigned has carefully reviewed.
2. The undersigned either [check as applicable]:
____(a) has consulted, and has been fully advised by, the undersigned's
own tax advisor, _________________________ whose business address is
_____________________________, regarding the income tax consequences of
purchasing shares under the Agreement, and particularly regarding the
advisability of making an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), and pursuant to the corresponding
provisions, if any, of applicable state laws (including without limitation
Section 17122.7(b) of the California Revenue and Taxation Code, as amended (the
"Rev. & Tax. Code") if applicable); or
____(b) has knowingly chosen not to consult a tax advisor.
3. The undersigned hereby avers that, with respect to the purchase of
shares, the undersigned [check as applicable]:
____(a) will make an election under Section 83(b) solely for purposes of
Section 56(b)(3) of the Code (and analogous state law, if any) relating to the
Alternative Minimum Tax, and a "protective" election under Section 83(b) (and
analogous state law, if any) for all other income tax purposes.
____(b) will not make an election under Section 83(b) of the Code (and
analogous state law, if any) for any purpose.
4. With respect to any election under Section 83(b) of the Code,
"protective" or otherwise, indicated in paragraph (3) above, the undersigned
herewith submits an executed copy of the appropriate form of election and
acknowledges that copies thereof have been duly and timely filed with the
appropriate offices of the Internal Revenue Service and applicable state taxing
authorities and that the undersigned will attach a copy of the form of election
to the undersigned's federal income tax return for the year of the purchase and,
if required, to the undersigned's state income tax return(s) for the same
period.
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<PAGE> 15
5. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the
Agreement or of the making or failure to make an election pursuant to Section
83(b) of the Code or the corresponding provisions, if any, of applicable state
law.
Date: -------------------------------- ----------------------------------------
(Purchaser)
Date: -------------------------------- ----------------------------------------
(Purchaser)
2
<PAGE> 16
ELECTION PURSUANT TO SECTION 83(B) OF THE
INTERNAL REVENUE CODE WITH RESPECT TO PROPERTY
TRANSFERRED IN CONNECTION WITH THE PERFORMANCE OF SERVICES
-----------------
The undersigned hereby makes the election, modified to the extent
described in paragraph 9 below, authorized by Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder,
with respect to shares of Common Stock AMERICAN XTAL TECHNOLOGY (the "Company")
described below acquired by the undersigned on the date shown below. To the
extent permitted, this election shall also serve as election under analogous
state law. As required by the Treasury Regulations under Section 83(b), the
undersigned supplies herewith the following information:
1. The undersigned's name and address are:
Name:
---------------------------------------------------
Address:
------------------------------------------------
------------------------------------------------
2. The undersigned has taxpayer identification number
_________________
3. The property with respect to which this protective election is made
consists of ____________ shares of Common Stock, no par value, of the
Company.
4. The date on which the above-described property was transferred to the
undersigned was ______________, 19__.
5. As of the date of transfer, the property was subject to the following
substantial risk of forfeiture:
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
6. The fair market value of the property at the time of transfer
(determined without regard to any restrictions other than
restrictions which by their terms will never lapse) was $__________
per share.
7. The amount paid for the property by the undersigned was $____________
per share.
8. A copy of this election has been furnished to the Company, and a copy
of this election will be attached to the undersigned's federal income
tax return for the year to which this election relates.
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<PAGE> 17
9. If the property was acquired by the exercise of an Incentive Stock
Option within the meaning of Section 422 of the Code then, except in the event
of a "disqualifying disposition " of the property, this election is protective
only and does not constitute an agreement to report or include as income subject
to federal income tax amounts which, but for this election, are not so
reportable or includible.
Date:
--------------------------------- ----------------------------------------
(Purchaser)
2
<PAGE> 1
EXHIBIT 10.5
AMERICAN XTAL TECHNOLOGY
1998 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The American Xtal Technology 1998 Employee Stock
Purchase Plan (the "Plan") is hereby established effective as of the effective
date of the initial registration by the Company of its Stock under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Effective Date").
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
Company and its shareholders by providing an incentive to attract, retain and
reward Eligible Employees of the Participating Company Group and by motivating
such persons to contribute to the growth and profitability of the Participating
Company Group. The Plan provides such Eligible Employees with an opportunity to
acquire a proprietary interest in the Company through the purchase of Stock. The
Company intends that the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of
its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
Whenever used herein, the following terms shall have their respective meanings
set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means American Xtal Technology, a California
corporation, or any successor corporation thereto.
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<PAGE> 2
(e) "COMPENSATION" means, with respect to any Offering Period,
base wages or salary, commissions, overtime, bonuses, annual awards, other
incentive payments, shift premiums, and all other compensation paid in cash
during such Offering Period before deduction for any contributions to any plan
maintained by a Participating Company and described in Section 401(k) or Section
125 of the Code. Compensation shall not include reimbursements of expenses,
allowances, long-term disability, workers' compensation or any amount deemed
received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan, or any other compensation not included above.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means a person treated as an employee of a
Participating Company for purposes of Section 423 of the Code. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while such individual is on
any military leave, sick leave, or other bona fide leave of absence approved by
the Company of ninety (90) days or less. In the event an individual's leave of
absence exceeds ninety (90) days, the individual shall be deemed to have ceased
to be an Employee on the ninety-first (91st) day of such leave unless the
individual's right to reemployment with the Participating Company Group is
guaranteed either by statute or by contract. The Company shall determine in good
faith and in the exercise of its discretion whether an individual has become or
has ceased to be an Employee and the effective date of such individual's
employment or termination of employment, as the case may be. For purposes of an
individual's participation in or other rights, if any, under the Plan as of the
time of the Company's determination, all such determinations by the Company
shall be final, binding and conclusive, notwithstanding that the Company or any
governmental agency subsequently makes a contrary determination.
(h) "FAIR MARKET VALUE" means, as of any date, if there is then
a public market for the Stock, the closing price of a share of Stock (or the
mean of the closing bid and asked prices if the Stock is so quoted instead) as
quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other
national or regional securities exchange or market system constituting the
primary market for the Stock, as reported in The Wall Street Journal or such
other source as the Company deems reliable. If the relevant date does not fall
on a day on which the Stock has traded on such securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date, or
such other appropriate day as shall be determined by the Board, in its sole
discretion. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board. Notwithstanding
the foregoing, the Fair Market Value per share of Stock on the Effective Date
shall be deemed to be the public offering price set forth in the final
prospectus filed with the Securities and Exchange Commission in connection with
the initial public offering of the Stock.
(i) "OFFERING" means an offering of Stock as provided in Section
2
<PAGE> 3
(j) "OFFERING DATE" means, for any Offering, the first day of
the Offering Period with respect to such Offering.
(k) "OFFERING PERIOD" means a period established in accordance
with Section 6.1.
(l) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(m) "PARTICIPANT" means an Eligible Employee who has become a
participant in an Offering Period in accordance with Section 7 and remains a
participant in accordance with the Plan.
(n) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation designated by the Board as a corporation
the Employees of which may, if Eligible Employees, participate in the Plan. The
Board shall have the sole and absolute discretion to determine from time to time
which Parent Corporations or Subsidiary Corporations shall be Participating
Companies.
(o) "PARTICIPATING COMPANY GROUP" means, at any point in time,
the Company and all other corporations collectively which are then Participating
Companies.
(p) "PURCHASE DATE" means, for any Purchase Period, the last day
of such period.
(q) "PURCHASE PERIOD" means a period established in accordance
with Section 6.2.
(r) "PURCHASE PRICE" means the price at which a share of Stock
may be purchased under the Plan, as determined in accordance with Section 9.
(s) "PURCHASE RIGHT" means an option granted to a Participant
pursuant to the Plan to purchase such shares of Stock as provided in Section 8,
which the Participant may or may not exercise during the Offering Period in
which such option is outstanding. Such option arises from the right of a
Participant to withdraw any accumulated payroll deductions of the Participant
not previously applied to the purchase of Stock under the Plan and to terminate
participation in the Plan at any time during an Offering Period.
(t) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(u) "SUBSCRIPTION AGREEMENT" means a written agreement in such
form as specified by the Company, stating an Employee's election to participate
in the Plan and authorizing payroll deductions under the Plan from the
Employee's Compensation.
(v) "SUBSCRIPTION DATE" means the last business day prior to the
Offering Date of an Offering Period or such earlier date as the Company shall
establish.
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<PAGE> 4
(w) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the
Board. All questions of interpretation of the Plan, of any form of agreement or
other document employed by the Company in the administration of the Plan, or of
any Purchase Right shall be determined by the Board and shall be final and
binding upon all persons having an interest in the Plan or the Purchase Right.
Subject to the provisions of the Plan, the Board shall determine all of the
relevant terms and conditions of Purchase Rights granted pursuant to the Plan;
provided, however, that all Participants granted Purchase Rights pursuant to the
Plan shall have the same rights and privileges within the meaning of Section
423(b)(5) of the Code. All expenses incurred in connection with the
administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election that is the responsibility of or that is
allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The Company may,
from time to time, consistent with the Plan and the requirements of Section 423
of the Code, establish, change or terminate such rules, guidelines, policies,
procedures, limitations, or adjustments as deemed advisable by the Company, in
its sole discretion, for the proper administration of the Plan, including,
without limitation, (a) a minimum payroll deduction amount required for
participation in an Offering, (b) a limitation on the frequency or number of
changes permitted in the rate of payroll deduction during an Offering, (c) an
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, (d) a payroll deduction greater than or less than the amount
designated by a Participant in order to adjust for the Company's delay or
mistake in processing a Subscription Agreement or in otherwise effecting a
Participant's election under the Plan or as advisable to comply with the
requirements of Section 423 of the Code, and (e) determination of the date and
manner by which the Fair Market Value of a share of Stock is determined for
purposes of administration of the Plan.
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<PAGE> 5
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided
in Section 4.2, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be Two Hundred Fifty Thousand (250,000) and shall
consist of authorized but unissued or reacquired shares of Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or
is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company, or
in the event of any merger (including a merger effected for the purpose of
changing the Company's domicile), sale of assets or other reorganization in
which the Company is a party, appropriate adjustments shall be made in the
number and class of shares subject to the Plan and each Purchase Right and in
the Purchase Price. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Purchase Rights are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the outstanding Purchase Rights to provide that such Purchase
Rights are exercisable for New Shares. In the event of any such amendment, the
number of shares subject to, and the Purchase Price of, the outstanding Purchase
Rights shall be adjusted in a fair and equitable manner, as determined by the
Board, in its sole discretion. Notwithstanding the foregoing, any fractional
share resulting from an adjustment pursuant to this Section 4.2 shall be rounded
down to the nearest whole number, and in no event may the Purchase Price be
decreased to an amount less than the par value, if any, of the stock subject to
the Purchase Right. The adjustments determined by the Board pursuant to this
Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a Participating
Company is eligible to participate in the Plan and shall be deemed an Eligible
Employee, except the following:
(a) Any Employee who is customarily employed by the
Participating Company Group for less than twenty (20) hours per week; or
(b) Any Employee who is customarily employed by the
Participating Company Group for not more than five (5) months in any
calendar year.
5.2 EXCLUSION OF CERTAIN SHAREHOLDERS. Notwithstanding any provision of
the Plan to the contrary, no Employee shall be granted a Purchase Right under
the Plan if, immediately after such grant, such Employee would own or hold
options to purchase stock of the Company or of any Parent Corporation or
Subsidiary Corporation possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of such corporation, as
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<PAGE> 6
determined in accordance with Section 423(b)(3) of the Code. For purposes of
this Section 5.2, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of such Employee.
6. OFFERINGS.
6.1 OFFERING PERIODS. Except as otherwise set forth below, the Plan
shall be implemented by sequential Offerings of approximately twenty-four (24)
months duration (an "Offering Period"); provided, however, that the first
Offering Period shall commence on the Effective Date and end on January 31, 2000
(the "Initial Offering Period"). Subsequent Offerings shall commence on the
first day of February and August of each year and end on the last day of the
second January and July, respectively, occurring thereafter. Notwithstanding the
foregoing, the Board may establish a different duration for one or more future
Offering Periods or different commencing or ending dates for such Offering
Periods; provided, however, that no Offering Period may have a duration
exceeding twenty-seven (27) months. If the first or last day of an Offering
Period is not a day on which the national securities exchanges or Nasdaq Stock
Market are open for trading, the Company shall specify the trading day that will
be deemed the first or last day, as the case may be, of the Offering Period.
6.2 PURCHASE PERIODS. Each Offering Period shall consist of four (4)
consecutive Purchase Periods of approximately six (6) months duration, or such
other number or duration as the Board shall determine. The Purchase Period
commencing on the Offering Date of the Initial Offering Period shall end on July
31, 1998. A Purchase Period commencing on or about February 1 shall end on or
about the next July 31. A Purchase Period commencing on or about August 1 shall
end on or about the next January 31. Notwithstanding the foregoing, the Board
may establish a different duration for one or more future Purchase Periods or
different commencing or ending dates for such Purchase Periods. If the first or
last day of a Purchase Period is not a day on which the national securities
exchanges or Nasdaq Stock Market are open for trading, the Company shall specify
the trading day that will be deemed the first or last day, as the case may be,
of the Purchase Period.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may become a Participant
in an Offering Period by delivering a properly completed Subscription Agreement
to the office designated by the Company not later than the close of business for
such office on the Subscription Date established by the Company for such
Offering Period. An Eligible Employee who does not deliver a properly completed
Subscription Agreement to the Company's designated office on or before the
Subscription Date for an Offering Period shall not participate in the Plan for
that Offering Period or for any subsequent Offering Period unless such Eligible
Employee subsequently delivers a properly completed Subscription Agreement to
the appropriate office of the Company on or before the Subscription Date for
such subsequent Offering Period. An Employee who becomes an Eligible Employee
after the Offering Date of an Offering Period shall not be eligible to
participate in such Offering Period but may participate in any subsequent
Offering Period provided such Employee is still an Eligible Employee as of the
Offering Date of such subsequent Offering Period.
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<PAGE> 7
7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the next Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
provided that such Participant remains an Eligible Employee on the Offering Date
of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 12.1 or (b) terminated employment as provided in Section 13.
A Participant who may automatically participate in a subsequent Offering Period,
as provided in this Section, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may deliver a new Subscription
Agreement for a subsequent Offering Period in accordance with the procedures set
forth in Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement. Eligible
Employees may not participate simultaneously in more than one Offering.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on the Offering
Date of each Offering Period, each Participant in such Offering Period shall be
granted automatically a Purchase Right consisting of an option to purchase the
lesser of (a) that number of whole shares of Stock determined by dividing Fifty
Thousand Dollars ($50,000) by the Fair Market Value of a share of Stock on such
Offering Date or (b) five thousand (5,000) shares of Stock. No Purchase Right
shall be granted on an Offering Date to any person who is not, on such Offering
Date, an Eligible Employee.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the
provisions of Section 8.1, if the Board establishes an Offering Period of any
duration other than twenty-four months, then (a) the dollar amount in Section
8.1 shall be determined by multiplying $2,083.33 by the number of months
(rounded to the nearest whole month) in the Offering Period and rounding to the
nearest whole dollar, and (b) the share amount in Section 8.1 shall be
determined by multiplying 208.33 shares by the number of months (rounded to the
nearest whole month) in the Offering Period and rounding to the nearest whole
share.
8.3 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any provision of
the Plan to the contrary, no Participant shall be granted a Purchase Right which
permits his or her right to purchase shares of Stock under the Plan to accrue at
a rate which, when aggregated with such Participant's rights to purchase shares
under all other employee stock purchase plans of a Participating Company
intended to meet the requirements of Section 423 of the Code, exceeds
Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or such other
limit, if any, as may be imposed by the Code) for each calendar year in which
such Purchase Right is outstanding at any time. For purposes of the preceding
sentence, the Fair Market Value of shares purchased during a given Offering
Period shall be determined as of the Offering Date for such Offering Period. The
limitation described in this Section 8.3 shall be applied in conformance with
applicable regulations under Section 423(b)(8) of the Code.
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<PAGE> 8
9. PURCHASE PRICE.
The Purchase Price at which each share of Stock may be acquired in an
Offering Period upon the exercise of all or any portion of a Purchase Right
shall be established by the Board; provided, however, that the Purchase Price
shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair
Market Value of a share of Stock on the Offering Date of the Offering Period or
(b) the Fair Market Value of a share of Stock on the Purchase Date. Unless
otherwise provided by the Board prior to the commencement of an Offering Period,
the Purchase Price for that Offering Period shall be eighty-five percent (85%)
of the lesser of (a) the Fair Market Value of a share of Stock on the Offering
Date of the Offering Period, or (b) the Fair Market Value of a share of Stock on
the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or any portion
of a Purchase Right may be paid for only by means of payroll deductions from the
Participant's Compensation accumulated during the Offering Period for which such
Purchase Right was granted, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise provided herein,
the amount to be deducted under the Plan from a Participant's Compensation on
each payday during an Offering Period shall be determined by the Participant's
Subscription Agreement. The Subscription Agreement shall set forth the
percentage of the Participant's Compensation to be deducted on each payday
during an Offering Period in whole percentages of not less than one percent (1%)
(except as a result of an election pursuant to Section 10.3 to stop payroll
deductions made effective following the first payday during an Offering) or more
than fifteen percent (15%). Notwithstanding the foregoing, the Board may change
the limits on payroll deductions effective as of any future Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an Offering
Period, a Participant may elect to increase or decrease the rate of or to stop
deductions from his or her Compensation by delivering to the Company's
designated office an amended Subscription Agreement authorizing such change on
or before the "Change Notice Date." The "Change Notice Date" shall be a date
prior to the beginning of the first pay period for which such election is to be
effective as established by the Company from time to time and announced to the
Participants. A Participant who elects to decrease the rate of his or her
payroll deductions to zero percent (0%) shall nevertheless remain a Participant
in the current Offering Period unless such Participant withdraws from the Plan
as provided in Section 12.1.
10.4 ADMINISTRATIVE SUSPENSION OF PAYROLL DEDUCTIONS. The Company may,
in its sole discretion, suspend a Participant's payroll deductions under the
Plan as the Company deems advisable to avoid accumulating payroll deductions in
excess of the amount that could reasonably be anticipated to purchase the
maximum number of shares of Stock permitted during a
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<PAGE> 9
calendar year under the limit set forth in Section 8.3. Payroll deductions shall
be resumed at the rate specified in the Participant's then effective
Subscription Agreement at the beginning of the next Purchase Period the Purchase
Date of which falls in the following calendar year.
10.5 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such Participant's Plan account and shall be
deposited with the general funds of the Company. All payroll deductions received
or held by the Company may be used by the Company for any corporate purpose.
10.6 NO INTEREST PAID. Interest shall not be paid on sums deducted from
a Participant's Compensation pursuant to the Plan.
10.7 VOLUNTARY WITHDRAWAL FROM PLAN ACCOUNT. A Participant may withdraw
all or any portion of the payroll deductions credited to his or her Plan account
and not previously applied toward the purchase of Stock by delivering to the
Company's designated office a written notice on a form provided by the Company
for such purpose. A Participant who withdraws the entire remaining balance
credited to his or her Plan account shall be deemed to have withdrawn from the
Plan in accordance with Section 12.1. Amounts withdrawn shall be returned to the
Participant as soon as practicable after the withdrawal and may not be applied
to the purchase of shares in any Offering under the Plan. The Company may from
time to time establish or change limitations on the frequency of withdrawals
permitted under this Section, establish a minimum dollar amount that must be
retained in the Participant's Plan account, or terminate the withdrawal right
provided by this Section.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an Offering
Period, each Participant who has not withdrawn from the Plan and whose
participation in the Offering has not terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant's Purchase
Right the number of whole shares of Stock determined by dividing (a) the total
amount of the Participant's payroll deductions accumulated in the Participant's
Plan account during the Offering Period and not previously applied toward the
purchase of Stock by (b) the Purchase Price. However, in no event shall the
number of shares purchased by the Participant during an Offering Period exceed
the number of shares subject to the Participant's Purchase Right. No shares of
Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated before such Purchase
Date.
11.2 PRO RATA ALLOCATION OF SHARES. In the event that the number of
shares of Stock which might be purchased by all Participants in the Plan on a
Purchase Date exceeds the number of shares of Stock available in the Plan as
provided in Section 4.1, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from
such pro rata allocation to any Participant shall be disregarded.
9
<PAGE> 10
11.3 DELIVERY OF CERTIFICATES. As soon as practicable after each
Purchase Date, the Company shall arrange the delivery to each Participant, as
appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant, or, if requested by the Participant,
in the name of the Participant and his or her spouse, or, if applicable, in the
names of the heirs of the Participant.
11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.
11.5 TAX WITHHOLDING. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some or
all of the shares of Stock he or she acquires under the Plan, the Participant
shall make adequate provision for the foreign, federal, state and local tax
withholding obligations of the Participating Company Group, if any, which arise
upon exercise of the Purchase Right or upon such disposition of shares,
respectively. The Participating Company Group may, but shall not be obligated
to, withhold from the Participant's compensation the amount necessary to meet
such withholding obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which the Purchase Right relates shall expire immediately upon the end of the
Offering Period.
11.7 REPORTS TO PARTICIPANTS. Each Participant who has exercised all or
part of his or her Purchase Right shall receive, as soon as practicable after
the Purchase Date, a report of such Participant's Plan account setting forth the
total payroll deductions accumulated prior to such exercise, the number of
shares of Stock purchased, the Purchase Price for such shares, the date of
purchase and the cash balance, if any, remaining immediately after such purchase
that is to be refunded or retained in the Participant's Plan account pursuant to
Section 11.4. The report required by this Section may be delivered in such form
and by such means, including by electronic transmission, as the Company may
determine.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may withdraw from
the Plan by signing and delivering to the Company's designated office a written
notice of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time prior to the end of an Offering Period;
provided, however, that if a Participant withdraws from the Plan after the
Purchase Date of a Purchase Period, the withdrawal shall not affect shares of
Stock acquired by the Participant on such Purchase Date. A Participant who
voluntarily withdraws from the Plan is prohibited from resuming participation in
the Plan in the same Offering from which he or she withdrew, but may participate
in any subsequent Offering by
10
<PAGE> 11
again satisfying the requirements of Sections 5 and 7.1. The Company may impose,
from time to time, a requirement that the notice of withdrawal from the Plan be
on file with the Company's designated office for a reasonable period prior to
the effectiveness of the Participant's withdrawal.
12.2 AUTOMATIC WITHDRAWAL FROM AN OFFERING. If the Fair Market Value of
a share of Stock on a Purchase Date of an Offering Period (other than the final
Purchase Date of such offering) is less than the Fair Market Value of a share of
Stock on the Offering Date for such Offering Period, then every Participant
shall automatically be (a) withdrawn from such Offering Period after the
acquisition of shares of Stock on the Purchase Date and (b) enrolled in the new
Offering Period effective on its Offering Date. A Participant may elect not to
be automatically withdrawn from an Offering Period pursuant to this Section 12.2
by delivering to the Company's designated office not later than the close of
business on Offering Date new Offering Period a written notice indicating such
election.
12.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's voluntary
withdrawal from the Plan pursuant to Sections 12.1 or automatic withdrawal from
an Offering pursuant to Section 12.2, the Participant's accumulated payroll
deductions which have not been applied toward the purchase of shares of Stock
(except, in the case of an automatic withdrawal pursuant to Section 12.2, for an
amount necessary to purchase an additional whole share as provided in Section
11.4) shall be refunded to the Participant as soon as practicable after the
withdrawal, without the payment of any interest, and the Participant's interest
in the Plan or the Offering, as applicable, shall terminate. Such accumulated
payroll deductions to be refunded in accordance with this Section may not be
applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
Upon a Participant's ceasing, prior to a Purchase Date, to be an
Employee of the Participating Company Group for any reason, including
retirement, disability or death, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned pursuant
to this Section 13. A Participant whose participation has been so terminated may
again become eligible to participate in the Plan by again satisfying the
requirements of Sections 5 and 7.1.
14. CHANGE IN CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company: (i) the direct or
indirect sale or exchange in a single or series of related transactions by the
shareholders of the Company of more than fifty percent (50%) of the voting stock
of the Company; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.
11
<PAGE> 12
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
14.2 EFFECT OF CHANGE IN CONTROL ON PURCHASE RIGHTS. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may assume the Company's rights and obligations under the Plan.
If the Acquiring Corporation elects not to assume the Company's rights and
obligations under outstanding Purchase Rights, the Purchase Date of the then
current Purchase Period shall be accelerated to a date before the date of the
Change in Control specified by the Board, but the number of shares of Stock
subject to outstanding Purchase Rights shall not be adjusted. All Purchase
Rights which are neither assumed by the Acquiring Corporation in connection with
the Change in Control nor exercised as of the date of the Change in Control
shall terminate and cease to be outstanding effective as of the date of the
Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
A Purchase Right may not be transferred in any manner otherwise than by
will or the laws of descent and distribution and shall be exercisable during the
lifetime of the Participant only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to compliance
with all applicable requirements of federal, state and foreign law with respect
to such securities. A Purchase Right may not be exercised if the issuance of
shares upon such exercise would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any securities exchange or market system upon which the Stock
may then be listed. In addition, no Purchase Right may be exercised unless (a) a
registration statement under the Securities Act of 1933, as amended, shall at
the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body
12
<PAGE> 13
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares under the Plan
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of a Purchase Right, the Company may
require the Participant to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation, and
to make any representation or warranty with respect thereto as may be requested
by the Company.
17. RIGHTS AS A SHAREHOLDER AND EMPLOYEE.
A Participant shall have no rights as a shareholder by virtue of the
Participant's participation in the Plan until the date of the issuance of a
certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or interfere
in any way with any right of the Participating Company Group to terminate the
Participant's employment at any time.
18. LEGENDS.
The Company may at any time place legends or other identifying symbols
referencing any applicable federal, state or foreign securities law restrictions
or any provision convenient in the administration of the Plan on some or all of
the certificates representing shares of Stock issued under the Plan. The
Participant shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this Section. Unless otherwise specified by the Company, legends
placed on such certificates may include but shall not be limited to the
following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION
TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK
PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE
CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER
HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN
THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE)."
19. NOTIFICATION OF SALE OF SHARES.
The Company may require the Participant to give the Company prompt
notice of any disposition of shares acquired by exercise of a Purchase Right
within two years from the date of granting such Purchase Right or one year from
the date of exercise of such Purchase Right. The Company may require that until
such time as a Participant disposes of shares acquired upon
13
<PAGE> 14
exercise of a Purchase Right, the Participant shall hold all such shares in the
Participant's name (or, if elected by the Participant, in the name of the
Participant and his or her spouse but not in the name of any nominee) until the
lapse of the time periods with respect to such Purchase Right referred to in the
preceding sentence. The Company may direct that the certificates evidencing
shares acquired by exercise of a Purchase Right refer to such requirement to
give prompt notice of disposition.
20. NOTICES.
All notices or other communications by a Participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan, except that (a)
such termination shall not affect Purchase Rights previously granted under the
Plan, except as permitted under the Plan, and (b) no amendment may adversely
affect a Purchase Right previously granted under the Plan (except to the extent
permitted by the Plan or as may be necessary to qualify the Plan as an employee
stock purchase plan pursuant to Section 423 of the Code or to obtain
qualification or registration of the shares of Stock under applicable federal,
state or foreign securities laws). In addition, an amendment to the Plan must be
approved by the shareholders of the Company within twelve (12) months of the
adoption of such amendment if such amendment would authorize the sale of more
shares than are authorized for issuance under the Plan or would change the
definition of the corporations that may be designated by the Board as
Participating Companies.
14
<PAGE> 15
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing American Xtal Technology 1998 Employee Stock Purchase Plan
was duly adopted by the Board of Directors of the Company on ________________,
1998.
------------------------------------
Secretary
15
<PAGE> 16
PLAN HISTORY
___________, 1998 Board adopts the Plan, with an initial reserve of 250,000
shares.
___________, 1998 Shareholders approve Plan, with an initial reserve of
250,000 shares.
<PAGE> 17
AMERICAN XTAL TECHNOLOGY
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NAME (Please print): __________________________________________________________
(Last) (First) (Middle)
[ ] Original Application for the Offering Period beginning ____________, 199__.
[ ] Change in Payroll Deduction rate effective with the pay period ending
___________________, 199__.
I hereby elect to participate in the 1998 Employee Stock Purchase Plan
(the "Plan") of American Xtal Technology (the "Company") and subscribe to
purchase shares of the Company's Stock in accordance with this Subscription
Agreement and the Plan.
I hereby authorize payroll deductions in the amount of ________ percent
(in whole percentages not less than 1% (unless an election to stop deductions is
being made) or more than 15%) of my "COMPENSATION" on each payday throughout the
"OFFERING PERIOD" in accordance with the Plan. I understand that these payroll
deductions will be accumulated for the purchase of shares of Stock at the
applicable purchase price determined in accordance with the Plan. I understand
that, except as otherwise provided by the Plan, I will automatically purchase
shares on each Purchase Date under the Plan unless I withdraw from the Plan by
giving written notice on a form provided by the Company or unless my employment
terminates.
I understand that I will automatically participate in each subsequent
Offering that commences immediately after the last day of an Offering in which I
am participating until I withdraw from the Plan by giving written notice on a
form provided by the Company or my employment terminates.
Shares I purchase under the Plan should be issued in the name(s) set
forth below. (Shares may be issued in the participant's name alone or together
with the participant's spouse as community property or in joint tenancy.)
NAME(S): __________________________________________________________
ADDRESS: __________________________________________________________
MY SOCIAL SECURITY NUMBER: ____________________________________________
I agree to make adequate provision for the federal, state, local and
foreign tax withholding obligations, if any, which may arise upon my purchase of
shares under the Plan and/or my disposition of such shares. The Company may, but
will not be obligated to, withhold from my compensation the amount necessary to
meet such withholding obligations.
I agree that, unless otherwise permitted by the Company, until I dispose
of the shares I purchased under the Plan, I will hold such shares in the name(s)
entered above (and not in the name of any nominee) for at least two years from
the first day of the Offering Period in which, and at least one year from the
Purchase Date on which, I acquired such shares.
I AGREE THAT I WILL NOTIFY THE CHIEF FINANCIAL OFFICER OF THE COMPANY IN
WRITING WITHIN 30 DAYS AFTER ANY SALE, GIFT, TRANSFER OR OTHER DISPOSITION OF
ANY KIND PRIOR TO THE END OF THE PERIODS REFERRED TO IN THE PRECEDING PARAGRAPH
(A "DISQUALIFYING DISPOSITION") OF ANY SHARES I PURCHASED UNDER THE PLAN. I
FURTHER AGREE THAT IF I DO NOT RESPOND WITHIN 30 DAYS OF THE DATE OF A
DISQUALIFYING DISPOSITION SURVEY DELIVERED TO ME BY CERTIFIED MAIL, THE COMPANY
MAY TREAT MY NONRESPONSE AS MY NOTICE TO THE COMPANY OF A DISQUALIFYING
DISPOSITION AND MAY COMPUTE AND REPORT TO THE INTERNAL REVENUE SERVICE THE
ORDINARY INCOME I MUST RECOGNIZE UPON SUCH DISQUALIFYING DISPOSITION.
I am familiar with the provisions of the Plan and agree to participate
in the Plan subject to all of its provisions. I understand that the Board of
Directors of the Company reserves the right to terminate the Plan or to amend
the Plan and my right to purchase stock under the Plan to the extent provided by
the Plan. I understand that the effectiveness of this Subscription Agreement is
dependent upon my eligibility to participate in the Plan.
Date: ____________________ Signature:______________________________________
<PAGE> 18
AMERICAN XTAL TECHNOLOGY
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
NAME (Please print): __________________________________________________________
(Last) (First) (Middle)
I hereby elect to withdraw from the Offering under American Xtal
Technology 1998 Employee Stock Purchase Plan (the "Plan") which began on
_________________________, 19____ and in which I am currently participating (the
"Current Offering").
ELECT EITHER A OR B BELOW:
[ ] A. I elect to terminate immediately my participation in the Current
Offering and in the Plan.
I request that the Company cease all further payroll deductions
from my Compensation under the Plan (provided that I have given
sufficient notice prior to the next payday). I request that all
payroll deductions credited to my account under the Plan (if any)
not previously used to purchase shares under the Plan shall not
be used to purchase shares on the next Purchase Date of the
Current Offering. Instead, I request that all such amounts be
paid to me as soon as practicable. I understand that this
election immediately terminates my interest in the Current
Offering and in the Plan.
[ ] B. I elect to terminate my participation in the Current Offering and
in the Plan following my purchase of shares on next Purchase Date
of the Current Offering.
I request that the Company cease all further payroll deductions
from my Compensation under the Plan (provided that I have given
sufficient notice prior to the next payday). I request that all
payroll deductions credited to my account under the Plan (if any)
not previously used to purchase shares under the Plan shall be
used to purchase shares on the next Purchase Date of the Current
Offering to the extent permitted by the Plan. I understand that
this election will terminate my interest in the Current Offering
and in the Plan immediately following such purchase. I request
that any cash balance remaining in my account under the Plan
after my purchase of shares be paid to me as soon as practicable.
I understand that by making this election I am terminating my interest
in the Plan and that no further payroll deductions will be made (provided that I
have given sufficient notice prior to the next payday) unless I elect in
accordance with the Plan to become a participant in another Offering under the
Plan by filing a new Subscription Agreement with the Company.
Date: ____________________ Signature:______________________________________
<PAGE> 1
Exhibit 10.6
[U.S. BANK LOGO]
LOAN AGREEMENT
<TABLE>
<CAPTION>
| PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS|
|-------------- ---------- ---------- -------- ------ ---------- ---------- ------- --------|
<S> <C> <C> <C> <C> <C> <C> <C> <C>
|$15,000,000.00 03-12-1998 05-15-1998 320-26 04368 380 0215644521 83408 |
References in the shaded area are for Lender's use only and do not limit the applicability
of this document to any particular loan or item.
Borrower: AMERICAN XTAL TECHNOLOGY Lender: U.S. BANK NATIONAL ASSOCIATION
4311 Solar Way Fremont Business Banking
Fremont, CA 94538 39510 Paseo Padre Pkwy
Fremont, CA 94538
============================================================================================================
</TABLE>
THIS LOAN AGREEMENT between AMERICAN XTAL TECHNOLOGY ("Borrower") and U.S. BANK
NATIONAL ASSOCIATION ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of MARCH 4, 1998, and shall continue
thereafter until all indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
borrower (or to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
BORROWER. The word "Borrower" means AMERICAN XTAL TECHNOLOGY. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $15,000,000.00; or (b) the sum of (i)
80.000% of the aggregate amount of Eligible Accounts, plus (ii) 50.000% of
the aggregate amount of Eligible inventory (not to exceed in corresponding
Loan amount based on Eligible Inventory $5,500,000).
BUSINESS DAY. The words "Business Day" mean a day on which commercial
banks are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section titled "COLLATERAL."
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits and offsets of any
nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts
do not include:
(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by
the Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States, except to the extent such Accounts
are supported by insurance, bonds or other assurances
satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become liable
to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered,or the services have not been rendered, to the Account
Debtor.
(h) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief
under any
<PAGE> 2
03-12-1998 LOAN AGREEMENT Page 2
LOAN NO. 320-26 (Continued)
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provision of any state or federal bankruptcy, insolvency, or
debtor-in-relief acts; or who has had appointed a trustee, custodian, or
receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or fails
generally to pay his debts (including its payrolls) as such debts come due.
(j) Accounts which have not been paid in full within 90 DAYS from the
invoice date. The entire balance of any Account of any single Account
debtor will be ineligible whenever the portion of the Account which has not
been paid within 90 DAYS from the invoice date is in excess of 25.000% of
the total amount outstanding on the account.
(k) That portion of the Accounts of any single Account Debtor which exceeds
20.000% of all of Borrower's Accounts.
(l) DATINGS, PROGRESS BILLINGS, RETAINAGES, CASH SALES, COD, U.S.
GOVERNMENT, AFFILIATES/INTERCOMPANY, POTENTIAL OFFSETS, SERVICE CHARGES,
OFFICERS/EMPLOYEES, OTHER; FOREIGN ADVANCES WILL BE ALLOWED AS
PRE-QUALIFIED BY BANK.
ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time, all of
Borrower's Inventory as defined below except:
(a) Inventory which is not owned by Borrower free and clear of all
security interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its sole discretion, deems to be obsolete,
unsalable, damaged, defective, or unfit for further processing.
(c) ELIGIBLE INVENTORY FOR PURPOSES OF DETERMINING THE BORROWER'S
BORROWING BASE SHALL BE DEFINED AS RAW MATERIAL AT COST AND SCRAP VALUE OF
WIP AND FINISHED GOODS.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
EXPIRATION DATE. the words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each and all
of the persons or entities granting a Security Interest in any Collateral for
the Indebtedness, including without limitation all Borrowers granting such a
Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection with
any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all
Loans, together with all other obligations, debts and liabilities of Borrower
to Lender, or any one or more of them, as well as all claims by Lender against
Borrower, or any one or more of them; whether now or hereafter existing,
voluntary or involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others; whether Borrower may be obligated as a guarantor, surety, or otherwise;
whether recovery upon such indebtedness may be or hereafter may become barred
by any statute of limitations; and whether such indebtedness may be or
hereafter may become otherwise unenforceable.
INVENTORY. The word "Inventory" means all of Borrower's raw materials, work in
process, finished goods, merchandise, parts and supplies, of every kind and
description, and goods held for sale or lease or furnished under contracts of
service in which Borrower now has or hereafter acquires any right, whether held
by Borrower or others, and all documents of title, warehouse receipts, bills of
lading, and all other documents of every type covering all or any part of the
foregoing. Inventory includes inventory temporarily out of Borrower's custody
or possession and all returns on Accounts.
LENDER. The word "Lender" means U.S. BANK NATIONAL ASSOCIATION, its successors
and assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility described
in the Section titled "LINE OF CREDIT" below.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation of any
and all commercial loans and financial accommodations from Lender to Borrower,
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
NOTE. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's Loan
obligations in favor of Lender, as well as any substitute, replacement or
refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers,
or other like liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (d) purchase money liens or purchase
money security interests upon or in any property acquired or held by Borrower
in the ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and security interests
which, as of the date of this Agreement, have been disclosed to and approved by
the Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device,
or any other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of
1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total assets
excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but including
leaseholds and leasehold improvements) less total Debt.
<PAGE> 3
LOAN AGREEMENT
03-12-1998 Page 3
LOAN NO. 320-26 (Continued)
===============================================================================
WORKING CAPITAL. The words "Working Capital" means Borrower's current
assets, excluding expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and
shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be in
full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, inventory, books,
records, and operations, and Lender shall be satisfied as to their
condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition
which would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
either orally or in writing by authorized persons. Lender may, but need
not, require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and for
the benefit of Borrower (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with
the instructions of an authorized person. Lender, at its option, may set
a cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay
to Lender an amount equal to the difference between the outstanding
principal balance of the Advances and the Borrowing Base. On the
Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid
principal amount of all Advances then outstanding and all accrued unpaid
interest, together with all other applicable fees, costs and charges, if
any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts, general intangibles, and
inventory. Lender's Security Interests in the Collateral shall be continuing
lines and shall include the proceeds and products of the Collateral, including
without limitation the proceeds of any insurance. With respect to the
Collateral, Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such
financing statements and to take whatever other actions are requested by
Lender to perfect and continue Lender's Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Borrower will note Lender's interest upon any and all chattel paper if not
delivered to Lender for possession by Lender. Contemporaneous with the
execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the purpose
of executing any documents necessary to perfect or to continue any Security
Interest. Lender may at any time, and without further authorization from
Borrower, file a carbon, photograph, facsimile, or other reproduction of
any financing statement for use as a financing statement. Borrower will
reimburse Lender for all expenses for the perfection, termination, and the
continuation of the perfection of Lender's security interest in the
Collateral. Borrower promptly will notify Lender of any change in
Borrower's name including any change to the assumed business names of
Borrower. Borrower also promptly will notify Lender of any change in
Borrower's Social Security Number or Employer Identification Number.
Borrower further agrees to notify Lender in writing prior to any change in
address or location of Borrower's principal governance office or should
Borrower merge or consolidate with any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings. With respect to the Inventory,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible Inventory and
records iteming and describing the kind, type, quality, and quantity of
Inventory, Borrower's Inventory costs and selling prices, and the daily
withdrawals to Inventory. The following is an accurate and complete list
of all locations at which Borrower keeps or maintains business records
concerning Borrower's Accounts and Inventory: 4311 SOLAR WAY, FREMONT, CA
94538.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of
this Agreement, Borrower shall execute and deliver to Lender schedules of
Accounts and Inventory and Eligible Accounts and Eligible Inventory, in
form and substance satisfactory to the Lender. Thereafter Borrower shall
execute and deliver to Lender such supplemental schedules of Eligible
Accounts and Eligible Inventory and such other matters and information
relating to the Accounts and Inventory as Lender may request.
Supplemental schedules shall be delivered according to the following
schedule: MONTHLY, QUARTERLY IF LINE NOT IN USE, WITHIN 30 DAYS REGARDLESS
OF USE. BORROWER AGREES TO PROVIDE LENDER WITH MONTHLY ACCOUNTS
RECEIVABLES AND ACCOUNTS PAYABLE AGINGS ACCOMPANIED WITH A BORROWING BASE
CERTIFICATE. BORROWER AGREES TO PROVIDE LENDER WITH MONTHLY SCHEDULE OF
ELIGIBLE INVENTORY TO INCLUDE RAW MATERIALS AT COST PLUS SCRAP VALUE OF
WORK IN PROGRESS AND FINISHED GOODS. ADDITIONALLY BORROWER WILL PROVIDE
LENDER WITH A DEBTOR NAME AND ADDRESS LISTING (TOP 50 CUSTOMERS IN TERMS
OF YEAR TO DATE SALES), ANNUALLY.
<PAGE> 4
03-12-1998 LOAN AGREEMENT Page 4
LOAN NO. 320-26 (CONTINUED)
================================================================================
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender; (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; (c) The value of
the Inventory will be determined on a consistent accounting basis; (d)
Except as agreed to the contrary by Lender in writing, all Eligible
Inventory is now and at all times hereafter will be in Borrower's physical
possession and shall not be held by others on consignment, sale on
approval, or sale or return; (e) Except as reflected in the Inventory
schedules delivered to Lender, all Eligible Inventory is now and at all
times hereafter will be of good and merchantable quality, free from
defects; (f) Eligible Inventory is not now and will not at any time
hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent, and, in such event, Borrower will
concurrently at the time of bailment cause any such bailee, warehouseman,
or similar party to issue and deliver to Lender, in form acceptable to
Lender, warehouse receipts in Lender's name evidencing the storage of
Inventory; and (g) Lender, its assigns, or agents shall have the right at
any time and at Borrower's expense to inspect and examine the Inventory and
to check and test the same as to quality, quantity, value, and condition.
NOTIFICATION BASIS. Borrower agrees and understands that this Loan shall be
on a notification basis pursuant to which Lender shall directly collect and
receive all proceeds and payments from the Accounts in which Lender has a
security interest. In order to facilitate the foregoing, Borrower agrees to
deliver to Lender, upon demand, any and all of Borrower's records, ledger
sheets, payment cards, and other documentation, in the form requested by
Lender, with regard to the Accounts. Borrower further agrees that Lender
shall have the right to notify each Account Debtor, pay such proceeds and
payments directly to Lender, and to do any and all other things as Lender
may deem to be necessary and appropriate, within its sole discretion, to
carry out the terms and intent of this Agreement. Lender shall have the
further right, where appropriate and within Lender's sole discretion, to
file suit, either in its own name or in the name of Borrower, to collect
any and all such Accounts. Borrower further agrees that Lender may take
such other actions, either in Borrower's name or Lender's name, as Lender
may deem appropriate within its sole judgment, with regard to collection
and payment of the Accounts, without affecting the liability of Borrower
under this Agreement or on the Indebtedness.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release occurring prior to Borrower's ownership or interest
in the properties, whether or not the same was or should have been known to
Borrower. The provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the Indebtedness and
the termination or expiration of this Agreement and shall not be affected
by Lender's acquisition of any interest in any of the properties, whether
by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
<PAGE> 5
03-12-1998 LOAN AGREEMENT Page 5
LOAN NO. 320-26 (Continued)
===============================================================================
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 4311 SOLAR WAY, FREMONT, CA 94538. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than forty five (45) days after the end of
each fiscal quarter, Borrower's balance sheet and profit and loss statement
for the period ended, prepared and certified as correct to the best
knowledge and belief by Borrower's chief financial officer or other officer
or person acceptable to Lender. All financial reports required to be
provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not
less than $18,000,000.00.
WORKING CAPITAL. Maintain Working Capital in excess of
$10,000,000.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current
Liabilities in excess of 1.25 to 1.00.
CASH FLOW REQUIREMENTS. Maintain Cash Flow at not less than the
following level: 1.50 TO 1.00 DEFINED AS: NET PROFIT AFTER TAXES +
DEPRECIATION AND AMORTIZATION + INTEREST EXPENSE - DIVIDENDS
- WITHDRAWS - INTERNALLY FUNDED FIXED ASSETS DIVIDED BY CURRENT
PORTION OF LONG TERM DEBT + INTEREST EXPENSE. TESTED ANNUALLY AT
FISCAL YEAR END. THIS DEFINITION SHALL SUPERSEDE ANY INCONSISTENT
DEFINITION IN THIS AGREEMENT. Except as provided above, all
computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with generally
accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory to
Lender, including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person.
In connection with all policies covering assets in which Lender holds
or is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
<PAGE> 6
03-12-1998 LOAN AGREEMENT Page 6
LOAN NO. 320-26 (Continued)
================================================================================
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed upon
Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower's properties, income, or profits. Provided
however, Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the legality of
the same shall be contested in good faith by appropriate proceedings, and (b)
Borrower shall have established on its books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in accordance
with generally accepted accounting practices. Borrower, upon demand of Lender,
will furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against Borrower's
properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the
Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal
laws, ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards and
other requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to
such records at all reasonable times and to provide Lender with copies of any
records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
QUARTERLY and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer
or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of
a permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly an in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or
not there is damage to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements
or other obligations which would (a) increase the cost to Lender for extending
or maintaining the credit facilities to which this Agreement relates, (b)
reduce the amounts payable to Lender under this Agreement or the Related
Documents, or (c) reduce the rate of return on Lender's capital as a
consequence of Lender's obligations with respect to the credit facilities to
which this Agreement relates, then Borrower agrees to pay Lender such
additional amounts as will compensate Lender therefor, within five (5) days
after Lender's written demand for such payment, which demand shall be
accompanied by an explanation of such imposition or charge and a calculation in
reasonable detail of the additional amounts payable by Borrower, which
explanation and calculations shall be conclusive in the absence of manifest
error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts,
except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on
its stock to its shareholders from time to time in amounts necessary to enable
the shareholders to pay income taxes and make estimated income tax payments to
satisfy their liabilities under federal and state law which arise solely from
their status as Shareholders of a Subchapter S Corporation because of their
ownership of shares of stock of Borrower, or (d) purchase or return any of
Borrower's outstanding shares or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligation as surety or guarantor other than in
the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or
any other loan with Lender; or (e) Lender in good faith deems itself insecure,
even though no Event of Default shall have occurred.
ADDITIONAL COVENANTS AND PROVISIONS. TANGIBLE NET WORTH $18,000,000.00. MINIMUM
TANGIBLE NET WORTH COVENANT TO
<PAGE> 7
03-12-1998 LOAN AGREEMENT PAGE 7
LOAN NO. 320-26 (CONTINUED)
================================================================================
STEP-UP BY 100% OF ANY NEW EQUITY.
DEBT TO TANGIBLE NET WORTH RATIO NOT GREATER THAN 2.25 TO 1.00; DEBT/TANGIBLE
NET WORTH TO BE RECAST UPON COMPLETION OF IPO.
PRIOR WRITTEN APPROVAL IS REQUIRED BY THE BANK OF ANY INVESTMENT ACQUISITION
OVER $250,000.00.
COMPLIANCE IS TO BE TESTED QUARTERLY.
AUDITS
BORROWER AGREES TO SUBMIT TO ONE COLLATERAL AUDIT PER YEAR TO BE PERFORMED BY
LENDERS INTERNAL STAFF OR LENDER APPROVED EXTERNAL EXAMINERS. DIRECT
VERIFICATIONS SHALL BE REQUIRED. BORROWER AGREES TO PAY ALL LENDER'S EXPENSES
INCURRED IN CONNECTION WITH THE COLLATERAL AUDIT.
MAINTAIN SEMI-ANNUAL PROFITABILITY GREATER THAN ZERO.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will be become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
SACRAMENTO COUNTY, THE STATE OF CALIFORNIA. SUBJECT TO THE PROVISIONS ON
ARBITRATION, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Lender and Borrower agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure Section
726, or any
<PAGE> 8
03-12-1998 LOAN AGREEMENT PAGE 8
LOAN NO. 320-26 (CONTINUED)
================================================================================
similar provision in any other state, the commencement of such an action will
not constitute a waiver of the right to arbitrate and the court shall refer to
arbitration as much of such action, including counterclaims, as lawfully may be
referred to arbitration. Judgment upon any award rendered by any arbitrator may
be entered in any court having jurisdiction. Nothing in this agreement shall
preclude any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar
doctrines which would otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for these
purposes. The Federal Arbitration Act shall apply to the construction,
interpretation, and enforcement of this arbitration provision.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under this
Agreement shall be joint and several, and all references to Borrower shall mean
each and every Borrower. This means that each of the persons signing below is
responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or
transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will have
all the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against Lender
or against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's obligation
under the Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any such
participation interests may enforce its interests irrespective of any personal
claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses,
including without limitation attorneys' fees, incurred in connection with the
preparation, execution, enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law.
NOTICES. All notices required to be given under this agreement shall be given
in writing, may be sent to telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers. For
notice purposes, Borrower will keep Lender informed at all times of Borrower's
current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without limitation
any representation, warranty or covenant, the word "Borrower" as used herein
shall include all subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be construed to
require Lender to make any Loan or other financial accommodation to any
subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however, have
the right to assign its rights under this Agreement or any interest therein,
without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on
Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other
provision of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of Borrower
or of any Grantor as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
<PAGE> 9
03-12-1998 LOAN AGREEMENT Page 9
LOAN NO. 320-26 (Continued)
================================================================================
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MARCH 12, 1998.
BORROWER:
AMERICAN XTAL TECHNOLOGY
X /s/ MORRIS YOUNG
---------------------------------
Authorized Officer
LENDER:
U.S. BANK NATIONAL ASSOCIATION
By: [SIG]
---------------------------------
Authorized Officer
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.24c(c) 1998 CFI ProServices, Inc.
All rights reserved. [CA-C40 E3.24 F3.24 AMERIX.LN C3. OVL]
<PAGE> 10
LOAN #0215644521-59
MODIFICATION AGREEMENT
OTHER THAN MONTHLY PAYMENTS
THIS AGREEMENT, dated March 12, 1998 is made by and between AMERICAN XTAL
TECHNOLOGY, hereinafter called "Borrower," and U.S. BANK NATIONAL ASSOCIATION,
hereinafter called "Lender," in consideration of the mutual benefits and
agreements herein contained.
1. This agreement applies to a certain promissory note, held by Lender, dated
May 27, 1997, in the principal amount of Seven Hundred Fifty Thousand Dollars
and 00/100 ($750,000.00), with the final payment due on March 2, 1998, the
maturity date of the note, made by American Xtal Technology. The note is secured
by mortgage or deed of trust, also held by Lender, dated the same date as the
note, and made by the same maker(s) thereof, on property situated in the County
of Alameda, State of California, and recorded May 29, 1997, Instrument
#97131856, in the office of the Recorder of said County.
2. The outstanding principal balance of the note on March 12, 1998 is
$556,741.72 and the undisbursed funds are $193,258.28. Borrower promises and
agrees to pay any outstanding balance plus interest to Lender according to the
terms of the note and this modification agreement.
3. Borrower and Lender agree that the note and mortgage or deed of trust are
modified as follows:
A. The maturity date of the promissory note is hereby amended from
March 2, 1998 to April 2, 1998.
B. Guarantors, Theodore Young, PH.D. and Morris Young, PH.D., have been
released as guarantors on this loan.
4. If is further agreed and understood that all of the covenants and
conditions of the above mentioned mortgage or deed of trust shall remain in full
force and effect except for the amendments and modifications herein agreed upon.
5. Nothing herein contained shall in any manner affect the priority or lien of
the mortgage or deed of trust securing this note.
IN WITNESS WHEREOF, the Borrower has caused these presents to be duly
executed the day year first above written.
BORROWER:
AMERICAN XTAL TECHNOLOGY
/s/ MORRIS YOUNG
- --------------------------------
Morris Young, Ph.D., President
1
<PAGE> 11
IN WITNESS WHEREOF, U.S. BANK NATIONAL ASSOCIATION has caused these
presents to be executed by its proper officer and its corporate seal hereunto
affixed the __ day of March, 1998.
U.S. BANK NATIONAL ASSOCIATION
By: [SIG]
----------------------------------
ITS: RELATIONSHIP MANAGER
<PAGE> 12
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, LIBOR)
$15,000,000.00 Dated as of:
MARCH 12, 1998
AMERICAN XTAL TECHNOLOGIES ("Borrower")
U.S. BANK NATIONAL ASSOCIATION ("Lender")
1. TYPE OF CREDIT. This note is given to evidence Borrower's obligation to
repay all sums which Lender may from time to time advance to Borrower
("Advances") under a:
[ ] single disbursement loan. Amounts loaned to Borrower hereunder will be
disbursed in a single Advance in the amount shown in Section 2.
[X] revolving line of credit. No Advances shall be made which create a
maximum amount outstanding at any one time which exceeds the maximum
amount shown in Section 2. However, Advances hereunder may be borrowed,
repaid and reborrowed, and the aggregate Advances loaned hereunder
which may exceed maximum amount.
2. PRINCIPAL BALANCE. The unpaid principal balance of all Advances
outstanding under this note ("Principal Balance") at one time shall not
exceed $15,000,000.00.
3. PROMISE TO PAY. For value received Borrower promises to pay to Lender
or order at 1420 5TH AVENUE, SEATTLE, WA 98101 the Principal Balance of
this note, with interest thereon at the rate(s) specified in Sections 4
and 11 below.
4. INTEREST RATE. The interest rate on the Principal Balance outstanding
may vary from time to time pursuant to the provisions of this note.
Subject to the provisions of this note, Borrower shall have the option
from time to time of choosing to pay interest at the rate or rates and
for the applicable periods of time based on the rate options provided
herein; provided, however, that once Borrower notifies Lender of the
rate option chosen in accordance with the provisions of this note, such
notice shall be irrevocable. The rate options are the Prime Borrowing
Rate and the LIBOR Borrowing Rate, each as defined herein.
(a) DEFINITIONS. The following terms shall have the following meanings:
"Business Day" means any day other than a Saturday, Sunday, or other
day that commercial banks in Sacramento, California, Portland, Oregon or New
York City are authorized or required by law to close; provided, however that
when used in connection with a LIBOR rate, LIBOR Amount or LIBOR Interest
Period such term shall also exclude any day on which dealings in U.S. dollar
deposits are not carried on in the London Interbank market.
LIBOR Amount" means each principal amount for which Borrower chooses
to have the LIBOR Borrowing Rate apply for any specified LIBOR Interest Period.
"LIBOR Interest Period" means as to any LIBOR Amount, a period of 1, 2
or 3 months commencing on the date the LIBOR Borrowing Rate becomes applicable
thereto; provided, however, that: (i) the first day of each LIBOR Interest
Period must be a Business Day; (ii) no LIBOR Interest Period shall be selected
which would extend beyond MAY 15, 1999; (iii) no LIBOR Interest Period shall
extend beyond the date of any principal payment required under Section 6 of
this note, unless the sum of the Prime Rate Amount, plus LIBOR Amounts with
LIBOR Interest Periods ending on or before the scheduled date of such principal
payment, plus principal amounts remaining unborrowed under a line of credit,
equals or exceeds the amount of such principal payment; (iv) any LIBOR Interest
Period which would otherwise expire on a day which is not a Business Day, shall
be extended to the next succeeding Business Day, unless the result of such
extension would be to extend such LIBOR Interest Period into another calendar
month, in which event the LIBOR Interest Period shall end on the immediately
preceding Business Day; and (v) any LIBOR Interest Period that begins on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such LIBOR
Interest Period) shall on the last Business Day of a calendar month.
"LIBOR Rate" means, for any LIBOR Interest Period, the rate per annum
(computed on the basis of a 360-day year and the actual number of days elapsed
and rounded upward to the nearest 1/16 of 1%) established by Lender as its
LIBOR Rate, based on Lender's determination, on the basis of such factors as
Lender deems relevant, of the rate of interest at which U.S. dollar deposits
would be offered to U.S. Bank National Association in the London Interbank
market at approximately 11 a.m. London time on the date which is two Business
Days prior to the first day of such LIBOR Interest Period for delivery on the
first day of such LIBOR Interest Period for the number of months therein;
provided, however, that the LIBOR Rate shall be adjusted to take into account
the maximum reserves required to be maintained for Eurocurrency liabilities by
banks during each such LIBOR Interest Period as specified in Regulation D of
the Board of Governors of the Federal Reserve System or any successor
regulation.
"Prime Rate" means the rate of interest which Lender from time to time
establishes as its prime rate and is not, for example, the lowest rate of
interest which Lender collects from any borrower or class of borrowers. When
the Prime Rate is applicable under Section 4(b) or 11(b), the interest rate
hereunder shall be adjusted without notice effective on the day the Prime Rate
changes, but in no event shall the rate of interest be higher than allowed by
law.
"Prime Rate Amount" means any portion of the Principal Balance bearing
Interest at the Prime Borrowing Rate.
(b) THE PRIME BORROWING RATE.
(i) The Prime Borrowing Rate is a per annum rate equal to the Prime
Rate plus 0.50% UPON COMPLETION OF IPO WITH A RESULTING NET WORTH GREATER THAN
$30,000,000.00, RATE WILL DECREASE TO PRIME RATE PLUS 0.00% per annum.
(ii) Whenever Borrower desires to use the Prime Borrowing Rate
option, Borrower shall give Lender notice orally or in writing in accordance
with Section 15 of this note, which notice shall specify the requested
effective date (which must be a Business Day) and principal amount of the
Advance or increase in the Prime Rate Amount, and whether Borrower is
requesting a new Advance under a line of credit or conversion of a LIBOR Amount
to the Prime Borrowing Rate.
(iii) Subject to Section 11 of this note, interest shall accrue on
the unpaid Principal Balance at the Prime Borrowing Rate unless and except to
the extent that the LIBOR Borrowing Rate is in effect.
(c) THE LIBOR BORROWING RATE
(i) The LIBOR Borrowing Rate is the LIBOR Rate plus 2.81% AND UPON
COMPLETION OF IPO WITH A RESULTING NET WORTH GREATER THAN $30,000,000.00, RATE
WILL DECREASE TO LIBOR RATE PLUS 2.31% per annum.
(ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender
between 8:00 a.m. and 10:00 a.m. (Portland, Oregon time) on any Business Day.
Borrower may request an Advance, conversion of any portion of the Prime Rate
Amount to a LIBOR Amount or a new LIBOR Interest Period for an existing LIBOR
Amount, at such rate only by giving Lender notice in accordance with Section
4(c)(iii) before 10:00 a.m. (Portland, Oregon time) on such day.
<PAGE> 13
(iii) Whenever Borrower desires to use the LIBOR Borrowing Rate option,
Borrower shall give Lender irrevocable notice (either in writing or orally and
promptly confirmed in writing) between 8:00 a.m. and 10:00 a.m. (Portland,
Oregon time) two (2) Business Days prior to the desired effective date of such
rate. Any oral notice shall be given by, and any written notice or confirmation
of an oral notice shall be signed by, the person(s) authorized in Section 15 of
this note, and shall specify the requested effective date of the rate, LIBOR
Interest Period and LIBOR Amount, and whether Borrower is requesting a new
Advance at the LIBOR Borrowing Rate under a line of credit, conversion of all
or any portion of the Prime Rate Amount to a LIBOR Amount, or a new LIBOR
Interest Period for an outstanding LIBOR Amount. Notwithstanding any other term
of this note, Borrower may elect the LIBOR Borrowing Rate in the minimum
principal amount of $100,000.00 and in multiples of $50,000.00 above such
amount; provided, however, that no more than FOUR separate LIBOR interest
Periods may be in effect at any one time.
(iv) If at any time the LIBOR Rate is unascertainable or unavailable to
Lender or if LIBOR Rate loans become unlawful, the option to select the LIBOR
Borrowing Rate shall terminate immediately. If the LIBOR Borrowing Rate is then
in effect, (A) it shall terminate automatically with respect to all LIBOR
Amounts (i) on the last day of each then applicable LIBOR Interest Period, if
Lender may lawfully continue to maintain such loans, or (ii) immediately if
Lender may not lawfully continue to maintain such loans through such day, and
(B) subject to Section 11, the Prime Borrowing Rate automatically shall become
effective as to such amounts upon such termination.
(v) If at any time after the date hereof (A) any revision in or
adoption of any applicable law, rule, or regulation or in the interpretation or
administration thereof (i) shall subject Lender or its Eurodollar lending
office to any tax, duty, or other charge, or change the basis of taxation of
payments to Lender with respect to any loans bearing interest based on the
LIBOR Rate, or (ii) shall impose or modify any reserve, insurance, special
deposit, or similar requirements against assets of, deposits with or for the
account of, or credit extended by Lender or its Eurodollar lending office, or
impose on Lender or its Eurodollar lending office and other condition affecting
any such loans, and (B) the result of any of the foregoing is (i) to increase
the cost to Lender of making or maintaining any such loans or (ii) to reduce
the amount of any sum receivable under this note by Lender or its Eurodollar
lending office, Borrower shall pay Lender within 15 days after demand by Lender
such additional amount as will compensate Lender for such increased cost or
reduction. The determination hereunder by Lender of such additional amount
shall be conclusive in the absence of manifest error. If Lender demands
compensation under this Section 4(c)(v), Borrower may upon three (3) Business
Days' notice to Lender pay the accrued interest on all LIBOR Amounts, together
with any additional amounts payable under Section 4(c)(vi). Subject to Section
11, upon Borrower's paying such accrued interest and additional costs, the
Prime Borrowing Rate immediately shall be effective with respect to the unpaid
principal balance of such LIBOR Amounts.
(vi) Borrower shall pay to Lender, on demand, such amount as Lender
reasonably determines (determined as though 100% of the applicable LIBOR Amount
had been funded in the London interback market) is necessary to compensate
Lender for any direct or indirect losses, expenses, liabilities, costs,
expenses or reductions in yield to Lender, whether incurred in connection with
liquidation or re-employment of funds or otherwise, incurred or sustained by
Lender as a result of: (A) Any payment or prepayment of a LIBOR Amount,
termination of the LIBOR Borrowing Rate or conversion of a LIBOR Amount to the
Prime Borrowing Rate on a day other than the last day of the applicable LIBOR
Interest Period (including as a result of acceleration or a notice pursuant to
Section 4(c)(v)); or (B) Any failure of Borrower to borrow, continue or prepay
any LIBOR Amount or to convert any portion of the Prime Rate Amount to a LIBOR
Amount after Borrower has given a notice thereof to Lender.
(vii) If Borrower chooses the LIBOR Borrowing Rate, Borrower shall pay
interest based on such rate, plus any other applicable taxes or charges
hereunder, even though Lender may have obtained the funds loaned to Borrower
from sources other than the London interbank market. Lender's determination of
the LIBOR Borrowing Rate and any such taxes or charges shall be conclusive in
the absence of manifest error.
(viii) Notwithstanding any other term of this note, Borrower may not
select the LIBOR Borrowing Rate if an event of default hereunder has occurred
and is continuing.
(ix) Nothing contained in this note, including without limitation the
determination of any LIBOR Interest Period or Lender's quotation of any LIBOR
Borrowing Rate, shall be construed to prejudice Lender's right, if any, to
decline to make any requested Advance or to require payment on demand.
5. COMPUTATION OF INTEREST. All interest under Section 4 and Section 11 will
be computed at the applicable rate based on a 360-day year and applied to the
actual number of days elapsed.
6. PAYMENT SCHEDULE.
(a) Principal. Principal shall be paid:
[ ] on demand.
[ ] on demand, or if no demand, on
[X] on MAY 15, 1999.
[ ] subject to Section 8, in installments of
[ ] _____ each, plus accrued interest, beginning on _____ and on the
same day of each _____ thereafter until _____ when the entire
Principal Balance plus interest thereon shall be due and payable.
[ ] _____ each, including accrued interest, beginning on _____ and on
the same day of each _____ thereafter until _____ when the entire
Principal Balance plus interest thereon shall be due and payable.
(b) Interest.
(i) Interest on the Prime Rate Amount shall be paid:
[X] on the 12TH day of APRIL, 1988 and on the same day of each MONTH
thereafter prior to maturity and at maturity.
[ ] at maturity.
[ ] at the time each principal installment is due and at maturity.
[ ]
(ii) Interest on all LIBOR Amounts shall be paid:
[X] on the last day of the applicable LIBOR Interest Period, and if
such LIBOR Interest Period is longer than three months, on the
last day of each three month period occurring during such LIBOR
Interest Period, and at maturity.
[ ] on the ____ day of _____ and on the same day of each _____
thereafter prior to maturity and at maturity.
[ ] at maturity.
[ ] at the time each principal installment is due and at maturity.
[ ]
7. PREPAYMENT.
(a) Prepayments of all or any part of the Prime Rate Amount may be made at any
time without penalty.
(b) Except as otherwise specifically set forth herein, Borrower may not prepay
all or any part of any LIBOR Amount or terminate any LIBOR Borrowing Rate,
except on the last of the applicable LIBOR Interest Period.
(c) Principal prepayments will not postpone the date of or change the amount
of any regularly scheduled payment. At the time of any principal prepayment, all
accrued interest, fees, costs and expenses shall also be paid.
8. CHANGE IN PAYMENT AMOUNT. Each time the interest rate on this note changes
the holder of this note may, from time to time, in holder's sole discretion,
increase or decrease the amount of each of the installments remaining unpaid at
the time of such change in rate to an amount holder in its sole
<PAGE> 14
discretion deems necessary to continue amortizing the Principal Balance at
the same rate established by the installment amounts specified in Section 6(a),
whether or not a "balloon" payment may also be due upon maturity of this note.
Holder shall notify the undersigned of each such change in writing. Whether or
not the installment amount is increased under this Section 8, Borrower
understands that, as a result of increases in the rate of interest the final
payment due, whether or not a "balloon" payment, shall include the entire
Principal Balance and Interest thereon then outstanding, and may be
substantially more than the installment specified in Section 6.
9. ALTERNATE PAYMENT DATE. Notwithstanding any other term of this note, if in
any month there is no day on which a scheduled payment would otherwise be due
(e.g. February 31), such payment shall be paid on the last banking day of that
month.
10. PAYMENT BY AUTOMATIC DEBIT.
[ ] Borrower hereby authorizes Lender to automatically deduct the amount of
all principal and interest payments from account number at .
If there are insufficient funds in the account to pay the automatic deduction
in full, Lender may allow the account to become overdrawn, or Lender may
reverse the automatic deduction. Borrower will pay all the fees on the account
which result from the automatic deductions, including any overdraft and
non-sufficient funds charges. If for any reason Lender does not charge the
account for a payment, or if an automatic payment is reversed, the payment is
still due according to this note. If the account is a Money Market Account, the
number of withdrawals from that account is limited as set out in the account
agreement. Lender may cancel the automatic deduction at any time in its
discretion.
Provided, however, if no account number is entered above, Borrower does not
want to make payments by automatic debit.
11. DEFAULT.
(a) Without prejudice to any right of Lender to require payment on demand or
to decline to make any requested Advance, each of the following shall be an
event of default: (i) Borrower fails to make any payment when due. (ii) Borrower
fails to perform or comply with any term, covenant or obligation in this note
or any agreement related to this note, or in any other agreement or loan
Borrower has with Lender. (iii) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this note or perform
Borrower's obligations under this note or any related documents. (iv) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (v) Borrower dies, becomes insolvent, liquidates
or dissolves, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (vi) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (vii) Any of the events described in
this default section occurs with respect to any general partner in Borrower or
any guarantor of this note, or any guaranty of Borrower's indebtedness to
Lender ceases to be, or is asserted not to be, in full force and effect. (viii)
There is any material adverse change in the financial condition or management
of Borrower or Lender in good faith deems itself insecure with respect to the
payment or performance of Borrower's obligations to Lender. If this note is
payable on demand, the inclusion of specific events of default shall not
prejudice Lender's right to require payment on demand or to decline to make any
requested Advance.
(b) Without prejudice to any right of Lender to require payment on demand,
upon the occurrence of an event of default, Lender may declare the entire
unpaid Principal Balance on this note and all accrued unpaid interest
immediately due and payable, without notice. Upon default, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this note to a rate equal to the
Prime Borrowing Rate plus 5%. The interest rate will not exceed the maximum
rate permitted by applicable law. In addition, if any payment of principal or
interest is 15 or more days past due, Borrower will be charged a late charge of
5% of the delinquent payment.
12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND. Holder's records shall,
at any time, be conclusive evidence of the unpaid Principal Balance and
interest owing on this note. Notwithstanding any other provisions of this note,
in the event holder makes Advances hereunder which result in an unpaid
Principal Balance on this note which at any time exceeds the maximum amount
specified in Section 2, Borrower agrees that all such Advance, with interest,
shall be payable on demand.
13. LINE OF CREDIT PROVISIONS. If the type of credit indicated in Section 1
is a revolving line of credit or a non-revolving line of credit, Borrower
agrees that Lender is under no obligation and has not committed to make any
Advances hereunder. Each Advance hereunder shall be made at the sole option of
Lender.
14. DEMAND NOTE. If this note is payable on demand, Borrower acknowledges and
agrees that (a) Lender is entitled to demand Borrower's immediate payment in
full of all amounts owing hereunder and (b) neither anything to the contrary
contained herein or in any other loan documents (including but not limited to,
provisions relating to defaults, rights of cure, default rate of interest,
installment payments, late charges, periodic review of Borrower's financial
condition, and covenants) nor any act of Lender pursuant to any such provisions
shall limit or impair Lender's right or ability to require Borrower's payment
in full of all amounts owing hereunder immediately upon Lender's demand.
15. REQUESTS FOR ADVANCES.
(a) Any Advance may be made or interest rate option selected upon the request
of Borrower (if an individual), any of the undersigned (if Borrower consists of
more than one individual), any person or persons authorized in subsection (b) of
this Section 15, and any person or persons otherwise authorized to execute and
deliver promissory notes to Lender on behalf of Borrower.
(b) Borrower hereby authorizes any of the following individuals to
request Advances and to select interest rate options: unless Lender is
otherwise instructed in writing.
(c) All Advances shall be disbursed by deposit directly to Borrower's account
number at branch of Lender, or by cashier's check issued to
Borrower.
(d) Borrower agrees that Lender shall have no obligation to verify the
identity of any person making any request pursuant to this Section 15, and
Borrower assumes all risks of the validity and authorization of such requests.
In consideration of Lender agreeing, at its sole discretion, to make Advances
upon such requests, Borrower promises to pay holder, in accordance with the
provisions of this note, the Principal Balance together with interest thereon
and other sums due hereunder, although any Advances may have been requested by
a person or persons not authorized to do so.
16. PERIODIC REVIEW. Lender will review Borrower's credit accommodations
periodically. At the time of the review, Borrower will furnish Lender with any
additional information regarding Borrower's financial condition and business
operations that Lender requests. This information may include but is not
limited to, financial statements, tax returns, lists of assets and liabilities,
agings of receivables and payables, inventory schedules, budgets and forecasts.
If upon review, Lender, in its sole discretion, determines that there has been
a material adverse change in Borrower's financial condition, Borrower will be
in default. Upon default, Lender shall have all rights specified herein.
17. NOTICES. Any notice hereunder may be given by ordinary mail, postage paid
and addressed to Borrower at the last known address of Borrower as shown on
holder's records. If Borrower consists of more than one person, notification of
any of said persons shall be complete notification of all.
18. ATTORNEY FEES. Whether or not litigation or arbitration is commenced,
Borrower promises to pay all costs of collecting overdue amounts. Without
limiting the foregoing, in the event that holder consults an attorney regarding
the enforcement of any of its rights under this note or any document securing
the same, or if this note is placed in the hands of an attorney for collection
or if suit or litigation is brought to enforce this note or any document
securing the same, Borrower promises to pay all costs thereof including such
additional sums as the court or arbitrator(s) may adjudge reasonable as
attorney fees, including without limitation, costs and attorney fees incurred
in any appellate court, in any proceeding under the bankruptcy code, or in any
receivership and post-judgment attorney fees incurred in enforcing any judgment.
19. WAIVERS; CONSENT. Each party hereto, whether maker, co-maker, guarantor or
otherwise, waives diligence, demand, presentment for payment, notice of
non-payment, protest and notice of protest and waives all defenses based on
suretyship or impairment of collateral. Without notice to Borrower and without
diminishing or affecting Lender's rights or Borrower's obligations hereunder,
Lender may deal in any manner with any person who at any time is liable for, or
provides any real or personal property collateral for, any indebtedness of
Borrower to Lender, including the indebtedness evidenced by this note. Without
limiting the foregoing, Lender may, in its sole discretion: (a) make secured or
unsecured loans to borrower and agree to any number of waivers, modifications,
extensions and renewals of any length of such loans, including the loan
evidenced by this note; (b) impair, release (with or without substitution of
<PAGE> 15
new collateral), fail to perfect a security interest in, fail to preserve the
value of, fail to dispose of in accordance with applicable law, any collateral
provided by any person; (c) sue, fail to sue, agree not to sue, release, and
settle or compromise with, any person.
20. JOINT AND SEVERAL LIABILITY. All undertakings of the undersigned
Borrowers are joint and several and are binding upon any marital community of
which any of the undersigned are members. Holder's rights and remedies under
this note shall be cumulative.
21. SEVERABILITY. If any term of provisions of this note is declared by a
court of competent jurisdiction to be illegal, invalid or unenforceable for any
reason whatsoever, such illegality, invalidity or unenforceability shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable, and this note shall be
construed as if such illegal, invalid or unenforceable provisions had not been
contained herein.
22. ARBITRATION.
(a) Either Lender Borrower may require that all disputes, claims,
counterclaims and defenses, including those based on or arising from any
alleged tort ("Claims") relating in any way to this note or any transaction of
which this note is a part (the "Loan"), be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and Title of the U.S. Code. All Claims will be subject to the
statutes of limitation applicable if they were litigated. This provision is
void if the Loan, at the time of the proposed submission to arbitration, is
secured by real property located outside of Oregon or Washington, or if the
effect of the arbitration procedure (as opposed to any Claims of Borrower)
would be to materially impair Lender's ability to realize on any collateral
securing the Loan.
(b) If arbitration occurs and each party's Claim is less than $100,000, one
neutral arbitrator will decide all issues; if any party's Claim is $100,000 or
more, three neutral arbitrators will decide all issues. All arbitrators will be
active California State Bar members in good standing. All arbitration hearings
will be held in Sacramento, California. In addition to all other powers, the
arbitrator(s) shall have the exclusive right to determine all issues of
arbitrability. Judgment on any arbitration award may be entered in any court
with jurisdiction.
(c) If either party institutes any judicial proceeding relating to the Loan,
such action shall not be a waiver of the right to submit any Claim to
arbitration. In addition, each has the right before, during and after any
arbitration to exercise any number of the following remedies, in any order or
concurrently: (i) setoff; (ii) self-help repossession; (iii) judicial or
non-judicial foreclosure against real or personal property collateral; and (iv)
provisional remedies, including injunction, appointment of receiver,
attachment, claim and delivery and replevin.
23. GOVERNING LAW. This note shall be governed by and construed and enforced
in accordance with the laws of the State of California without regard to
conflicts of law principles; provided, however, that to the extent that Lender
has greater rights or remedies under Federal law, this provision shall not be
deemed to deprive Lender of such rights and remedies as may be available under
Federal law.
EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS
DOCUMENT.
AMERICAN XTAL TECHNOLOGY
Borrower Name (Corporation, Partnership or other Entity)
BY: /s/ MORRIS YOUNG
----------------------------------
MORRIS YOUNG, PH.D., PRESIDENT
BY:
----------------------------------
_______________________________________________________________________________
For valuable consideration, Lender agrees to the terms of the arbitration
provision set forth in this note.
Lender Name: U.S. Bank National Association
By: [SIG]
---------------------------------------
Title: RELATIONSHIP MANAGER
------------------------------------
Date: 3/12/98
-------------------------------------
<PAGE> 1
EXHIBIT 21.1
EXHIBIT 21.1 -- LIST OF SUBSIDIARIES
AXT-Japan, a wholly-owned subsidiary of the Company.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 6, 1998,
relating to the financial statements of American Xtal Technology, Inc., which
appears in such Prospectus. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
PRICE WATERHOUSE LLP
San Jose, California
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,054
<SECURITIES> 0
<RECEIVABLES> 6,105
<ALLOWANCES> 100
<INVENTORY> 8,361
<CURRENT-ASSETS> 18,503
<PP&E> 15,985
<DEPRECIATION> 3,884
<TOTAL-ASSETS> 30,613
<CURRENT-LIABILITIES> 4,294
<BONDS> 0
0
8,553
<COMMON> 867
<OTHER-SE> 9,171
<TOTAL-LIABILITY-AND-EQUITY> 30,613
<SALES> 23,014
<TOTAL-REVENUES> 25,335
<CGS> 13,674
<TOTAL-COSTS> 15,227
<OTHER-EXPENSES> 4,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 570
<INCOME-PRETAX> 5,256
<INCOME-TAX> 1,998
<INCOME-CONTINUING> 3,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,258
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0.25
</TABLE>
