<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2000
REGISTRATION NO. 333-95093
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
CABOT MICROELECTRONICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3291 36-4324765
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
870 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
(630) 375-6631
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MATTHEW NEVILLE
CABOT MICROELECTRONICS CORPORATION
CHIEF EXECUTIVE OFFICER
870 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
(630) 375-6631
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS W. CHRISTOPHER, ESQ. DUNCAN C. MCCURRACH, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON SULLIVAN & CROMWELL
ONE NEW YORK PLAZA 125 BROAD STREET
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10004
(212) 859-8000 (212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT 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,
check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ----------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ----------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the registration statement for the same
offering. [ ] ----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ] ----------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share................................ 4,600,000 $17.00 $78,200,000 $20,645
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Share Purchase Rights(3)..... 4,600,000 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total.................................. 9,200,000 -- $78,200,000 $20,645
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) The Registrant previously paid a fee of $19,800 in connection with the
initial filing of the Registration Statement and an additional fee of $845
in connection with the filing of Amendment No. 2.
(3) The rights will initially trade together with the common stock. The value
attributable to the rights, if any, is reflected in the market price of the
common stock.
------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED MARCH 27, 2000.
4,000,000 Shares
CABOT MICROELECTRONICS CORPORATION
Common Stock
[CABOT MICROELECTRONICS LOGO]
------------------------
This is an initial public offering of shares of common stock of Cabot
Microelectronics Corporation. All of the 4,000,000 shares of common stock are
being sold by Cabot Microelectronics. We expect that all or substantially all of
the net proceeds of this offering will be paid to Cabot Corporation, our parent
corporation, in the form of a dividend.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $15.00 and $17.00. We have applied to list our common
stock on the Nasdaq National Market under the symbol "CCMP".
Upon completion of this offering, Cabot Corporation will directly own at
least 80% of our outstanding common stock and will continue to control us.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price............................. $ $
Underwriting discount..................................... $ $
Proceeds, before expenses, to Cabot Microelectronics...... $ $
</TABLE>
To the extent that the underwriters sell more than 4,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
600,000 shares from us at the initial public offering price less the
underwriting discount.
------------------------
The underwriters expect to deliver the shares on , 2000.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
------------------------
Prospectus dated , 2000.
<PAGE> 3
INSIDE FRONT COVER
OUTSIDE PORTION OF GATEFOLD:
[Graphical depiction of the role of our CMP products in the microchip
manufacturing process and the applications in which microchips are used.]
Our products are an increasingly important part of the microchip manufacturing
process.
Our products play an important part in the manufacture of advanced integrated
circuit (IC) devices, which have become critical components in a wide variety of
products and applications -- computers, wireless communications,
telecommunications switches, personal data assistants, internet servers and many
more.
While we do not make the electronic products shown above, our CMP slurries play
a key role in manufacturing the IC devices used in those products.
LEFT-HAND PAGE OF GATEFOLD:
[Graphical depiction of cross-sections of IC devices, as taken from a silicon
wafer, with, and without, the chemical mechanical planarization process.]
We supply sophisticated polishing slurries that play a critical role in our
customers' manufacturing processes. Our products enable:
-- IC manufacturers to make smaller, faster and more complex devices and
improve their production processes
-- Hard disk drive manufacturers to significantly increase the storage
capacity and improve the speed and reliability of information exchange
CHEMICAL MECHANICAL PLANARIZATION -
Our polishing slurries are used in a process known as chemical mechanical
planarization (CMP). Using our slurries, manufacturers planarize, or level and
smooth, many of the multiple layers that are built upon silicon wafers to
produce IC devices. CMP is also used to remove excess materials that are
deposited on layers. Hard disk drive manufacturers use a similar process to
smooth the surface of the coatings on hard disks before depositing magnetic
media.
RIGHT-HAND PAGE OF GATEFOLD:
[Graphical depiction of CMP polishing process and example of Epic polishing
pad.]
CMP SLURRY -
CMP slurries are liquid compounds composed of high-purity deionized water,
chemical additives and abrasive agents that chemically interact with the surface
material at an atomic level. Our Semi-Sperse(R) and Lustra(TM) slurries are
formulated specifically for the particular surface to be polished.
CMP POLISHING PAD -
While we have not yet commenced commercial production, our Epic(TM) pads have
been designed to be used in conjunction with a CMP slurry to optimize the
polishing process. These pads play a critical role in achieving planarity and in
providing highly consistent and reliable CMP process results.
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about our company and common stock and our financial statements and
the notes to those statements appearing elsewhere in this prospectus.
The information in this prospectus assumes that the initial public offering
price will be $16.00 per share, the midpoint of the range disclosed on the cover
of this prospectus.
Unless otherwise indicated, all references in this prospectus to us are to
Cabot Microelectronics, to Cabot Corporation are to Cabot and its subsidiaries
other than us, and to years are to our fiscal years ended September 30 of the
year indicated.
Unless otherwise indicated, all references in this prospectus to the number
of outstanding shares of our common stock give effect to an increase in the
number of our authorized shares of common stock from 5,000 shares to 200,000,000
shares and an 18,989.744 to 1 stock split, both of which will be effected prior
to the completion of this offering.
Unless otherwise indicated, all information in this prospectus assumes the
underwriters' option to purchase additional shares in this offering will not be
exercised.
OUR BUSINESS
We are the leading supplier of slurries used in chemical mechanical
planarization, or CMP, a polishing process used in the manufacturing of
integrated circuit, or IC, devices. CMP is an increasingly important part of the
IC device manufacturing process because it helps manufacturers make smaller,
faster and more complex IC devices and improves their production efficiency. CMP
slurries are liquids containing abrasives and chemicals that facilitate and
enhance the CMP polishing process. We believe that our products account for
approximately 80% of all CMP slurry revenue from IC device manufacturers
worldwide.
For the fiscal year ended September 30, 1999, our sales increased 68% over
the prior year to approximately $98.7 million and our net income increased 190%
over the prior year to approximately $12.3 million. On a pro forma basis, for
the fiscal year ended September 30, 1999, our sales would have been
approximately $97.7 million and our net income would have been approximately
$7.9 million. For the three months ended December 31, 1999, our sales increased
68% over the same period in the prior year to approximately $35.0 million and
our net income increased 142% over the same period in the prior year to
approximately $5.7 million. On a pro forma basis, for the three months ended
December 31, 1999, our sales would have been approximately $34.8 million and our
net income would have been approximately $4.7 million. For a discussion of the
pro forma adjustments, see "Unaudited Pro Forma Combined Statements of Income".
Since the first significant commercial sales of CMP slurries to the
semiconductor industry in the early 1990s, use of CMP in the production of IC
devices has grown rapidly. We estimate that sales of CMP slurries have grown at
an average annual compound rate of 60% since 1997 and increased to a total of
approximately $120 million for 1999.
CMP is used in the production of a wide variety of IC devices, including
logic devices, such as microprocessors, and memory chips that store computer
data. The benefits of CMP become increasingly important to IC device
manufacturers as the size of the devices shrink and their complexity increases.
By reducing the size of IC devices, manufacturers increase their throughput, or
the number of IC devices that they manufacture in a given time period. CMP also
helps reduce the number of defective or substandard IC devices produced, which
increases the device yield. Improvements in throughput and yield reduce an IC
device manufacturer's total production costs. Based on existing technology, we
believe that CMP is required for the efficient manufacturing of today's advanced
IC devices.
We have developed several different types and generations of slurries for
polishing
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<PAGE> 5
the insulating layers of IC devices, historically
the most common use of CMP. We developed and introduced in 1994 a CMP slurry for
polishing the tungsten plugs used to connect the multiple wiring layers of IC
devices. In 1999, sales of CMP slurries for polishing insulating layers
represented approximately two-thirds of our total sales and sales of CMP
slurries for polishing tungsten plugs represented almost all of the balance.
We have also begun selling new slurries for CMP polishing of the magnetic
heads and the coating on hard disks in hard disk drives. In addition, we
recently began limited production of CMP polishing pads for customer evaluation
and qualification.
INDUSTRY TRENDS
The rapid growth of the CMP slurry market has been driven in large part by
the significant growth and technological advances the semiconductor industry has
experienced over the past decade. IC devices have become critical components in
an increasingly wide variety of products and applications and the use of IC
devices in these products and applications has grown significantly in recent
years. According to industry sources, the worldwide semiconductor market as
measured by total sales grew at an average annual compound rate of 11% in the
period from 1988 through 1998. We believe that worldwide revenues from the sale
of CMP slurries to IC device manufacturers grew to approximately $120 million in
1999. Industry surveys project that annual worldwide revenues in this market
will grow to between approximately $300 and $400 million by 2003.
STRATEGY
Our objective is to maximize our profitability and stockholder value by
maintaining and leveraging our leading position in the CMP slurry market. We
will pursue the following strategies to achieve our objective:
- - remain the technology leader in CMP slurries;
- - build and maintain customer intimacy;
- - expand globally;
- - attract and retain top quality personnel;
- - maintain top quality products and supply; and
- - expand into new applications and products.
RELATIONSHIP WITH CABOT CORPORATION
We are a wholly owned subsidiary of Cabot Corporation, a global chemical
manufacturing company based in Boston, Massachusetts. Prior to the transfer to
us of the assets and liabilities relating to our business, our business was
operated as a division of Cabot. After this offering, we will continue to be
controlled by Cabot, which will own at least 80% of the outstanding shares of
our common stock. As our controlling stockholder, Cabot will be able to approve
or reject major corporate transactions without the support of any other
stockholder, including a merger, consolidation or sale of substantially all our
assets.
Cabot has indicated that, following this offering, it intends to divest its
remaining equity interest in us by means of a distribution to its stockholders
within six to twelve months after the date of a private letter ruling from the
IRS confirming that the spin-off is tax-free to Cabot. This transaction is
sometimes referred to in this prospectus as the spin-off. Cabot may not complete
its divestiture of its remaining equity interest in us in this time frame or at
all.
We have entered or will enter into agreements with Cabot governing various
interim and ongoing relationships between us and Cabot. For a further discussion
of these agreements, see "Relationships Between Our Company and Cabot
Corporation".
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... 4,000,000 shares
Common stock to be outstanding after this
offering................................... 22,989,744 shares or 23,589,744 shares if the
underwriters exercise their over-allotment option in
full. These shares do not include 3,500,000 shares
reserved for issuance pursuant to options that we may
issue in the future pursuant to our stock option
plan. In addition, these shares do not include
475,000 shares available for purchase under our
employee stock purchase plan.
Use of proceeds.............................. We expect that all or substantially all of the net
proceeds of this offering will be paid to Cabot in
the form of a dividend.
Proposed Nasdaq symbol....................... CCMP
</TABLE>
----------------------
We were incorporated in Delaware in October 1999. Our principal executive
offices are located at 870 North Commons Drive, Aurora, Illinois, 60504. Our
telephone number at that location is (630) 375-6631.
5
<PAGE> 7
SUMMARY AND PRO FORMA FINANCIAL DATA
The following table presents our summary and pro forma condensed combined
financial data and has been derived from our audited financial statements for
the fiscal years ended September 30, 1997, 1998 and 1999 and from our unaudited
financial statements for the three months ended December 31, 1998 and 1999, each
of which are included elsewhere in this prospectus, and from our unaudited
financial statements for the fiscal years ended September 30, 1995 and 1996. The
unaudited interim financial information for the three month periods ended
December 31, 1998 and 1999 has been prepared on the same basis as the annual
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for the fair
presentation of that financial information. The unaudited results for interim
periods are not necessarily indicative of results to be expected for any other
interim period or the full year. The unaudited pro forma combined statement of
operations data give effect to our new fumed metal oxide supply agreement and
new dispersion services agreement with Cabot, each of which will become
effective upon completion of this offering, as if they had been in effect since
October 1, 1998 and do not purport to represent our results of operations for
any future period. Because we began to operate as a separate division of Cabot
in July 1995, the statement of operations data for 1995 include only three
months of activity. As adjusted balance sheet data give effect to the proceeds
from the sale of 4,000,000 shares of common stock in this offering, the
dividends to Cabot and the transfer of our business from Cabot to us. The data
below should be read in conjunction with "Selected Financial Data", "Unaudited
Pro Forma Combined Statements of Income", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our combined financial
statements and the notes to our combined financial statements, each of which is
included elsewhere in this prospectus.
An income tax benefit was recorded in 1997 as a result of a tax credit for
research and development activities that exceeded our statutory taxes for that
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
THREE MONTHS --------------------------------------------------- ---------------------------
ENDED PRO PRO
SEPTEMBER 30, FORMA FORMA
1995 1996 1997 1998 1999 1999 1998 1999 1999
------------- ---- ---- ---- ---- ----- ---- ---- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF
OPERATIONS DATA:
Total revenue........ $5,003 $24,334 $35,211 $58,831 $98,690 $97,695 $20,875 $35,046 $34,804
Gross profit......... 1,978 10,987 15,290 29,176 50,799 45,223 10,839 18,858 17,554
Income (loss) before
income taxes....... 577 (1,513) 663 6,448 19,076 12,287 3,690 9,048 7,428
Net income (loss).... 355 (866) 708 4,237 12,280 7,910 2,377 5,748 4,719
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
(in thousands)
<S> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash........................................................ $ 103 $ 3,103
Working capital............................................. 25,293 27,280
Total assets................................................ 82,986 84,386
Current liabilities......................................... 7,402 8,415
Total liabilities........................................... 7,930 24,930
Division equity............................................. 75,056 59,456
Total liabilities and division equity....................... 82,986 84,386
</TABLE>
6
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before you decide
to buy our common stock. If any of the following risks were to occur, our
business, financial condition or results of operations could suffer. In that
event, the trading price of our common stock could decline, and you may lose all
or part of your investment.
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our company and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, as more fully
described below and elsewhere in this prospectus.
RISKS RELATING TO OUR BUSINESS
WE HAVE NEVER OPERATED AS A STAND-ALONE ENTITY AND OUR BUSINESS COULD SUFFER IF
WE FAIL TO DEVELOP THE SYSTEMS AND INFRASTRUCTURE NECESSARY TO SUPPORT OUR
BUSINESS AS A STAND-ALONE ENTITY
Following this offering, we will operate as a stand-alone entity and,
accordingly, must develop and implement the systems and infrastructure necessary
to support our current and future business. If we fail to develop these systems
and infrastructure, our business will suffer. We have been a part of Cabot since
we began developing CMP slurries in 1985. We were organized as a separate
division of Cabot in July 1995. Cabot has historically provided us with
operational, financial and other support. Although Cabot will provide us with
the various interim and ongoing services described in "Relationships Between Our
Company and Cabot Corporation", these arrangements will terminate upon the
spin-off. After the expiration of these various arrangements, we may not be able
to replace the interim and ongoing services on terms and conditions, including
costs, as favorable as those that we had as a division of Cabot or pursuant to
these arrangements. We also may not be able to develop the necessary systems and
infrastructure to operate as a stand-alone entity. Any failure to do so could
seriously harm our business, results of operations and financial condition.
BECAUSE OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR
RESULTS AS A SEPARATE COMPANY, YOU HAVE LIMITED FINANCIAL INFORMATION ON WHICH
TO EVALUATE OUR BUSINESS AND YOUR INVESTMENT DECISION
The historical financial information we have included in this prospectus
may not reflect what our results of operations, financial position and cash
flows would have been had we been a separate, stand-alone entity during the
periods presented and may not be indicative of what our results of operations,
financial position and cash flows will be in the future. As a result, you have
limited information on which to evaluate our business and your investment
decision. This is because:
- - as a division of Cabot, Cabot provided us with various services and allocated
expenses for these services to us in amounts that may not have been the same
as the expenses we would have incurred had we performed or acquired these
services ourselves;
- - we are changing our fumed metal oxide supply and dispersion services
arrangements with Cabot and the prices that we will pay under our new
agreements will be higher than the prices we paid in the past; and
- - the information does not reflect other events and changes that will occur as a
result of our separation from Cabot, including the establishment of our
capital structure, the incurrence of debt and changes in our expenses as a
result of new employee, tax and other structures and matters.
WE HAVE A NARROW PRODUCT RANGE AND OUR PRODUCTS MAY BECOME OBSOLETE, OR
TECHNOLOGICAL CHANGES MAY REDUCE OR LIMIT INCREASES IN CMP CONSUMPTION
Our business is substantially dependent on a single class of products, CMP
slurries, which accounted for almost all of our revenue in 1999. Our business
would suffer if these products became obsolete or if consumption of these
products decreased. Our success depends on our ability to keep pace with
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technological changes and advances in the semiconductor industry and to adapt
and improve our products in response to evolving customer needs and industry
trends. Since its inception the semiconductor industry has experienced rapid
technological changes and advances in the design, manufacture, performance and
application of IC devices and these changes and advances are expected to
continue in the future. One or more developments in the semiconductor industry
may render our products obsolete or less important to the IC device
manufacturing process, including:
- - increased competition from new or existing producers of CMP slurries,
including the introduction of new or substitute products;
- - a shift toward recycling slurries;
- - the adoption of a new process to create the wiring in IC devices, known as
dual damascene, which may reduce the number of CMP steps required to produce
an IC device and which we expect will become predominant in IC device
manufacturing in the next five to ten years; and
- - advances in CMP technology that make it possible to perform CMP without a
slurry.
There may also be physical and other limits on the ability of IC device
manufacturers to continue to shrink the size and increase the density of IC
devices, which are trends currently driving the growth in CMP. Any of the
foregoing developments could cause a decline in the CMP slurry market in general
or seriously harm our business, financial condition and results of operations in
particular.
A SIGNIFICANT AMOUNT OF OUR BUSINESS COMES FROM A LIMITED NUMBER OF LARGE
CUSTOMERS AND OUR REVENUE AND PROFITS COULD DECREASE SIGNIFICANTLY IF WE LOST
ONE OR MORE OF THEM AS CUSTOMERS
Our customer base is concentrated among a limited number of large
customers. One or more of these principal customers may stop buying CMP slurries
from us or may substantially reduce the quantity of CMP slurries they purchase
from us. Any cancellation, deferral or significant reduction in CMP slurries
sold to these principal customers or a significant number of smaller customers
could seriously harm our business, financial condition and results of
operations.
For 1999, our five largest customers accounted for approximately 58% of our
revenue, with Intel accounting for approximately 22% of our revenue, Marketech
accounting for approximately 15% of our revenue, and Takasago accounting for
approximately 10% of our revenue. Marketech and Takasago are distributors. We
believe that in the same year sales of our products to our five largest end user
customers accounted for approximately 45% of our revenue. For the three months
ended December 31, 1999, our five largest customers accounted for approximately
53% of our revenue, with Intel accounting for approximately 14% of our revenue,
Marketech accounting for approximately 15% of our revenue, and Takasago
accounting for approximately 11% of our revenue. The decline in the percentage
of our total revenue attributable to sales to Intel resulted from, among other
things, Intel's decision to significantly reduce purchases of one type of CMP
slurry from us. See "Business -- Customers, Sales and Marketing" for more
information relating to our customers.
IF WE LOSE PENDING OR FUTURE INTELLECTUAL PROPERTY LAWSUITS RELATING TO OUR
BUSINESS, WE COULD BE LIABLE FOR SIGNIFICANT DAMAGES AND LEGAL EXPENSES AND
COULD BE ENJOINED FROM MANUFACTURING OUR SLURRY PRODUCTS
Cabot is currently the subject of two lawsuits against it involving
infringement claims relating to our business. If Cabot or we were to lose these
or future lawsuits, we could be liable for significant damages and legal
expenses and could be enjoined from manufacturing our slurry products. Although
Cabot is the only named defendant in these lawsuits, we will agree to indemnify
Cabot for any and all losses and expenses arising out of this litigation as well
as any other litigation arising out of our business.
In June 1998, Rodel, Inc. commenced a lawsuit against Cabot in the United
States District Court for the District of Delaware seeking injunctive relief and
damages relating to allegations that Cabot is infringing a United
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<PAGE> 10
States patent owned by an affiliate of Rodel
that relates to polishing metal surfaces. In April 1999, Rodel commenced a
second lawsuit against Cabot in the same court seeking injunctive relief and
damages relating to allegations that Cabot is infringing two other United States
patents owned by an affiliate of Rodel. Rodel may claim that many of our
products infringe its patents. The defense of these claims may not be
successful. If Rodel wins either of these cases, we may have to pay damages and,
in the future, may be prohibited from producing any products found to infringe
those patents or required to pay Rodel royalty and licensing fees with respect
to sales of those products. For a further description of these lawsuits, see
"Business -- Legal Proceedings".
In addition, we may be subject to future infringement claims by Rodel or
others with respect to our products and processes. These claims, even if they
are without merit, could be expensive and time consuming to defend and if we
were to lose any future infringement claims we could be subject to injunctions,
damages and/or royalty or licensing agreements. Royalty or licensing agreements,
if required as a result of any pending or future claims, may not be available to
us on acceptable terms or at all.
ANY PROBLEM OR INTERRUPTION IN OUR SUPPLY FROM CABOT OF FUMED METAL OXIDES, OUR
MOST IMPORTANT RAW MATERIALS, COULD DELAY OUR SLURRY PRODUCTION AND ADVERSELY
AFFECT OUR SALES
Fumed metal oxides are the primary raw materials we use in many of our CMP
slurries. Our business would suffer from any problem or interruption in our
supply of fumed metal oxides.
Cabot is currently our exclusive supplier of fumed metal oxides. We have
entered into a fumed metal oxide supply agreement with Cabot, which will be
effective upon completion of this offering and under which Cabot will continue
to be our exclusive supplier of fumed metal oxides for our current slurry
products. We also expect that Cabot will be our primary supplier of fumed metal
oxides for products that we develop in the future. Our continued supply of fumed
metal oxides from Cabot is subject to a number of risks, including:
- - the destruction of one of Cabot's fumed metal oxides manufacturing facilities,
particularly its Tuscola facility, or its distribution infrastructure;
- - a work stoppage or strike by Cabot employees who manufacture fumed metal
oxides;
- - the failure of Cabot to provide fumed metal oxides of the requisite quality
for production of our various CMP slurries;
- - the failure of essential fumed metal oxides manufacturing equipment at a Cabot
plant;
- - the failure or shortage of supply of raw materials to Cabot; and
- - contractual amendments and disputes with Cabot, including those relating to
the fumed metal oxide supply agreement.
Any of these factors could interfere with our ability to produce our CMP
slurries in the quantities and of the quality required by our customers and in
accordance with their delivery schedules. It may also be difficult to secure
alternative sources of fumed metal oxides in the event Cabot encounters supply
problems.
In addition, if we changed the supplier or type of fumed metal oxides that
we use to make our CMP slurries or were required to purchase them from a
different Cabot manufacturing facility, our customers might be forced to
requalify our CMP slurries for their manufacturing processes and products. The
requalification process would likely take a significant amount of time to
complete, during which our sales of CMP slurries to these customers could be
interrupted or reduced. For a further discussion of the qualification and
requalification process for CMP slurries, see "Business -- CMP slurries".
We have also specifically engineered our slurry chemistries with the fumed
metal oxides currently used in the production of our CMP products. A change in
the fumed metal oxides we use to make our slurry products could require us to
modify our chemistries.
9
<PAGE> 11
This modification may involve a significant
amount of time and cost to complete, and therefore, have an adverse effect on
our business and sales.
OUR BUSINESS COULD BE SERIOUSLY HARMED IF OUR EXISTING OR FUTURE COMPETITORS
DEVELOP SUPERIOR SLURRY PRODUCTS OR OFFER BETTER PRICING TERMS OR SERVICE, OR IF
ANY OF OUR MAJOR CUSTOMERS DEVELOP IN-HOUSE SLURRY MANUFACTURING CAPABILITY
Increased competition from current CMP slurry manufacturers, new entrants
to the CMP slurry market or a decision by any of our major customers to produce
slurry products in-house could seriously harm our business and results of
operations. We are aware of only four other manufacturers of CMP slurries
currently selling significant volumes to IC device manufacturers. Opportunities
exist for companies with sufficient financial or technological resources to
emerge as potential competitors by developing their own CMP slurry products.
Some of our major customers, and some potential customers, currently manufacture
slurries in-house and others have the financial and technological capability to
do so. The existence or threat of increased competition and in-house production
could limit or reduce the prices we are able to charge for our slurry products.
In addition, our competitors may have or obtain intellectual property rights
which may restrict our ability to market our existing products and/or to
innovate and develop new products.
OUR INABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT PERSONNEL OR TECHNICAL
EMPLOYEES COULD CAUSE OUR BUSINESS TO SUFFER
If we fail to recruit and retain the necessary management personnel, our
business and our ability to maintain existing and obtain new customers, develop
new products and provide acceptable levels of customer service could suffer. The
success of our business is also heavily dependent on the leadership of our key
management personnel, all of whom are employees-at-will. We have no key man
insurance on any of our personnel. The loss of any number of our key management
personnel could harm our business and results of operations.
Our success also depends on our ability to recruit, retain and motivate
technical personnel for our research and development activities. Competition for
qualified personnel, particularly those with significant experience in the CMP
and IC device industries, is intense, and we may not be able to successfully
recruit, train or retain these employees. The loss of the services of any key
technical employee could harm our business generally as well as our ability to
research and develop new and existing products and to provide technical support
and service to our customers.
After indicating his desire to leave our company in January 2000, Chris Yu,
our former Director of Research and Technology, decided to resign from that
position but to remain with our company and focus on product development of CMP
slurries for copper-based applications and technology-based applications for
customers.
BECAUSE WE HAVE LIMITED EXPERIENCE IN MANUFACTURING AND SELLING CMP POLISHING
PADS AND SLURRIES FOR CMP POLISHING OF THE MAGNETIC HEADS AND THE COATING ON
HARD DISKS IN HARD DISK DRIVES, EXPANSION OF OUR BUSINESS INTO THESE AREAS AND
APPLICATIONS MAY NOT BE SUCCESSFUL
An element of our strategy is to leverage our current customer
relationships and technological expertise to expand our business into new
product areas and applications, including manufacturing CMP polishing pads and
slurries for CMP polishing of the magnetic heads and the coating on hard disks
in hard disk drives. We have had limited experience in developing and marketing
these products, particularly polishing pads, which involve technologies and
production processes that are new to us. For these reasons, the expansion of our
business into these new product areas or applications may not be successful. For
a more detailed discussion of the risks we might encounter in entering the
market for polishing pads, see "Business -- Polishing Pads".
10
<PAGE> 12
BECAUSE WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY, OUR FAILURE TO ADEQUATELY
PROTECT IT COULD SERIOUSLY HARM OUR BUSINESS
Protection of intellectual property is particularly important in our
industry because CMP slurry manufacturers develop complex and technical formulas
for CMP slurries which are proprietary in nature and differentiate their
products from those of competitors. Our intellectual property is important to
our success and ability to compete. We attempt to protect our intellectual
property rights through a combination of patent, trademark, copyright and trade
secret laws, as well as employee and third-party nondisclosure and assignment
agreements. Our failure to obtain or maintain adequate protection of our
intellectual property rights for any reason could seriously harm our business.
Policing the unauthorized use of our intellectual property is difficult,
and the steps we have taken may not detect or prevent the misappropriation or
unauthorized use of our technologies. In addition, other parties may
independently develop or otherwise acquire the same or substantially equivalent
technologies to ours.
WE ARE SUBJECT TO SOME RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS
We currently have operations and a large customer base outside the United
States. For 1999, approximately 46% of our revenue was generated by sales to
customers outside the United States. For the three months ended December 31,
1999, approximately 50% of our revenue was generated by sales to customers
outside the United States. We encounter potential risks in doing business in
foreign countries, including:
- - the difficulty of enforcing agreements and collecting receivables through some
foreign legal systems;
- - foreign customers may have longer payment cycles than customers in the United
States;
- - tax rates in some foreign countries may exceed those of the United States and
foreign earnings may be subject to withholding requirements or the imposition
of tariffs, exchange controls or other restrictions;
- - general economic and political conditions in the countries where we operate
may have an adverse effect on our operations in those countries;
- - the difficulties associated with managing a large organization spread
throughout various countries; and
- - the potential difficulty in enforcing intellectual property rights in some
foreign countries.
As we continue to expand our business globally, our success will depend, in
part, on our ability to anticipate and effectively manage these and other risks.
EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
As a result of our international operations, we expect to generate an
increasing portion of our revenue and incur a significant portion of our
expenses in currencies other than U.S. dollars. To the extent we are unable to
match revenue received in foreign currencies with costs paid in the same
currency, exchange rate fluctuations in any foreign currency could have a
negative impact on our financial condition or results of operations.
The financial condition and results of operations of some of our operating
entities are reported in various foreign currencies and then translated into
U.S. dollars at the applicable exchange rate for inclusion in our consolidated
financial statements. As a result, appreciation of the U.S. dollar against these
foreign currencies will have a negative impact on our reported revenue and
operating profits. For information about the impact of foreign currency
translation on our financial condition, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Effect of Currency
Exchange Rate and Exchange Rate Risk Management" and "-- Market Risk and
Sensitivity Analysis".
11
<PAGE> 13
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE MAY BE LIMITED AND THIS MAY LIMIT OUR
ABILITY TO EXPAND OUR BUSINESS AND IMPROVE OUR TECHNOLOGY
We plan to expand our business and continue to improve our technology. To
do so we may be required to raise additional funds in the future through public
or private equity or debt financing, strategic relationships or other
arrangements. Financing may not be available on acceptable terms, or at all, and
our failure to raise capital when needed could negatively impact our financial
condition or results of operations. Because we have agreed with Cabot that we
will not issue any securities if doing so would reduce Cabot's ownership of us
to less than 80.5% prior to the spin-off, our ability to raise capital through
further sales of equity securities is limited until the spin-off occurs.
Additional equity financing may be dilutive to the holders of our common stock
and debt financing, if available, may involve restrictive covenants. For a
discussion of our liquidity and capital resources, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
RISKS RELATING TO OUR SEPARATION FROM CABOT
WE WILL BE CONTROLLED BY CABOT AS LONG AS IT OWNS A MAJORITY OF OUR COMMON STOCK
AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME OF STOCKHOLDER
VOTING DURING THAT TIME
After the completion of this offering, Cabot will beneficially own
approximately 82.6% of our outstanding shares of common stock, or 80.5% if the
underwriters exercise their over-allotment option in full. Under the initial
public offering and distribution agreement, Cabot will have the right to
maintain an 80.5% ownership of our common stock until the spin-off. As long as
Cabot owns a majority of our outstanding common stock, Cabot will continue to be
able to elect our entire board of directors and generally to determine the
outcome of all corporate actions requiring stockholder approval. As a result,
Cabot will be in a position to continue to control all matters affecting our
company. For a discussion of these matters, see "Relationships between Our
Company and Cabot Corporation -- Cabot as Our Controlling Stockholder".
Cabot has indicated that it intends to divest its remaining equity interest
in us within six to twelve months after the date of a private letter ruling from
the IRS confirming that the spin-off is tax-free to Cabot. However, Cabot may
not complete a divestiture of its remaining equity interest in us in this time
frame or at all.
A NUMBER OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO
DIRECTORS OR EXECUTIVE OFFICERS OF CABOT OR OWN CABOT STOCK
Three members of our board of directors are directors and executive
officers of Cabot. Our directors who are also directors or executive officers of
Cabot will have obligations to both companies and may have conflicts of interest
with respect to matters involving or affecting us, such as acquisitions and
other corporate opportunities that may be suitable for both us and Cabot. In
addition, after this offering and the spin-off, a number of our directors and
executive officers will continue to own Cabot stock and options on Cabot stock
they acquired as employees of Cabot. This ownership could create, or appear to
create, potential conflicts of interest when these directors and officers are
faced with decisions that could have different implications for our company and
Cabot. While there are provisions in our certificate of incorporation designed
to resolve these conflicts between us and Cabot fairly, these conflicts may not
ultimately be resolved in a fair manner to both parties. See "Description of
Capital Stock -- Corporate Opportunities".
WE MAY HAVE CONFLICTS WITH CABOT WITH RESPECT TO OUR PAST AND ONGOING
RELATIONSHIPS
We may have conflicts with Cabot after this offering that we cannot resolve
and, even if we are able to do so, the resolution of these conflicts may not be
as favorable as if we were dealing with an unaffiliated party. Upon the
completion of this offering, Cabot will continue to be our exclusive supplier of
fumed metal oxides for our existing slurries
12
<PAGE> 14
under a fumed metal oxide supply agreement between Cabot and our company. While
we are not required to do so under the terms of that agreement, we expect we
also will purchase from Cabot most of the fumed metal oxides we require for any
new slurries we develop. Furthermore, we currently have and, after this offering
and the spin-off will continue to have, contractual arrangements with Cabot
requiring Cabot and its affiliates to provide us with various interim, ongoing
and other services. As a result, conflicts of interest may arise between Cabot
and us in a number of areas relating to our past and ongoing relationships,
including:
- - the terms of our fumed metal oxide supply agreement and other interim and
ongoing agreements with Cabot;
- - Cabot's ability to control our management and affairs;
- - the nature, quality and pricing of transitional services Cabot has agreed to
provide us;
- - business opportunities that may be attractive to both Cabot and us;
- - litigation, labor, tax, employee benefit and other matters arising from our
separation from Cabot;
- - the incurrence of debt and major business combinations by us; and
- - sales or distributions by Cabot of all or any portion of its ownership
interest in us.
In addition, the contractual agreements we have with Cabot may be amended
from time to time upon agreement between the parties and, as long as Cabot is
our controlling stockholder, it will have the ability to require us to agree to
any such amendments. These agreements were made in the context of an affiliated
relationship and were negotiated in the overall context of our separation from
Cabot. The prices and other terms under these agreements may be less favorable
to us than what we could have obtained in arm's-length negotiations with
unaffiliated third parties for similar services or under similar leases. It is
particularly difficult to assess whether the price for fumed metal oxides
provided for under our fumed metal oxide supply agreement with Cabot is the same
as or different than the price we could have obtained in arm's-length
negotiations with an unaffiliated third party in light of the long-term nature
of the contract, the volumes provided for under the agreement and our particular
quality requirements. For more information about these arrangements, see
"Business -- Cabot as Our Raw Materials Supplier", "Business -- Dispersion
Services Agreement with Cabot" and "Relationships Between Our Company and Cabot
Corporation".
WE FACE RISKS ASSOCIATED WITH BEING A MEMBER OF CABOT'S CONSOLIDATED GROUP FOR
FEDERAL INCOME TAX PURPOSES
For so long as Cabot continues to own 80% of the vote and value of our
capital stock, we will be included in Cabot's consolidated group for federal
income tax purposes. Under a tax sharing agreement with Cabot that will become
effective upon completion of this offering, we will pay Cabot the amount of
federal, state and local income taxes that we would be required to pay to the
relevant taxing authorities if we were a separate taxpayer not included in
Cabot's consolidated or combined returns. In addition, by virtue of its
controlling ownership and the tax sharing agreement, Cabot will effectively
control substantially all of our tax decisions. Under the tax sharing agreement,
Cabot will have sole authority to respond to and conduct all tax proceedings
including tax audits relating to Cabot consolidated or combined income tax
returns in which we are included. Moreover, notwithstanding the tax sharing
agreement, federal law provides that each member of a consolidated group is
liable for the group's entire tax obligation. Thus, to the extent Cabot or other
members of the group fail to make any federal income tax payments required of
them by law, we could be liable for the shortfall. Similar principles may apply
for state income tax purposes in many states.
IF THE ANTICIPATED SPIN-OFF IS NOT TAX-FREE, WE COULD BE LIABLE TO CABOT FOR THE
RESULTING TAXES
As described above under "Prospectus Summary -- Relationship with Cabot
Corporation", we will, after this offering, continue to
13
<PAGE> 15
be controlled by Cabot and Cabot intends to divest itself of its remaining
equity interest in us by means of a tax-free spin-off. We will agree to
indemnify Cabot in the event that the spin-off is not tax-free to Cabot as a
result of various actions taken by or with respect to us or our failure to take
various actions, all as to be set forth in our tax sharing agreement with Cabot.
We may not be able to control some of the events that could trigger this
liability. In particular, any acquisition of us by a third party within two
years of the spin-off could result in the spin-off becoming a taxable
transaction and give rise to our obligation to indemnify Cabot for any resulting
tax liability. For a discussion of the other actions which could give rise to
our obligation to indemnify Cabot if the spin-off is not tax-free to Cabot, see
"Relationships between Our Company and Cabot Corporation -- Tax Sharing
Agreement".
RISKS RELATING TO THIS OFFERING
SINCE OUR COMMON STOCK HAS NOT TRADED PUBLICLY, THE INITIAL PUBLIC OFFERING
PRICE MAY NOT BE INDICATIVE OF THE MARKET PRICE OF OUR COMMON STOCK AFTER THIS
OFFERING, AND THE MARKET PRICE OF OUR COMMON STOCK MAY FLUCTUATE WIDELY AND
RAPIDLY
There is currently no public market for our common stock, and an active
trading market may not develop or be sustained after this offering. The initial
public offering price has been determined through negotiation between us and
representatives of the underwriters and may not be indicative of the market
price for our common stock after this offering.
The market price of our common stock could fluctuate significantly as a
result of:
- - economic and stock market conditions generally and specifically as they may
impact participants in the semiconductor industry;
- - changes in financial estimates and recommendations by securities analysts
following our stock;
- - earnings and other announcements by, and changes in market evaluations of,
participants in the semiconductor industry;
- - changes in business or regulatory conditions affecting participants in the
semiconductor industry;
- - announcements or implementation by us or our competitors of technological
innovations or new products; and
- - trading volume of our common stock.
The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of technology related
companies have frequently reached elevated levels, often following their initial
public offerings. These levels may not be sustainable and may not bear any
relationship to these companies' operating performances. If the market price of
our common stock reaches an elevated level following this offering, it may
materially and rapidly decline. In the past, following periods of volatility in
the market price of a company's securities, stockholders have often instituted
securities class action litigation against the company. If we were involved in a
class action suit, it could divert the attention of senior management, and, if
adversely determined, have a negative impact on our business, results of
operations and financial condition.
THE ACTUAL OR POSSIBLE SALE OF OUR SHARES BY CABOT, WHICH WILL OWN MORE THAN 80%
OF OUR OUTSTANDING SHARES, COULD DEPRESS OR REDUCE THE MARKET PRICE OF OUR
COMMON STOCK OR CAUSE OUR SHARES TO TRADE BELOW THE PRICES AT WHICH THEY WOULD
OTHERWISE TRADE
The market price of our common stock could drop as a result of sales of a
large number of shares of our common stock in the market after this offering or
the perception that these sales could occur. These factors also could make it
more difficult for us to raise funds through future offerings of our common
stock.
Upon the completion of this offering, there will be 22,989,744 shares of
our common stock outstanding, assuming the underwriters do not exercise their
option to purchase additional shares from us. Based on the same assumption,
after this offering
14
<PAGE> 16
Cabot will beneficially own 82.6% of our
outstanding common stock. The shares of our common stock sold in this offering
will be freely tradable without restriction, except for any shares acquired by
an affiliate of our company (which can be sold under Rule 144 under the
Securities Act, subject to various volume and other limitations). Cabot is not
obligated to retain these shares, except that subject to limited exceptions, it
has agreed not to sell or otherwise dispose of any shares of common stock for
180 days after the completion of this offering without the consent of our
underwriters. After the expiration of this 180 day period, Cabot could dispose
of its shares of our common stock through a public offering, spin-off or other
transaction and has indicated its intention to do so through a spin-off.
ANTI-TAKEOVER PROVISIONS UNDER OUR CERTIFICATE OF INCORPORATION AND BYLAWS, OUR
RIGHTS PLAN AND DELAWARE GENERAL CORPORATION LAW MAY ADVERSELY AFFECT THE PRICE
OF OUR COMMON STOCK, DISCOURAGE THIRD PARTIES FROM MAKING A BID FOR OUR COMPANY
OR REDUCE ANY PREMIUMS PAID TO OUR STOCKHOLDERS FOR THEIR COMMON STOCK
Amendments we intend to make to our certificate of incorporation and our
bylaws, our rights plan and various provisions of the Delaware General
Corporation Law may make it more difficult to effect a change in control of our
company. These amendments, our rights plan and the various provisions of
Delaware General Corporation Law may adversely affect the price of our common
stock, discourage third parties from making a bid for our company or reduce any
premiums paid to our stockholders for their common stock. For example, we intend
to amend our certificate of incorporation to authorize our board of directors to
issue up to 20 million shares of blank check preferred stock and to attach
special rights and preferences to this preferred stock. The issuance of this
preferred stock may make it more difficult for a third party to acquire control
of us. We also intend to amend our certificate of incorporation to provide for
the division of our board of directors into three classes as nearly equal in
size as possible with staggered three-year terms. This classification of our
board of directors could have the effect of making it more difficult for a third
party to acquire our company, or of discouraging a third party from acquiring
control of our company. In addition, the rights issued to our stockholders under
our rights plan may make it more difficult or expensive for another person or
entity to acquire control of us without the consent of our board of directors.
See "Description of Capital Stock -- Preferred Stock", "-- Anti-takeover Effects
of Our Certificate of Incorporation and Bylaws and Provisions of Delaware Law"
and "-- Rights Plan" for a more complete description of our capital stock, our
certificate of incorporation, our rights plan and the effects of the Delaware
General Corporation Law that could hinder a third party's attempts to acquire
control of us.
INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by Cabot for its shares. As a result, you will
experience immediate and substantial dilution of approximately $13.58 per share,
representing the difference between the assumed initial public offering price of
$16.00 per share and our net tangible book value per share as of December 31,
1999 after giving effect to this offering. In addition, you may experience
further dilution to the extent that shares of our common stock are issued upon
the exercise of stock options or under our employee stock purchase plan. The
shares initially issuable under our employee stock purchase plan will be issued
at a purchase price less than the public offering price per share in this
offering. In addition, some of the stock options we may issue in the future may
have exercise prices below the initial public offering price. See "Dilution" for
a more complete description of how the value of your investment in our common
stock will be diluted upon the completion of this offering.
15
<PAGE> 17
USE OF PROCEEDS
We estimate the net proceeds from our sale of 4,000,000 shares of common
stock will be $57.2 million, after deducting the underwriting discount and
estimated expenses of this offering and of the asset transfer. If the
underwriters' over-allotment option is exercised in full, we estimate the net
proceeds will be $66.1 million.
We intend to use all of the net proceeds from this offering to pay a
dividend to Cabot in an amount equal to the lesser of the amount of the net
proceeds and Cabot's tax basis in us as of the completion of this offering. Any
net proceeds not used for this purpose will be used for general working capital
purposes. See "Capitalization" for a further discussion of Cabot's tax basis in
US.
DIVIDEND POLICY
Except for the $17.0 million dividend that we expect to pay to Cabot prior
to the completion of this offering using borrowings under our term credit
facility and the dividend that we expect to pay to Cabot immediately following
the completion of this offering, we have never declared or paid any cash
dividends on our capital stock. We presently intend to retain future earnings,
if any, to finance the expansion of our business and do not expect to pay any
cash dividends in the foreseeable future. Payment of future cash dividends, if
any, will be at the discretion of our board of directors after taking into
account various factors, including our financial condition, operating results,
current and anticipated cash needs and plans for expansion.
16
<PAGE> 18
CAPITALIZATION
Prior to the completion of this offering, we expect to borrow $17.0 million
under our new term credit facility and to pay the proceeds of this borrowing to
Cabot as a dividend. We also intend to pay a subsequent dividend to Cabot at the
completion of this offering in an amount equal to the lesser of the net proceeds
of this offering and Cabot's estimated tax basis in us as of the completion
date.
Cabot's estimated tax basis in us was approximately $71.2 million at
December 31, 1999. This estimated tax basis is expected to increase as a result
of our earnings and any capital contributions made by Cabot after December 31,
1999 and will decrease by the $17.0 million that we will pay to Cabot as a
dividend from borrowings under our term credit facility. After payment of this
dividend, Cabot estimates that its tax basis in us as of the completion date
will be approximately $66.2 million.
The following table sets forth, as of December 31, 1999, our capitalization
on an actual basis and on a pro forma as adjusted basis to give effect to:
- - our borrowing of $17.0 million under our term credit facility;
- - our payment to Cabot of a cash dividend of $17.0 million from the borrowing
under our term credit facility;
- - our receipt of net proceeds from this offering equal to $57.2 million, which
is based on an assumed initial public offering price of $16.00 per share,
estimated underwriting discounts and expenses of $6.8 million and the
assumption that the underwriters do not exercise their option to acquire
additional shares from us;
- - our payment to Cabot of a cash dividend of $54.2 million, which represents
Cabot's estimated tax basis in us at December 31, 1999 ($71.2 million) minus
the $17.0 million dividend we intend to pay to Cabot from the borrowing under
our term credit facility; and
- - the retention by Cabot of the fumed alumina plant in Tuscola, Illinois and the
land and building in Barry, Wales (the total value of all of these assets was
approximately $1.6 million at December 31, 1999).
The foregoing adjustments are based on Cabot's estimated tax basis in us at
December 31, 1999 of $71.2 million. While we expect that Cabot's estimated tax
basis in us will increase prior to the completion date of this offering as a
result of our earnings and any capital contributions made by Cabot after
December 31, 1999, these earnings and capital contributions will increase our
Division equity by about the same amount. As noted above, Cabot estimates that
its tax basis in us as of the completion date after payment of the $17.0 million
dividend referred to above will be approximately $66.2 million. If we had used
this estimated tax basis in the foregoing adjustments, then the amount of the
second dividend to Cabot would have been $57.2 million, the total assumed net
proceeds of this offering (because they are less than the $66.2 million
estimated tax basis).
This table should be read in conjunction with "Selected Financial Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our combined financial statements and the notes to our combined
financial statements, each of which is included in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
(in thousands)
<S> <C> <C>
Total long term debt, less current portion of $1,013........ -- 15,987
Division equity............................................. 75,056 59,456
------- -------
Total capitalization.............................. $75,056 $75,443
======= =======
</TABLE>
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<PAGE> 19
DILUTION
Our net tangible book value as of December 31, 1999 was approximately $71.2
million, or $3.75 per share. Net tangible book value per share is equal to our
total tangible assets minus our total liabilities divided by the number of
shares of our common stock outstanding. Assuming we had sold the 4,000,000
shares of common stock offered by this prospectus at an assumed initial public
offering price of $16.00 per share, and after deducting discounts and
commissions and estimated offering expenses payable by us and the two dividend
payments to Cabot referred to above under "Capitalization" totaling $71.2
million, our pro forma net tangible book value at December 31, 1999 would have
been approximately $55.6 million, or $2.42 per share. This represents an
immediate decrease in net tangible book value of $1.33 per share to Cabot and an
immediate dilution of $13.58 per share to new investors. Dilution is determined
by subtracting net tangible book value per share after the offering from the
amount of cash paid by a new investor for a share of common stock. The following
table illustrates the substantial and immediate per share dilution to new
investors:
<TABLE>
<CAPTION>
PER SHARE
----------------
<S> <C> <C>
Assumed initial public offering price....................... $16.00
Net tangible book value as of December 31, 1999........... $ 3.75
Dividend payments to Cabot................................ (3.63)
Increase in pro forma net tangible book value attributable
to new investors....................................... 2.30
------
Pro forma net tangible book value after this offering....... 2.42
------
Dilution to new investors................................... $13.58
======
</TABLE>
The following table summarizes as of December 31, 1999 the number of shares
of common stock purchased from us, the total consideration paid to us and the
average price per share paid by Cabot and by new investors at an assumed initial
public offering price of $16.00 per share and without giving effect to the
underwriting discount and assumed offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 18,989,744 82.6% $ 4,870,000 7.1% $ 0.26
New investors................. 4,000,000 17.4 64,000,000 92.9 16.00
---------- ----- ----------- ------
Total....................... 22,989,744 100.0% $68,870,000 100.0%
========== ===== =========== ======
</TABLE>
If the underwriters exercise their over-allotment option in full, the net
tangible book value per share of common stock as of December 31, 1999 would have
been $2.73 per share, which would result in dilution to the new investors of
$13.27 per share, and the number of shares held by the new investors will
increase to 4,600,000, or 19.5% of the total number of shares to be outstanding
after this offering, and the number of shares held by Cabot will be 18,989,744
shares, or 80.5% of the total number of shares to be outstanding after this
offering.
18
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our combined financial
statements and the notes to our combined financial statements, each of which is
included elsewhere in this prospectus. The selected financial data presented is
for the five-year period ended September 30, 1999 and for the three months ended
December 31, 1998 and 1999. The statement of operations data for the fiscal
years ended September 30, 1997, 1998 and 1999 and the balance sheet data as of
September 30, 1998 and 1999 are derived from our combined financial statements,
which have been audited by PricewaterhouseCoopers LLP, independent public
accountants, and are included elsewhere in this prospectus. The statement of
operations data for the fiscal years ended September 30, 1995 and 1996 and the
balance sheet information as of September 30, 1995, 1996 and 1997 are derived
from our unaudited combined financial statements, which are not included in this
prospectus. The statements of operations data for the three months ended
December 31, 1998 and 1999 and the balance sheet information as of December 31,
1999 are derived from our unaudited financial statements, which are included
elsewhere in this prospectus. Because we began to operate as a separate division
of Cabot in July 1995, the statement of operations data for 1995 includes only
three months of activity.
The unaudited interim financial information for the three months ended
December 31, 1998 and 1999 has been prepared on the same basis as the annual
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for the fair
presentation of that financial information. The unaudited results for interim
periods are not necessarily indicative of results to be expected for any other
interim period or the full year.
Unaudited pro forma net income per share has been calculated using the
18,989,744 shares that will be owned by Cabot at the completion of this offering
and the number of shares that we would have been required to issue to fund a
dividend to Cabot in an amount equal to Cabot's tax basis in us at each period
end minus the earnings from that period at an issue price per share equal to
$14.30, which is the assumed initial public offering price of $16.00 per share
less the estimated underwriting discounts and offering expenses.
An income tax benefit was recorded in 1997 as a result of a tax credit for
research and development activities that exceeded our statutory taxes for that
period.
19
<PAGE> 21
<TABLE>
<CAPTION>
THREE MONTHS
THREE MONTHS ENDED
ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, --------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
------------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenue -- external................ $4,242 $23,373 $33,851 $56,862 $95,701 $20,325 $34,230
Revenue -- related party........... 761 961 1,360 1,969 2,989 550 816
------ ------- ------- ------- ------- ------- -------
Total revenue...................... 5,003 24,334 35,211 58,831 98,690 20,875 35,046
------ ------- ------- ------- ------- ------- -------
Cost of goods sold -- external..... 2,264 12,386 18,561 27,686 44,902 9,486 15,372
Cost of goods sold -- related
party............................ 761 961 1,360 1,969 2,989 550 816
------ ------- ------- ------- ------- ------- -------
Total cost of goods sold........... 3,025 13,347 19,921 29,655 47,891 10,036 16,188
------ ------- ------- ------- ------- ------- -------
Gross profit................... 1,978 10,987 15,290 29,176 50,799 10,839 18,858
Operating expenses:
Research and development......... 27 6,984 8,411 10,139 14,551 3,445 4,484
Selling and marketing............ 591 674 1,028 3,293 4,572 954 1,250
General and administrative....... 604 4,122 4,468 8,576 11,880 2,570 3,896
Amortization of goodwill and
other intangibles.............. 179 720 720 720 720 180 180
------ ------- ------- ------- ------- ------- -------
Total operating expenses....... 1,401 12,500 14,627 22,728 31,723 7,149 9,810
------ ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes............................ 577 (1,513) 663 6,448 19,076 3,690 9,048
Provision for (benefit from) income
taxes............................ 222 (647) (45) 2,211 6,796 1,313 3,300
------ ------- ------- ------- ------- ------- -------
Net income (loss).............. $ 355 $ (866) $ 708 $ 4,237 $12,280 $ 2,377 $ 5,748
====== ======= ======= ======= ======= ======= =======
Unaudited pro forma net income per
share............................ $ 0.58 $ 0.26
======= =======
Unaudited pro forma shares
outstanding...................... 21,054 22,378
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF SEPTEMBER 30, -----------------------
----------------------------------------------- PRO FORMA
1995 1996 1997 1998 1999 1999 1999
---- ---- ---- ---- ---- ---- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Current assets.................. $ 3,957 $ 5,817 $ 8,781 $15,581 $26,120 $32,695 $32,695
Property, plant and equipment,
net........................... 4,045 16,797 17,195 24,713 40,031 46,400 44,800
Other assets.................... 6,928 6,284 5,547 4,837 4,123 3,891 3,891
------- ------- ------- ------- ------- ------- -------
Total assets.................... $14,930 $28,898 $31,523 $45,131 $70,274 $82,986 $81,386
======= ======= ======= ======= ======= ======= =======
Current liabilities............. $ 651 $ 2,649 $ 2,980 $ 4,870 $ 7,775 $ 7,402 $78,602
Long-term liabilities........... 61 40 119 233 422 528 528
------- ------- ------- ------- ------- ------- -------
Total liabilities............... 712 2,689 3,099 5,103 8,197 7,930 79,130
Division equity................. 14,218 26,209 28,424 40,028 62,077 75,056 2,256
------- ------- ------- ------- ------- ------- -------
Total liabilities and division
equity........................ $14,930 $28,898 $31,523 $45,131 $70,274 $82,986 $81,386
======= ======= ======= ======= ======= ======= =======
</TABLE>
20
<PAGE> 22
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The following unaudited pro forma combined statements of income have been
prepared to reflect adjustments to our historical results of operations to give
effect to various transactions as if those transactions had been consummated at
earlier dates, as described in this prospectus.
We historically sold various dispersion products to Cabot at our cost of
manufacturing. We have entered into a new dispersion services agreement with
Cabot, which will become effective upon the completion of this offering, under
which we will provide dispersion products to Cabot at our cost plus a standard
margin. Under the new agreement, Cabot will supply us with the fumed metal oxide
raw materials for these dispersions at no cost to us, which will reduce both our
cost of goods sold and revenue for these dispersions. The unaudited pro forma
combined statements of income have been adjusted to reflect the reduction in
revenue and related cost of goods sold which would have resulted had the
dispersion services agreement been in effect for the year ended September 30,
1999.
We historically purchased fumed metal oxides, critical raw materials for
our slurries, from Cabot at Cabot's budgeted standard cost. We have entered into
a new fumed metal oxide supply agreement with Cabot which will become effective
upon the completion of this offering under which we will purchase fumed metal
oxides at a contractually agreed upon price. The agreement provides for fixed
price increases each year and other price increases if Cabot's cost of producing
fumed metal oxides increases. The unaudited pro forma combined statements of
income have been adjusted to reflect the additional costs that we would have
incurred based on the initial contractual price if the fumed metal oxide supply
agreement had been in effect for the year ended September 30, 1999.
The unaudited pro forma combined statements of income should be read in
connection with, and are qualified by reference to, our combined financial
statements and related notes, as well as "Management's Discussion and Analysis
of Financial Condition and Results of Operations", included elsewhere in this
prospectus. We believe that the assumptions used provide a reasonable basis for
presenting the significant effects directly attributable to the transactions
discussed above. The unaudited pro forma combined statements of income are not
necessarily indicative of the results that would have been reported had such
events actually occurred on the dates specified, nor are they indicative of our
future results.
21
<PAGE> 23
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999
----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C>
Revenue -- external.................................. $34,230 $ -- $34,230
Revenue -- related party............................. 816 (242)(a) 574
------- ------- -------
Total revenue........................................ 35,046 (242) 34,804
------- ------- -------
Cost of goods sold -- external....................... 15,372 1,388(b) 16,760
Cost of goods sold -- related party.................. 816 (326)(a) 490
------- ------- -------
Total cost of goods sold............................. 16,188 1,062 17,250
------- ------- -------
Gross profit.................................... 18,858 (1,304) 17,554
Operating expenses:
Research and development........................... 4,484 4,484
Selling and marketing.............................. 1,250 1,250
General and administrative......................... 3,896 --(c) 3,896
Amortization of goodwill and other intangibles..... 180 180
------- -------
Total operating expenses........................ 9,810 9,810
------- ------- -------
Operating income..................................... 9,048 (1,304) 7,744
Interest expense..................................... -- (316)(d) (316)
------- ------- =======
Income before income taxes........................... 9,048 (1,620) 7,428
Provision for income taxes........................... 3,300 (591)(e) 2,709
------- ------- -------
Net income...................................... $ 5,748 (1,029) $ 4,719
======= ======= =======
Pro forma net income per share(f).................... $ 0.26 $ 0.21
======= =======
Pro forma weighted average shares outstanding(f)..... 22,378 22,378
======= =======
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1999
----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C>
Revenue -- external............................ $95,701 $ -- $95,701
Revenue -- related party....................... 2,989 (995)(a) 1,994
------- -------- -------
Total revenue.................................. 98,690 (995) 97,695
------- -------- -------
Cost of goods sold -- external................. 44,902 5,925(b) 50,827
Cost of goods sold -- related party............ 2,989 (1,344)(a) 1,645
------- -------- -------
Total cost of goods sold....................... 47,891 4,581 52,472
------- -------- -------
Gross profit.............................. 50,799 (5,576) 45,223
Operating expenses:
Research and development..................... 14,551 14,551
Selling and marketing........................ 4,572 4,572
General and administrative................... 11,880 --(c) 11,880
Amortization of goodwill and other
intangibles............................... 720 720
------- -------
Total operating expenses.................. 31,723 31,723
------- -------- -------
Operating income............................... 19,076 (5,576) 13,500
Interest expense............................... -- (1,213)(d) (1,213)
------- -------- -------
Income before income taxes..................... 19,076 (6,789) 12,287
Provision for income taxes..................... 6,796 (2,419)(e) 4,377
------- -------- -------
Net income................................ $12,280 $ (4,370) $ 7,910
======= ======== =======
Pro forma net income per share(f).............. $ 0.58 $ 0.38
======= =======
Pro forma weighted average shares
outstanding(f)............................... 21,054 21,054
======= =======
</TABLE>
23
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(a) Reflects the reduction in revenue and related cost of goods sold which would
have resulted if our new dispersion services agreement had been in effect
for the year ended September 30, 1999 and the three months ended December
31, 1999. Upon completion of this offering, a new dispersion services
agreement will be in effect under which we will sell various dispersion
products to Cabot at our cost plus an agreed upon margin. We have
historically sold these dispersion products to Cabot at cost. In addition,
we have historically purchased from Cabot the fumed metal oxide raw
materials we use to produce these dispersion products. Under the new
agreement, Cabot will supply us with these fumed metal oxide raw materials
at no cost to us. The pro forma effect of receiving these fumed metal oxide
raw materials at no cost to us decreases related party revenue and related
party cost of goods sold by $1,344 for the year ended September 30, 1999 and
$326 for the three months ended December 31, 1999. The pro forma effect of
selling products at our cost plus an agreed upon margin increases related
party revenue and gross profit by $349 for the year ended September 30, 1999
and $84 for the three months ended December 31, 1999.
(b) Reflects the additional costs that would have been incurred if our new fumed
metal oxide supply agreement with Cabot had been in effect for the year
ended September 30, 1999 and the three months ended December 31, 1999. We
have historically purchased fumed metal oxides, our primary raw materials
for CMP slurries, from Cabot at Cabot's budgeted standard cost. Upon the
completion of this offering, a new fumed metal oxide supply agreement will
be in effect with Cabot under which we will purchase fumed metal oxides at
contractually agreed upon prices, which are higher than prices we
historically paid and which will increase over the term of this agreement.
(c) We have operated as a wholly owned subsidiary of Cabot and as a result have
not incurred all costs necessary to operate on a stand-alone basis. While we
believe that our general and administrative costs could increase as a result
of being a stand-alone entity primarily for incremental legal, audit, risk
management and administrative costs, we are unable to quantify the potential
increase but do not expect it to be material.
(d) Reflects the interest expense associated with $17,000 in borrowings we
expect to incur to finance the dividend to Cabot.
(e) The effective tax rate derived from our income tax expense for the year
ended September 30, 1999 and three months ended December 31, 1999 were
applied to the pro forma adjustments to determine the income tax expense or
benefit associated with pro forma adjustments.
(f) Unaudited pro forma net income per share has been calculated using the
18,989,744 shares that will be owned by Cabot at the completion of this
offering and the number of shares that we would have been required to issue
to fund a dividend to Cabot in an amount equal to Cabot's tax basis in us at
each period end minus the earnings from that period at an issue price per
share equal to $14.30, which is the assumed initial public offering price of
$16.00 per share less the estimated underwriting discounts and offering
expenses.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our historical combined financial statements and the notes to those financial
statements and our unaudited pro forma combined statement of income, which are
included in this prospectus. This prospectus contains forward-looking statements
relating to future events and our future financial performance. Actual results
could be significantly different from those discussed in this prospectus.
Factors that could cause or contribute to such differences include those set
forth in the section entitled "Risk Factors".
OVERVIEW
We develop, manufacture and supply CMP slurries to the semiconductor
industry. Our revenue consists of:
- - external sales of CMP slurries; and
- - related party revenue from fumed metal oxide dispersions sold to Cabot.
We derive substantially all of our revenue from external sales of CMP slurries.
These sales accounted for more than 96% of our total revenue in each of the
three years ended September 30, 1999 and for the three months ended December 31,
1999. We recognize revenue and accrue for anticipated warranty costs upon
delivery of products.
The primary factors affecting our revenue are sales volumes, average
selling prices and foreign currency effects. In recent years, sales volumes have
been positively impacted by the growth of the semiconductor industry, increased
demand for smaller, faster and more complex IC devices, pressure on IC device
manufacturers to reduce costs and successful new product introductions.
For 1999, our five largest customers accounted for approximately 58% of our
revenue, with Intel accounting for approximately 22% of our revenue, Marketech
accounting for approximately 15% of our revenue, and Takasago accounting for
approximately 10% of our revenue. Marketech and Takasago are distributors. For
the three months ended December 31, 1999, our five largest customers accounted
for approximately 53% of our revenue, with Intel accounting for approximately
14% of our revenue, Marketech accounting for approximately 15% of our revenue,
and Takasago accounting for approximately 11% of our revenue. The decline in the
percentage of our total revenue attributable to sales to Intel resulted from,
among other things, Intel's decision to significantly reduce purchases of one
type of CMP slurry from us. We believe that in the same year sales of our
products to our five largest end user customers accounted for approximately 45%
of our revenue.
A portion of our revenue is derived from sales in international markets.
Revenue from sales in Europe was 10% of our total revenue for the three months
ended December 31, 1999, 10% of our total revenue in 1999, 8% of our total
revenue in 1998 and 6% of our total revenue in 1997. Revenue from sales in Asia
was 40% of our total revenue for the three months ended December 31, 1999, 35%
of our total revenue in 1999, 23% of our total revenue in 1998 and 17% of our
total revenue in 1997. We expect our sales in Asia to continue to increase
significantly in the future as IC device manufacturers increase production in
Asia and we increase our marketing and distribution capabilities there. We
intend to use our Geino, Japan facility to support these sales.
Our revenue from Cabot was $0.8 million for the three months ended December
31, 1999, $3.0 million in 1999, $2.0 million in 1998 and $1.4 million in 1997.
In the past we sold fumed metal oxide dispersions to Cabot on a cost basis which
included the cost of the fumed metal oxide raw materials we purchased from
Cabot. We have entered into a new dispersion services agreement with Cabot which
will be effective upon the completion of this offering. Under the new agreement
with Cabot, Cabot will supply the fumed metal oxide raw materials for these
dispersions to us at no cost. Because the cost of the fumed metal oxide raw
materials will not be included in our cost of goods sold, it will also not be
included in the price we charge to Cabot for our dispersion services. Conse-
25
<PAGE> 27
quently, we expect our revenue from Cabot and our cost of goods sold
attributable to this revenue to decrease in the future.
Fumed metal oxides are the primary raw materials used in the manufacture of
most of our CMP slurries and account for a significant portion of our cost of
goods sold. We have entered into a fumed metal oxide supply agreement with
Cabot, effective as of the completion of this offering, pursuant to which Cabot
will continue to be our exclusive supplier of fumed metal oxides for our
currently existing CMP slurries. Although the agreement does not require us to
purchase from Cabot fumed metal oxides for CMP slurries that we develop in the
future, we expect that Cabot will be our primary supplier of fumed metal oxides
for these products as well. Under the new agreement, the prices we will pay to
Cabot in the future for fumed metal oxides will be higher than we have paid in
the past and will increase each year. See "Business -- Cabot as Our Raw
Materials Supplier".
We currently pay a royalty to Rippey Corporation in connection with our
acquisition of selected assets from Rippey in July 1995. This royalty is equal
to approximately 2.5% of all revenue derived from the sale of our CMP slurries.
This obligation will expire in the third quarter of 2002.
We have entered into a management services agreement with Cabot, which will
be effective upon completion of this offering, pursuant to which Cabot will
provide administrative and corporate support services to us on an interim or
transitional basis. These services will be similar in scope to what Cabot
provided to us prior to this offering. Cabot will charge us for these services
at a price that reflects its cost to provide these services. We expect that the
cost to us will be similar to what our corporate charges were prior to this
offering.
We are, and, after this offering but prior to the spin-off, will continue
to be, included in Cabot's consolidated federal income tax group, and our
federal income tax liability will be included in the consolidated federal income
tax liability of Cabot. We have entered into a tax sharing agreement with Cabot,
which will become effective upon the completion of this offering, under which we
will pay Cabot an amount equal to our income tax liability calculated as if we
were an independent company. Under the terms of the tax sharing agreement, Cabot
will not be required to make any payment to us for the use of our tax attributes
that come into existence prior to the spin-off until the time that we would
otherwise be able to utilize those attributes.
We have been a part of Cabot since we began developing CMP slurries in
1985. We were organized as a separate division of Cabot in July 1995. Our
financial statements reflect our historical results of operations, financial
position and cash flows. These financial statements have been carved out from
the financial statements and records of Cabot using the historical results of
operations and cash flows and historical basis of the assets and liabilities of
our business, as adjusted to reflect allocations of certain corporate charges
that our management believes are reasonable. Our historical financial
information may not necessarily reflect the results of our operations, financial
position and cash flows in the future or what the results of operations,
financial position and cash flows would have been had we been a separate,
stand-alone entity during those periods.
26
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenue of certain line items included in our combined statement of
operations data and our unaudited pro forma combined statements of income:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- -----------------------
PRO PRO
FORMA FORMA
1997 1998 1999 1999 1998 1999 1999
---- ---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue......................... 100% 100% 100% 100% 100% 100% 100%
Cost of goods sold.................... 56 50 49 54 48 46 50
--- --- --- --- --- --- ---
Gross profit.......................... 44 50 51 46 52 54 50
Research and development............ 24 17 15 15 17 13 13
Selling and marketing............... 3 6 4 4 5 3 3
General and administrative.......... 13 15 12 12 12 11 11
Amortization of goodwill and other
intangibles...................... 2 1 1 1 1 1 1
--- --- --- --- --- --- ---
Operating income...................... 2 11 19 14 17 26 22
Interest expense...................... 0 0 0 1 0 0 1
--- --- --- --- --- --- ---
Income before income taxes............ 2 11 19 13 17 26 21
Provision for income taxes............ 0 4 7 5 6 10 8
--- --- --- --- --- --- ---
Net income............................ 2% 7% 12% 8% 11% 16% 13%
=== === === === === === ===
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999 VERSUS THREE MONTHS ENDED DECEMBER 31, 1998
REVENUE
Total revenue was $35.0 million for the three months ended December 31,
1999, which represented a 68%, or $14.2 million, increase from the three months
ended December 31, 1998. Revenue from external sales was $34.2 million for the
three months ended December 31, 1999, which represented an increase of 68%, or
$13.9 million, from the three months ended December 31, 1998. Of this increase,
$9.8 million was due to a 48% increase in volume and $4.1 million was due to
increased weighted average selling prices. The volume growth was driven by the
increased use of CMP slurries in the manufacture of IC devices, and temporary
inventory build-up by some customers for year 2000 rollover concerns. The growth
was especially strong with respect to sales of CMP slurries for polishing
tungsten, which increased 77% in volume terms. Sales of slurries for hard disk
drives contributed $2.0 million to the growth as compared to the three months
ended December 31, 1998. Weighted average selling prices rose due to the sale of
higher performance products which had higher average selling prices. Also, we
shifted some of our sales in Japan from sales to distributors to sales directly
to customers, which resulted in an increased weighted average selling price.
Related party revenue was $0.8 million for the three months ended December
31, 1999, which represented an increase of 48%, or $0.3 million, from the three
months ended December 31, 1998. This increase was due to higher volumes sold. On
a pro forma basis, for the three months ended December 31, 1999, related party
revenue would have been $0.6 million. This decrease reflects the fact that under
our existing arrangement with Cabot, we purchase from Cabot the fumed metal
oxide raw materials required to make the dispersions that we sell to Cabot and
the cost of these raw materials is included in the price we charge to Cabot,
while under our new dispersion services agreement Cabot will provide these raw
materials to us at no cost. As a result, our revenue and cost of goods
27
<PAGE> 29
sold will decrease as a result of the new arrangements.
COST OF GOODS SOLD
Total cost of goods sold was $16.2 million for the three months ended
December 31, 1999, which represented an increase of 61% or $6.2 million from the
three months ended December 31, 1998. Cost of goods sold related to external
sales was $15.4 million for the three months ended December 31, 1999, which
represented an increase of 62%, or $5.9 million, from the three months ended
December 31, 1998. Of this increase, $4.6 million was due to higher sales volume
and $1.3 million was due to higher weighted average costs per gallon. These
higher costs resulted from higher distribution costs resulting from the shift of
some sales to distributors to sales directly to customers in Japan and for raw
materials shipped to our manufacturing plant in Japan. Higher manufacturing
costs associated with improved quality requirements also contributed to this
increase. Because we sell products to Cabot at cost, our cost of goods sold for
these sales is equal to our related party revenue. On a pro forma basis, total
cost of goods sold would have been $17.3 million, which reflects a $1.4 million
increase for the fumed metal oxides we purchase from Cabot to produce our
slurries, partially offset by a $0.3 million decrease in the cost of goods sold
attributable to our new dispersion services agreement with Cabot, in each case
for the reasons described above.
GROSS PROFIT
Our gross profit as a percentage of net revenue was 54% for the three
months ended December 31, 1999 as compared to 52% for the three months ended
December 31, 1998. Higher weighted average margins for new products, a higher
percentage of direct sales to customers and higher utilization of manufacturing
capacity contributed to the margin improvement. On a pro forma basis, for the
three months ended December 31, 1999, gross profit as a percentage of revenue
was 50%.
RESEARCH AND DEVELOPMENT
Research and development expenses were $4.5 million in the three months
ended December 31, 1999, which represented an increase of 30%, or $1.0 million,
from the three months ended December 31, 1998. Of this increase, $0.6 million
was due to higher laboratory supply costs and other operating expenses
associated with the clean room. Increased staffing in other research and
development activities added $0.4 million to the increase in expenses.
Key activities during the three months ended December 31, 1999 involved the
development of advanced particle technology, new and enhanced slurry products
and new CMP polishing pad technology.
SELLING AND MARKETING
Selling and marketing expenses were $1.3 million in the three months ended
December 31, 1999, which represented an increase of 31%, or $0.3 million, for
the three months ended December 31, 1998. The increase was primarily due to the
hiring of additional customer support personnel in our North America, Japan and
Taiwan offices.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $3.9 million in the three months
ended December 31, 1999, which represented an increase of 52%, or $1.3 million,
from the three months ended December 31, 1998. The increase was primarily due to
$0.7 million of additional personnel costs needed to support the general growth
of our business and a $0.3 million increase in legal costs incurred in
connection with patent litigation.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles was $0.2 million in the
three months ended December 31, 1999 and the three months ended December 31,
1998 and related to goodwill and other intangible assets associated with the
acquisition of selected distributor assets from a third party in 1995.
28
<PAGE> 30
PROVISION FOR INCOME TAXES
The effective tax rate on income from operations was 36% in the three
months ended December 31, 1999 and the three months ended December 31, 1998.
NET INCOME
Net income was $5.7 million in the three months ended December 31, 1999,
which represented an increase of 142%, or $3.4 million, from the three months
ended December 31, 1998 as a result of the factors discussed above.
YEAR ENDED SEPTEMBER 30, 1999 VERSUS YEAR ENDED SEPTEMBER 30, 1998
REVENUE
Total revenue was $98.7 million in 1999, which represented an increase of
68%, or $39.9 million, over 1998. Revenue from external sales was $95.7 million
in 1999, which represented an increase of 68%, or $38.8 million, from 1998. The
increase in external revenue was primarily due to a 53% increase in volume and,
to a lesser extent, a 10% increase in weighted average selling prices. The
volume growth was driven by the increased use of CMP slurries in the manufacture
of IC devices. This growth was especially strong in Asia, where volumes across
all slurry product lines increased by 114% and we began to recognize revenue
from the sale of CMP slurries used to polish the magnetic heads and the coating
on hard disks in hard disk drives. Weighted average selling prices rose from
1998 to 1999 due to the sale of higher performance products which had higher
weighted average selling prices, particularly our CMP slurries for polishing
tungsten.
Related party revenue was $3.0 million in 1999, which represented an
increase of 52%, or $1.0 million, from 1998. This increase was due to higher
volumes sold. On a pro forma basis, for the fiscal year ended September 30,
1999, related party revenue would have been $2.0 million. This decrease reflects
the fact that under our existing arrangement with Cabot, we purchase from Cabot
the fumed metal oxide raw materials required to make the dispersions that we
sell to Cabot and the cost of these raw materials is included in the price we
charge to Cabot, while under our new dispersion services agreement Cabot will
provide these raw materials to us at no cost. As a result, our revenue and cost
of goods sold will decrease as a result of the new arrangements.
COST OF GOODS SOLD
Total cost of goods sold was $47.9 million in 1999, which represented an
increase of 61%, or $18.2 million, from 1998. Cost of goods sold related to
external sales was $44.9 million in 1999, which represented an increase of 62%,
or $17.2 million, from 1998. Of that increase, $14.6 million was due to higher
sales volume and the remainder was primarily due to higher manufacturing costs
associated with improved quality requirements and start up costs of our Geino,
Japan facility. On a pro forma basis, for the year ended September 30, 1999,
total cost of goods sold would have been $52.5 million, which reflects a $5.9
million increase for the fumed metal oxides we purchase from Cabot to produce
our slurries, partially offset by a $1.3 million decrease in the cost of goods
sold attributable to our new dispersion services agreement with Cabot, in each
case for the reasons described above.
GROSS PROFIT
Our gross profit as a percentage of revenue was 51% for 1999 and 50% for
1998. Higher margins from new products in 1999 were offset by increased spending
for expanded capacity and support capabilities. On a pro forma basis, for the
year ended September 30, 1999, gross profit as a percentage of revenue was 46%.
RESEARCH AND DEVELOPMENT
Research and development expenses were $14.6 million in 1999, which
represented an increase of 44%, or $4.4 million, from 1998. Of this increase,
$2.3 million was due to higher laboratory supply costs and other operating
expenses associated with the clean room. Increased staffing related to other
research and development activities accounted for an additional $1.5 million of
the increase and consumption of supplies in research and development activities
contributed the rest of the increase. Key activities during 1999 involved the
development of advanced particle
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<PAGE> 31
technology, new or enhanced slurry products and new CMP polishing pad products.
SELLING AND MARKETING
Selling and marketing expenses were $4.6 million in 1999, which represented
an increase of 39%, or $1.3 million, from 1998. Of this increase, $0.4 million
was due to the hiring of additional customer support personnel in the United
States, $0.4 million was due to increased selling costs in Japan and the rest
was due to increased production of product literature, costs relating to
industry trade shows and marketing consulting costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $11.9 million in 1999, which
represented an increase of 39%, or $3.3 million, from 1998. Charges for
corporate services provided by Cabot increased $1.8 million from 1998 to 1999 to
keep pace with the growth of our business. Of the remaining increase, $1.2
million was due to additional administrative personnel as a result of general
business growth and $0.3 million was due to outside legal fees incurred in
connection with patent litigation.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles was $0.7 million in 1999 and
1998 and related to goodwill and other intangible assets associated with the
acquisition of selected assets from a third party in 1995.
PROVISION FOR INCOME TAXES
The effective tax rate on income from operations was 36% in 1999 and 34% in
1998.
NET INCOME
Net income was $12.3 million in 1999, which represented an increase of
190%, or $8.0 million, from 1998 as a result of the factors discussed above.
YEAR ENDED SEPTEMBER 30, 1998 VERSUS YEAR ENDED SEPTEMBER 30, 1997
REVENUE
Total revenue was $58.8 million in 1998, which represented an increase of
67%, or $23.6 million, over 1997. Revenue from external sales was $56.9 million
in 1998, which represented an increase of 68%, or $23.0 million, from 1997. The
increase in external revenue was primarily due to a 61% increase in volume and,
to a lesser extent, a 4% increase in weighted average selling prices. The volume
growth was driven by the increased use of CMP slurries in the manufacture of IC
devices. Weighted average selling prices rose due to the sale of higher
performance products which had higher weighted average selling prices,
particularly our CMP slurries for polishing tungsten plugs.
Related party revenue was $2.0 million in 1998, an increase of 45% from
$1.4 million in 1997, and increased due to higher volumes sold.
COST OF GOODS SOLD
Total cost of goods sold was $29.7 million in 1998, which represented an
increase of 49%, or $9.7 million, from 1997. Cost of goods sold related to
external sales was $27.7 million, which represented an increase of 49%, or $9.1
million, from 1997. This increase was primarily due to higher sales volume.
GROSS PROFIT
Our gross profit as a percentage of revenue increased to 50% in 1998 from
44% in 1997. The improvement was primarily the result of higher volumes and
improved operating efficiencies, as well as a greater percentage of higher
margin new products, particularly our CMP slurries for polishing tungsten plugs.
RESEARCH AND DEVELOPMENT
Research and development expenses were $10.1 million in 1998, which
represented an increase of 21%, or $1.7 million, from 1997. The increase was due
to approximately $0.7 million of increased personnel costs, including increased
salary, fringe benefit, travel, recruiting and relocation expenses relating to
our development program teams. Approximately $0.4 million of the increase was
due to higher laboratory supply costs due to the increased size of the
development staff. Key activities during 1998 involved the
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<PAGE> 32
development of new CMP slurry and polishing pad products.
SELLING AND MARKETING
Selling and marketing expenses were $3.3 million in 1998, which represented
an increase of 220%, or $2.3 million, from 1997. Approximately $1.9 million of
the $2.3 million increase was due to increased staffing and travel expenses for
global customer support, including in North America, Asia and Europe. The
increase was also due to increased spending to perform market research and
conduct promotional activities such as participation in trade shows and creation
and distribution of product literature.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $8.6 million in 1998, which
represented an increase of 92%, or $4.1 million, from 1997. The increase in 1998
was primarily due to $2.0 million of increased legal expenses relating to patent
litigation. Approximately $0.8 million of the increase related to higher charges
for corporate services provided by Cabot and $0.4 million of the increase was
due to increased staffing expenses to support our overall business growth.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles was $0.7 million in 1998 and
1997 related to goodwill and other intangible assets associated with the
acquisition of selected assets from a third party in 1995.
PROVISION FOR INCOME TAXES
The effective tax rate on income from operations was 34% in 1998 as
compared to a tax benefit of 7% in 1997. An income tax benefit was recorded in
1997 as a result of a tax credit for research and development activities that
exceeded our statutory taxes for that period.
NET INCOME
Net income was $4.2 million in 1998, which represented an increase of 498%,
or $3.5 million, from 1997 as a result of the factors discussed above.
SELECTED QUARTERLY OPERATING RESULTS
The following table presents our unaudited financial information for the
eight quarters ended December 31, 1999. This unaudited financial information has
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the annual audited financial statements and
in the opinion of management, they include all necessary adjustments, which
consist only of normal recurring adjustments necessary to present fairly the
financial results for the periods. The results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue......................... $14,001 $15,120 $17,620 $20,875 $21,867 $22,864 $33,084 $35,046
Cost of goods sold.................... 7,343 7,554 8,435 10,036 10,177 11,007 16,671 16,188
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 6,658 7,566 9,185 10,839 11,690 11,857 16,413 18,858
47.5% 50.0% 52.1% 51.9% 53.5% 51.9% 49.6% 53.8%
Operating expenses:
Research and development............ 2,501 2,455 2,900 3,445 3,067 3,669 4,370 4,484
Selling and marketing............... 1,077 1,013 554 954 1,083 1,108 1,427 1,250
General and administrative.......... 1,869 2,106 2,832 2,570 2,989 3,232 3,089 3,896
Amortization of goodwill and other
intangible assets................. 180 180 180 180 180 180 180 180
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 5,627 5,754 6,466 7,149 7,319 8,189 9,066 9,810
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes............ 1,031 1,812 2,719 3,690 4,371 3,668 7,347 9,048
Provision for income taxes............ 353 622 932 1,313 1,559 1,307 2,617 3,300
------- ------- ------- ------- ------- ------- ------- -------
Net income............................ $ 678 $ 1,190 $ 1,787 $ 2,377 $ 2,812 $ 2,361 $ 4,730 $ 5,748
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
We had cash flows from operating activities of $0.3 million in the three
months ended December 31, 1999 and $2.1 million in the three months ended
December 31, 1998. We had cash flows from operating activities of $9.0 million
in 1999, $2.3 million in 1998 and $0.4 million in 1997. Our principal capital
requirements have been to fund working capital needs that support the expansion
of our business. For the three months ended December 31, 1999, inventory was
also increased to prepare for any supply chain interruptions that might have
occurred due to the year 2000 date change.
In the three months ended December 31, 1999, cash flows used in investing
activities were $7.2 million, primarily due to the construction of our Aurora,
Illinois manufacturing building, the purchase of land in Korea for a new
distribution facility and the purchase of research and development equipment. In
the three months ended December 31, 1998, cash flows used in investing
activities were $6.8 million due to manufacturing capacity increases, the
acquisition of research and development equipment and land and construction of
our new headquarters building in Aurora, Illinois.
In 1999, cash flows used in investing activities were $17.1 million,
primarily due to the completion of our Geino, Japan facility and construction of
our Aurora, Illinois headquarters building. In 1998, cash flows used in
investing activities were $9.3 million due to manufacturing capacity increases
and the acquisition of research and development equipment. In 1997, cash flows
used in investing activities were $1.7 million, primarily related to additions
for the purchase of machinery and equipment used in production and research and
development.
We had cash flows from financing activities of $6.9 million for the three
months ended December 31, 1999 and $4.8 million for the three months ended
December 31, 1998, resulting from capital contributions from Cabot. We had cash
flows from financing activities of $8.1 million in 1999, $6.8 million in 1998,
and $1.2 million in 1997 resulting from capital contributions from Cabot.
Upon completion of this offering, we will have a $25 million unsecured
revolving credit facility with Fleet National Bank. Loans under this facility
will be used primarily for general corporate purposes, including working capital
and capital expenditures. There is a sublimit for letters of credit of $5
million. We may elect to borrow at either:
- - the higher of Fleet National Bank's base rate as announced from time to time
or the federal funds rate plus a margin of up to 0.50%; or
- - the LIBOR rate plus a margin of between 1.5% and 2.0%, determined quarterly.
Interest on base rate loans will be payable at the end of each calendar
quarter, and on LIBOR loans at the earlier of the end of each interest period or
quarterly.
All borrowings under our revolving credit facility will become due and
payable in April 2003. Borrowings under this credit facility may be prepaid at
any time, subject to payment of normal breakage costs, if any, in the case of
LIBOR loans.
We would breach our revolving credit facility if we were to incur losses
greater than $7.5 million in a single fiscal quarter or greater than $10 million
in two consecutive quarters. In addition to customary covenants, this credit
facility contains certain restrictions on our ability to incur additional
indebtedness, create liens, make certain investments, pay dividends or make
certain distributions on our stock, merge, consolidate, make certain
acquisitions or dispositions and enter into transactions with affiliates.
Upon the completion of this offering, we will also have an unsecured term
credit facility, consisting of a $3.5 million term loan and a $13.5 million term
loan, with LaSalle Bank National Association. We expect that all $17.0 million
of borrowings under this facility will be used to fund a dividend to Cabot.
The $3.5 million term loan will be funded on the basis of the State of
Illinois State Treasurers Economic Program. During the
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<PAGE> 34
period that we remain eligible for this program and the State of Illinois
maintains appropriate funds to cover the $3.5 million term loan, the outstanding
amount will bear interest at a rate equal to 1.75% plus:
- - until the second anniversary of the closing date of the loan, 70% of the two
year treasury rate; and
- - after the second anniversary of the closing date and until the termination
date of this credit facility, which will be five years from the closing date
of the credit facility, 70% of the three year treasury rate.
During any period in which we are ineligible for this program or the State
of Illinois removes funds on deposit with the lender for purposes of funding
this loan, the outstanding amount will bear interest at the rate applicable to
the $13.5 million term loan described below.
With respect to the $13.5 million term loan, we may elect to borrow at
either LaSalle Bank's base rate or the Eurodollar rate plus an applicable
margin, which will vary between 1.5% and 2.0% depending on our ratio of funded
debt to EBITDA.
Interest on the $3.5 million term loan and each base rate loan will be
payable quarterly. Interest on each Eurodollar loan will be payable on the last
day of the applicable interest period, which will be a one, two or three month
period.
During the existence of any event of default under the term credit
facility, the applicable interest rate on each type of loan will be increased
2.0%.
The total principal amount of the $3.5 million term loan will be payable
upon the termination date of the credit facility, which will be five years from
the closing date of this credit facility. Principal on the $13.5 million term
loan will be payable in quarterly installments of $337,500, with the balance
payable upon the termination date. Subject to specified minimum amounts, we can
convert base rate loans and Eurodollar loans into loans of the other type.
During the term of this facility, we will be subject to prepayment
provisions, financial ratios, default provisions and restrictive covenants
similar to those described with respect to our $25 million revolving credit
facility.
Under both our $25.0 million revolving credit facility and our $17.0
million term credit facility, we will be required to maintain the following
financial ratios:
- - a ratio of (A) cash plus short-term investments plus net accounts receivable
to (B) total current liabilities equal or above 1.25 to 1. The actual ratio as
of December 31, 1999 was 3.06 to 1. Assuming the $25.0 million of revolving
loans under our revolving credit facility and the $17.0 million of term loans
under our term credit facility had been outstanding on December 31, 1999, and
we had used all $17.0 million of borrowings under our term credit facility to
fund a dividend to Cabot as of that date, the ratio would have been 1.84 to 1;
- - a leverage ratio of (A) total funded indebtedness to (B) EBITDA below 2.25 to
1. This ratio would have been satisfied as of December 31, 1999 because we had
no funded indebtedness as of that date. Assuming the $25.0 million of
revolving loans under our revolving credit facility and the $17.0 million of
term loans under our term credit facility had been outstanding during the
three month period ended December 31, 1999, the ratio would have been 1.52 to
1; and
- - a minimum coverage ratio of (A) EBIT to (B) interest expense greater than 3.0
to 1. This ratio would have been satisfied as of December 31, 1999 because we
had no interest expense as of that date. Assuming the $25.0 million of
revolving loans under our revolving credit facility and the $17.0 million of
the term loans under our term credit facility had been outstanding during the
three month period ended December 31, 1999, the ratio would have been 7.40 to
1.
EBITDA is our net income before taxes plus interest expense, depreciation
and amortization. EBIT would take into account depreciation and amortization.
We estimate that our total capital expenditures in 2000 will be
approximately $32.5 mil-
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<PAGE> 35
lion, approximately $7.2 million of which we have already spent. Our major
capital expenditures in 2000 are expected to be:
- - approximately $20.4 million to expand our existing North American
manufacturing facilities and build and equip a new slurry manufacturing
facility adjacent to our current facility in Aurora, Illinois;
- - approximately $8.1 million to expand our existing manufacturing facility in
Geino, Japan and establish new distribution facilities in Asia;
- - approximately $0.7 million to expand and improve our Barry, Wales facility;
and
- - approximately $3.4 million for polishing and other equipment used in our
research and development activities.
We believe that cash generated by our operations and borrowings under our
revolving credit facility will be sufficient to fund our operations and expected
capital expenditures for the next 24 months. However, we plan to expand our
business and continue to improve our technology and, to do so, we may be
required to raise additional funds in the future through public or private
equity or debt financing, strategic relationships or other arrangements.
Financing may not be available on acceptable terms, or at all, and our failure
to raise capital when needed could negatively impact our business, financial
condition or results of operations. Because we will agree with Cabot that we
will not issue any securities if doing so would reduce Cabot's ownership of us
to less than 80% prior to the spin-off, our ability to raise capital through
further sales of equity securities is limited until the spin-off occurs.
Additional equity financing could be dilutive to the holders of our common stock
and debt financing, if available, may involve restrictive covenants. See "Risk
Factors -- Risks Relating to Our Business -- Our ability to raise capital in the
future may be limited and this may limit our ability to expand our business and
improve our technology".
Cabot is currently a defendant in two lawsuits involving Rodel. We will
agree to indemnify Cabot for any liabilities or damages resulting from these
lawsuits. See "Business -- Legal Proceedings".
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT
We conduct business operations outside of the United States through our
foreign operations. Our foreign operations maintain their accounting records in
their local currencies. Consequently, period to period comparability of results
of operations is affected by fluctuations in exchange rates. The primary
currencies to which we have exposure are the Japanese Yen and the British Pound.
Our exposure to foreign currency exchange risks has not been significant because
a significant portion of our foreign sales are denominated in U.S. dollars. As
foreign markets become a more significant portion of our business, we may enter
into forward contracts in an effort to manage foreign currency exchange
exposure.
MARKET RISK AND SENSITIVITY ANALYSIS
FOREIGN EXCHANGE RATE RISK
During 1999, less than 10% of our revenue was transacted in currencies
other than the U.S. dollar. We generally do not enter into forward exchange
contracts as a hedge against foreign currency exchange risk on transactions
denominated in foreign currencies or for speculative or trading purposes. We
have performed a sensitivity analysis assuming a hypothetical 10% adverse
movement in foreign exchange rates. As of September 30, 1999, the analysis
demonstrated that such market movements would not have a material adverse effect
on our consolidated financial position, results of operations or cash flows.
Actual gains and losses in the future may differ materially from this analysis
based on changes in the timing and amount of foreign currency rate movements and
our actual exposures. We believe that our exposure to foreign currency exchange
rate risk at September 30, 1999 was not material.
There have been no material changes in market risk exposures through
December 31, 1999.
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<PAGE> 36
NEW ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". Statement of Position 98-1
provides guidance regarding whether computer software is internal-use software,
the capitalization of costs incurred for computer software developed or obtained
for internal use and accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the public.
We do not expect the impact of adopting Statement of Position 98-1, which will
be effective for us in fiscal 2000, to be material to our financial condition or
results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities". Statement of Position 98-5 requires companies to expense start-up
and organization costs as incurred. Statement of Position 98-5 broadly defines
start-up activities and provides examples to help entities determine costs that
are and are not within the scope of Statement of Position 98-5. Statement of
Position 98-5 will be effective for us in fiscal 2000, and its initial
application is to be reported as the cumulative effect of a change in accounting
principle. We do not expect the impact of adopting Statement of Position 98-5 to
be material to our financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Statement of Financial Accounting Standards No. 133
establishes new standards of accounting and reporting for derivative instruments
and hedging activities. Statement of Financial Accounting Standards No. 133
requires all derivatives be recognized at fair value in the statement of
financial position, and the corresponding gains or losses be reported either in
the statement of operations or as a component of comprehensive income, depending
on the type of hedging relationship that exists. We do not expect the impact of
adopting Statement of Financial Accounting Standards No. 133, which will apply
to us in 2001, to be material to our financial condition or results of
operations.
In December 1999, the SEC released Staff Accounting Bulletin No. 101, which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. We are required to be in conformity
with the provisions of Staff Accounting Bulletin No. 101 no later than October
1, 2000 and do not expect a material change in our financial condition or
results of operations as a result of Staff Accounting Bulletin 101.
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<PAGE> 37
BUSINESS
OUR COMPANY
We are the leading supplier of slurries used in chemical mechanical
planarization, or CMP. We believe that we have an approximately 80% share of the
slurries sold to IC device manufacturers worldwide. CMP is a polishing process
used by IC device manufacturers to planarize many of the multiple layers of
material that are built upon silicon wafers to produce advanced IC devices.
Planarization is a polishing process that levels and smooths, and removes the
excess material from, the surfaces of these layers. CMP slurries are liquids
containing abrasives and chemicals that facilitate and enhance this polishing
process. CMP assists IC device manufacturers in producing smaller, faster and
more complex IC devices with fewer defects. We believe CMP will become
increasingly important in the future as manufacturers seek to further shrink the
size of these devices and improve their performance. Most of our CMP slurries
are used to polish insulating layers and the tungsten plugs that go through the
insulating layers and connect the multiple wiring layers of IC devices. We have
developed and have begun limited sales of new CMP slurries that our customers
use for polishing the coating on the hard disks and the magnetic heads in hard
disk drives, although in 1999 revenue from sales of these CMP slurries accounted
for less than 2.0% of our total revenue. We continue to develop slurries for
additional new applications. In addition, we have recently begun producing and
selling polishing pads used in the CMP process.
IC DEVICE MANUFACTURING
Today's advanced IC devices are composed of millions of transistors and
other electronic components connected by miles of wiring. The wiring, composed
primarily of aluminum and tungsten, carries electric signals through the
multiple layers of the IC device. Insulating material is used throughout the IC
device to isolate the electronic components and wiring to prevent short
circuiting and to improve the efficiency of electric signal travel within the
device. To increase performance, IC device manufacturers have progressively
increased the number, or density, of transistors and other electronic components
in each IC device.
The manufacturing process for IC devices typically begins with a circular
wafer of pure silicon. A large number of identical IC devices are manufactured
on each wafer at the same time, and at the end of the process, the wafer is cut
into the individual devices. The first step in the manufacturing process is to
build transistors and other electronic components on the silicon wafer. These
components are then wired together in a particular sequence to produce an IC
device with the desired characteristics. Once the transistors and other
electronic components are in place on the silicon wafer, they are usually
covered with a layer of insulating material, most often silicon dioxide.
CMP is used to planarize the insulating layers of an IC device and prepare
them for a process known as metallization. During metallization, wiring is added
to the surface of the insulating layer through a series of steps involving:
- - depositing metal, usually aluminum, onto the surface of the layer;
- - projecting an image of the desired wiring pattern on the layer using a process
known as photolithography; and
- - removing the excess deposited metal from the surface of the insulating layer
using a process known as etching, which leaves behind the desired wiring
pattern.
When the wiring is finished, another layer of insulating material is added and
planarized using CMP. This process of alternating insulating and wiring layers
is repeated until the IC device is completed. The electronic components and
wiring layers are connected by conductive plugs that are formed by making holes
in the insulating layers and filling those holes with metal, usually tungsten.
After these holes have been filled with tungsten, CMP is used to remove all the
excess tungsten above the surface of the insulating layer so that the top of the
plug is level with the surface of the
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<PAGE> 38
insulating layer before the next wiring layer is built. Manufacturing IC devices
requires precision processing in ultra clean, controlled environments.
The semiconductor industry has a generally accepted set of design rules
that describe current and projected feature size and spacing of electronic
components and wiring in IC devices. The feature size and spacing in these
design rules have been progressively decreasing to accommodate the demand for
increased circuit density and miniaturization. As the density of IC devices
increases, the amount of wiring needed to connect the transistors and other
electronic components to each other also increases. As IC devices become
smaller, this increase in wiring requires tighter and more precise spacing of
the wiring and has led to an increase in the layers of IC devices.
According to the Semiconductor Industry Association's National Technology
Roadmap for Semiconductors (1998 and 1999 Editions), the trends toward increased
density and miniaturization of IC devices are expected to continue. While the
number of layers varies by IC device type, an advanced logic device built with
today's common 0.25 micron feature size has approximately seven insulating and
six wiring layers and a typical memory device built with the same feature size
has approximately three insulating and two wiring layers. By 2001, the
Semiconductor Industry Association predicts that advanced IC devices will be
manufactured with a 0.15 micron feature size and that advanced logic devices
will have approximately eight insulating and seven wiring layers and advanced
memory devices will have approximately four insulating and three wiring layers.
CMP is currently used to polish both the insulating layers and the tungsten
plugs in IC devices in separate steps. As a result, even though CMP is not
currently used to polish the wiring layers, the number of CMP steps used to
produce an IC device is typically at least equal to the total number of
insulating and wiring layers in the device. While CMP is currently used more in
the manufacture of logic devices than memory devices, we believe that the use of
CMP in the manufacture of memory devices will increase in the future as the
feature size and spacing of these devices decreases and the number of layers in
the device increases.
The increased density and miniaturization of IC devices has also resulted
in an increased emphasis on reduction of defects and residue remaining after the
CMP process. A defect is any imperfection on a layer of an IC device that causes
a short circuit or other problem with the performance of the device. Residue
from the CMP process consists of particle and chemical residue left on the layer
surface as a result of the CMP process. The likelihood that a defect or residue
of a given size will negatively effect the performance of an IC device increases
as the density and miniaturization of the device increase. IC device
manufacturers are requiring that the number of defects per given area decline
and that the residues from the CMP process be reduced.
CHEMICAL MECHANICAL PLANARIZATION
The CMP process involves both chemical reactions and physical means to
planarize the insulating layers of an IC device that are built upon a silicon
wafer and the conductive tungsten plugs that go through the insulating layers
and connect the multiple wiring layers of IC devices. The wafer is typically
held on a rotating carrier which is spun at high speeds and pressed against a
rotating, polishing table. The portion of the table that comes in contact with
the wafer is covered by a textured, polishing pad. A CMP slurry is continuously
applied to the polishing pad during the CMP process to facilitate and enhance
the polishing process. CMP slurries are liquid compounds composed of high purity
deionized water, chemical additives and abrasive agents that chemically interact
with the surface material of the IC device at an atomic level.
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The following diagram demonstrates the CMP process as applied to the
insulating layers of an IC device:
[CMP OF OXIDE INSULATING LAYER GRAPHIC]
The following diagram demonstrates the CMP process as applied to the
conductive tungsten plugs of an IC device:
[CMP OF OXIDE TUNGSTEN PLUGS GRAPHIC]
BENEFITS OF CMP
CMP provides IC device manufacturers with a number of advantages. CMP
enables IC device manufacturers to produce smaller IC devices with greater
density, both of which improve the performance of the device. As IC devices
shrink and become more dense, they require smaller feature sizes and tighter
spacing between the wiring of the device. If the surface is not level, the
smaller feature size and tighter spacing make it more difficult for the
photolithography equipment to focus accurately and create the desired wiring
pattern. In addition, because today's smaller, denser IC devices have more
layers, any uneveness of a layer at or near the bottom of an IC device will get
magnified in the additional layers that are added to the device. Defects caused
by problems in the photolithography process or uneveness in the layers can lead
to:
- - short circuits;
- - reduced performance; and
- - at worst, failure of the IC device.
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By using CMP, IC device manufacturers can eliminate or minimize these problems.
By enabling IC device manufacturers to make smaller IC devices, CMP allows
them to increase their throughput, or the number of IC devices that they can
manufacture in a given time period. CMP also helps reduce the number of
defective or substandard IC devices produced, which increases the device yield.
Improvements in throughput and yield reduce an IC device manufacturer's total
production costs. Manufacturers can achieve further improvements in throughput
and yield through improvements in the CMP process that reduce defectivity rates
and decrease the amount of time required for the polishing process.
CMP SLURRIES
The characteristics that make an effective CMP slurry include:
- - high polishing rates, which increase productivity and throughput;
- - high selectivity, which means enhancing the polishing of specific materials
while inhibiting polishing of other materials;
- - uniform polishing of different surface materials at the same time, which
avoids problems such as dishing and erosion;
- - low levels of chemical and physical impurities, which reduce defects and
residues on the polished surface that can adversely affect IC device
performance; and
- - colloidal stability, which means the abrasive particles within the slurry do
not settle, which is important for uniform polishing with minimum defects.
Most of the foregoing qualities of CMP slurries affect and enhance not only
the performance of the IC devices but can also positively impact the cost of
ownership of the CMP process. Cost of ownership is a calculation by which IC
device manufacturers evaluate the benefits and costs of each production step by
analyzing the impact of that step on throughput and yield and the costs of the
production inputs of that step. This calculation allows IC device manufacturers
to compare competing production processes and inputs. An input that improves
throughput and yield may reduce the cost of ownership even though it costs more.
Prior to introducing a new or different CMP slurry into its manufacturing
process, an IC device manufacturer generally requires that the slurry be
qualified at each of its plants through a series of tests and evaluations
intended to ensure that the slurry will function properly in the manufacturing
process and to optimize the slurry's application. These tests may require
changes to the CMP process, the CMP slurry and/or the CMP polishing pad. While
this qualification process varies depending on numerous factors, it is not
unusual for this process to be very expensive and take six months or more to
complete. IC device manufacturers must take the cost, time delay and impact on
production into account when they consider switching to a new CMP slurry.
INDUSTRY TRENDS
The rapid growth of the CMP slurry market has been driven in large part by
the significant growth and technological advances the semiconductor industry has
experienced over the past decade. IC devices are critical components in an
increasingly wide variety of products and applications, including computers,
data processing, communications, telecommunications, the Internet, automobiles
and consumer and industrial electronics. As the performance of IC devices has
increased and their size and cost have decreased, the use of IC devices in these
applications has grown significantly. According to industry sources, the
worldwide semiconductor market as measured by total sales grew at an average
annual compound rate of 11% in the period from 1988 through 1998. Dataquest and
other industry sources project continued growth at similar rates in the future.
The rapid growth in the semiconductor industry, increasing demand for
smaller, higher performance and more complex IC devices and pressure on IC
device manufacturers to reduce their costs have led to increased use of CMP and
consumption of CMP slurries and polishing pads. We believe that worldwide
revenues from the sale of
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CMP slurries to IC device manufacturers grew
to approximately $120 million in 1999. Industry surveys project that annual
worldwide revenues in this market will grow to between approximately $300 and
$400 million by 2003. This projected growth assumes increases in the number of
IC devices produced, the percentage of IC devices that are produced using CMP
and the number of polishing steps used to produce each device.
Although some sectors of the semiconductor industry have been highly
cyclical, sales of CMP slurries and polishing pads have not been adversely
affected by these trends. We believe this is because sales of CMP slurries and
polishing pads are driven primarily by the number of IC devices sold, which has
been much less cyclical than the prices of IC devices. In addition, we believe
that IC manufacturers have continued to increase their use of CMP because the
CMP process represents only a small percentage of the total production cost of
an IC device and is very important to the continued improvement of IC device
performance.
OTHER APPLICATIONS OF CMP IN THE
IC DEVICE MANUFACTURING PROCESS
CMP is primarily used today for polishing the insulating layers and
tungsten plugs in IC devices. However, we believe there are a number of other
applications for CMP in the IC device manufacturing process. We have undertaken
research, developed and successfully tested slurries for three applications that
we expect to be able to commercialize in the next three years. First, we have
developed and successfully tested CMP slurries for polishing copper because we
believe copper will increasingly be used in the future for both wiring and
conductive plugs because it conducts electricity better than aluminum and
tungsten. However, there are significant technological challenges and operating
issues that must be addressed before IC device manufacturers switch to copper
from aluminum and tungsten. To date, only a very limited number of IC device
manufacturers have switched to copper and their production using copper is very
limited.
Second, we have developed and successfully tested CMP slurries for use in
connection with an IC device manufacturing process known as shallow trench
isolation, which is currently being used by some of the leading IC device
manufacturers. Shallow trench isolation is a relatively new method of isolating
the electronic components built on silicon wafers of an IC device to prevent
short circuits and other electrical interference. Shallow trench isolation uses
CMP before the first insulating layer is put down on the wafer. Isolation
methods used prior to shallow trench isolation did not use CMP. By using CMP in
conjunction with shallow trench isolation, IC device manufacturers can achieve
greater miniaturization and density of their IC devices.
Third, we have developed and successfully tested CMP slurries to planarize
the polysilicon material often used to build the electronic components on IC
devices. As the number of these electronic components per IC device increases,
we believe that the use of polysilicon CMP will increase.
STRATEGY
Our objective is to maximize our profitability and stockholder value by
maintaining and leveraging our leading position in the CMP slurry market. Our
proven track record increases the propensity for IC device manufacturers to work
with us in the early stages of product development for their next generation IC
devices. In addition, IC device manufacturers would likely incur significant
evaluation and qualification costs if they switch to a new CMP slurry.
We will pursue the following strategies to achieve our objective:
REMAIN THE TECHNOLOGY LEADER IN CMP SLURRIES
We believe that technology is key to success in the CMP slurry market and
we plan to continue to devote significant resources to research and development.
We need to keep pace with the rapid technological advances in the semiconductor
industry so we can continue to deliver products that meet our customers'
evolving needs. We
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intend to use our advanced research and development, polishing and metrology
capabilities to:
- - advance our understanding of our customers' technology, processes, and
performance requirements for qualified products;
- - further improve the chemical and mechanical qualities of our CMP products; and
- - demonstrate and deliver advanced CMP solutions to the semiconductor industry.
BUILD AND MAINTAIN CUSTOMER INTIMACY
We believe that building close relationships with our customers is another
key to success in the CMP slurry market. We work closely with our customers to
research and develop new and better CMP slurries, to integrate our slurries into
their manufacturing processes and to assist them with supply, warehousing,
packaging and inventory management. We plan to continue to devote significant
resources to enhancing our close customer relationships.
EXPAND GLOBALLY
We believe that having production facilities and personnel and other
resources in strategic locations around the world is key to the success of our
business, particularly in light of increased IC device manufacturing in Asia.
Accordingly, we have established a global presence by opening production
facilities in Barry, Wales and Geino, Japan. We also have assembled a team of
account managers and independent distributors strategically located in Europe,
Taiwan, Singapore, Japan and Korea and technical support and sales personnel
throughout the United States and in Europe and Asia. We intend to expand our
production capacity, technical support and sales in many of the locations around
the world where IC device production is concentrated.
ATTRACT AND RETAIN TOP QUALITY PERSONNEL
We have assembled a highly skilled and dedicated workforce that includes a
wide range of scientists and applications specialists, many of whom have
significant experience in the semiconductor industry. We plan to continue to
attract and retain experienced personnel committed to providing high performance
products and strong customer and applications support.
MAINTAIN TOP QUALITY PRODUCTS AND SUPPLY
Our customers demand consistent high quality products and a reliable source
of supply. We will continually advance our strict quality controls to improve
the uniformity and consistency of performance of our CMP products. The capacity
and location of our production facilities throughout the United States and in
Europe and Asia allow us to provide a reliable supply chain to meet our
customers' CMP slurry requirements in a consistent, timely manner.
EXPAND INTO NEW APPLICATIONS AND PRODUCTS
We intend to leverage our CMP experience and technology into new
applications and products. Starting from our core CMP slurries designed for
polishing the insulating layers of IC devices, we have developed and introduced
new slurries for CMP polishing of the tungsten plugs currently used to connect
the wiring between multiple layers of IC devices and for CMP polishing of the
magnetic heads and the coating on hard disks in hard disk drives. We have also
developed CMP slurries for polishing the aluminum and copper wiring layers of IC
devices. Additionally, we are using our knowledge of CMP materials to expand
into the production of CMP polishing pads so that we can provide our customers
with a broader range of applications and materials used in the CMP process.
PRODUCTS
CMP SLURRIES FOR IC DEVICES
We produce CMP slurries of various formulations for polishing a wide
variety of materials. We have developed new, improved generations of each of our
slurries as well as new slurries to keep pace with our customers' evolving
needs. We currently produce more than ten slurries for polishing the oxide
insulating layers of IC devices, which is the most common use of CMP in the IC
device
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manufacturing process. We have introduced new generations of oxide slurries that
reduce both defectivity in IC devices and the required polishing time. While our
oxide CMP slurries are also used to polish poly-silicon material, we have
developed a CMP slurry specifically engineered to polish this material which
offers improved selectivity to poly-silicon and fine poly-silicon surface
finish.
We also manufacture more than seven slurry products for polishing tungsten.
As with our oxide slurries, we have introduced new generations of slurries for
polishing tungsten that offer improvements in polishing performance. These
improvements include faster polishing rates, greater polishing uniformity and
reduced defectivity.
The following table shows our primary products and the surfaces polished,
primary features and end uses:
<TABLE>
<CAPTION>
PRODUCT SURFACE POLISHED PRIMARY FEATURES END USES
<S> <C> <C> <C>
SC112 Oxide Original formulation IC devices
SC1 Oxide Concentrate form of SC112 IC devices
Semi-Sperse(R)12 Oxide High polishing rate IC devices
Semi-Sperse(R)25 Oxide High polishing rate IC devices
concentrate
Semi-Sperse(R)AM100 Oxide High purity IC devices
Semi-Sperse(R)AM100C Oxide High purity IC devices
Semi-Sperse(R)D7000 Oxide Low defectivity IC devices
Semi-Sperse(R)P1000 Polysilicon High selectivity IC devices
Semi-Sperse(R)FE400* Tungsten Low erosion IC devices
Semi-Sperse(R)WA400* Tungsten Low erosion IC devices
Semi-Sperse(R)W2000 Tungsten High performance IC devices
Semi-Sperse(R)W2585 Tungsten Low dishing, erosion IC devices
Lustra(TM)2090 Coating on hard disks Low defectivity Hard disk drives
</TABLE>
- ---------------
* These two products are sold together as a package.
CMP SLURRIES FOR HARD DISK DRIVES
In 1998 we introduced CMP slurries for CMP polishing of the magnetic heads
and the coating on hard disks in hard disk drives. We believe this CMP
application can significantly improve the surface finish of these coatings,
resulting in greater storage capacity of the substrates. We also believe that
this CMP application will improve the speed and reliability of information
exchange between the hard disks and the magnetic heads in hard disk drives. In
addition, we believe that, as with IC device manufacturers, CMP can also improve
the production efficiency of manufacturers of hard disk drives by helping them
increase their throughput and yield.
We developed our CMP slurries for hard disk drives by leveraging our core
slurry technology and manufacturing capacity and hiring personnel directly from
the industry who understand the needs of hard disk drive manufacturers. We also
established a dedicated research and development team and an applications
support team who employ a process solution approach similar to what we use for
our other slurry products. We believe that these markets offer significant
potential and that our products in this area offer superior performance over
currently used materials. We began commercial sale of these products in 1999. We
have generated more than $1.5 million of sales from these products during 1999.
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POLISHING PADS
CMP polishing pads are consumable materials used in the CMP process that
work in conjunction with the CMP slurry to facilitate the polishing process.
There are two principal types of CMP polishing pads used with CMP slurries:
- - a round pad that is designed to be affixed to a platform which moves in a
rotary or orbital motion; and
- - a developing technology in which a belt, roll or web polishing pad is affixed
to a platform that moves in a linear motion.
Both types of polishing pads are consumed during the CMP process as their
surface becomes worn by the polishing action.
The CMP polishing pad market is currently led by one principal supplier,
Rodel, which we believe has an approximately 90% share of the CMP polishing pad
market. Based on discussions with our customers as well as our own examination
of the CMP polishing pad market, we identified demand for higher quality, more
reliable and consistent polishing pads and the opportunity to jointly market our
CMP slurries and polishing pads to our existing customers.
Our first series of polishing pads, which was introduced in July 1999, is
designed for tungsten applications. In early 2000, our tungsten pad was
qualified by a major semiconductor manufacturer's process and we made our first
commercial sales of CMP polishing pads to this customer. We expect to introduce
an extended line of polishing pads in 2000. We believe that our CMP polishing
pads, which we manufacture using material supplied by a third party, offer
advantages over currently available CMP polishing pads. These advantages include
higher removal rates, longer life and more uniform polishing. We also believe
that our new pad production technology provides fundamental improvements over
existing manufacturing methods that will result in increased pad consistency and
reliability. We further believe the compatibility of our CMP polishing pads and
slurries will enhance our ability to jointly market these products to our
existing and future customers.
We have had limited experience in developing and marketing polishing pads,
however. The development and production of polishing pads involve technologies
and production processes that are new to us. In addition, our polishing pads are
based on new pad production technology. We our suppliers of the raw materials
that we used to make our polishing pads may not be able to solve any
technological or production problems that we or they may encounter. In addition,
if we or our suppliers are unable to keep pace with technological or other
developments in the design and production of polishing pads, we will probably
not be competitive in the polishing pad market. The expansion of our business
into this new product area may not be successful.
CUSTOMERS, SALES AND MARKETING
We primarily market our products directly to IC device manufacturers. For
the three months ended December 31, 1999, our five largest customers accounted
for approximately 53% of our revenue, with Intel accounting for approximately
14% of our revenue, Marketech accounting for approximately 15% of our revenue,
and Takasago accounting for approximately 11% of our revenue. For 1999, our five
largest customers accounted for approximately 58% of our revenue, with Intel
accounting for approximately 22% of our revenue, Marketech accounting for
approximately 15% of our revenue, and Takasago accounting for approximately 10%
of our revenue. Marketech and Takasago are distributors. We believe that in the
same year sales of our products to our five largest end user customers accounted
for approximately 45% of our revenue. We currently have a supply contract with
Intel for the supply of CMP slurry products over the three year period beginning
in January 1999 at specified prices.
Our marketing begins with development teams who work closely with our
customers, using our research and development facilities, to design CMP slurry
products tailored to our
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customers' needs. We then employ our applications teams who work with customers
to integrate our slurry products into customers' manufacturing processes.
Finally, we utilize our logistics and sales personnel to ensure reliable supply,
warehousing, packaging and inventory management. Through our interactive
approach, we build close relationships with our customers across a variety of
areas.
We also market our products through independent distributors and other
industry suppliers. We currently utilize independent distributors in Europe,
Taiwan and Singapore, who add to our global presence by complementing our
support personnel already located in those regions. By using our relationships
with other suppliers in the CMP industry, such as suppliers of polishing
equipment, we obtain client leads and recommendations of our products.
The IC device manufacturing industry is currently experiencing significant
growth in Asia. As a result, we have increased our focus on markets in Asia over
the last few years by increasing the number of account managers and applications
and customer support personnel present in this region. By building this regional
infrastructure, we have demonstrated a commitment to the Asian marketplace and
global expansion generally. We intend to make additional concentrated
investments in this region over the next few years.
CABOT AS OUR RAW MATERIALS SUPPLIER
The base ingredients for most of our CMP slurries are fumed metal oxides,
primarily fumed silica, which is an ultra-fine, high purity silica produced by a
flame process, and, to a much lesser extent, fumed alumina. Sales of CMP
slurries represented approximately 97% of our revenue in 1999. Cabot is
currently our exclusive supplier of fumed metal oxides. Under our new fumed
metal oxide supply agreement with Cabot, which will become effective upon
completion of this offering, Cabot will continue to be our exclusive supplier of
fumed metal oxides, including fumed silica, for our existing slurry products.
Although the agreement does not require us to purchase fumed metal oxides from
Cabot for slurry products that we develop in the future, we expect that Cabot
will be our primary supplier of fumed metal oxides for these products as well.
Over 90% of the fumed metal oxides that we currently purchase from Cabot are
manufactured at its facility in Tuscola, Illinois.
It is difficult to assess whether the prices we will pay to Cabot for fumed
metal oxides under our new agreement with Cabot are the same as or different
than the prices we could have obtained in arm's-length negotiations with an
unaffiliated third party in light of the long-term nature of the contract, the
volumes provided for under the agreement and our particular quality
requirements.
Our agreement with Cabot contains the following terms with respect to fumed
silica:
- - provisions for a fixed annual increase in the price of fumed silica of
approximately 2% of the initial price and additional increases if Cabot's raw
material costs increase;
- - provisions requiring Cabot to supply us with fumed silica in volumes specified
by us;
- - provisions limiting Cabot's obligation to supply us with fumed metal oxides
from each of its Tuscola, Illinois and Barry, Wales facilities to specified
volumes from each facility;
- - provisions requiring us to supply Cabot with quarterly, six-month, annual and
18-month forecasts of our expected fumed silica purchases and limiting Cabot's
obligations to provide us with fumed silica to specified percentages in excess
of these forecasted volumes;
- - provisions that limit the amount we can forecast for any month to an amount no
greater than 20% of the forecasted amount for the previous month;
- - provisions requiring us to purchase at least 90% of the six-month volume
forecast and to pay specified damages to Cabot if we purchase less than that
amount;
- - provisions obligating us to pay all reasonable costs incurred by Cabot to
provide
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quality control testing at levels greater than Cabot provides to its other
customers; and
- - provisions that generally prohibit us from reselling any fumed silica
purchased from Cabot.
Under the new agreement, Cabot will also supply us with fumed alumina on terms
generally similar to those described above, except that the forecast
requirements do not apply to fumed alumina. The new agreement prohibits Cabot
from selling fumed metal oxides to third parties for use in CMP applications.
Under the new agreement, Cabot warrants that its products will meet our
agreed upon product specifications. We have no right to any consequential,
special or incidental damages for breach of that warranty or any other provision
of the agreement. Cabot will be obligated to replace noncompliant products with
products that meet the agreed upon specifications. The new agreement also
provides that any change to product specifications for fumed metal oxides must
be by mutual agreement. Any increased costs due to product specification changes
will be paid by us. If we require product specification changes that Cabot
cannot meet, we will have the right to purchase products meeting those
specifications from other suppliers.
Historically, we did not provide detailed product specifications to Cabot
and Cabot permitted us to return some products even if they met our
specifications. Under our new agreement, we will provide detailed specifications
to Cabot and will have no contractual right to return products that meet these
specifications.
The agreement has an initial term that expires in June 2005. Thereafter,
the agreement may be terminated by either party on June 30 or December 31 in any
year with at least 18 months prior written notice.
It may be difficult to secure alternative sources of fumed metal oxides in
the event Cabot encounters supply or production problems or terminates or
breaches its agreement with us. A significant reduction in the amount of fumed
metal oxides supplied by Cabot, a problem with the quality of those fumed metal
oxides or a prolonged interruption in their supply by Cabot could interfere with
our ability to produce our CMP slurries in the quantities and of the quality
required by our customers and in accordance with their delivery schedules.
DISPERSIONS SERVICES AGREEMENT WITH DAVIES
Cabot has assigned to us a dispersions services agreement with Davies
Imperial Coatings, Inc. pursuant to which Davies produces slurries for us. Under
this agreement, we provide raw materials, primarily fumed silica, to Davies and
it performs dispersion services. The price for these services is set at a
negotiated price, subject to increases. We have agreed to purchase minimum
amounts of services for each year of the agreement. If Davies fails to supply us
with required dispersions services, we have the right to provide these services
for ourselves or purchase them from third parties. The agreement provides for
renegotiation of the price paid for dispersions services on each two-year
anniversary of the agreement in order to reflect changes in Davies'
manufacturing costs. We have also agreed to invest during each year $150,000 in
capital improvements, capacity expansions and other expenditures to maintain
capacity at the Davies dispersions facility in Hammond, Indiana. We own most of
the dispersions equipment at the Davies facility.
Under the agreement, we must give Davies the opportunity to bid to provide
dispersion services for some of our products. Davies and its controlling
stockholders agree that, during the term of the agreement and for a period after
the termination of the agreement, they will not provide, nor assist any other
person or entity in providing, metal oxide dispersion services to any of our
competitors. Under some circumstances, we must pay these individuals
noncompetition payments on the date of the termination of the agreement and on
the first anniversary of the termination.
The agreement has an initial term that expires in October, 2004, and is
automatically renewed for one-year periods thereafter, unless either party gives
written notice to the
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other of its intention to terminate the agreement at least 90 days prior to the
expiration of the term.
DISPERSIONS SERVICES
AGREEMENT WITH CABOT
Dispersions of fumed metal oxides are used in a variety of applications in
addition to CMP. These applications include paper applications and coatings such
as paints. In the past, Cabot has developed and sold fumed metal oxides
dispersions for these non-CMP applications, and intends to continue this
business after this offering and the expected spin-off. We performed dispersion
services for Cabot prior to our incorporation and Cabot intends to continue to
rely on us for these services in the future. Accordingly, we have entered into a
dispersions services agreement with Cabot, which will become effective upon
completion of this offering, under which we will continue to offer fumed metal
oxide dispersions services to Cabot, including the manufacturing, packaging and
testing of dispersions. Less than 10% of our current dispersions capacity will
be devoted to Cabot. The agreement provides that some dispersion services may be
subcontracted by us to Davies but we will remain liable for these services. The
dispersions services that we will provide to Cabot must be performed at our
facilities in Aurora, Illinois and Barry, Wales or at the Davies facility. Under
the agreement, Cabot will supply us with the fumed metal oxide particles
necessary for the manufacture of the dispersions.
Our agreement with Cabot contains the following terms:
- - provisions for the pricing of dispersions services to be determined pursuant
to a cost-plus formula;
- - provisions limiting our obligation to provide Cabot with dispersions to stated
maximum annual volumes for each of the three facilities;
- - provisions requiring Cabot to supply us with quarterly, six-month, annual and
18-month forecasts of their expected dispersions purchases and limiting our
obligation to provide Cabot with dispersions to specified percentages in
excess of these forecasted volumes;
- - provisions that provide that if we develop any intellectual property in the
course of performing dispersion services for Cabot, that intellectual property
will be jointly owned by us and Cabot;
- - provisions that provide that if we develop any intellectual property outside
of performing dispersion services for Cabot and use that intellectual property
in performing dispersion services for Cabot, then we are obligated to license
Cabot that intellectual property in exchange for a royalty payment;
- - provisions that generally prohibit Cabot from engaging a third party to
provide dispersion services unless we are unable to supply the requested or
agreed upon services, although Cabot retains the right to manufacture fumed
metal oxide dispersions itself or have Davies provide these services; and
- - provisions that generally prohibit us from performing dispersion services for
third parties whose products compete with any Cabot product or from selling
dispersion products in applications, other than CMP, that compete with any
Cabot product.
The agreement has an initial term that expires in June, 2005. Thereafter,
the agreement may be terminated by either party on June 30 or December 31 in any
year with at least 18 months prior written notice. If Cabot terminates the
agreement, Cabot cannot purchase fumed metal oxides dispersion services from one
of our competitors. If we terminate the agreement, Cabot may purchase fumed
metal oxide dispersions services from any party without restriction.
NEGOTIATIONS WITH CABOT
REGARDING FUMED ALUMINA SUPPLY ARRANGEMENT
We have experienced increased demand for one of our CMP slurries for
polishing tungsten plugs and expect to experience in the future increased demand
for our CMP slurries for polishing copper wiring and conductive plugs. Fumed
alumina is an essential raw material for these slurries. We currently
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purchase our fumed alumina from Cabot and expect to continue to do so after this
offering and the spin-off. In order to meet our anticipated future needs for
fumed alumina, Cabot needs to construct a new facility for the manufacture of
fumed alumina. We are currently in negotiations with Cabot regarding changes to
our fumed alumina supply arrangements. We have not reached final agreement with
Cabot on any of the terms of a new arrangement. Based on our negotiations to
date with Cabot, however, we expect that the price Cabot will charge us for
fumed alumina will be based on its fixed and variable costs for producing the
fumed alumina plus its capital costs for constructing the new facility plus an
agreed upon percentage of those costs. The payments in respect of the capital
costs will be amortized over a ten year period. Cabot estimates that the new
facility will cost between $4.5 million and $6.0 million. In addition, based on
our negotiations with Cabot, we would expect that the new plant would be
dedicated to satisfying our fumed alumina requirements and that we would have a
right of first option on all production and capacity at the plant.
RESEARCH AND DEVELOPMENT
We believe our future competitive position depends in part on our ability
to develop CMP applications tailored to our customers' needs. To this end, we
have established a technology center at our Aurora facility to provide
applications and product support to customers and to develop new products to
meet the needs of the semiconductor industry. The technology center is staffed
by a team that includes experts from the semiconductor industry and scientists
from key disciplines required for the development of high-performance CMP
products. The technology center is equipped with an advanced polishing and
metrology lab in a Class 10 clean room, a polishing lab in a Class 1000 clean
room, laboratories for product development and dispersion technology, and a
dispersions pilot plant. In our product development and dispersion technology
laboratory, our skilled technical personnel conduct kinetic studies of the
chemical reactions on the surface of the wafer. These kinetic data allow us to
adjust the composition of our slurries to avoid, among other things, non-uniform
polishing patterns. Understanding the chemical processes on the surface of the
polished wafer allows us to compose slurries specifically tailored to interact
with one element and to slow or essentially stop planarization as soon as this
particular element has been polished. We have also assembled dedicated
development teams that work closely with customers to identify their specific
technology and manufacturing challenges and to translate these challenges into
viable CMP process solutions.
We have historically purchased most of the equipment we use for research
and development. In September 1998, we entered into an agreement with a customer
under which we lease some CMP equipment in exchange for CMP slurries. This
equipment includes five IC polishing machines, one hard disk drive polishing
machine and various metrology equipment. The cost of this equipment can be
significant and we need to upgrade our equipment periodically to keep pace with
equipment developments in the semiconductor industry.
We expensed approximately $14.6 million for research and development in
1999. Investments in research and development equipment are capitalized over
their useful life and depreciated.
INTELLECTUAL PROPERTY
Our intellectual property is important to our success and ability to
compete. We currently have ten U.S. patents and 31 pending U.S. patent
applications covering CMP products and processes. In most cases we file
counterpart foreign patent applications. Many of these patents are important to
our continued development of new and innovative CMP products. We attempt to
protect our intellectual property rights through a combination of patent,
trademark, copyright and trade secret laws, as well as employee and third-party
nondisclosure and assignment agreements. Our failure to obtain or maintain
adequate protection of our intellectual property rights for any reason could
have a material adverse effect on our business, results of operations and
financial condition.
47
<PAGE> 49
Significant litigation regarding intellectual property rights exists in our
industry. Cabot is currently involved in two separate legal actions brought
against it by Rodel alleging that Cabot is infringing some of Rodel's patents.
Although Cabot is the only named defendant in these lawsuits, we will agree to
indemnify Cabot for any and all losses and expenses arising out of this
litigation. For a further discussion of this litigation, see "-- Legal
Proceedings".
We cannot be certain that other third parties will not make a claim of
infringement against us. Any claims, even those without merit, could be time
consuming to defend, result in costly litigation and/or require us to enter into
royalty or licensing agreements. These royalty or licensing agreements, if
required, may not be available to us on acceptable terms or at all. A successful
claim of infringement against us could adversely affect our business, results of
operations and financial conditions. See "-- Legal Proceedings".
In addition, we have obtained a patent license from a third party covering
a polishing process used in the manufacturing of non-IC devices. Although we
expect to independently develop a new technology which will eliminate our need
for this licensed technology, there is no assurance that we will be successful
in doing so or that we will be able to continue to license this technology
beyond the eight years currently provided for in our license agreement.
COMPETITION
We are aware of only four other manufacturers with significant commercial
sales of CMP slurries for IC devices. We expect the competition to continue to
intensify. These manufacturers include Rodel, Fujimi, ChemFirst and Clariant. We
are aware of only three manufacturers with significant commercial sales of CMP
slurries for polishing the magnetic heads and the coating on the hard disks in
hard disk drives. These manufacturers include Rodel, Fujimi and Praxair. We may
also face competition from:
- - other companies that develop CMP products;
- - customers that currently have, or that may develop, in-house capacity to
produce their own CMP products; and
- - the development of polishing pads containing abrasives or other significant
changes in technology.
We compete primarily on the basis of our product design, level of service
and, to a lesser extent, price. We believe that we presently compete favorably
with respect to each of these factors. CMP products are evolving, however, and
we cannot give you any assurance that we will compete successfully in the
future. For a discussion of our market share of CMP slurries sold to IC device
manufacturers worldwide, see "-- Our Company".
PROPERTIES
Our principal U.S. facilities consist of:
- - our global headquarters in Aurora, Illinois, comprising approximately 65,000
square feet; and
- - a commercial dispersions plant and technical center in Aurora, Illinois,
comprising approximately 44,000 square feet.
We are in the process of constructing an additional manufacturing and
distribution center in Aurora, Illinois. The initial phase of this construction
is planned to provide a facility of approximately 170,000 square feet that is
scheduled to be in operation by our third fiscal quarter of 2000.
We also have a commercial dispersions plant in Geino, Japan, comprising
approximately 40,000 square feet. In addition, we will lease or sublease from
Cabot the land and building at Cabot's dispersions facility in Barry, Wales. We
are in the process of constructing a distribution center in Ansung, South Korea.
This approximately 16,000 square foot facility is scheduled for completion by
the end of 2000.
We believe that our current facilities are suitable and adequate for their
intended purposes and, together with our facilities under construction, provide
us with sufficient capacity to meet our current and expected demand in the
foreseeable future. However, if we were
48
<PAGE> 50
to encounter delays in the construction of our new facilities, we may face
capacity constraints.
ENVIRONMENTAL MATTERS
Our facilities are subject to various environmental laws and regulations,
including those relating to air emissions, wastewater discharges, the handling
and disposal of solid and hazardous wastes, and occupational safety and health.
We believe that our facilities are in substantial compliance with applicable
environmental laws and regulations. Our facilities have incurred, and will
continue to incur, capital and operating expenditures and other costs in
complying with these laws and regulations in both the United States and abroad.
However, we do not anticipate that the future costs of environmental compliance
will have a material adverse effect on our business, financial condition or
results of operations.
EMPLOYEES
As of March 6, 2000, we employed a total of 269 individuals, including 24
in sales and marketing, 79 in research and development, 27 in administration and
139 in operations. None of our employees are covered by collective bargaining
agreements. We have not experienced any work stoppages and consider our
relations with our employees to be satisfactory.
LEGAL PROCEEDINGS
In June 1998, one of our major competitors, Rodel Inc., filed a lawsuit
against Cabot in the United States District Court for the District of Delaware
entitled Rodel, Inc. v. Cabot Corporation (Civil Action No. 98-352). In this
lawsuit, Rodel has requested a jury trial and is seeking a permanent injunction
and an award of compensatory, punitive, and other damages relating to
allegations that Cabot is infringing United States Patent No. 4,959,113
(entitled "Method and Composition for Polishing Metal Surfaces"), which is owned
by an affiliate of Rodel. We refer to this patent as the Roberts patent and this
lawsuit as the Roberts lawsuit. Cabot filed an answer and counterclaim seeking
dismissal of the Roberts lawsuit with prejudice, a judgment that Cabot is not
infringing the Roberts patent and/or that the Roberts patent is invalid, and
other relief. Cabot subsequently filed a motion for a summary judgment that the
Rodel patent is invalid because all of the claims contained in the patent were
not sufficiently different under applicable patent law from subject matter
contained in previously granted patents, specifically United States Patents Nos.
4,705,566, 4,956,015 and 4,929,257, each of which is owned by a third party not
affiliated with Rodel or us. This motion was denied on September 30, 1999 based
on the court's finding that there were genuine issues of material fact to be
determined at trial. Although the Roberts lawsuit is presently in the discovery
stage and trial is scheduled to begin in November 2000, the trial date has not
yet been scheduled. After the ruling on the summary judgment motion, Rodel filed
a request for reexamination of the Roberts patent with the United States Patent
and Trademark Office, which was granted on November 12, 1999.
In April 1999, Rodel commenced a second lawsuit against Cabot in the United
States District Court for the District of Delaware entitled Rodel, Inc. v. Cabot
Corporation (Civil Action No. 99-256). In this lawsuit, Rodel has requested a
jury trial and is seeking a permanent injunction and an award of compensatory,
punitive, and other damages relating to allegations that Cabot is infringing two
other patents owned by an affiliate of Rodel. These two patents are United
States Patent No. 5,391,258 (entitled "Compositions and Methods for Polishing")
and United States Patent No. 5,476,606 (entitled "Compositions and Methods for
Polishing"). We refer to these patents as the Brancaleoni patents and this
lawsuit as the Brancaleoni lawsuit. Cabot has filed an answer and counterclaim
to the complaint seeking dismissal of the complaint with prejudice, a judgment
that Cabot is not infringing the Brancaleoni patents and/or that the Brancaleoni
patents are invalid, and other relief. The Brancaleoni lawsuit is presently in
the discovery stage which is currently scheduled to be completed by February 25,
2000. Trial is presently scheduled to commence on Decem-
49
<PAGE> 51
ber 4, 2000. The parties have jointly requested that the court extend these
dates.
In the Roberts lawsuit, the only product that Rodel to date has alleged
infringes the Roberts patent is our W2000 slurry, which is used to polish
tungsten and which currently accounts for a significant portion of our total
revenue. In the Brancaleoni lawsuit, Rodel has not alleged that any specific
product infringes the Brancaleoni patents; instead, Rodel alleges that our
United States Patent No. 5,858,813 (entitled "Chemical Mechanical Polishing
Slurry for Metal Layers and Films" and which relates to a CMP polishing slurry
for metal surfaces including, among other things, aluminum and copper) is
evidence that Cabot is infringing the Brancaleoni patents through the
manufacture and sales of unspecified products. At this stage, we cannot predict
whether or to what extent Rodel will make specific infringement claims with
respect to any of our products other than W2000 in these or any future
proceedings. It is possible that Rodel will claim that many of our products
infringe its patents.
Although Cabot is the only named defendant in these lawsuits, we will agree
to indemnify Cabot for any and all losses and expenses arising out of this
litigation as well as any other litigation arising out of our business. While we
believe there are meritorious defenses to the pending actions and intend to
defend them vigorously, these defenses may not be successful. If Rodel wins
either of these cases, we may have to pay damages and, in the future, may be
prohibited from producing any products found to infringe or required to pay
Rodel royalty and licensing fees with respect to sales of those products. In
addition, we may be subject to future infringement claims by Rodel or others
with respect to our products and processes. Such claims, even if they are
without merit, could be expensive and time consuming to defend and if we were to
lose any future infringement claims we could be subject to injunctions, damages
and/or royalty or licensing agreements. Royalty or licensing agreements, if
required as a result of any pending or future claims, may not be available to
use on acceptable terms or at all. Successful claims of infringement against us
could adversely affect our business, financial condition and results of
operations.
50
<PAGE> 52
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information regarding our executive officers
and directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Kennett F. Burnes 56 Chairman of the Board
Samuel W. Bodman 61 Director
William P. Noglows 41 Director
Juan Enriquez-Cabot 40 Director designee
John P. Frazee, Jr. 55 Director designee
Steven V. Wilkinson 58 Director designee
Matthew Neville 46 President and Chief Executive Officer, Director
William C. McCarthy 56 Vice President, Chief Financial Officer,
Treasurer and Secretary
Daniel J. Pike 36 Vice President of Operations
J. Michael Jenkins 46 Vice President of Human Resources
Bruce M. Zwicker 47 Vice President of Sales and Marketing
Chris C. Yu 41 Technology and marketing specialist
</TABLE>
------------------------
KENNETT F. BURNES was elected Chairman of the Board of our company in
December 1999. He has served as Cabot's Chief Operating Officer since 1996 and
Cabot's President since 1995. He was elected a director of Cabot in 1992. Before
joining Cabot in 1987, Mr. Burnes was a partner at Choate, Hall & Stewart, a
Boston-based law firm, where he practiced corporate and business law for nearly
20 years. He received both his bachelor and law degrees from Harvard University.
SAMUEL W. BODMAN was elected a director of our company in December 1999. He
has served as Cabot's Chairman and Chief Executive Officer since 1988. Before
joining Cabot, Mr. Bodman was President, Chief Operating Officer and a director
of FMR Corp., the holding company overseeing all activities of Fidelity
Investments. Mr. Bodman received his Ph.D. in chemical engineering from
Massachusetts Institute of Technology. In addition to serving on Cabot's board,
Mr. Bodman serves on the boards of John Hancock Mutual Life Insurance Company,
Security Capital Group Incorporated, Thermo Electron Corporation and Westvaco
Corporation.
WILLIAM P. NOGLOWS was elected a director of our company in January 2000.
He has served as an Executive Vice President of Cabot since 1998 and serves as
Director of Global Manufacturing and General Manager of Carbon Black. From 1984
to 1998, he held various positions at Cabot, including General Manager of
Cabot's Cab-O-Sil Division and Managing Director of Cabot Australasia. Mr.
Noglows received his BS from Georgia Institute of Technology.
JUAN ENRIQUEZ-CABOT will become a director of our company prior to the
closing of this offering. Since August 1997 Mr. Enriquez-Cabot has been a
researcher at Harvard University's David Rockefeller Center. From August 1996 to
August 1997 he was a senior researcher at Harvard Business School. From June
1996 to August 1997 he was a fellow at Harvard University's Center for
International Affairs. From June 1994 through June 1996 he was a director of
Democracy and Development, a research institution in Mexico City, Mexico. He
received both his bachelor and MBA degrees from Harvard University.
JOHN P. FRAZEE, JR. will become a director of our company prior to the
closing of this offering. Since June 1999 he has served as Chairman and Chief
Executive Officer of Paging Network, Inc., a provider of wireless communications
services. From August 1997 to June 1999 he served as Chairman, President and
Chief Executive Officer of Paging Network. From September 1993 until August
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<PAGE> 53
1997 Mr. Frazee managed investments as a
private investor. From March 1993 until September 1993 he was President and
Chief Operating Officer of Sprint Communications. In addition to serving on our
board, Mr. Frazee serves on the boards of Dean Foods Company, Homestead Village,
Inc., Paging Network, Security Capital Group Incorporated and Vast Wireless
Solutions. Mr. Frazee received his bachelor degree in political science from
Randolph-Macon College.
STEVEN V. WILKINSON will become a director of our company prior to the
completion of this offering. He has been retired since September 1998. Prior to
retirement, he worked for Arthur Andersen LLP, where he became a partner in
April 1974. Mr. Wilkinson received his BA in economics from DePauw University
and his MBA from the University of Chicago.
MATTHEW NEVILLE has served as our President and Chief Executive Officer
since December 1999. He was elected a director of our company in December 1999.
Mr. Neville has served as a Vice President of Cabot since 1997 and as General
Manager of our company since 1996. From 1983 to 1996, Mr. Neville held various
positions at Cabot, including Director of Research and Development for the
Cabot's Cab-O-Sil Division. Mr. Neville received his Ph.D. in chemical
engineering from Massachusetts Institute of Technology.
WILLIAM C. MCCARTHY has served as our Vice President, Chief Financial
Officer and Treasurer since December 1999 and as our Secretary since February
2000. Mr. McCarthy has served as Chief Financial Officer since February 1999.
From August 1998 to February 1999, Mr. McCarthy was pursuing personal interests
and was not employed. From February 1976 to August 1998, Mr. McCarthy held
various positions at Texas Instruments, including controller of Texas
Instruments' Corporate Services division. Mr. McCarthy received his BS in
business and his MBA from Texas A&M University.
DANIEL J. PIKE has served as our Vice President of Operations since
December 1999. Mr. Pike served as our Director of Global Operations from August
1996 to December 1999. Mr. Pike worked for FMC Corporation's Pharmaceutical
Division as a marketing manager from December 1993 until August 1996 and as a
financial analyst from June 1992 until December 1993. Mr. Pike received his BS
in chemical engineering from the University of Buffalo and his MBA from Wharton
School of Business of University of Pennsylvania.
J. MICHAEL JENKINS has served as our Vice President of Human Resources
since December 1999. Mr. Jenkins has served as our Director of Human Resources
since May 1999. From August 1984 until May 1999, Mr. Jenkins was employed for 15
years by Gas Chromatography Division of Hewlett-Packard holding various
positions, including Human Resources and Quality Manager. Mr. Jenkins received
his MA in human resources from Lincoln University.
BRUCE M. ZWICKER has served as our Vice President of Sales and Marketing
since December 1999. Mr. Zwicker has served as our Director, Global Business and
Sales from 1997 to December 1999. Since February 1988, Mr. Zwicker has held
various positions with Cabot, including Dispersion Products Line Manager. Prior
to joining Cabot, Mr. Zwicker worked for Unocal Corporation. Mr. Zwicker
received his BS in microbiology from Purdue University.
CHRIS C. YU has served as a technology and marketing specialist since
January 2000. From May 1999 until January 2000, Mr. Yu served as our Director of
Research and Technology. After indicating his desire to leave our company in
January 2000, Mr. Yu decided to resign from that position but to remain with our
company and focus on product development of CMP slurries for copper-based
applications and technology-based applications for customers. From April 1998 to
May 1999, Mr. Yu served as our Director of Interconnect Technology. From January
1996 to April 1998, Mr. Yu served as our Program Manager for Tungsten
Technology. From August 1994 to January 1996, Mr. Yu was employed by Rockwell
International as Advanced Process Methods principal engineer leading the
development of planarization technologies. Mr. Yu has also held various posi-
52
<PAGE> 54
tions with Motorola and Micron Technology. Mr. Yu received his Ph.D. in physics
from Pennsylvania State University.
BOARD OF DIRECTORS
Our board of directors is currently composed of four directors. Prior to
the completion of this offering, we will increase our board of directors to
include three independent directors.
We intend to amend our certificate of incorporation to divide the board of
directors into three classes: Class I, whose terms will expire at the annual
meeting of stockholders to be held in 2001, Class II, whose terms will expire at
the annual meeting of stockholders to be held in 2002, and Class III, whose
terms will expire at the annual meeting of stockholders to be held in 2003.
Messrs. Noglows and Enriquez-Cabot are or, upon their appointment, will be in
Class I. Messrs. Wilkinson and Burnes are or, upon their appointment, will be in
Class II. Messrs. Bodman, Frazee, and Neville are or, upon their appointment,
will be in Class III. At each annual meeting of stockholders beginning in 2001,
the successors to directors whose terms will then expire will be elected to
serve from the time of election and qualification until the third annual meeting
following election.
In addition, our certificate of incorporation will provide that the
authorized number of directors may be changed only by resolution of the board of
directors. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the total number of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Prior to the completion of this offering, we will establish an audit
committee and a compensation committee consisting of members of our board of
directors. The audit committee will recommend the annual appointment of our
auditors and review with our auditors the scope of audit and non-audit
assignments and related fees, accounting principles we use in financial
reporting, internal auditing procedures and the adequacy of our internal control
procedures. The audit committee, which will be a three member committee, will
consist of Messrs. Enriquez-Cabot, Frazee, and Wilkinson. The compensation
committee will review and approve the compensation and benefits for our
employees, directors and consultants, administer our employee benefit plans,
authorize and ratify stock option grants and other incentive arrangements and
authorize employment and related agreements. The compensation committee, which
will also have three members, will consist of Messrs. Burnes, Frazee and
Wilkinson.
COMPENSATION OF DIRECTORS
Directors who are also our employees receive no additional compensation for
their services as directors. Except as set forth below, each of our directors
who is not an employee of ours will receive:
- - upon his original appointment or election as a director, options to purchase
15,000 shares of our common stock which will vest over a three year period;
- - on an annual basis, options to purchase 5,000 shares of our common stock which
will vest over a four year period;
- - a $10,000 annual fee;
- - a $1,000 fee for attendance at each meeting of our board of directors or a
committee of the board; and
- - reimbursement of travel and other out-of-pocket costs incurred in attending
meetings.
As long as Cabot controls us, any director who is also an employee of Cabot will
not be entitled to the $10,000 annual fee or the $1,000 fee for attendance at
board and committee meetings.
EXECUTIVE OFFICERS
Our board of directors appoints our executive officers. Our executive
officers serve at the discretion of our board of directors.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
In our fiscal year ended September 30, 1999, we did not have a compensation
com-
53
<PAGE> 55
mittee or any other committee serving a similar function. Decisions as to the
compensation of executive officers were made by Cabot.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
Chief Executive Officer and our four other executive officers who, based on
employment with Cabot, were the most highly compensated for the fiscal year
ended September 30, 1999. All of the information in this table reflects
compensation earned by the listed individuals for services rendered to Cabot. In
connection with this offering, we have established employee benefit plans and
arrangements so that, following this offering, the compensation and employee
benefits of our executive officers and all of our other employees will be
provided primarily by us. See "--Compensation and Employee Benefit Plans" and
"Relationships Between Our Company and Cabot Corporation -- Employee Matters
Agreement".
SUMMARY COMPENSATION TABLE FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------- RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
NAME AND COMPENSATION AWARD(S) COMPENSATION
PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) ($) ($)(1) ($)(2)
- ------------------- ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Matthew Neville.............. 1999 190,000 100,000 378,000 28,929
President and Chief
Executive Officer
William C. McCarthy.......... 1999 106,250 53,000(3) 82,711(4) 190,350(5) 10,102
Vice President, Chief
Financial Officer,
Treasurer and Secretary
Daniel J. Pike............... 1999 146,250 60,000 170,100 18,453
Vice President of
Operations
Chris C. Yu.................. 1999 162,637 65,000 45,000(6) 344,475(5) 21,078
Former Director of Research
and Technology
Bruce M. Zwicker............. 1999 132,728 48,000 94,500 15,642
Vice President of Sales and
Marketing
</TABLE>
- ---------------
(1) The value of the shares of Cabot restricted stock set forth in the table was
determined by subtracting the amount paid by the named executive officer to
Cabot for the shares from the fair market value of the shares on the date of
grant. The following named executive officers were granted the following
shares of Cabot restricted stock in the fiscal year ended September 30, 1999
under an equity incentive plan of Cabot: Mr. Neville, 20,000 shares; Mr.
McCarthy, 7,500 shares; Mr. Pike, 9,000 shares; Mr. Yu, 15,000 shares; and
Mr. Zwicker, 5,000 shares.
The number of shares and value (calculated at fair market value as of
September 30, 1999 ($23.75 per share), less the amount paid by the named
executive officer for the shares) of all shares of Cabot restricted stock
held by the named executive officers on September 30, 1999 (including the
shares referred to in the column of the Table headed "Restricted Stock
Award(s)"), were as follows: Mr. Neville, 44,000 shares ($589,750); Mr.
McCarthy, 5,500 shares ($118,475); Mr. Pike, 15,500 shares ($210,275); Mr.
Yu, 14,500 shares ($247,600); and Mr. Zwicker, 11,500 shares ($154,538).
Except for a portion of the shares of Cabot restricted stock granted to Mr.
McCarthy and Mr. Yu (see note 5 below), the restricted stock set forth in
the table vests, in whole, three years from the date of grant. In accordance
with Cabot's long-term incentive compensation program under its equity
incentive plans, each of the named individuals paid to Cabot 30-40% of the
fair market value of the shares of stock listed in this footnote on the date
of grant. Some of the funds for the payment for this restricted stock were
borrowed from Merrill Lynch Bank & Trust Co. by all of the named executive
officers under a loan facility available to all recipients of restricted
stock grants under this program. The recipients
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<PAGE> 56
(including the named executive officers) borrowing funds from Merrill Lynch
Bank & Trust are obligated to pay interest on the loans at the prime rate
and to repay the funds borrowed. Shares purchased with borrowed funds must
be pledged to Merrill Lynch Bank & Trust as collateral for the loans when
the restrictions lapse. Cabot also guarantees payment of the loans in the
event the recipients fail to honor their obligations. The loans are full
recourse. Dividends are paid on the shares of restricted stock. In 1999,
Cabot ceased using the loan facility, purchased the outstanding loan balance
from Merrill Lynch Bank & Trust, and commenced to make loans under the
program bearing interest at 6% per annum and otherwise on terms
substantially identical to the bank loans.
(2) The information in the column headed "All Other Compensation" includes (a)
matching contributions to Cabot's tax-qualified savings plan and accruals
under a non-qualified supplemental savings plan, or CRISP, for the fiscal
year ended September 30, 1999 and (b) contributions to Cabot's tax-qualified
employee stock ownership plan and accruals under a supplemental employee
stock ownership plan, or ESOP, for the fiscal year ended September 30, 1999
on behalf of the named executive officers in the following amounts:
<TABLE>
<CAPTION>
NAME CRISP ESOP
---- ----- ----
<S> <C> <C>
Mr. Neville.................... $ 15,763 $13,166
Mr. McCarthy................... $ 5,180 $ 4,337
Mr. Pike....................... $ 11,039 $ 6,723
Mr. Yu......................... $ 11,961 $ 8,288
Mr. Zwicker.................... $ 9,435 $ 5,572
</TABLE>
Cabot provides Mr. Neville (but none of our other named executive officers)
with death benefit protection in the amount of three times his salary,
including $50,000 of group life insurance coverage. No amount has been
included in the column headed "All Other Compensation" for this benefit
because Cabot accrued no amount for the benefit and the benefit, other than
the group life insurance (which is available to all Cabot employees in
amounts determined by the level of their salaries), is not funded by
insurance on Mr. Neville's life. Cabot funds the cost of the program
generally by insurance on the lives of various other present and former
Cabot employees. The value of this benefit, based upon the taxable income
it would constitute if it were insurance, does not exceed approximately
$1,500 per year for Mr. Neville. Cabot also provides our other named
executive officers with death benefit protection in the amount of one times
their salary. The value of this benefit to each of our named executive
officers other than Mr. Neville (Mr. McCarthy, $585; Mr. Pike, $691; Mr.
Yu, $829; and Mr. Zwicker, $636) is reflected in the column headed "All
Other Compensation".
(3) This figure reflects a $10,000 sign-on bonus paid to Mr. McCarthy. Mr.
McCarthy's hire date was February 2, 1999.
(4) This figure reflects reimbursement of relocation expenses.
(5) 6,000 of the 7,500 shares of Cabot restricted stock Mr. McCarthy received,
and 6,000 of the 15,000 shares of Cabot restricted stock Mr. Yu received,
were granted for no cash purchase price; Mr. McCarthy's 6,000 shares vest in
equal increments in June, 1999, February, 2000 and February, 2001; Mr. Yu's
6,000 shares vest annually as follows: one-half in November, 1998,
one-quarter on November 15, 1999 and one-quarter on November 15, 2000.
(6) This figure reflects a reimbursement to Mr. Yu for income tax obligations on
shares of restricted stock awarded to him.
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<PAGE> 57
AGGREGATE OPTION EXERCISES FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the exercise of
Cabot stock options by our named executive officers during 1999, the number of
unexercised Cabot stock options held by named executive officers on September
30, 1999, and the value of the unexercised in-the-money Cabot stock options on
that date.
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Matthew Neville....... 2,400 37,275 5,000 -- 80,031 --
Chris C. Yu........... -- -- -- 7,150 -- --
</TABLE>
- ---------------
(1) We determined the value of unexercised in-the-money options as of September
30, 1999 by taking the difference between the fair market value of a share
of Cabot common stock on September 30, 1999 ($23.75 per share) and the
option exercise price, multiplied by the number of shares underlying the
options as of that date. Options held by Mr. Yu were out of the money on
that date, and we have therefore recorded no value for them.
PENSION PLAN BENEFITS
Prior to this offering, our employees, including our named executive
officers, participated in Cabot's tax-qualified cash balance plan. This plan
provides retirement benefits to plan participants based on their compensation
and years of service, expressed as an account balance. In addition, prior to
this offering, some of our named executive officers participated in Cabot's
non-qualified supplemental cash balance plan, which provides supplemental
retirement benefits not available under the cash balance plan by reason of
limitations set by the Internal Revenue Code and the Employee Retirement Income
Security Act. We do not intend to sponsor a tax-qualified or a supplemental cash
balance plan, and, accordingly, all of our employees will stop accruing benefits
under these plans in connection with this offering.
COMPENSATION AND EMPLOYEE BENEFIT PLANS
We have adopted various employee benefit plans and arrangements for the
purpose of providing compensation and employee benefits to our employees after
this offering, including our executive officers. Some of these plans are
described below. These plans and arrangements include an equity incentive plan,
an employee stock purchase plan, a tax-qualified savings plan and a
non-qualified supplemental savings plan. To the extent necessary or advisable
under applicable law, Cabot, as our sole stockholder, will approve these plans
prior to this offering.
LONG-TERM INCENTIVES
We have adopted the Cabot Microelectronics Corporation 2000 Equity
Incentive Plan, and Cabot, as our sole stockholder, has approved the plan. The
following description of certain features of the plan is qualified in its
entirety by reference to the full text of the plan.
Some of our employees (including our executive officers) hold options to
acquire Cabot common stock granted under Cabot's equity incentive plans. In
connection with the distribution, we and Cabot are considering giving these
employees the choice of retaining these awards or receiving, in consideration
for the cancellation of these awards, replacement awards under our 2000 Equity
Incentive Plan. These replacement awards will be subject to the same terms and
conditions as in effect prior to the cancellation of the prior Cabot awards,
except that (1) our common stock will be substituted for Cabot common stock
subject to the awards, and (2) the replacement awards will be adjusted to
preserve the intrinsic value to the holders immediately prior to cancellation of
the prior Cabot awards. Some of our employees also hold shares of Cabot
restricted stock, and we do not expect that these awards will be cancelled and
replaced with replacement awards.
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General; Shares Available for Issuance under the Plan. The 2000 Equity
Incentive Plan will enable us to make awards of options and restricted stock
(including purchase restricted stock) to eligible employees, directors,
consultants and advisers of our company and our affiliates. We believe that the
plan will also provide us with flexibility in designing and providing incentive
compensation in order to attract and retain individuals who are in a position to
make significant contributions to our success, to reward individuals for past
contributions and to encourage individuals to take into account our long-term
interests through ownership of our common stock. Subject to adjustment for stock
splits and similar events, the maximum number of shares of common stock that may
be issued under the plan is 3.5 million shares. This number does not include
shares which will become available under the plan because of events such as
forfeitures, methods of cashless exercise and open market repurchases. Because
options issued under the plan will not be exercisable until after the spin-off,
the issuance of these options will not require us to issue any of our common
stock until that date. Awards of shares of our common stock, including
restricted stock, may be made by us under the plan. Prior to the spin-off,
however, we cannot issue any shares of our common stock if doing so would reduce
Cabot's percentage ownership in us to less than 80.5%.
Administration; Eligible Grantees. The 2000 Equity Incentive Plan will be
administered by our full board or our compensation committee, consisting of at
least one member of our board of directors. However, if required by law, this
committee will consist of at least two members of our board, neither of whom may
be one of our employees. Officers and other key employees (including employees
of our subsidiaries) who are responsible for or contribute to the management,
growth or profitability of our business and the business of our subsidiaries are
eligible to receive awards under the plan, but no employee may receive awards
under the plan in any calendar year covering more than 300,000 shares of common
stock. Our directors, advisers and consultants, as well as individuals who are
employees of our affiliates, may also receive awards under the plan.
Stock Options. The compensation committee may grant stock options under
the 2000 Equity Incentive Plan. Stock options enable the holder of the option to
purchase shares of our common stock at a price specified by the compensation
committee at the time the award is made. The plan permits the granting of stock
options that qualify as incentive stock options under Section 422 of the
Internal Revenue Code and stock options that do not qualify for incentive stock
option treatment. The compensation committee determines the per share exercise
price of all stock options and, as a general rule, this price may not be less
than the fair market value of a share of common stock at the time of grant.
Options granted in connection with this offering will be granted at the initial
public offering price. Prior to the spin-off, the exercisability of vested stock
options will be limited so that Cabot's percentage ownership in us will not drop
below 80.5%. The compensation committee will determine when an option may be
exercised and its term, but the term may not exceed ten years.
Restricted Stock. The compensation committee may grant restricted stock
under the 2000 Equity Incentive Plan. In general, an award of restricted stock
entitles the recipient to shares of common stock, subject to restrictions
determined by the compensation committee. The compensation committee may require
the recipient to provide consideration for the restricted stock as a condition
to the grant of the restricted stock. Restrictions on restricted stock lapse as
specified by the compensation committee at the time of grant. Until the
restrictions lapse, shares of restricted stock are non-transferable. Recipients
of restricted stock have all rights of a stockholder with respect to the shares,
including voting and dividend rights, subject only to the conditions and
restrictions generally applicable to restricted stock or to other restrictions
and conditions specifically set forth in the award agreement.
Effect of Termination of Employment. As a general rule, the effect that a
termination of employment will have on a holder's awards will be set forth in
his or her award agree-
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ment. We expect that some terminations, such as terminations upon death or for
permanent disability, may result in the accelerated vesting of options and the
lapsing of restrictions on restricted stock. We also expect that other
terminations will result in the forfeiture of unvested options and restricted
stock.
Adjustments for Changes in Capitalization; Change in Control. The
compensation committee will make appropriate adjustments to the maximum number
of shares of common stock that may be delivered under the plan and to
outstanding awards to reflect stock dividends, stock splits, and similar changes
in capitalization. When granting awards under the plan, the compensation
committee may provide for the accelerated vesting of options, and for the
immediate lapsing of restrictions on restricted stock in the event of a "Change
in Control" (as defined in the plan).
Amendment and Termination. The compensation committee may at any time
discontinue granting awards under the plan. Our board of directors may at any
time amend the plan or terminate the plan as to any further grants of awards.
However, none of these actions may, without the approval of our stockholders,
increase the maximum number of shares of common stock available under the plan,
extend the time within which awards may be granted, or amend the provisions of
the plan relating to amendments. Nor may any of these actions adversely affect
the rights of a holder of any previously granted award.
GRANTS UNDER THE 2000 EQUITY INCENTIVE PLAN
In connection with this offering, we intend to grant stock options to all
of our directors and employees, including our executive officers, under the 2000
Equity Incentive Plan. An aggregate of 935,800 shares of common stock are
issuable upon the exercise of these options, and the exercise price of these
options will be the initial public offering price. The following table sets
forth the number of shares of our common stock underlying these options:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITIONS UNDERLYING OPTIONS
- ------------------ ------------------
<S> <C>
Matthew Neville............................................. 90,000
President and Chief Executive Officer, Director
William C. McCarthy......................................... 36,000
Vice President, Chief Financial Officer, Treasurer and
Secretary
Daniel J. Pike.............................................. 45,000
Vice President of Operations
J. Michael Jenkins.......................................... 30,000
Vice President of Human Resources
Bruce M. Zwicker............................................ 36,000
Vice President of Sales and Marketing
Executive officers as a group (5 persons)................... 237,000
Non-employee directors as a group (6 persons)............... 240,000
All employees as a group (269 persons)...................... 695,800
</TABLE>
In addition, we intend to grant options to acquire 257,300 shares of common
stock under the 2000 Equity Incentive Plan to Cabot employees who are not
directors of our company. The exercise price for these options will be the
initial public offering price.
Up to one-third of the foregoing options to be granted to our employees and
directors will generally vest upon their grant and the balance of these options
will vest over a two to four year period. The foregoing options granted to Cabot
employees in their capacities as Cabot employees vest in their entirety upon
their grant.
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ANNUAL INCENTIVES
We intend to make annual cash bonuses to our employees, including our
executive officers, to provide them with an incentive to carry out our business
plan and to reward them for having done so. We intend to set performance goals
in each fiscal year at the beginning of the fiscal year, and we intend to base
the bonuses on an evaluation of our performance in the light of those goals.
EMPLOYEE STOCK PURCHASE PLAN
We have adopted a 2000 Employee Stock Purchase Plan, under which we have
initially reserved for issuance 475,000 shares of our common stock, and Cabot,
as our sole stockholder, has approved the plan. We intend that the plan will
become effective in connection with this offering and that the first offering
period under the plan will commence in connection with this offering. We also
intend that the plan will qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code; there may be offering periods under
the plan, however, including the first offering period, that do not qualify
under Section 423.
Administration; Eligible Employees. The compensation committee will
administer the plan. The compensation committee, as plan administrator, will
have full authority to adopt administrative rules and procedures and to
interpret the provisions of the plan. Each of our full-time employees, and each
full-time employee of any future subsidiaries that we designate as eligible to
participate in the plan, will be eligible to participate in the plan. In
addition, the Internal Revenue Code requires us to exclude some employees from
participating in the plan and sets limits on how much common stock a participant
may purchase under the plan, and we will comply with these exclusions and
limitations.
Securities Subject to the Plan. The plan limits the number of shares of
common stock initially reserved for issuance under the plan to 475,000 shares.
The shares issuable under the plan will be made available from authorized but
unissued shares of our common stock or from shares that we purchase on the open
market after this offering. We will prorate the shares to be issued in any
offering to the extent necessary to preserve the tax-free nature of the
spin-off. We cannot issue any shares of our common stock under the plan,
however, if doing so would reduce Cabot's percentage ownership in us to less
than 80.5%.
Adjustments; Change in Control. In the event that any change to the
outstanding common stock occurs (whether by reason of any recapitalization,
stock dividend, stock split, exchange or combination of shares or other change
in corporate structure), we will make appropriate adjustments to:
- - the maximum number and class of securities issuable under the plan;
- - the maximum number and class of securities purchasable per participant during
any plan offering; and
- - the number and class of securities and the price per share in effect under
each outstanding purchase right.
It is intended that any adjustments will prevent any dilution or
enlargement of rights under the plan. In the event of various corporate events
such as our dissolution or liquidation, or a merger, or a sale of all or
substantially all of our assets, the plan offering which would otherwise be in
effect on the date of the event will accelerate and will end on the last payday
before the date of the event. On that date, all outstanding purchase rights will
automatically be exercised.
Plan Offering Periods and Purchase Rights. The plan will offer shares of
common stock from time to time through a series of plan offerings, each with a
duration of approximately six months. (However, the first plan offering may be
slightly longer or shorter than six months, depending on when this offering
occurs.) The plan offerings will commence as designated from time to time by the
compensation committee. Each plan offering will in any event begin and end on a
business day. On the day a plan offering begins, each participant with respect
to that plan offering will receive a right to purchase shares of our common
stock through payroll deductions made during that plan offering. In general,
each participant may authorize periodic pay-
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roll deductions in an amount of between one percent and ten percent of his or
her gross cash compensation for each pay period during the plan offering. A
participant may elect to reduce or increase future payroll deductions. The
purchase date of shares under the plan will occur on the day that the plan
offering ends, and whole and deemed fractional shares will be purchased using
the aggregate payroll deductions withheld from the participant for the plan
offering. We will not issue fractional shares under the plan. In general, a
participant may withdraw from the plan at any time by giving written notice.
Plan Offering Price. The price per share of common stock in any plan
offering will in general be 85% of the lower of:
- - the fair market value per share of common stock on the day the plan offering
begins; and
- - the fair market value per share of common stock on the day the plan offering
ends.
The fair market value on the first day of the first offering period will be
the initial public offering price. Thereafter, the fair market value will be
determined by reference to the closing price of our common stock on the Nasdaq
on the relevant date.
Amendment and Termination. We may, in our sole discretion, terminate or
amend the plan, but the amendment and termination of the plan may not adversely
affect outstanding purchase rights without the consent of the holders of those
rights. If we terminate the plan, we may end a plan offering and accelerate the
exercise date of all outstanding purchase rights. We will refund (without
interest) any remaining payroll deductions after we terminate the plan.
New Plan Benefits. Because the benefits under the plan will depend on
elections to participate and the fair market value of our common stock on
various future dates, we cannot determine the benefits that our executive
officers and other employees may receive under the plan.
RETIREMENT BENEFITS
We have adopted a tax-qualified savings plan for the benefit of our
employees, including our executive officers. Our employees will begin to
participate in this plan as of the first day of the month immediately following
the month in which the offering occurs. The savings plan will provide that we
will make discretionary contributions to participants' accounts, as well as cash
matching contributions in amounts based on participants' deferral elections. In
addition, we have adopted a non-qualified savings plan to provide supplemental
benefits to those employees who are affected by limits on compensation contained
in the Internal Revenue Code.
We do not currently sponsor a tax-qualified or supplemental defined benefit
pension plan, and we do not currently have any intention to adopt such a plan.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In connection with this offering and the spin-off, we expect to adopt
change-in-control arrangements covering our executive officers and other key
employees. These arrangements will likely provide for a cash severance payment,
continued medical benefits and other ancillary payments and benefits upon some
terminations of a covered employee's employment following a change in control.
Terminations of employment entitling a covered employee to these payments and
benefits will likely include (1) termination of the employee by us (or a
successor) other than for cause and (2) termination by the covered employee upon
reduction in compensation, duties or responsibilities, or relocation, or other
circumstances constituting constructive termination.
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RELATIONSHIPS BETWEEN OUR COMPANY AND CABOT CORPORATION
CABOT AS OUR CONTROLLING STOCKHOLDER
Immediately prior to this offering, Cabot will be our sole stockholder.
Upon completion of this offering, Cabot will beneficially own 82.6% of the
outstanding shares of our common stock, or 80.5% if the underwriters' over-
allotment option is exercised in full. For as long as Cabot continues to
beneficially own more than 50% of the outstanding shares of common stock, Cabot
will be able to direct the election of all of the members of our board of
directors and exercise a controlling influence over our business and affairs,
including any determinations with respect to:
- - mergers or other business combinations involving our company;
- - the acquisition or disposition of assets by our company;
- - the incurrence of indebtedness by our company;
- - the issuance of any additional common stock or other equity securities;
- - the payment of dividends with respect to the common stock;
- - amendments, waivers and modifications to our fumed metal oxide supply
agreement with Cabot and the other interim and ongoing agreements we have
entered into with Cabot; and
- - some determinations with respect to treatment of items in our tax returns
which are consolidated or combined with Cabot's tax returns.
Similarly, Cabot will have the power to:
- - determine matters submitted to a vote of our stockholders without the consent
of our other stockholders;
- - prevent a change in control of our company; and
- - take other actions that might be favorable to Cabot.
Cabot has announced that after the offering it intends to distribute pro
rata to its stockholders all of the shares of common stock it owns by means of a
tax-free distribution. Cabot's final determination to proceed will require a
declaration of the spin-off by Cabot's board of directors. Such a declaration is
not expected to be made until certain conditions, many of which are beyond the
control of Cabot, are satisfied, including:
- - receipt by Cabot of a ruling from the IRS as to the tax-free nature of the
spin-off; and
- - the absence of any change in future market or economic conditions (including
developments in the capital markets) of Cabot's or our company's business and
financial condition that causes Cabot's board of directors to conclude that
the spin-off is not in the best interest of Cabot's stockholders.
We have been advised by Cabot that it expects the spin-off to occur six to
twelve months after the date of a private letter ruling from the IRS confirming
that the spin-off is tax-free to Cabot. If Cabot completes the spin-off, the
increased number of shares available in the market may have an adverse effect on
the market price of the common stock. See "Risk Factors -- Risks Relating to Our
Separation from Cabot".
For a description of certain provisions of our certificate of incorporation
concerning the allocation of business opportunities that may be suitable for
both us and Cabot, see "Description of Capital Stock -- Corporate
Opportunities".
For the purposes of governing some of the relationships between us and
Cabot following the spin-off and this offering, we and Cabot have entered into
commercial arrangements, principally the fumed metal oxide supply agreement, the
dispersions services agreement and the facilities lease arrangements. In
addition, we will enter into a master separation agreement providing for the
transfer of the assets and liabilities of our business, as operated by Cabot, to
us. We have also entered into a trademark license agreement which will provide
for the license to us by Cabot of some of its trademarks and will enter into a
confidential disclosure and license agreement that will provide for confi
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dential treatment of specified information,
licenses for specified intellectual property and the transfer of
dispersion-related intellectual property. Furthermore, we have also entered into
various agreements with Cabot regarding certain arrangements between the parties
during the interim period between the closing of this offering and the
completion of the spin-off. These agreements are the management services
agreement, the initial public offering and distribution agreement, the employee
matters agreement and the registration rights agreement. In addition, we and
Cabot have entered into a tax sharing agreement to address the allocation of
certain tax liabilities between the parties.
All of the foregoing agreements will be effective on or prior to the
completion of this offering. Because these agreements have been or will be
entered into at a time when we are or will be a wholly owned subsidiary of
Cabot, they are not or will not be the result of arm's-length negotiations
between the parties. These agreements have been or will be made in the context
of an affiliated relationship and negotiated in the overall context of our
separation from Cabot. The prices and other terms under these agreements may be
less favorable to us than what we could have obtained in arm's-length
negotiations with unaffiliated third parties for similar services or under
similar leases. We did not negotiate with a third party for any of the services
or raw materials provided for under the various agreements described in this
section. Therefore, it is difficult to determine whether these agreements are
less favorable to us than those that would likely result from arm's length
negotiations with an unaffiliated third party. In addition, because the products
and quantities required to be supplied under the fumed metal oxide supply
agreement, in particular, and the dispersion services agreement are unique, it
is difficult to compare those terms with those that might have been obtained
from an unaffiliated third party.
The agreements summarized below have been filed as exhibits to the
registration statement of which this prospectus forms a part. See "Where You Can
Find More Information".
COMMERCIAL ARRANGEMENTS WITH CABOT
FUMED METAL OXIDE SUPPLY AGREEMENT
We have entered into a fumed metal oxide supply agreement with Cabot, which
will be effective upon the completion of this offering, under which Cabot will
continue to be our exclusive supplier of fumed silica and fumed alumina for
existing products and our primary supplier for future products. For a more
complete description of this agreement, see "Business -- Cabot as Our Raw
Materials Supplier".
DISPERSIONS SERVICES AGREEMENT WITH CABOT
We have entered into a dispersions services agreement with Cabot, which
will be effective upon the completion of this offering, under which we will
continue to offer fumed metal oxide dispersions services to Cabot. For a more
complete description of this agreement, see "Business -- Dispersions Services
Agreement with Cabot".
FACILITIES LEASE ARRANGEMENTS
We will enter into an agreement with Cabot to lease or sublease the land
and, building at its dispersions facility in Barry, Wales. This building space
comprises approximately 62,300 square feet. The lease payments will total
approximately $60,000 per year. This lease will expire after ten years, subject
to earlier termination in some circumstances.
MASTER SEPARATION AGREEMENT
To effect our separation from Cabot, Cabot and we will enter into a master
separation agreement. Under this agreement, Cabot and its subsidiaries will
transfer to us substantially all of the assets and liabilities of Cabot that are
used in, relate to or arise out of the business conducted by us as a division of
Cabot, including the assets and liabilities that are used in, relate to or arise
out of:
- - all business operations whose financial performance is reflected in our
financial statements for the period ended September 30, 1999 as set forth
elsewhere in this prospectus, except for the fumed alumina plant
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at Cabot's Tuscola, Illinois facility and the land, building and other
improvements and fixtures in Barry, Wales that we will lease or sublease from
Cabot; and
- - all business operations initiated or acquired by us after the date of those
financial statements.
We will assume and will agree to perform all liabilities and obligations of
Cabot relating to or arising out of these business operations any time on or
before the date of the transfer of these business operations to us, which we
refer to as the contribution date, other than various excluded liabilities.
These assumed liabilities include all liabilities relating to or arising out of
these business operations as conducted through the contribution date that are
unknown to Cabot and/or unrealized as of the contribution date and that become
known to Cabot or are realized or otherwise arise after the contribution date.
Except as expressly set forth in the master separation agreement or any
other agreement to be entered into between Cabot and us in connection with our
separation from Cabot, neither Cabot nor our company is making any
representation or warranty as to the business, assets or liabilities transferred
or assumed as part of the separation. Except as otherwise expressly set forth in
the separation agreement or in an ancillary agreement, all assets are being
transferred on an as is, where is, basis.
INTELLECTUAL PROPERTY
Under the master separation agreement, Cabot will transfer to us its
intellectual property rights related solely to the business conducted by us as a
division of Cabot. This transferred intellectual property includes:
- - patents;
- - copyrights;
- - trademarks;
- - technology, know-how and trade secrets;
- - licenses and other rights concerning third party technology and intellectual
property; and
- - the right to sue for infringements of these patents, copyrights, trademarks
and other intellectual property.
Cabot will agree to assign to us various contracts with third parties relating
to our business.
FEES
We will agree to pay the costs of the transfer of assets from Cabot to us,
including:
- - moving expenses;
- - transfer taxes;
- - expenses related to notices to customers, suppliers and other third parties;
- - fees related to the transfer or issuance of licenses, permits and franchises;
- - fees related to the assignment or transfer of contracts, agreements and
intellectual property;
- - recording and other fees, taxes, charges and assessments related to the
transfer of real property;
- - costs related to the transfer or establishment of any domestic and foreign
branch office; and
- - costs related to the transfer of any employee.
INDEMNIFICATION
Pursuant to the master separation agreement, we will agree to indemnify,
defend and hold harmless Cabot and each of its subsidiaries and their respective
successors-in-interest against any losses, claims, damages, liabilities or
actions arising out of or in connection with:
- - the liabilities assumed by us as part of the separation, including any
liabilities arising out of the current litigation with Rodel; and/or
- - our conduct of our business and affairs after the contribution date.
Cabot will agree to indemnify, defend and hold harmless us and each of our
subsidiaries and their respective successors-in-interest against any losses,
claims, damages, liabilities
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or actions, resulting from, relating to or arising out of or in connection with:
- - the excluded assets, meaning assets used or owned in connection with any
businesses and operations of Cabot and its affiliates other than our business;
and/or
- - the excluded liabilities, including liabilities that are not incidental to or
do not arise out of our business and various liabilities in respect of
indebtedness, income taxes, employee or retirement benefit plans and other
liabilities.
Under the terms of the master separation agreement, we and Cabot, as
indemnifying parties, will have various rights. The indemnitee may defend and,
with the consent of the indemnifying party, compromise and settle a claim and
will be entitled to reimbursement for its reasonable attorneys' fees and
expenses incurred in defending the claim and indemnification for any liabilities
incurred as a result of the claim.
An indemnifying party may elect to defend, at its own expense and through
counsel chosen by it, any claim by a third party if the claim will, or is likely
to, obligate the indemnifying party to provide indemnification. If an
indemnifying party elects to defend a third-party claim, it will be required to
pay:
- - the indemnitee's reasonable out-of-pocket expenses incurred in connection with
its cooperation in the defense of the claim; and
- - under some circumstances, the reasonable fees and expenses of separate counsel
for the indemnitee, including primary counsel, local counsel and, in patent
litigation, special patent counsel.
If an indemnifying party elects to defend a third-party claim but, in the
reasonable judgment of an indemnitee, the indemnifying party fails to timely,
properly and adequately defend the third-party claim, the indemnitee may do so.
There will be restrictions on the ability of the indemnifying party to settle or
compromise a claim if the settlement or compromise would be harmful to the
indemnitee. The master separation agreement will specifically provide that until
we notify Cabot that we will assume the defense of the lawsuits instituted by
Rodel against Cabot, Cabot will continue to defend these lawsuits and we will
indemnify Cabot for any losses and expenses, including attorneys' fees, that it
incurs as a result of these actions. For a further discussion of the Rodel
lawsuits, see "Business -- Legal Proceedings".
If an indemnitee recovers amounts from third parties, such as an insurance
company, these amounts will reduce the amount the indemnifying party must pay
unless the indemnitee or its affiliates remain directly or indirectly liable for
those amounts pursuant to self-insurance or re-insurance arrangements. If the
indemnitee incurs a net tax cost from the receipt of an indemnification payment,
the indemnifying party must compensate the indemnitee for the amount of the net
tax cost. If the indemnitee receives a net tax benefit from incurring or paying
for any indemnified loss or liability, the amount the indemnifying party must
pay will be reduced to take account of the net tax benefit.
DISPUTE RESOLUTION
The master separation agreement will contain provisions that govern the
resolution of disputes, controversies or claims that may arise between us and
Cabot except to the extent otherwise provided for in any other agreement entered
into between Cabot and us in connection with our separation from Cabot. The
master separation agreement will provide that the parties will use all
commercially reasonable efforts to settle all disputes arising in connection
with the agreement without resorting to mediation, arbitration or otherwise. If
these efforts are not successful, either party may submit the dispute for non-
binding mediation. If mediation is not successful in resolving any dispute, any
party may resort to any remedies it may have at common law or otherwise,
including litigation. Neither party will be entitled to consequential, special,
exemplary or punitive damages.
FURTHER ASSURANCES
In addition to the actions specifically provided for elsewhere in the
master separation agreement, each of our company and
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Cabot will agree to use all commercially
reasonable efforts to cause all actions, agreements and obligations set forth in
the master separation agreement to be performed.
TRADEMARK LICENSE AGREEMENT
We have entered into a trademark license agreement with Cabot that will
govern our use of various trademarks used in our business. Under the agreement,
Cabot will grant to us a worldwide royalty-free license to use the trademarks
solely in connection with the manufacture, sale or distribution of products
related to our business. The license will include the right to use the term
"Cabot" as a trade name, either individually or in combination with other terms.
This license will include the right to grant sublicenses to our wholly-owned
subsidiaries, for so long as they remain wholly-owned subsidiaries. We may not
transfer or assign the license without Cabot's prior written consent.
Under the agreement, we will agree to refrain from various actions that
could interfere with Cabot's ownership of the trademarks. The agreement contains
provisions regarding:
- - the creation of quality standards for our products;
- - the ability of Cabot to inspect our products and facilities; and
- - our obligation to cease production of and correct or properly destroy, any
products marketed under the licensed trademarks that fail to meet the quality
standards.
The agreement provides that our license to use the trademarks may be
terminated for various reasons, including our discontinued use of the
trademarks, our breach of the agreement or a change in control of us.
We will indemnify Cabot and its directors, officers and employees from
claims for damage or injury to persons or property or for loss of life or limb
if Cabot is found liable to any third party under any tort or products liability
or similar action in connection with the use by us of the licensed trademarks.
MANAGEMENT SERVICES AGREEMENT
We and Cabot have entered into a management services agreement, which will
be effective upon the completion of this offering, pursuant to which Cabot will
provide administrative and corporate support services to us on an interim or
transitional basis, including human resource, accounting, treasury, tax,
facilities, legal and information services. Cabot will charge us for these
services at cost, including all out-of-pocket, third-party costs and expenses
incurred by Cabot in providing the services. If Cabot incurs third-party
expenses on behalf of us as well as a Cabot entity, Cabot will be required to
allocate these expenses in good faith between us and the Cabot entity, as Cabot
shall determine in the exercise of its reasonable judgment. The agreement
provides for monthly invoicing of service charges. If we do not pay the invoiced
amount within 60 days following receipt of the invoice, we will be required to
pay interest at a specified rate, unless the invoiced amount is in dispute.
Cabot and we will be required to use reasonable efforts to resolve any disputes
promptly.
The management services agreement provides that the services provided by
Cabot will be substantially similar in scope, quality and nature to those
services provided to us prior to the contribution date. Cabot will also be
required to provide the services to us through the same or similarly qualified
personnel, but the selection of personnel to perform the various services will
be within the sole control of Cabot. In addition, Cabot will not be required to
materially increase the volume, scope or quality of the services provided beyond
the level at which they were performed for us in the past. The agreement
provides that Cabot may cause any third party to provide any service to us that
Cabot is required to provide, but that Cabot will remain responsible for any
services it causes to be provided in this manner. Cabot will not be required to
provide any service to the extent the performance of the service becomes
impracticable due to a cause outside the control of Cabot, such as natural
disasters, governmental actions or similar events of force majeure. Similarly,
Cabot will not be required to provide any service if doing so
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would require Cabot to violate any laws, rules or regulations. The agreement
also provides that Cabot and we may agree to additional services to be provided
by Cabot. The terms and costs of these additional services will be mutually
agreed upon by Cabot and us. These additional services may include services that
were not provided to us when we were a division of Cabot prior to the
contribution date.
Pursuant to the management services agreement, we will agree to indemnify
and hold harmless Cabot, each of its subsidiaries and their directors, officers,
agents and employees from any claims, damages and expenses arising out of the
services rendered to us unless resulting from their breach of contract, gross
negligence or willful misconduct on their part. In addition, we will agree that
these same persons shall be liable to us only for any claims, damages or
expenses resulting from breach of contract, gross negligence or willful
misconduct on their part.
The management services agreement will commence on the date of this
offering and will continue until the earlier of the date of the spin-off or two
years from the completion of this offering. Cabot and we may, by mutual
agreement, provide for the continuation of some services after the spin-off. In
addition, either Cabot or our company may terminate the management services
agreement with respect to one or more of the services provided under the
agreement:
- - If the other party has failed to perform any material obligation relating to
the terminated service; and
- - if the failure continues for a period of 30 days after the other party
receives notice of the failure from the terminating party.
CONFIDENTIAL DISCLOSURE AND
LICENSE AGREEMENT
We and Cabot will enter into a confidential disclosure and license
agreement with respect to confidential and proprietary information, intellectual
property and other matters whereby we and Cabot will agree to keep confidential
and to cause our affiliates to keep confidential, and not to use for any
unauthorized purpose, confidential information regarding the other party.
Confidential information includes:
- - unpublished technology and know-how;
- - unpublished patent applications; and
- - other confidential or proprietary technical and business information.
Confidential information does not include any information that:
- - is already known to the other party from a third-party source;
- - is or becomes publicly known;
- - is received from a third party without any obligations of confidentiality;
- - is disclosed to a third party without restrictions;
- - is independently developed by employees or consultants of the party receiving
the information; or
- - is approved for release by the disclosing party.
Cabot will grant to us and our affiliates an ancillary license, which is a
fully paid, world-wide, non-exclusive license to Cabot's copyrights, patents and
technology that:
- - are not included within the assets transferred under the master separation
agreement;
- - are owned by Cabot on the date of the transfer of assets to us;
- - do not relate to (A) treated or untreated fumed metal oxide particles or the
manufacture or treatment of these particles or (B) cesium chemicals or other
products of Cabot's performance materials division or the manufacture of these
chemicals;
- - would be infringed or misappropriated by the manufacture, treatment,
processing, handling, marketing, sale or use of any of our products, excluding
treated or untreated fumed metal oxide particles and cesium chemicals or other
products of Cabot's performance materials division; and
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- - were used by Cabot in connection with our activities, prior to our separation
from Cabot.
Cabot will agree, on behalf of itself and its affiliates, not to assert any
of the patents and copyrights in published copyrightable material licensed to us
under the ancillary license against our customers with respect to our customers'
use of products manufactured or supplied by us under the ancillary license. The
ancillary license will not include the right to grant sublicenses to others. We
will agree not to use the ancillary license in connection with any activity that
is competitive with any activity of Cabot.
We will grant to Cabot and its affiliates a fully paid, world-wide,
non-exclusive license to copyrights, patents and technologies that are among the
assets transferred to us under the master separation agreement and that would be
infringed by the manufacture, treatment, processing, handling, marketing, sale
or use of any products or services sold by Cabot for applications other than
CMP. We will agree, on our own behalf and on behalf of our affiliates, not to
assert any of the patents and copyrights in published copyrightable material
licensed to Cabot under the license to Cabot against Cabot's customers with
respect to their use of non-CMP products manufactured or supplied by Cabot under
the license to Cabot. The license to Cabot will not include the right to grant
sublicenses to others. Cabot will agree not to use the license in connection
with any activity that is competitive with any of our activities.
We will also agree, on our own behalf and on behalf of our affiliates, not
to use specific information in our possession as of the date of the transfer of
assets to us for the manufacture of treated or untreated fumed metal oxide
particles and/or cesium chemicals and other products of Cabot's performance
materials division. This specific information is information concerning:
- - Cabot's fumed metal oxide products (treated and untreated) and related
manufacturing or treatment processes;
- - cesium chemicals and other products of Cabot's performance materials division
and related manufacturing processes; and
- - the raw materials, suppliers or equipment used in these products, processes
and chemicals, including product specifications.
Additionally, Cabot will assign to us an undivided one-half interest in and
to various patents, copyrights and technology that relate to dispersion
technology, which are owned by Cabot and used in Cabot's dispersion business and
our business. We will generally pay all costs associated with the transfer to us
of this intellectual property. Cabot and we will generally share the costs
associated with the prosecution and maintenance of these patents. Cabot and/or
we, individually or jointly, may bring enforcement proceedings against an
infringer of this dispersion intellectual property. Cabot and we will agree to
notify the other party of any threat or allegation made by a third party that
any dispersion intellectual property infringes any third-party intellectual
property rights.
Cabot and we will agree to restrictions on sublicenses and assignments of
the dispersion technology assets. Cabot will agree not to sublicense or assign
the dispersion technology assets, including related intellectual property
rights, to any party for use in the production or sale of products for use in
CMP applications, without our prior consent. We will agree not to sublicense or
assign the dispersion technology assets, including related intellectual property
rights, to any party for use in the production or sale of products for use in
non-CMP applications, without the prior consent of Cabot.
INITIAL PUBLIC OFFERING AND
DISTRIBUTION AGREEMENT
GENERAL
We have entered into an initial public offering and distribution agreement
with Cabot governing our respective rights and duties with respect to this
offering and the spin-off. Cabot has announced that it plans to complete the
spin-off within six to twelve months after the date of a private letter ruling
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from the IRS confirming that the spin-off is
tax-free to Cabot. However, Cabot is not obligated to complete the spin-off in
this time frame or at all. We have agreed to cooperate with Cabot in all
respects to complete the spin-off. See "Risk Factors -- Risks Relating to Our
Separation from Cabot".
COVENANTS
After this offering, Cabot will continue to own a significant portion of
our common stock. As a result, Cabot will continue to include us as a subsidiary
for various financial reporting, accounting and other purposes. Accordingly, we
have agreed to certain covenants in the initial public offering and distribution
agreement, which will be binding on us as long as Cabot owns at least 50% of our
outstanding common stock. Some of these covenants are described below:
- - Covenants Regarding the Incurrence of Debt. We will not, and will not permit
any of our subsidiaries to create, incur or assume any indebtedness in excess
of an aggregate of $50.0 million outstanding at any time.
- - Other Covenants. We have also agreed that:
- we will not take any action which would have the effect of limiting
Cabot's ability to freely sell, pledge or otherwise dispose of shares of
our common stock or limiting the legal rights of or denying any benefit
to Cabot as our stockholder in a manner not applicable to our
stockholders generally;
- we will not amend our stockholder rights plan, or any successor plan, in
a manner that would result in Cabot's ownership of our common stock
causing the rights to detach or become exercisable as described under
"Description of Capital Stock -- Rights Plan";
- we will not issue any shares of common stock or any rights, warrants or
options to acquire our common stock, if after giving effect to such
issuance Cabot would own less than 80.5% of the then outstanding shares
of our common stock; and
- if Cabot determines that, due to any action on our part, its shareholding
in us has dropped or will drop below 80.5%, it can require us to reverse
or terminate the action, issue additional equity securities to it at no
cost to Cabot or purchase additional equity securities of us in the open
market or from other third parties, in which case we would have to
reimburse Cabot for the costs incurred by Cabot in making such a
purchase. After the second anniversary of the closing of this offering,
these provisions would terminate with respect to issuances of equity
securities by us under our 2000 Equity Incentive Plan and our 2000
Employee Stock Purchase Plan except that in the event of any such
issuance we would still be obligated to issue additional equity
securities to Cabot at the per share fair market value of those
securities.
In addition, we have agreed that, for so long as Cabot is required to
consolidate our results of operations and financial position or account for its
investment in our company, we will provide Cabot financial information regarding
our company and our subsidiaries, consult with Cabot regarding the timing and
content of our earnings releases and cooperate fully with Cabot in connection
with its public filings.
INDEMNIFICATION
We have generally agreed to indemnify Cabot and its affiliates against all
liabilities arising out of:
- - any breach by us or our affiliates of any of the provisions of the initial
public offering and distribution agreement;
- - any incorrect or incomplete financial information provided by us or our
affiliates to Cabot as required by the initial public offering and
distribution agreement; and
- - any material untrue statements or omissions in this prospectus and the
registration statement of which it is a part and in any and all registration
statements, information statements and/or other documents filed
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with the SEC in connection with the spin-off.
Cabot has agreed to indemnify us and our affiliates against all liabilities
arising out of:
- - any breach by Cabot or its affiliates of any of the provisions of the initial
public offering and distribution agreement;
- - any incorrect or incomplete financial information provided by Cabot or its
affiliates to us as required by the initial public offering and distribution
agreement; and
- - any material untrue statements or omissions regarding Cabot in this prospectus
and the registration statement of which it is a part and in any and all
registration statements, information statements and/or other documents filed
with the SEC in connection with the spin-off.
Under the terms of the initial public offering and distribution agreement,
Cabot and we, as indemnifying parties, have various rights. The indemnitee may
defend and, with the consent of the indemnifying party, compromise and settle a
claim and will be entitled to reimbursement for its reasonable attorneys' fees
and expenses incurred in defending the claim and indemnification for any
liabilities incurred as a result of the claim.
An indemnifying party may elect to defend, at its own expense and through
counsel chosen by it, any claim by a third party if the claim will obligate the
indemnifying party to provide indemnification. If an indemnifying party elects
to defend a third-party claim, it will be required to pay:
- - the indemnitee's reasonable out-of-pocket expenses incurred in connection with
its cooperation in the defense of the claim; and
- - under some circumstances, the reasonable fees and expenses of separate counsel
for the indemnitee, including primary counsel and local counsel.
There are restrictions on the ability of the indemnifying party to settle
or compromise a claim if the settlement or compromise would be harmful to the
indemnitee.
If Cabot and we both claim to be entitled to indemnification for a
third-party claim, Cabot and we will jointly control the defense of the claim.
If one party fails to defend jointly, the other party will solely defend the
claim, but in no case will one party compromise or settle a third-party claim
without the consent of the other party. All expenses of either party during the
joint defense of a claim will be initially paid by the party incurring the
expenses, with the expenses reallocated and reimbursed in accordance with the
indemnification obligations of the parties at the end of the defense of the
claim.
If an indemnitee recovers amounts from third parties, such as an insurance
company, these amounts will reduce the amount the indemnifying party must pay
unless the indemnitee or its affiliates remain directly or indirectly liable for
those amounts pursuant to self-insurance or re-insurance arrangements. If the
indemnitee incurs a net tax cost from the receipt of an indemnification payment,
the indemnifying party must compensate the indemnitee for the amount of the net
tax cost. If the indemnitee receives a net tax benefit from incurring or paying
for any indemnified loss or liability, the amount the indemnifying party must
pay will be reduced to take account of the net tax benefit.
EXPENSES
We will pay the costs and expenses incurred in connection with our
separation from Cabot and this offering including the costs and expenses of
financial, legal, accounting and other advisers, if any. Cabot will pay the
costs and expenses incurred in connection with the spin-off, including the costs
and expenses of financial, legal, accounting and other advisors, if any.
TAX SHARING AGREEMENT
We are, and after this offering but prior to the spin-off will continue to
be, included in Cabot's consolidated federal income tax group, and our federal
income tax liability will be included in the consolidated federal income tax
liability of Cabot. We and Cabot have entered into a tax sharing agreement
pursuant to which the amount of taxes to be
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paid or received by us with respect to
consolidated or combined returns of Cabot in which we are included generally are
determined as though we file separate federal, state, local and foreign income
tax returns. Under the terms of the tax sharing agreement, Cabot will not be
required to make any payment to us for the use of our tax attributes that come
into existence prior to the spin-off until such time as we would otherwise be
able to utilize such attributes.
Under the agreement, until the spin-off, Cabot will:
- - continue to have all the rights of a parent of a consolidated group;
- - have sole and exclusive responsibility for the preparation and filing of
consolidated federal and consolidated or combined state, local and foreign
income tax returns (or amended returns); and
- - have the power, in its sole discretion, to contest or compromise any asserted
tax adjustment or deficiency and to file, litigate or compromise any claim for
refund relating to these returns.
In general, the agreement provides that we will be included in Cabot's
consolidated group for federal income tax purposes for so long as Cabot
beneficially owns at least 80% of the total voting power and value of the
outstanding common stock, which we expect will be the case until the time of the
spin-off. Each member of a consolidated group is jointly and severally liable
for the federal income tax liability of each other member of the consolidated
group. Accordingly, although the tax sharing agreement allocates tax liabilities
between us and Cabot during the period in which we are included in Cabot's
consolidated group, we could be liable in the event that any federal tax
liability is incurred, but not discharged, by any other member of Cabot's
consolidated group. See "Risk Factors -- Risks Relating to Our Separation from
Cabot -- We face risks associated with being a member of Cabot's consolidated
group for federal income tax purposes".
Under the terms of the tax sharing agreement, we have agreed to indemnify
Cabot in the event that the spin-off is not tax free to Cabot as a result of
various actions taken by or with respect to us or our failure to take various
actions, including:
- - any acquisition by us of a third party within two years of the spin-off;
- - the issuance of more than 35% of our capital stock in a one or more
transactions within two years of the spin-off;
- - the redemption or repurchase of our capital stock within two years of the
spin-off unless otherwise exempted by the IRS;
- - the disposition or sale, other than in the ordinary course of business, of
more than 40% of the assets constituting our current trades and businesses
relied upon within two years of the spin-off; and
- - the discontinuance of the active conduct of our current trades and businesses
within two years of the spin-off.
We may not be able to control some of the foregoing events that could
trigger this indemnification obligation.
REGISTRATION RIGHTS AGREEMENT
Although Cabot has announced its plans to complete the spin-off within six
to twelve months after the date of a private letter ruling from the IRS
confirming that the spin-off is tax-free to Cabot, we cannot assure you that the
spin-off will occur within this time frame or at all. See "Risk Factors -- Risk
Factors Relating to Our Separation from Cabot". In the event that Cabot does not
complete the spin-off, Cabot could not freely sell all of our shares that it
owns without registration under the Securities Act.
Accordingly, we have entered into a registration rights agreement with
Cabot to provide it with registration rights relating to the shares of our
common stock which it holds. These registration rights generally become
effective at such time as Cabot informs us that it no longer intends to proceed
with or complete the spin-off. Cabot will be able to require us to register
under the Securities Act all or any portion of our shares covered by the
registration rights agreement. In addition, the registration rights agreement
will provide
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for various piggyback registration rights for
Cabot. Whenever we propose to register any of our securities under the
Securities Act for ourselves or others, subject to certain customary exceptions,
we will be required to provide prompt notice to Cabot and include in that
registration all shares of our stock which Cabot requests to be included.
The registration rights agreement sets forth customary registration
procedures, including a covenant by us to make available our employees and
personnel for road show presentations. All registration expenses incurred in
connection with the registration rights agreement will be paid by us. In
addition, we will be required to reimburse Cabot for the fees and disbursements
of its outside counsel retained in connection with any such registration. The
registration rights agreement also imposes customary indemnification and
contribution obligations on us for the benefit of Cabot and any underwriters
with respect to liabilities resulting from untrue statements or omissions in any
registration statement used in any such registration, although Cabot must
indemnify us for those liabilities resulting from information provided by Cabot.
The registration rights under the registration rights agreement will remain
in effect with respect to the shares covered by the agreement until:
- - those shares have been sold pursuant to an effective registration statement
under the Securities Act;
- - those shares have been sold to the public pursuant to Rule 144 under the
Securities Act;
- - those shares have been transferred and new certificates delivered, where the
new certificates do not bear a legend restricting further transfer and where
subsequent public distribution of those shares does not require registration
under the Securities Act; or
- - those shares cease to be outstanding.
EMPLOYEE MATTERS AGREEMENT
We and Cabot have entered into an employee matters agreement that sets
forth our mutual understanding with respect to the responsibilities, obligations
and liabilities relating to the compensation and benefits of our employees in
connection with the offering and spin-off. Under this agreement, with certain
exceptions, we will be solely responsible for the compensation and benefits of
our employees on and following the offering. The principal exception to this
rule is retirement benefits for our employees; Cabot's tax-qualified retirement
plans will retain all assets and liabilities relating to our employees on and
after this offering (subject to any distributions from the plans that are
required or permitted by the plans and applicable law). The employee matters
agreement also provides that equity awards granted to our employees under
Cabot's equity incentive plans when they were employees of Cabot may be
converted into equity awards of our company upon agreement between Cabot and us.
OPTION GRANTS TO CABOT EMPLOYEES
We intend to grant options under the 2000 Equity Incentive Plan to Cabot
employees. See "Management -- Grants Under the 2000 Equity Incentive Plan".
CORPORATE OPPORTUNITIES AND
CONFLICTS OF INTEREST
All of our directors have fiduciary duties to our company and our
stockholders under applicable Delaware law. Specifically, our directors are
charged with a duty of care and a duty of loyalty to our company and our
stockholders. This duty of care generally requires our directors to inform
themselves of all material information relevant to business decisions they make
on behalf of our company. This duty of loyalty generally requires our directors
to act in the best interests of our company and our stockholders and to refrain
from conduct that would injure our company or our stockholders or deprive our
company of an advantage or opportunity to which we are entitled.
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Three members of our board of directors are also directors and executive
officers of Cabot. Our directors who are also directors and executive officers
of Cabot will also have fiduciary or similar duties to Cabot. As a result of
their duties and obligations to both companies, these directors may have
conflicts of interest with respect to matters involving or affecting us, such as
acquisitions and other corporate opportunities that may be suitable for both us
and Cabot. In addition, after this offering and the spin-off, a number of our
directors and executive officers will continue to own Cabot stock and options on
Cabot stock they acquired as employees of Cabot. This ownership could create, or
appear to create, potential conflicts of interest when these directors and
officers are faced with decisions that could have different implications for our
company and Cabot. While there are provisions in our certificate of
incorporation designed to resolve these conflicts between us and Cabot fairly,
these conflicts may not ultimately be resolved in a fair manner to both parties.
For a further discussion of these provisions, see "Description of Capital
Stock -- Corporate Opportunities".
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SECURITY OWNERSHIP OF PRINCIPAL
STOCKHOLDER AND MANAGEMENT
PRINCIPAL STOCKHOLDER
The following table sets forth information with respect to beneficial
ownership of common stock by Cabot as of February 29, 2000 and as adjusted to
reflect the sale of the shares of common stock offered by us in this offering.
Cabot is the only person or entity that owns beneficially more than 5% of the
outstanding shares of common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES
BENEFICIALLY OWNED
SHARES OF -------------------
NAME AND ADDRESS COMMON STOCK BEFORE AFTER
OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------- ------------------ -------- --------
<S> <C> <C> <C>
Cabot Corporation....................................... 18,989,744 100% 82.6
75 State Street
Boston, Massachusetts
</TABLE>
MANAGEMENT
The following table sets forth information regarding beneficial ownership
of the outstanding common stock of Cabot as of February 29, 2000 by (a) each of
our directors and each of the executive officers named in the Summary
Compensation Table and (b) all of our directors and executive officers as a
group. The number of shares of common stock shown below includes shares issuable
upon the exercise of stock options and, for each person who is a participant in
Cabot's employee stock plan, shares issuable upon conversion of shares of
Cabot's convertible preferred stock allocated to such participant's account
under Cabot's employee stock plan.
As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. A person is deemed to be the beneficial owner of securities that
can be acquired within 60 days from the date of this prospectus through the
exercise of any option, warrant or right. Shares of common stock subject to
options, warrants or rights that are currently exercisable or exercisable within
60 days are deemed outstanding for computing the ownership percentage of the
person holding such options, warrants or rights, but are not deemed outstanding
for computing the ownership percentage of any other person. The amounts and
percentages are based upon 66,909,163 shares of Cabot common stock outstanding
as of February 29, 2000.
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP PERCENTAGE
SHARES OF OF OUR SHARES OF CABOT OWNERSHIP
NAME OUR COMMON STOCK COMPANY COMMON STOCK OF CABOT
- ---- ---------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Kennett F. Burnes(1)............. -- -- 548,717 *
Samuel W. Bodman(2).............. -- -- 1,481,464 2.2
William P. Noglows(3)............ -- -- 126,900 *
Matthew Neville(4)............... -- -- 77,830 *
William C. McCarthy.............. -- -- 6,129 *
Daniel J. Pike................... -- -- 17,583 *
Chris C. Yu...................... -- -- 19,948 *
Bruce M. Zwicker................. -- -- 25,288 *
All directors and executive
officers as a group (8
persons)(5).................... -- -- 2,287,753 3.4
</TABLE>
- ---------------
* Denotes less than 1% beneficial ownership.
(1) Includes 148,986 shares of Cabot common stock that Mr. Burnes has the right
to acquire pursuant to stock options.
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(2) Includes 41,725 shares of Cabot common stock that Mr. Bodman has the right
to acquire pursuant to stock options.
(3) Includes 22,186 shares of Cabot common stock that Mr. Noglows has the right
to acquire pursuant to stock options.
(4) Includes 5,000 shares of Cabot common stock that Mr. Neville has the right
to acquire pursuant to stock options.
(5) Excludes shares of Cabot common stock beneficially owned by Mr. Yu, our
former Director of Research and Technology.
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DESCRIPTION OF CAPITAL STOCK
We intend to amend our certificate of incorporation upon the completion of
this offering. The form of our amended certificate of incorporation will be
filed as an exhibit to the registration statement of which this prospectus is a
part. The following summarizes the terms and provisions of our capital stock
upon the closing of this offering. The summary is not complete, and you should
read the form of our certificate of incorporation and our bylaws.
Upon the completion of this offering, our authorized capital stock will
consist of 200 million shares, $0.001 par value per share, of common stock and
20 million shares, par value $0.001 per share, of preferred stock.
COMMON STOCK
Each share of our common stock will be identical in all respects. Each of
these shares will entitle its holder to the same rights and privileges enjoyed
by all other holders of common stock and will subject them to the same
qualifications, limitations and restrictions to which all other holders of
common stock will be subject. Holders of our common stock will be entitled to
one vote per share on all matters to be voted on by our stockholders. Holders of
common stock will not have cumulative rights, so that holders of a majority of
the shares of common stock present at a meeting at which a quorum is present
will be able to elect all of our directors eligible for election in a given
year. The holders of a majority of the voting power of the issued and
outstanding common stock will constitute a quorum. Holders of our common stock
will be entitled to receive ratably the dividends, if any, that are declared by
our board of directors. Our board of directors may declare dividends out of
funds legally available for the declaration of dividends, subject to the
preferential rights of any holder of preferred stock that may from time to time
be outstanding. Upon our liquidation, dissolution or winding up, the holders of
our common stock will be entitled to share pro rata in the distribution of all
of our assets available for distribution after satisfaction of all of our
liabilities and the payment of the liquidation preference of any preferred stock
that may be outstanding. The holders of our common stock will have no preemptive
or other subscription rights to purchase common stock, and there will be no
redemptive rights or sinking fund provisions.
PREFERRED STOCK
Our board of directors will be authorized to cause shares of preferred
stock to be issued in one or more series, to:
- - determine the number of shares of each series;
- - fix the rights, powers, preferences and privileges of each series;
- - fix any qualifications, limitations or restrictions thereon; and
- - increase or decrease the number of shares of each such series.
Among the specific matters that may be determined by the board of directors
are:
- - the annual rate of dividends;
- - the redemption price, if any;
- - the terms of a sinking or purchase fund, if any;
- - the amount payable in the event of any voluntary liquidation, dissolution or
winding up of the affairs of our company;
- - conversion rights, if any; and
- - voting powers, if any.
Depending upon the terms of the preferred stock established by our board of
directors, any or all series of preferred stock could have preferences over the
common stock with respect to dividends and other distributions and upon
liquidation or could have voting or conversion rights that could adversely
affect the holders of the outstanding common stock.
In addition, the preferred stock could delay, defer or prevent a change of
control of our company. We have no present plans to issue shares of preferred
stock. Prior to the completion of this offering, however, our
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board of directors will adopt a rights plan. See "-- Rights Plan".
LIMITATION ON DIRECTORS' LIABILITIES
Our certificate of incorporation will limit the liability of our directors
to us and our stockholders to the fullest extent permitted by Delaware law.
Specifically, our directors will not be personally liable for money damages for
breach of fiduciary duty as a director, except for liability:
- - for any breach of the director's duty of loyalty to us or our stockholders;
- - for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- - under Section 174 of the Delaware General Corporation Law, which concerns
unlawful payments of dividends, stock purchases or redemptions; and
- - for any transaction from which the director derived an improper personal
benefit.
ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND
PROVISIONS OF DELAWARE LAW
Our certificate of incorporation, together with our bylaws and Section 203
of the Delaware General Corporation Law, will contain provisions summarized
below that may delay, discourage or prevent the acquisition or control of our
company by means of a tender offer, open market purchase, proxy fight or
otherwise, including acquisitions that might result in a premium being paid over
the market price of the common stock.
STOCKHOLDER ACTION BY WRITTEN CONSENT UNTIL THE SPIN-OFF; SPECIAL MEETINGS
Our certificate of incorporation, together with our bylaws, will permit
stockholder action by written consent until the time that Cabot and its
affiliates cease to beneficially own an aggregate of at least a majority of our
then outstanding shares of common stock. Thereafter, any action required or
permitted to be taken by our stockholders may be effected only at a duly called
annual or special meeting of stockholders and may not be effected by a written
consent in lieu of a meeting of stockholders. Prior to Cabot and its affiliates
ceasing to beneficially own an aggregate of at least a majority of our then
outstanding shares of common stock, we will call a special meeting of
stockholders promptly upon the request of Cabot. After Cabot and its affiliates
cease to beneficially own an aggregate of at least a majority of our then
outstanding shares of common stock, except as otherwise required by law and
subject to the rights of the holders of any preferred stock, special meetings of
stockholders for any purpose may be called only by our board of directors, its
chairman or, at the written request of a majority of our board of directors, our
president, and the power of stockholders to call a special meeting will be
specifically denied.
ADVANCE NOTICE PROCEDURES
Our bylaws require advance notice of the nomination, other than by or at
the direction of our board of directors, of candidates for election as
directors, as well as for other stockholder proposals, to be considered at
annual meetings of stockholders. Subject to some exceptions, notice of intent to
nominate a director or raise matters at these meetings will have to be received
in writing by us not less than 90 nor more than 120 days prior to the
anniversary of the previous year's annual meeting of stockholders, and must
contain specific information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal. If the chairman of a meeting determines that an
individual was not nominated, or other business was not brought before the
meeting, in accordance with the advance notice procedures, that individual will
not be eligible for election as a director, or that business will not be
conducted at such meeting, as the case may be.
BOARD OF DIRECTORS
Our certificate of incorporation, together with our bylaws, will provide
that the number of directors shall be determined from time to time by a
resolution adopted by the majority of our directors. Our certificate of
incorpora-
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tion, together with our bylaws, will also provide that the board of directors
shall be divided into three classes, as nearly equal in number as possible. Each
director will hold office until that person's successor is duly elected and
qualified. Vacancies on the board of directors shall be filled by a majority of
the remaining directors, or by a sole remaining director, or by our stockholders
if the vacancy was caused by the action of our stockholders.
Subject to the rights of the holders of any series of preferred stock or
any other series or class of stock to elect additional directors under specified
circumstances, prior to the date when Cabot and its affiliates cease to
beneficially own an aggregate of at least a majority of our then outstanding
shares of common stock, any director may be removed from office, with or without
cause, by the affirmative vote of the holders of at least a majority of the
outstanding common stock, voting together as a single class. On and after the
date when Cabot and its affiliates cease to beneficially own an aggregate of at
least a majority of our then outstanding shares of common stock, any director
may be removed from office only for cause upon the affirmative vote of holders
of at least 80% of our outstanding common stock, voting as a single class. A
director may not be removed by the stockholders at a meeting unless the notice
of the meeting states that the purpose, or one of the purposes, of the meeting
is removal of the director.
The provisions of our certificate of incorporation and bylaws described
above would preclude a third party from removing incumbent directors and
simultaneously gaining control of our board of directors by filling the
vacancies created by removal with its own nominees. Under the classified board
provisions described above, it would take at least two elections of directors
for any individual or group to gain control of our board of directors.
ADOPTION, AMENDMENT OR REPEAL OF CERTIFICATE OR BYLAWS
Our certificate of incorporation will provide that the affirmative vote of
holders of at least 80% of our outstanding common stock is required to amend,
repeal or adopt any provision of our certificate of incorporation inconsistent
with the provisions of that certificate regarding amendments to our bylaws,
stockholder action by written consent, special meetings of stockholders, our
board of directors and the election and removal of directors. Our certificate of
incorporation will further provide that our bylaws may be altered, amended or
repealed only by our board of directors or upon the affirmative vote of holders
of at least 80% of our outstanding common stock, voting together as a single
class.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We must comply with the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation 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.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns, or,
in some cases, within three years prior, did own, 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
our company and an interested stockholder is prohibited unless it satisfies one
of the following three conditions:
- - our board of directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder;
- - upon completion of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of
our voting stock outstanding at the time the transaction commenced, excluding,
for purposes of determining the number of shares outstanding, shares owned by
(1) persons who are directors and also officers and
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(2) employee stock plans, in some instances; and
- - the business combination is approved by our board of directors and authorized
at an annual or special meeting of the stockholders by the affirmative vote of
the holders of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
CORPORATE OPPORTUNITIES
Our certificate of incorporation will provide that we and Cabot and our and
their respective subsidiaries may engage in the same or similar business
activities and lines of business and have an interest in the same areas of
corporate opportunities and that we and Cabot will continue to have contractual
and business relations with each other (including service of directors and
officers of Cabot as our directors and officers).
Our certificate of incorporation will provide that, except as Cabot may
otherwise agree in writing, Cabot will have the right to:
- - engage in the same or similar business activities or lines of business as us;
- - do business with any of our potential or actual customers or suppliers; and
- - employ or otherwise engage, or solicit for such purpose, any of our officers,
directors or employees.
Neither Cabot nor any officer, employee or director of Cabot will be liable to
us or our stockholders for breach of any fiduciary or other duty by reason of
these activities.
If Cabot acquires knowledge of a potential transaction or matter that may
be a corporate opportunity for both Cabot and us, Cabot will have no duty to
communicate that opportunity to us and will not be liable to us or our
stockholders because Cabot pursues or acquires that corporate opportunity for
itself, directs that corporate opportunity to another person or entity or does
not present that corporate opportunity to us.
If one of our directors, officers or employees who is also a director,
officer or employee of Cabot acquires knowledge of a potential transaction or
matter that may be a corporate opportunity for both us and Cabot, our
certificate will require that our director, officer or employee act in good
faith in accordance with the following policy:
- - a corporate opportunity offered to any person who is one of our directors but
not one of our officers or employees and who is also an officer or employee
(whether or not a director) of Cabot will belong to Cabot, unless the
opportunity is expressly offered to that person solely in his or her capacity
as our director, in which case the opportunity will belong to us;
- - a corporate opportunity offered to any person who is one of our officers or
employees whether or not a director and who is also a director but not an
officer or employee of Cabot will belong to us, unless the opportunity is
expressly offered to that person solely in his or her capacity as a director
of Cabot, in which case the opportunity will belong to Cabot; and
- - a corporate opportunity offered to any other person who is (1) either one of
our officers or employees and either an officer or employee of Cabot or (2) a
director of both us and Cabot will belong to Cabot, unless such opportunity is
expressly offered to the person solely in his or her capacity as one of our
officers, directors or employees, in which case the opportunity will belong to
us.
For purposes of these corporate opportunity provisions, any of our
directors who is chairman or vice chairman of our board of directors or a
committee thereof will not be deemed to be one of our officers by reason of
holding the position, unless the person is one of our full-time employees. If a
corporate opportunity is offered to us or Cabot other than through a person who
is an officer, director or employee of both us and Cabot, either we or Cabot can
pursue that opportunity.
Under our certificate of incorporation, any corporate opportunity that
belongs to Cabot or to us pursuant to the policy described above will not be
pursued by the other or directed by the other to another person or
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<PAGE> 80
entity unless and until Cabot or we, as the
case may be, determine not to pursue the opportunity. If the party to whom the
corporate opportunity belongs does not, however, within a reasonable period of
time, begin to pursue, or thereafter continue to pursue, such opportunity
diligently and in good faith, the other party may pursue such opportunity or
direct it to another person or entity.
Our directors, officers or employees acting in accordance with the policy
described above:
- - will be deemed fully to have satisfied their fiduciary or other duties to us
and our stockholders with respect to that corporate opportunity;
- - will not be liable to us or our stockholders for any breach of fiduciary duty
by reason of the fact that Cabot pursues or acquires that opportunity for
itself or directs that corporate opportunity to another person or do not
communicate information regarding such opportunity to us;
- - will be deemed to have acted in good faith and in a manner they reasonably
believe to be in our best interests; and
- - will be deemed not to have breached any duty of loyalty or other duty those
persons may have to us or our stockholders and not to have derived an improper
benefit from these actions.
The corporate opportunity provisions in our certificate of incorporation
will expire on the date that Cabot ceases to beneficially own common stock
representing at least 20% of the combined voting power of outstanding shares of
our common stock.
Our certificate of incorporation will provide that any person purchasing or
otherwise acquiring any interest in any shares of our capital stock shall be
deemed to have notice of and to have consented to these provisions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Boston EquiServe,
L.P.
RIGHTS PLAN
Prior to the completion of this offering, our board of directors intends to
adopt a rights plan. Our rights plan is designed to make it more costly and thus
more difficult to gain control of us without the consent of our board of
directors. Under the rights plan:
- - our board of directors will declare a dividend of one preferred share purchase
right, or a right, for each outstanding share of our common stock; and
- - each right will entitle the registered holder to purchase from us one
one-thousandth of a share of a new Series A Junior Participating Preferred
Stock, par value $.001 per share, at a price of $96 per one thousandth of a
share, with adjustment.
The description and terms of the rights are described in a rights agreement
between us and the designated rights agent. The description presented below is
intended as a summary only and is qualified in its entirety by reference to the
rights agreement, a form of which has been filed as an exhibit to the
registration statement of which this prospectus forms a part. See "Where You Can
Find More Information".
The rights will be attached to all certificates representing outstanding
shares of our common stock, and no separate right certificates will be
distributed. The rights will separate from the shares of our common stock on the
close of business on the tenth day after the earlier to occur of:
- - a public announcement that, without the prior consent of our board of
directors, a person or group, known as an acquiring person, including any
affiliates or associates of that person or group, acquired beneficial
ownership of securities having 15% or more of the voting power of all our
outstanding common stock. Cabot, its subsidiaries, and employee benefit plans
established by or for the benefit of employees of Cabot or its subsidiaries
(for so long as Cabot and its subsidiaries own at least 50% of our outstanding
equity securities), and members of the Godfrey L. Cabot family and various
trusts, estates, corporations and other entities established for the bene-
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fit of or directly or indirectly owned by the members of the Godfrey L. Cabot
family, are not included in the definition of acquiring person except in cases
where Cabot family members or these trusts, estates, corporations and other
entities are acting with certain third parties; and
- - the close of business on the tenth day following the date of the commencement
of, or announcement of an intention to commence, a tender offer or exchange
offer that would result in any person or group becoming an acquiring person.
We refer to the date on which the rights separate from our common stock as
the distribution date. The first date of public announcement that a person or
group has become an acquiring person is the stock acquisition date.
Until the distribution date, rights will be transferred only with the
shares of our common stock. In addition, until the distribution date, or earlier
redemption or expiration, of the rights:
- - new common stock certificates issued upon transfer or new issuance of shares
of common stock will contain a notation incorporating the rights agreement by
reference; and
- - the surrender for transfer of any certificates for shares of common stock
outstanding, even without a notation, will also constitute the transfer of the
rights associated with the shares of common stock represented by the
certificate.
As soon as practicable following the distribution date, separate
certificates evidencing the rights will be mailed to holders of record of the
shares of common stock as of the close of business on the distribution date, and
to each initial record holder of various shares of common stock issued after the
distribution date. The separate right certificates alone will evidence the
rights.
The rights are not exercisable until the distribution date and will expire
at 5:00 P.M., New York time, on the tenth anniversary of the date of issuance,
unless earlier redeemed by us as described below.
If any person becomes an acquiring person, except by a permitted offer as
defined below, or in the event that more than 50% of our assets or earning power
is sold or transferred in either case with or to an acquiring person, each
holder of a right will have, under the terms of the rights agreement, a flip-in
right. A flip-in right is the right to receive upon exercise the number of
shares of common stock, or, in the discretion of our board of directors, the
number of one-thousandths of a share of preferred stock, or, in some
circumstances, our other securities, having a value immediately before the
triggering event equal to two times the exercise price. Notwithstanding the
description above, following the occurrence of the event described above, all
rights that are, or generally were, beneficially owned by any acquiring person
or any affiliate or associate of an acquiring person will be null and void.
A permitted offer is a tender or exchange offer for all outstanding shares
of our common stock that is at a price and on terms determined, before the
purchase of shares under the tender or exchange offer, by our board of
directors, to be adequate, taking into account all factors that our board of
directors deems relevant, and otherwise in our best interests and our
stockholders' best interest, other than the person or any affiliate or associate
on whose behalf the offer is being made.
If, at any time following the stock acquisition date:
- - we are acquired in a merger or other business combination transaction in which
the holders of all of the outstanding shares of common stock immediately
before the completion of the transaction are not the holders of all of the
surviving corporation's voting power; or
- - more than 50% of our assets or earning power is sold or transferred with or to
an acquiring person; or
- - if in the transaction all holders of shares of common stock are not offered
the same consideration;
then each holder of a right, except rights which previously have been voided as
de-
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scribed above, shall afterwards have the right, known as a flip-over right, to
receive, upon exercise, shares of common stock of the acquiring company having a
value equal to two times the exercise price. The holder of a right will continue
to have the flip-over right whether or not the holder exercises or surrenders
the flip-in right.
The purchase price payable, and the number of thousandths of a share of
preferred stock or other securities issuable, upon exercise of the rights may be
adjusted from time to time to prevent dilution in the event of any one of the
following:
- - a stock dividend on, or a subdivision, combination or reclassification of, the
preferred stock;
- - the grant to holders of the shares of preferred stock of various rights or
warrants to subscribe for or purchase shares of preferred stock at a price, or
securities convertible into shares of preferred stock with a conversion price,
less than the then current market price of the shares of preferred stock; or
- - the distribution to holders of the shares of preferred stock of evidences of
indebtedness or assets, excluding regular quarterly cash dividends, or of
subscription rights or warrants, other than those referred to above.
The purchase price may also be adjusted in the event of:
- - a stock split of the shares of common stock;
- - a stock dividend on the shares of common stock payable in shares of common
stock; or
- - subdivisions, consolidations or combinations of the shares of common stock
occurring, in any case, before the distribution date.
With some exceptions, no adjustment in the purchase price will be required
until cumulative adjustments require an adjustment of at least 1% in the
purchase price. No fractional one-thousandth of a share of preferred stock will
be issued and, instead, an adjustment in cash will be made based on the market
price of the shares of preferred stock on the last trading day before the date
of exercise.
At any time before the earlier to occur of:
- - a person becoming an acquiring person; and
- - the expiration of the rights and various other circumstances,
we may redeem the rights in whole, but not in part, at a price of $0.01 per
right, or the redemption price, which redemption shall be effective upon the
action of our board of directors. Additionally, we may redeem the then
outstanding rights in whole, but not in part, at the redemption price in
connection with a merger or other business combination transaction or series of
transaction is which all holders of common stock are treated alike but not
involving an interested stockholder, as defined below.
The shares of preferred stock purchasable upon exercise of the rights will
be non-redeemable. Each share of preferred stock will have a minimum
preferential quarterly dividend equal to the greater of $10.00 per share and an
amount equal to 1,000 times the aggregate amount of all cash dividends per share
and non-cash dividends and distributions per share other than dividends payable
in the form of common stock. In the event of liquidation, the holders of
preferred stock will be entitled to receive the greater of:
- - $10.00 per share, plus the amount of accrued and unpaid dividends and
distributions on the preferred stock, whether or not declared; and
- - the aggregate amount per share equal to 1,000 times the aggregate amount to be
distributed per share to holders of common stock.
Each share of junior preferred stock will have 1,000 votes, voting together
with the shares of common stock. In the event of any merger, consolidation or
other transaction in which shares of common stock are exchanged, each share of
preferred stock will be entitled to receive 1,000 times the amount and type of
consideration received per share
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of common stock. The rights of the preferred stock as to dividends, liquidation
and voting, and in the event of mergers and consolidations, are protected by
customary anti-dilution provisions. In the event that the amount of accrued and
unpaid dividends on the preferred shares is equivalent to at least six full
quarterly dividends, the holders of the preferred shares shall have the right,
voting as a class, to elect two directors in addition to the directors elected
by the holders of the common shares until all cumulative dividends on the
preferred shares have been paid through the last quarterly dividend payment date
or until non-cumulative dividends have been paid regularly for at least one
year.
Until a right is exercised, the holder will have no rights as a stockholder
with respect to the shares covered by that right, including, without limitation,
the right to vote or to receive dividends. While the distribution of the rights
was not taxable to our stockholders, stockholders may, depending upon the
circumstances, recognize taxable income should the rights become exercisable or
upon the occurrence of some subsequent events.
Interested stockholder means any acquiring person or any of their
affiliates or associates, or any other person in which an acquiring person or
their affiliates or associates have in excess of 5% of the total combined
economic or voting power, or any person acting in concert or on behalf of any
acquiring person or their affiliates or associates.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, 22,984,744 shares of common stock
will be outstanding, or 23,589,744 shares if the underwriters exercise their
over-allotment option in full. Of these shares, the 4,600,000 shares of common
stock, assuming the underwriters exercise their over-allotment option in full,
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless held by an "affiliate" of our
company as that term is defined in Rule 144 under the Securities Act. All of the
shares of common stock outstanding prior to this offering are "restricted
securities", as defined under Rule 144. These shares are restricted securities
because they were issued in private transactions not involving a public offering
and may not be sold in the absence of registration other than in accordance with
Rule 144 or Rule 701 promulgated under the Securities Act or another exemption
from registration. This prospectus may not be used in connection with any resale
of shares of common stock acquired in this offering by our affiliates.
The shares of our common stock that will continue to be held by Cabot after
the offering constitute "restricted securities" within the meaning of Rule 144,
and will be eligible for sale by Cabot in the open market after the offering,
subject to contractual lockup provisions and the applicable requirements of Rule
144. In connection with this offering, we and Cabot have agreed that, subject to
specified exceptions, for a period of 180 days after the date of this
prospectus, we and they will not, without the prior written consent of Goldman,
Sachs & Co., dispose of or hedge any shares of our common stock or any
securities convertible into or exchangeable for our common stock.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person or
persons whose shares of common stock are aggregated, including persons who may
be deemed our affiliates, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of:
- - one percent of the then-outstanding shares of common stock, which equals
approximately 229,847 shares immediately after this offering; and
- - the average weekly trading volume during the four calendar weeks preceding the
date on which notice of the sale is filed with the SEC.
Sales under Rule 144 are also subject to certain restrictions as to the
manner of sale, notice requirements and the availability of current public
information about us. In addition, under Rule 144(k), if a period of at least
two years has elapsed since the later of the date restricted securities were
acquired from us or the date they were acquired from one of our affiliates, a
stockholder who is not our affiliate at the time of sale and who has not been
our affiliate for at least three months prior to the sale would be entitled to
sell shares of common stock in the public market immediately without compliance
with the foregoing requirements under Rule 144. Rule 144 does not require the
same person to have held the securities for the applicable periods. The
foregoing summary of Rule 144 is not intended to be a complete description.
Cabot has announced that it currently plans to complete its divestiture of
us by distributing all of the shares of our common stock which it owns to its
stockholders. See "Relationships Between Our Company and Cabot Corporation" and
"Risk Factors -- Risks Relating to Our Separation from Cabot".
Any shares distributed by Cabot will be eligible for immediate resale in
the public market without restrictions by persons other than our affiliates. Our
affiliates would be subject to the restrictions of Rule 144 described above
other than the one-year holding period requirement.
Immediately following this offering, none of the 18,989,744 "restricted
securities" will be available for immediate sale in the public market pursuant
to Rule 144(k). Shares of
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common stock issued pursuant to the 2000 Equity Incentive Plan generally will be
available for sale in the open market by holders who are not our affiliates and,
subject to the volume and other applicable limitations of Rule 144, by holders
who are our affiliates, unless those shares are subject to vesting restrictions
or the contractual restrictions described above. Following this offering, we
intend to file a registration statement on Form S-8 under the Securities Act to
register 3.5 million shares of common stock reserved or to be available for
issuance pursuant to our 2000 Equity Incentive Plan. Following this offering, we
also intend to file a registration statement on Form S-8 under the Securities
Act to register 475,000 shares of common stock reserved for issuance under our
2000 Employee Stock Purchase Plan.
Prior to this offering, there has been no public market for the common
stock. No information is currently available and we cannot predict the timing or
amount of future sales of shares, or the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the common stock prevailing from time to time. Sales of substantial
amounts of the common stock (including shares issuable upon the exercise of
stock options) in the public market after the lapse of the restrictions
described above, or the perception that such sales may occur, could materially
adversely affect the prevailing market prices for the common stock and our
ability to raise equity capital in the future. See "Risk Factors -- Risks
Relating to this Offering -- The actual or possible sale of our shares by Cabot,
which will own more than 80% of our outstanding shares, could depress or reduce
the market price of our common stock or cause our shares to trade below the
prices at which they would otherwise trade".
REGISTRATION RIGHTS
Some holders of our common stock are entitled to registration rights, which
are described under "Relationships Between Our Company and Cabot
Corporation -- Registration Rights Agreement".
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LEGAL MATTERS
Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York will pass upon the validity of
the issuance of the shares of common stock offered hereby. The validity of the
shares being issued in this offering will be passed upon for the underwriters by
Sullivan & Cromwell, New York, New York.
EXPERTS
The financial statements as of September 30, 1998 and 1999 and for each of
the three years in the period ended September 30, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock being offered by this prospectus. This prospectus
does not contain all of the information set forth in the registration statement
and the exhibits and schedules to the registration statement. For further
information with respect to us and the shares of common stock offered by this
prospectus, reference is made to the registration statement, including its
exhibits and schedules. With respect to statements contained in this prospectus
regarding the contents of any contract or any other document, reference is made
to the copy of that contract or other document filed as an exhibit to the
registration statement. You may review a copy of the registration statement,
including its exhibits and schedules, at the SEC's public reference room,
located at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048 or on the Internet at http://www.sec.gov. You may obtain a copy of this
registration statement from the SEC's public reference room upon payment of
prescribed fees. Please call the SEC at (800) SEC-0330 for further information
on the operation of the public reference room.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance with the Exchange
Act, we will file periodic reports, proxy statements and other information with
the SEC.
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CABOT MICROELECTRONICS MATERIALS DIVISION
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants........................... F-2
Combined Balance Sheets at September 30, 1998 and 1999 and
at December 31, 1999 (unaudited).......................... F-3
Combined Statements of Income for the years ended September
30, 1997, 1998 and 1999 and for the three months ended
December 31, 1998 and 1999 (unaudited).................... F-4
Combined Statements of Division Equity for the years ended
September 30, 1997, 1998 and 1999 and for the three months
ended December 31, 1999 (unaudited)....................... F-5
Combined Statements of Cash Flows for the years ended
September 30, 1997, 1998 and 1999 and for the three months
ended December 31, 1999 and 1998 (unaudited).............. F-6
Notes to Combined Financial Statements...................... F-7
</TABLE>
F-1
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Cabot Corporation:
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of changes in division equity and of cash flows
present fairly, in all material respects, the financial position of Cabot
Microelectronics Materials Division (the "Division"), a division of Cabot
Corporation, at September 30, 1998 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1999 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Division's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
November 5, 1999
F-2
<PAGE> 89
CABOT MICROELECTRONICS MATERIALS DIVISION
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
------------------ PRO FORMA
1998 1999 1999 1999
---- ---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................... $ 38 $ 38 $ 103 $ 103
Accounts receivable, less allowance for
doubtful accounts of $50 at September 30,
1998 and 1999 and December 31, 1999
(unaudited)................................ 9,057 19,888 22,563 22,563
Inventories................................... 5,913 5,269 8,617 8,617
Prepaid expenses and other current assets..... 142 285 772 772
Deferred income taxes......................... 431 640 640 640
------- ------- ------- -------
Total current assets.................. 15,581 26,120 32,695 32,695
Property, plant and equipment, net.............. 24,713 40,031 46,400 44,800
Goodwill, net................................... 1,890 1,610 1,540 1,540
Other intangible assets, net.................... 2,878 2,438 2,328 2,328
Deferred income taxes........................... 69 75 23 23
------- ------- ------- -------
Total assets.......................... $45,131 $70,274 $82,986 $81,386
======= ======= ======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.............................. $ 914 $ 995 1,220 1,220
Accrued expenses and other current
liabilities................................ 3,956 6,780 6,182 6,182
Distribution payable.......................... -- -- -- 71,200
------- ------- ------- -------
Total current liabilities............. 4,870 7,775 7,402 78,602
Deferred compensation........................... 233 422 528 528
------- ------- ------- -------
Total liabilities..................... 5,103 8,197 7,930 79,130
Commitments and contingencies (Note 14)
Division equity................................. 40,028 62,077 75,056 2,256
------- ------- ------- -------
Total liabilities and division
equity.............................. $45,131 $70,274 $82,986 $81,386
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE> 90
CABOT MICROELECTRONICS MATERIALS DIVISION
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------- -----------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue...................................... $33,851 $56,862 $95,701 $20,325 $34,230
Revenue -- related party..................... 1,360 1,969 2,989 550 816
------- ------- ------- ------- -------
35,211 58,831 98,690 20,875 35,046
------- ------- ------- ------- -------
Cost of goods sold........................... 18,561 27,686 44,902 9,486 15,372
Cost of goods sold -- related party.......... 1,360 1,969 2,989 550 816
------- ------- ------- ------- -------
19,921 29,655 47,891 10,036 16,188
------- ------- ------- ------- -------
Gross profit....................... 15,290 29,176 50,799 10,839 18,858
Operating expenses:
Research and development................... 8,411 10,139 14,551 3,445 4,484
Selling and marketing...................... 1,028 3,293 4,572 954 1,250
General and administrative................. 4,468 8,576 11,880 2,570 3,896
Amortization of goodwill and other
intangibles............................. 720 720 720 180 180
------- ------- ------- ------- -------
Total operating expenses........... 14,627 22,728 31,723 7,149 9,810
------- ------- ------- ------- -------
Income before income taxes................... 663 6,448 19,076 3,690 9,048
Provision for (benefit from) income taxes.... (45) 2,211 6,796 1,313 3,300
------- ------- ------- ------- -------
Net income......................... $ 708 $ 4,237 $12,280 $ 2,377 $ 5,748
======= ======= ======= ======= =======
Unaudited pro forma net income per share..... $ 0.58 $ 0.26
======= =======
Unaudited pro forma shares outstanding....... 21,054 22,378
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE> 91
CABOT MICROELECTRONICS MATERIALS DIVISION
COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
PARENT RETAINED COMPREHENSIVE COMPREHENSIVE DEFERRED DIVISION
INVESTMENT EARNINGS INCOME INCOME COMPENSATION EQUITY
---------- -------- ------------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996................ $27,147 $ (511) $ 25 $ (452) $26,209
Capital contribution from Cabot
Corporation................................ 1,214 1,214
Issuance of Cabot restricted stock under
employee compensation plans................ 451 (451) --
Amortization of deferred compensation........ 242 242
Net income................................... 708 $ 708
Foreign currency translation adjustment...... 51 51
-------
Total comprehensive income................... $ 759 759
------- ------- ------ ======= ------- -------
Balance at September 30, 1997................ 28,812 197 76 (661) 28,424
Capital contribution from Cabot
Corporation................................ 6,822 6,822
Issuance of Cabot restricted stock under
employee compensation plans................ 878 (878) --
Amortization of deferred compensation........ 449 449
Net income................................... 4,237 $ 4,237
Foreign currency translation adjustment...... 96 96
-------
Total comprehensive income................... $ 4,333 4,333
------- ------- ------ ======= ------- -------
Balance at September 30, 1998................ 36,512 4,434 172 (1,090) 40,028
Capital contribution from Cabot
Corporation................................ 8,067 8,067
Issuance of Cabot restricted stock under
employee compensation plans................ 2,050 (2,050) --
Amortization of deferred compensation........ 900 900
Net income................................... 12,280 $12,280
Foreign currency translation adjustment...... 802 802
-------
Total comprehensive income................... $13,082 13,082
------- ------- ------ ======= ------- -------
Balance at September 30, 1999................ 46,629 16,714 974 (2,240) 62,077
Capital contribution from Cabot Corporation
(unaudited)................................ 6,922 6,922
Issuance of Cabot restricted stock under
employee compensation plans (unaudited).... 57 (57) --
Amortization of deferred compensation
(unaudited)................................ 275 275
Net income (unaudited)....................... 5,748 $ 5,748
Foreign currency translation adjustment
(unaudited)................................ 34 34
-------
Total comprehensive income (unaudited)....... $ 5,782 5,782
------- ------- ------ ======= ------- -------
Balance at December 31, 1999 (unaudited)..... $53,608 $22,462 $1,008 $(2,022) $75,056
======= ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 92
CABOT MICROELECTRONICS MATERIALS DIVISION
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------- -----------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 708 $ 4,237 $ 12,280 $ 2,377 $ 5,748
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization...... 1,911 2,208 2,777 585 932
Noncash compensation expense....... 242 449 900 225 275
Provision for inventory
writedown........................ 30 140 130 -- --
Deferred income tax expense........ 91 (143) (215) -- 52
Loss on disposal of property, plant
and equipment.................... -- 30 141 -- (5)
Changes in operating assets and
liabilities:
Accounts receivable.............. (1,829) (3,213) (10,616) (1,775) (2,547)
Inventories...................... (1,201) (3,246) 646 899 (3,353)
Prepaid expenses and other
current assets................ (1) (139) (143) 40 (482)
Accounts payable................. 165 290 74 383 219
Accrued expenses and other
current liabilities........... 166 1,600 2,787 (700) (596)
Deferred compensation............ 79 114 189 47 106
------- ------- -------- ------- -------
Net cash provided by operating
activities............................ 361 2,327 8,950 2,081 349
------- ------- -------- ------- -------
Cash flows from investing activities:
Additions to property, plant and
equipment.......................... (1,692) (9,313) (17,194) (6,810) (7,196)
Proceeds from sale of property, plant
and equipment...................... -- 3 65 -- 6
------- ------- -------- ------- -------
Net cash used by investing activities... (1,692) (9,310) (17,129) (6,810) (7,190)
------- ------- -------- ------- -------
Net capital contributed by Cabot
Corporation........................... 1,214 6,822 8,067 4,806 6,922
------- ------- -------- ------- -------
Effect of exchange rate changes
on cash............................... 107 194 112 (44) (16)
------- ------- -------- ------- -------
Increase (decrease) in cash............. (10) 33 -- 33 65
Cash at beginning of period............. 15 5 38 5 38
------- ------- -------- ------- -------
Cash at end of period................... $ 5 $ 38 $ 38 $ 38 $ 103
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 93
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Cabot Microelectronics Materials Division (the "Division") is a division of
Cabot Corporation ("Cabot"). The Division is a leading supplier of Chemical
Mechanical Planarization ("CMP") slurries to the semiconductor industry
worldwide. The accompanying financial statements are derived from the historical
books and records of Cabot and present the assets and liabilities, results of
operations and cash flows applicable to the Division. The financial statements
of the Division have been prepared for inclusion in a registration statement
relating to the public offering of a portion of the common stock of Cabot
Microelectronics Corporation ("CMC"), a wholly-owned subsidiary of Cabot which
was incorporated in October 1999. Prior to the planned initial public offering,
substantially all of the assets and liabilities of the Division will be
transferred to CMC.
The combined financial statements include the accounts of each subsidiary
or part of each subsidiary which forms Cabot's Microelectronics Materials
Division. Intercompany transactions between entities within the Division have
been eliminated.
The combined balance sheets have been prepared using the historical basis
of accounting and include all of the assets and liabilities specifically
identifiable to the Division. The combined statements of income include all
revenue and costs attributable to the Division, including a corporate allocation
of employee benefits and costs of shared services (including legal, finance,
human resources, information systems, corporate office, and safety, health and
environmental expenses). These costs are allocated to the Division based on
criteria that management believes to be equitable, such as the Division's
revenue headcount, or actual utilization in proportion to Cabot's revenue,
headcount, or actual utilization. Management believes this provides a reasonable
estimate of the costs attributable to the Division. For the years ended
September 30, 1997, 1998 and 1999, such allocated costs amounted to $2,358,
$3,917, and $5,716, respectively, and are included in operating expenses. For
the three months ended December 31, 1998 and 1999, such allocated costs amounted
to $1,401 and $1,487, respectively. Allocated costs may not necessarily be
indicative of the costs that would have been incurred by the Division on a
standalone basis.
Unaudited Interim Financial Statements -- The accompanying financial
information as of December 31, 1999 and for the three month periods ended
December 31, 1998 and 1999 is unaudited. The unaudited interim financial
information has been prepared on the same basis as the accompanying annual
financial statements. In the opinion of management, such interim financial
information reflects adjustments consisting of normal and recurring adjustments
necessary for a fair presentation of such financial information. The unaudited
results of operations for the interim periods ended December 31, 1998 and 1999
are not necessarily indicative of the results of operations to be expected for
any other interim period or for the full year.
Unaudited Pro Forma Balance Sheet -- The Division intends to distribute to
Cabot, in the form of two dividends, $17,000 expected to be borrowed under a
term loan facility (Note 16) and an amount equal to the lesser of Cabot's tax
basis in the Division upon the initial public offering (after the payment of the
$17,000 dividend) or the net proceeds of the offering. The unaudited pro forma
combined balance sheet has been prepared assuming an estimated $71,200
distribution was payable at December 31, 1999, Cabot's estimated tax basis in
the Division as of that date. In addition, certain assets amounting to
approximately $1,600, which have historically been part of the Division, will
not be transferred to CMC as discussed in Note 3 -- Arrangements
F-7
<PAGE> 94
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
with Cabot, Facilities Lease Arrangements and Master Separation Agreement. The
Division is expected to lease 780 of these assets from Cabot after the initial
public offering. The removal of these assets is reflected in the pro forma
balance sheet.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH
Cash management for the Division was provided by Cabot and net cash
provided by Cabot was recorded as contributions of capital to the Division.
INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out (FIFO) basis, or market. Finished goods and work in process
inventories include material, labor and manufacturing overhead costs.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is based
on the following estimated useful lives of the assets using the straight-line
method:
<TABLE>
<S> <C>
Buildings................................................... 20-25 years
Machinery and equipment..................................... 5-10 years
Furniture and fixtures...................................... 5-10 years
Information systems......................................... 3-5 years
</TABLE>
Expenditures for repairs and maintenance are charged to expense as
incurred. Expenditures for major renewals and betterments are capitalized and
depreciated over the remaining useful lives. As assets are retired or sold, the
related cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were acquired in connection with a
July 1995 purchase of selected assets (see Note 4). Other intangible assets
consist of trade secrets and know-how, distribution rights, customer lists and
workforce in place. Goodwill and other intangible assets are amortized on the
straight-line basis over their estimated useful lives.
IMPAIRMENT OF LONG-LIVED ASSETS
The Division reviews long-lived assets, including goodwill, for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable or that the useful lives of
these assets are no longer appropriate. Each impairment test is based on a
comparison of the undiscounted cash flows to the recorded value of the asset. If
an impairment is indicated, the asset is written down to its estimated fair
value on a discounted cash flow basis.
FOREIGN CURRENCY TRANSLATION
The Division's operations in Europe and Asia operate primarily using the
local currency. Accordingly, all assets and liabilities of these operations are
translated using exchange rates in effect at the end of the period, and revenue
and costs are translated using weighted average exchange rates for the period.
The related translation adjustments are reported in Comprehen-
F-8
<PAGE> 95
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
sive Income in division equity. Gains and losses resulting from foreign currency
transactions are immaterial for all periods presented.
FOREIGN EXCHANGE MANAGEMENT
The Division has used forward exchange contracts solely to hedge firm
commitments denominated in Japanese Yen associated with the construction of its
Japan plant. The terms of the currency instrument used to hedge this exposure
were consistent with the timing of the committed hedged transaction. The gains
and losses on the forward exchange contracts that were designated as hedges of
the firm commitment associated with the construction of its Japan plant were
deferred and capitalized as part of the cost of the plant. During fiscal 1998,
the Division had a $699 loss on these forward exchange contracts. Cash flows
from these forward exchange contracts have been included in additions to
property, plant and equipment in the combined statement of cash flows. The
purpose of the Division's foreign currency management activity is to protect the
Division from the risk that eventual cash flow requirements from significant
foreign currency commitments may be adversely affected by changes in exchange
rates. The Division has not entered into any other derivative transactions. The
Division had no forward exchange contracts during 1997 or 1999. The Division
does not use derivative financial instruments for trading or speculative
purposes.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts of cash, accounts receivable, accounts payable, and
notes receivable for restricted stock approximate their fair values.
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Division to concentrations of credit
risk consist principally of accounts receivable. The Division performs ongoing
credit evaluations of its customers' financial condition and generally does not
require collateral to secure accounts receivable. The Division's exposure to
credit risk associated with nonpayment is affected principally by conditions or
occurrences within the semiconductor industry. The Division historically has not
experienced losses relating to accounts receivables from individual customers or
groups of customers. The Division maintains an allowance for doubtful accounts
based on an assessment of the collectibility of such accounts.
At September 30, 1998, one customer accounted for 40.2% of net accounts
receivable. At September 30, 1999, three customers accounted for 41.0% of net
accounts receivable.
Revenue from customers who represented more than 10% of revenue were as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Customer A........................................ 42% 38% 22%
Customer B........................................ 11% 12% 10%
Customer C........................................ -- -- 15%
</TABLE>
Customers B and C in the above table are distributors.
F-9
<PAGE> 96
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
REVENUE RECOGNITION
Revenue is recognized upon completion of delivery obligations, provided
acceptance and collectibility are reasonably assured. A provision for the
estimated warranty cost is recorded at the time revenue is recognized based on
the Division's historical experience.
The Division manufactures certain dispersions which are sold to Cabot at
cost. These sales are disclosed as revenue from related party in the combined
statements of income. Cabot and the Division have entered into a dispersions
services agreement, effective upon the closing date of the planned initial
public offering, which provides for dispersions to be sold to Cabot at cost plus
a margin. Under the new agreement, Cabot will supply the Division with fumed
metal oxide raw materials for these dispersions at no cost. Accordingly, the
cost of these fumed metal oxides will not be included in revenue or cost of
goods sold (see Note 3). Had the dispersions services agreement been effective
for the years ended September 30, 1997, 1998 and 1999 and the three months ended
December 31, 1998 and 1999, pro forma unaudited revenue from related party would
have been $988, $1,360, $1,994, $367 and $574, respectively.
COST OF GOODS SOLD
The Division has historically purchased all of its fumed metal oxides,
critical raw materials used in the manufacturing process, from Cabot at Cabot's
budgeted standard cost. Purchases of fumed metal oxides from Cabot by the
Division totaled $8,812, $16,273, and $20,310 during fiscal 1997, 1998, and
1999, respectively. Purchases of fumed metal oxides from Cabot by the Division
totaled $4,269 and $7,374 for the three months ended December 31, 1998 and 1999,
respectively.
The Division has entered into a new fumed metal oxide supply agreement with
Cabot, effective immediately prior to the closing date of the planned initial
public offering, under which it will purchase fumed metal oxides at a
contractually agreed upon price (see Note 3). Had the purchases of fumed metal
oxides that were recorded in cost of goods sold for the years ended September
30, 1997, 1998 and 1999 been at the price specified in the new supply agreement
rather than at Cabot's budgeted standard cost of manufacturing, pro forma
unaudited cost of goods sold would have been $21,235, $31,880, and $50,827,
respectively. Had the purchases of fumed metal oxides that were recorded in cost
of goods sold for the three months ended December 31, 1998 and 1999 been at the
price specified in the new supply agreement rather than at Cabot's budgeted
standard cost of manufacturing, pro forma unaudited cost of goods sold would
have been $10,738 and $16,760, respectively.
Cost of sales made to Cabot is disclosed as cost of goods sold from related
party in the combined statements of income. Had the dispersions services
agreement discussed above been effective for the years ended September 30, 1997,
1998 and 1999 and the three months ended December 31, 1998 and 1999, pro forma
unaudited cost of goods sold from related party would have been $838, $1,150,
$1,645, $301 and $490, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
The Division was not a separate taxable entity for federal, state or local
income tax purposes. The Division's operations are included in the consolidated
Cabot tax returns. An
F-10
<PAGE> 97
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
income tax provision has been calculated on a separate return basis. Prior to
the consummation of the offering, the Division intends to enter into a
tax-sharing agreement with Cabot as described in Note 3.
Deferred income taxes are determined based on the estimated future tax
effects or differences between financial statement carrying amounts and the tax
bases of existing assets and liabilities. Provisions are made for the U.S.
income tax liability and additional non-U.S. taxes on the undistributed earnings
of non-U.S. subsidiaries.
STOCK-BASED COMPENSATION
The Division participates in Cabot's stock-based compensation plans. In
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Division has elected to account for stock-based compensation plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations. The Division discloses the
summary of pro forma effects to reported net income for fiscal 1997, 1998 and
1999, as if the Division had elected to recognize compensation cost based on the
fair value of the options and restricted stock granted by Cabot to employees of
the Division as prescribed by SFAS 123.
EARNINGS PER SHARE
Unaudited pro forma net income per share has been calculated using the
18,989,744 shares that will be owned by Cabot at the completion of the planned
initial public offering (the "offering") of a portion of the common stock of CMC
and the number of shares that the Division would have been required to issue to
fund a dividend to Cabot in an amount equal to Cabot's tax basis in the Division
at each period end minus the earnings from that period at an issue price per
share equal to $14.30, which is the assumed initial public offering price of
$16.00 per share less the estimated underwriting discounts and offering
expenses.
USE OF ESTIMATES
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the combined financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ from those
estimates.
COMPREHENSIVE INCOME
The Division implemented SFAS No. 130 "Reporting Comprehensive Income"
("SFAS 130"), effective October 1, 1998. This standard requires the Division to
report the total changes in division equity that do not result directly from
transactions with stockholders, including those which do not affect retained
earnings. Other comprehensive income recorded by the Division is solely
comprised of accumulated foreign currency translation adjustments, net of
related tax effects. The deferred tax expense associated with foreign currency
translation adjustments was $32, $58, and $492 during fiscal 1997, 1998 and
1999, respectively. The deferred tax expense associated with foreign currency
translation adjustments was $21 for the three months ended December 31, 1999.
F-11
<PAGE> 98
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance regarding whether computer software is internal-use software,
the capitalization of costs incurred for computer software developed or obtained
for internal use and accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the public.
The Division does not expect the impact of adopting SOP 98-1, which will be
effective for the Division in fiscal 2000, to be material to its financial
condition or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires companies to
expense start-up and organization costs as incurred. SOP 98-5 broadly defines
start-up activities and provides examples to help entities determine costs that
are and are not within the scope of SOP 98-5. SOP 98-5 will be effective for the
Division in fiscal 2000, and its initial application is to be reported as the
cumulative effective of a change in accounting principle. The Division does not
expect the impact of adopting SOP 98-5 to be material to its financial condition
or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the balance sheet, and the
corresponding gains and losses be reported either in the statement of income or
as a component of comprehensive income, depending on the type of hedging
relationship that exists. The Division does not expect the impact of SFAS 133,
which will be effective for fiscal 2001, to be significant given its limited use
of derivatives.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. The Division is required to be in conformity with the
provisions of SAB 101 no later than October 1, 2000 and does not expect a
material change in its financial condition or results of operations as a result
of SAB 101.
3. ARRANGEMENTS WITH CABOT:
These combined financial statements have been prepared for inclusion in a
registration statement relating to the offering of a portion of the common stock
of CMC. Cabot will continue to beneficially own more than 80% of the outstanding
shares of common stock after the offering. In addition, Cabot has announced that
sometime after the offering it intends to distribute, pro rata to its
stockholders, all of the shares that it owns by means of a tax-free distribution
(subject to board of director's approval and other conditions) (the "spin-off").
CMC's relationship with Cabot following the offering and spin-off will be
governed by the following agreements.
F-12
<PAGE> 99
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
FUMED METAL OXIDE SUPPLY AGREEMENT
The Division has entered into a fumed metal oxide supply agreement with
Cabot which will become effective upon the closing of the offering. Cabot will
continue to be the exclusive supplier of fumed metal oxides, including fumed
silica, for currently existing slurry products. The agreement provides for a
fixed annual increase in the price of fumed silica of approximately 2% and
additional increases if Cabot's raw material costs increase. The agreement
contains provisions requiring Cabot to supply the Division with fumed silica in
specified volumes. The Division is obligated to purchase at least 90% of the
six-month volume forecast and the Division must pay damages to Cabot if the
Division purchases less than that amount. In addition, the Division is obligated
to pay all reasonable costs incurred by Cabot to provide quality control testing
at levels greater than that which Cabot provides to other customers.
Under the agreement, Cabot will also supply fumed alumina on terms
generally similar to those described above. Cabot is not permitted to sell fumed
metal oxides to third parties for use in CMP applications.
Under the agreement, Cabot warrants that its products will meet the
Division's agreed upon product specifications. Cabot will be obligated to
replace noncompliant products with products that meet the agreed upon
specifications. The agreement also provides that any change to product
specifications for fumed metal oxides must be by mutual agreement. Any increased
costs due to product specification changes will be paid by the Division.
Historically, the Division did not provide detailed product specifications
to Cabot and the Division had the ability to return products that met
specifications. Under the Division's new agreement, the Division will provide
detailed specifications and its ability to return products may be limited.
The agreement has an initial term that expires in June 2005 and may be
terminated thereafter by either party on June 30 or December 31 in any year upon
18 months prior written notice.
DISPERSIONS SERVICES AGREEMENT
The Division has entered into a dispersions services agreement with Cabot
which will become effective upon the closing of the offering. The Division will
continue to offer fumed metal oxide dispersions services to Cabot, including the
manufacturing, packaging and testing of the dispersions. Under the agreement,
Cabot shall supply the Division with the fumed metal oxide particles necessary
for the manufacture of the dispersions. The pricing of the dispersions services
will be determined on a cost-plus basis. The Division's obligation to provide
Cabot with dispersions will be limited to certain maximum volumes and Cabot will
be obligated to supply certain forecasts of their expected dispersions purchases
to the Division. Cabot agrees not to engage any third party other than Davies to
provide dispersion services unless the Division is unable to supply the
requested or agreed-upon services. The agreement has an initial term that
expires in June 2005 and may be terminated by either party on June 30 or
December 31 in any year upon 18 months prior notice.
FACILITIES LEASE ARRANGEMENTS
Following the separation, the Division expects to sublease from Cabot the
land and building space located in Barry, Wales that the Division has
historically utilized.
F-13
<PAGE> 100
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
These assets, with a carrying value of approximately $827 at September 30, 1999
and approximately $780 at December 31, 1999, have been included in the
Division's property, plant and equipment balance in the financial statements. As
noted below under the caption "Master Separation Agreement", these assets will
not be transferred to CMC upon the separation and have been reflected as a pro
forma adjustment in the unaudited pro forma balance sheet. The lease will expire
after ten years, subject to earlier termination under certain circumstances.
MASTER SEPARATION AGREEMENT
Prior to the offering, Cabot and its subsidiaries are expected to transfer
substantially all of the assets and liabilities of the Division to CMC. The
Division's land and building located in Barry, Wales will not be transferred to
CMC as discussed above under the caption "Facilities Lease Arrangements". In
addition, assets with an approximate carrying value of $200 at September 30,
1999 and $820 at December 31, 1999 will not be transferred upon the separation.
CMC will agree to pay the costs of the transfer of assets from Cabot including
moving expenses, transfer taxes, fees related to the assignment of contracts and
expenses related to notices to customers, suppliers or other third parties.
The Division is also expected to assume all liabilities and obligations of
Cabot relating to or arising out of the Division's business operations any time
on or before the date of the transfer of the Division's business operations to
CMC other than various excluded liabilities.
Under the master separation agreement, Cabot is expected to transfer
intellectual property rights related solely to the business conducted by the
Division, including patents, copyrights, trademarks, technology and know-how and
licenses and other rights concerning third party technology and intellectual
property.
CMC is expected to indemnify Cabot against any losses or actions arising
out of or in connection with the liabilities assumed by CMC as part of the
separation, including any liabilities arising out of the current litigation with
Rodel discussed elsewhere and the conduct of CMC's business and affairs after
the separation date. The Master Separation Agreement is also expected to provide
that Cabot will continue to defend the lawsuits instituted by Rodel against
Cabot until CMC notifies Cabot that they will assume defense of the lawsuits.
TRADEMARK LICENSE AGREEMENT
The Division has entered into a trademark license agreement with Cabot that
governs their use of various trademarks used in their core business. Under the
agreement, Cabot has granted a worldwide royalty-free license to use the
trademarks in connection with the manufacture, sale or distribution of products
related to the business. Under the agreement, the Division will refrain from
various actions that could interfere with Cabot's ownership of the trademarks.
The agreement also provides that the Division's license to use the trademarks
may be terminated for various reasons, including discontinued use of the
trademarks, breach of the agreement, or a change in control of CMC.
MANAGEMENT SERVICES AGREEMENT
The Division and Cabot have entered into a management service agreement,
which will become effective upon the closing of this offering, pursuant to which
Cabot will provide certain administrative and corporate support services to the
Division on an interim or transitional basis.
F-14
<PAGE> 101
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
Such services include human resources, accounting, treasury, tax, facilities,
legal and information services. The charges for such services allow Cabot to
recover the fully allocated costs of providing such services plus all
out-of-pocket, third party costs and expenses, but without any profit to Cabot.
The management services agreement commences on the date of the offering and
continues until the earlier of the date of the spin-off or two years from the
completion of the offering. By mutual agreement, Cabot and the Division may
provide for the continuation of some services after the spin-off.
CONFIDENTIAL DISCLOSURE AND LICENSE AGREEMENT
The Division is expected to enter into a confidential disclosure and
license agreement with respect to confidential and proprietary information,
intellectual property and certain other matters. Cabot is expected to grant a
fully paid, world-wide non-exclusive license to the Division for Cabot's
copyrights, patents and technology that were used by Cabot in connection with
the Division's activities prior to their separation from Cabot. The Division is
expected to grant to Cabot a fully paid, world-wide, non-exclusive license to
copyrights, patents and technologies that are among the assets transferred to
the Division under the master separation agreement and that would be infringed
by the manufacture, treatment, processing, handling, marketing, sale or use of
any products or services sold by Cabot for applications other than CMP.
In addition, Cabot is expected to assign an undivided one-half interest in
various patents, copyrights and technology that relate to dispersion technology,
which are owned by Cabot and used in Cabot's dispersion business and the
Division's business. Any costs, taxes or other fees related to the assignments
and transfers of intellectual property will generally be paid by the Division.
INITIAL PUBLIC OFFERING AND DISTRIBUTION AGREEMENT
The Division has entered into an initial public offering and distribution
agreement with Cabot which governs the respective rights and duties of the
Division and Cabot with respect to the offering and the spin-off. This agreement
will be effective as of the closing of the offering. After the offering, Cabot
will continue to own a significant portion of the common stock of CMC. As a
result, Cabot will continue to include CMC as a "subsidiary" for financial
reporting, accounting and other purposes. Accordingly, the Division has agreed
to certain covenants in the initial public offering and distribution agreement,
which will be binding on CMC as long as Cabot owns at least 50% of CMC's
outstanding common stock. These covenants include restrictions on incurring debt
over a certain amount. The Division will not be allowed to take any action which
has the effect of limiting Cabot's ability to freely sell, pledge or otherwise
dispose of shares of CMC common stock. In addition, CMC will not be allowed to
issue any shares of common stock or any rights, warrants or options to acquire
CMC common stock, if after giving effect to such issuance, Cabot would own less
than 80% of the then outstanding shares of CMC common stock. Cabot has announced
that it plans to complete a spin-off within six to twelve months after the date
of a private letter ruling from the United States Internal Revenue Service
confirming that the spin-off is tax-free to Cabot. However, Cabot is not
obligated to complete the spin-off in this time frame or at all. The agreement
indemnifies Cabot against all liabilities out of any material untrue statements
or omissions in the prospectus and registration statement related to the
offering. The Division is responsible for paying the costs and expenses incurred
in connection with the offering.
F-15
<PAGE> 102
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
TAX-SHARING AGREEMENT
After the offering, the Division will continue to be included in Cabot's
consolidated federal income tax group for as long as Cabot beneficially owns at
least 80% of the total voting power and value of the outstanding common stock.
The Division and Cabot have entered into a tax-sharing agreement pursuant to
which the Division and Cabot will make payments between them to achieve the same
effects as if the Division were to file separate federal, state and local income
tax returns. Under the terms of the tax-sharing agreement, Cabot will not be
required to make any payment to the Division for the use of the Division's tax
attributes that arise prior to the spin-off until such time as the Division
would otherwise be able to utilize such attributes. Each member of a
consolidated group is jointly and severally liable for the federal income tax
liability of each other member of the consolidated group. Accordingly, although
the tax-sharing agreement allocates tax liabilities between the Division and
Cabot, during the period in which the Division is included in Cabot's
consolidated group, the Division could be liable in the event that any federal
tax liability is incurred, but not discharged, by any other member of Cabot's
consolidated group. The Division will indemnify Cabot in the event that the
expected spin-off is not tax free to Cabot as a result of various actions taken
by or with respect to the Division or the Division's failure to take various
actions.
REGISTRATION RIGHTS AGREEMENT
Although Cabot has announced its plans to complete a spin-off within six to
twelve months of the completion of the planned offering, there is no assurance
that the spin-off will occur within this time frame or at all. Accordingly, the
Division has entered into a registration rights agreement with Cabot to provide
them with registration rights relating to the shares of CMC common stock that it
holds. These registration rights will become effective at such time that Cabot
informs the Division that it no longer intends to proceed with or complete the
spin-off.
EMPLOYEE MATTERS AGREEMENT
The Division and Cabot have entered into an employee matters agreement
under which the Division will, with certain exceptions, be solely responsible
for the compensation and benefits of employees of the Division. The principal
exception is the retirement benefits for employees of the Division. Cabot's
tax-qualified retirement plans will retain all assets and liabilities relating
to employees of the Division on and after the offering (subject to any
distributions from the plans that are required or permitted by the plans and
applicable law). The employee matters agreement also provides that equity awards
granted to employees of the Division under Cabot's equity incentive plans may be
converted into equity awards of CMC upon agreement between Cabot and the
Division.
OPTION GRANTS TO CABOT EMPLOYEES
The Division has adopted the Cabot Microelectronics Corporation 2000 Equity
Incentive Plan. The Division intends to grant options under the 2000 Equity
Incentive Plan to Cabot employees.
F-16
<PAGE> 103
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
4. ACQUISITION OF SELECTED ASSETS:
On July 3, 1995, the Company acquired selected assets used or created in
connection with the development and sale of polishing slurries. The acquisition
was accounted for using the purchase method of accounting. Accordingly, the
purchase price of $9,800 was allocated to the net assets acquired based on their
estimated fair values. Identifiable intangible assets, consisting primarily of
trade secrets and know-how, distribution rights, customer lists and workforce in
place, were valued at $4,300 and are being amortized on a straight-line basis
over their estimated useful lives of 7-10 years. The excess of purchase price
over the fair value of the net assets acquired (goodwill) was approximately
$2,800, and is being amortized on a straight-line basis over ten years.
Accumulated amortization of goodwill and other intangible assets as of September
30, 1998 and 1999 was $2,332 and $3,052, respectively. In addition to the
purchase price, the Division also pays a royalty fee in the amount of 2.5% of
total slurry revenue through June 30, 2002. Royalty fees are paid on a monthly
basis and are included in cost of goods sold.
5. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------- ------------
1998 1999 1999
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................. $3,466 $3,297 $5,065
Work in process............................ 91 73 29
Finished goods............................. 2,356 1,899 3,523
------ ------ ------
Total............................ $5,913 $5,269 $8,617
====== ====== ======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------ ------------
1998 1999 1999
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Land..................................... $ 1,889 $ 4,168 $ 5,026
Buildings................................ 9,539 21,448 22,196
Machinery and equipment.................. 10,066 15,350 16,330
Furniture and fixtures................... 271 939 1,471
Information systems...................... 53 374 324
Construction in progress................. 6,285 2,778 6,868
------- ------- -------
Total property, plant and equipment...... 28,103 45,057 52,215
Less: accumulated depreciation........... (3,390) (5,026) (5,815)
------- ------- -------
Net property, plant and equipment........ $24,713 $40,031 $46,400
======= ======= =======
</TABLE>
Depreciation expense was $1,191, $1,488 and $2,057 during fiscal 1997, 1998
and 1999, and $405 and $752 for the three months ended December 31, 1998 and
1999, respectively.
F-17
<PAGE> 104
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1999
---- ----
<S> <C> <C>
Raw material accruals.................................... $1,043 $1,265
Accrued compensation..................................... 1,177 1,568
Warranty accrual......................................... 348 891
Fixed asset accruals..................................... 280 712
Other.................................................... 1,108 2,344
------ ------
Total.......................................... $3,956 $6,780
====== ======
</TABLE>
8. DEFERRED COMPENSATION
Under the Cabot Supplemental Employee Retirement Plan, certain officers and
employees of the Division elected to defer certain percentages of their
compensation to future periods. Amounts deferred as of September 30, 1998, 1999
and December 31, 1999 were $233, $422 and $528, respectively.
9. JOINT DEVELOPMENT AGREEMENT:
In September 1998, the Division entered into a three-year joint development
agreement with a customer in the semiconductor industry. Under the agreement,
the Division provides the customer with CMP slurries of up to $3,000 over a
three-year period in exchange for the use of CMP equipment provided by the
customer. The arrangement was accounted for as a nonmonetary transaction in
accordance with APB No. 29 "Accounting for Nonmonetary Transactions." The CMP
equipment was accounted for as an operating lease in accordance with SFAS No.
13, "Accounting for Leases." The cost of leasing the CMP equipment was valued
based upon the slurries that the customer is entitled to receive over the
three-year period. Total revenue and lease expense recognized under this
agreement were $776 and $1,000, respectively, for the year ended September 30,
1999. Deferred revenue of $224 was recorded as of September 30, 1999.
10. PENSION PLANS AND POSTRETIREMENT BENEFITS:
The Division participates in Cabot's noncontributory defined benefit
pension plans which cover substantially all Cabot employees. Those Cabot
employees who accept employment with CMC will terminate employment with Cabot
but will maintain their vested and unvested rights in the pension plans. Pension
benefits accrue under several benefit plans including the Cash Balance Plan
("CBP"), a defined benefit pension plan, and the Employee Stock Ownership Plan
("ESOP"). Cabot's funding policy is to contribute annual amounts based on
actuarial and economic assumptions designed to achieve adequate funding of
projected benefit obligations. The net periodic pension cost allocated to the
Division on behalf of the Division employees was $26, $96 and $61 during fiscal
1997, 1998 and 1999, respectively. In November 1988, the ESOP was funded with
Cabot's newly issued Series B Convertible Preferred Stock, which was acquired
with $75,000 borrowed by the ESOP. Benefits provided under Cabot's defined
benefit pension plans are primarily based on years of service and the employee's
compensation. ESOP costs
F-18
<PAGE> 105
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
incurred on behalf of employees of the Division were $75, $90, and $99 during
fiscal 1997, 1998 and 1999, respectively.
The Division participates in Cabot's defined benefit postretirement plans
that provide certain healthcare and life insurance benefits to retired
employees. Substantially all of Cabot's U.S. employees become eligible for these
benefits if they have met certain age and service requirements at retirement.
Cabot funds the plans as claims or insurance premiums are incurred.
Postretirement benefit expense is recognized as services are rendered by the
employees. Postretirement benefit costs incurred on behalf of employees of the
Division were $80, $81, and $99 during fiscal 1997, 1998 and 1999, respectively.
11. SAVINGS PLAN AND OTHER INCENTIVE COMPENSATION PLANS:
Cabot sponsors a profit sharing and savings plan called the Cabot
Retirement Incentive Savings Plan ("CRISP"). Substantially all of the Division's
domestic employees are eligible to participate in the plan under which Cabot
will make matching contributions of at least 75% of a participant's contribution
up to 7.5% of the participant's eligible compensation, subject to limitations
required by government laws or regulations. Cabot's contributions to the CRISP
on behalf of employees of the Division were $199, $258, and $385 during fiscal
1997, 1998 and 1999, respectively.
12. EQUITY INCENTIVE PLANS AND EMPLOYEE LOANS RECEIVABLE:
Cabot sponsors an Equity Incentive Plan for key employees under which
participants may be granted various types of stock-based awards. Awards under
the 1996 plan made as part of Cabot's Long-Term Incentive Program, which
constitutes a significant portion of the awards made under this plan, consist of
restricted stock and non-qualified stock options. Restricted stock could be
purchased at a price equal to 40% of the fair market value on the date of the
award or nonqualified stock options exercisable at the fair market value of
Cabot's common stock on the date of the award. Variations of the restricted
stock awards were made to international employees in order to try to provide
results comparable to U.S. employees. The awards generally vest on the third
anniversary of the grant for employees then employed by Cabot, and the options
generally expire five years from the date of grant. In November 1998, Cabot
Board of Directors adopted the 1999 Equity Incentive Plan. The 1999 plan was
approved by the stockholders of Cabot in March 1999. This plan is similar to the
1996 Equity Incentive Plan with the exception of the purchase price, which was
established at a price equal to 30% of the fair market value on the date of the
award. A limited number of awards are also available for no consideration under
both the 1996 plan and the 1999 plan in lieu of cash compensation.
Certain Cabot employees who will become employees of the Company have been
granted nonqualified stock options and restricted stock under these plans. Stock
options have been granted at the fair market value of Cabot's common stock on
the date of grant, vest ratably over four years, and generally expire ten years
from the date of grant. Restricted stock awards generally enable an employee to
purchase restricted stock at a price equal to 30% or 40% of the fair market
value on the date of the award and such awards generally vest on the third
anniversary date of the award. Compensation expense, equal to the discount on
the restricted stock, is deferred and recorded as a charge to income over the
vesting period. Deferred compensation is recorded as a component of Division
equity.
F-19
<PAGE> 106
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
In May 1999, Cabot adopted a stock purchase assistance plan whereby Cabot
may extend credit to its employees to purchase restricted shares of Cabot
Corporation common stock awarded under Cabot's 1999 Equity Incentive Plan. Prior
to this date, loans were made available to employees by a third party financial
institution. On June 30, 1999, Cabot purchased, from a financial institution,
all such full recourse loans to Cabot employees outstanding as of that date. As
of September 30, 1999, notes receivable from employees of the Division totaled
approximately $1,383. These notes receivable are not included in the historical
financial statements of the Division and upon the closing of the planned initial
public offering, any restricted stock receivables related to securities held by
employees of the Division will remain with Cabot.
RESTRICTED STOCK
Shares of restricted stock awarded to employees of the Division are
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RESTRICTED EXERCISE
STOCK PRICE
---------- --------
<S> <C> <C>
Outstanding at September 30, 1996...................... 46,100 $ 9.67
Granted.............................................. 31,500 19.55
Vested............................................... (8,800) 6.14
Canceled............................................. -- --
-------
Outstanding at September 30, 1997...................... 68,800 14.64
Granted.............................................. 48,200 17.09
Vested............................................... (10,000) 10.00
Canceled............................................. (300) 14.13
-------
Outstanding at September 30, 1998...................... 106,700 16.19
Granted.............................................. 95,300 33.09
Vested............................................... (30,300) 9.62
Canceled............................................. (4,700) 17.70
-------
Outstanding at September 30, 1999...................... 167,000 $26.98
=======
</TABLE>
Total compensation expense recognized by the Division for restricted stock
based awards under APB 25 amounted to $242, $449, and $900 during fiscal 1997,
1998 and 1999, respectively.
F-20
<PAGE> 107
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
STOCK OPTIONS
Cabot stock option activity related to employees of the Division is
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
STOCK EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Balance at September 30, 1996........................... 13,072 $ 9.13
Granted............................................... 1,300 23.88
Exercised............................................. -- --
Canceled.............................................. -- --
------
Balance at September 30, 1997........................... 14,372 10.46
Granted............................................... 17,615 35.31
Exercised............................................. (4,000) 8.72
Canceled.............................................. -- --
------
Balance at September 30, 1998........................... 27,987 26.35
Granted............................................... 63,000 27.00
Exercised............................................. (2,400) 10.47
Canceled.............................................. (5,850) 35.31
------
Balance at September 30, 1999........................... 82,737 $26.67
======
</TABLE>
There were no options granted at prices below the quoted market price of
common stock.
Additional information about outstanding options to purchase Cabot common
stock held by employees of the Division at September 30, 1999 is as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OF SHARES LIFE (IN YEARS) PRICE OF SHARES PRICE
- ----------------------- --------- --------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$7.59-$10.47............. 6,272 .97 $ 7.75 6,272 $ 7.75
$23.88-$35.31............ 76,465 2.46 28.22 400 26.70
------ ------ ----- ------
82,737 $26.67 6,672 $ 8.89
====== ====== ===== ======
</TABLE>
As permitted by SFAS 123, Cabot has chosen to continue to account for stock
options in accordance with the provisions of APB 25 and, accordingly, no
compensation expense related to stock option grants was recorded.
F-21
<PAGE> 108
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
Pro forma information regarding net income is required by SFAS 123 and has
been determined as if the Division had accounted for stock options under the
fair value method using the Black-Scholes option-pricing model and the following
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected stock price volatility...................... 26% 34% 35%
Risk free interest rate.............................. 6.54% 5.63% 5.42%
Expected life of options............................. 4 years 4 years 4 years
Expected annual dividends............................ $0.40 $0.44 $0.44
</TABLE>
The estimated weighted average fair value of options granted by Cabot to
employees of the Division during fiscal 1997, 1998 and 1999 were $6.37, $11.00,
and $8.24, respectively. Had the fair value based method been adopted, the
Division's pro forma net income for fiscal 1997, 1998 and 1999 would have been
$707, $4,218 and $12,213, respectively.
13. INCOME TAXES:
Income before income taxes was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Domestic................................................ $293 $6,178 $18,655
Foreign................................................. 370 270 421
---- ------ -------
Total......................................... $663 $6,448 $19,076
==== ====== =======
</TABLE>
Taxes on income consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
U.S. federal and state:
Current............................................... $(156) $1,953 $6,522
Deferred.............................................. (17) (182) (234)
----- ------ ------
Total................................................... (173) 1,771 6,288
----- ------ ------
Foreign:
Current............................................... 20 401 489
Deferred.............................................. 108 39 19
----- ------ ------
Total................................................... 128 440 508
----- ------ ------
Total U.S. and foreign.................................. $ (45) $2,211 $6,796
===== ====== ======
</TABLE>
F-22
<PAGE> 109
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
The provision for income taxes at the Division's effective tax rate
differed from the provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Computed tax expense at the federal statutory rate...... $ 232 $2,257 $6,677
U.S. benefits from research and development
activities............................................ (353) (367) (344)
State taxes, net of federal effect...................... 10 58 508
Impact of foreign taxation at different rates,
repatriation and other................................ 62 354 155
Foreign sales corporation............................... (17) (118) (243)
Other, net.............................................. 21 27 43
----- ------ ------
(Benefit) provision for income taxes.................... $ (45) $2,211 $6,796
===== ====== ======
</TABLE>
The Division's effective tax rate differed from the statutory tax rate
during the three months ended December 31, 1998 and 1999 primarily as a result
of tax benefits generated as a result of research and development activities.
Significant components of deferred income taxes were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Amortization.............................................. $ 281 $ 367
Employee benefits......................................... 596 1,118
Inventory................................................. 100 89
Product warranty.......................................... 122 168
Accrued legal fees........................................ 64 105
State and local taxes..................................... 67 144
Other..................................................... 58 133
------ ------
Total deferred tax assets......................... $1,288 $2,124
====== ======
Deferred tax liabilities:
Depreciation and amortization............................. $ 698 $ 827
Translation adjustment.................................... 90 582
------ ------
Total deferred tax liabilities.................... $ 788 $1,409
====== ======
</TABLE>
14. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
Cabot, on behalf of the Division, leases certain transportation vehicles,
warehouse facilities, office space, machinery and equipment under cancelable and
noncancelable leases, most of which expire within ten years and may be renewed
by the Division. Rent expense under such arrangements during fiscal 1997, 1998
and 1999 totaled $160, $150 and $1,439, respectively.
F-23
<PAGE> 110
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
Future minimum rental commitments under noncancelable leases as of
September 30, 1999 are as follows:
<TABLE>
<S> <C>
2000................................................ $1,327
2001................................................ 1,092
2002................................................ 69
2003................................................ 26
2004................................................ 11
2005 and thereafter................................. --
------
$2,525
======
</TABLE>
OTHER LONG-TERM COMMITMENTS
The Division has a long term supply agreement with the Division's largest
customer. The agreement was designed to provide this customer with specified
quantities of polishing slurries at agreed-upon prices. This agreement expires
in January 2002.
The Division has an agreement with Davies Imperial Coatings, Inc.
("Davies") pursuant to which Davies will perform certain agreed upon dispersion
services for the Division. The Division has agreed to purchase minimum amounts
of services per year and has also agreed to invest $150 per year in capital
improvements or other expenditures to maintain capacity at the Davies
dispersions facility. The initial term of this agreement expires in October
2004, with automatic one-year renewals, and contains a 90 day cancellation
clause executable by either party.
CONTINGENCIES
In June 1998, a lawsuit was commenced by Rodel, Inc. ("Rodel") against
Cabot seeking injunctive relief and damages relating to allegations that Cabot,
through the Division, is infringing on a United States patent that Rodel owns.
The action is presently in discovery and a trial is scheduled to begin in
November 2000. In April 1999, Rodel commenced a second lawsuit against Cabot
seeking injunctive relief and damages relating to allegations that Cabot is
infringing two other United States patents owned by an affiliate of Rodel. In
the first lawsuit, the only product that is specifically alleged to infringe a
Rodel patent is the Division's W2000 slurry, which is used to polish tungsten
and which currently accounts for a significant portion of the Division's
revenue. The second lawsuit does not allege infringement by any specific
products; instead, it cites one of Cabot's patents (which relates to a CMP
polishing slurry for metal surfaces including, among other things, aluminum and
copper) as evidence of infringement by Cabot through the manufacture and sale of
unspecified products. At this stage, the Division cannot predict whether or to
what extent Rodel will make specific infringement claims with respect to any of
the Division's products other than the Division's W2000 slurry in these or any
future proceedings. It is possible that Rodel will claim that many of the
Division's products infringe its patents.
Although Cabot is the only named defendant in these lawsuits, the Division
has agreed to indemnify Cabot for any and all losses and expenses arising out of
this litigation as well as any other litigation arising out of the Division's
business. Cabot and the Division believe that they have meritorious defenses to
these actions and intend to vigorously defend themselves. However, it is not
possible to predict the ultimate outcome of these lawsuits. These claims, even
if they are without merit, could be expensive and time consuming to defend and
could adversely
F-24
<PAGE> 111
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
affect the Division's business, financial condition and results of operations.
If Cabot or the Division were to lose these lawsuits, they may be liable for
significant damages and legal expenses and may be enjoined from manufacturing
slurry products. It is not possible to estimate the amount of a probable loss,
if any, to the Division that might result from this matter. Accordingly, no
provision has been made in the Division's combined financial statements.
15. FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA:
The Division has adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"), which was effective for the
fiscal year ended September 30, 1999.
The Division operates predominantly in one industry segment -- the
development, manufacture, and sale of CMP slurries. Although the Division's
products can be categorized into various product lines and periodic financial
information is available by product line, management determined that the
Division's business is considered one reportable segment in accordance with the
aggregation criteria under SFAS 131.
The Division does not classify export sales as foreign sales. Financial
information by geographic area was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue:
United States............................................. $33,650 $55,600 $89,666
Europe.................................................... 1,561 3,231 4,789
Asia...................................................... 0 0 4,235
------- ------- -------
Total....................................................... $35,211 $58,831 $98,690
======= ======= =======
Property, plant and equipment, net:
United States............................................. $14,975 $17,376 $25,324
Europe.................................................... 2,220 2,461 3,139
Asia...................................................... 0 4,876 11,568
------- ------- -------
Total....................................................... $17,195 $24,713 $40,031
======= ======= =======
</TABLE>
16. SUBSEQUENT EVENT:
In December 1999, CMC obtained a letter of commitment from a bank for a
line of credit arrangement whereby CMC will be able to borrow an aggregate
amount of up to $25,000 for working capital, general corporate purposes and
capital expenditures. The term of the credit arrangement is three years. CMC
will be required to pay a fee on the $25,000 commitment amount until the loan
agreement is signed and will be required to pay a fee on unused portion of the
commitment amount after the loan agreement is signed. The commitment from the
bank will be subject to the consummation of the initial public offering of CMC's
common stock and certain limits for the aggregate indebtedness of CMC at the
time of closing of this credit arrangement.
In March 2000, CMC obtained a letter of commitment from a bank for an
unsecured senior credit facility under which the lender would make term loans to
CMC in an aggregate amount of $17,000. The first term loan is in the amount of
$3,500 due in March 2005.
F-25
<PAGE> 112
CABOT MICROELECTRONICS MATERIALS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION SUBSEQUENT TO NOVEMBER 5, 1999 IS UNAUDITED)
The second term loan is in the amount of $13,500 with quarterly repayments
starting on June 30, 2000 and the remaining obligation due in March 2005.
Interest on the outstanding principal balance is due quarterly in arrears. The
proceeds of the loans under this credit facility are expected to be used to
finance the expected dividend to Cabot.
17. VALUATION AND QUALIFYING ACCOUNTS:
The following table sets forth activities in the Division's allowance for
doubtful accounts:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF YEAR EXPENSES DEDUCTIONS YEAR
ACCOUNTS RECEIVABLE ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended:
September 30, 1997........................ $ 50 $ -- $-- $ 50
September 30, 1998........................ 50 -- -- 50
September 30, 1999........................ 50 -- -- 50
</TABLE>
The Division has historically not recorded warranty claims against warranty
reserves but rather provided for them in the period in which they occurred. As
such, charges to expenses represent the net charge required to maintain an
appropriate reserve.
<TABLE>
<S> <C> <C> <C> <C>
WARRANTY RESERVES
Year ended:
September 30, 1997........................ $ 82 $148 $-- $230
September 30, 1998........................ 230 118 -- 348
September 30, 1999........................ 348 543 -- 891
</TABLE>
F-26
<PAGE> 113
UNDERWRITING
Cabot Microelectronics, Cabot Corporation and the underwriters named below
have entered into an underwriting agreement with respect to the shares being
offered. Subject to certain conditions, each underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman, Sachs &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and FleetBoston
Robertson Stephens Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
FleetBoston Robertson Stephens Inc..........................
--------
Total.............................................
========
</TABLE>
------------------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 600,000
shares from us to cover such sales. They may exercise that option for 30 days.
If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
PAID BY
CABOT MICROELECTRONICS
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share............ $ $
Total................ $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.
We and Cabot have agreed with the underwriters not to sell or otherwise
dispose any of our common stock or securities convertible into or exchangeable
for shares of our common stock during the period from the date of this
prospectus continuing through the date 180 days after the date of this
prospectus, except with the prior written consent of the representatives. This
agreement does not apply to any existing employee benefit plans. See "Shares
Eligible for Future Sale" for a discussion of transfer restrictions.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 230,000 shares offered by this prospectus to be
sold to employees and friends of ours. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among us and the
representatives. The factors to be considered in determining the initial public
offering price of the shares, in addition to prevailing market conditions, will
be our historical performance, estimates of the business
U-1
<PAGE> 114
potential and earnings prospects of our company, an assessment of our management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
We have applied to list our common stock on Nasdaq under the symbol "CCMP".
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on Nasdaq, in the
over-the-counter market or otherwise.
FleetBoston Robertson Stephens Inc., an underwriter in this offering, is an
affiliate of the lending bank under our credit facility. Merrill Lynch, Pierce,
Fenner & Smith Incorporated, also an underwriter in this offering, is an
affiliate of Merrill Lynch Bank & Trust, the lending bank for the loan facility
available to all recipients of restricted stock grants.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $2.3 million.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE> 115
INSIDE BACK COVER
[Map of our global headquarters and facilities]
Strategically Positioned for Success
<PAGE> 116
- -------------------------------------------------------
- -------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the common units offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 7
Use of Proceeds......................... 16
Dividend Policy......................... 16
Capitalization.......................... 17
Dilution................................ 18
Selected Financial Data................. 19
Unaudited Pro Forma Combined Statements
of Income............................. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 25
Business................................ 36
Management.............................. 51
Relationships Between Our Company and
Cabot Corporation..................... 61
Security Ownership of Principal
Stockholder and Management............ 73
Description of Capital Stock............ 75
Shares Eligible for Future Sale......... 83
Legal Matters........................... 85
Experts................................. 85
Where You Can Find More Information..... 85
Index to Financial Statements........... F-1
Underwriting............................ U-1
</TABLE>
------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriting and with respect to an unsold allotment or
subscription.
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
4,000,000 Shares
CABOT MICROELECTRONICS
CORPORATION
Common Stock
------------------
[Cobot MicroElectronic logo]
------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
Representatives of the Underwriters
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses and costs payable by Cabot
Microelectronics (other than underwriting discounts and commissions) expected to
be incurred in connection with the issuance and distribution of the securities
described in this registration statement. All amounts are estimated except for
the Securities and Exchange Commission's registration fee and the National
Association of Securities Dealers' filing fee.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Registration fee under Securities Act....................... $ 20,645
NASD filing fee............................................. 8,000
Nasdaq National Market fees................................. 95,000
Legal fees and expenses..................................... 1,175,000
Accounting fees and expenses................................ 759,000
Printing and engraving expenses............................. 200,000
Registrar and transfer agent fees........................... 3,000
Miscellaneous expenses...................................... 39,355
----------
Total............................................. $2,300,000
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits and proceedings, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the corporation -- a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such action, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
certificate of incorporation, bylaws, disinterested director vote, stockholder
vote, agreement, or otherwise.
Our bylaws and our certificate of incorporation require us to indemnify to
the fullest extent authorized by the DGCL any person made or threatened to be
made a party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he or she is or was
a director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise.
As permitted by section 102(b)(7) of the DGCL, our certificate of
incorporation eliminates the liability of a director to the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (a) from any breach of the director's
duty of loyalty to the corporation or its stockholders; (b) from acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (c) under
II-1
<PAGE> 118
section 174 of the DGCL; or (d) from any transaction from which the director
derived an improper personal benefit.
We intend to obtain primary and excess insurance policies insuring its
directors and officers and those of its subsidiaries against certain liabilities
they may incur in their capacity as directors and officers. Under these
policies, the insurer, on our behalf, may also pay amounts for which we have
granted indemnification to the directors or officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 to this registration statement, which provides for indemnification
by our Underwriters, their directors and officers who sign the registration
statement and persons who control us, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Cabot Microelectronics
Corporation.
3.2 Amended and Restated By-Laws of Cabot Microelectronics
Corporation.
3.3 Form of Amended and Restated Certificate of Incorporation of
Cabot Microelectronics Corporation.
3.4 Form of Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock.
4.1 Form of Cabot Microelectronics Corporation common stock
certificate.*
4.2 Rights Agreement.*
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson
regarding the legality of the shares being registered.*
10.1 Master Separation Agreement, between Cabot Microelectronics
Corporation and Cabot Corporation.*
10.2 IPO and Distribution Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.*
10.3 Tax Sharing Agreement, between Cabot Microelectronics
Corporation and Cabot Corporation.
10.4 Management Services Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.
10.5 Fumed Metal Oxide Supply Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.+
10.6 Confidential Disclosure and License Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.*
10.7 Trademark License Agreement, between Cabot Microelectronics
Corporation and Cabot Corporation.
10.8 Dispersion Services Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.+
10.9 Employee Matters Agreement, between Cabot Microelectronics
Corporation and Cabot Corporation.
</TABLE>
II-2
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
<C> <S>
10.10 Registration Rights Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.
10.11 Purchase Agreement between Cabot Corporation and Intel
Corporation.+
10.12 Services Agreement by and among Davies -- Imperial Coatings,
Inc., Cabot Corporation, Donn Davies and JoAnn Davies.+
10.13 Sublease for Barry, Wales facility.*
10.14 2000 Equity Incentive Plan.
10.15 2000 Employee Stock Purchase Plan.
23.1 Consent of PricewaterhouseCoopers, LLP
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5.1).*
23.3 Consent of Juan Cabot Enriquez**
23.4 Consent of John P. Frazee, Jr.**
23.5 Consent of Steven V. Wilkinson**
24.1 Power of Attorney.**
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
(B) Financial Statement Schedules
Financial statement schedules have been omitted because they are not
applicable or the required information is shown in the combined financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) 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.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-3
<PAGE> 120
(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Aurora, State of Illinois, on March 27, 2000.
CABOT MICROELECTRONICS CORPORATION
By: /s/ MATTHEW NEVILLE
------------------------------------
Matthew Neville
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board
*
- ---------------------------------------
Kennett F. Burnes
President and Chief Executive
Officer, Director (Principal
Executive Officer)
/s/ MATTHEW NEVILLE March 27, 2000
- ---------------------------------------
Matthew Neville
Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ WILLIAM C. MCCARTHY March 27, 2000
- ---------------------------------------
William C. McCarthy
Director
*
- ---------------------------------------
Samuel W. Bodman
Director
*
- ---------------------------------------
William P. Noglows
*By: /s/ MATTHEW NEVILLE March 27, 2000
----------------------------------
Matthew Neville
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 122
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Cabot Microelectronics
Corporation.
3.2 Amended and Restated By-Laws of Cabot Microelectronics
Corporation.
3.3 Form of Amended and Restated Certificate of Incorporation of
Cabot Microelectronics Corporation
3.4 Form of Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock
4.1 Form of Cabot Microelectronics Corporation common stock
certificate.*
4.2 Rights Agreement.*
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson
regarding the legality of the shares being registered.*
10.1 Master Separation Agreement, between Cabot Microelectronics
Corporation and Cabot Corporation.*
10.2 IPO and Distribution Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.*
10.3 Tax Sharing Agreement, between Cabot Microelectronics
Corporation and Cabot Corporation.
10.4 Management Services Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.
10.5 Fumed Metal Oxide Supply Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.+
10.6 Confidential Disclosure and License Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.*
10.7 Trademark License Agreement, between Cabot Microelectronics
Corporation and Cabot Corporation.
10.8 Dispersion Services Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.+
10.9 Employee Matters Agreement, between Cabot Microelectronics
Corporation and Cabot Corporation.
10.10 Registration Rights Agreement, between Cabot
Microelectronics Corporation and Cabot Corporation.
10.11 Purchase Agreement between Cabot Corporation and Intel
Corporation.+
10.12 Services Agreement by and among Davies--Imperial Coatings,
Inc., Cabot Corporation, Donn Davies and JoAnn Davies.+
10.13 Sublease for Barry, Wales facility.*
10.14 2000 Equity Incentive Plan.
10.15 2000 Employee Stock Purchase Plan.
23.1 Consent of PricewaterhouseCoopers, LLP.
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5.1).*
23.3 Consent of Juan Cabot Enriquez**
23.4 Consent of John P. Frazee, Jr.**
23.5 Consent of Steven V. Wilkinson**
24.1 Power of Attorney. **
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CABOT MICROELECTRONICS CORPORATION
Pursuant to Section 102 of the General Corporation Law
of the State of Delaware
The undersigned, in order to form a corporation pursuant to Section
102 of the General Corporation Law of Delaware, does hereby certify:
FIRST: The name of the Corporation is Cabot Microelectronics
Corporation.
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 5500 shares divided
into two classes of which 500 shares of par value $.001 per share shall be
designated Preferred Stock and 5000 shares of par value $.001 per share shall be
designated Common Stock.
A. Preferred Stock
1. Issuance. The Board of Directors is authorized, subject to
limitations prescribed by law, to provide for the issuance of shares of
Preferred Stock in one or more series, to establish the number of shares to be
included in each such series, and to fix the designations, powers, preferences,
and rights of the shares of each such series, and any qualifications,
limitations, or restrictions thereof.
<PAGE> 2
B. Common Stock
1. Dividends. Subject to the preferential rights, if any, of
the Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of Common Stock.
2. Voting Rights. At every annual or special meeting of
stockholders of the Corporation, every holder of Common Stock shall be entitled
to one vote, in person or by proxy, for each share of Common Stock standing in
his name on the books of the Corporation.
3. Liquidation, Dissolution, or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the affairs
of the Corporation, after payment or provision for payment of the debts and
other liabilities of the Corporation and of the preferential amounts, if any, to
which the holders of Preferred Stock shall be entitled, the holders of all
outstanding shares of Common Stock shall be entitled to share ratably in the
remaining net assets of the Corporation.
FIFTH: The name and mailing address of the Incorporator is as
follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Joshua Wechsler Fried, Frank, Harris, Shriver &
Jacobson
One New York Plaza
New York, New York 10004
</TABLE>
SIXTH: The Board of Directors is expressly authorized to adopt,
amend, or repeal the by-laws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot
unless the by-laws of the Corporation shall otherwise provide.
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
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director; provided, however, that the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. If
the General Corporation Law of Delaware is hereafter amended to permit further
elimination or limitation of the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of Delaware as so
amended. Any repeal or modification of this Article EIGHTH by the stockholders
of the Corporation or otherwise shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
NINTH: The Corporation reserves the right to amend, alter, change,
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
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IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of
October, 1999 and I affirm that the foregoing certificate is my act and deed and
that the facts stated therein are true.
/s/ Joshua Wechsler
-------------------------------
Joshua Wechsler, Incorporator
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Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
CABOT MICROELECTRONICS CORPORATION
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation as amended and restated (the "Certificate of
Incorporation"), a special meeting of the stockholders of the Corporation may be
called at any time by the Board of Directors, the Chairman of the Board or the
President. Any special meeting of the stockholders shall be held on such date,
at such time and at such place within or without the State of Delaware as the
Board of Directors or the officer calling the meeting may designate. At a
special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting. In addition, prior to the Trigger Date (as defined hereinafter), the
Corporation shall call a special meeting of stockholders of the Corporation
promptly upon request by Cabot Corporation ("Cabot"), a Delaware corporation, if
Cabot is a stockholder of the Corporation. As used in these Bylaws "Trigger
Date" means the date on which Cabot and its affiliates cease to be the
beneficial owner of an aggregate of at least a majority of the then outstanding
shares of Common Stock.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
Bylaws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Any
previously scheduled meeting of the stockholders may be postponed, and any
special meeting of the stockholders may be canceled, by resolution of the Board
of Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.
<PAGE> 2
SECTION 4. Quorum. At any meeting of the stockholders, the holders
of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these Bylaws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
such meeting from time to time; provided, however, that if the holders of any
class of stock of the Corporation are entitled to vote separately as a class
upon any matter at such meeting, any adjournment of the meeting in respect of
action by such class upon such matter shall be determined by the holders of a
majority of the shares of such class present in person or represented by proxy
and entitled to vote at such meeting. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the stockholders, or the holders of any class of stock
entitled to vote separately as a class, as the case may be, may transact any
business that might have been transacted by them at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
adjourned meeting.
SECTION 6. Organization; Stockholder List. The Chairman of the Board
or, in his absence, the President shall call all meetings of the stockholders to
order, and shall act as Chairman of such meetings. In the absence of the
Chairman of the Board and the President, the holders of a majority in number of
the shares of stock of the Corporation present in person or represented by proxy
and entitled to vote at such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within 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, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to
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the meeting, during ordinary business hours, and shall be produced and kept at
the time and place of the meeting during the whole time thereof and subject to
the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate
of Incorporation or Bylaws, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled to
vote at a meeting of stockholders may authorize another person or persons to act
for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of the notice provided for in Section 3 of this
Article I, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Section 8.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 8, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation, and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 120th day prior to such
annual meeting and not later than the close of business on the later of the 90th
day prior to such annual meeting or the 10th day
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<PAGE> 4
following the day on which public announcement of the date of such meeting is
first made by the Corporation. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
that are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 8 to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
election as director or specifying the size of the increased Board of Directors
at least 100 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 8 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) provided that the Board
of Directors has determined that directors shall be elected at such meeting, by
any stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this Section 8, who shall be entitled to vote
at the meeting and who complies with the notice procedures set forth in this
Section 8. In the event the Corporation calls a special meeting of stockholders
for the purpose of electing one or more directors to the Board of Directors, any
such stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph (A)(2) of this
Section 8 shall be delivered to the Secretary at the principal executive
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<PAGE> 5
offices of the Corporation not later than the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance with the procedures
set forth in this Section 8 shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 8. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 8 and, if any proposed nomination or
business is not in compliance with this Section 8, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 8, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 8, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Section 8 shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of preferred stock to elect directors under
specified circumstances.
SECTION 9. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 10. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, as the case may be, the Board of Directors
may fix,
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in advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, who need not be stockholders of the Corporation. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
SECTION 2. Number and Term of Office. Subject to the rights of the
holders of any series of preferred stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Board. The
directors, other than those who may be elected by the holders of any series of
preferred stock under specified circumstances, shall be divided, with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as is reasonably possible, designated Class I, Class II and
Class III, with the initial term of office of the Class I directors to expire at
the 2001 annual meeting of stockholders, the initial term of office of the Class
II directors to expire at the 2002 annual meeting of stockholders and the
initial term of office of the Class III directors to expire at the 2003 annual
meeting of stockholders, with each director to hold office until his or her
successor shall have been duly elected and qualified. At each annual meeting of
stockholders, commencing with the 2001 annual meeting, directors elected to
succeed those directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until his or her successor
shall have been duly elected and qualified. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible.
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SECTION 3. Removal, Vacancies and Additional Directors. Subject to
the rights of any class of preferred stock or series thereof to elect and remove
additional directors under specified circumstances, prior to the Trigger Date,
any director may be removed from office, with or without cause, by the
affirmative vote of the holders of at lease a majority of the voting power of
all Voting Stock (as defined hereinafter) then outstanding, voting together as a
single class and, on and after the Trigger Date, any director may be removed
from office only for cause by the affirmative vote of the holders of at least
80% of the voting power of the then outstanding Voting Stock, voting together as
a single class. "Voting Stock" means the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors. Cause
for removal shall be deemed to exist only if the director whose removal is
proposed (i) has been convicted in a court of competent jurisdiction of a
felony, and such conduct or conviction results in material and demonstrable
injury to the Corporation, (ii) has been adjudged by a court of competent
jurisdiction to be mentally incompetent or (iii) has been adjudged by a court of
competent jurisdiction to be liable for fraudulent or dishonest conduct, or
gross abuse of authority or discretion, resulting in material and demonstrable
injury to the Corporation, and, in each case, such conviction or adjudication
has become final and nonappealable. Vacancies caused by any such removal and not
filled by the stockholders at the meeting at which such removal shall have been
made, or any vacancy caused by the death or resignation of any Director or for
any other reason, and any newly created directorship resulting from any increase
in the authorized number of Directors, may be filled by the affirmative vote of
a majority of the Directors then in office, although less than a quorum or by
stockholders if such vacancy was caused by the removal of a director by the
action of stockholders, and any Director so elected to fill any such vacancy or
newly created directorship shall hold office until his successor is elected and
qualified or until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
SECTION 4. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 6. Special Meetings. Special meetings of the Board
of Directors shall be held whenever called by direction of the Chairman of
the Board, the President or by any two of the Directors then in office.
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Notice of the day, hour and place of holding of each special meeting
shall be given by telephone, electronic transmission, telegraph, facsimile or
telex at least two hours before the meeting or by causing the same to be
delivered personally or sent by certified, registered or overnight mail at least
one day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these Bylaws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these Bylaws.
SECTION 7. Quorum. Subject to the provisions of Section 3 of this
Article II, a majority of the members of the Board of Directors in office shall
constitute a quorum for the transaction of business and the vote of the majority
of the Directors present at any meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors. If at any meeting
of the Board there is less than a quorum present, a majority of those present
may adjourn the meeting from time to time.
SECTION 8. Organization. The Chairman of the Board or, in his
absence, the President shall preside at all meetings of the Board of Directors.
In the absence of the Chairman of the Board and the President, a Chairman shall
be elected from the Directors present. The Secretary of the Corporation shall
act as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 9. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided by resolution passed by a majority of the whole Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these Bylaws; and unless such resolution, these Bylaws, or the
Certificate of Incorporation expressly
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<PAGE> 9
so provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 10. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these Bylaws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, 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. Each party
participating in such meeting shall be assumed to be able to hear and
communicate with each other party.
SECTION 11. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
SECTION 12. Records. The Board of Directors shall cause to be kept a
record containing the minutes of the proceedings of the meetings of the Board of
Directors and of the stockholders, appropriate stock books and registers and
such books of records and accounts as may be necessary for the proper conduct of
the business of the Corporation.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 8 of this Article III. The Chairman of the Board, the President, one or
more Vice Presidents, the Secretary and the Treasurer shall be elected by the
Board of Directors at its first meeting after each annual meeting of the
stockholders. The failure to hold such election shall not of itself terminate
the term of office of any officer. All officers shall hold office at the
pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors. Any
number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
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Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these Bylaws, the officers shall have such authority
and shall perform such duties as from time to time may be determined by the
Board of Directors.
SECTION 2. Powers and duties of the Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned to him by these
Bylaws or by the Board of Directors.
SECTION 3. Powers and Duties of the Chief Executive Officer. The
Chief Executive Officer, subject to the provisions of these Bylaws and to the
direction of the Board of Directors, shall have ultimate authority for decisions
relating to the general management and control of the business and affairs of
the Corporation. The Chief Executive Officer shall perform such other duties as
may be assigned by the Board of Directors from time to time and shall, in the
absence of the Chairman of the Board of Directors, preside at all meetings of
the stockholders and the Board of Directors.
SECTION 4. Powers and Duties of the President. The President shall
have such powers and perform such duties as may from time to time be assigned to
him by these Bylaws or by the Board of Directors or the Chief Executive Officer.
SECTION 5. Powers and Duties of the Vice Presidents. Each Vice
President shall perform all duties incident to the office of Vice President and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these Bylaws or by the Board of Directors, the
Chairman of the Board or the President.
SECTION 6. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose; he shall
attend to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors, the Chairman of the
Board or the President shall authorize and direct; he shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors, the Chairman of the Board or the President
shall direct, all of which shall at all reasonable times be open to the
examination of any Director, upon application, at the office of the Corporation
during business hours; and he shall perform all duties incident to the office of
Secretary and shall also have such other powers and shall perform such other
duties as may from time to time be assigned to him by these Bylaws or the Board
of Directors, the Chairman of the Board or the President.
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<PAGE> 11
SECTION 7. Powers and Duties of the Treasurer. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation that may have come into his
hands; he may endorse on behalf of the Corporation for collection checks, notes
and other obligations and shall deposit the same to the credit of the
Corporation in such bank or banks or depositary or depositories as the Board of
Directors may designate; he shall sign all receipts and vouchers for payments
made to the Corporation; he shall enter or cause to be entered regularly in the
books of the Corporation kept for the purpose full and accurate accounts of all
moneys received or paid or otherwise disposed of by him and whenever required by
the Board of Directors or the President shall render statements of such
accounts; he shall, at all reasonable times, exhibit his books and accounts to
any Director of the Corporation upon application at the office of the
Corporation during business hours; and he shall perform all duties incident to
the office of Treasurer and shall also have such other powers and shall perform
such other duties as may from time to time be assigned to him by these Bylaws or
by the Board of Directors, the Chairman of the Board or the President.
SECTION 8. Additional Officers. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors), including
a Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board or the President.
The Board of Directors may from time to time by resolution delegate
to any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 9. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 10. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meetings of stockholders of any
corporation in which the Corporation may hold stock, and at any such meetings
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
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SECTION 11. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
ARTICLE IV
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed manually or in facsimile form, by
the Chairman of the Board, the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
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SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in the preceding section.
SECTION 4. Regulations. The Board of Directors shall have
power and authority to make such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
SECTION 5. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 6. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board or the President.
SECTION 7. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of October and end on the thirtieth day of
September of each year.
ARTICLE V
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations
and orders for the payment of money made payable to the Corporation may be
endorsed for deposit to the credit of the Corporation with a duly authorized
depository by the Treasurer, or otherwise as the Board of Directors may from
time to time, by resolution, determine.
SECTION 2. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
Bylaws to any person or
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<PAGE> 14
persons, a waiver thereof in writing, signed by the person or persons entitled
to the notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. The attendance of any stockholder at a meeting in person or
by proxy, without protesting at the beginning of the meeting the lack of notice
of such meeting, shall constitute a waiver of notice of such stockholder.
SECTION 3. Offices Outside Delaware. Except as otherwise required by
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside the State of Delaware at such
place or places as from time to time may be determined by the Board of
Directors, the Chairman of the Board or the President.
SECTION 4. Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be done
annually.
SECTION 5. Resignations. Any director or any officer or assistant
officer, whether elected or appointed, may resign at any time by giving written
notice of such resignation to the Chairman, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received or at such later time as is specified therein.
No formal action shall be required of the Board of Directors or the stockholders
to make any such resignation effective.
SECTION 6. Indemnification of Directors, Officers and
Employees.
(A) 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 (hereinafter, a "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 or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans maintained
or sponsored by the Corporation, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law (the "DGCL") 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 expense, liability and loss (including
attorneys' fees, judgments, fines, and excise taxes or penalties arising under
the Employee Retirement Income Security Act of 1974, as in effect from time to
time, and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith (each, a "Loss"), and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her
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<PAGE> 15
heirs, executors and administrators; provided, however, that except as provided
in paragraph (B) of this Section 6, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors. The right to indemnification conferred in
this Section 6 shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition, such advances to be paid by the Corporation
within 20 days after the receipt by the Corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that if the DGCL requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer in advance of the final disposition of a 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 shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section 6 or otherwise. The Corporation may, to the extent authorized from
time to time by the Board of Directors, grant rights to indemnification, and
rights to have the Corporation pay the expenses incurred in defending any
proceeding in advance of its final disposition, to any employee or agent of the
Corporation to the fullest extent of the provisions of this Section 6 with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
(B) If a claim under paragraph (A) of this Section 6 is not paid in
full by the Corporation within 30 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 successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than 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 is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct that makes it permissible under the DGCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or
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
DGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(C) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Section 6 shall not be exclusive of any other right that any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these Bylaws, agreement, vote of stockholders or otherwise. No
repeal or modification of this Section 6 shall in any way diminish or adversely
affect the rights of any director, officer, employee or agent of the Corporation
hereunder in
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<PAGE> 16
respect of any occurrence or matter arising prior to any such repeal or
modification.
(D) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any Loss, regardless whether the Corporation would have the power to
indemnify such person against such Loss under the DGCL.
(E) If any provision or provisions of this Section 6 shall be held
to be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this
Section 6 (including, without limitation, each portion of any paragraph of this
Bylaw containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Section 6 (including, without
limitation, each such portion of any paragraph of this Bylaw containing any such
provision held to be invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.
ARTICLE VI
Amendments
These Bylaws and any amendment thereof may be altered, amended or
repealed, or new Bylaws may be adopted, at any meeting of the Board of Directors
or of the stockholders, provided that the notice of such meeting shall have
stated that the amendment of these Bylaws was one of the purposes of the
meeting; provided, however, that, in the case of amendments or adoptions by
stockholders, notwithstanding any other provisions of these Bylaws or any
provision of law that might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by law, the Certificate
of Incorporation or these Bylaws, the affirmative vote of the holders of at
least 80% of the voting power of all the then-outstanding shares of stock
entitled to vote generally for directors, voting together as a single class,
shall be required to alter, amend or repeal any provision of these Bylaws or
adopt any new Bylaw.
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<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CABOT MICROELECTRONICS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
* * * * * * *
We, the undersigned, President and Secretary, respectively, of Cabot
Microelectronics Corporation, do hereby certify as follows:
1. The name of the corporation (the "Corporation") is Cabot
Microelectronics Corporation.
2. The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on October 6, 1999.
3. In accordance with Sections 242 and 245 of the General Corporation Law
of the State of Delaware (the "DGCL"), this Amended and Restated Certificate of
Incorporation (a) has been duly proposed by resolutions adopted and declared
advisable by the Board of Directors of the Corporation, (b) approved by written
consent of the holders of a majority of the outstanding shares of voting stock
and a majority of the outstanding shares of each class of capital stock of the
Corporation in accordance with Section 228 of the DGCL and (c) duly executed by
an officer of the Corporation in accordance with Section 103 of the DGCL and,
upon filing with the Secretary of State in accordance with Section 103, shall
supersede the original Certificate of Incorporation, as amended and restated,
and shall, as it may thereafter be amended in accordance with its terms and
applicable law, be the Certificate of Incorporation of the Corporation.
4. Pursuant to Section 103(d) of the DGCL, this Amended and Restated
Certificate of Incorporation shall become effective at ____ _.m, on ____ __,
2000.
5. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
The name of the corporation (the "Corporation") is Cabot Microelectronics
Corporation.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware
<PAGE> 2
19801. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized and incorporated under the General
Corporation Law of the State of Delaware (the "DGCL").
ARTICLE IV
(a) The total number of shares of stock that the Corporation shall
have authority to issue is 220,000,000 shares, consisting of 20,000,000 shares
of Preferred Stock, par value $.001 per share (the "Preferred Stock"), and
200,000,000 shares of Common Stock, par value $.001 per share (the "Common
Stock").
(b) The Preferred Stock may be issued from time to time in one or
more classes or series. The Board of Directors is hereby authorized to provide
for the issuance of shares of Preferred Stock in a class or series and, by
filing a certificate pursuant to the applicable law of the State of Delaware (a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such class or series, and to fix the designation,
powers, preferences and rights of the shares of each such class or series and
the qualifications, limitations and restrictions thereof. The authority of the
Board of Directors with respect to each class or series shall include, but not
be limited to, determination of the following:
1. The designation of the class or series, which may be by
distinguishing number, letter or title.
2. The number of shares of the class or series, which number the Board
of Directors may thereafter (except where otherwise provided in the
Preferred Stock Designation) increase or decrease (but not below the
number of shares thereof then outstanding).
3. Whether dividends, if any, shall be cumulative or noncumulative and
the dividend rate of the class or series.
4. The dates on which dividends, if any, shall be payable.
5. The redemption rights and price or prices, if any, for shares of the
class or series.
6. The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the class or series.
7. The amounts payable on, and the preferences, if any, of, shares of
the class or series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation.
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8. Whether the shares of the class or series shall be convertible into
shares of any other class or series, or any other security, of the
Corporation or any other corporation, and, if so, the specification
of such other class or series of such other security, the conversion
price or prices or rate or rates, any adjustments thereof, the date
or dates at which such shares shall be convertible and all other
terms and conditions upon which such conversion may be made.
9. Restrictions on the issuance of shares of the same class or series
or of any other class or series.
10. The voting rights, if any, of the holders of shares of the class or
series.
(c) The Common Stock shall be subject to the express terms of the
Preferred Stock and any class or series thereof. Each share of Common Stock
shall be equal to each other share of Common Stock. The holders of shares of
Common Stock shall be entitled to one vote for each such share upon all
questions presented to the stockholders.
Except as may be provided in this Amended and Restated Certificate
of Incorporation or in a Preferred Stock Designation, or as may be required by
law, the holders of Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to receive notice of any meeting of stockholders at which
they are not entitled to vote.
(d) The Corporation shall be entitled to treat the person in whose
name any share of its stock is registered as the owner thereof for all purposes
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
ARTICLE V
In furtherance of, and not in limitation of, the powers conferred by law,
the Board of Directors is expressly authorized and empowered:
1. to adopt, amend or repeal the bylaws of the Corporation; provided,
however, that the Bylaws adopted by the Board of Directors under the powers
hereby conferred may be amended or repealed by the Board of Directors or by the
stockholders having voting power with respect thereto; provided further that in
the case of amendments by stockholders, the affirmative vote of the holders of
at least 80% of the voting power of the then outstanding Voting Stock (as
defined below), voting together as a single class, shall be required to alter,
amend or repeal any provision of the Bylaws; and
2. from time to time to determine whether and to what extent, and at what
times and places, and under what conditions and regulations, the accounts and
books of the Corporation, or any of them, shall be open to inspection of
stockholders; and, except as so determined or as expressly provided in this
Amended and Restated Certificate of Incorporation or in any
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<PAGE> 4
Preferred Stock Designation, no stockholder shall have any right to inspect any
account, book or document of the Corporation other than such rights as may be
conferred by applicable law.
The Corporation may in its Bylaws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Amended and Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80% of the voting power of the then outstanding Voting Stock, voting together as
a single class, shall be required to amend, repeal or adopt any provision
inconsistent with paragraph (1) of this Article V. For the purposes of this
Amended and Restated Certificate of Incorporation, "Voting Stock" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors.
ARTICLE VI
(a) Subject to the rights of the holders of any class or series of Preferred
Stock or any other class or series of stock as set forth in this Amended and
Restated Certificate of Incorporation to elect additional directors under
specific circumstances:
1. Any corporate action required or permitted to be taken at any annual
or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were present
and voted, and shall be delivered to the Corporation (either by hand
or by certified or registered mail, return receipt requested) at its
registered office in the State of Delaware or its principal place of
business, or to an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders
are recorded; provided, however, that effective as of the date on
which Cabot Corporation and all corporations, partnerships, joint
ventures, associations and other entities (each a "Subsidiary
Entity") in which Cabot Corporation beneficially owns, directly or
indirectly, 50 percent or more of the outstanding voting stock,
voting power of similar voting interests ("Voting Interest"), other
than the Corporation and each Subsidiary Entity in which the
Corporation beneficially owns, directly and indirectly 50% or more
of the outstanding Voting Interest, cease to be the beneficial owner
of an aggregate of at least a majority of the then outstanding
shares of Common Stock (the "Trigger Date"), any corporate action
required or permitted to be taken at any annual or special meeting
of stockholders may be taken only at a duly called annual or special
meeting of stockholders and may not be taken by written consent in
lieu of such a meeting.
2. Unless otherwise prescribed by law and subject to any preferential
rights of any outstanding class or series of Preferred Stock,
special meetings of the stockholders
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of the Corporation for any purpose or purposes may be called at any
time by the Board of Directors, the Chairman of the Board of
Directors or at the request in writing of a majority of the members
of the Board of Directors, the President of the Corporation, and
effective as of the Trigger Date, any power of the stockholders of
the Corporation to call a special meeting is specifically denied.
(b) No business other than that stated in the notice shall be
transacted at any special meeting of stockholders.
(c) Advanced notice of the proposal of business by stockholders
shall be given in the manner provided in the bylaws of the Corporation, as
amended and in effect from time to time.
(d) Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of at least
80% of the voting power of the then outstanding Voting Stock, voting together as
a single class, shall be required to amend, repeal or adopt any provision
inconsistent with this Article VI.
ARTICLE VII
(a) Subject to the rights of the holders of any class or series of
Preferred Stock or any other class or series of stock as set forth in this
Amended and Restated Certificate of Incorporation to elect additional directors
under specified circumstances, the number of directors of the Corporation shall
be fixed from time to time exclusively by the Board of Directors.
(b) The directors, other than those who may be elected by the
holders of any class or series of Preferred Stock or any other class or series
of stock as set forth in this Amended and Restated Certificate of Incorporation,
shall be divided into three classes, as nearly equal in number as possible. One
class of directors shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 2001, another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
2002, and another class shall be initially elected for a term expiring at the
annual meeting of stockholders to be held in 2003. At each succeeding annual
meeting of the stockholders of the Corporation, the successors of the class of
directors whose term expires at that meeting shall be elected by a plurality
vote of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible.
(c) A director shall hold office until the annual meeting of the
year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation or removal from
office.
(d) Subject to the rights of the holders of any class or series of
Preferred Stock or any other class or series of stock as set forth in this
Amended and Restated Certificate of Incorporation to elect additional directors
under specified circumstances, any director may be
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<PAGE> 6
removed from office, with or without cause, by the affirmative vote of at least
80% of the voting power of the then outstanding Voting Stock, voting as a single
class.
(e) Except as otherwise provided for in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled by
the affirmative vote of a majority of the directors then in office, even if less
than a quorum, or by a sole remaining director, or by stockholders if such
vacancy was caused by the removal of a director by the action of stockholders.
Any director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(f) Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in the bylaws of the
Corporation, as amended and in effect from time to time.
(g) Unless and except to the extent that the bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
(h) Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of the then outstanding Voting
Stock, voting together as a single class, shall be required to amend, repeal or
adopt any provision inconsistent with this Article VII.
ARTICLE VIII
CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION
(a) For purposes of this Amended and Restated Certificate of
Incorporation, "Cabot" shall mean Cabot Corporation, a Delaware corporation, any
person or entity with a controlling interest in Cabot Corporation, each a
Subsidiary Entity in which Cabot Corporation beneficially owns, directly or
indirectly, 50 percent or more of the Voting Interest, but shall not include the
Corporation or any Subsidiary Entity in which the Corporation beneficially owns,
directly or indirectly, 50 percent or more of the outstanding Voting Interest.
Cabot Corporation and each other entity constituting part of Cabot are referred
to in this Article VIII as "Cabot Parties". The Corporation and each Subsidiary
Entity of the Corporation are referred to in this Article VIII as "Corporation
Parties".
(b) In anticipation that:
(1) The Corporation will cease to be a wholly owned subsidiary of Cabot
but that certain Cabot Parties will remain, for some period of time,
stockholders of the Corporation;
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<PAGE> 7
(2) The Corporation Parties and the Cabot Parties may engage in the same
or similar activities or lines or business and may have an interest
in the same of similar areas of corporate opportunities;
(3) There will be benefits to be derived by the Corporation Parties
through continued contractual, corporate and business relations with
the Cabot Parties (including, without limitation, the service of
directors, officers or employees of Cabot Corporation as directors,
officers or employees of Corporation Parties); and
(4) There will be benefits in providing guidelines for directors,
officers and employees of Cabot Parties and of Corporation Parties
with respect to the allocation of corporate opportunities and other
matters.
The provisions of this Article VIII are set forth to regulate, define and guide
the conduct of certain affairs of the Corporation Parties as they may involve
Cabot Parties and the Cabot Parties' respective directors, officers, employees
and agents, and the powers, rights, duties and liabilities of the Corporation
Parties and the Corporation Parties' respective directors, officers, employees
and stockholders in connection therewith.
(c) Except as Cabot may otherwise agree in writing, the Cabot
Parties shall have the right to, and shall have no duty not to, (i) engage in
the same or similar business activities or lines of business as the Corporation
Parties, (ii) do business with any potential or actual customer or supplier of
the Corporation Parties or (iii) employ or otherwise engage or solicit for such
purpose, any director, officer or employee of the Corporation Parties. Neither
any Cabot Party nor any director, officer or employee of any Cabot Party (except
as provided in paragraph D of this Article VIII) shall be liable to the
Corporation Parties or their stockholders for breach of any fiduciary or other
duty that such person or entity may have by reason of any activities set forth
in the preceding sentence. In the event that a Cabot Party acquires knowledge of
a potential transaction or matter that may be a corporate opportunity for both
Cabot and the Corporation Parties, the Cabot Party shall have no duty to
communicate or present such corporate opportunity to the Corporation Parties and
shall not be liable to the Corporation Parties or their stockholders for breach
of any fiduciary or other duty that the Cabot Party may have as a stockholder of
the Corporation or otherwise by reason of the fact that the Cabot Party pursues
or acquires such corporate opportunity for itself, directs such corporate
opportunity to another person or entity or does not present such corporate
opportunity to the Corporation Parties.
(d) In the event that a director, officer or employee of a
Corporation Party who is also a director, officer or employee of a Cabot Party
acquires knowledge of a potential transaction or matter that may be a corporate
opportunity for both a Corporation Party and a Cabot Party, such director,
officer or employee of the Corporation Party (i) shall have fully satisfied and
fulfilled fiduciary or other duties such person may have to the Corporation
Parties or their stockholders with respect to such corporate opportunity, (ii)
shall not be liable to the Corporation Parties or their stockholders for breach
of any fiduciary or other duty by reason of the fact that the Cabot Party
pursues or acquires such corporate opportunity for itself or directs such
corporate opportunity to another person or entity or does not communicate
information
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<PAGE> 8
regarding such corporate opportunity to the Corporation Parties, (iii) shall be
deemed to have acted in good faith and in a manner such person reasonably
believes to be in and not opposed to the best interests of the Corporation
Parties and (iv) shall be deemed not to have breached any duty of loyalty or
other duty such person may have to the Corporation Parties or their stockholders
and not to have derived an improper benefit therefrom, if such director, officer
or employee acts in a manner consistent with the following policy:
(1) A corporate opportunity offered to any person who is a director but
not an officer or employee of a Corporation Party and who is also an
officer or employee (whether or not a director) of a Cabot Party
shall belong to the Cabot Party, unless such opportunity is
expressly offered to such person solely in his or her capacity as a
director of the Corporation Party, in which case such opportunity
shall belong to the Corporation Party;
(2) A corporate opportunity offered to any person who is an officer or
employee (whether or not a director) of a Corporation Party and who
is also a director but not an officer or employee of a Cabot Party
shall belong to the Corporation Party, unless such opportunity is
expressly offered to such person solely in his or her capacity as a
director of a Cabot Party, in which case such opportunity shall
belong to the Cabot Party; and
(3) A corporate opportunity offered to any person who is (i) either an
officer or employee of a Corporation Party and either an officer or
employee of a Cabot Party or (ii) a director of both a Corporation
Party and a Cabot Party shall belong to the Cabot Party, unless such
opportunity is expressly offered to such person solely in his or her
capacity as an officer, employee or director of the Corporation
Party, in which case such opportunity shall belong to the
Corporation Party.
(e) Any corporate opportunity that belongs to a Cabot Party or to a
Corporation Party pursuant to the foregoing policy shall not be pursued by the
other, or directed by the other to another person or entity, unless and until
the Cabot Party or the Corporation Party, as the case may be, determines not to
pursue such opportunity. Notwithstanding the preceding sentence, if the party to
whom the corporate opportunity belongs does not within a reasonable period of
time begin to pursue, or thereafter continue to pursue, such opportunity
diligently and in good faith, the other party may then pursue such opportunity
or direct it to another person or entity. In addition, if an opportunity is
offered to a Corporation Party or a Cabot Party other than through a person who
is an officer, director or employee of both a Corporation Party and a Cabot
Party, then nothing herein shall be construed to prevent such Corporation Party
or Cabot Party from pursuing such opportunity.
(f) For purposes of this Article VIII, "corporate opportunities"
shall consist of business opportunities which (i) a Cabot Party and a
Corporation Party is financially able to undertake, (ii) are, by their nature,
in the line or lines of the Cabot Party's and the Corporation Party's business
and are of practical and material advantage to it, and (iii) are ones in which a
Cabot Party and a Corporation Party has an interest or reasonable expectancy.
"Corporate
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<PAGE> 9
opportunities" shall not include, and neither a Cabot Party nor any of its
directors, officers or employees shall be liable to the Corporation Parties or
their stockholders by reason of, any transaction in which a Corporation Party or
a Cabot Party is permitted to participate pursuant to (a) any agreement between
one or more Corporation Parties and one or more Cabot Parties in effect as of
the time any equity security of the Corporation is first held of record by any
person or entity other than Cabot, as such agreement may be amended thereafter
with the approval of a majority of Disinterested Directors (as defined), or (b)
any subsequent agreement between one or more Corporation Parties and one or more
Cabot Parties approved by a majority of Disinterested Directors, it being
acknowledged that the rights of the Corporation Parties under any such agreement
shall be deemed to be contractual rights and shall not be corporate
opportunities of the Corporation Parties for any purpose; PROVIDED, HOWEVER,
that no presumption or implication as to corporate opportunities relating to any
transaction not explicitly covered by such an agreement shall arise from the
existence or absence of any such agreement.
"Disinterested Directors" shall mean the directors of the
Corporation who are not, (i) officers or employees of either a Corporation Party
or a Cabot Party or (ii) directors of a Cabot Party.
(g) Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation shall be deemed to
have notice of and have consented to the provisions of this Article VIII.
(h) If any contract, agreement, arrangement or transaction between
one or more Corporation Parties and one or more Cabot Parties involves a
corporate opportunity and is approved in accordance with the DGCL, a Cabot Party
and its directors, officers and employees shall also, for the purposes of this
Article VIII and the other provisions of this Certificate of Incorporation, be
deemed to (i) have fully satisfied and fulfilled any fiduciary or other duties
such person or entity may have to the Corporation Parties and their stockholders
with respect to such corporate opportunity, (ii) not be liable to the
Corporation Parties or their stockholders for breach of any fiduciary or other
duty by reason of the fact that the Cabot Party pursues or acquires such
corporate opportunity for itself or directs such corporate opportunity to
another person or entity or does not communicate information regarding such
corporate opportunity to the Corporation Parties, (iii) have acted in good faith
and in a manner such person or entity reasonably believes to be in and not
opposed to the best interests of the Corporation Parties and (iv) not to have
breached any duty or loyalty or other duty of such person or entity to the
Corporation Parties or their stockholders and not to have derived an improper
benefit therefrom. Any such contract, agreement, arrangement or transaction
involving a corporate opportunity not so approved shall not by reason thereof
result in any breach of any fiduciary or other duty, but shall be governed by
the other provisions of this Article VIII, this Amended and Restated Certificate
of Incorporation, the By-laws, the DGCL an other applicable law.
(i) For purposes of this Article VIII, a director of the Corporation
who is Chairperson or Vice Chairperson of the Board of Directors or a committee
thereof shall not be deemed to be an officer of the Corporation by reason of
holding such position (regardless of
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<PAGE> 10
whether such position is deemed an office of the Corporation under the By-laws),
unless such person is a full-time employee of the Corporation.
(j) Any conduct by Cabot Parties or any of their respective
directors, officers, employees or agents in connection with the affairs of the
Corporation Parties that does not follow the guidelines set forth in this
Article VIII shall not by reason thereof void the transaction or make it
voidable or be deemed a breach of any fiduciary or other duty to the Corporation
Parties but shall be governed by the other provisions of this Certificate of
Incorporation, the Bylaws, the DGCL and other applicable law.
(k) Notwithstanding anything in this Certificate of Incorporation to
the contrary, the foregoing provisions of this Article VIII shall expire on the
first day on which Cabot does not own beneficially Common Stock representing at
least 20 percent of the combined voting power of the outstanding shares of
Common Stock of the Corporation. Neither the alteration, amendment or repeal of
this Article VIII nor the adoption of any provision inconsistent with this
Article VIII shall eliminate or reduce the effect of this Article VIII in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article VIII, would accrue or arise, prior to such alteration,
amendment, repeal or adoption.
ARTICLE IX
(a) Each person who is or was or has agreed to become a director or
officer of the Corporation, or each such person who is or was serving or who has
agreed to serve at the request of the Board of Directors or an officer of the
Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans (including the heirs, executors, administrators or estate of such person),
shall be indemnified by the Corporation, in accordance with the bylaws of the
Corporation, to the fullest extent permitted from time to time by the DGCL 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 prior to such
amendment) or any other applicable laws as presently or hereafter in effect.
(b) Without limiting the generality or the effect of the foregoing,
the Corporation may enter into one or more agreements with any person that
provide for indemnification greater than or different from that provided in this
Article IX.
(c) Any amendment or repeal of this Article IX shall not adversely
affect any right or protection existing hereunder in respect of any act or
omission occurring prior to such amendment or repeal.
ARTICLE X
(a) 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
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<PAGE> 11
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit.
(b) Any amendment or repeal of this Article X shall not adversely
affect any right or protection of a director of the Corporation existing
hereunder in respect of any act or omission occurring prior to such amendment or
repeal.
ARTICLE XI
Except as may be expressly provided in this Amended and Restated
Certificate of Incorporation, the Corporation reserves the right at any time and
from time to time to amend, alter, change or repeal any provision contained in
this Amended and Restated Certificate of Incorporation or a Preferred Stock
Designation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed herein or by applicable law, and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article XI; provided, however,
that any amendment or repeal of Article IX or Article X of this Amended and
Restated Certificate of Incorporation shall not adversely affect any right or
protection existing hereunder in respect of any act or omission occurring prior
to such amendment or repeal; and provided further that no Preferred Stock
Designation shall be amended after the issuance of any shares of the series of
Preferred Stock created thereby, except in accordance with the terms of such
Preferred Stock Designation and the requirements of applicable law.
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<PAGE> 12
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by ______________, its President, and
_____________, its Secretary, this ___ day of _____, 2000.
CABOT MICROELECTRONICS CORPORATION
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
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<PAGE> 1
Exhibit 3.4
CABOT MICROELECTRONICS CORPORATION
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK
(Pursuant to Section 151
of the General Corporation Law of the State of Delaware)
We, Matthew Neville, the President and Chief Executive Officer, and
William C. McCarthy, Chief Financial Officer and Secretary of Cabot
Microelectronics Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 151 thereof, do hereby certify;
That pursuant to the authority conferred upon the Board of Directors by
the Corporation's Restated Certificate of Incorporation (the "Certificate of
Incorporation"), the Board of Directors, at a meeting held on March 24, 2000,
adopted the following resolution creating a series of two hundred thousand
(200,000) shares of Preferred Stock designated as Series A Junior Participating
Preferred Stock;
WHEREAS, the Certificate of Incorporation provides that the Corporation is
authorized to issue 20,000,000 shares of Preferred Stock, none of which are
currently issued and outstanding, now therefore it is:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by Article IV of the Certificate of Incorporation (as defined
below), a series of Preferred Stock of the Corporation be, and it hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated Series A Junior Participating
Preferred Stock (the "Participating Preferred Stock"), to consist of 200,000
shares, par value $.001 per share, of which the preferences and relative and
other rights, and the qualifications, limitations or restrictions thereof, shall
be as follows:
1. Future Increase or Decrease. Subject to paragraph 4(e) of this
resolution, the number of shares of said series may at any time or from time to
time be increased or decreased by the Board of Directors notwithstanding that
shares of such series may be outstanding at such time of increase or decrease.
2. Dividend Rate.
<PAGE> 2
(a) The holders of shares of Participating Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of each January, April, July and October in each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance (the "First Issuance") of a share or fraction of a share of
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (i) $10.00 and (ii) 1,000 times the aggregate per
share amount of all cash dividends and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions, other
than a dividend or distribution payable in shares of Common Stock, par value
$.001 per share, of the Corporation ("Common Stock") or by way of a subdivision
of the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock, since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Participating
Preferred Stock. In the event the Corporation shall at any time after the First
Issuance declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount to which holders of
shares of Participating Preferred Stock were entitled immediately prior to such
event under the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(b) On or after the First Issuance, no dividend on Common
Stock shall be declared unless concurrently therewith a dividend or distribution
is declared on the Participating Preferred Stock as provided in paragraph (a)
above; and the declaration of any such dividend on the Common Stock shall be
expressly conditioned upon payment or declaration of and provision for a
dividend on the Participating Preferred Stock as above provided. In the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $10.00 per share on the
Participating Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Whenever quarterly dividends or other dividends payable on
the Participating Preferred Stock as provided in paragraph (a) above are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Participating Preferred
Stock outstanding shall have been paid in full, the
<PAGE> 3
Corporation shall not redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Participating Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire shares of
any such junior stock in exchange for shares of any stock of the Corporation
ranking junior (as to dividends and upon dissolution, liquidation or winding up)
to the Participating Preferred Stock.
(d) Dividends shall begin to accrue and be cumulative on
outstanding shares of Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Participating
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. The Board of Directors may
fix a record date for the determination of holders of shares of Participating
Preferred Stock entitled to receive payment of a dividend distribution declared
thereon, which record date shall be no more than 30 days prior to the date fixed
for the payment thereof.
3. Dissolution, Liquidation and Winding Up. In the event of any
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Corporation (hereinafter referred to as a "Liquidation"), the holders of
Participating Preferred Stock shall be entitled to receive the greater of (a)
$10.00 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment and
(b) the aggregate amount per share equal to 1,000 times the aggregate amount to
be distributed per share to holders of Common Stock (the "Participating
Preferred Liquidation Preference"). In the event the Corporation shall at any
time after the First Issuance declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Participating Preferred Stock
were entitled immediately prior to such event under the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
4. Voting Rights. The holders of shares of Participating Preferred
Stock shall have the following voting rights:
<PAGE> 4
(a) Each share of Participating Preferred Stock shall entitle
the holder thereof to one thousand (1,000) votes on all matters submitted to a
vote of the stockholders of the Corporation. In the event the Corporation shall
at any time after the First Issuance declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate number of votes to which holders of shares of Participating Preferred
Stock were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, or by law, the
Corporation's Restated Certificate of Incorporation ("Certificate of
Incorporation") or the Bylaws of the Corporation (the "Bylaws"), the holders of
shares of Participating Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) If and whenever dividends on the Participating Preferred
Stock shall be in arrears in an amount equal to six quarterly dividend payments,
then and in such event the holders of the Participating Preferred Stock, voting
separately as a class (subject to the provisions of subparagraph (d) below),
shall be entitled at the next annual meeting of the stockholders or at any
special meeting to elect two (2) directors. Each share of Participating
Preferred Stock shall be entitled to one vote, and holders of fractional shares
shall have the right to a fractional vote. Upon election, such directors shall
become additional directors of the Corporation and the authorized number of
directors of the Corporation shall thereupon be automatically increased by such
number of directors. Such right of the holders of Participating Preferred Stock
to elect directors may be exercised until all dividends in default on the
Participating Preferred Stock shall have been paid in full, and when so paid and
set apart, the right of the holders of Participating Preferred Stock to elect
such number of directors shall cease, the term of such directors shall thereupon
terminate, and the authorized number of directors of the Corporation shall
thereupon return to the number of authorized directors otherwise in effect, but
subject always to the same provisions for the vesting of such special voting
rights in the case of any such future dividend default or defaults. The fact
that dividends have been paid and set apart as required by the preceding
sentence shall be evidenced by a certificate executed by the President and the
Chief Financial Officer of the Corporation and delivered to the Board of
Directors. The directors so elected by holders of
<PAGE> 5
Participating Preferred Stock shall serve until the certificate described in the
preceding sentence shall have been delivered to the Board of Directors or until
their respective successors shall be elected or appointed and qualify.
At any time when such special voting rights have been so vested in the
holders of the Participating Preferred Stock, the Secretary of the Corporation
may, and upon the written request of the holders of record of 10% or more of the
number of shares of the Participating Preferred Stock then outstanding addressed
to such Secretary at the principal office of the Corporation in the State of
Illinois, shall call a special meeting of the holders of the Participating
Preferred Stock for the election of the directors to be elected by them as
hereinabove provided, to be held in the case of such written request within
forty (40) days after delivery of such request, and in either case to be held at
the place and upon the notice provided by law and in the Bylaws of the
Corporation for the holding of meetings of stockholders; provided, however, that
the Secretary shall not be required to call such a special meeting (i) if any
such request is received less than ninety (90) days before the date fixed for
the next ensuing annual or special meeting of stockholders or (ii) if at the
time any such request is received, the holders of Participating Preferred Stock
are not entitled to elect such directors by reason of the occurrence of an event
specified in the third sentence of subparagraph (d) below.
(d) If, at any time when the holders of Participating
Preferred Stock are entitled to elect directors pursuant to the foregoing
provisions of this paragraph 4, the holders of any one or more additional series
of Preferred Stock are entitled to elect directors by reason of any default or
event specified in the Certificate of Incorporation, as in effect at the time of
the certificate of designation for such series, and if the terms for such other
additional series so permit, the voting rights of the two or more series then
entitled to vote shall be combined (with each series having a number of votes
proportional to the aggregate liquidation preference of its outstanding shares).
In such case, the holders of Participating Preferred Stock and of all such other
series then entitled so to vote, voting as a class, shall elect such directors.
If the holders of any such other series (if designated) have elected such
directors prior to the happening of the default or event permitting the holders
of Participating Preferred Stock to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of
the Corporation from the holders of not less than 10% of the then outstanding
shares of Participating Preferred Stock, then such directors so previously
elected will be deemed to have been elected by and on behalf of the holders of
Participating Preferred Stock as well as such other series, without prejudice to
the right of the holders of Participating Preferred Stock to vote for directors
if such previously elected directors shall resign, cease to serve or fail to
stand for reelection while the holders of Participating Preferred Stock are
entitled to vote. If the holders of any such other series are entitled to elect
in excess of two (2) directors, the Participating Preferred Stock shall not
participate in the election of more than two (2) such directors, and those
directors whose terms first expire shall be deemed to be the
<PAGE> 6
directors elected by the holders of Participating Preferred Stock; provided
that, if at the expiration of such terms the holders of Participating Preferred
Stock are entitled to vote in the election of directors pursuant to the
provisions of this paragraph 4, then the Secretary of the Corporation shall call
a meeting (which meeting may be the annual meeting or special meeting of
stockholders referred to in subparagraph (c)) of holders of Participating
Preferred Stock for the purpose of electing replacement directors (in accordance
with the provisions of this paragraph 4) to be held on or prior to the time of
expiration of the expiring terms referred to above.
(e) Except as otherwise set forth herein or required by law,
the Certificate of Incorporation or the Bylaws, holders of Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for the taking of any corporate action. No
consent of the holders of outstanding shares of Participating Preferred Stock at
any time outstanding shall be required in order to permit the Board of Directors
to: (i) increase the number of authorized shares of Participating Preferred
Stock or to decrease such number to a number not below the sum of the number of
shares of Participating Preferred Stock then outstanding and the number of
shares with respect to which there are outstanding rights to purchase; or (ii)
issue Preferred Stock which is senior to the Participating Preferred Stock,
junior to the Participating Preferred Stock or on a parity with the
Participating Preferred Stock.
5. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Participating Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the First Issuance declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Participating Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
6. Redemption. The shares of Participating Preferred Stock shall not
be
<PAGE> 7
redeemable.
7. Conversion Rights. The Participating Preferred Stock is not
convertible into Common Stock or any other security of the Corporation.
8. Ranking. The Participating Preferred Stock shall rank junior to
all other classes and series of the Corporation's Preferred Stock as to payment
of dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
<PAGE> 8
IN WITNESS WHEREOF, the undersigned President and Chief Executive
Officer and Secretary and General Counsel of the Corporation each declares under
penalty of perjury the truth, to the best of his knowledge, of this Certificate
of Designation, Preferences and Rights of Series B Junior Participating
Preferred Stock.
Executed this ______ day of March, 2000.
By: ________________________
Name: Matthew Neville
Title: President and
Chief Executive Officer
Attest:
___________________________
Name: William C. McCarthy
Title: Chief Financial Officer, Secretary
STATE OF ILLINOIS )
) ss.:
COUNTY OF ________ )
This instrument was acknowledged before me on March __, 2000, by Matthew
Neville, as President and Chief Executive Officer of Cabot Microelectronics
Corporation and by William C. McCarthy, as Chief Financial Officer and Secretary
of Cabot Microelectronics Corporation They are personally known to me and did
not take an oath.
_____________________________________
Name: ________________________________
Notary Public - State of Illinois
My Commission Expires:
<PAGE> 1
Exhibit 10.3
TAX SHARING AGREEMENT
BY
CABOT CORPORATION
AND
CABOT MICROELECTRONICS CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. Definition of Terms 2
SECTION 2. Allocation of Income Tax Liabilities 7
SECTION 3. Preparation and Filing of Tax Returns 11
SECTION 4. Refunds, Carrybacks and Tax Benefits 15
SECTION 5. Tax Payments and Intercompany Billings 19
SECTION 6. Assistance and Cooperation 25
SECTION 7. Tax Records. 26
SECTION 8. Tax Contests 27
SECTION 9. No Inconsistent Actions 28
SECTION 10. Survival of Obligations 30
SECTION 11. Employee Matters 30
SECTION 12. Treatment of Payments; Tax Gross Up 30
SECTION 13. Disagreements 31
SECTION 14. Late Payments 32
SECTION 15. Expenses 32
SECTION 16. General 32
</TABLE>
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<PAGE> 3
TAX SHARING AGREEMENT
This Agreement is entered into as of March 28, 2000 by Cabot Corporation,
a Delaware corporation ("Cabot"), and Cabot Microelectronics Corporation, a
Delaware corporation ("CMC"). Capitalized terms used in this Agreement are
defined herein. Unless otherwise indicated, all "Section" references in this
Agreement are to sections of this Agreement.
RECITALS
WHEREAS, the board of directors of Cabot has determined that it would be
in the best interests of Cabot and its stockholders to completely separate the
MMD Business from Cabot;
WHEREAS, Cabot has caused CMC to be incorporated in order to effect
such separation;
WHEREAS, Cabot and CMC have entered into the Master Separation Agreement
and the Ancillary Agreements (other than this Agreement), pursuant to which
Cabot has contributed and transferred to CMC, and CMC has received and assumed,
the assets and liabilities then associated with the MMD Business as described
therein;
WHEREAS, Cabot and CMC intend that the contribution of the assets and
liabilities associated with the MMD Business in exchange for CMC qualify as
tax-free under Section 351 or 368(a)(1)(D) of the Code;
WHEREAS, Cabot currently owns all of the issued and outstanding CMC
common stock;
WHEREAS, Cabot and CMC currently contemplate that CMC will make an initial
public offering of an amount of its common stock that will reduce Cabot's
ownership of CMC to not less than 80%;
WHEREAS, Cabot currently contemplates that, following such initial public
offering, Cabot will distribute to the holders of its common stock by means of a
pro rata distribution all of the shares of CMC common stock owned by Cabot;
WHEREAS, Cabot and CMC intend that the Distribution will be tax-free to
Cabot and its stockholders under Section 355 of the Code;
<PAGE> 4
WHEREAS, as a result of the Distribution, CMC will cease to be a member of
the affiliated group of which Cabot is the common parent, effective as of the
Distribution Date; and
WHEREAS, the Companies desire to provide for and agree upon the allocation
between the parties of liabilities for Taxes arising prior to, as a result of,
and subsequent to the Distribution, and to provide for and agree upon other
matters relating to Taxes;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereby agree
as follows:
SECTION 1. Definition of Terms. For purposes of this Agreement
(including the recitals hereof), the following terms have the following
meanings:
"ACCOUNTING CUTOFF DATE" means, with respect to CMC, any date as of the
end of which there is a closing of its financial accounting records.
"ACCOUNTING FIRM" shall have the meaning provided in Section 13.
"ADJUSTMENT REQUEST" means any formal or informal claim or request filed
with any Tax Authority, or with any administrative agency or court, for the
adjustment, refund, or credit of Taxes, including (a) any amended Tax Return
claiming adjustment to the Taxes as reported on the Tax Return, or if
applicable, as previously adjusted, or (b) any claim for refund or credit of
Taxes previously paid.
"AFFILIATE" means any entity that directly or indirectly is "controlled"
by the person or entity in question. "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person, whether through ownership of voting securities, by
contract or otherwise. Except as otherwise provided herein, the term Affiliate
shall refer to Affiliates of a person as determined immediately after the
Distribution.
"AGREEMENT" means this Tax Sharing Agreement.
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<PAGE> 5
"ANCILLARY AGREEMENTS" has the meaning set forth in the Master
Separation Agreement.
"CABOT FEDERAL CONSOLIDATED RETURN" means any United States federal
Consolidated Income Tax Return for the affiliated group (as that term is defined
in Code Section 1504) that includes Cabot as the common parent and that
includes, during the Consolidated Periods, the CMC Group.
"CABOT GROUP" means all corporations included in the Cabot Federal
Consolidated Return.
"CARRYBACK" or "CARRYFORWARD" means any net operating loss, net capital
loss, excess tax credit, foreign tax credit or other similar Tax Item which may
or must be carried from one Tax Period to another Tax Period under the Code or
other applicable Tax Law.
"CMC GROUP" means CMC and all corporations included in the CMC Federal
Consolidated Return, or, during any Consolidation Period, that would be included
in such Return if CMC were not included in the Cabot Federal Consolidated
Return.
"CMC FEDERAL CONSOLIDATED RETURN" means any United States federal Tax
Return or Returns in respect of periods after the Consolidation Period filed by
CMC alone or by the affiliated group (as that term is defined in Code Section
1504) that includes CMC as the common parent.
"CODE" means the U.S. Internal Revenue Code of 1986, as amended from
time to time, or any successor law.
"COMPANY" means Cabot or CMC.
"CONSOLIDATED INCOME TAX RETURN" OR "COMBINED INCOME TAX RETURN" means any
Tax Return relating to Income Tax which is computed by reference to the assets
and activities of members of the Cabot Group (other than members of the CMC
Group) and the CMC Group.
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<PAGE> 6
"CONSOLIDATED PERIOD" or "CONSOLIDATED PERIODS" means any taxable period
or periods between the Contribution Date and the Distribution Date, during which
time CMC is a member of the Cabot Group.
"CONTRIBUTION DATE" has the meaning set forth in the Master
Separation Agreement.
"DISTRIBUTION" means the distribution to Cabot shareholders of all, or
substantially all, of the CMC common shares held by Cabot or any earlier event
as a result of which CMC ceases to be a member of the Cabot Group.
"DISTRIBUTION DATE" means the date of the Distribution, as determined by
Cabot in its sole and absolute discretion.
"FEDERAL INCOME TAX" means any Income Tax imposed by the United
States government.
"FOREIGN INCOME TAX" means any Income Tax imposed by any foreign country
or any possession of the United States, or by any political subdivision of any
foreign country or United States possession.
"GROUP" means the Cabot Group or the CMC Group, as the context requires.
"INCOME TAX" means all Taxes (i) based upon, measured by, or calculated
with respect to, net income or net receipts, proceeds or profits or (ii) based
upon, measured by, or calculated with respect to multiple bases (including, but
not limited to, corporate franchise and occupation Taxes) if such Tax may be
based upon, measured by, or calculated with respect to one or more bases
described in clause (i) above.
"INITIAL PUBLIC OFFERING" has the meaning set forth in the IPO and
Distribution Agreement.
"INTERNAL REVENUE SERVICE" OR "IRS" means the United States Internal
Revenue Service or the United States Department of the Treasury, as the
context requires.
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<PAGE> 7
"IPO AND DISTRIBUTION AGREEMENT" has the meaning set forth in the
Master Separation Agreement.
"IRS PRIVATE LETTER RULING" means the private letter ruling issued by the
IRS in response to the letter filed by Cabot requesting a ruling from the
Internal Revenue Service regarding certain tax consequences of the Transactions.
"MASTER SEPARATION AGREEMENT" means the Master Separation Agreement
between Cabot and CMC, dated March 28, 2000.
"MMD BUSINESS" has the meaning set forth in the Master Separation
Agreement.
"OTHER TAX" means any Tax that is not an Income Tax.
"PAYMENT DATE" means (i) with respect to any Cabot Federal Consolidated
Return, the due date for any required installment of estimated taxes determined
under Code Section 6655, the due date (determined without regard to extensions)
for filing the return determined under Code Section 6072, and the date the
return is filed, and (ii) with respect to any Consolidated or Combined State
Income Tax Return, the corresponding dates determined under the applicable Tax
Law.
"POST-DISTRIBUTION PERIOD" means any Tax Period beginning after the
Distribution Date, and, in the case of any Straddle Period, the portion of such
Straddle Period beginning the day after the Distribution Date.
"PRE-DISTRIBUTION PERIOD" means any Tax Period ending on or before the
Distribution Date, and, in the case of any Straddle Period, the portion of such
Straddle Period ending on the Distribution Date.
"PRIME RATE" means the base rate on corporate loans charged by Citibank,
N.A., New York, New York from time to time, compounded on each March 31, June
30, September 30 and December 31.
-5-
<PAGE> 8
"RESPONSIBLE COMPANY" means, with respect to any Tax Return, the Company
having responsibility for preparing and filing such Tax Return under this
Agreement.
"RESTRUCTURING TAX" means the Taxes described in Sections 2.4(a).
"SEPARATE COMPANY TAX" means any Tax computed by reference to the assets
and activities of a member or members of a single Group.
"STRADDLE PERIOD" means any Tax Period that begins on or before and ends
after the Distribution Date.
"STATE INCOME TAX" means any Income Tax imposed by any State of the United
States or by any political subdivision of any such State.
"TAINTING ACT" shall have the meaning provided in Section 9.
"TAX" or "TAXES" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise,
severance, occupation, service, sales, use, license, lease, transfer, import,
export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment, or other charge in the nature of or in lieu of
any tax) imposed by any governmental entity or political subdivision thereof,
and any interest, penalties, additions to tax, or additional amounts in respect
of the foregoing.
"TAX AUTHORITY" means, with respect to any Tax, the governmental entity or
political subdivision thereof that imposes such Tax, and the agency (if any)
charged with the collection of such Tax for such entity or subdivision.
"TAX BENEFIT" means any refund of, credit against, or other reduction in
otherwise required Tax payments (including any reduction in estimated tax
payments) and any interest in respect of the foregoing, net of the effect on
otherwise required Tax payment of any associated or corresponding item of income
or gain, or other increase in otherwise required Tax payments.
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<PAGE> 9
"TAX CONTEST" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any of the Companies or their Affiliates (including any
administrative or judicial review of any claim for refund).
"TAX ITEM" means, with respect to any Income Tax, any item of income,
gain, loss, deduction, or credit.
"TAX LAW" means the law of any governmental entity or political
subdivision thereof relating to any Tax.
"TAX PERIOD" means, with respect to any Tax, the period for which the Tax
is reported as provided under the Code or other applicable Tax Law.
"TAX RECORDS" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records required
to be maintained under the Code or other applicable Tax Laws or under any record
retention agreement with any Tax Authority.
"TAX RETURN" means any report of Taxes due, any claims for refund of Taxes
paid, any information return with respect to Taxes, or any other similar report,
statement, declaration, or document required to be filed under the Code or other
Tax Law, including any attachments, exhibits, or other materials submitted with
any of the foregoing, and including any amendments or supplements to any of the
foregoing.
"TRANSACTIONS" means the transactions contemplated by the Master
Separation Agreement and the IPO and Distribution Agreement.
"TREASURY REGULATIONS" means the regulations promulgated from time to time
under the Code as in effect for the relevant Tax Period.
SECTION 2. Allocation of Income Tax Liabilities.
2.1. Federal Income Tax. Except as otherwise provided in this Agreement,
Federal Income Tax liability shall be allocated as follows:
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<PAGE> 10
(a) Consolidated Period. For each Consolidated Period, CMC shall be liable
for and pay to Cabot an amount equal to Federal Income Tax determined under
the "Stand Alone Method." Under this method CMC's liability for Tax for any
taxable period is computed as if, since its formation, CMC had (i) never been
part of the Cabot Group and (ii) filed a consolidated Federal Income Tax
Return as parent of the CMC Group with each eligible member of that Group;
provided, however, that the provisions of Section 2.5(a) regarding special
rules for application of the Stand Alone Method shall apply. Cabot shall be
liable for all Federal Income Tax for the Consolidated Period other than
amounts for which CMC is liable pursuant to this Section 2.1(a).
(b) Non-Consolidated Periods. CMC shall be responsible for all Federal
Income Tax imposed on members of the CMC Group with respect to all periods
which are not Consolidated Periods. Cabot shall be responsible for all
Federal Income Tax imposed on members of the Cabot Group other than members
of the CMC Group with respect to all periods which are not Consolidated
Periods.
2.2. State and Foreign Income Taxes. Except as otherwise provided in this
Agreement, State and Foreign Income Tax liability shall be allocated as follows:
(a) Consolidated or Combined State and Foreign Income Taxes. CMC shall be
liable for and pay to Cabot any State or Foreign Income Tax with respect to
any Consolidated or Combined State or Foreign Income Tax Return in an amount
that is equal to the amount determined under the Stand Alone Method for the
period covered by such Tax Return. Cabot shall be liable for and pay any
State or Foreign Income Tax with respect to any Consolidated or Combined
State or Foreign Income Tax Return other than the amount for which CMC is
liable pursuant to this Section 2.2(a).
b) Separate Company Taxes. In the case of any State or Foreign Income Tax
which is a Separate Company Tax, CMC shall be liable for and shall pay
directly the applicable Tax
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<PAGE> 11
Authority any such Income Tax that is properly imposed under Tax Law on any
member of the CMC Group and Cabot shall be liable for and shall pay any such
Separate Company Tax imposed on any member of the Cabot Group other than a
member of the CMC Group.
2.3 Other Taxes. Except as otherwise provided in this Agreement, CMC shall
be liable to and pay the applicable Tax Authority any Other Tax that is
imposed on any member of the CMC Group and Cabot shall be liable to and pay
the applicable Tax Authority any Other Tax that is imposed on any member of
the Cabot Group other than a member of the CMC Group.
2.4. Transaction Taxes.
(a) General. Except as otherwise provided in this Section 2.4 Cabot shall
be responsible for and pay any and all liability for Taxes resulting from the
Transactions. This shall include but not be limited to (i) any sales and use,
gross receipts, or other transfer Taxes imposed on the transfers occurring
pursuant to the Transactions together with any Tax resulting from any income
or gain recognized under Treasury Regulation Sections 1.1502-13 or 1.1502-19
(or any corresponding provisions of other applicable Tax Laws) as a result of
the Transactions; and (ii) except as otherwise provided in Section 2.4(b),
any Tax resulting from any income or gain recognized as a result of any of
the Transactions failing to qualify for tax-free treatment under Code
Sections 351, 355, 361, or other provisions of the Code (as contemplated in
the IRS Private Letter Ruling) or corresponding provisions of other
applicable Tax Laws.
(b) Inconsistent Acts and Events. Cabot or CMC, as the case may be, shall
be liable for, and shall indemnify and hold harmless the members of the other
Group from and against any liability for, any Restructuring Tax (described in
subparagraphs (i) and (ii) above) to the extent arising from (i) any breach
by such indemnifying party of the representations or covenants under Section
9, (ii) any Tainting Act performed by such indemnifying party, (iii) the
inaccuracy of any factual statements or representations made by such
indemnifying party in connection with the IRS Private Letter Ruling, but only
to the extent such inaccuracy
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<PAGE> 12
arises from facts in existence prior to the Distribution Date or (iv) any
Section 355(e) Event with respect to the indemnifying party. A Section 355(e)
Event with respect to an entity occurs if one or more persons acquire
directly or indirectly stock of such entity representing a 50% or greater
interest in such entity within the meaning of Section 355(e).
2.5. Calculation of Tax Liability.
(a) Stand Alone Method. The following rules shall apply for purposes
of computing CMC's liability under the Stand Alone Method - (i) transactions
during any Consolidated Period between a member of the CMC Group and a member
of the Cabot Group that is not a member of the CMC Group shall, for Federal
Income Tax purposes, be accounted for pursuant to the provisions of the
regulations under IRC Section 1502 that govern intercompany transactions (and
to the extent appropriate for State or Foreign Income Tax purposes, similar
rules shall apply in the case of transactions between such members which are
included in State or Foreign Combined or Consolidated Income Tax Returns),
provided that the pricing of the provision of goods and services in
intercompany transactions shall be in accordance with the economic terms of
any written arrangements among the parties (i.e. liability under the Stand
Alone Method shall be computed without regard to any adjustments to such
pricing that may be made under Section 482 of the Code or analogous
provisions of State or Foreign law); (ii) during Consolidated Periods all
computations shall be made in conformity with the positions, elections and
accounting methods used by Cabot in preparing the consolidated returns of the
Cabot Group; (iii) the highest marginal tax rate to which the CMC Group could
be subject under applicable Tax Law shall be deemed to be the only Tax rate
to which such group is subject under such law; and (iv) subject to (i)
through (iii) above, all computations and other determinations shall be made
in accordance with the the laws and regulations applying to affiliated groups
filing consolidated returns (including, in the case of any company that
becomes or ceases to be a member of any Group, the laws
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<PAGE> 13
and regulations applicable to a company that becomes or ceases to be a member
of a such Group), as well as all other relevant federal Tax laws and
regulations (and similar rules shall apply in the case of State or Foreign
Taxes in respect to Combined or Consolidated Returns for such Taxes).
(b) The principles of Treasury Regulation Section 1.1502-76(b) as
reasonably interpreted and applied by the Companies shall apply in
determining whether a Tax Item is attributable to a Tax Period provided that
(x) no election shall be made under Treasury Regulation Section
1.1502-76(b)(2)(ii) (relating to ratable allocation of a year's items) and
(y) if the Distribution Date is not an Accounting Cutoff Date, the provisions
of Treasury Regulation Section 1.1502-76(b)(2)(iii) will be applied to
ratably allocate the items (other than extraordinary items) for the month
which includes the Distribution Date.
(c) In determining the apportionment of Tax Items between Pre-Distribution
Periods and Post-Distribution Periods, any Tax Items relating to the
Transactions shall be treated as an extraordinary item described in Treasury
Regulation Section 1.1502-76(b)(2)(ii)(C) and shall be allocated to
Pre-Distribution Periods, and any Taxes related to such items shall be
treated under Treasury Regulation Section 1.1502-76(b)(2)(iv) as relating to
such extraordinary item and shall be allocated to Pre-Distribution Periods.
2.6. Tax Payments and Intercompany Billings. Each Company shall pay the
Taxes allocated to it by this Section 2 either to the applicable Taxing
Authority or to the other Company in accordance with Section 5.
SECTION 3. Preparation and Filing of Tax Returns.
3.1. General. Except as otherwise provided in this Section 3, Income Tax
Returns shall be prepared and filed when due (including extensions) by the
person obligated to file such Tax Returns under the Code or applicable Tax Law.
The Companies shall provide, and shall cause their Affiliates to provide,
assistance and cooperate with one another in accordance with Section
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<PAGE> 14
6 with respect to the preparation and filing of Tax Returns, including providing
information required to be provided in Section 6.
3.2. Pre-Distribution Period and Straddle Period Tax Returns. All Income
Tax Returns required to be filed for Pre-Distribution Periods or Straddle
Periods, shall be:
(1) prepared and filed by Cabot, in the case of any Consolidated or
Combined Income Tax Return; and
(2) prepared and filed, or caused to be prepared and filed, by the Company
to which such Tax Return relates in all other cases.
CMC shall, for each Tax Period or portion thereof for which CMC or a
member of the CMC Group is included in a Tax Return described in clause (1) of
the preceding sentence, provide Cabot with (i) a true and correct pro forma tax
return for the CMC Group together with an accompanying computation of Tax
liability of the Group prepared in accordance with the Stand Alone Method, (ii)
separate pro forma tax returns for each member of the CMC Group together with
accompanying computations of the separate tax return Tax liabilities of each
member of the Group, and (iii) a reconciliation of book income to federal
taxable income for each member of the CMC Group. CMC hereby agrees to use its
best efforts to provide Cabot with such returns and computations no later than
the first day of the sixth month following the end of the period to which such
returns and computations relate, but in any event shall provide such returns and
computations to Cabot no later than the fifteenth day of the sixth month
following the end of the period to which such returns and computations relate.
CMC, in preparing the above mentioned pro forma tax returns for its Group, shall
not consider or give effect to any (i) net operating loss carryover or
carryback, (ii) capital loss carryover or carryback, (iii) excess charitable
deduction carryover, (iv) excess tax carryover or carryback, or (v) other
similar carryback or carryback item.
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<PAGE> 15
3.3. Post-Distribution Period Tax Returns. Except as otherwise provided in
Section 3.2 with respect to Straddle Period Tax Returns:
(1) All Tax Returns related to CMC or the CMC Group for Post-Distribution
Periods shall be prepared and filed (or caused to be prepared and filed) by CMC,
(2) All Tax Returns related to Cabot or the Cabot Group, excluding for
this purpose CMC or members of the CMC Group, for Post-Distribution Periods
shall be prepared and filed (or caused to be prepared and filed) by Cabot.
3.4. Tax Accounting Practices.
(a) General Rule. Except as otherwise provided in this Section 3.4, any
Income Tax Return for any Pre-Distribution Period or any Straddle Period, and
any Income Tax Return for any Post-Distribution Period to the extent items
reported on such Tax Return might reasonably affect items reported on any Tax
Return for any Pre-Distribution Period or any Straddle Period, shall be
prepared in accordance with past Tax accounting practices used with respect
to the Tax Returns in question (unless such past practices are no longer
permissible under the Code or other applicable Tax Law), and to the extent
any items are not covered by past practices (or in the event such past
practices are not longer permissible under the Code or other applicable Tax
Law), in accordance with reasonable Tax accounting practice selected by the
Responsible Company.
(b) Reporting of Transaction Tax Items. The tax treatment reported on any
Tax Return of Tax Items relating to the Transaction shall be consistent with
the treatment of such item in the IRS Private Letter Ruling. To the extent
there is a Tax Item relating to the Transactions which is not covered by the
IRS Private Letter Ruling, the tax treatment of such Tax Items on a Tax
Return shall be determined by the Responsible Company with respect to such
Tax Return, provided (i) there is a reasonable basis for such tax treatment,
and (ii) such tax treatment is not inconsistent with the tax treatment
contemplated in the IRS Private Letter
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<PAGE> 16
Ruling. Such Tax Return shall be submitted for review pursuant to Section
3.5(a), and any dispute regarding such proper tax treatment shall be referred
for resolution pursuant to Section 13 sufficiently in advance of the filing
date of such Tax Return (including extensions) to permit timely filing of the
return.
3.5. Right to Review Tax Returns.
(a) General. The Responsible Company with respect to any Tax Return shall
make such Tax Return and related Tax Records available for review by the
other Company, if requested, to the extent (i) such Tax Return relates to
Taxes for which the requesting party may be liable, (ii) such Tax Return
relates to Taxes for which the requesting party may be liable in whole or in
part for any additional Taxes owing as a result of adjustments to the amount
of Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes
for which the requesting party may have a claim for Tax Benefits under this
Agreement, or (iv) the requesting party reasonably determines that it must
inspect such Tax Return to confirm compliance with the terms of this
Agreement. The Responsible Company shall use its reasonable best efforts to
make such Tax Return and Tax Records available for review as required under
this paragraph sufficiently in advance of the due date for filing such Tax
Returns to provide the requesting party with a meaningful opportunity to
analyze and comment on such Tax Returns and have such Tax Returns modified
before filing, taking into account the person responsible for payment of the
Tax (if any) reported on such Tax Return and the materiality of the amount of
Tax liability with respect to such Tax Return. The Companies shall attempt in
good faith to resolve any issues arising out of the review of such Tax
Returns or Tax Records.
(b) Execution of Returns Prepared by Other Party. In the case of any Tax
Return which is required to be prepared and filed by one Company under this
Agreement and which is required by law to be signed by another Company (or by
its authorized representative), the
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<PAGE> 17
Company that is legally required to sign such Tax Return shall not be
required to sign such Tax Return under this Agreement if there is no
reasonable basis for the tax treatment of any material items reported on the
Tax Return. Any such Tax Return shall be supplied by the Company responsible
for its preparation and filing to the Company responsible for its signing at
least five days prior to the due date of such Tax Return (including
applicable extensions) and such signing Company shall deliver an executed
copy of such Tax Return to the filing Company at least two days prior to the
due date of such Tax Return (including applicable extensions).
SECTION 4. Refunds, Carrybacks and Tax Benefits.
4.1. Compensation for Use of CMC Consolidated Period Tax Items.
In the event that (i) the Cabot Group realizes an actual Tax Benefit
during any Consolidated Period as a result of the use by members of the Cabot
Group (other than members of the CMC Group) of Tax Items of the CMC Group and
(ii) as a result of such use the Federal Income Tax liability of the CMC
Group for any period which is not a Consolidated Period is greater than the
amount of such liability computed under the Stand Alone Method (but without
regard to clauses (iii) and (iv) of the the third sentence of Section
2.5(a)), then Cabot will pay to CMC, in accordance with Section 5.7, an
amount equal to the lesser of (x) the excess of the Tax Benefit actually
realized by Cabot referred to in clause (i) over the amount of any prior
payments to CMC pursuant to this Section 4.1 in respect of that Tax Benefit
and (y) the excess referred to in clause (ii) for such non-Consolidated
Period.
4.2. Claims for Refund, Carrybacks, and Self-Audit Adjustments
("Adjustment Requests").
(a) Consent Required for Adjustment Requests Related to Consolidated or
Combined Income Tax Returns. Except as provided in paragraph (b) below, each
of the Companies hereby agrees that, unless the other Company consents in
writing, which consent shall not be
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unreasonably delayed or withheld, no Adjustment Request shall be filed with
respect to any Consolidated or Combined Tax Return that included the CMC
Group for a Pre-Distribution Period and affects the CMC Group Tax liability.
Any Adjustment Request which the Companies consent to make under this Section
4.2 shall be prepared and filed by the Responsible Company under Sections 3.2
and 3.3 for the Tax Return to be adjusted. The Company requesting the
Adjustment Request shall provide to the Responsible Company all information
required for the preparation and filing of such Adjustment Request in such
form and detail as reasonably requested by the Responsible Company.
(b) Exception for Adjustment Requests Related to Audit Adjustments. Each
Company shall be entitled, without the consent of the other Company, to
require Cabot to file an Adjustment Request to take into account any net
operating loss, net capital loss, deduction, credit, or other adjustment
attributable to such Company or any member of its Group corresponding to any
adjustment resulting from any audit by the Internal Revenue Service or other
Tax Authority with respect to Consolidated or Combined Income Tax Returns for
any Pre-Distribution Period. In addition, Cabot shall be entitled to require
CMC to file a corresponding Adjustment Request with respect to Separate
Company Taxes for any Pre-Distribution Periods.
(c) Other Adjustment Requests Permitted. Nothing in this Section 4.2 shall
prevent any Company or its Affiliates from filing any Adjustment Request with
respect to Tax Returns which are not Consolidated or Combined Income Tax
Returns or with respect to any Other Taxes; provided, however, that neither
Company shall file an amended Tax Return with respect to Separate Company or
Other Taxes for which the other Company is liable under this Agreement
without the written consent of such other Company (which consent shall not be
unreasonably withheld). If any refund or credit is obtained as a result of
any such Adjustment Request (or otherwise), the parties shall recalculate the
amounts that would have
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been paid under this Agreement based on the changes resulting in such refund
or credit, and shall make such payments between them as necessary to place
each in the position it would have been in had the payments made under this
Agreement originally been made based on such changes.
(d) Payment of Refunds and other Tax Benefits. Except as set forth in
Section 4.2(e), any refunds or other Tax Benefits received by either Company
(or any of its Affiliates) as a result of any Adjustment Request which are
for the account of the other Company (or member of such other Company's
Group) shall be paid by the Company receiving (or whose Affiliate received)
such refund or Tax Benefit to such other Company in accordance with Section
5.
(e) Ordering of and Payment for Carrybacks.
(i) In the event that a member of the Cabot Group, on the one
hand, and a member of the CMC Group, on the other hand, are each entitled to
carryback a Tax Item to a Pre-Distribution Period, the respective Tax Items
shall be used under the rules of applicable Tax Law (which shall be, in the
case of Carrybacks to such Tax Periods of the affiliated group of which Cabot
is the common parent, the rules contained in Treasury Regulation Section
1.1502-21T).
(ii) Any Tax refund or other Tax Benefit resulting from the
Carryback of any member of one Group (the "Carryback Group") of any Tax Item
arising after the Distribution Date to a Pre-Distribution Period shall be for
the account of the Carryback Group (and in the event CMC Group is the
Carryback Group, then upon receipt of the Tax refund or other Tax Benefit
Cabot shall pay to CMC the amount of such Tax refund or other Tax Benefit);
provided, however, that if at the time of the use of the Carryback Items of a
member of the Carryback Group, a member of the other Group (the "Other
Group") possesses Carryback Tax Items which, but for the ordering rule set
forth in (i) above, would have been available to be used (the "Other Group
Carryback") in lieu of the Carryback Group's Tax Items, then (but
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only to the extent of the Other Group Carryback) the Carryback Group shall
not be entitled to payment of the amount of such Tax refund or Tax Benefit
until the earlier of (X) the date on which a member of the Other Group claims
the Other Group Carryback on a Tax Return or (Y) the date on which a member
of the Carryback Group would have been able to use the Carryback had it not
been claimed with respect to the Pre-Distribution Period Tax Return.
(iii) In the event the Carryback of Tax Items of a member of the
Cabot Group, or the CMC Group, as the case may be, does not result in a Tax
refund, due to an offsetting Tax adjustment to a member of the Other Group,
then the Other Group shall promptly pay the amount of any decrease in Tax
liability resulting from the Carryback claim, provided, however, that in the
event the Other Group possesses Carryback Items which, but for the ordering
rules set forth in (i) above would have been available to be used in lieu of
the Carryback Group's Items, then (but only to the extent of the Other Group
Carryback), the Other Group shall not be required to pay the amount of such
decrease in Tax liability to the Carryback Group until the earlier of (X) the
date on which a member of the Other Group claims the Other Group Carryback on
a Tax Return or (Y) the date on which a member of the Carryback Group would
have been able to utilize the Carryback had it not been claimed with respect
to the Pre-Distribution Period Tax Return.
4.3. Adjustment of Tax Items. In the event that the Carryback of Tax Items
of one Group, or a Tax adjustment attributable to such Group under the terms of
this Agreement, results in the disallowance or limitation of Tax Items claimed
on the Tax Return as filed, the Carryback Group shall be responsible for any
increase in Tax liability resulting from the disallowance or limitation of Tax
attributes; provided, however, that in the event the disallowance or limitation
of Tax attributes results in a Tax Benefit resulting from the use of such Tax
attributes in another Tax Period, such Tax Benefit shall be deemed to be for the
account of the Carryback Group for such purposes of this Agreement.
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4.4. Adjustments on Audit. If, upon examination by any Tax Authority of
any Tax Return including a member of the Cabot Group or CMC Group for any Tax
Period, any item of deduction, credit or expense is disallowed for which Cabot
is or may be liable for Taxes hereunder (or an item of income is required to be
recognized on a Tax Return which was not reported on such Tax Return), in either
such case resulting in a tax detriment suffered by the Cabot Group, and such
disallowance (or recognition) results in a Tax Benefit to the CMC Group (with
respect to that Tax Period or another Tax Period), then CMC shall pay to Cabot
the amount of such Tax Benefit that is realized in the form of an actual
reduction in Tax (which shall be computed by comparing the Tax which would have
been owed by CMC but for the item giving rise to the Tax Benefit with the Tax
owed by CMC taking such item into account) provided, however, that in no case
will the amount that CMC is required to pay to Cabot with respect to such Tax
Benefit exceed the corresponding tax detriment to Cabot (reduced by payments
previously made by CMC to Cabot with respect to such Tax Benefit). Any payment
required to be made hereunder shall be made in accordance with Section 5.10. The
provisions of this Section 4.4 shall apply mutatis mutandis where an item of
deduction, credit or expense is disallowed for which CMC is or may be liable for
Taxes hereunder (or any item of income is required to be recognized on a Tax
Return which was not reported on such Tax Return), as they apply where the Cabot
Group suffers such a detriment. For avoidance of doubt, any payment required to
be made by Cabot to the CMC Group under this Section 4.4 shall, to the extent
applicable, be deemed as an offset to amounts owing by CMC to Cabot under
Section 2.1 hereof.
SECTION 5. Tax Payments and Intercompany Billings.
5.1. Payment of Taxes With Respect to Cabot Federal Consolidated Returns.
In the case of any Cabot Federal Consolidated Return -
(a) Computation and Payment of Tax Due. At least ten business days prior
to any Payment Date, Cabot shall compute the amount of Tax required to be
paid to the Internal
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Revenue Service (taking into account the requirements of Section 3.4
relating to consistent accounting practices) with respect to such Tax Return
on such Payment Date and shall notify CMC in writing of the amount of Tax
required to be paid on such Payment Date. Cabot will pay such amount to the
Internal Revenue Service on or before such Payment Date.
(b) Computation and Payment of CMC Liability With Respect to Tax Due.
Within 30 days following any Payment Date, CMC will pay to Cabot the excess
(if any) of
(i) the amount of liability determined as of such Payment Date with
respect to the applicable Tax Period allocable to CMC in a manner
consistent with the provisions of Section 2.1, over
(ii) the amount equal to the cumulative net payments with respect to
such Tax Return prior to such Payment Date made by CMC or members of its
Group.
If the amount in clause (ii) above is greater than the amount in clause (i)
above as of any Payment Date, then Cabot shall pay such excess to CMC within
30 days following the Payment Date.
(c) Interest on Intergroup Tax Allocation Payments. In the case of any
payments to Cabot required under paragraph (b) of this Section 5.1, CMC shall
also pay to Cabot an amount of interest computed at the Prime Rate on the
amount of the payment required based on the number of days from the
applicable Payment Date until the date of CMC's subsequent payment. In the
case of any payments by Cabot required under paragraph (b) of this Section
5.1, Cabot shall also pay to CMC an amount of interest computed at the Prime
Rate on the amount of the payment required based on the number of days from
the applicable Payment Date until the date of Cabot's subsequent payment of
such amount to CMC.
5.2. Payment of Federal Income Tax Related to Adjustments.
(a) Adjustments Resulting in Underpayments. Cabot shall pay to the
Internal Revenue Service when due any additional Federal Income Tax required
to be paid as a result of any
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adjustment to the tax liability with respect to any Cabot Federal
Consolidated Return. CMC shall pay to Cabot an amount that is allocable to
CMC under Section 2.1 within 30 days from the later of (i) the date the
additional Tax was paid by Cabot or (ii) the date of receipt by CMC of a
written notice and demand from Cabot for payment of the amount due,
accompanied by evidence of payment and a statement detailing the Taxes paid
and describing in reasonable detail the particulars relating thereto. Any
payments required under this Section 5.2 (a) shall include interest computed
at the Prime Rate based on the number of days from the date the additional
Tax was paid by Cabot to the date of the payment under this Section 5.2(a).
(b) Adjustments Resulting in Overpayments. Within 30 days of receipt by
Cabot of any Tax Benefit resulting from any adjustment to the tax liability
with respect to any Cabot Federal Consolidated Return, Cabot shall pay to CMC
its share of any such Tax Benefit, as determined in accordance with the
principles of Sections 2.1 and 4. Any payments required under this Section
5.2(b) shall include interest computed at the Prime Rate based on the number
of days from the date the Tax Benefit was received by Cabot to the date of
payment to CMC under this Section 5.2(b).
5.3. Payment of State Income Tax Relating to Pre-Distribution Periods.
(a) Computation and Payment of Tax Due. At least three business days prior
to any Payment Date for any Tax Return with respect to any State Income Tax
relating to a Pre-Distribution Period, the Responsible Company shall compute
the amount of Tax required to be paid to the applicable Tax Authority (taking
into account the requirements of Section 3.4 relating to consistent
accounting practices) with respect to such Tax Return on such Payment Date
and --
(i) If such Tax Return is with respect to a Consolidated or Combined
State Income Tax, the Responsible Company shall, if Cabot is not the
Responsible Company with
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respect to such Tax Return, notify Cabot in writing of the amount of Tax
required to be paid on such Payment Date. Cabot will pay such amount to
such Tax Authority on or before such Payment Date.
(ii) If such Tax Return is with respect to a Separate Company Tax, the
Responsible Company shall, if it is not the Company liable for the Tax
reported on such Tax Return, notify the Company liable for such Tax in
writing of the amount of Tax required to be paid on such Payment Date.
The Company liable for such Tax will pay such amount to such Tax
Authority on or before such Payment Date.
(b) Computation and Payment of CMC Liability With Respect to Tax Due.
Within 30 days following the due date (including extensions) for filing any
Tax Return for any Consolidated or Combined State Income Tax (excluding any
Tax Return with respect to payment of estimated Taxes or Taxes due with a
request for extension of time to file) relating to a Pre-Distribution Period,
CMC shall pay to Cabot the Tax liability allocable to CMC as determined by
Cabot under the provisions of Sections 2.2 and 4, plus interest computed at
the Prime Rate on the amount of the payment based on the number of days from
the due date (including extensions) to the date of payment by CMC to Cabot.
5.4. Payment of State Income Taxes Related to Adjustments.
(a) Adjustments Resulting in Underpayments. Cabot shall pay to the
applicable Tax Authority when due any additional State Income Tax required to
be paid as a result of any adjustment to the Tax liability with respect to
any Tax Return for any Consolidated or Combined State Income Tax for any
Pre-Distribution Period. CMC shall pay to Cabot its respective share of any
such additional Tax payment determined in accordance with Sections 2.2 and 4
within 30 days from the later of (i) the date the additional Tax was paid by
Cabot or (ii) the date of receipt by CMC of a written notice and demand from
Cabot for payment of the amount due, accompanied by evidence of payment and a
statement detailing the Taxes paid
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and describing in reasonable detail the particulars relating thereto. CMC
shall also pay to Cabot interest on its respective share of such Tax computed
at the Prime Rate based on the number of days from the date the additional
Tax was paid by Cabot to the date of its payment to Cabot under this Section
5.4(a).
(b) Adjustments Resulting in Overpayments. Within 30 days of receipt by
Cabot of any Tax Benefit resulting from any adjustment to the Tax liability
with respect to any Tax Return for any Consolidated or Combined State Income
Tax for any Pre-Distribution Period, Cabot shall pay to CMC its share of any
such Tax Benefit determined in accordance with the principles of Sections 2.2
and 4. Any payments required under this Section 5.4(b) shall include interest
computed at the Prime Rate based on the number of days from the date the Tax
Benefit was received by Cabot to the date of payment under this Section
5.4(b).
5.5. Payment of Separate Company Taxes and Other Taxes. Each Company shall
pay, or shall cause to be paid, to the applicable Tax Authority when due all
Separate Company Taxes and Other Taxes owed by such Company or a member of such
Company's Group.
5.6. Indemnification Payments. If any Company (the "payor") is required to
pay to a Tax Authority a Tax that another Company (the "responsible party") is
required to pay to such Taxing Authority under this Agreement, the responsible
party shall reimburse the payor within 30 days of delivery by the payor to the
responsible party of an invoice for the amount due, accompanied by evidence of
payment and a statement detailing the Taxes paid and describing in reasonable
detail the particulars relating thereto. The reimbursement shall include
interest on the Tax payment computed at the Prime Rate based on the number of
days from the date of the payment to the Tax Authority to the date of
reimbursement under this Section 5.6.
5.7. Compensation for use of CMC Consolidated Period Tax Items. In the
event Cabot is required to pay CMC in accordance with Section 4.1, CMC shall
deliver to Cabot an invoice stating the amount due to CMC, accompanied by a
reasonably detailed calculation of that
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amount, as prescribed by section 4.1. Cabot shall pay CMC within 30 days from
the due date (including any extensions) for the Tax Return filed by CMC with
respect to such amount, including interest computed at the Prime Rate based on
the number of days from such due date to the date Cabot pays CMC.
5.8. Payment of Refunds and Other Tax Benefits. (a) Except as otherwise
provided in this Agreement, if a member of one Group receives a Tax refund or
other Tax Benefit with respect to Taxes for which a member of the other Group is
liable hereunder, the Company receiving such Tax refund shall make a payment to
the Company who is liable for such Taxes hereunder within 30 days following the
receipt of the Tax refund in an amount equal to such Tax refund, plus interest
on such amount computed at the Prime Rate based on the number of days from the
date of receipt of the Tax refund to the date of payment under this Section 5.8.
(b) In the event one Group is reimbursed for its payment of a Tax
liability of the other Group, the amount of such reimbursement shall be computed
net of any Tax Benefit realized by the reimbursed Group as the result of payment
of the other Group's Tax liability.
5.9. Payment for Carrybacks. Each Company shall pay the other Company for
Carrybacks in accordance with Section 4.2(e). Any such payment shall include
interest at the Prime Rate based on the number of days from the date Company is
required to make the payment under Section 4.2(e) to the date the Company
actually makes the payment.
5.10. Payment for Adjustments on Audit. Any payment required under Section
4.4 shall be made within 30 days of the due date (including any extensions) of
the Tax Return on which the Tax Benefit described in that section is claimed.
Such payment shall include interest computed at the Prime Rate based on the
number of days from such due date to the date the payment is made.
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SECTION 6. Assistance and Cooperation.
6.1. General. Each of the Companies shall cooperate (and cause their
respective Affiliates to cooperate) with each other and with each other's
agents, including accounting firms and legal counsel, in connection with Tax
matters relating to the Companies and their Affiliates including (i) preparation
and filing of Tax Returns, (ii) determining the liability for and amount of any
Taxes due (including estimated Taxes) or the right to and amount of any refund
of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or
judicial proceeding in respect of Taxes assessed or proposed to be assessed.
Such cooperation shall include making all information and documents in their
possession relating to the other Companies and their Affiliates available to
such other Companies as provided in Section 7. Each of the Companies shall also
make available to each other, as reasonably requested and available, personnel
(including officers, directors, employees and agents of the Companies or their
respective Affiliates) responsible for preparing, maintaining, and interpreting
information and documents relevant to Taxes, and personnel reasonably required
as witnesses or for purposes of providing information or documents in connection
with any administrative or judicial proceedings relating to Taxes. Any
information or documents provided under this Section 6 shall be kept
confidential by the Company receiving the information or documents, except as
may otherwise be necessary in connection with the filing of Tax Returns or in
connection with any administrative or judicial proceedings relating to Taxes.
6.2. Income Tax Return Information. Each Company will provide to each
other Company information and documents relating to their respective Groups
required by the other Companies to prepare Tax Returns. The Responsible Company
shall determine a reasonable compliance schedule for such purpose in accordance
with past practices. Any additional information or documents the Responsible
Company requires to prepare such Tax Returns will
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be provided in accordance with past practices, if any, or as the Responsible
Company reasonably requests and in sufficient time for the Responsible Company
to file such Tax Returns timely.
SECTION 7. Tax Records.
7.1. Retention of Tax Records. Except as provided in Section 7.2, each
Company shall preserve and keep all Tax Records exclusively relating to the
assets and activities of their respective Groups for Pre-Distribution Tax
Periods, and Cabot shall preserve and keep all other Tax Records relating to
Taxes of the Groups for Pre-Distribution Tax Periods, for so long as the
contents thereof may become material in the administration of any matter under
the Code or other applicable Tax Law, but in any event until the later of (i)
the expiration of any applicable statutes of limitation, as extended, and (ii)
seven years after the Distribution Date. If, prior to the expiration of the
applicable statute of limitation and such seven-year period, a Company
reasonably determines that any Tax Records which it is required to preserve and
keep under this Section 7 are no longer material in the administration of any
matter under the Code or other applicable Tax Law, such Company may dispose of
such records upon 90 days prior written notice to the other Company. Such notice
shall include a list of the records to be disposed of describing in reasonable
detail each file, book, or other record accumulation being disposed. The
notified Company shall have the opportunity, at its cost and expense, to copy or
remove, within such 90-day period, all or any part of such Tax Records.
7.2. State Income Tax Returns. Tax Returns with respect to State Income
Taxes and workpapers prepared in connection with preparing such Tax Returns
shall be preserved and kept, in accordance with the guidelines of Section 7.1,
by the Company responsible for preparing and filing the applicable Tax Return.
7.3. Access to Tax Records. The Companies and their respective Affiliates
shall make available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax Records in their possession to the
extent reasonably requested by the other
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Company in connection with the preparation of Tax Returns, audits, litigation,
or the resolution of items under this Agreement.
SECTION 8. Tax Contests.
8.1. Notice. Each of the parties shall provide prompt notice to the other
party of any pending or threatened Tax audit, assessment or proceeding or other
Tax Contest of which it becomes aware related to Taxes for Tax Periods for which
it is indemnified by the other party hereunder. Such notice shall contain
factual information (to the extent known) describing any asserted Tax liability
in reasonable detail and shall be accompanied by copies of any notice and other
documents received from any Tax Authority in respect of any such matters. If an
indemnified party has knowledge of an asserted Tax liability with respect to a
matter for which it is to be indemnified hereunder and such party fails to give
the indemnifying party prompt notice of such asserted Tax liability, then (i) if
the indemnifying party is precluded from contesting the asserted Tax liability
in any forum as a result of the failure to give prompt notice, the indemnifying
party shall have no obligation to indemnify the indemnified party for any Taxes
arising out of such asserted Tax liability, and (ii) if the indemnifying party
is not precluded from contesting the asserted Tax liability in any forum, but
such failure to give prompt notice results in a monetary detriment to the
indemnifying party, then any amount which the indemnifying party is otherwise
required to pay the indemnified party pursuant to this Agreement shall be
reduced by the amount of such detriment.
8.2. Control of Tax Contests. Each Company shall have full responsibility
and discretion in handling, settling or contesting any Tax Contest involving a
Tax for which it is liable pursuant to Section 2 of this Agreement; provided,
however, Cabot shall have full responsibility and discretion in handling,
settling or contesting any Tax Contest with respect to a Consolidated or
Combined Income Tax Return of the Cabot Group. Furthermore, Cabot may
participate in any
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Tax Contest with respect to Restructuring Taxes regardless of whether it has
liability or indemnification obligations with respect to such Taxes under this
Agreement.
SECTION 9. No Inconsistent Actions.
(a) Each of the Companies covenants and agrees that it will not take any
action, and it will cause its Affiliates to refrain from taking any action,
which may be inconsistent with the Tax treatment of the Transactions as
contemplated in the IRS Private Letter Ruling (any such action is referred to
in this Section 9 as a "Tainting Act"), unless (i) the Company or Affiliate
thereof proposing such Tainting Act (the "Requesting Party") either (A)
obtains a ruling with respect to the Tainting Act from the Internal Revenue
Service or other applicable Tax Authority that is reasonably satisfactory to
the other Company (the "Requested Party") (except that the Requesting Party
shall not submit any such ruling request if a Requested Party determines in
good faith that filing such request might have a materially adverse effect
upon such Requested Party), or (B) obtains an unqualified opinion reasonably
acceptable to each Requested Party of independent nationally recognized tax
counsel acceptable to each Requested Party, on a basis of assumed facts and
representations consistent with the facts at the time of such action, that
such Tainting Act will not affect the Tax treatment of the Transactions as
contemplated in the IRS Private Letter Ruling, or (ii) each Requested Party
consents in writing to such Tainting Act, which consent shall be granted or
withheld in the sole and absolute discretion of each such Requested Party.
Without limiting the foregoing:
(i) Specified Actions. During the two year period following the
Distribution Date, unless clause (i) or (ii) of the preceding paragraph
is satisfied with respect to the applicable action, no Company or its
Affiliate will (A) liquidate or merge with or into any other corporation
(other than a merger which results in the outstanding stock of such
Company or its Affiliates immediately before the merger continuing to
represent at least
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fifty-five (55) percent of the outstanding voting stock and non-voting
stock of the merged corporations after the transaction); (B) issue more
than thirty-five (35) percent, by vote or value, of its capital stock in
one or more transactions, including the Initial Public Offering; (C)
redeem, purchase or otherwise reacquire its capital stock in one or more
transactions, except to the extent such redemption, purchase or
reacquisition meets the requirements of section 4.05(1)(b) of Revenue
Procedure 96-30; (D) sell, exchange, distribute or otherwise dispose of,
other than in the ordinary course of business, more than forty (40)
percent of the assets constituting the trades or businesses relied upon
in the IRS Private Letter Ruling to satisfy Section 355(b) of the Code;
or (E) discontinue or cause to be discontinued the active conduct of the
trades or businesses relied upon in the IRS Private Letter Ruling to
satisfy Section 355(b) of the Code.
(ii) No Inconsistent Plan or Intent. Each of the Companies represents
and warrants that neither it nor any of its Affiliates has any plan or
intent to take any action which is inconsistent with any factual
statements or representations in the IRS Private Letter Ruling.
Regardless of any change in circumstances, each of the Companies
covenants and agrees that it will not take, and it will cause its
Affiliates to refrain from taking, any such inconsistent action on or
before the last day of the calendar year ending after the second
anniversary of the Distribution Date other than as permitted in this
Section 9.
(iii) 355(e) Covenant. Without in any manner limiting paragraphs (i) or
(ii) immediately above, each of Cabot and CMC covenants and agrees that,
during the two-year periods ending on and beginning on the Distribution
Date, unless clause (i) or (ii) of section 9(a) of this Agreement is
satisfied with respect to the applicable action, it will not enter into
any negotiations, agreements or arrangements with respect to transactions
or events (including stock issuances, option grants, capital
contributions or acquisitions, but not including the Initial Public
Offering), which may cause the Distribution to be
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treated as part of a plan pursuant to which one or more persons acquire
directly or indirectly Cabot or CMC stock, as the case may be,
representing a "50 percent or greater interest" within the meaning of
Section 355(e)(4) of the Code.
(iv) Amended or Supplemental Rulings. Each of the Companies covenants
and agrees that it will not file, and it will cause its Affiliates to
refrain from filing, any amendment or supplement to the IRS Private
Letter Ruling request with respect to the Transactions subsequent to the
Distribution Date without the consent of the other Companies, which
consent shall not be unreasonably withheld.
(b) Notwithstanding anything to the contrary in this Agreement, each
Company shall be solely liable for, and shall indemnify and hold harmless the
other Company from any Restructuring Tax resulting from a Tainting Act by
such first Company or its Affiliates, regardless of whether clause (i) or
(ii) of Section 9(a) was satisfied with respect to such Tainting Act.
SECTION 10. Survival of Obligations. The representations, warranties,
covenants and agreements set forth in this Agreement shall be unconditional and
absolute and shall remain in effect without limitation as to time.
SECTION 11. Employee Matters. Each of the Companies agrees to utilize,
or cause its Affiliates to utilize, the alternative procedure set forth in
section 5 of Revenue Procedure 96-60, 1996-2 C.B. 399, with respect to wage
reporting.
SECTION 12. Treatment of Payments; Tax Gross Up.
12.1. Treatment of Tax Indemnity and Tax Benefit Payments. In the absence
of any change in tax treatment under the Code or other applicable Tax Law,
any Tax indemnity payments or Tax Benefit payments made by a Company under
Section 5 shall be reported for Tax purposes by the payor and the recipient
as distributions or capital contributions, as appropriate, occurring
immediately before the Distribution on the Distribution Date, but only
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to the extent the payment does not relate to a Tax allocated to the payor in
accordance with Treasury Regulation Section 1.1502-33(d) (or under
corresponding principles of other applicable Tax Laws).
12.2. Tax Gross Up. If notwithstanding the manner in which Tax indemnity
payments and Tax Benefit payments were reported, there is an adjustment to the
Tax liability of a Company as a result of its receipt of a payment pursuant to
this Agreement, such payment shall be appropriately adjusted so that the amount
of such payment, reduced by the amount of all Income Taxes payable with respect
to the receipt thereof (but taking into account all correlative Tax Benefits
resulting from the payment of such Income Taxes), shall equal the amount of the
payment which the Company receiving such payment would otherwise be entitled to
receive pursuant to this Agreement.
12.3. Interest Under This Agreement. Anything herein to the contrary
notwithstanding, to the extent one Company ("indemnitor") makes a payment of
interest to another Company ("indemnitee") under this Agreement with respect to
the period from the date that the indemnitee made a payment of Tax to a Tax
Authority to the date that the indemnitor reimbursed the indemnitee for such Tax
payment, or with respect to the period from the date that the indemnitor
received a Tax Benefit to the date indemnitor paid the indemnitee with respect
to such Tax Benefit, the interest payment shall be treated as interest expense
to the indemnitor (deductible to the extent provided by law) and as interest
income by the indemnitee (includible in income to the extent provided by law).
The amount of the payment shall not be adjusted under Section 12.2 to take into
account any associated Tax Benefit to the indemnitor or increase in Tax to the
indemnitee.
SECTION 13. Disagreements. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the matter
will be referred to an accounting firm acceptable to each of the parties (the
"Accounting Firm"). The Accounting Firm shall
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<PAGE> 34
furnish written notice to the parties of its resolution of any such disagreement
as soon as practical, but in any event no later than 45 days after its
acceptance of the matter for resolution. Any such resolution by the Accounting
Firm will be conclusive and binding on all parties to this Agreement. In
accordance with Section 15, each party shall pay its own fees and expenses
(including the fees and expenses of its representatives) incurred in connection
with the referral of the matter to the Accounting Firm. All fees and expenses of
the Accounting Firm in connection with such referral shall be shared equally by
the parties affected by the matter.
SECTION 14. Late Payments. Any amount owed by one party to another party
under this Agreement which is not paid when due shall bear interest at the Prime
Rate plus two percent, compounded on each March 31, June 30, September 30 and
December 31, from the due date of the payment to the date paid. To the extent
interest required to be paid under this Section 14 duplicates interest required
to be paid under any other provision of this Agreement, interest shall be
computed at the higher of the interest rate provided under this Section 14 or
the interest rate provided under such other provision.
SECTION 15. Expenses. Except as provided in Section 14, each Company and
its Affiliates shall bear their own expenses incurred in connection with
preparation of Tax Returns, Tax Contests, and other matters related to Taxes
under the provisions of this Agreement.
SECTION 16. General Provisions.
16.1. Notices. All notices and other communications hereunder shall be in
writing and shall be delivered in person, by telecopy, by express or overnight
mail delivered by a nationally recognized air courier (delivery charges
prepaid), or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
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<PAGE> 35
(a) If to Cabot, to:
Cabot Corporation
75 State Street
Boston, Massachusetts 02109
Attention: Chief Financial Officer
Telecopy No.: (617) 642-6281
With a copy to:
Law Department
Cabot Corporation
75 State Street
Boston, Massachusetts 02109
Attention: General Counsel
Telecopy No.: (617) 342-6039
(b) If to CMC, to:
Cabot Microelectronics Corporation
870 North Commons Drive
Aurora, Illinois 60504
Attention: President
Telecopy No.: (630) 375-5593
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above. Any
notice or communication delivered in person shall be deemed effective on
delivery or when delivery is refused. Any notice or communication sent by
telecopy or by air courier shall be deemed effective on the first Business Day
at the place at which such notice or communication is received following the day
on which such notice or communication was sent.
16.2. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall
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constitute one and the same agreement. The Agreement may be delivered by
facsimile transmission of a signed copy thereof.
16.3. Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon the parties hereto and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Except with respect to a merger of either party, neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
either party hereto without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed; provided, however, that
Cabot and CMC may assign their respective rights, interests, duties, liabilities
and obligations under this Agreement to any of their respective subsidiaries,
but such assignment shall not relieve Cabot or CMC, as the assignee, of its
obligations hereunder. The schedules attached hereto or referred to herein are
an integral part of this Agreement and are hereby incorporated into this
Agreement and made a part hereof as if set forth in full herein.
16.4. Dispute Resolution. Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on contract, tort, or
otherwise (collectively, "Disputes"), shall be exclusively governed by and
settled in accordance with the provisions of Section 13 and this Section 16.5.
The parties hereto shall use all commercially reasonable efforts to settle all
Disputes without resorting to mediation, arbitration, litigation or other third
party dispute resolution mechanisms. If any Dispute remains unsettled, the
parties hereby agree to mediate such Dispute using a mediator reasonably
acceptable to all parties involved in such Dispute. If the parties are unable to
resolve such dispute through mediation, each party will be free to commence
proceedings for the resolution thereof. No party shall be entitled to
consequential, special, exemplary or punitive damages.
16.5. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such
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<PAGE> 37
prohibition or unenforceability without invalidating the remaining provisions
hereof. Any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
16.6. Waiver. The observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but such waiver shall
be effective only if it is in writing signed by the party against which such
waiver is to be asserted. Unless otherwise expressly provided in this Agreement,
no delay or omission on the part of any party in exercising any right or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any right or privilege under this Agreement
operate as a waiver of any other right or privilege under this Agreement nor
shall any single or partial exercise of any right or privilege preclude any
other or further exercise thereof or the exercise of any other right or
privilege under this Agreement. No failure by either party to take any action or
assert any right or privilege hereunder shall be deemed to be a waiver of such
right or privilege in the event of the continuation or repetition of the
circumstances giving rise to such right unless expressly waived in writing by
the party against whom the existence of such waiver is asserted.
16.7. Amendment. This Agreement may not be amended or modified
in any respect except by a written agreement signed by both of the parties
hereto.
16.8. Authority. Each of the parties hereto represents to the other
that (a) it has the corporate power and authority to execute, deliver and
perform this Agreement, (b) the execution, delivery and performance of this
Agreement by it has been duly authorized by all necessary corporate action, (c)
it has duly and validly executed and delivered this Agreement, and (d) this
Agreement is a legal, valid and binding obligation, enforceable against it in
accordance with its terms subject to applicable bankruptcy, insolvency,
reorganization,
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moratorium or other similar laws affecting creditors' rights generally and
general equity principles.
16.9. Interpretation. The headings contained in this Agreement, in
any Schedule hereto and in the table or contents to this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule but
not otherwise defined therein, shall have the meaning assigned to such term in
this Agreement. When a reference is made in this Agreement to an Article or a
Section or Schedule, such reference shall be to an Article or Section of, or a
Schedule to, this Agreement unless otherwise indicated.
16.10. Effective Time. This Agreement shall become effective upon
the closing of CMC's Initial Public Offering.
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<PAGE> 39
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by the respective officers as of the date set forth above.
CABOT CORPORATION
By: /s/ Samuel W. Bodman
--------------------------
Name: Samuel W. Bodman
Title: Chairman and CEO
CABOT MICROELECTRONIC CORPORATION
By: /s/ Matthew Neville
--------------------------
Name: Matthew Neville
Title: President and CEO
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<PAGE> 1
Exhibit 10.4
MANAGEMENT SERVICES AGREEMENT
DATED AS OF MARCH 28, 2000,
BY AND BETWEEN
CABOT CORPORATION
and
Cabot Microelectronics Corporation
<PAGE> 2
Exhibit 10.4
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "Agreement") is executed as of
the 28th day of March, 2000 by and between Cabot Corporation, a Delaware
corporation ("Cabot"), and Cabot Microelectronics Corporation, a Delaware
corporation ("CMC"). Notwithstanding the execution date hereof, this Agreement
shall become effective upon the date of the Initial Public Offering (as defined
below).
RECITALS
WHEREAS, CMC is issuing shares of Common Stock, $.001 par value per
share ("Common Stock"), to the public in an offering registered under the
Securities Act of 1933, as amended;
WHEREAS, Cabot has heretofore directly or indirectly provided certain
administrative, financial, management and other services to CMC and to its
predecessor, the Microelectronics Materials Division of Cabot;
WHEREAS, on the terms and subject to the conditions set forth herein,
CMC desires to retain Cabot as an independent contractor to provide, directly or
indirectly, certain of those services to CMC after the Contribution Date (as
defined below); and
WHEREAS, on the terms and subject to the conditions set forth herein,
Cabot desires to provide, directly or indirectly, such services to CMC.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Cabot and CMC, for themselves,
their successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. As used in this Agreement, the following
terms will have the following meanings, applicable both to the singular and the
plural forms of the terms described:
"Agreement" has the meaning ascribed thereto in the preamble hereto, as
such agreement may be amended and supplemented from time to time in accordance
with its terms.
"Cabot Entities" means Cabot and its Subsidiaries and "Cabot Entity"
shall mean any of the Cabot Entities.
"Cabot Indemnified Person" has the meaning ascribed thereto in Section
4.01.
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<PAGE> 3
"Contribution Date" shall have the meaning ascribed thereto in the
Separation Agreement.
"Distribution Date" means any date or dates, as the case may be,
determined by Cabot, in its sole and absolute discretion, to be a date on which
shares of CMC common stock held by Cabot are distributed in connection with the
Distribution (as defined in the Initial Public Offering and Distribution
Agreement).
"Initial Public Offering" means the initial public offering by CMC of
shares of CMC common stock as contemplated by the IPO Registration Statement (as
defined in the Initial Public Offering and Distribution Agreement).
"MMD Business" has the meaning ascribed to such term in the Separation
Agreement.
"Outsourced Service" has the meaning ascribed thereto in Section 2.03.
"Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government (and
any department or agency thereof) or other entity.
"Separation Agreement" means the Master Separation Agreement, of even
date herewith, among Cabot and certain of its subsidiaries and CMC pursuant to
which, among other things, the MMD Business will be separated from the business
and operations of Cabot.
"Service Charges" has the meaning ascribed thereto in Section 3.01(c).
"Services" has the meaning ascribed thereto in Section 2.01.
"Subsidiary" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting capital stock or other voting ownership interests is owned or
controlled directly or indirectly by such Person or by one or more of the
Subsidiaries of such Person or by a combination thereof; PROVIDED, HOWEVER, that
any reference in this Agreement to a Subsidiary or Subsidiaries of Cabot shall
not include CMC.
Section 1.02. INTERNAL REFERENCES. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and references
to the parties shall mean the parties to this Agreement.
ARTICLE II
PURCHASE AND SALE OF SERVICES
Section 2.01. PURCHASE AND SALE OF SERVICES. On the terms and subject
to the conditions set forth in this Agreement and in consideration of the
Service Charges
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<PAGE> 4
described below, Cabot agrees to provide to CMC, and CMC agrees to purchase from
Cabot, the services described in Schedule I (the "Services"). At its option,
Cabot may cause any Service it is required to provide hereunder to be provided
by any Cabot Entity. Unless otherwise specifically agreed by Cabot and CMC, the
Services to be provided by Cabot hereunder shall be substantially similar in
scope, quality and nature to those provided to CMC prior to the Contribution
Date and shall be performed by the same or similarly qualified personnel;
PROVIDED, HOWEVER, that the selection of personnel to perform the Services shall
be at the sole discretion of Cabot; and PROVIDED, FURTHER, that, except as
expressly provided in this Agreement, Cabot shall not be required to materially
increase the volume, scope or quality of the Services provided to CMC beyond
that which has been provided to the Microelectronics Materials Division of Cabot
prior to the Contribution Date.
Section 2.02. ADDITIONAL SERVICES. In addition to the Services to be
provided by Cabot pursuant to Section 2.01, if requested by CMC, and to the
extent that Cabot and CMC may mutually agree in writing, Cabot shall provide
additional services (including services not provided by Cabot to the
Microelectronics Materials Division of Cabot prior to the Contribution Date) to
CMC. The scope of any such services, as well as the term, costs and other terms
and conditions applicable to such services, shall be as mutually agreed by Cabot
and CMC. Nothing herein shall create any obligation on the part of Cabot to
provide any additional services.
Section 2.03. SERVICES PERFORMED BY THIRD PARTIES. At its option, Cabot
may cause any Service it is required to provide hereunder to be provided by any
third party that is providing, or may from time to time provide, the same or
similar services for Cabot (an "Outsourced Service"). Cabot shall remain
responsible, in accordance with the terms of this Agreement, for performance of
any Service it causes to be so provided.
Section 2.04. IMPRACTICABILITY AND FORCE MAJEURE. Cabot shall not be
required to provide any Service to the extent the performance of such Service
becomes impracticable as a result of a cause or causes outside the control of
Cabot or to the extent the provision of such Service would require Cabot to
violate any applicable laws, rules or regulations. Cabot shall have no
obligation to perform or cause the Services to be performed if its failure to do
so is caused by or results from any act of God, governmental action, natural
disaster, strike, failure of essential equipment or any other cause or
circumstance beyond the control of Cabot or, if applicable, third party
providers of services to Cabot (an "Event of Force Majeure"). Cabot will notify
CMC of any Event of Force Majeure affecting its Services to CMC. Cabot agrees
that following any Event of Force Majeure, CMC shall have no obligation to pay
for the Services affected thereby and Cabot will use its reasonable best efforts
to restore such Services.
ARTICLE III
SERVICE CHARGES
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<PAGE> 5
Section 3.01. SERVICE CHARGES(a) The charge for each Service provided
to CMC hereunder directly by Cabot or any Cabot Entity shall be equal to all
costs reasonably incurred by Cabot or any Cabot Entity in providing such
Service. Such costs shall include, but are not limited to, appropriate
allocation of overhead costs, personnel costs (e.g., compensation and fringe
benefits ), travel, office costs, and incentive compensation costs associated
with functions performing such Services.
(b) The charge for each Outsourced Service provided to CMC hereunder
shall be equal to all costs reasonably incurred by Cabot or any Cabot Entity in
providing such Outsourced Service, including, without limitation, any reasonable
third-party costs and expenses incurred by Cabot or any Cabot Entity on behalf
of CMC. If Cabot incurs third-party costs or expenses on behalf of CMC as well
as any Cabot Entity, Cabot will allocate any such costs or expenses in good
faith between CMC and the various Cabot Entities on behalf of which such costs
or expenses were incurred as Cabot shall determine in the exercise of its
reasonable judgment. Cabot shall apply usual and accepted accounting conventions
in making such allocations and Cabot or its agents shall keep and maintain such
books and records as may be reasonably necessary to make such allocations. Cabot
shall make copies of such books and records available to CMC upon request and
with reasonable notice.
(c) The parties intend that the Service charges referred to in
paragraphs (a) and (b) above (collectively, the "Service Charges") will allow
Cabot and any Cabot Entity to recover the fully allocated costs of providing the
Services and Outsourced Services hereunder plus all out-of-pocket, third-party
costs, charges and expenses, but without any profit to Cabot or any Cabot
Entity.
Section 3.02. INVOICING AND SETTLEMENT OF COSTS. (a) Cabot shall
invoice CMC for all Service Charges for each calendar month within thirty (30)
days following the end of such month, provided that any failure by Cabot to
provide an invoice within such time period shall not relieve CMC of its
obligation to pay an invoice received after such date. All invoices shall
reflect in reasonable detail a description of the Service performed.
(b) Subject to Section 3.02(c) below, CMC shall pay within thirty (30)
days following its receipt of any invoice from Cabot pursuant to paragraph (a),
without set-off, all amounts invoiced by Cabot during the preceding calendar
month. If CMC fails to pay any monthly payment within sixty (60) days following
its receipt of any invoice from Cabot pursuant to paragraph (a), CMC shall pay,
in addition to the amount indicated in such invoice, interest on such amount at
the prime interest rate as published in the Wall Street Journal plus 1% per
annum compounded monthly for the period such amount remains unpaid.
(c) In the event of a dispute as to the propriety of the amount
invoiced, CMC shall pay all undisputed amounts, but shall be entitled to
withhold payment of any amount in dispute (and shall not be obligated to pay
interest on the amount so withheld) and shall endeavor to notify Cabot within
ten (10) business days from receipt of any disputed
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<PAGE> 6
invoice of the disputed amount and the reasons each such charge is disputed by
CMC, provided that the failure to so notify Cabot within such time period shall
not prevent CMC from disputing such invoice. Cabot shall provide to CMC, or
shall cause its Subsidiaries to so provide, records relating to the disputed
amount so as to enable the parties to resolve the dispute. The parties shall use
reasonable efforts to resolve any such dispute promptly.
(d) Any invoice or payment not disputed in writing by either party
within 180 days of such invoice or payment, as the case may be, shall be
considered final and no longer subject to adjustment.
ARTICLE IV
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 4.01. LIMITATION OF LIABILITY. CMC agrees that Cabot and each
of its Subsidiaries and their respective directors, officers, agents and
employees (each, a "Cabot Indemnified Person") shall only be liable to CMC for
or in connection with the Services rendered or to be rendered by any Cabot
Indemnified Person pursuant to this Agreement, the transactions contemplated
hereby or any Cabot Indemnified Person's actions or inactions in connection with
any such Services or transactions for claims, damages, losses, obligations,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees) resulting from, or arising out of, breach of contract, gross
negligence or willful misconduct on the part of any Cabot Indemnified Person.
Section 4.02. INDEMNIFICATION OF CABOT BY CMC. CMC agrees to indemnify
and hold harmless each Cabot Indemnified Person from and against any claims,
damages, losses, obligations, liabilities, costs and expenses (including,
without limitation, reasonable attorneys' fees) arising out of or in connection
with Services rendered or to be rendered by any Cabot Indemnified Person
pursuant to this Agreement, the transactions contemplated hereby or any Cabot
Indemnified Person's actions or inactions in connection with any such Services
or transactions except for claims, damages, losses, obligations, liabilities,
costs and expenses (including, without limitation, reasonable attorneys' fees)
resulting from, or arising out of, breach of contract, gross negligence or
willful misconduct on the part of any Cabot Indemnified Person.
ARTICLE V
TERM AND TERMINATION
Section 5.01. TERM. (a) This Agreement shall commence on the date of
the Initial Public Offering, and shall continue until the earlier of (i) the
Distribution Date or (ii) two years after the date of the Initial Public
Offering (the "Initial Term"); provided, however, that Cabot and CMC may, by
mutual agreement, provide for the continuation of certain services after the
Distribution Date.
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<PAGE> 7
(b) Notwithstanding Section 5.02(a), the obligation of Cabot to provide
legal Services under this Agreement shall automatically terminate on the date
that Cabot ceases to own shares of Common Stock representing more than 50% of
the outstanding shares of Common Stock.
(c) Either party may terminate this Agreement with respect to any one
or more of the Services if the other party shall have failed to perform any of
its material obligations under this Agreement relating to any such Service or
Services, the aggrieved party has notified the other party in writing of such
failure, and such failure shall have continued for a period of 30 days after
receipt by the other party of notice of such failure.
Section 5.02. EFFECT OF TERMINATION. Other than as required by law,
upon termination of any Service pursuant to Section 5.01 or Section 5.02, Cabot
will have no further obligation to provide the terminated Service (or any
Service, in the case of termination of this Agreement) and CMC will have no
obligation to pay any fees relating to such Service or make any other payments
hereunder; PROVIDED that notwithstanding such termination, (i) CMC shall remain
liable to Cabot for fees owed and payable in respect of any Service provided
prior to the effective date of the termination and (ii) the provisions of
Articles III, V and VI shall survive any such termination.
ARTICLE VI
MISCELLANEOUS
Section 6.01. PERFORMANCE UNDER ANCILLARY AGREEMENTS. Notwithstanding
anything to the contrary contained herein, CMC shall not be charged anything
under this Agreement for any Services that are specifically required to be
performed under the Separation Agreement or any other Ancillary Agreement (as
defined in the Separation Agreement) and any such other Services shall be
performed and charged for in accordance with the terms of the Separation
Agreement or such other Ancillary Agreement.
Section 6.02. NO AGENCY. Nothing in this Agreement shall constitute or
be deemed to constitute a partnership or joint venture between the parties
hereto or constitute or be deemed to constitute any party the agent or employee
of the other party for any purpose whatsoever and neither party shall have
authority or power to bind the other or to contract in the name of, or create a
liability against, the other in any way or for any purpose.
Section 6.03. COMPANY AS SOLE BENEFICIARY. CMC acknowledges that the
Services shall be provided only with respect to the business of CMC and its
Subsidiaries as currently operated and as currently projected to be operated or
as mutually agreed by the parties hereto. CMC shall not request performance of
any Service for the benefit of any entity other than CMC and its Subsidiaries.
CMC represents and agrees
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<PAGE> 8
that CMC will use the Services only in accordance with all applicable federal,
state and local laws and regulations, and in accordance with past practices.
Cabot reserves the right to take all actions, including termination of any
particular Service, that Cabot reasonably believes to be necessary to assure
compliance with applicable laws and regulations. Cabot will notify CMC promptly
of the reasons for any such termination of Services.
Section 6.04. ENTIRE AGREEMENT. This Agreement (including the Schedule
constituting a part of this Agreement) and any other writing signed by the
parties that specifically references this Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
Section 6.05. INFORMATION. Subject to applicable law and privileges,
each party hereto covenants and agrees to provide the other party with all
information regarding itself and transactions under this Agreement that the
other party reasonably believes are required to comply with all applicable
federal, state, county and local laws, ordinances, regulations and codes,
including, but not limited to, securities laws and regulations.
Section 6.06. CONFIDENTIALITY. Each of Cabot and CMC agree to keep
confidential and not disclose, and shall cause their respective subsidiaries and
affiliates to keep confidential and not disclose, to any party or use for any
purpose (other than the performance of this Agreement), any proprietary or other
confidential information of the other party which is received pursuant to this
Agreement ("Confidential Information"). Confidential Information shall be
subject to the restrictions of this paragraph only if it is marked as
confidential or proprietary or, if not disclosed in tangible form, the
disclosing party notifies the recipient of its confidential or proprietary
nature prior to its disclosure. For purposes of this Agreement, Confidential
Information of a party does not include, and a party and a party's subsidiaries
and affiliates will have no obligations under this provision with respect to,
any information of the other party or any subsidiary or affiliate of the other
party (the other party and subsidiaries and affiliates of the other party being
referred to as the "receiving party") which:
(i) is already known to the receiving party from a source other than
the disclosing party as evidenced by competent proof thereof; or
(ii) is or becomes publicly known through no wrongful act of the
receiving party (in which event the receiving party's obligations under this
Agreement in respect thereto shall terminate on the date such information enters
the public domain); or
(iii) is rightfully received by the receiving party from a third party
without violation of any obligations of confidentiality owed by the third party
to the disclosing party; or
(iv) is disclosed by the disclosing party to a third party without
restrictions on the third party's right to use or disclose such information; or
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<PAGE> 9
(v) is independently developed by employees or consultants of the
receiving party without use of or reference to the disclosing party's
Confidential Information; or
(vi) is approved for release by written authorization of the disclosing
party
Section 6.07. PROTECTIVE ARRANGEMENTS. In the event that any party
hereto (or any of its Subsidiaries) either determines on the advice of its
counsel that it is required to disclose any information pursuant to applicable
law or receives any demand under lawful process or from any governmental
department, commission, board, bureau, agency or official to disclose or provide
information of any other party hereto (or any of its Subsidiaries) that is
subject to the confidentiality provisions hereof, such party shall notify the
other party prior to disclosing or providing such information and shall
cooperate at the expense of the requesting party in seeking any reasonable
protective arrangements requested by such other party. Subject to the foregoing,
the party that received such request may thereafter disclose or provide
information to the extent required by such law (as so advised by counsel) or by
lawful process or such governmental department, commission, board, bureau,
agency or official.
Section 6.08. NOTICES. Any notice, instruction, direction or demand
under the terms of this Agreement required to be in writing will be duly given
upon delivery, if delivered by hand, facsimile transmission, intercompany mail,
or mail, to the following addresses:
(a) If to Cabot, to:
Cabot Corporation
75 State Street
Boston, Massachusetts 02109
Attention: Paul Zack
Telecopy No.:617-342-6303
(b) If to CMC, to:
Cabot Microelectronics Corporation
870 North Commons Drive
Aurora, Illinois 60504
Attention: Daniel Wobby
Telecopy No.:630-375-5593
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
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Section 6.08. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the substantive internal laws of the State of
Delaware.
Section 6.09. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision, and the rights and
obligations of each party shall be construed and enforced accordingly.
Section 6.10. AMENDMENT. This Agreement may only be amended by a
written agreement executed by both parties hereto.
Section 6.11. COUNTERPARTS. This Agreement may be executed in separate
counterparts.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized representatives.
CABOT CORPORATION
By: /s/ Samuel W. Bodman
---------------------------------------------
Name: Samuel W. Bodman
Title: Chairman and Chief Executive Officer
CABOT MICROELECTRONICS CORPORATION
By: /s/ Matthew Neville
---------------------------------------------
Name: Matthew Neville
Title: President
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<PAGE> 12
SCHEDULE I
Cabot Corporation ("Cabot")
Cabot Microelectronics Corporation ("CMC")
MANAGEMENT SERVICES
POST IPO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SERVICE
AREA DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
Corporate Continue to provide general corporate affairs services
Affairs commensurate with past efforts
- --------------------------------------------------------------------------------
SH&E Product Stewardship: MSDS development; product regulatory
status determination; product notification/product
registration; product toxicological determination; support
during transition to new CMC. Cabot Corporate SHE
Compliance Assurance Reviews. SH&E policies and
procedures, technical guidance. Safety, Industrial
Hygiene Process Safety Management.
- --------------------------------------------------------------------------------
Information Planning: Requirements definition, architecture & software
Services acquisition, infrastructure design & vendor selection,
contract negotiation support, and implementation. Establish
spin-off environment (up to 1.25 FTE's): Applications;
integrator selection, co-lead project, participate in
CRP's, data bridging, technical support, Infrastructure;
support implementation, data design, project plan review,
vendor management.
- --------------------------------------------------------------------------------
Legal Continue to provide general corporate, intellectual
property, and legal management services commensurate with
past efforts..
- --------------------------------------------------------------------------------
Human Continue to provide general human resources commensurate
Resources with past efforts. Assistance setting up all CMC benefit
plans.
- --------------------------------------------------------------------------------
Finance Continue to provide general finance services commensurate
with past efforts.
- --------------------------------------------------------------------------------
Investor Communication of CMC's strategy and performance to
Relations investor community.
- --------------------------------------------------------------------------------
Tax Continue to provide general tax services commensurate with
past efforts.
- --------------------------------------------------------------------------------
Treasury Provide advice on other treasury-related issues (FX mgmt,
leasing, letters of credit, investments/pension, bank
relationships). Put in place cash mgmt structure and
systems (collection & disbursements). Open
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C>
bank accounts in the U.S. and abroad. Negotiate and put in
place credit agreements with banks.
- --------------------------------------------------------------------------------
Controller Cabot Corp. compliance reporting (government and SEC
filings, debt covenants). Accounting policies and
procedures, U.S. GAAP, and technical accounting guidance.
Ad hoc SEC reporting guidance. Coordination of Cabot & CMC
earnings release and SEC filings.
- --------------------------------------------------------------------------------
Insurance Management and allocation of corporate insurance to CMC,
including but not limited to, excess liability, general
liability, workers comp, fire & business interruption,
auto, and aircraft insurance premiums.
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE> 1
Exhibit 10.5
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406, promulgated under the Securities Act of 1933, as
amended.
FUMED METAL OXIDE SUPPLY AGREEMENT
This FUMED METAL OXIDE SUPPLY AGREEMENT (this "Agreement"), executed this
20th day of January, 2000, is between Cabot Corporation ("Cabot"), a Delaware
corporation, and Cabot Microelectronics Corporation ("CMC"), a Delaware
corporation. Notwithstanding the execution date hereof, this Agreement shall
become effective upon the date of the initial public offering by CMC of shares
of CMC common stock.
WHEREAS, Cabot and certain of its subsidiaries and CMC will be parties to
a Master Separation Agreement, (the "Master Separation Agreement"), which will
provide, in part, for the separation from Cabot, of the business, assets and
liabilities of the Microelectronics Materials Division of Cabot (the "MMD
Business") and the transfer of the MMD Business to CMC;
WHEREAS, in the past, the Microelectronics Materials Division of Cabot
has purchased various fumed metal oxide products from Cabot;
WHEREAS, CMC desires to have Cabot provide to CMC certain fumed metal
oxide products after the separation of the MMD Business; and
WHEREAS, Cabot desires to provide such fumed metal oxides to CMC after
the separation of the MMD Business;
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. TERM
This Agreement shall commence on the date of the initial public offering
by CMC of shares of CMC common stock, and shall continue until June 30, 2005
(the "Initial Term"). Unless either party shall give a notice of nonrenewal
prior to December 31, 2003, this Agreement shall continue after the Initial Term
until terminated by either party by a written notice of termination, which shall
terminate this Agreement effective on the first June 30 or December 31 more than
18 months after the date such notice is delivered. The Initial Term, together
with any continuations, are referred to herein as the "Term". Each year of the
Term beginning on the effective date or an anniversary thereof is referred to
herein as a "Term Year", including the stub period, if any, between the last
anniversary of the effective date and the end of the Term.
<PAGE> 2
SECTION 2. PRODUCTS
2.1 Purchase and Sale.
(a) Subject to the terms and conditions of this Agreement, during the
Term, Cabot shall provide to CMC, and CMC shall purchase from Cabot, the
Products (as defined below) in such quantities as specified by CMC, subject to
Sections 2.3 through 2.5 below. "Products" means:
(i) the fumed silica of the types set forth on Schedule A hereto (the
"Fumed Silica"), which shall conform to the specifications, formulae
and processes set forth on Schedule A hereto; and
(ii) the fumed alumina of the types set forth on Schedule B hereto (the
"Fumed Alumina" and together with the Fumed Silica, the "Fumed Metal
Oxides"), which shall conform to the specifications, formulae and
processes set forth on Schedule B hereto.
(b) Any amendment to Schedule A or Schedule B shall require the consent of
both CMC and Cabot. Unless otherwise agreed to by Cabot, any increase in costs
incurred by Cabot in manufacturing Products to comply with changes requested by
CMC to the specifications as set forth on Schedule A or Schedule B shall be paid
by CMC.
2.2 Forecasts.
CMC shall provide Cabot with forecasts (the "Forecasts") of the quantities
of Fumed Metal Oxides that CMC expects to purchase from Cabot (the "Forecasted
Quantities"). The Forecasts shall identify by grade, the Forecasted Quantities
and the Cabot facility or facilities that will produce and deliver to CMC such
Forecasted Quantities (including the volume to be made at each plant). CMC shall
provide the following Forecasts to Cabot:
(a) not more than sixty (60) but not less than thirty (30) days prior to
each January 1, April 1, July 1 and October 1 during the Term, a Forecast
indicating the Forecasted Quantity for each month of the calendar quarter
commencing on such January 1, April 1, July 1 and October 1 (the "Quarterly
Forecast"); provided, however, that in such Quarterly Forecast, the Forecasted
Quantity for any month may not exceed the Forecasted Quantity for the previous
month by more than 20%;
(b) not more than sixty (60) but not less than thirty (30) days prior to
each July 1 and January 1 during the Term, a semi-annual Forecast indicating the
Forecasted Quantity for the six (6) month period commencing on such July 1 and
January 1 (the "Six Month Forecast");
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<PAGE> 3
(c) not more than sixty (60) but not less than thirty (30) days prior to
each July 1, a one (1) year Forecast indicating the Forecasted Quantity for the
calendar year commencing on the following July 1 (the "Annual Forecast"); and
(d) on or around each July 1, an eighteen (18) month Forecast indicating
the Forecasted Quantity for the eighteen month period commencing on the
following July 1 (the "18 Month Forecast"); provided, however, that CMC shall
provide Cabot with a revised eighteen (18) Month Forecast for the remainder of
the eighteen (18) month period covered by the last 18 Month Forecast as soon
reasonably practicable after CMC becomes aware of any material changes to such
18 Month Forecast.
For the purposes of this Agreement, Forecasts delivered by CMC to Cabot
after the execution hereof shall, upon the effectiveness of this Agreement, be
deemed to have been delivered hereunder.
With respect to planned shutdowns of Cabot's manufacturing facilities,
the parties shall work together and cooperate with each other regarding
necessary adjustments to forecasts and delivery schedules hereunder.
2.3 Cabot's Maximum Supply Obligations.
(a) The obligation of Cabot to supply Products to CMC under this Agreement
shall be subject to each of the following maximum monthly volume limitations:
(i) the maximum monthly volume of Fumed Silica from Cabot's Tuscola,
Illinois facility (the "Tuscola Plant") shall be [ ] pounds per month;
(ii)the maximum monthly volume of Fumed Alumina from Cabot's Tuscola,
Illinois pilot facility (the "Tuscola Pilot Plant") shall be [ ] pounds
per month; and
(iii) the maximum monthly volume of Fumed Silica from Cabot's Barry, Wales
facility (the "Barry Plant") shall be [ ] pounds per month.
In clarification of the above, any volumes of Fumed Silica and/or Fumed
Alumina supplied by Cabot under the Dispersions Services Agreement, of even
date herewith, shall not be considered in calculating the maximum volumes
of Fumed Silica and/or Fumed Alumina Cabot is obligated to supply
hereunder.
(b) In addition to the volume limitations set forth in 2.3(a) above, in
the event that CMC orders volumes of fumed silica from Cabot in excess of
Forecasted Quantities, Cabot shall not be obligated to supply to CMC such
Products in excess of the following volumes:
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<PAGE> 4
(i) for any calendar quarter and any plant, [ ]% of the volumes of Fumed
Silica for such plant set forth in CMC's Quarterly Forecast;
(ii) for any calendar half year (beginning on or after July 1, 2000) and
for any plant, [ ]% of the volumes of Fumed Silica for such plant
set forth in CMC's Sixth Month Forecast; and
(iii) for any year beginning July 1 and for any plant, [ ]% of the volumes
of Fumed Silica for such plant set forth in CMC's Annual Forecast.
(c) The maximum supply obligations set forth in Sections 2.3 (a) and (b)
are referred to herein as the "Maximum Volumes". If CMC shall request volumes of
Fumed Silica or Fumed Alumina in excess of the Maximum Volumes described above,
Cabot shall use commercially reasonable efforts to supply such volumes ("Excess
Volumes"); provided that Cabot shall not be obligated to breach its contractual
obligations with other customers or to take any actions which it deems
detrimental to its business, in order to supply CMC with Excess Volumes.
2.4 Minimum Volumes. CMC shall be obligated to purchase from Cabot during
each six month period covered by a Six Month Forecast a "Minimum Volume,"
meaning at least 90% of the aggregate volumes of Fumed Silica forecasted to be
purchased by CMC as set forth in each Six Month Forecast. Cabot and CMC
recognize that damages for CMC's failure to purchase Minimum Volumes would be
difficult to ascertain and prove. Cabot and CMC agree that if, during any six
month period CMC fails to purchase from Cabot the Minimum Volume of Fumed Silica
for such six month period, CMC shall pay to Cabot liquidated damages in an
amount equal to the product obtained by multiplying (i) the difference (in
pounds) between (x) the applicable Minimum Volume and (y) the amount of Fumed
Silica actually purchased by CMC during the relevant six month period times (ii)
$[ ]. Cabot and CMC agree that such liquidated damages are the sole and
exclusive remedy for CMC's failure to purchase Minimum Volumes. Cabot and CMC
further agree that such liquidated damages represent a reasonable estimate of
Cabot's damages and do not constitute a penalty.
2.5 Exclusivity; Exception Thereto.
(a) CMC shall purchase from Cabot all of the Fumed Metal Oxides necessary
to produce the products produced by CMC on the effective date of this Agreement.
With respect to products developed and produced by CMC after the effective date
of this Agreement, CMC shall not be obligated to purchase from Cabot any of the
Fumed Metal Oxides necessary to produce such products.
(b) During the Term of this Agreement, Cabot shall not knowingly, without
CMC's prior written consent, directly or indirectly, sell any Fumed Metal Oxides
to any
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<PAGE> 5
person or entity other than CMC for use in the production of any goods or
products that compete with any CMP (chemical mechanical polishing) consumable
goods and products produced by CMC.
(c) In the event CMC requests a change to a Product specification, which
change is necessary in order to achieve a material performance difference in
CMC's end product, and Cabot is not able or is unwilling to modify such Product,
CMC shall have the right to obtain such modified product from any third party,
subject to any intellectual property rights Cabot may have.
(d) Notwithstanding Section 2.5(a) above, in the event that Cabot fails
to supply CMC with its requirements for Products for any reason, CMC shall have
the right to obtain such Products from any third party, subject to any
intellectual property rights Cabot may have.
SECTION 3. PRICING
3.1 Prices. Cabot shall sell the Products to CMC in accordance with the
following prices (the "Prices"):
(a) Fumed Silica Price.
The price for Fumed Silica shall be equal to the Base Price (as
defined below) plus the Feedstock Adjustment (as defined below). The price of
Fumed Silica to be purchased shall be determined by the date the order therefor
is placed with Cabot, with respect to all volumes specified therein to be
delivered within 90 days after the date such order is placed, and by the date
specified for delivery, with respect to all volumes specified for delivery
thereafter.
The "Base Price" shall be $[ ] per pound during the first Term Year.
The Base Price shall increase by $[ ] per pound for each subsequent Term Year,
to be effective commencing on the first day of each subsequent Term Year.
The "Feedstock Adjustment" shall be calculated and applied every six (6)
months and is obtained by (i) calculating the difference between the New
Feedstock Cost per pound of fumed silica manufactured (as defined below) and the
Starting Feedstock Cost per pound of fumed silica manufactured (as defined
below) and (ii) dividing this difference by a yield factor of [ ], provided that
if the New Feedstock Cost is less than the Starting Feedstock Cost, the
Feedstock Adjustment shall be zero. The Feedstock Adjustment shall be calculated
and provided to CMC prior to each July1 and January 1 with respect to the
following six (6) month period and shall be based on CMC's Six Month Forecast
for such period as well as the historical feedstock cost information for the
most recent six month period ended May 31 (in the case of the July 1 adjustment)
and
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<PAGE> 6
November 30 (in the case of the January 1 adjustment).
The "New Feedstock Cost" shall be derived from the following
formula:
New Feedstock Cost = [ ]
Where:
A = pounds of fumed silica forecasted to be purchased by CMC
in the upcoming Six Month Forecast from the Tuscola plant.
B = pounds of fumed silica forecasted to be purchased by
CMC in the upcoming Six Month Forecast from the Barry plant.
C = Total "Delivered Cost" of all [ ] (other than [ ] used
in [ ] manufacturing) consumed in the manufacture of fumed
silica at the Tuscola plant during the applicable six (6)
month period divided by the total number of pounds of fumed
silica produced at the Tuscola plant (other than [ ] which was
toll manufactured), including off-quality material. As used
herein, the "Delivered Cost" of [ ] means the purchase price
paid by Cabot for such [ ], including transportation costs and
applicable sales and use taxes as well as price adjustments
related solely to the [ ], and excluding [ ] adjustments or
credits and handling costs, labor and depreciation.
D = Total "Delivered Cost" of all [ ] (other than [ ] used in
[ ] manufacturing) consumed in the manufacture of fumed
silica at the Barry plant during the applicable six (6) month
period divided by the total number of pounds of fumed silica
produced at the Barry plant (other than [ ] which was toll
manufactured), including off-quality material.
The "Starting Feedstock Cost" shall equal the total "Delivered Cost"
of all [ ] (other than [ ] used in [ ] manufacturing) consumed at the Tuscola
and Barry plant during the six (6) month period ended November 30, 1999 divided
by the total number of pounds of fumed silica produced at the Tuscola and Barry
plant (other than [ ] which was toll manufactured), including off-quality
material, during such period.
CMC shall have the right to have a recognized accounting firm audit
the books and records of Cabot necessary to verify the Feedstock Adjustment
provided above. Such accounting firm shall be obligated to keep any information
obtained during the audit of Cabot's books and records confidential and may
confirm to CMC only
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<PAGE> 7
whether, and to what extent, Cabot's calculations of the Feedstock Adjustment
deviate from the calculation of such accounting firm.
(b) Excess Volumes of Fumed Silica. The price for Excess Volumes of Fumed
Silica shall be as follows:
(1) Subject to Section 2.3(c) above, if Cabot has the production
capacity to produce the Excess Volumes of Fumed Silica at the times and in the
volumes requested by CMC without interfering with its supply of products for
other customers, Cabot shall produce such Excess Volumes and sell them to CMC at
the prices set forth in Section 3.1(a) hereof.
(2) Subject to Section 2.3(c) above, if Cabot would be required to
displace volumes intended for other customers, otherwise interfere with its
supply of products to other customers or obtain Products from other sources in
order to meet a request of CMC in respect of Excess Volumes of Fumed Silica, the
price for such Excess Volumes shall be determined by Cabot, provided that such
price shall not exceed [ ].
(c) Fumed Alumina Price.
Until Cabot shall begin commercial scale production of fumed alumina, the
price for fumed alumina shall be equal to $[ ] per pound. For purposes of this
agreement, "commercial scale production of fumed alumina" shall mean Cabot
having a fumed alumina production unit capable of producing fumed alumina at a
production rate greater than [ ] pounds per year. Upon commencement by Cabot of
such commercial scale production of fumed alumina, Cabot and CMC shall
renegotiate the price per pound of Fumed Alumina.
(d) In addition to the above described purchase prices for the fumed metal
oxides, MMD shall reimburse Cabot for all reasonable costs incurred by Cabot in
conducting analytical services requested by CMC for [ ].
3.2 Cost Savings. Cabot and CMC acknowledge that it is their intention to
decrease the costs associated with manufacturing the Products, and to share any
cost savings resulting from joint efforts equally between them (other than cost
savings with respect to packaging, which the parties agree shall not be passed
on to CMC). Cabot and CMC agree to discuss, from time to time, ways to jointly
decrease such costs.
SECTION 4. ORDERS, SHIPPING, DELIVERY AND PAYMENT
(a) Orders for Products shall be issued by CMC from time to time. Each
order shall specify the date(s) the products are to be delivered, which date(s)
shall be not less than ten (10) business days prior to the date the order is
received by Cabot. For purposes
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<PAGE> 8
of applying 2.3 and 2.4 only, each volume of Product shall be deemed to be in
the month specified for its shipment in CMC's order; and if no date is
specified, then in the month following the month in which the order therefor is
issued by CMC.
(b) All sales of Products under this agreement are made F.O.B. Cabot's
point of shipment. CMC shall be responsible for all transportation costs and
title and risk of loss shall pass to CMC upon delivery to carrier.
(c) All Products shall be prepared by Cabot for delivery to CMC, as the
case may be, including the necessary dunnage, to prevent damage during the
normal course of transportation.
(d) Cabot shall invoice CMC for the Products delivered to CMC during each
month by the fifteenth (15th) calendar day of the following month. Cabot shall
deliver such invoices to CMC by regular U.S. mail, or other methods such as
express U.S. mail, overnight courier or other means, if mutually acceptable.
(e) CMC shall pay each such invoice within fifteen (15) calendar days of
receipt thereof. Such payment shall be made by check or wire transfer in readily
available same day or next day funds denominated in United States dollars. If
payment is to be made by wire transfer, CMC shall request and Cabot shall
provide to CMC, wire transfer instructions.
SECTION 5. WARRANTIES
5.1 Warranty as to Products. Cabot represents and warrants to CMC that,
when shipped to CMC, the Products will conform in all respects to the
specifications then in effect and as then set forth in the materials specified
on Schedule A and Schedule B hereto. CABOT MAKES NO OTHER REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR ANY OTHER MATTER WITH RESPECT TO THE PRODUCTS, WHETHER
USED ALONE OR IN COMBINATION WITH OTHER SUBSTANCES, EVEN IF THE PURPOSES OR USES
OF SUCH PRODUCTS ARE KNOWN BY CABOT.
5.2 Remedies. If any Products do not conform in all respects to the
specifications then in effect and as then set forth on Schedule A and Schedule B
hereto, Cabot agrees to replace such Products with Products that conform to such
specifications. Subject to the following sentence, CMC shall not be obligated to
accept or pay for Products that do not conform to the specifications then in
effect for such Products. If any such non-conformity is the result of materials,
process specifications or formulae provided by CMC to Cabot, CMC shall pay Cabot
for the Products and such volumes
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<PAGE> 9
shall be included in determining the volumes of Products delivered by Cabot to
CMC hereunder. IN NO EVENT SHALL CABOT BE RESPONSIBLE OR LIABLE FOR ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING AS A RESULT OF ANY BREACH OF
WARRANTY IN RESPECT OF ANY PRODUCTS UNDER THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
SECTION 6. CONSENTS; NOTICES
Unless otherwise set forth herein, whenever any notice, consent or
approval is to be given in this Agreement, it must be in writing and delivered
in accordance with the provisions of this Section 6. Any such writing will be
duly given upon delivery, if delivered by hand, facsimile transmission or mail,
to the following addresses:
If to Cabot: Cabot Corporation
Business and Technical Center
Billerica, MA 01821
Attn: Fumed Metal Oxide Product Line Manager
Telecopier:
With a copy to:
Cabot Corporation
75 State Street
Boston, MA 02109
Attn: Law Department
Telecopier: 617-342-6039
If to CMC: Cabot Microelectronics Corporation
870 North Commons Drive
Aurora, IL 60504
Attn: Vice President of Operations
Telecopier: 630-375-5596
or to such other address as may be designated in writing by any of the parties
from time to time in accordance herewith.
SECTION 7. GENERAL
7.1 Severability. If any provision of this Agreement shall be found to be
invalid or unenforceable, then such provision or provisions shall not invalidate
or in any way affect the enforceability of the remainder of this Agreement and
such provision or
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<PAGE> 10
provisions shall be curtailed and limited to the extent necessary to bring the
Agreement within any legal requirement and the parties shall negotiate in good
faith with respect to an equitable modification of the provision or application
thereof held to be invalid.
7.2 Modification; Waivers. Except as expressly provided herein, this
Agreement may be modified or amended only with the written consent of each party
hereto. Neither party hereto shall be released from its obligations hereunder
without the written consent of the other party. The observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) by the party entitled to enforce such
term, but any such waiver shall be effective only if in a writing signed by the
party against which such waiver is to be asserted. Except as otherwise
specifically provided herein, no delay on the part of either party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of either party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
7.3 Succession. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and other
legal representatives and, to the extent that any assignment hereof is permitted
hereunder, their assignees.
7.4 Counterparts. This Agreement may be executed in counterparts.
7.5 Further Assurances. Each party agrees to provide any additional
documents and take any such further action as may be reasonably requested by the
other party in order to carry out the purpose and intent of this Agreement.
7.6 Entire Agreement. This Agreement contains the full and complete
undertaking and agreement between the parties hereto with respect to the sale of
fumed silica and fumed alumina by Cabot to CMC, and supersedes all other
agreements between Cabot and CMC, whether written or oral, except any
confidentiality agreements between the parties, which shall, to the extent such
agreements do not contradict the terms of this Agreement, continue in effect.
7.7 Headings. The headings of the sections and other subdivisions of this
Agreement are for convenient reference only. They shall not be used in any way
to govern, limit, modify, construe this Agreement or any part or provision
thereof nor otherwise be given any legal effect.
7.8 Assignees and Third Parties. This Agreement may not be assigned by
either party without the prior written consent of the other party and any
attempted
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<PAGE> 11
assignment without such consent shall be null and void; provided, however, that
Cabot may assign this Agreement to a subsidiary or affiliated company. In
addition, Cabot may make arrangements for the production and sale of Products
required hereunder to be manufactured and sold by a subsidiary or an affiliate,
including but not limited to Cabot Carbon Ltd. Such arrangements may take the
form of an assignment of certain rights and obligations hereunder or a
subcontract of certain obligations hereunder. Similarly, CMC may make
arrangements for the purchase of Products hereunder to be made by a subsidiary,
including but not limited to Cabot Microelectronics International Corporation.
Such arrangements may take the form of an assignment of certain rights and
obligations hereunder. However, all sales of Products pursuant to any such
arrangement shall be governed by the terms of this Agreement.
7.9 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of Delaware, without giving effect to
principles of conflicts or choice of laws of Delaware or of any other
jurisdiction.
7.10 Force Majeure. Each of the parties hereto shall be excused from
delays in performing or from failure to perform hereunder to the extent that
such delays or failures result from causes beyond the reasonable control of such
party, including, but not limited to, forces of nature, acts of God, strikes,
lockouts, wars, blockades, insurrections, riots, epidemics, restraints or
requirements of any government or government agency, civil disturbances,
explosions, breakage or accident to machinery or lines of pipe, unavailability
of raw material or supplies, strandings, perils of the sea, the binding order of
any court or governmental authority which has been resisted in good faith by all
reasonable means, and other cause, whether of the kind enumerated or otherwise,
not reasonably within the control of the party claiming suspension. Failure to
prevent or settle any strike shall not be considered to be a matter within the
control of the party claiming suspension. However, in order to be excused from
delay or failure to perform, such party must act diligently to remedy the cause
of such delay or failure.
7.11 Confidentiality. Each of Cabot and CMC agree to keep confidential and
not disclose, and shall cause their respective subsidiaries and affiliates to
keep confidential and not disclose, to any party or use for any purpose (other
than the performance of this Agreement), any proprietary or other confidential
information of the other party which is received pursuant to this Agreement
("Confidential Information"). Confidential Information shall be subject to the
restrictions of this paragraph only if it is marked as confidential or
proprietary or, if not disclosed in tangible form, the disclosing party notifies
the recipient of its confidential or proprietary nature prior to its disclosure.
For purposes of this Agreement, Confidential Information of a party does not
include, and a party and a party's subsidiaries and affiliates will have no
obligations under this provision with respect to, any information of the other
party or any subsidiary or affiliate of the other party (the other party and
subsidiaries and affiliates of the other party being referred
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<PAGE> 12
to as the "receiving party") which:
(i) is already known to the receiving party from a source other than the
disclosing party as evidenced by competent proof thereof; or
(ii) is or becomes publicly known through no wrongful act of the receiving
party (in which event the receiving party's obligations under this Agreement in
respect thereto shall terminate on the date such information enters the public
domain); or
(iii) is rightfully received by the receiving party from a third party
without violation of any obligations of confidentiality owed by the third party
to the disclosing party; or
(iv) is disclosed by the disclosing party to a third party without
restrictions on the third party's right to use or disclose such information; or
(v) is independently developed by employees or consultants of the
receiving party without use of or reference to the disclosing party's
Confidential Information; or
(vi) is approved for release by written authorization of the disclosing
party
7.12 Independent Contractors. CMC and Cabot are each independent
contractors. Nothing herein contained shall be construed to place CMC and Cabot
in the relationship of principal and agent, master and servant, partners, or
joint venturers, and, except as otherwise set forth in this Agreement, neither
party shall have, expressly or by implication, the power to represent itself as
having any authority to make contracts in the name of or binding upon the other,
or to obligate or bind the other in any manner whatsoever.
7.13 Resale Prohibition. The parties intend and agree that the fumed
silica and fumed alumina being sold hereunder to CMC is being sold solely for
the use by CMC and its subsidiaries in manufacturing their products.
Accordingly, CMC and its subsidiaries are prohibited from reselling any fumed
silica or fumed alumina purchased hereunder. However, in the event CMC
determines, in good faith, that the fumed metal oxides supplied hereunder, which
otherwise meet the specification set forth in Scheduled A or B, but which are
not fit for CMC's use in the manufacture of CMP slurries, CMC shall have the
right to resell such fumed metal oxides, provided, CMC first offers Cabot the
option to purchase such fumed metal oxides back from CMC at a price which is the
lower of (i) the price paid by CMC to Cabot for such material, or (ii) the price
at which CMC will resell such material.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument and have delivered this Agreement as of the day and year first
above written.
CABOT CORPORATION
By: /s/ Samuel W. Bodman
--------------------------------------
Name: Samuel W. Bodman
Title: Chief Executive Officer
CABOT MICROLELECTRONICS CORPORATION
By: /s/ Matthew Neville
--------------------------------------
Name: Matthew Neville
Title: President and
Chief Executive Officer
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<PAGE> 14
Schedule A
Fumed Silica Specifications
Product Specification
[ ] [ ]
[ ] [ ]
[ ] [ ]
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<PAGE> 15
Schedule B
Fumed Alumina Specifications
Product Specification
[ ] [ ]
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<PAGE> 1
Exhibit 10.7
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT is made and effective as of this 28th day of March,
2000, by and between Cabot Corporation, a corporation organized and existing
under the laws of the State of Delaware and having its corporate offices at 75
State Street, Boston, Massachusetts 02109 (hereinafter, "CABOT") and Cabot
Microelectronics Corporation, a corporation organized and existing under the
laws of the State of Delaware and having its corporate offices at 870 N. Commons
Drive, Aurora 60504 (hereinafter, "CMC").
WHEREAS, CABOT is the owner, both at common law and through
registrations and applications for registration therefor, of certain trademarks,
service marks, trade names and associated goodwill (hereinafter, the "LICENSED
TRADEMARK(s)"), as set forth on Schedule A attached hereto, and is engaged in
the business of manufacturing, distributing and selling worldwide certain
products including, but not limited to, the representative list of products also
set forth on Schedule A (hereinafter "CABOT PRODUCT(s)").
WHEREAS, as a result of a mutually agreed to separation, CMC is the
successor in interest to CABOT's worldwide microelectronics materials and
polishing consumables business and is engaged in manufacturing, distributing and
selling throughout the world certain related products ("CMC PRODUCT(s)"), as
also set forth on Schedule A attached hereto.
WHEREAS, CMC desires to use and continue to use the LICENSED
TRADEMARK(s) on or in connection with the CMC PRODUCT(s) and Cabot is willing to
grant to CMC the right to use the LICENSED TRADEMARK(s) on or in connection with
the CMC PRODUCT(s), such use subject to the terms and conditions of this
Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties, intending to be legally bound, hereto agree as
follows:
ARTICLE 1 - GRANT OF LICENSE
1.1 CABOT hereby grants to CMC, and CMC hereby accepts, a non-exclusive,
worldwide, royalty-free license to use the LICENSED TRADEMARK(s) solely on or in
connection with the manufacture, use, sale, offer for sale, distribution or
other disposition of the CMC PRODUCT(s), subject to the limitations set forth in
this Agreement.
1.2 The grant of license in Section 1.1 above includes the right by CMC to grant
sublicenses within the scope of such license to CMC's wholly-owned subsidiaries,
but only for so long as each remains a wholly-owned subsidiary.
Trademark License Agreement - Page 1 of 10
<PAGE> 2
1.3 The license granted herein includes the right to use the designation "CABOT"
as a trade name, individually or in combination with other terms, subject to all
the provisions hereof relating to the LICENSED TRADEMARK(s).
1.4 Except as provided in this Article, all licenses granted herein shall be
nontransferable and nonassignable without the prior written consent of CABOT.
ARTICLE 2 - OWNERSHIP AND USE OF THE LICENSED TRADEMARKS
2.1 CMC acknowledges that CABOT owns the LICENSED TRADEMARK(s) and all rights
therein and that nothing in this Agreement shall give CMC any right, title or
interest in or to the LICENSED TRADEMARK(s). CMC further acknowledges and agrees
that all use of the LICENSED TRADEMARK(s) by CMC shall inure to the benefit of
CABOT.
2.2 CMC agrees that it will do nothing inconsistent with CABOT's ownership of
the LICENSED TRADEMARK(s) and shall not claim adversely to CABOT, or assist any
third party in attempting to claim adversely to CABOT, with regards to such
ownership. CMC agrees that it will not challenge the title of CABOT to the
LICENSED TRADEMARK(s), oppose any registration thereof, or challenge the
validity of this Agreement or the licenses granted herein. Furthermore, CMC will
not register, nor attempt to register, any trade name or trademark which, in
whole or in part, incorporates or is confusingly similar to the LICENSED
TRADEMARK(s).
2.3 Notwithstanding the license granted herein, CMC agrees not to use, display
or adopt any style, design, color, font, form or logo similar to any past or
then present style, design, color, form or logo of CABOT including, but not
limited to, the styles illustrated on Schedule B.
2.4 Without the prior written approval of CABOT, CMC is not authorized to use
the LICENSED TRADEMARK(s) in connection with any business activity unrelated to
the CMC's microelectronics materials and polishing consumables business, as
defined by the CMC PRODUCT(s).
2.5 Notwithstanding the license granted herein and any of the provisions hereof,
no rights nor licenses are granted to CMC with respect to any other trademark,
service mark, and/or trade name not listed on Schedule A hereto.
2.6 CMC agrees to assist CABOT in recording this Agreement with appropriate
government authorities where such recording is required by law or regulation or
where such recording is permitted or desired by CABOT.
2.7 All costs associated with recording this Agreement, the license granted
herein and registering, maintaining, or renewing LICENSED TRADEMARK(S)
exclusively used by CMC shall be borne by CMC. All costs associated with
registering, maintaining or renewing any LICENSED TRADEMARK(S) also used by
CABOT shall be borne by CABOT.
Trademark License Agreement - Page 2 of 10
<PAGE> 3
ARTICLE 3 - QUALITY PROVISIONS
3.1 CMC agrees that the nature and quality of all CMC PRODUCT(s) sampled, sold,
or otherwise disposed of and covered by the LICENSED TRADEMARK(s) shall conform
to the standards set by and under the control of CABOT (hereinafter, "QUALITY
STANDARD"). Such QUALITY STANDARD shall be reasonable, shall be no greater than
the quality standards imposed by CMC's customers, and shall be at least equal in
quality to the CMC PRODUCT(s) sold by CMC prior to the separation.
3.2 CMC shall, upon CABOT's reasonable request, supply samples of CMC PRODUCT(s)
to CABOT. It shall not be necessary for CABOT to provide constant supervision of
CMC's manufacture of the CMC PRODUCT(s). Alternatively, CABOT may request CMC to
assure that the CMC PRODUCT(s) conform to the QUALITY STANDARD and, to this end,
shall permit reasonable inspection during business hours by an authorized
representative of CABOT of CMC's facilities to inspect the CMC's operations,
methods of manufacture, materials used, storage and packing areas, and the like,
associated with the manufacture of the CMC PRODUCT(s). Any inspections conducted
by CABOT to ensure that the QUALITY STANDARD provided herein shall be at the
expense of CABOT.
3.3 CMC shall deliver to CABOT, upon CABOT's request and without charge to
CABOT, representative samples of labels, containers, advertisements, catalogs,
letterhead, and the like, containing the LICENSED TRADEMARK(s) to enable CABOT
to ensure that the LICENSED TRADEMARKS(s) are properly used.
3.4 CMC shall comply with all applicable laws and regulations, obtain all
appropriate governmental or regulatory approvals pertaining to the sale,
distribution and/or advertising of the CMC PRODUCT(s) and covered by the
LICENSED TRADEMARK(s).
3.5 Any CMC PRODUCT(s) intended to be marketed under the LICENSED TRADEMARK(s)
which fails to attain the QUALITY STANDARD shall, at the expense of CMC, be
withdrawn from production and corrected or properly destroyed.
3.6 CABOT reserves the right to impose on CMC, as necessary, other
specifications or requirements not provided for under this Article to maintain
control over the CMC PRODUCT(s) to ensure the requisite QUALITY STANDARD.
ARTICLE 4 - DURATION OF LICENSE AND TERMINATION
4.1 This Agreement and the license granted herein shall be effective as of the
effective date of this Agreement, and shall remain in effect until terminated in
accordance with this Article 4.
Trademark License Agreement - Page 3 of 10
<PAGE> 4
4.2 Should CMC ever discontinue the use of any LICENSED TRADEMARK(s) with the
intent not to resume such use, CMC shall promptly notify CABOT of such action.
As to any LICENSED TRADEMARK(s) with respect to which use is or has been
discontinued without the intent to resume by CMC, CABOT may terminate the
license with respect to such LICENSED TRADEMARK(s) upon three (3) month notice
to CMC. CMC's intent not to resume use shall be established if any LICENSED
TRADEMARK(s) is not used by CMC for a period of at least twelve (12) months.
4.3 CABOT shall have the right to terminate the license granted herein with
respect to any LICENSED TRADEMARK(s) upon two (2) months prior written notice to
CMC in the event that CMC breaches any provision of this Agreement, including
but not limited to failure by CMC to comply with the QUALITY STANDARD
established under Article 3, if such breach shall be continuing at the end of
such two (2) month period.
4.4 CABOT shall have the right to terminate immediately this Agreement, or any
or all licenses granted herein, upon written notice to CMC in the event of the
winding-up, sale, insolvency, consolidation or merger where CMC or one of its
wholly-owned subsidiaries is not the survivor, or any sequestration by
governmental authority of CMC.
4.5 Upon the termination of this Agreement with respect to the LICENSED
TRADEMARK(s), or the termination of all licenses under this Agreement, CMC
agrees to immediately discontinue all use of such LICENSED TRADEMARK(s) and/or
any similar trade name which contain "CABOT" as a part thereof, as the case may
be. In this connection, CMC agrees:
(a) that it will immediately take all steps to refrain, as promptly as
possible, from using the LICENSED TRADEMARK(s) as part of CMC's
company name, and shall refrain from using the LICENSED
TRADEMARK(s) in advertising, commercial registers, directories,
internet and company web-sites, telephone listings, and all other
similar listings.
(b) to use its best efforts and due diligence to obtain whatever
approvals are necessary, either governmental or otherwise, to
change its company name to exclude the LICENSED TRADEMARK(s)
therefrom, such change to be effected within three(3) months after
the termination of this Agreement.
ARTICLE 5 - PROTECTION
5.1 At the request of CMC, CABOT shall apply to register any unregistered
LICENSED TRADEMARK(s) in any country in the name of CABOT for the CMC PRODUCT(s)
provided herein, shall use its best efforts to obtain registrations thereof,
shall maintain such registrations in full force and effect, and shall apply to
register CMC as a registered user of the LICENSED TRADEMARK(s) in countries
which require such registration. CMC shall cooperate with CABOT to obtain and
maintain said registrations. The cost of obtaining and
Trademark License Agreement - Page 4 of 10
<PAGE> 5
maintaining any unregistered LICENSED TRADEMARK(s) exclusively used by CMC shall
be borne by CMC. The cost of obtaining and maintaining any unregistered LICENSED
TRADEMARK(s) also used by CABOT shall be borne by CABOT. If CMC notifies CABOT
that it is no longer interested in a trademark filed by CABOT under the
provisions of this paragraph, CABOT shall be free to discontinue prosecution
and/or maintenance of any application or registration for said LICENSED
TRADEMARK(s), and CMC shall have no obligation for any expense with respect
thereto incurred after the notice from CMC to CABOT.
5.2 In the event that registration is refused for any presently pending or
subsequently filed application for registration of the LICENSED TRADEMARK(s),
CABOT shall have the right to discontinue the prosecution thereof. Before
discontinuing any such prosecution, CABOT shall give CMC one (1) months' notice
and permit CMC, at CMC's expense, to take over prosecution thereof on CABOT's
behalf.
5.3 If any opposition, cancellation, or similar proceeding is initiated by any
third party with respect to the LICENSED TRADEMARK(s) or applications to
register any LICENSED TRADEMARK(s), CABOT shall notify CMC of such proceeding,
and CMC shall have one (1) month to notify CABOT if CMC wants such proceedings
to be contested. If CMC informs CABOT that CMC wants to contest such proceeding,
CABOT will defend such LICENSED TRADEMARK(s) in the proceeding or, at the option
of CABOT, permit CMC to take over the defense of such proceeding on behalf of
CABOT. CMC shall bear the expenses of such proceeding for the LICENSED
TRADEMARK(s). If CMC does not notify CABOT that CMC wants such proceeding to be
contested, CABOT shall have the right to proceed as it chooses with regard to
such proceeding and such LICENSED TRADEMARK(s), including, without limitation,
abandoning or cancelling such LICENSED TRADEMARK(s) or any application or
registration therefor without any liability to CMC.
5.4 CMC shall promptly notify CABOT of any and all infringements, imitations,
simulations or other illegal use or misuse of the LICENSED TRADEMARK(s) which
come to CMC's attention. As the sole owner of the LICENSED TRADEMARK(s), CABOT
shall determine whether to take any action to prevent the infringement,
imitation, simulation or other illegal use or misuse of the LICENSED
TRADEMARK(s). If CABOT elects not to take such action, CMC shall have the right
to take such action at CMC's expense. In this event, CABOT shall, at CMC's
expense, cooperate in such action with CMC including, without limitation,
joining as a party. Any money recovered by way of damages or otherwise with
respect to such action shall be kept by the party which bore the costs of such
action; or, in any case where the parties have shared the costs, such money
shall be shared in proportion to the costs borne by each party.
5.5 CMC shall render CABOT all reasonable assistance in connection with any
matter pertaining to the protection, enforcement or infringement of LICENSED
TRADEMARK(s) used by CMC, whether in the courts, administrative or
quasi-judicial agencies, or otherwise.
ARTICLE 6 - NEW TRADEMARKS
Trademark License Agreement - Page 5 of 10
<PAGE> 6
6.1 Should CMC desire to develop new trademarks using the prefix "CABOT" on the
CMC PRODUCT(s), it must first consult with and obtain the written approval of
CABOT, which approval will not be unreasonably withheld. Such newly developed
trademarks will be registered in the name of CABOT, and will be deemed to be
LICENSED TRADEMARK(s) licensed to CMC hereunder and will be subject to all of
the terms and conditions of this Agreement. Such approval will not be contingent
upon the payment of any fee or royalties to CABOT, however the cost of obtaining
and maintaining such new trademarks shall be borne solely by CMC.
Trademark License Agreement -- Page 6 of 10
<PAGE> 7
ARTICLE 7 - INDEMNIFICATION
7.1 CMC agrees to indemnify and hold harmless CABOT and its directors, officers
and employees from any and all claims for damage or injury to persons or
property or for loss of life or limb whereby CABOT has been found liable to any
third party under any product liability, tort liability or similar action
arising out of or in connection with the use by CMC of the LICENSED
TRADEMARK(s).
7.2 For purposes of indemnification, CMC shall purchase an insurance policy
covering at a minimum product and tort liability with a face value of ten
million dollars ($10,000,000), such policy naming CABOT as co-insured. CMC shall
pay any and all premiums of such policy on a timely basis, receipt of which
shall be furnished to CABOT.
ARTICLE 8 - MISCELLANEOUS
8.1 Entire Agreement. This Agreement contains the entire agreement of the
parties regarding the subject matter hereof and supersedes all prior agreements,
understandings and negotiations, whether written or oral, regarding the same.
This Agreement may not be changed, modified, amended or supplemented except by a
written instrument signed by both parties. Furthermore, it is the intention of
the parties that this Agreement be controlling over additional, different or
ambiguous terms of any separation agreement, asset transfer agreement or any
similar document, even if accepted in writing by both parties.
8.2 Assignability. This Agreement may not be assigned nor transferred by CMC
without the prior consent of CABOT.
8.3 Extension of Rights. All rights and obligations incurred hereunder by CABOT
or CMC shall extend to and be binding upon their respective domestic and
international divisions, subsidiaries, other controlled companies, affiliates
and related entities.
8.4 Waiver. The waiver by CABOT of a breach of any provision contained herein
shall be in writing and shall no way be construed as a waiver of any subsequent
breach of such provision or the waiver of the provision itself.
8.5 Injunctive Relief. CMC acknowledges that monetary relief would not be an
adequate remedy for a breach or threatened breach by CMC of the provisions of
this Agreement and that CABOT shall be entitled to the enforcement of this
Agreement by injunction, specific performance or other equitable relief, without
prejudice to any other rights and remedies that CABOT may have.
8.6 Disclaimer of Agency, Partnership and Joint Venture. Nothing herein shall be
deemed to create an agency, distributorship, joint venture or partnership
relationship between the parties hereto.
Trademark License Agreement - Page 7 of 10
<PAGE> 8
8.7 Severability. If any provision of this Agreement shall be held illegal or
unenforceable, that provision shall be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force and
effect and enforceable.
8.8 Notice and Reports. All notices, consents or approvals required by this
Agreement shall be in writing sent by certified, registered, or Express Mail
service, postage prepaid or by facsimile (confirmed by such certified,
registered, Express Mail or other overnight courier service) to the parties at
the following addresses or such other addresses as may be designated in writing
by the respective parties:
if to CABOT, to:
Cabot Corporation
75 State Street
Boston, Massachusetts 02109
Attn: General Counsel
with copies to:
Cabot Corporation
Law Department
157 Concord Road
Billerica, Massachusetts 01821
Attn: Chief Intellectual Property Counsel
if to CMC to:
Cabot Microelectronics Materials Corporation
870 N. Commons Drive
Aurora, Illinois 60504
Attn: General Counsel
with copy to:
Cabot Microelectronics Materials Corporation
870 N. Commons Drive
Aurora, Illinois 60504
Attn: President
Notices shall be deemed effective on the date of mailing.
8.9 Jurisdiction. This Agreement shall be binding in every jurisdiction
worldwide.
8.10 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to conflict of laws principles.
Trademark License Agreement - Page 8 of 10
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers or agents as of the day and year
first above written.
CABOT CORPORATION CABOT MICROELECTRONICS
CORPORATION
By: /s/ Samuel W. Bodman By: /s/ Matthew Neville
Name: Samuel W. Bodman Name: Matthew Neville
Title: Chairman and CEO Title: President and CEO
Date: March 28, 2000 Date: March 28, 2000
Trademark License Agreement - Page 9 of 10
<PAGE> 10
SCHEDULE A
CABOT TRADEMARKS
CABOT with or without a logo or design,
block letters or stylized, as such
may be used as a trademark, service
mark or trade name, individually or
in combination with other names or
marks of CABOT.
CABOT & DEVICE with or without a logo or design,
block letters or stylized, as such
may be used as a trademark, service
mark or trade name, individually or
in combination with other names or
marks of CABOT, as depicted in U.S.
Reg. Nos. 613,329, 615,516, 615,689,
1,619,285, 1,827,952, and 1,833,580.
CAB AND CABO formatives and derivatives, with or
without a logo or design, block
letters or stylized, as such may be
used in combination with one or more
prefixes, suffixes or combinations
thereof.
CABOT
MICROELECTRONICS with or without a logo or design,
block letters or stylized, as such
may be used as a trademark, service
mark or trade name, individually or
in combination with other names or
marks of CABOT.
CAB-O-SPERSE with or without a logo or design,
block letters or stylized, as such
may be used as a trademark, service
mark or trade name, individually or
in combination with other names or
marks of CABOT.
CABOT PRODUCTS
Including, but not limited to, carbon black; metal, metalloid oxides
and alloys thereof such as silica, alumina, tantalum, niobium, cesium,
rubidium, tellurium, germanium and the like; cesium formate and related
drilling fluids; barium titanate; masterbatches and granulated
concentrates for use in such masterbatches; plastics; liquified natural
gas; coal; and any articles, applications, or dispersions formed from
any of the above, whether in a finished or unfinished state for use in
numerous end product applications.
CMC PRODUCTS
CMC PRODUCTS means polishing consumables for use in the semiconductor,
electronic, rigid disk and magnetic head industries, such as polishing
slurries, polishing pads, cleaning compositions, precursor
compositions, and related consumables.
Trademark License Agreement - Page 9 of 10
<PAGE> 11
SCHEDULE B
[CABOT]
[Cabot logo, CABOT]
[Cabot logo, CABOT, creating what matters]
Trademark License Agreement - Page 10 of 10
<PAGE> 1
Exhibit 10.8
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406, promulgated under the Securities Act of 1933, as
amended.
DISPERSION SERVICES AGREEMENT
This DISPERSION SERVICES AGREEMENT (the "Agreement"), executed this 20th
day of January, 2000, is between Cabot Corporation ("Cabot"), a Delaware
corporation, and Cabot Microelectronics Corporation ("CMC"), a Delaware
corporation. Notwithstanding the execution date hereof, this Agreement shall
become effective upon the date of the initial public offering by CMC of shares
of CMC common stock.
WHEREAS, Cabot and certain of its subsidiaries and CMC will be parties to
a Master Separation Agreement, (the "Master Separation Agreement"), which will
provide for the separation from Cabot of the business, assets and liabilities of
Microelectronics Materials Division of Cabot (the "MMD Business") and the
transfer of the MMD Business to CMC;
WHEREAS, in the past, the Microelectronics Materials Division of Cabot
has performed various dispersion services for Cabot;
WHEREAS, Cabot desires to have CMC provide to Cabot certain dispersion
services after the separation of the MMD Business; and
WHEREAS, CMC desires to provide such dispersion services to Cabot as
provided herein;
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. TERM
This Agreement shall commence on the date of the initial public offering
by CMC of shares of CMC common stock, and shall continue until June 30, 2005
(the "Initial Term"). Unless either party shall give a notice of nonrenewal
prior to December 31, 2003, this Agreement shall continue after the Initial Term
until terminated by either party by a written notice of termination, which shall
terminate this Agreement effective on the first June 30 or December 31 more than
18 months after the date such notice is delivered. The Initial Term, together
with any continuations, are referred to herein as the "Term". Each year of the
Term beginning on the effective date or an anniversary thereof is referred to
herein as a "Term Year", including the stub period, if any, between the last
anniversary of the effective date and the end of the Term.
<PAGE> 2
SECTION 2. SERVICES
2.1 Purchase and Sale.
(a) Subject to the terms and conditions of this Agreement, during the
Term, CMC shall provide to Cabot, and Cabot shall purchase from CMC, the
Services (as defined below) in such quantities as specified by Cabot, subject to
Sections 2.3 through 2.6 below. "Services" means:
(i) the manufacturing and packaging of the type of dispersions set forth
on Schedule A hereto (the "Products") in accordance with the
specifications, formulae and processes provided by Cabot to CMC and
initially as set forth in the materials specified on Schedule A
hereto;
(ii) the packaging of the Products in accordance with specifications set
forth on Schedule A, which may be amended from time to time, by
mutual agreement; and
(iii) testing and other ancillary services as related thereto as may be
mutually agreed between Cabot and CMC from time to time.
(b) Any amendment to Schedule A shall require the consent of both CMC and
Cabot. Any increase in costs incurred by CMC in manufacturing and/or packaging
Products to comply with changes requested by Cabot to the specifications as set
forth on Schedule A shall be paid by Cabot.
(c) With respect to Products to be sold to customers of Cabot and/or its
subsidiaries which are located in the United States, Canada or Mexico
(collectively "North America"), Services shall be performed either by (i) CMC at
its facility in Aurora, Illinois (the "Aurora Plant"), or (ii) Davies Imperial
Coatings ("Davies"), pursuant to an agreement between CMC and Davies (the
"Davies Agreement"); provided that CMC shall continue to remain primarily liable
to Cabot for any Services provided by Davies. Cabot and CMC shall confer in good
faith in order to determine whether Services will be provided by the Aurora
Plant or Davies.
(d) With respect to Products to be sold to customers of Cabot and/or its
subsidiaries located in Europe, Services shall be performed at the dispersions
facility of CMC in Barry, Wales (the "Barry Plant").
(e) With respect to Products to be sold to customers of Cabot and/or its
subsidiaries located in regions other than North America or Europe, CMC shall
determine
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<PAGE> 3
the appropriate facility to perform such Services after review of its regional
capacity and capabilities and after consultation with Cabot.
(f) Notwithstanding anything to the contrary in subsections (c) and (d)
above, and subject to 2.3(a)(i), Cabot may specify Products to be manufactured
at the Aurora Plant, regardless of the ultimate geographic market for such
Products, provided that such Products would not be incompatible with the
dispersions manufacturing capabilities at the Aurora Plant or that such Products
would not create contamination issues with respect to the products CMC
manufactures at its Aurora Plant.
2.2 Forecasts.
Cabot shall provide CMC with forecasts (the "Forecasts") of the quantities
of Products that Cabot expects to purchase from CMC (the "Forecasted
Quantities"). The Forecasts shall identify the Forecasted Quantities of the
Products and the geographic locations for manufacture (i.e., the Aurora Plant,
Davies or the Barry Plant). Cabot shall provide the following Forecasts to CMC:
(a) not more than sixty (60) but not less than thirty (30) days prior to
each January 1, April 1, July 1 and October 1 during the Term, a Forecast
indicating the Forecasted Quantity for each month of the calendar quarter
commencing on such January 1, April 1, July 1 and October 1 (the "Quarterly
Forecast");
(b) not more than sixty (60) but not less than thirty (30) days prior to
on each July 1 and January 1 during the Term, a semi-annual Forecast indicating
the Forecasted Quantity for the six (6) month period commencing on such July 1
and January 1 (the "Six Month Forecast");
(c) not more than sixty (60) but not less than thirty (30) days prior to
on each July 1, a one (1) year Forecast indicating the Forecasted Quantity for
the calendar year commencing on the following July 1 (the "Annual Forecast");
and
(d) on or around each July 1, an eighteen (18) month Forecast indicating
the Forecasted Quantity for the eighteen month period commencing on the July 1
(the "18 Month Forecast"); provided, however, that Cabot shall provide CMC with
a revised eighteen (18) Month Forecast for the remainder of the eighteen (18)
month period covered by the last 18 Month Forecast as soon reasonably
practicable after Cabot becomes aware of any material changes to such 18 Month
Forecast.
For the purposes of this Agreement, Forecasts delivered by Cabot to CMC
after the execution hereof shall, upon the effectiveness of this Agreement, be
deemed to have been delivered hereunder.
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<PAGE> 4
2.3 CMC's Maximum Supply Obligations.
(a) The obligation of CMC to provide Products to Cabot shall be subject to
each of the following maximum monthly volume limitations:
(i) the maximum monthly volume of Products from CMC's Aurora, Illinois
facility (the "Aurora Plant") shall be [ ] gallons per month;
(ii) the maximum monthly volume of Products from Davies' Hammond, Indiana
facility (the "Hammond Plant") shall be [ ] gallons per month; and
(iii) the maximum monthly volume of Products from the Barry Plant shall be
[ ] gallons per month.
(b) In addition to the volume limitations set forth in 2.3(a) above, in
the event that Cabot orders volumes of Products from CMC in excess of Forecasted
Quantities, CMC shall not be obligated to supply to Cabot such Products in
excess of the following volumes:
(i) for any calendar quarter and any plant, [ ]% of the volumes for such
plant set forth in Cabot's Quarterly Forecasts;
(ii) for any calendar half year (beginning on or after July 1, 2000) and
any plant, [ ]% of the volumes for such plant set forth in Cabot's
Sixth Month Forecast; and
(iii) for any year beginning July 1 and any plant, [ ]% of the volumes for
such plant set forth in Cabot's Annual Forecast.
(c) The maximum supply volumes set forth in Sections 2.3 (a) and (b) are
referred to herein as the "Maximum Volumes". If Cabot shall order volumes of
Products in excess of the Maximum Volumes described above, CMC shall use
commercially reasonable efforts to supply such volumes ("Excess Volumes").
(d) Notwithstanding anything to the contrary in subsections (a) or (b)
above, if CMC shall increase its production capacity at its current dispersions
plants or at newly acquired or constructed dispersions plants, Cabot and CMC
shall negotiate in good faith regarding additional dispersions capacity that may
be available to Cabot and the price for dispersions services related to such
additional capacity.
2.4 Minimum Order Volumes.
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<PAGE> 5
Cabot agrees to order Products from CMC subject to the minimum batch
size requirements set forth on Schedule A hereto.
2.5 Exclusivity.
(a) Except in connection with its [ ] businesses, and subject to other
existing obligations, during the Term Cabot will not contract with any third
party (other than Cabot affiliates, CMC, CMIC or Davies) for the provision of
contract or toll manufacturing services for the production of fumed metal oxide
dispersions.
(b) Notwithstanding subsection (a) above or subsection (c) below:
(i) Cabot shall have right the during the Term to produce fumed metal
oxide dispersions for sale, its own use or the sale or use of its
subsidiaries;
(ii) if CMC or Davies is unable or unwilling to supply certain products
or volumes in accordance with the terms hereof, or above the Maximum
Volumes set forth in Section 2.3 hereof, Cabot shall have the right
to have such products or additional volumes of dispersions
manufactured for it by other parties;
(iii) In the event Cabot requests a change to the specifications, formulae
or processes set forth on Schedule A, which change is necessary in
order to achieve a material performance difference in Cabot's end
product, and CMC is not able or is unwilling to modify such Product,
Cabot shall have the right to have such changed products
manufactured for it by any other party; and
(iv) Cabot shall have the right to contract for and purchase from third
parties fumed metal oxide dispersions that are produced with fumed
metal oxides that are not supplied by Cabot.
(c) If Cabot terminates this Agreement, Cabot shall, for a period of [ ]
following the date of such termination purchase fumed metal oxide dispersions
products and services only from CMC, Davies or third parties who are not engaged
in the production and/or marketing of CMP (chemical mechanical polishing)
consumables.
(d) During the Term of this Agreement, CMC shall not knowingly, without
Cabot's prior written consent, directly or indirectly, (i) perform dispersions
services for any person or entity other than Cabot for use in the production of
any goods or products that compete with any Cabot products, or (ii) sell fumed
metal oxide dispersions products into applications, other than CMP applications,
which compete with any Cabot product.
-5-
<PAGE> 6
2.6 Supply of Raw Materials
Cabot shall be responsible for the supply to CMC of the fumed metal oxide
particles necessary for the manufacture of the Products ordered by Cabot. Any
such volumes of fumed metal oxides shall not be deemed supplied pursuant to the
Fumed Metal Oxide Supply Agreement, of even date herewith. CMC shall be
responsible for the supply of all other materials necessary for the manufacture
of the Products, including packaging materials.
SECTION 3. PRICING
3.1 Prices. CMC shall perform the Services and sell the Products in
accordance with the following prices (the "Prices"):
(a) with respect to Products manufactured and the services performed by
CMC, the price shall equal the "Dispersion Manufacturing Cost" incurred by CMC
plus [ ]% of such Dispersion Manufacturing Cost. As used herein, the "Dispersion
Manufacturing Cost" of fumed metal oxide dispersions shall mean, all costs that
may be included in [ ]. CMC's [ ] may be used for calculating such Dispersion
Manufacturing Cost, provided that both parties mutually agree that it fairly
approximates the above stated Dispersion Manufacturing Cost, and that both
parties mutually agree upon a method to make adjustments due to variances
between the [ ] and the actual Dispersion Manufacturing Cost.
(b) with respect to Products manufactured and the services performed by
Davies, the price shall equal the Dispersion Manufacturing Cost incurred by CMC
(excluding the costs of the fumed metal oxide particle supplied by Cabot) plus [
]% of such costs as an administrative charge.
Cabot shall have the right to have a recognized accounting firm audit the
books and records of CMC necessary to verify the Dispersions Manufacturing Cost
provided above. Such accounting firm shall be obligated to keep any information
obtained during the audit of CMC's books and records confidential and may
confirm to Cabot only whether, and to what extent, CMC's calculations of the
Dispersions Manufacturing Cost deviate from the calculation of such accounting
firm.
3.2 Cost Savings. Cabot and CMC acknowledge that it is their intention to
decrease the costs associated with manufacturing the Products, and to share any
cost savings resulting from joint efforts therefrom equally between them. Cabot
and CMC agree to discuss, from time to time, ways to jointly decrease such
costs.
-6-
<PAGE> 7
SECTION 4. SHIPPING, DELIVERY AND PAYMENT
(a) Orders for Products shall be issued by Cabot from time to time. Each
order shall specify the date(s) the Products are to be delivered, which date(s)
shall be not less than ten (10) business days prior to the date the order is
received by CMC. For purposes of applying Section 2.3 only, each volume of
Product shall be deemed to be in the month specified for its shipment in Cabot's
order; and if no date is specified, then in the month following the month in
which the order therefor is issued by Cabot.
(b) All sales of Products under this agreement are made F.O.B. CMC's point
of shipment. Cabot shall be responsible for all transportation costs and title
and risk of loss shall pass to Cabot upon delivery to carrier.
(c) All Products shall be prepared by CMC for delivery to Cabot in
accordance with Cabot's reasonable instructions to be supplied by Cabot to CMC
as far in advance of, and not later than ten (10) business days prior to, a
requested shipment date.
(d) CMC shall invoice Cabot for the Products delivered to Cabot during
each month by the fifteenth (15th) calendar day of the following month. CMC
shall deliver such invoices to Cabot by regular U.S. mail, or other methods such
as express U.S. mail, overnight courier or other means, if mutually acceptable.
(e) Cabot shall pay each such invoice within fifteen (15) calendar days of
receipt thereof. Such payment shall be made by check or wire transfer in readily
available same day or next day funds denominated in United States dollars. If
payment is to be made by wire transfer, Cabot shall request and CMC shall
provide to Cabot, wire transfer instructions.
SECTION 5. WARRANTIES
5.1 Warranty as to Products. CMC represents and warrants to Cabot that,
when delivered to Cabot, the Products and Services will conform in all respects
to the specifications then in effect and as then set forth in the materials
specified on Schedule A hereto. CMC MAKES NO OTHER REPRESENTATION OR WARRANTY OF
ANY KIND, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR ANY OTHER MATTER WITH RESPECT TO THE PRODUCTS OR SERVICES, WHETHER
USED ALONE OR IN COMBINATION WITH OTHER SUBSTANCES, EVEN IF THE PURPOSES OR USES
OF SUCH PRODUCTS ARE KNOWN BY CMC.
5.2 Remedies. If any Products do not conform in all respects to the
specifications then in effect and as then set forth on Schedule A hereto, CMC
agrees to replace such Products with Products that conform to such
specifications. Subject to the
-7-
<PAGE> 8
following sentence, Cabot shall not be obligated to accept or pay for Products
not conforming to the specifications then in effect for such Products. If such
non-conformity is the result of materials or formulae provided by Cabot to CMC,
Cabot shall pay CMC for the Services and such volumes shall be included in
determining the volumes of Products delivered by CMC to Cabot hereunder. In no
event shall CMC be responsible or liable for any special, incidental or
consequential damages arising as a result of any breach of warranty in respect
of any PRODUCTS OR Services under this Agreement or the transactions
contemplated hereby.
SECTION 6. RELATIONSHIP OF PARTIES
(a) CMC and Cabot are each independent contractors. Nothing herein
contained shall be construed to place CMC and Cabot in the relationship of
principal and agent, master and servant, partners, or joint venturers, and,
except as otherwise set forth in this Agreement, neither party shall have,
expressly or by implication, the power to represent itself as having any
authority to make contracts in the name of or binding upon the other, or to
obligate or bind the other in any manner whatsoever.
(b) Cabot recognizes and agrees that certain dispersions services shall be
performed on CMC's behalf by Davies. However, such services by Davies shall be
considered to have been subcontracted by CMC to Davies, and ultimate
responsibility for the performance of such services shall remain with CMC. Cabot
shall have no direct contractual relationship with Davies with respect to
dispersion services obtained by CMC pursuant to this Agreement.
SECTION 7. INTELLECTUAL PROPERTY AND CONFIDENTIALITTY
(a) Any intellectual property relating to the process engineering or
method of production of dispersions ("Dispersions Intellectual Property")
developed by CMC or CMIC principally in the course of performing Services for
Cabot hereunder shall be jointly owned by Cabot and either CMC or CMIC, as the
case may be. Notwithstanding the above, Cabot shall not sublicense or assign
such intellectual property to any party (other than a subsidiary or affiliate of
Cabot) for use in the production and/or sale of CMP consumables. Similarly, CMC
shall not sublicense or assign such intellectual property to any party (other
than a subsidiary or affiliate of CMC) for use in the production and/or sale of
products for use in non-CMP applications.
(b) CMC or CMIC shall, upon the request of Cabot, grant a non-exclusive
license to Cabot, in exchange for a commercially reasonable royalty payment from
Cabot to CMC or CMIC, as the case may be, to be mutually agreed between the
appropriate parties, any Dispersions Intellectual Property developed by CMC or
CMIC other than in the performance of Services but which is used by CMC or CMIC
in the production of
-8-
<PAGE> 9
Products. Notwithstanding the above, Cabot shall not sublicense or assign such
intellectual property to any party (other than a subsidiary or affiliate of
Cabot) for use in the production and/or sale of CMP consumables.
(c) CMC and CMIC shall use their commercially reasonable best efforts,
including by seeking to have included in the Davies Agreement appropriate
provisions, to have Davies bound by the provisions of subsections (a) and (b)
above to the same extent as CMC and CMIC.
(d) Each of Cabot and CMC agree to keep confidential and not disclose, and
shall cause their respective subsidiaries and affiliates to keep confidential
and not disclose, to any party or use for any purpose (other than the
performance of this Agreement), any proprietary or other confidential
information of the other party which is received pursuant to this Agreement
("Confidential Information"). Confidential Information shall be subject to the
restrictions of this paragraph only if it is marked as confidential or
proprietary or, if not disclosed in tangible form, the disclosing party notifies
the recipient of its confidential or proprietary nature prior to its disclosure.
For purposes of this Agreement, Confidential Information of a party does not
include, and a party and a party's subsidiaries and affiliates will have no
obligations under this provision with respect to, any information of the other
party or any subsidiary or affiliate of the other party (the other party and
subsidiaries and affiliates of the other party being referred to as the
"receiving party") which:
(i) is already known to the receiving party from a source other than the
disclosing party as evidenced by competent proof thereof; or
(ii) is or becomes publicly known through no wrongful act of the
receiving party (in which event the receiving party's obligations under this
Agreement in respect thereto shall terminate on the date such information enters
the public domain); or
(iii) is rightfully received by the receiving party from a third party
without violation of any obligations of confidentiality owed by the third party
to the disclosing party; or
(iv) is disclosed by the disclosing party to a third party without
restrictions on the third party's right to use or disclose such information; or
(v) is independently developed by employees or consultants of the
receiving party without use of or reference to the disclosing party's
Confidential Information; or
(vi) is approved for release by written authorization of the disclosing
party
SECTION 8. CONSENTS; NOTICES
Unless otherwise set forth herein, whenever any notice, consent or
approval is to be given in this Agreement, it must be in writing and delivered
in accordance with the
-9-
<PAGE> 10
provisions of this Section 8. Any such writing will be duly given upon delivery,
if delivered by hand, facsimile transmission or mail, to the following
addresses:
If to Cabot: Cabot Corporation
Business and Technical Center
Billerica, MA 01821
Attn: Fumed Metal Oxide Product Line Manager
Telecopier:
With a copy to:
Cabot Corporation
75 State Street
Boston, MA 02109
Attn: Law Department
Telecopier: 617-342-6039
If to CMC: Cabot Microelectronics Corporation
870 North Commons Drive
Aurora, IL 60504
Attn: Global Manufacturing Manager
Telecopier: 630-375-5596
or to such other address as may be designated in writing by any of the parties
from time to time in accordance herewith.
SECTION 9. GENERAL
9.1 Severability. If any provision of this Agreement shall be found to be
invalid or unenforceable, then such provision or provisions shall not invalidate
or in any way affect the enforceability of the remainder of this Agreement and
such provision or provisions shall be curtailed and limited to the extent
necessary to bring the Agreement within any legal requirement and the parties
shall negotiate in good faith with respect to an equitable modification of the
provision or application thereof held to be invalid.
9.2 Modification; Waivers. Except as expressly provided herein, this
Agreement may be modified or amended only with the written consent of each party
hereto. Neither party hereto shall be released from its obligations hereunder
without the written consent of the other party. The observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) by the party entitled to enforce such
term, but any such waiver shall be
-10-
<PAGE> 11
effective only if in a writing signed by the party against which such waiver is
to be asserted. Except as otherwise specifically provided herein, no delay on
the part of either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
either party hereto of any right, power or privilege hereunder operate as a
waiver of any other right, power or privilege hereunder nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder.
9.3 Succession. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and other
legal representatives and, to the extent that any assignment hereof is permitted
hereunder, their assignees.
9.4 Counterparts. This Agreement may be executed in counterparts.
9.5 Further Assurances. Each party agrees to provide any additional
documents and take any such further action as may be reasonably requested by the
other party in order to carry out the purpose and intent of this Agreement.
9.6 Entire Agreement. This Agreement contains the full and complete
undertaking and agreement between the parties hereto with respect to the
manufacture and supply of fumed metal oxide dispersions, and supersedes all
other agreements between Cabot, on the one hand, and CMC, on the other, whether
written or oral except any confidentiality agreements between the parties, which
shall, to the extent such agreements do not contradict the terms of this
Agreement, continue in effect.
9.7 Headings. The headings of the sections and other subdivisions of this
Agreement are for convenient reference only. They shall not be used in any way
to govern, limit, modify, construe this Agreement or any part or provision
thereof nor otherwise be given any legal effect.
9.8 Assignees and Third Parties. This Agreement may not be assigned by
either party without the prior written consent of the other party and any
attempted assignment without such consent shall be null and void; provided,
however, that Cabot may assign this Agreement to a subsidiary or affiliated
company. In addition, CMC may make arrangements for the production and sale of
Services and Products required hereunder to be manufactured and sold by a
subsidiary or an affiliate, including but not limited to Cabot Microelectronics
International Corporation. Such arrangements may take the form of an assignment
of certain rights and obligations hereunder or a subcontract of certain
obligations hereunder. Similarly, Cabot may make arrangements for the purchase
of Products and Services hereunder to be made by a subsidiary, including but not
limited to Cabot Carbon Ltd. Such arrangements may take the form of an
assignment of certain
-11-
<PAGE> 12
rights and obligations hereunder. However, all sales of Products and Services
pursuant to any such arrangement shall be governed by the terms of this
Agreement.
9.9 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of Delaware, without giving effect to
principles of conflicts or choice of laws of Delaware or of any other
jurisdiction.
9.10 Force Majeure. Each of the parties hereto shall be excused from
delays in performing or from failure to perform hereunder to the extent that
such delays or failures result from causes beyond the reasonable control of such
party, including, but not limited to, forces of nature, acts of God, strikes,
lockouts, wars, blockades, insurrections, riots, epidemics, restraints or
requirements of any government or government agency, civil disturbances,
explosions, breakage or accident to machinery or lines of pipe, unavailability
of raw material or supplies, strandings, perils of the sea, the binding order of
any court or governmental authority which has been resisted in good faith by all
reasonable means, and other cause, whether of the kind enumerated or otherwise,
not reasonably within the control of the party claiming suspension. Failure to
prevent or settle any strike shall not be considered to be a matter within the
control of the party claiming suspension. However, in order to be excused from
delay or failure to perform, such party must act diligently to remedy the cause
of such delay or failure.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument and have delivered this Agreement as of the day and year first
above written.
CABOT CORPORATION
By: /s/ Samuel W. Bodman
------------------------------------
Name: Samuel W. Bodman
Title: Chief Executive Officer
CABOT MICROLELECTRONICS
CORPORATION
By: /s/ Matthew Neville
------------------------------------
Name: Matthew Neville
Title: President and
Chief Executive Officer
-13-
<PAGE> 14
SCHEDULE A
North America
Products, Materials Specifying Specifications, Formulae,
Processes, Quality Control, Maintenance
<TABLE>
<CAPTION>
PRODUCT FORMULA CONTROL PLAN SPECIFICATION CMC TEST STANDARD MINIMUM
(REVISION (EFFECTIVE (SPECIFICATION NO./ METHODS PACKAGE ORDER
DATE) DATE/REVISION REVISION DATE) (TEST METHOD QUANTITY
LEVEL) NUMBER)
<S> <C> <C> <C> <C> <C> <C>
[ ] 9/19/96 8-5-96, Rev. A [ ] -10/98-Rev. 101, 200, 300, 302 55 G Poly 8 Drums
1-10/98 Drum
[ ] 1/19/00 5-1-97, Rev. A [ ] -1/0-Rev. 203, 6010A (1) 275 G Rock 2 Totes
3-1/00 Tote
[ ] 5/4/95 10-1-97, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 8 Drums
1-5/97 Drum
[ ] 7/5/94 8-5-96, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 8 Drums
1-5/97 Drum
[ ] 2/1/93 10-1-97, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 5 Drums
1-5/97 Drum
[ ] 7/5/93 10-1-97, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 5 Drums
1-5/97 Drum
[ ] 7/6/94 10-1-97, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 4 Drums
1-5/97 Drum
[ ] 7/16/93 10-1-97, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 6 Drums
1-5/97 Drum
[ ] 9/27/94 10-1-97, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 5 Drums
1-5/97 Drum
[ ] 11/18/93 10-1-97, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Poly 8 Drums
1-5/97 Drum
[ ] 8/23/96 10-1-97, Rev. A [ ]-4/98-Rev.1-5/97 101, 200, 300, 302 55 G Poly 6 Drums
Drum
</TABLE>
-14-
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
[ ] 9/19/96 8-5-96, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 8 Drums
1-4/98 Drum
[ ] 9/19/96 8-5-96, Rev. A [ ] -4/98-Rev. 101, 200, 300, 302 55 G Fiber 6 Drums
1-4/98 Drum
[ ] 6/9/98 6-9-98, Rev. B [ ] -6/98-Rev. B 400, 404, 408 55 G Poly 5 Drums
6/98 Drum
[ ] 8/31/99 8-31-96, Rev. A [ ] -8/99-Rev. A DTM 101, 201, 55 G Poly 6 Drums
8/99 302, 303, 500, 607 Drum
[ ] 1/19/00 1-19-00, Rev. B [ ] -1/00-Rev. 1 203, 6010A (1) 275 G Rock 2800 LBS
Tote
</TABLE>
-15-
<PAGE> 16
SCHEDULE A
Europe
Products, Materials Specifying Specifications, Formulae,
Processes, Quality Control, Maintenance
<TABLE>
<CAPTION>
PRODUCT FORMULA CONTROL PLAN SPECIFICATION CMC TEST STANDARD MINIMUM ORDER
(REVISION (EFFECTIVE (SPECIFICATION NO./ METHODS PACKAGE QUANTITY
DATE) DATE/REVISION REVISION DATE) (TEST METHOD
LEVEL) NUMBER)
<S> <C> <C> <C> <C> <C> <C>
[ ] (US-[ ]) 10-1-97 Rev. A [ ] -4/98-Rev. CTM 400, 407, 404 220 liter 1000 Kgs
5/4/95 1-5/97 Poly Drum
[ ] D1.701.013 D1.701.013 Rev. 3 D1.701.013 Rev 3 CTM 400, 407, 405 220 liter 1062 Kgs
Rev 3 23/12/99 23/12/99 23/12/99 Poly Drum
[ ] D1.701.003 D1.701.003 Rev. 2 D1.701.003 Rev.2 CTM 400, 407, 406 220 liter 1062 Kgs
Rev.2 15/12/99 15/12/99 15/12/99 Poly Drum
[ ] D1.701.005 D1.701.005 Rev. 3 D1.701.005 Rev 3 CTM 400, 407, 407 220 liter 1090 Kgs
Rev 3 16/12/99 16/12/99 16/12/99 Poly Drum
[ ] D1.701.024 D1.701.024 Rev. 2 D1.701.024 Rev. 2 CTM 400, 407, 411 220 liter 1028 Kgs
Rev. 2 16/12/99 16/12/99 Poly Drum
16/12/99
[ ] (US-A1695) 10-1-97 Rev. A A1695-4/98-Rev. CTM 400, 407, 413 220 liter 1000 Kgs
7/5/93 1-5/97 Poly Drum
[ ] D1.701.036 D1.701.036 Rev. 2 D1.701.036 Rev. 2 CTM 400, 407, 416 220 liter 1088 Kgs
Rev.2 23/12/99 23/12/99 23/12/99 Poly Drum
[ ] D1.701.037 D1.701.037 Rev. 2 D1.701.037 Rev. 2 CTM 400, 407, 417 220 liter 1088 Kgs
Rev. 2 06/01/00 06/01/00 Poly Drum
06/01/00
[ ] D1.701.038 D1.701.038 Rev. 2 D1.701.038 Rev. 2 CTM 400, 407, 418 220 liter 1460 Kgs
Rev. 2 06/01/00 06/01/00 Poly Drum
06/01/00
[ ] D1.701.040 D1.701.040 Rev, 3 D1.701.040 Rev. 3 CTM 400, 407, 420 220 liter 1090 Kgs
Rev. 3 15/12/99 15/12/99 Poly Drum
15/12/99
[ ] D1.701.002 D1.701.002 Rev. 2 D1.701.002 Rev. 2 CTM 400, 407, 424 220 liter 1240 Kgs
Rev. 2 05/01/00 05/01/00 05/01/00 Poly Drum
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
[ ] D1.701.017 D1.701.017 Rev. 2 D1.701.017 Rev. 2 CTM 400, 407, 425 220 liter 988 Kgs
Rev. 2 15/12/99 15/12/99 Poly Drum
15/12/99
[ ] D1.701.033 D1.701.033 Rev. 2 D1.701.033 Rev. 2 CTM 400, 407, 426 220 liter 1070 Kgs
Rev. 2 08/12/99 08/12/99 Poly Drum
08/12/99
</TABLE>
-18-
<PAGE> 1
Exhibit 10.9
EMPLOYEE MATTERS AGREEMENT
DATED AS OF MARCH 28, 2000
BY AND BETWEEN
CABOT CORPORATION
AND
CABOT MICROELECTRONICS CORPORATION
<PAGE> 2
EMPLOYEE MATTERS AGREEMENT
This EMPLOYEE MATTERS AGREEMENT, is made as of March 28, 2000
(the "Employee Matters Agreement"), by and between Cabot Corporation ("Cabot")
and Cabot Microelectronics Corporation ("Cabot Microelectronics") (each of Cabot
and Cabot Microelectronics, a "Party," and, collectively, the "Parties").
RECITALS
WHEREAS, the Parties have entered into a Master Separation
Agreement ("MSA"), dated as of March 28, 2000, relating to the complete
separation of the "MMD Business" (as defined in the MSA) from Cabot; and
WHEREAS, the MSA contemplates that the Parties will enter into
this Employee Matters Agreement to allocate between themselves the
responsibilities, obligations and liabilities relating to the compensation and
employee benefits of the CMC Employees in connection with such separation;
NOW, THEREFORE, in consideration of the covenants and agreements set forth
below, the Parties agree as follows:
1. DEFINITIONS. As used in this Employee Matters Agreement, the
following terms will have the following meanings, applicable both to the
singular and the plural forms of the terms described:
(a) "Cabot Qualified Plans" shall mean Cabot's Cash Balance Plan,
Employee Stock Ownership Plan and Retirement Incentive Savings Plan.
(b) "Cabot Supplemental Plans" shall mean Cabot's Supplemental Cash
Balance Plan, Supplemental Employee Stock Ownership Plan, Supplemental
Retirement Income Savings Plan and Deferred Compensation Plan.
(c) "CMC Benefit Arrangements" shall mean each and all pension,
supplemental pension, accidental death and dismemberment, life and health
insurance and benefits (including medical, dental, vision, life insurance,
hospitalization, prescription drug, behavioral health and short- and long-term
disability), savings, bonus, deferred compensation, incentive compensation,
holiday, vacation, severance pay, salary continuation, tuition reimbursement,
service award, company car, scholarship, relocation, patent award, fringe
benefit and other employee benefit plans, programs, policies, agreements and
arrangements providing or having any liability to provide compensation or
benefits of any kind to the CMC Employees. The CMC Benefit Arrangements shall
<PAGE> 3
include, but shall not be limited to, each "employee benefit plan" (as defined
in Section 3(3) of ERISA) of Cabot Microelectronics.
(d) "CMC Employees" shall mean all persons who are active employees of
Cabot Microelectronics, other than the CMC Foreign Employees. Prior to the
Contribution Date, Cabot Microelectronics and Cabot shall have agreed on the
names of those persons who will be CMC Employees as of the Contribution Date.
(e) "CMC Foreign Employees" shall mean all persons who are active
employees of Cabot Microelectronics (determined in accordance with the law of
the jurisdictions in which such individuals are located) who reside outside of
the United States.
(f) "COBRA" shall mean the continuation coverage requirements of
Section 4980B(f) of the Code and Section 601 of ERISA.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(h) "Contribution Date" shall have the meaning set forth in the MSA.
(i) "Distribution" and "Distribution Date" shall have the meaning set
forth in the MSA.
(j) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(k) "IPO Effective Date" shall have the meaning set forth in the MSA.
(m) "IPO Registration Statement" means the registration statement on
Form S-1, Registration No. 333-90593, filed by Cabot Microelectronics with the
Securities and Exchange Commission in connection with the initial public
offering of the Common Stock, $.001 par value per share, of Cabot
Microelectronics, as it may be amended.
2. ASSUMPTION BY CABOT MICROELECTRONICS OF RESPONSIBILITIES,
OBLIGATIONS AND LIABILITIES RELATING TO THE CMC EMPLOYEES
(a) Except as set forth in Section 2(c), as of the Contribution Date,
Cabot Microelectronics shall (or shall cause one or more applicable CMC Benefit
Plans to) assume all responsibilities, obligations and liabilities relating the
employment, compensation and benefits of the CMC Employees as of and following
the Contribution Date. Cabot shall retain all responsibilities, obligations and
liabilities not so assumed by Cabot Microelectronics pursuant to this Employees
Matters Agreement.
(b) Cabot shall indemnify Cabot Microelectronics and shall hold Cabot
Microelectronics harmless from and against any damages, liabilities, costs or
expenses which may be incurred or suffered by Cabot Microelectronics by reason
of Cabot's failure to comply with any of the provisions of this Employee Matters
Agreement, and Cabot Microelectronics shall indemnify Cabot and its affiliates
(other than Cabot
-3-
<PAGE> 4
Microelectronics) and hold Cabot and its affiliates (other than Cabot
Microelectronics) harmless from and against any damages, liabilities, costs or
expenses which may be incurred or suffered by Cabot and its affiliates (other
than Cabot Microelectronics) by reason of Cabot Microelectronics' failure to
comply with any of the provisions of this Employee Matters Agreement.
(c) The only exceptions to the responsibilities, obligations and
liabilities assumed by Cabot Microelectronics pursuant to Section 2(a) are as
follows:
(i) Cabot shall retain all responsibilities, obligations and
liabilities relating to the Cabot Qualified Plans.
(ii) Cabot shall retain all responsibilities, obligations and
liabilities under COBRA and state workers' compensation statutes relating to any
CMC Employee (and, in the case of COBRA benefits, any qualified beneficiary of a
CMC Employee) who becomes entitled to benefits under either of such statutes on
or before the Contribution Date.
(iii) Cabot shall retain all responsibilities, obligations and
liabilities for claims arising or incurred on or before the Contribution Date
relating to any CMC Employee under any medical, dental, vision, life insurance,
hospitalization, prescription drug, behavioral health and short-term disability
plan of Cabot. For purposes of this Section 2(c)(iii), a claim shall be deemed
to have arisen or to have been incurred upon the incurrence of a qualified
expense for which reimbursement or payment is sought.
(iv) Cabot shall retain all responsibilities, obligations and
liabilities for claims arising or incurred under Cabot's long-term disability
plan with respect to any CMC Employee who becomes entitled to benefits
thereunder on or before the Distribution Date (or such earlier date as Cabot and
Cabot Microelectronics may mutually agree).
(v) Stock-based equity awards granted by Cabot to the CMC
Employees pursuant to Cabot's equity incentive plans shall be treated as set
forth in Section 6 of this Employee Matters Agreement. Benefits of the CMC
Employees under the Cabot Supplemental Plans shall be treated as set forth in
Section 7 of this Employee Matters Agreement. Flexible spending accounts of the
CMC Employees under Cabot's flexible benefits plan shall be treated as set forth
in Section 8 of this Employee Matters Agreement.
(d) Cabot Microelectronics shall promptly reimburse Cabot, upon Cabot's
reasonable request, for any responsibilities, obligations and liabilities
satisfied by Cabot that have been assumed by Cabot Microelectronics pursuant to
this Section 2, and Cabot shall promptly reimburse Cabot Microelectronics, upon
Cabot Microelectronics'
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reasonable request, for any responsibilities, obligations and liabilities
satisfied by Cabot Microelectronics that have been retained by Cabot pursuant to
this Section 2.
3. ESTABLISHMENT OF CMC BENEFIT ARRANGEMENTS
(a) Cabot Microelectronics shall establish the following CMC Benefit
Arrangements on or before such times as are set forth below:
(i) Qualified Defined Contribution Plan. On or before the IPO
Effective Date, Cabot Microelectronics shall adopt a defined contribution plan
for the benefit of the CMC Employees. Such plan shall be qualified under
Sections 401(a) and 401(k) of the Code and shall contain such rights and
features as Cabot Microelectronics shall determine. The CMC Employees shall
commence to participate in such plan as of the first day of the month
immediately following the month in which the IPO Effective Date occurs.
(ii) Employee Stock Purchase Plan. On or before the IPO
Effective Date, Cabot Microelectronics shall adopt an employee stock purchase
plan for the benefit of the CMC Employees. Such plan shall be a plan to which
Section 423 of the Code applies and shall contain such rights and features as
Cabot Microelectronics shall determine. Subject to Section 3(h), the first
offering period under such plan shall commence on the IPO Effective Date (or
such other date as Cabot Microelectronics shall establish).
(iii) Supplemental Retirement Plan. On or before the IPO
Effective Date, Cabot Microelectronics shall adopt a supplemental retirement
plan for the purpose of providing supplemental retirement benefits to the CMC
Employees whose contributions to the CMC qualified defined contribution plan are
limited by reason of application of Sections 415(a) and 401(a)(17) of the Code.
Such plan shall in Cabot Microelectronics' discretion be either an "excess
benefit plan" (within the meaning of Section 3(36) of ERISA) or a plan which is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
and shall contain such rights and features as Cabot Microelectronics shall
determine; provided, however, that Cabot Microelectronics shall cause such plan
to be "unfunded" for purposes of ERISA and the Code (but the application of this
proviso shall not preclude Cabot Microelectronics from establishing and making
contributions to one or more grantor trusts relating to such plan). The CMC
Employees shall commence to participate in such plan as of the first day of the
month immediately following the month in which the IPO Effective Date occurs.
(iv) Equity Incentive Plan. Prior to the IPO Effective Date,
Cabot Microelectronics shall adopt an equity incentive plan for the purpose of
making equity-based incentive awards relating to the common stock of Cabot
Microelectronics. Subject
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to Section 3(h), equity awards shall be made thereunder as of and after the IPO
Effective Date at such times, in such amounts and to such persons as Cabot
Microelectronics shall determine.
(v) Medical and Health Plans. Prior to the Distribution Date,
Cabot Microelectronics shall establish one or more plans providing medical,
dental, vision, life insurance, hospitalization, prescription drug, behavioral
health and short- and long-term disability benefits to the CMC Employees and
their eligible dependents. The CMC Employees shall commence to participate in
such plans as of the Distribution Date (or such earlier date as Cabot and Cabot
Microelectronics may mutually agree).
(vi) Employment, Severance and Change-in-Control Agreements
and Arrangements. Following the IPO Effective Date, Cabot Microelectronics shall
enter into such agreements and other arrangements relating to the severance and
termination payments and benefits to which CMC Employees shall become entitled
upon termination of employment following a "change in control" of Cabot
Microelectronics (as defined therein) as Cabot Microelectronics in its sole
discretion deems necessary or advisable. The terms and conditions of these
agreements and arrangements (including, without limitation, eligibility,
conditions to entitlements and nature and amount of payments and benefits) shall
be determined by Cabot Microelectronics in its sole discretion.
(b) In addition to the CMC Benefit Arrangements to be adopted and
established pursuant to Section 3(a), Cabot Microelectronics shall establish
such other CMC Benefit Arrangements and such other practices and policies
relating thereto as it deems necessary and appropriate for the purpose of
providing compensation and employee benefits to the CMC Employees.
(c) To the extent that service is relevant to eligibility, vesting or
determination of levels of benefits under any CMC Benefit Arrangement, such CMC
Benefit Arrangement shall provide credit for service by CMC Employees with Cabot
or any of its affiliates (but excluding (i) accrual of benefits under any
defined benefit pension plan that Cabot Microelectronics may establish and (ii)
service awards).
(d) Cabot Microelectronics shall bear all responsibilities, obligations
and liabilities under the CMC Benefit Arrangements.
(e) Except as set forth in this Section 3, nothing in this Employee
Matters Agreement shall prohibit Cabot Microelectronics from amending, modifying
or terminating any CMC Benefit Arrangement following the Distribution Date.
(f) With respect to CMC Benefit Arrangements that provide for medical,
dental, vision, life insurance, hospitalization, prescription drug, behavioral
health and short- and long-term disability benefits or other, similar welfare
benefits, no pre-existing
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conditions exclusions shall be applied to a CMC Employee participating therein
except to the extent such CMC Employee has not satisfied any such exclusion
under the plan of Cabot providing such benefits in which such CMC Employee
participated immediately prior to the commencement of participation in such CMC
Benefit Arrangement. Any amounts for out-of-pocket limits and benefit maximums
paid or incurred in any plan year under any such Cabot plan by a CMC Employee
during such plan year shall be counted toward such CMC Employee's out-of-pocket
limits and benefit maximums under such CMC Benefit Arrangement for the same plan
year.
(g) The Parties shall take all steps necessary such that (i) any CMC
Benefit Arrangements in effect as of the IPO Effective Date shall comply in form
and in operation with all applicable law (including, without limitation, ERISA,
the Code and the federal securities laws) as of the IPO Effective Date, and (ii)
equity awards granted under the CMC equity incentive plan prior to the
Distribution Date shall constitute qualified performance-based compensation
under Section 162(m) of the Code.
(h) The Parties shall take all steps necessary such that no issuance of
Cabot Microelectronics common stock shall be made, no Cabot Microelectronics
stock-based equity award shall be granted and no other action shall be taken if
such issuance, grant or other action would preclude the Distribution from being
tax-free to Cabot and its stockholders.
4. CESSATION OF PARTICIPATION IN CABOT BENEFIT PLANS AND ARRANGEMENTS
(a) Except as set forth in Sections 4(b), effective as of the IPO
Effective Date, the CMC Employees shall cease to participate in, be covered by,
receive benefits under or have any rights under the employee benefit plans and
arrangements of Cabot, except for benefits and rights relating to their
participation therein prior to the IPO Effective Date.
(b) The only exceptions to Section 4(a) are as follows:
(i) The CMC Employees shall cease to accrue benefits under
Cabot's Cash Balance Plan (and, if applicable, the Cabot Supplemental Plan
relating thereto) on the last day of the month in which the IPO Effective Date
occurs.
(ii) The CMC Employees shall receive allocations under Cabot's
Employee Stock Ownership Plan (and, if applicable, the Cabot Supplemental Plan
relating thereto) at the end of the calendar quarter in which the IPO Effective
Date occurs; provided, however, that such allocations shall reflect only service
and compensation through the last day of the month in which the IPO Effective
Date occurs. Cabot shall contribute an amount equal to such contributions to
Cabot's Employee Stock Ownership Plan as soon as practicable following the end
of the calendar quarter in which the IPO
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<PAGE> 8
Effective Date occurs and shall cause such contributions to be allocated to the
accounts of the CMC Employees participating therein.
(iii) The CMC Employees shall receive matching contributions
under Cabot's Retirement Incentive Savings Plan (and, if applicable, the Cabot
Supplemental Plan relating thereto) at the end of the calendar quarter in which
the IPO Effective Date occurs; provided, however, that such matching
contributions shall be limited to reflect elective deferrals through the last
day of the month in which the IPO Effective Date occurs. Cabot shall contribute
an amount equal to such contributions to Cabot's Retirement Incentive Savings
Plan as soon as practicable following the end of the calendar quarter in which
the IPO Effective Date occurs and shall cause such contributions to be allocated
to the accounts of the CMC Employees participating therein. Outstanding loans
under Cabot's Retirement Incentive Savings Plan shall be treated as set forth in
Section 5 of this Employee Matters Agreement.
(iv) The CMC Employees shall cease to participate in the
medical, dental, vision, life insurance, hospitalization, prescription drug,
behavioral health and short- and long-term disability and other, similar plans
sponsored by Cabot as of the earlier of (x) the date on which they commence to
participate in medical and health plans sponsored by Cabot Microelectronics and
(y) the Distribution Date.
(v) The CMC Employees shall cease to participate in Cabot's
Employee Stock Purchase Plan as of the last payroll date prior to the IPO
Effective Date. As soon as practicable following such payroll date, any payroll
deductions of such CMC Employees shall be applied to the purchase of shares of
Cabot common stock, and any excess payroll deductions not so applied shall be
returned to such CMC Employees.
(vi) Stock-based equity awards granted by Cabot to the CMC
Employees pursuant to Cabot's equity incentive plans shall be treated as set
forth in Section 6 of this Employee Matters Agreement. Benefits of the CMC
Employees under the Cabot Supplemental Plans shall be treated as set forth in
Section 7 of this Employee Matters Agreement. Flexible spending accounts of the
CMC Employees under Cabot's flexible benefits plan shall be treated as set forth
in Section 8 of this Employee Matters Agreement.
(c) Prior to the IPO Effective Date, Cabot shall take all action
necessary such that each CMC Employee shall, effective immediately prior to the
Distribution Date, become fully vested in any unvested portion of his or her
accrued benefit under the Cabot Qualified Plans and the Cabot Supplemental
Plans.
5. TREATMENT OF LOANS UNDER THE CABOT RETIREMENT INCENTIVE SAVINGS
PLAN. Subject to any applicable loan provisions under Cabot's Retirement
Incentive Savings Plan as in effect on the date hereof, Cabot and Cabot
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Microelectronics shall take all actions necessary such that, in connection with
the Distribution, each participant in such plan who is a participant in Cabot
Microelectronics' defined contribution plan is provided with the opportunity to
repay any outstanding loans under the Retirement Incentive Savings Plan and to
establish loans of substantially equal amounts under the Cabot Microelectronics
defined contribution plan.
6. CONVERSION OF CABOT EQUITY AWARDS. Subject to Section 3(h), equity
awards granted to CMC Employees by Cabot under the equity incentive plans of
Cabot may be converted at such times and in such a manner as Cabot and Cabot
Microelectronics shall agree. As of the date of such conversion, Cabot
Microelectronics shall be deemed to have assumed all such converted awards.
7. TREATMENT OF LIABILITIES RELATING TO DEFERRED COMPENSATION AND
SUPPLEMENTAL BENEFITS
(a) Cabot shall take all steps necessary such that: (i) each CMC
Employee who participates in the Cabot Supplemental Plans may elect to reduce to
zero his or her aggregate accrued benefits thereunder and be credited with an
opening account balance of equivalent value under the supplemental retirement
plan established by Cabot Microelectronics pursuant to Section 3(a)(iii) of this
Employee Matters Agreement; and (ii) the aggregate accrued benefits of each CMC
Employee under the Cabot Supplemental Plans who so elects shall, as of the
Distribution Date, be so reduced; provided, however, that no such election by a
CMC Employee so to reduce his or her aggregate accrued benefits under any Cabot
Supplemental Plan shall be of any force and effect unless he or she makes such
election with respect to all of the Cabot Supplemental Plans in which he or she
participates.
(b) Cabot Microelectronics shall take all steps necessary such that:
(i) the supplemental retirement plan established by it pursuant to Section
3(a)(iii) of this Employee Matters Agreement shall permit the crediting of
opening account balances with respect to each CMC Employee who has made the
election under the Cabot Supplemental Plans contemplated by Section 7(a) of this
Employee Matters Agreement; and (ii) such opening account balance shall, as of
the Distribution Date, be so credited with respect to (and only with respect to)
each CMC Employee who has made such an election.
(c) Any account balance credited under the Cabot Microelectronics
supplemental retirement plan established by it pursuant to Section 3(a)(iii) of
this Employee Matters Agreement shall be subject to such terms and conditions as
Cabot Microelectronics shall determine; provided, however, that no such term or
condition shall (i) cause any such account balance to be forfeitable and (ii)
without the consent of the applicable CMC Employee, postpone the payment of any
such account balance after termination of his or her employment.
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(d) As of the Distribution Date, Cabot Microelectronics shall assume
all account balances credited pursuant to this Section 7.
8. TREATMENT OF FLEXIBLE SPENDING ACCOUNTS.
(a) Effective as of a date prior to the Distribution Date as the
Parties shall agree, the Parties shall take all steps necessary and appropriate
so that Cabot Microelectronics assumes the Cabot Corporation Flexible Benefits
Plan with respect to the CMC Employees who participate therein (the Cabot
Corporation Flexible Benefits Plan, the "Cabot FBP," and the Cabot
Microelectronics flexible benefits plan resulting from such assumption, the "CMC
FBP"). To the extent that the date of such assumption is other than as of the
first day of a plan year of the Cabot FBP (such date of assumption, the
"Assumption Date"): (x) the Parties shall take all steps necessary or
appropriate so that the book entry account balances (reflecting salary
deductions, deemed employer contributions (if any) and qualified expenses paid
(if any)) under the Cabot FBP of each such CMC Employee shall become account
balances, as of the Assumption Date, under the CMC FBP; and (y) the Parties
shall take all steps necessary or appropriate so that the contribution elections
of each such CMC Employee as in effect immediately before the Assumption Date
under the Cabot FBP remain in effect under the CMC FBP immediately after the
Assumption Date.
(b) As soon as practicable following March 31 following the plan year
of the Cabot FBP in which the Assumption Date occurs, Cabot and Cabot
Microelectronics shall agree upon the appropriate method of allocating between
them any losses suffered by either of them by reason of Section 8(a) of this
Employee Matters Agreement.
9. FOREIGN EMPLOYEES. As of the Contribution Date, Cabot
Microelectronics shall assume all responsibilities, obligations and liabilities
relating to the employment, compensation and benefits of the CMC Foreign
Employees as of and following the Contribution Date. Cabot shall retain all
responsibilities, obligations and liabilities not so assumed by Cabot
Microelectronics pursuant to this Section 9.
10. COOPERATION.
(a) Cabot Microelectronics and Cabot shall reasonably cooperate with
each other in carrying out the terms of this Employee Matters Agreement with the
purpose of effectuating the intent hereof, and each Party shall exchange such
information with the other Party as may be reasonably requested by the other
Party relating hereto.
(b) Each of the Parties shall provide to the other Party, upon such
other Party's reasonable request, any and all information in such Party's
possession which relates to such Party's employee benefit plans, programs and
arrangements, including, without limitation, annual reports on Form 5500,
actuarial valuations and materials relating to
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nondiscrimination and coverage; provided, however, that (i) no Party shall be
required (x) to prepare any document in response to any such request or (y) to
produce any document which is subject to a claim of privilege, and (ii) no Party
shall be required to respond to any such request to the extent that such request
relates to any period other than the period commencing on January 1, 1999 and
ending, with respect to all of the Parties' employee benefit plans, programs and
arrangements other than the Parties' tax-qualified plans, on the third
anniversary of the Distribution Date, and ending, with respect to the Parties'
tax-qualified plans, on December 31 of the year in which the sixth anniversary
of the Distribution Date occurs.
11. ORDER OF PRECEDENCE. The Parties agree that, if any terms of this
Employee Matters Agreement conflict with the terms in the MSA, the terms of this
Employee Matters Agreement shall govern with respect to the resolution of such
conflict.
12. INCORPORATION OF ARTICLE 7 OF THE MSA. The provisions of Article 7
of the MSA are incorporated into and made part of this Employee Matters
Agreement by reference.
13. EFFECTIVE TIME. This Agreement shall become effective upon the
closing of the initial public offering described in the IPO Registration
Statement.
IN WITNESS WHEREOF, the Parties hereto have executed this Employee Matters
Agreement, effective as of the date first written above.
CABOT MICROELECTRONICS
CABOT CORPORATION CORPORATION
/s/ Samuel W. Bodman /s/ Matthew Neville
- --------------------------------- -------------------------------------
By: Samuel W. Bodman By: Matthew Neville
Its: Chairman and CEO Its: President and CEO
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<PAGE> 1
Exhibit 10.10
REGISTRATION RIGHTS AGREEMENT
by and between
CABOT MICROELECTONICS CORPORATION
and
CABOT CORPORATION
Dated as of March 28, 2000
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Exhibit 10.10
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
March 28, 2000, by and between CABOT MICROELECTRONICS CORPORATION, a Delaware
corporation (the "Company") and CABOT CORPORATION, a Delaware corporation
("Cabot").
WHEREAS, as of the date hereof, the Company and its subsidiary and
Cabot and certain of its subsidiaries are entering into a Master Separation
Agreement (the "Master Separation Agreement"), pursuant to which, among other
things, Cabot and such subsidiaries are transferring to the Company, and the
Company and such subsidiary are assuming, certain assets and liabilities of the
Microelectronics Materials Division of Cabot;
WHEREAS, as of the date hereof, the Company and Cabot are entering into
an IPO and Distribution Agreement (the "IPO and Distribution Agreement"),
pursuant to which, among other things, upon the occurrence of certain events,
the Company will effect an initial public offering of its Common Stock;
WHEREAS, following the initial public offering by the Company, Cabot
intends to divest itself of its entire ownership of the Company through one or
more tax-free distributions to the holders of Cabot's common stock (the
"Distribution"); and
WHEREAS, in connection with (i) the Company and Cabot entering into the
Master Separation Agreement, and (ii) the Company and Cabot entering into the
IPO and Distribution Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement.
ACCORDINGLY, the parties hereto agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
"Affiliate" means (i) with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) with respect to any
individual, shall also mean the spouse or child of such individual; provided,
that neither the Company nor any Person controlled by the Company shall be
deemed to be an Affiliate of any Holder.
<PAGE> 3
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as amended.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company and any equity securities issued or issuable with respect to the
Common Stock in connection with a reclassification, recapitalization, merger,
consolidation or other reorganization.
"Common Stock Equivalents" means any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock.
"Holder" or "Holders" means any party who is a signatory to this
Agreement and, subject to Section 4.6(a), any party who shall hereafter acquire
and hold Registrable Securities.
"IPO" means the initial underwritten offering pursuant to which the
Common Stock becomes registered under Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
"Major Holder" means with respect to any registration the Holder that,
together with its Affiliates, includes the largest number of Registrable
Securities in such registration.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
"Registrable Securities" means any (a) shares of Common Stock held by
Cabot and (b) shares of Common Stock issued or issuable, directly or indirectly,
with respect to the Common Stock referenced in clause (a) above by way of stock
dividend, stock split or combination of shares. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when (A) a
registration statement with respect to the sale of such Registrable Securities
shall have become effective under the Securities Act and such Registrable
Securities shall have been disposed of in accordance with such registration
statement; (B) such Shares shall have been sold to the public pursuant to Rule
144 under the Securities Act (or any successor provision); (C) such Registrable
Securities shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by the
Company and subsequent public distribution of them shall not require
registration or qualification of them under the Securities Act or any similar
state law then in force; and (D) such Registrable Securities shall have ceased
to be outstanding.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
2. Registration Rights.
2.1. Demand Registrations.
(a) (i) Subject to Sections 2.1(b) and 2.3 below, at any time
and from time to time after the closing of an IPO and the delivery by Cabot to
the Company of written notice, pursuant to Section 2.6 of the IPO and
Distribution Agreement, that Cabot no longer intends to proceed with or complete
the Distribution (the "Registration Rights Trigger Date"), Cabot shall have the
right to require the Company to file a registration statement under the
Securities Act covering all or any part of its Registrable Securities, by
delivering a written request therefor to the Company specifying the number of
Registrable Securities to be included in such registration by Cabot and the
intended method of distribution thereof. All such requests by Cabot pursuant to
this Section 2.1(a)(i) are referred to herein as "Demand Registration Requests,"
and the registrations so requested are referred to herein as "Demand
Registrations" (with respect to any Demand Registration, the Holder making such
demand for registration being referred to as the "Initiating Holder"). As
promptly as practicable, but no later than ten days after receipt of a Demand
Registration Request, the Company shall give written notice (the "Demand
Exercise Notice") of such Demand Registration Request to all Holders of record
of Registrable Securities.
(ii) The Company, subject to Sections 2.3 and 2.6, shall
include in a Demand Registration (x) the Registrable Securities of the
Initiating Holder and (y) the Registrable Securities of any other Holder which
shall have made a written request to the Company for inclusion in such
registration (which request shall specify the maximum number of Registrable
Securities intended to be disposed of by such Holder) within 30 days after the
receipt of the Demand Exercise Notice (or, 15 days if, at the request of the
Initiating Holder or the Major Holder participating in such registration, the
Company states in such written notice or gives telephonic notice to all Holders,
with written confirmation to follow promptly thereafter, that such registration
will be on a Form S-3).
(iii) The Company shall, as expeditiously as possible, use
its best efforts to (x) effect such registration under the Securities Act
(including, without limitation, by means of a shelf registration pursuant to
Rule 415 under the Securities Act if so requested and if the Company is then
eligible to use such a registration) of the Registrable Securities which the
Company has been so requested to register, for distribution in accordance with
such intended method of distribution, and (y) if requested by the Initiating
Holder or the Major Holder participating in such registration, obtain
acceleration of the effective date of the registration statement relating to
such registration.
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(b) The Demand Registration rights granted in Section 2.1(a)
to the Holders are subject to the following limitations: (i) with respect to any
registration in respect of a Demand Registration Request initiated by a
transferee of Cabot, such registration statement must include shares of Common
Stock representing, in the aggregate (based on the Common Stock included in such
registration by Cabot), in excess of 20% of the sum of (x) the amount of shares
of Registrable Securities held, in the aggregate, by Cabot and its transferees
immediately prior to such registration plus (y) the amount of shares of Common
Stock obtainable upon the conversion of Common Stock Equivalents held, in the
aggregate, by Cabot and their transferees immediately prior to such
registration; (ii) the Company shall not be required to cause a registration
pursuant to Section 2.1(a)(i) to be declared effective within a period of 180
days after the effective date of any registration statement of the Company
effected in connection with a Demand Registration Request; and (iii) if the
Board of Directors of the Company, in its good faith judgment, determines that
any registration of Registrable Securities should not be made or continued
because it would materially interfere with any material financing, acquisition,
corporate reorganization or merger or other transaction involving the Company or
any of its subsidiaries (a "Valid Business Reason"), (x) the Company may
postpone filing a registration statement relating to a Demand Registration
Request until such Valid Business Reason no longer exists, but in no event for
more than three months, and (y) in case a registration statement has been filed
relating to a Demand Registration Request, if the Valid Business Reason has not
resulted from actions taken by the Company, the Company may cause such
registration statement to be withdrawn and its effectiveness terminated or may
postpone amending or supplementing such registration statement until such Valid
Business Reason no longer exists, but in no event for more than three months
(such period of postponement or withdrawal under subclauses (x) or (y) of this
clause (iv), the "Postponement Period"); and the Company shall give written
notice of its determination to postpone or withdraw a registration statement and
of the fact that the Valid Business Reason for such postponement or withdrawal
no longer exists, in each case, promptly after the occurrence thereof; provided,
however, the Company shall not be permitted to postpone or withdraw a
registration statement after the expiration of any Postponement Period until
twelve months after the expiration of such Postponement Period without the prior
written approval of Cabot.
If the Company shall give any notice of postponement or
withdrawal of any registration statement, the Company shall not, during the
period of postponement or withdrawal, register any Common Stock, other than
pursuant to a registration statement on Form S-4 or S-8 (or an equivalent
registration form then in effect). Each Holder of Registrable Securities agrees
that, upon receipt of any notice from the Company that the Company has
determined to withdraw any registration statement pursuant to clause (iii)
above, such Holder will discontinue its disposition of Registrable Securities
pursuant to such registration statement and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in
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such Holder's possession of the prospectus covering such Registrable Securities
that was in effect at the time of receipt of such notice. If the Company shall
have withdrawn or prematurely terminated a registration statement filed under
Section 2.1(a)(i) (whether pursuant to clause (iii) above or as a result of any
stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court), the Company shall not be considered to have
effected an effective registration for the purposes of this Agreement until the
Company shall have filed a new registration statement covering the Registrable
Securities covered by the withdrawn registration statement and such registration
statement shall have been declared effective and shall not have been withdrawn.
If the Company shall give any notice of withdrawal or postponement of a
registration statement, the Company shall, at such time as the Valid Business
Reason that caused such withdrawal or postponement no longer exists (but in no
event later than three months after the date of the postponement or withdrawal),
use its best efforts to effect the registration under the Securities Act of the
Registrable Securities covered by the withdrawn or postponed registration
statement in accordance with this Section 2.1 (unless the Initiating Holder
shall have withdrawn such request, in which case the Company shall not be
considered to have effected an effective registration for the purposes of this
Agreement).
(c) The Company, subject to Sections 2.3 and 2.6, may elect to
include in any registration statement and offering made pursuant to Section
2.1(a)(i), (i) authorized but unissued shares of Common Stock or shares of
Common Stock held by the Company as treasury shares and (ii) any other shares of
Common Stock which are requested to be included in such registration pursuant to
the exercise of piggyback rights granted by the Company after the date hereof
which are not inconsistent with the rights granted in, or otherwise conflict
with the terms of, this Agreement ("Additional Piggyback Rights") provided,
however, that such inclusion shall be permitted only to the extent that it is
pursuant to and subject to the terms of the underwriting agreement or
arrangements, if any, entered into by the Initiating Holder.
(d) In connection with any Demand Registration, the Major
Holder participating in such registration shall have the right to designate the
lead managing underwriter, and subject to the next sentence, each other managing
underwriter for such registration, provided that each such other managing
underwriter is reasonably satisfactory to the Company, it being understood and
agreed that any managing underwriter that participates in the Company's IPO
shall be satisfactory to the Company. The Company shall have the right to
designate one managing underwriter other than the lead managing underwriter in
any such registration, provided that such other managing underwriter is
reasonably satisfactory to the Major Holder, it being understood and agreed that
any managing underwriter that participates in the Company's IPO shall be
satisfactory to the Major Holder.
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2.2. Piggyback Registrations.
(a) If, at any time after the Registration Rights Trigger
Date, the Company proposes or is required to register any of its equity
securities under the Securities Act (other than pursuant to (i) registrations on
such form or similar form(s) solely for registration of securities in connection
with an employee benefit plan or dividend reinvestment plan or a merger or
consolidation or (ii) a Demand Registration under Section 2.1) on a registration
statement on Form S-1, Form S-2 or Form S-3 (or an equivalent general
registration form then in effect), whether or not for its own account, the
Company shall give prompt written notice of its intention to do so to each of
the Holders of record of Registrable Securities. Upon the written request of any
such Holder, made within 20 days following the receipt of any such written
notice (which request shall specify the maximum number of Registrable Securities
intended to be disposed of by such Holder and the intended method of
distribution thereof), the Company shall, subject to Sections 2.2(b), 2.3 and
2.6 hereof, use its best efforts to cause all such Registrable Securities, the
Holders of which have so requested the registration thereof, to be registered
under the Securities Act (with the securities which the Company at the time
proposes to register) to permit the sale or other disposition by the Holders (in
accordance with the intended method of distribution thereof) of the Registrable
Securities to be so registered. There is no limitation on the number of such
piggyback registrations pursuant to the preceding sentence which the Company is
obligated to effect. No registration effected under this Section 2.2(a) shall
relieve the Company of its obligations to effect Demand Registrations.
(b) If, at any time after giving written notice of its
intention to register any equity securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of such equity securities, the Company may, at its election, give written notice
of such determination to all Holders of record of Registrable Securities and (i)
in the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
abandoned registration, without prejudice, however, to the rights of Holders
under Section 2.1, and (ii) in the case of a determination to delay such
registration of its equity securities, shall be permitted to delay the
registration of such Registrable Securities for the same period as the delay in
registering such other equity securities.
(c) Any Holder shall have the right to withdraw its request
for inclusion of its Registrable Securities in any registration statement
pursuant to this Section 2.2 by giving written notice to the Company of its
request to withdraw; provided, however, that (i) such request must be made in
writing prior to the earlier of the execution of the underwriting agreement or
the execution of the custody agreement with respect to such registration and
(ii) such withdrawal shall be irrevocable and, after making such
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<PAGE> 8
withdrawal, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which such withdrawal was made.
2.3. Allocation of Securities Included in Registration Statement.
(a) If any requested registration pursuant to Section 2.1
involves an underwritten offering and the lead managing underwriter of such
offering (the "Manager") shall advise the Company that, in its view, the number
of securities requested to be included in such registration by the Holders or
any other persons (including those shares of Common Stock requested by the
Company to be included in such registration) exceeds the largest number (the
"Section 2.1 Sale Number") that can be sold in an orderly manner in such
offering within a price range acceptable to the Initiating Holder, the Company
shall include in such registration:
(i) all Registrable Securities requested to be
included in such registration by Holders of Registrable Securities; provided,
however, that, if the number of such Registrable Securities exceeds the Section
2.1 Sale Number, the number of such Registrable Securities (not to exceed the
Section 2.1 Sale Number) to be included in such registration shall be allocated
on a pro rata basis among all Holders requesting that Registrable Securities be
included in such registration, based on the number of Registrable Securities
then owned by each Holder requesting inclusion in relation to the number of
Registrable Securities owned by all Holders requesting inclusion;
(ii) to the extent that the number of Registrable
Securities to be included by all Holders pursuant to clause (i) of this Section
2.3(a) is less than the Section 2.1 Sale Number, securities that the Company
proposes to register; and
(iii) to the extent that the number of Registrable
Securities to be included by all Holders and the number of securities to be
included by the Company is less than the Section 2.1 Sale Number, any other
securities that the holders thereof propose to register pursuant to the exercise
of Additional Piggyback Rights.
If, as a result of the proration provisions of this Section
2.3(a), any Holder shall not be entitled to include all Registrable Securities
in a registration that such Holder has requested be included, such Holder may
elect to withdraw his request to include Registrable Securities in such
registration or may reduce the number requested to be included; provided,
however, that (x) such request must be made in writing prior to the earlier of
the execution of the underwriting agreement or the execution of the custody
agreement with respect to such registration and (y) such withdrawal shall be
irrevocable and, after making such withdrawal, a Holder shall no longer have any
right to include Registrable Securities in the registration as to which such
withdrawal was made.
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<PAGE> 9
(b) If any registration pursuant to Section 2.2 involves an
underwritten offering and the Manager shall advise the Company that, in its
view, the number of securities requested to be included in such registration
exceeds the number (the "Section 2.2 Sale Number") that can be sold in an
orderly manner in such registration within a price range acceptable to the
Company, the Company shall include in such registration:
(i) all Common Stock or securities convertible into,
or exchangeable or exercisable for, Common Stock that the Company proposes to
register for its own account (the "Company Securities");
(ii) to the extent that the number of Company
Securities is less than the Section 2.2 Sale Number, the remaining shares to be
included in such registration shall be allocated on a pro rata basis among all
Holders of Registrable Securities requesting that Registrable Securities be
included in such registration, based on the number of Registrable Securities
then owned by each Holder requesting inclusion in relation to the number of
Registrable Securities owned by all Holders requesting inclusion; and
(iii) to the extent the number of Company Securities
plus the number of Registrable Securities requested to be included by all
Holders is less than the Section 2.2 Sale Number, any other securities that the
holders thereof propose to register pursuant to the exercise of Additional
Piggyback Rights.
2.4. Registration Procedures.
If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Agreement,
the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement on
an appropriate registration form of the SEC for the disposition of such
Registrable Securities in accordance with the intended method of disposition
thereof, which form (i) shall be selected by the Company and (ii) shall, in the
case of a shelf registration, be available for the sale of the Registrable
Securities by the selling Holders thereof and such registration statement shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith, and the Company shall use its best efforts to cause such
registration statement to become and remain effective (provided, however, that
before filing a registration statement or prospectus or any amendments or
supplements thereto, or comparable statements under securities or blue sky laws
of any jurisdiction, the Company will furnish to one counsel for the Holders
participating in the planned offering (selected by the
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<PAGE> 10
Initiating Holder, in the case of a registration pursuant to Section 2.1, and
selected by the Major Holder, in the case of a registration pursuant to Section
2.2) and the underwriters, if any, copies of all such documents proposed to be
filed (including all exhibits thereto), which documents will be subject to the
reasonable review and reasonable comment of such counsel, and the Company shall
not file any registration statement or amendment thereto or any prospectus or
supplement thereto to which the Holders of a majority of the Registrable
Securities covered by such registration statement or the underwriters, if any,
shall reasonably object in writing);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period (which shall not be required to exceed 180 days in the case of a
registration pursuant to Section 2.1 or 120 days in the case of a registration
pursuant to Section 2.2) as any seller of Registrable Securities pursuant to
such registration statement shall request and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of all
Registrable Securities covered by such registration statement in accordance with
the intended methods of disposition by the seller or sellers thereof set forth
in such registration statement;
(c) furnish, without charge, to each seller of such
Registrable Securities and each underwriter, if any, of the securities covered
by such registration statement such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits), and the prospectus included in such registration statement (including
each preliminary prospectus) in conformity with the requirements of the
Securities Act, and other documents, as such seller and underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such seller (the Company hereby
consenting to the use in accordance with all applicable law of each such
registration statement (or amendment or post-effective amendment thereto) and
each such prospectus (or preliminary prospectus or supplement thereto) by each
such seller of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such registration statement or prospectus);
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or "blue sky" laws of such jurisdictions as any sellers of
Registrable Securities or any managing underwriter, if any, shall reasonably
request, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such sellers or underwriter, if any, to
consummate the disposition of the Registrable Securities in such jurisdictions,
except that in no event shall the Company be required to qualify to do business
as a foreign corporation in any jurisdiction where it would not, but for the
requirements of this
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<PAGE> 11
paragraph (d), be required to be so qualified, to subject itself to taxation in
any such jurisdiction or to consent to general service of process in any such
jurisdiction;
(e) promptly notify each Holder selling Registrable Securities
covered by such registration statement and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose; (v) of the
existence of any fact of which the Company becomes aware which results in the
registration statement, the prospectus related thereto or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make any statement therein not misleading; and (vi) if at any time
the representations and warranties contemplated by any underwriting agreement,
securities sale agreement, or other similar agreement, relating to the offering
shall cease to be true and correct in all material respects; and, if the
notification relates to an event described in clause (v), the Company shall
promptly prepare and furnish to each such seller and each underwriter, if any, a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading;
(f) comply with all applicable rules and regulations of the
SEC, and make generally available to its security holders, as soon as reasonably
practicable after the effective date of the registration statement (and in any
event within 17 months thereafter), an earnings statement (which need not be
audited) covering the period of at least twelve consecutive months beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(g) (i) cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities
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<PAGE> 12
is then permitted under the rules of such exchange, or (ii) if no similar
securities are then so listed, to either cause all such Registrable Securities
to be listed on a national securities exchange or to secure designation of all
such Registrable Securities as a Nasdaq National Market "national market system
security" within the meaning of Rule 11Aa2-1 of the Exchange Act or, failing
that, secure Nasdaq National Market authorization for such shares and, without
limiting the generality of the foregoing, take all actions that may be required
by the Company as the issuer of such Registrable Securities in order to
facilitate the managing underwriter's arranging for the registration of at least
two market makers as such with respect to such shares with the National
Association of Securities Dealers, Inc. (the "NASD");
(h) provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
(i) enter into such customary agreements (including, if
applicable, an underwriting agreement) and take such other actions as the
Holders of a majority of the Registrable Securities or the Major Holder
participating in such offering shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities. The Holders of the
Registrable Securities which are to be distributed by such underwriters shall be
parties to such underwriting agreement and may, at their option, require that
the Company make to and for the benefit of such Holders the representations,
warranties and covenants of the Company which are being made to and for the
benefit of such underwriters and which are of the type customarily provided to
institutional investors in secondary offerings;
(j) use its best efforts to obtain an opinion from the
Company's counsel and a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters as are
customarily covered by such opinions and "cold comfort" letters delivered to
underwriters in underwritten public offerings, which opinion and letter shall be
reasonably satisfactory to the underwriter, if any, and to the Major Holder
participating in such offering, and furnish to each Holder participating in the
offering and to each underwriter, if any, a copy of such opinion and letter
addressed to such Holder or underwriter;
(k) deliver promptly to each Holder participating in the
offering and each underwriter, if any, copies of all correspondence between the
SEC and the Company, its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration
statement, other than those portions of any such memoranda which contain
information subject to attorney-client privilege with respect to the Company,
and, upon receipt of such confidentiality agreements as the Company may
reasonably request, make reasonably available for inspection by any seller of
such
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<PAGE> 13
Registrable Securities covered by such registration statement, by any
underwriter, if any, participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent financial and
other records, pertinent corporate documents and properties of the Company, and
cause all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(l) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement;
(m) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the registration statement;
(n) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking into account
the needs of the Company's businesses and the requirements of the marketing
process) in the marketing of Registrable Securities in any underwritten
offering;
(o) promptly prior to the filing of any document which is to
be incorporated by reference into the registration statement or the prospectus
(after the initial filing of such registration statement) provide copies of such
document to counsel for the selling holders of Registrable Securities and to
each managing underwriter, if any, and make the Company's representatives
reasonably available for discussion of such document and make such changes in
such document concerning the selling holders prior to the filing thereof as
counsel for such selling holders or underwriters may reasonably request;
(p) furnish to the Major Holder participating in the offering
and the managing underwriter, without charge, at least one signed copy, and to
each other Holder participating in the offering, without charge, at least one
photocopy of a signed copy, of the registration statement and any post-effective
amendments thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference);
(q) cooperate with the selling Holders of Registrable
Securities and the managing underwriter, if any, to facilitate the timely
preparation and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such Registrable
Securities to be issued in such denominations and registered in such names in
accordance with the underwriting agreement prior to any sale of Registrable
Securities to the underwriters or, if not an underwritten offering, in
accordance with the instructions of the selling Holders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities and instruct any transfer
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<PAGE> 14
agent and registrar of Registrable Securities to release any stop transfer
orders in respect thereof; and
(r) take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.
(s) take no direct or indirect action prohibited by Regulation
M under the Exchange Act; provided, however, that to the extent that any
prohibition is applicable to the Company, the Company will take such action as
is necessary to make any such prohibition inapplicable.
The Company may require as a condition precedent to the
Company's obligations under this Section 2.4 that each seller of Registrable
Securities as to which any registration is being effected furnish the Company
such information regarding such seller and the distribution of such securities
as the Company may from time to time reasonably request provided that such
information is necessary for the Company to consummate such registration and
shall be used only in connection with such registration.
Each Holder of Registrable Securities agrees that upon receipt
of any notice from the Company of the happening of any event of the kind
described in clause (v) of paragraph (e) of this Section 2.4, such Holder will
discontinue such Holder's disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
paragraph (e) of this Section 2.4 and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Holder's possession of the prospectus
covering such Registrable Securities that was in effect at the time of receipt
of such notice. In the event the Company shall give any such notice, the
applicable period mentioned in paragraph (b) of this Section 2.4 shall be
extended by the number of days during such period from and including the date of
the giving of such notice to and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
paragraph (e) of this Section 2.4.
If any such registration statement or comparable statement
under "blue sky" laws refers to any Holder by name or otherwise as the Holder of
any securities of the Company, then such Holder shall have the right to require
(i) the insertion therein of language, in form and substance reasonably
satisfactory to such Holder and the Company, to the effect that the holding by
such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
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<PAGE> 15
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not in the judgment
of the Company, as advised by counsel, required by the Securities Act or any
similar federal statute or any state "blue sky" or securities law then in force,
the deletion of the reference to such Holder.
2.5. Registration Expenses.
(a) "Expenses" shall mean any and all fees and expenses
incident to the Company's performance of or compliance with this Article 2,
including, without limitation: (i) SEC, stock exchange or NASD registration and
filing fees and all listing fees and fees with respect to the inclusion of
securities in Nasdaq National Market, (ii) fees and expenses of compliance with
state securities or "blue sky" laws and in connection with the preparation of a
"blue sky" survey, including without limitation, reasonable fees and expenses of
blue sky counsel, (iii) printing and copying expenses, (iv) messenger and
delivery expenses, (v) expenses incurred in connection with any road show, (vi)
fees and disbursements of counsel for the Company, (vii) with respect to each
registration, the fees and disbursements of one counsel for the selling
Holder(s) (selected by the Initiating Holder, in the case of a registration
pursuant to Section 2.1, and selected by the Major Holder, in the case of a
registration pursuant to Section 2.2), (viii) fees and disbursements of all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letter) and fees and expenses of other persons, including special
experts, retained by the Company, (ix) fees and expenses payable to a Qualified
Independent Underwriter (as such term is defined in Schedule E to the By-Laws of
the NASD) and (x) any other fees and disbursements of underwriters, if any,
customarily paid by issuers or sellers of securities (collectively, "Expenses").
(b) The Company shall pay all Expenses with respect to any
Demand Registration pursuant to Section 2.1 and any piggyback registrations
pursuant to Section 2.2.
(c) Notwithstanding the foregoing, (x) the provisions of this
Section 2.5 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (y) in connection with any registration hereunder, each
Holder of Registrable Securities being registered shall pay all underwriting
discounts and commissions and any transfer taxes, if any, attributable to the
sale of such Registrable Securities, pro rata with respect to payments of
discounts and commissions in accordance with the number of shares sold in the
offering by such Holder, and (z) the Company shall, in the case of all
registrations under this Article 2, be responsible for all its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties).
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2.6. Certain Limitations on Registration Rights.
In the case of any registration under Section 2.1 pursuant to
an underwritten offering, or in the case of a registration under Section 2.2 if
the Company has determined to enter into an underwriting agreement in connection
therewith, all securities to be included in such registration shall be subject
to an underwriting agreement and no person may participate in such registration
unless such person agrees to sell such person's securities on the basis provided
therein and completes and executes all reasonable questionnaires, and other
documents (including custody agreements and powers of attorney) which must be
executed in connection therewith, and provides such other information to the
Company or the underwriter as may be necessary to register such Person's
securities.
2.7. Limitations on Sale or Distribution of Other Securities.
(a) Each Holder of Registrable Securities agrees that, (i) to
the extent requested in writing by a managing underwriter, if any, of an IPO or
any registration effected pursuant to Section 2.1, not to sell, transfer or
otherwise dispose of, including any sale pursuant to Rule 144 under the
Securities Act, any Common Stock, or any other equity security of the Company or
any security convertible into or exchangeable or exercisable for any equity
security of the Company (other than as part of such underwritten public
offering) during the time period reasonably requested by the managing
underwriter, not to exceed 180 days (and the Company hereby also so agrees
(except that the Company may effect any sale or distribution of any such
securities pursuant to a registration on Form S-4 (if reasonably acceptable to
such managing underwriter) or Form S-8, or any successor or similar form which
is then in effect or upon the conversion, exchange or exercise of any then
outstanding Common Stock Equivalent) to use its reasonable best efforts to cause
each holder of any equity security or any security convertible into or
exchangeable or exercisable for any equity security of the Company purchased
from the Company at any time other than in a public offering so to agree), and
(ii) to the extent requested in writing by a managing underwriter of any
underwritten public offering effected by the Company for its own account (other
than the IPO) it will not sell any Common Stock (other than as part of such
underwritten public offering) during the time period reasonably requested by the
managing underwriter, which period shall not exceed 90 days.
(b) The Company hereby agrees that, if it shall previously
have received a request for registration (other than a shelf registration)
pursuant to Section 2.1 or 2.2, and if such previous registration shall not have
been withdrawn or abandoned, the Company shall not sell, transfer, or otherwise
dispose of, any Common Stock, or any other equity security of the Company or any
security convertible into or exchangeable or exercisable for any equity security
of the Company (other than as part of such
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underwritten public offering, a registration on Form S-4 or Form S-8 or any
successor or similar form which is then in effect or upon the conversion,
exchange or exercise of any then outstanding Common Stock Equivalent), until a
period of 90 days shall have elapsed from the effective date of such previous
registration; and the Company shall so provide in any registration rights
agreements hereafter entered into with respect to any of its securities.
2.8. No Required Sale.
Nothing in this Agreement shall be deemed to create an independent
obligation on the part of any Holder to sell any Registrable Securities pursuant
to any effective registration statement.
2.9. Indemnification.
(a) In the event of any registration of any securities of the
Company under the Securities Act pursuant to this Article 2, the Company will,
and hereby does, indemnify and hold harmless, to the fullest extent permitted by
law, each Holder of Registrable Securities, its directors, officers,
fiduciaries, employees and stockholders or general and limited partners (and the
directors, officers, employees and stockholders thereof), each other Person who
participates as an underwriter or a Qualified Independent Underwriter, if any,
in the offering or sale of such securities, each officer, director, employee,
stockholder, fiduciary, managing director, agent, affiliates, consultants,
representatives, successors, assigns or partner of such underwriter or Qualified
Independent Underwriter, and each other Person, if any, who controls such seller
or any such underwriter within the meaning of the Securities Act, against any
and all losses, claims, damages or liabilities, joint or several, actions or
proceedings (whether commenced or threatened) and expenses (including reasonable
fees of counsel and any amounts paid in any settlement effected with the
Company's consent, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities Act
or otherwise in respect thereof (collectively, "Claims"), insofar as such Claims
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such securities were registered under the Securities Act or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or (iii) any
violation by the Company of any federal, state or common law rule or regulation
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<PAGE> 18
applicable to the Company and relating to action required of or inaction by the
Company in connection with any such registration, and the Company will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
Claim as such expenses are incurred; provided, however, that the Company shall
not be liable to any such indemnified party in any such case to the extent such
Claim arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission of a material fact
made in such registration statement or amendment thereof or supplement thereto
or in any such prospectus or any preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such indemnified party specifically for use therein.
Such indemnity and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by as on behalf of such indemnified
party and shall survive the transfer of such securities by such seller.
(b) Each Holder of Registrable Securities that are included in
the securities as to which any registration under Section 2.1 or 2.2 is being
effected (and, if the Company requires as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 2.1 or 2.2, any underwriter and Qualified Independent Underwriter, if
any) shall, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in paragraph (a) of this Section 2.9)
to the extent permitted by law the Company, its officers and directors, each
Person controlling the Company within the meaning of the Securities Act and all
other prospective sellers and their respective directors, officers, fiduciaries,
managing directors, employees, agents, affiliates, consultants, representatives,
successors, assigns, general and limited partners, stockholders and respective
controlling Persons with respect to any untrue statement or alleged untrue
statement of any material fact in, or omission or alleged omission of any
material fact from, such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company or its representatives by or on behalf of such Holder or underwriter or
Qualified Independent Underwriter, if any, specifically for use therein and
reimburse such indemnified party for any legal or other expenses reasonably
incurred in connection with investigating or defending any such Claim as such
expenses are incurred; provided, however, that the aggregate amount which any
such Holder shall be required to pay pursuant to this Section 2.9(b) and
Sections 2.9(c) and (e) shall in no case be greater than the amount of the net
proceeds received by such person upon the sale of the Registrable Securities
pursuant to the registration statement giving rise to such claim. Such indemnity
and reimbursement of expenses shall remain in full force and effect regardless
of any investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such Holder.
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<PAGE> 19
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 2.9 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any state securities and "blue sky" laws.
(d) Any person entitled to indemnification under this
Agreement shall notify promptly the indemnifying party in writing of the
commencement of any action or proceeding with respect to which a claim for
indemnification may be made pursuant to this Section 2.9, but the failure of any
indemnified party to provide such notice shall not relieve the indemnifying
party of its obligations under the preceding paragraphs of this Section 2.9,
except to the extent the indemnifying party is materially prejudiced thereby and
shall not relieve the indemnifying party from any liability which it may have to
any indemnified party otherwise than under this Article 2. In case any action or
proceeding is brought against an indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, unless in the reasonable opinion of outside
counsel to the indemnified party a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim, to assume the
defense thereof jointly with any other indemnifying party similarly notified, to
the extent that it chooses, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party that it so chooses, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that (i) if the
indemnifying party fails to take reasonable steps necessary to defend diligently
the action or proceeding within 20 days after receiving notice from such
indemnified party that the indemnified party believes it has failed to do so; or
(ii) if such indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there may be one or more legal defenses available to such
indemnified party which are not available to the indemnifying party; or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties in each jurisdiction, except to the extent any indemnified party or
parties reasonably shall have concluded that there may be legal defenses
available to such party or parties which are not available to the other
indemnified parties or to the extent representation of all indemnified parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct) and the indemnifying party shall be liable for any
expenses therefor. No indemnifying party shall, without the written consent of
the indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or
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<PAGE> 20
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (A) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable
or is insufficient to hold harmless an indemnified party under Sections 2.9(a),
(b) or (c), then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative fault of the indemnifying party, on the
one hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. If, however, the
allocation provided in the second preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The parties hereto agree that it would not be just and
equitable if contributions pursuant to this Section 2.9(e) were to be determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the preceding sentences
of this Section 2.9(e). The amount paid or payable in respect of any Claim shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding
anything in this section 2.9(e) to the contrary, no indemnifying party (other
than the Company) shall be required pursuant to this section 2.9(e) to
contribute any amount in excess of the net proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, claims, damages or liabilities of the indemnified parties
relate, less the amount of any indemnification payment made by such indemnifying
party pursuant to Sections 2.9(b) and (c).
(f) The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect
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<PAGE> 21
regardless of any investigation made or omitted by or on behalf of any
indemnified party and shall survive the transfer of the Registrable Securities
by any such party.
(g) The indemnification and contribution required by this
Section 2.9 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
2.10 Blackout Periods for Shelf Registrations.
(a) At any time when a shelf registration effected pursuant to
Section 2 relating to the Registrable Securities is effective, upon written
notice from the Company to the Holders participating in the registration that
the Company determines in the good faith judgment of the Board of Directors of
the Company that such Holders' sale of the Registrable Securities pursuant to
the shelf registration would require disclosure of material information which
the Company has a bona fide business purpose for preserving as confidential and
the disclosure of which would have a material adverse effect on the Company or
the Company is unable to comply with SEC requirements (an "Information
Blackout"), such Holders shall suspend sales of the Registrable Securities
pursuant to such shelf registration until the earlier of (i) the date upon which
such material information is disclosed to the public or ceases to be material,
(ii) 90 days after the Board of Directors of the Company makes such good faith
determination or (iii) such time as the Company notifies Holders that sales
pursuant to such shelf registration may be resumed (the number of days from such
suspension of sales of the Holders until the day when such sales may be resumed
hereunder is hereinafter called a "Sales Blackout Period").
(b) If there is an Information Blackout and the Holders do not
notify the Company in writing of their desire to cancel such shelf registration,
the period set forth in Section 2.4(b) shall be extended for a number of days
equal to the number of days in the Sales Blackout Period.
3. Underwritten Offerings.
3.1. Requested Underwritten Offerings. If requested by the underwriters
for any underwritten offering by the Holders pursuant to a registration
requested under Section 2.1, the Company shall enter into a customary
underwriting agreement with the underwriters. Such underwriting agreement shall
be satisfactory in form and substance to the Initiating Holder and shall contain
such representations and warranties by, and such other agreements on the part
of, the Company and such other terms as are generally prevailing in agreements
of that type, including, without limitation, indemnities and contribution
agreements on substantially the same terms as those contained herein. Any Holder
participating in the offering shall be a party to such underwriting agreement
and may, at its option, require that any or all of the representations and
warranties by, and the
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<PAGE> 22
other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holder and that
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the obligations of
such Holder; provided, however, that the Company shall not be required to make
any representations or warranties with respect to written information
specifically provided by a selling Holder for inclusion in the registration
statement. Such underwriting agreement shall also contain such representations
and warranties by the participating Holders with respect to title and ownership
of shares as are customary in agreements of that type.
3.2. Piggyback Underwritten Offerings. In the case of a registration
pursuant to Section 2.2 hereof, if the Company shall have determined to enter
into an underwriting agreement in connection therewith, all of the Holders'
Registrable Securities to be included in such registration shall be subject to
such underwriting agreement. Any Holder participating in such registration may,
at its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such Holder and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such Holder. Such underwriting agreement shall also contain such
representations and warranties by the participating Holders as are customary in
agreements of that type, on substantially the same terms as those contained
herein.
4. General.
4.1. Adjustments Affecting Registrable Securities. The Company agrees
that it shall not effect or permit to occur any combination or subdivision of
shares which would adversely affect the ability of the Holder of any Registrable
Securities to include such Registrable Securities in any registration
contemplated by this Agreement or the marketability of such Registrable
Securities in any such registration. The Company agrees that it will take all
reasonable steps necessary to effect a subdivision of shares if in the
reasonable judgment of (a) the Initiating Holder of a Demand Registration
Request or (b) the managing underwriter for the offering in respect of such
Demand Registration Request, such subdivision would enhance the marketability of
the Registrable Securities. Each Holder agrees to vote all of its shares of
capital stock in a manner, and to take all other actions necessary, to permit
the Company to carry out the intent of the preceding sentence including, without
limitation, voting in favor of an amendment to the Company's Certificate of
Incorporation in order to increase the number of authorized shares of capital
stock of the Company.
4.2. Rule 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant
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<PAGE> 23
to the requirements of the Securities Act in respect of the Common Stock or
securities of the Company convertible into or exchangeable or exercisable for
Common Stock, the Company covenants that (i) so long as it remains subject to
the reporting provisions of the Exchange Act, it will timely file the reports
required to be filed by it under the Securities Act or the Exchange Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 under the Securities
Act), and (ii) will take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (A) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(B) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any Holder of Registrable Securities, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
4.3. Nominees for Beneficial Owners. If Registrable Securities are held
by a nominee for the beneficial owner thereof, the beneficial owner thereof may,
at its option, be treated as the Holder of such Registrable Securities for
purposes of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement (or any determination of any number or
percentage of shares constituting Registrable Securities held by any Holder or
Holders of Registrable Securities contemplated by this Agreement), provided that
the Company shall have received assurances reasonably satisfactory to it of such
beneficial ownership.
4.4 Amendments and Waivers. The terms and provisions of this Agreement
may be modified or amended, or any of the provisions hereof waived, temporarily
or permanently, pursuant to the written consent of the Company and Cabot.
4.5. Notices. Except as otherwise provided in this Agreement, all
notices, requests, consents and other communications hereunder to any party
shall be delivered in person or by telecopy (with a confirmatory copy sent by a
different means within three business days of such notice), nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
such party to the other parties:
(i) if to the Company, to:
Cabot Microelectronics Corporation
870 North Commons Drive
Aurora, IL 60504
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<PAGE> 24
Telecopy: (630) 375-5593
Attention: President
(ii) if to Cabot, to:
Cabot Corporation
75 State Street
Boston, MA 02109
Telecopy: (617) 342-6281
Attention: Chief Financial Officer
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8589
Attention: Thomas W. Christopher
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
4.6. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and the respective
successors, personal representatives and assigns of the parties hereto, whether
so expressed or not. If any Person shall acquire Registrable Securities from any
Holder, in any manner, whether by operation of law or otherwise, such transferee
shall promptly notify the Company and such Registrable Securities acquired from
such Holder shall be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities such Person shall be entitled to
receive the benefits of and be conclusively deemed to have agreed to be bound by
and to perform all of the terms and provisions of this Agreement. If the Company
shall so request, any such successor or assign shall agree in writing to acquire
and hold the Registrable Securities acquired from such Holder subject to all of
the terms hereof. If any Holder shall acquire additional Registrable Securities,
such Registrable Securities shall be subject to all of the terms, and entitled
to all the benefits, of this Agreement.
(b) This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and understanding
between the parties
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<PAGE> 25
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof.
(c) This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York without giving
effect to the conflicts of law principles thereof.
(d) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
section references are to this Agreement unless otherwise expressly provided.
(e) This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
(f) Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
(g) The parties hereto acknowledge that there would be no
adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to
injunctive relief, including specific performance, to enforce such obligations
without the posting of any bond, and, if any action should be brought in equity
to enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
(h) Each party hereto shall do and perform or cause to be done
and performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
4.7. Prior Agreements. Each of the Holders and the Company hereby
agrees that any agreement previously entered into by it pursuant to which the
Company granted to it any registration rights shall be superseded by this
Agreement and each such agreement (and any rights such Holder has pursuant to
such agreement) shall be terminated, null and void and no longer in effect.
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<PAGE> 26
4.8. No Inconsistent Agreements. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with any other agreements to which the Company is a party or by
which it is bound. Without the prior written consent of Cabot, neither the
Company nor any Holder will, on or after the date of this Agreement, enter into
any agreement with respect to its securities which is inconsistent with the
rights granted in this Agreement or otherwise conflicts with the provisions
hereof, other than any lock-up agreement with the underwriters in connection
with any registered offering effected hereunder, pursuant to which the Company
shall agree not to register for sale, and the Company shall agree not to sell or
otherwise dispose of, Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, for a specified period following
the registered offering. The Company further agrees that if any other
registration rights agreement entered into after the date of this Agreement with
respect to any of its securities contains terms which are more favorable to, or
less restrictive on, the other party thereto than the terms and conditions
contained in this Agreement are (insofar as they are applicable) to Cabot, then
the terms and conditions of this Agreement shall immediately be deemed to have
been amended without further action by the Company or any of the holders of
Registrable Securities so that Cabot shall be entitled to the benefit of any
such more favorable or less restrictive terms or conditions.
4.9 Effective Time. This Agreement shall become effective upon the
closing of the Company's IPO.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
CABOT MICROELECTRONICS CORPORATION
By: /s/ Matthew Neville
------------------------------
Name: Matthew Neville
Title: President and
Chief Executive Officer
CABOT CORPORATION
By: /s/ Samuel W. Bodman
------------------------------
Name: Samuel W. Bodman
Title: Chairman and
Chief Executive Officer
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<PAGE> 1
Exhibit 10.11
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406, promulgated under the Securities Act of 1933, as
amended.
INTEL CORPORATION PURCHASE AGREEMENT - CHEMICALS/GASES
Agreement #: C-06438
Effective Date: FEB. 18, 1999
Expiration Date: DEC. 31,2001
CNDA #: 17452
BUYER: Intel Corporation (and all Intel divisions and subsidiaries,
hereinafter "BUYER" or "INTEL")
Intel Corporation
2200 Mission College Blvd
Santa Clara, CA 95052-8119
SUPPLIER: Cabot Corporation (hereinafter "SUPPLIER")
500 Commons Drive
Aurora, IL 60504
<TABLE>
<S> <C> <C>
X Terms and Conditions of Purchase Agreement - Goods
Addenda attached here to and X A Product Description and Price Schedule
Incorporated herein by reference X B Key Contacts & Intel Fab Locations
(Mark "X" where applicable.) X C Quality Requirements
X D Volume Commitments
E
F
</TABLE>
Buyer will purchase and Supplier will sell certain Items in accordance with the
Terms and Conditions and Addenda attached hereto. All Purchase Orders issued to
Supplier by Buyer during the term of this Agreement shall be governed only by
the Terms and Conditions of this Agreement notwithstanding any preprinted terms
and conditions on Supplier's acknowledgment or Buyer's Purchase Order. Any
additional or different terms in documents exchanged by the parties subsequent
to execution of this agreement are hereby deemed to be material alterations and
notice of objection to and rejection of them is hereby given.
INTEL CORPORATION SUPPLIER
By: /s/ Mumtaz Ahmed By: /s/ Matthew Neville
-------------------------- --------------------------
Signature Signature
Mumtaz Ahmed Matthew Neville
Printed Name Printed Name
Commodity Manager GM & VP
Title Title
2/18/99 2/18/99
Date Date
<PAGE> 2
TERMS AND CONDITIONS OF PURCHASE AGREEMENT - CHEMICALS/GASES
1. DEFINITIONS
A. "Release" means Buyer's authorization to ship in accordance with the
Buyer's Purchase Order, and authorizing Supplier to ship a definite
quantity of Items to a specified schedule. The Release is contained in the
Purchase Order sent to Supplier.
B. "Items" means the goods which Supplier is to provide to Buyer as set forth
on Addendum A. Any Item which is custom made for Buyer shall be indicated
by an asterisk (*) on such Addenda A.
C. "Estimated Usage" or "Forecast" is the quantity Buyer reasonably expects to
Release, however, Buyer shall not be obligated to Release such quantities
of Items.
D. "Purchase Order" is Buyer's document setting forth specific line Items
ordered and Release information.
E. "CIF" means "Cost, Insurance and Freight (named port of shipment)."
Reference Incoterms 1990.
F. "DDP" means "Delivered Duty Paid (named place of destination)." Reference
Incoterms 1990.
G. "DDU" means "Delivered Duty Unpaid (named place of destination)." Reference
Incoterms 1990.
H. "FMO" is Fab Materials Operation (a department within Intel Corporation).
I. "FOB" means "Freight on Board (named port of shipment)." Reference
Incoterms 1990.
J. "FCA" means "Free Carrier (named place of destination)". Reference
Incoterms 1990.
2. TERM OF AGREEMENT
A. The term of this Agreement shall begin on the Effective Date and continue
to the Expiration Date, unless renewed pursuant to the terms of this
Section. After the initial term, this Agreement shall be automatically
renewed from year to year (for one-year periods) without action by either
party, unless terminated pursuant to Section 5 of this Agreement. At
Buyer's option, Items may be scheduled for delivery up to three (3) months
following expiration or termination of this Agreement.
B. This Agreement shall be effective to all Intel manufacturing facilities in
the U.S. and the non-U.S. facilities identified in Addenda hereto.
3. PRICING
A. Prices of Items are as set forth in Addendum A, and may only be modified by
mutual agreement. Supplier will publish newly negotiated prices to
corporate representative and all Site buyers within 10 days of signed
agreement.
B. For any Item of which Supplier supplied Buyer with [ ]% or more of Buyer's
requirements, as described in Addendum D, during the previous calendar
year, Supplier agrees that the price for such Item shall always be
Supplier's lowest net price charged any customer for like volumes of such
Item. If the net price charged to Buyer for such is greater than that
charged to another customer of Supplier for like volumes, Supplier shall
adjust its price to Buyer to the lower price for as long as Supplier
continues to offer such lower price to another customer. In addition, to
the extent Buyer was charged a higher price during a period that Supplier
was selling like volumes of such Item to another customer at a lower price,
Supplier shall refund to Buyer the difference in the purchase price paid by
Buyer and such lower price.
C. In the event Supplier offers any Item of which Supplier supplied Buyer with
[ ]% or more of Buyer's requirements as described in Addendum D during the
previous calendar year at a lower price (taking into account volume
discounts) either as a general price drop or only to some customer(s) for
any reason, Supplier shall immediately inform Buyer of this price.
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<PAGE> 3
D. Applicable taxes and other charges such as duties, customs, tariffs,
imposts and government imposed surcharges, and freight shall be stated
separately on Supplier's invoice.
E. Additional costs, except those described in Section 3(D) or in Addenda A or
D, will not be reimbursed without Buyer's prior written approval.
F. Buyer reserves the right to have Supplier's records inspected and audited
only by an independent third party auditor to ensure compliance with
section 3B of this Agreement. At Buyer's option or upon Supplier's written
demand, such audit will be performed by an independent third party at
Buyer's expense. However, if Supplier is found to not be complying with
section 3B of this Agreement in any way, Supplier shall reimburse Buyer for
all costs associated with the audit. The results of such audit shall be
kept confidential by the auditor, and only Supplier's failures to abide by
the obligations of this Agreement shall be reported to Buyer.
G. If a new product not included in Addendum A is to be purchased regularly,
its price will be negotiated by a corporate representative at the time of
initial purchase. If the product is for test purposes only at a given site,
its price may be established between Supplier and a Sitebuyer. Said price
shall be in effect until such time as an Intel part number is created, at
which time a corporate-wide price will be negotiated by a corporate
representative.
H. Supplier will publish quarterly updates of Addendum A to FMO, all Buyer's
Site Chemicals buyers and Buyer's Accounts Payable department, including
new chemicals, their negotiated prices, supplier part numbers, Intel part
numbers and any other changes. Quarterly updates of Addendum A will be
issued on 1/30, 4/30, 7/30 and 10/30 of each year. Names and addresses of
all parties to receive the updates will be provided and updated by Site
buyer (see Addendum B).
I. U.S. and non-U.S. prices will be fixed in U.S. dollars regardless of the
Item country of origin or destination. Buyer retains the right to buy from
Supplier or any subsidiaries of Supplier in U.S. dollars.
J. The cost of containers, both returnable and disposable, diptubes and any
required accessories will be included in the cost of the chemical
K. Warehousing costs will be separate from this Agreement and will be billed
separately.
4. INVOICING AND PAYMENT
A. Any applicable prompt payment discounts will be computed from the latest
of: (i) the scheduled delivery date; (ii) the date of actual delivery; or
(iii) the date a properly filled out original invoice or packing list is
received. Payment is made when Buyer's check is mailed or EDI funds
transfer initiated. Buyer shall make payment within forty-five (45) days of
receipt of the proper original invoice or packing list.
B. Original invoices or packing lists shall be submitted and shall include:
full legal company name, payment terms, freight terms, tax status and rate,
purchase agreement number from the Purchase Order, purchase order number,
line Item number, Release number, part number, complete bill to address,
description of Items, quantities, unit price and extended totals. Buyer's
payment shall not constitute acceptance. Invoice must match Buyer's PO and
packing slip exactly including unit of measure.
C. Supplier shall provide to Buyer's Accounts Payable, and update as
necessary, the names and phone numbers of a contact in Accounts Receivable.
D. All international shipments must be accompanied by original invoice.
E. Supplier will invoice Buyer for material and services no later than 120
days after delivery.
5. TERMINATION
This Agreement may not be terminated by either party prior to the
Expiration Date, except upon material breach by the other party. The
Agreement may be terminated by
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<PAGE> 4
either party on or after the Expiration Date by delivering to the other
party written notice of termination at least one year prior to the date of
such termination.
6. CONTINGENCIES
Neither party shall be responsible for its failure to perform due to causes
beyond its reasonable control such as acts of God, fire, theft, war, riot,
embargoes or acts of civil or military authorities. If delivery is to be
delayed by such contingencies, Supplier shall immediately notify Buyer in
writing and Buyer may either: (i) extend time of performance; or (ii)
terminate all or part of the uncompleted portion of the Purchase Order at
no cost to Buyer.
7. DELIVERY, RELEASES AND SCHEDULING
A. Any Forecasts provided by Buyer are for planning purposes only and do not
constitute a Release or other commitment by Buyer.
B. [Left intentionally blank]
C. Supplier shall notify Buyer in writing within two (2) business days of
receipt of Buyer's Purchase Order if Supplier is unable to make any
scheduled delivery and state the reasons therefor. The absence of such
notice constitutes acceptance of the Purchase Order and commitment to the
Release terms.
D. Supplier shall not deliver Items earlier than five (5) business days prior
to agreed scheduled delivery dates and Buyer may return early, excess, or
non-conforming shipments at Supplier's risk and expense.
E. Buyer may reschedule or cancel any Release in whole or in part prior to the
Release date at no additional charge.
F. Buyer may place any portion of a Release on hold by notice which shall take
effect immediately upon receipt. Releases placed on hold will be
rescheduled or canceled within a reasonable time.
G. Supplier shall not deliver Items until such Items are specified in an
issued Purchase Order which contains specific Release dates for specific
Items.
H. Purchase orders will specify the destination date at Buyer dock or
designated warehouse.
I. Supplier must notify FMO, Accounts Payable and all Site Chemical buyers
immediately in writing of any changes, including changes in delivery
schedules, part numbers, contact persons and the party to be invoiced.
J. Supplier must provide FMO with a Certificate of Analysis (C of A) or sample
for each lot to be shipped, as directed in the most current appropriate
Intel Specification (Addendum C).
K. Buyer may return any standard Item in same condition as received within [ ]
days of receipt. Buyer will pay return freight and disposal costs, if
necessary (Disposal costs paid only if the product conformed to all
required specifications in place). Reimbursement for Items returned will be
made by credit memo.
L. Supplier shall ship all Items according to the delivery address provided on
each Purchase Order submitted by Buyer.
M. Supplier shall provide and update as necessary the name and phone number of
one person which Buyer's representative may contact regarding scheduling
and delivery. Additionally, Supplier will provide 24-hour hotline/contact
number which Buyer may contact in case of emergency.
N. Supplier agrees to maintain safety stock on specified Items as mutually
agreed with Buyer's local sites. Supplier shall notify Buyer whenever
safety stock falls below minimum levels and will provide a corrective
action plan to replenish Items. In the event Buyer no longer intends to
purchase a particular Item from Supplier for use at a particular site,
Buyer shall so notify Supplier of such fact and Buyer shall purchase
Buyer's minimum required safety stock of such Items at that site.
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<PAGE> 5
O. Supplier shall maintain an on-hand supply of emergency packaging material
sufficient to meet pre-agreed requirements with Buyer's Site Chemical
buyer.
8. ACCEPTANCE AND WARRANTY
A. Buyer may with reasonable advance notification inspect and test all Items
at reasonable times before, during and after manufacture. If any inspection
or test is made on Supplier's premises, Supplier shall provide reasonable
facilities and assistance for the safety and convenience of Buyer's
inspectors in such manner as shall not unreasonably hinder or delay
Supplier's performance. All Items shall be received subject to Buyer's
inspection, testing, approval and acceptance at Buyer's premises
notwithstanding any inspection or testing at Supplier's premises or any
prior payment for such Items. Items rejected by Buyer as not conforming to
this Agreement or Item specifications whether provided by Buyer or
furnished with the Item may be returned to Supplier at Supplier's risk and
expense and, at Buyer's request shall immediately be repaired or replaced.
B. Supplier warrants that all Items furnished here under shall be new, of the
grade and quality specified, conform to all agreed-to specifications, and
will be free of liens and encumbrances (excluding claims of intellectual
property infringement, which are the exclusive subject of Section 14).
These warranties shall survive any delivery, inspection, acceptance,
payment or resale of the Items. Original specifications and any subsequent
modifications to those specifications shall be agreed upon by both Buyer
and Supplier. SUPPLIER MAKES NO OTHER REPRESENTATION OR WARRANTY OF ANY
KIND, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR ANY OTHER MATTER WITH RESPECT TO THE ITEMS, WHETHER USED ALONE
OR IN COMBINATION WITH OTHER SUBSTANCES, EVEN IF THE PURPOSES OR USES OF
SUCH PRODUCTS ARE KNOWN BY SUPPLIER.
C. During the Items' specified shelf life, at Buyer's option, Supplier shall
promptly repair, replace or refund the purchase price of all Items not
conforming to the foregoing warranties, and shall also refund the cost of
return shipping of such Items. Supplier will bear the risk of loss of such
Items while in transit. Supplier's warranty liability for damages arising
from each "Non-Conformance Event" shall [ ]. Furthermore, in no event shall
Supplier's [ ]. As used herein, "Non-Conformance Event" shall mean the
receipt by Buyer of a lot of Items which are not in conformity with the
warranty given in Section 8B above. IN NO EVENT SHALL SELLER BE RESPONSIBLE
OR LIABLE FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING IN
WARRANTY UNDER THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. The
[ ]contained in this Section 8 is separate and independent from the [ ]
contained in Section 14, and the amount of liability imposed under one of
these Sections does not limit or restrict the amount of liability imposed
under another Section. NOTHING IN THIS SECTION IS INTENDED TO PLACE A
LIMITATION ON EITHER PARTY'S LIABILITY IN TORT FOR PERSONAL INJURY.
D. Freight charges for returned non-conforming Items shall be paid by Supplier
with the understanding that returns must be authorized in accordance with
Supplier's return authorization procedures. Returns must be authorized by
Supplier within 10 days of Buyer's request. Credit for returned Items will
be issued within 30 days of notification by Buyer.
E. Notwithstanding anything to the contrary contained in this Agreement,
Supplier represents and warrants to Buyer that there will be no disruption
in the supply of those goods and/or services which are under the direct
control of the Supplier as a result of or due to the date change from and
between December, 1999, and January, 2000, nor due to the year 2000 being a
leap year. Supplier does not provide any such warranty for disruptions
caused by those goods and/or services which are not under the Supplier's
direct control. As used herein, "direct control" refers to goods and/or
services which the Supplier actively manages by contract and/or owns.
Furthermore, in no event shall
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<PAGE> 6
Seller's total and aggregate liability under such warranty exceed $500,000
over the term of this Agreement
9. PRODUCT SPECIFICATIONS/IDENTIFICATION/ ERRATA
A. Supplier shall not modify the specifications for Items without Buyer's
written consent. Supplier shall notify FMO and all Site Chemical buyers
immediately in writing of any change in Supplier's part number, in the
manufacturing process, packaging or description for any Item sold to Buyer
at least ninety (90) days in advance of any changes. Such notice shall also
be included in the quarterly update mentioned in Section 3 (I).
B. Supplier shall cooperate with Buyer to provide configuration control and
traceability systems for Items supplied hereunder.
C. Items must comply with Buyer's raw material specifications (Intel
Specification 07-400).
D. As long as Buyer is purchasing a particular Item, Supplier shall notify FMO
and all Site Chemical buyers at least one year in advance of expected
discontinuance of that Item. Exception: In the event of changes or
discontinuation required by governmental order or requirement, Supplier
shall notify Buyer in writing immediately. Notification of any change in
product specification must follow Intel's " Materials Change Control
Procedure." (Intel Specification 07-120).
E. Where an existing agreed-to Intel Specification (Addendum C) is updated,
the updated Specification must be agreed to by Buyer and Supplier before it
will be in effect.
10. CONTAINERS AND DIPTUBES
A. All necessary chemical containers, packaging and diptubes will be provided
by Supplier and included in the cost of the Item.
B. All containers and diptubes shall be inspected by Supplier before each use
and repaired or replaced as necessary.
C. At all times, ownership and title of containers and diptubes will remain
with the Supplier.
D. Buyer will not be responsible for any additional charges for acquisition,
termination or disposal of containers or diptubes.
E. In the event that containers or diptubes become damaged through neglect or
misuse by Buyer, Buyer will reimburse Supplier an amount agreed upon and
pro-rated based upon useful life.
F. All packaging including quartz, stainless steel, bottles, drums and ICBs,
shall be equipped with tamper evident seals.
11 PACKING AND SHIPMENT
A. Shipments to Israel: Delivery terms for Israel will be DDP Intel,
Jerusalem. Supplier fulfills its obligation to deliver when Items are made
available at Buyer's dock or designated warehouse. Supplier will bear all
risks, liabilities and costs involved in bringing the Items thereto. Buyer
will ship empty containers to the point of manufacture in a timely manner.
B. Shipments to Ireland: Delivery terms for Ireland will be DDU Intel,
Leixlip. Supplier fulfills its obligation to deliver when Items are made
available at Buyer's dock or designated warehouse. Supplier will bear all
risks, liabilities and costs involved in bringing the Items thereto,
excluding duties, taxes and other official charges payable upon
importation. Buyer will ship empty containers to the point of manufacture
in a timely manner.
C. For all other Intel Factories, both U.S. and non-U.S., Items shall be DDP
Buyer's dock or as otherwise specified in the Release. Buyer will ship
empty containers to the point of manufacture in a timely manner. All Items
shall be prepared for shipment in a manner which: (i) follows good
commercial practice; (ii) is acceptable to common carriers for shipment at
the lowest rate; and (iii) is adequate to ensure safe arrival. Supplier
shall mark all containers with necessary lifting, handling and shipping
information, purchase order number, date of shipment and the names of the
Buyer and Supplier. Buyer shall
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<PAGE> 7
notify Supplier of the method of shipment and expected delivery date. If no
instructions are given, Supplier shall select the most cost effective
carrier, given the time constraints known to Supplier. Supplier shall ship
only the quantity of Items specified in the Release. Buyer may return at
Supplier's expense any Items in excess of the quantity stated in the
Release.
D. Supplier shall be responsible for all Supplier's activities through
manufacture, storage, transport, and delivery of Items to Buyer. In the
event that Buyer must deploy emergency, safety, or materials personnel in
response to an emergency or non-compliance with Intel or regulatory
procedure involving Items supplied hereunder, Buyer and Supplier will
review the incident. If Buyer and Supplier agree that (i) such deployment
was necessary, and (ii)Supplier's negligent act or failure to act was the
proximate cause of such emergency or non-compliance, then Supplier agrees
to reimburse Buyer for the out-of-pocket cost incurred by Buyer in
deploying its personnel to respond to such incident. Supplier will not be
responsible for costs incurred by such deployment due to Buyer's negligent
act or failure to act. International shipments: Supplier will provide
Buyer's representative with shipping documents as requested. Buyer's
purchase orders will contain detailed shipping instructions. E. Shipment of
all Items qualified for Buyer's Preship or Direct Ship Programs will be
done in accordance with latest mutually accepted Intel Specification 07-402
(Intel Chemical and Gas Quality Program.).
12. OWNERSHIP AND BAILMENT RESPONSIBILITIES
A. Any specifications, drawings, schematics, technical information, data,
tools, dies, patterns, masks, gauges, test equipment, and other materials
furnished or paid for by Buyer shall: (i) be kept confidential; (ii) remain
Buyer's property; (iii) be used by Supplier exclusively for Buyer's orders;
(iv) be clearly marked as Buyer's property and segregated when not in use;
(v) be kept in good working condition at Supplier's expense; and (vi) be
shipped to Buyer promptly on demand.
B. Supplier shall insure Buyer's property and be liable for loss or damage
while in Supplier's possession or control, ordinary wear and tear excepted.
13. CONFIDENTIALITY AND PUBLICITY
A. During the course of this Agreement, either party may have or may be
provided access to the other's confidential information and materials.
Provided such are marked in a manner reasonably intended to make the
recipient aware, or the recipient is sent written notice within forty-eight
(48) hours of disclosure, that the information or materials are
"Confidential", each party agrees to maintain such information in
accordance with the terms of this Agreement and the CNDA referenced on the
signature page of this Agreement or any applicable separate nondisclosure
agreement between Buyer and Supplier. In the absence of a CNDA or other
written agreement, at a minimum each party agrees to maintain such
information in confidence and limit disclosure on a need to know basis, to
take all reasonable precautions to prevent unauthorized disclosure, and to
treat such information as it treats it's own information of a similar
nature, until the information becomes publicly available through no fault
of the non disclosing party. Supplier's employees who access Buyer's
facilities may be required to sign a separate non-disclosure agreement
prior to admittance to Buyer's facilities.
B. The parties agree that neither will disclose the existence of this
Agreement, nor any of its details or the existence of the relationship
created by this Agreement, to any third party without the specific, written
consent of the other. If disclosure of this Agreement or any of the terms
hereof is required by applicable law, rule or regulation, or is compelled
by a court or governmental agency, authority or body: (i) the parties shall
use all legitimate and legal means available to minimize the disclosure to
third parties of the content of the Agreement, including without limitation
seeking a confidential
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<PAGE> 8
treatment request or protective order; (ii) the disclosing party shall
inform the other party at least ten (10) business days (i.e., not a
Saturday, Sunday or a day on which banks are not open for business in the
geographic area in which the non-disclosing party's principal office is
located) in advance of the disclosure; and (iii) the disclosing party shall
give the other party a reasonable opportunity to review and comment upon
the disclosure, and any request for confidential treatment or a protective
order pertaining thereto, prior to making such disclosure. The parties may
disclose this Agreement in confidence to their respective legal counsel,
accountants, bankers and financing sources as necessary in connection with
obtaining services from such third parties. The obligations stated in this
section shall survive the expiration or termination of this Agreement.
14. PATENTS, COPYRIGHTS, TRADE SECRETS, TRADEMARKS AND MASKWORK RIGHTS
A. Supplier makes no agreement to defend, indemnify or hold Buyer harmless
from any costs, expenses, losses, damages or liabilities incurred because
of actual or alleged infringement of any patent, trade secret or other
intellectual property right by, or arising from use of, [ ] slurry or any
other Items designated as custom by the parties. For all other Items,
Supplier agrees to indemnify and hold Buyer harmless from any costs and
expenses (including reasonable attorneys' fees) incurred in connection
with, and damages awarded to a third party as a direct result of,
adjudicated claims of infringement of any third party patent, trade secret,
trademark or other intellectual property right arising out of the purchase
of Items by Buyer or the use of Items by Buyer or Buyer's customers,
provided, however, that Seller is not obligated to so indemnify Buyer, if
(i) the sale of such Item by Supplier does not constitute contributory
infringement or inducement to infringe; or (ii) Buyer modifies the Item; or
(iii) Buyer uses the Item in a manner other than the specific use for which
the Item is sold by Supplier. Buyer shall promptly notify Supplier of such
claim or demand and shall permit Supplier to participate in the defense
thereof.
B. To the extent any settlement of a claim or demand is for an amount less
than the [ ] set forth in this Section, Supplier shall have the right to
settle said claim at its discretion.
C. If an injunction issues as a result of any such claim or action or if
Supplier determines in good faith that it is unable or unwilling to supply
an Item because the Item itself or the use of the Item may infringe a
patent or may constitute a misappropriation of a trade secret, Supplier
agrees at its expense and Buyer's option to either: (i) procure for Buyer
and Buyer's customers the right to continue using Items; (ii) replace them
with non-infringing Items; or (iii) modify them so they become
non-infringing. Buyer's sole remedy for Supplier's failure to supply or to
obtain the remedy elected shall be [ ], and upon [ ] Supplier shall not be
deemed in breach of this Agreement.
D. In no event shall [ ]. The [ ] contained in this Section 14 is separate and
independent from the [ ] contained in Section 8, and the amount of
liability imposed under one of these Sections does not limit or restrict
the amount of liability imposed under another Section.
15. HAZARDOUS MATERIALS
A. If Items or any services provided hereunder include hazardous materials as
defined by relevant local, state, and national law, Supplier represents and
warrants that Supplier and its personnel providing services to Buyer
understand the nature of and hazards associated with the design and/or
service of Items including handling, transportation, and use of such
hazardous materials, as applicable to Supplier. Prior to causing hazardous
materials to be on Buyer's property, Supplier shall obtain written approval
from Buyer's Site Environmental/Health/Safety organization. Supplier will
indemnify Buyer from any
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<PAGE> 9
environmental liability incurred by Buyer which results from the shipment
and delivery of hazardous Items to Buyer, provided Buyer's negligence was
not a proximate cause of such liability.
B. Supplier will timely provide Buyer with material safety data sheets and any
other documentation reasonably necessary to enable Buyer to comply with
applicable laws and regulations.
C. Supplier hereby certifies that Items supplied to Buyer do not contain and
are not manufactured with any ozone depleting substances, as those terms
are defined by law.
16. CUSTOMS CLEARANCE
Upon Buyer's request, Supplier will promptly provide Buyer with a statement
of origin for all Items and with applicable customs documentation for Items
wholly or partially manufactured outside of the country of import.
17. COMPLIANCE WITH LAWS
A. Supplier shall comply with all national, state, and local laws and
regulations governing the manufacture, transportation, and/or sale of Items
and/or the performance of services in the course of this Agreement. In the
United States, these may include, but are not limited to, Department of
Commerce, Environmental Protection Agency, and Department of Transportation
regulations applicable to hazardous materials.
B. Supplier represents and agrees that it is in compliance with Executive
Order 11246 and implementing Equal Employment Opportunity regulations and
the Immigration Act of 1987, unless exempted or inapplicable.
18. MERGER, MODIFICATION, WAIVER, AND REMEDIES
A. This Agreement contains the entire understanding between Buyer and Supplier
with respect to the subject matter hereof and merges and supersedes all
prior and contemporaneous agreements, dealings and negotiations. No
modification, alteration or amendment shall be effective unless made in
writing, dated and signed by duly authorized representatives of both
parties.
B. No waiver of any breach hereof shall be held to be a waiver of any other or
subsequent breach.
C. Except as otherwise expressly limited herein, the parties' rights and
remedies herein are in addition to any other rights and remedies provided
by law or in equity.
D. If any provision of this Agreement is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable, such determination
shall not affect the validity of the remaining provisions unless Buyer
determines in its discretion that the court's determination causes this
Agreement to fail in any of its essential purposes.
19. ASSIGNMENT
Neither party may assign or factor any rights in nor delegate any
obligations under this Agreement or any portion thereof without the written
consent of the other. However, Supplier may assign its rights and
obligations hereunder to its direct and indirect subsidiaries, without such
consent. Buyer may cancel this Agreement for cause should Supplier attempt
to make an unauthorized assignment of any right or obligation arising
hereunder.
20. APPLICABLE LAW
This Agreement is to be construed and interpreted according to the laws of
the State of Delaware, excluding its conflict of laws provisions. This
Agreement is not subject to the United Nations Convention on Contracts for
the International Sale of Goods, in accordance with Article 6 thereof.
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<PAGE> 10
21. HEADINGS
The headings provided in this Agreement are for convenience only and shall
not be used in interpreting or construing this Agreement.
22. SPECIFIC PERFORMANCE
Notwithstanding anything else contained in this Agreement, the parties
hereto agree that failure to perform certain obligations undertaken in
connection with this Agreement would cause irreparable damage, and that
monetary damages would not provide an adequate remedy in such event. The
parties further agree that failure to deliver against accepted Purchase
Orders, or to deliver confirmed supply or pricing, are such obligations.
Accordingly, it is agreed that, in addition to any other remedy to which
the non breaching party may be entitled, at law or in equity, the non
breaching party shall be entitled to injunctive relief to prevent breaches
of the provisions of this Agreement, and an order of specific performance
to compel performance of such obligations in any action instituted in any
court of the United States or any state thereof having subject matter
jurisdiction.
23. SURVIVAL
The provisions of Sections: 1, 8, 13, 14, 15, 20 will survive any
termination or expiration of this Agreement. In addition, any license
granted pursuant to Section 25 which is exercised prior to the Expiration
Date shall remain in force and effect for a period of three (3) years
following the Expiration Date, and Section 25 shall survive for this
three-year time period following the Expiration Date.
24. VOLUME COMMITMENTS
A. Buyer's and Supplier's volume obligations and sales commitments for [ ] are
set forth in Addendum D for the years set forth therein.
B. Notwithstanding the volume obligations described above and set forth in
detail in Addendum D of this Agreement, in the event that (i) Buyer is made
a party to litigation arising from a claim of intellectual property
infringement for which Buyer is indemnified, pursuant to Section 14 above,
and (ii) Buyer determines, in good faith, after a thorough review of the
claim, underlying patent, requested relief, Buyer's defenses and other
relevant facts, that Supplier's indemnification obligation (which Supplier
has the unilateral right to [ ]) would not be adequate with respect to the
potential liability to such person, [ ], unless Supplier agrees in writing
to increase [ ] set forth in Section 14 to a level which exceeds Buyer's
good faith estimate of the amount of the likely damages to be incurred in
such lawsuit.
C. Notwithstanding the volume obligations described above and set forth in
detail in Addendum D of this Agreement, in the event Supplier does not
supply a particular Item for the reasons stated in Section 14C above,
Supplier shall be released from its contractual obligation to supply the
affected Item to Buyer.
25. LICENSE
A. Supplier agrees to grant to Buyer and/or its designee a contingent,
royalty-free, fully-paid, worldwide, non-exclusive, irrevocable license,
under those intellectual property rights that are owned by Supplier, or
licensed to Supplier (which Supplier has the right to sublicense), that are
necessary to make, use and import, and in the
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<PAGE> 11
case of any such designee, to sell to Buyer or offer for sale to Buyer,
those specific Items that Supplier is not able to supply under this
Agreement for one of the following reasons:
(i) Supplier is [ ] selling or delivering such specific Item(s) to Buyer,
or
(ii) Supplier determines in good faith that it is [ ].
The above described license is expressly limited to the right to make Items
for Buyer's sole use, or in the case of a designee, to make, sell or offer
for sale Items (not supplied for the reasons set forth above), in an amount
not to exceed those set forth in Addendum D, for Buyer's sole use. In
addition, the above described license shall not obligate Supplier to
disclose any trade secrets to Buyer or its designee other than the
formulation (i.e., the ingredients and proportions) of the Item which has
not been supplied. Any disclosure of such Item's formulation to Buyer
and/or its designee shall be subject to Buyer and/or its designee entering
into appropriate obligations of confidentiality with respect to such
formulation.
B. In the event (i) Buyer is made a defendant in litigation by any person or
entity other than [ ], arising from a claim of patent infringement for
which Buyer is indemnified, pursuant to Section 14 above; and (ii) Supplier
is willing to continue to supply the affected Items; and (iii) Supplier is
unable to settle such litigation for an amount less than the [ ]; and (iv)
Buyer determines, in good faith, after a thorough review of the claim,
underlying patent, requested relief, Buyer's defenses and other relevant
facts, that Supplier's indemnification obligation (which Supplier has the
unilateral right [ ] with respect to the [ ] to such person, then Supplier
shall be obligated to either:
(i) Grant to Buyer and/or its designee a non-exclusive,
royalty-bearing, irrevocable license, under those patent rights that are
owned by Supplier, or licensed to Supplier (which Supplier has the right to
sublicense), that are necessary to make, use and import, and in the case of
any such designee, to make and sell to Buyer or offer for sale to Buyer,
those specific Items (in an amount not to exceed that set forth in Addendum
D) that are the subject of such litigation, provided, that Supplier
receives a non-exclusive, royalty-bearing, perpetual, irrevocable license
under the patent that is being asserted in the infringement litigation and
any other such patents of such party that are necessary to make and use
those specific Items. The [ ] in such case with respect to the
cross-licenses granted shall be [ ] of the purchase price or fair market
value (if produced by Buyer internally) of the Item that is [ ]; or
(ii) Grant to Buyer and/or its designee a non-exclusive,
royalty-bearing, irrevocable license, under those patents that are owned by
Supplier, or licensed to Supplier (which Supplier has the right to
sublicense), that are necessary to make, use and import, and in the case of
any such designee, to make and sell to Buyer or offer for sale to Buyer,
those specific Items that are the subject of such litigation. The [ ] in
such case shall be [ ] of the purchase price or fair market value (if
produced by Buyer internally) of the Item that is [ ]. The foregoing
license grant is expressly limited to the right to make Items (in an amount
not to exceed that set forth in Addendum D) for Buyer's sole use.
In the event Buyer exercises its right to have a license granted to Buyer
and/or its designee under this Section 25B, any such license grant shall
not subsequently
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<PAGE> 12
revert to a license grant under Section 25A, regardless of whether Supplier
subsequently stops supplying the affected Item.
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<PAGE> 13
ADDENDUM A
PRODUCT DESCRIPTION AND PRICE SCHEDULE
A. [ ]
TABLE A
PRICES WHICH APPLY IF BUYER PURCHASES [ ]% SHARE OF BUYER'S TOTAL
REQUIREMENTS FOR CMP SLURRIES UTILIZED IN [ ] POLISHING ASSOCIATED WITH THE
FOLLOWING MANUFACTURING PROCESSES OF BUYER: [ ]
<TABLE>
<CAPTION>
CABOT PART # PKG POINT OF DESTINATION PRICE PER GALLON
MANUFACTURE
<S> <C> <C> <C> <C>
[ ] IBC United States United States (FOB $[ ]
local Warehouse)
Ireland (DDU) $[ ]
Israel (DDP) $[ ]
[ ] IBC Barry, Wales United States (FOB $[ ]
local Warehouse)
Ireland (DDU) $[ ]
Israel (DDP) $[ ]
[ ] IBC/DTA United States United States (FOB $[ ]
local Warehouse)
</TABLE>
TABLE B
PRICES WHICH APPLY IF BUYER PURCHASES [ ]% SHARE OF BUYER'S TOTAL
REQUIREMENTS FOR CMP SLURRIES UTILIZED IN [ ] POLISHING ASSOCIATED WITH THE
FOLLOWING MANUFACTURING PROCESSES OF BUYER: [ ]
<TABLE>
<CAPTION>
CABOT PART # PKG POINT OF DESTINATION PRICE PER GALLON
MANUFACTURE
<S> <C> <C> <C> <C>
[ ] IBC United States United States (FOB $[ ]
local Warehouse)
Ireland (DDU) $[ ]
Israel (DDP) $[ ]
[ ] IBC Barry, Wales United States (FOB $[ ]
local Warehouse)
Ireland (DDU) $[ ]
Israel (DDP) $[ ]
[ ] IBC/DTA United States United States (FOB $[ ]
local Warehouse)
</TABLE>
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<PAGE> 14
TABLE C
PRICES WHICH APPLY IF BUYER PURCHASES [ ]% SHARE OF BUYER'S TOTAL
REQUIREMENTS FOR CMP SLURRIES UTILIZED IN [ ] POLISHING ASSOCIATED WITH THE
FOLLOWING MANUFACTURING PROCESSES OF BUYER: [ ]
<TABLE>
<CAPTION>
CABOT PART # PKG POINT OF DESTINATION PRICE PER GALLON
MANUFACTURE
<S> <C> <C> <C> <C>
[ ] IBC United States United States (FOB $[ ]
local Warehouse)
Ireland (DDU) $[ ]
Israel (DDP) $[ ]
[ ] IBC Barry, Wales United States (FOB $[ ]
local Warehouse)
Ireland (DDU) $[ ]
Israel (DDP) $[ ]
[ ] IBC/DTA United States United States (FOB $[ ]
local Warehouse)
</TABLE>
Prices for purchases of requirements percentages between the requirements
percentages shown in the above tables (i.e. quantities between [ ]%, [ ]%
and [ ]%) shall be determined by a straight line extrapolation of the
prices shown in the above tables.
The price per gallon of [ ] shall be calculated based upon the percent
share of Buyer's requirements for [ ] or its equivalent associated with
Buyer's [ ] manufacturing processes which Buyer forecasts for the relevant
calendar year. For example, if Buyer purchases [ ]% of its total
requirements for [ ] or its equivalent associated with Buyer's [ ]
manufacturing processes in the form of [ ] from Supplier in calendar year
2000, the price will be determined using Table B. However, if Buyer
purchases [ ]% of its total requirements for [ ] or its equivalent
associated with Buyer's [ ] manufacturing processes in the form of [ ] from
Supplier in calendar year 2000, the price will be determined using Table A.
B. [ ]
<TABLE>
<CAPTION>
CABOT PART # PKG POINT OF DESTINATION PRICE BASED ON CUMULATIVE VOLUMES OF [ ] PURCHASED
MANUFACTURE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
# [ ]-[ ] [ ]-[ ] [ ]-[ ] [ ]-[ ] [ ]-[ ] > [ ]*
[ ] IBC United States United States $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
(FOB local
warehouse)
United States Israel $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
(DDP)
United States Ireland (DDU) $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
</TABLE>
* volumes in thousands of gallons
The price per gallon of [ ] shall be calculated based upon the cumulative
volume of gallons of [ ] purchased by Buyer from Supplier during the term
of this Agreement. Adjustments to the price, based upon the cumulative
gallons of [ ] purchased by
-14-
<PAGE> 15
Buyer from Supplier, shall take effect in the quarter following the quarter
in which Buyer surpasses a volume threshold.
C. [ ]
<TABLE>
<CAPTION>
CABOT PART # PKG POINT OF MANUFACTURE DESTINATION # PRICE PER GALLON
<S> <C> <C> <C> <C>
[ ] * IBC United States United Sates (FOB local $[ ]
warehouse)
[ ] * IBC United States Ireland (DDU) $[ ]
[ ] * IBC Barry, Wales Ireland (DDU) $[ ]
[ ] * IBC Barry, Wales United Sates (FOB local $[ ]
warehouse)
</TABLE>
* [ ]
D. [ ]
<TABLE>
<CAPTION>
CABOT PART # PKG POINT OF MANUFACTURE DESTINATION # PRICE PER GALLON
<S> <C> <C> <C> <C>
[ ] IBC United States United Sates (FOB local $[ ]
warehouse)
</TABLE>
-15-
<PAGE> 16
ADDENDUM B
KEY CONTACTS & INTEL FAB LOCATIONS
<TABLE>
<CAPTION>
DEPARTMENT/TITLE NAME PHONE
<S> <C> <C>
OHKA:
Account Representative Brad Staley 630-375-5508
Accounts Receivable 630-585-9471
24-Hour Emergency Contact Brad Staley 630-375-5508
Schedule/Delivery Contact Soni Pahia 916-939-9364
General Bruce Zwicker 630-375-5540
INTEL:
FMO
Commercial Mumtaz Ahmed 408-765-88
Technical Ara Philipossian 408-765-6256
Joe Schoenholtz 408-765-2435
Buyers
Ireland Caitriona Delaney 011-353-1-606-8630
New Mexico Tami Freeman 505-893-3538
Fab 6 Oscar Ochoa 602-554-8417
Fab 12 Oscar Ochoa 602-554-8417
Israel
Fab 8 Anna Provad 011-972-2-5896357
Fab 18 Yaron Ozer 011-972-7-666-6953
Santa Clara
D2 Karen Ma 408-765-6152
Ethel Swindall 408-765-2392
Oregon Heather Holcomb 503-642-8693
Massachusetts
F17 Tony Quarta
Accounts Payable:
AZ/CA Linda Medill 503-696-3237
OR Jessica Ailshie 503-696-3046
NM Debbie Martin 503-696-3302
</TABLE>
-16-
<PAGE> 17
ADDENDUM C
QUALITY REQUIREMENTS
LIST OF GOVERNING INTEL SPECIFICATIONS
<TABLE>
<CAPTION>
SPEC. NO. REV. TITLE ISSUE DATE
<S> <C> <C> <C>
07-116 0 MATERIALS CHANGE CONTROL POLICY 05/22/98
07-123 2 SUPPLIER CORRECTIVE ACTION POLICY 02/25/98
07-124 4 FMO/ATMO-DISCREPANT RAW MATERIAL DISPOSITION POLICY 06/09/98
07-400 7 CHEMICALS SPECIFICATION SYSTEM 06/05/97
07-401 6 PROCEDURE FOR SHIPPING & RECEIVING OF CHEMICALS 12/05/97
07-402 5 INTEL CHEMICAL QUALITY PROGRAM 06/26/98
07-403 2 SHIPPING OF TEMP-SENSITIVE CHEMICALS 12/05/97
07-411 4 PROCUREMENT SPEC FOR CHEMICALS 11/25/98
</TABLE>
-17-
<PAGE> 18
ADDENDUM D
VOLUME OBLIGATIONS
A. [ ]
During the years set forth below, Buyer shall be obligated to purchase
from Supplier a [ ] volume of [ ] which is equal to the product of (i) Buyer's
total requirements for [ ] utilized in [ ] polishing associated with Buyer's [ ]
manufacturing processes ("[ ] Slurry Requirements"), multiplied by (ii) the [ ]
Percentage (set forth in the table below). During the years specified below,
Supplier shall be obligated to supply to Buyer a volume of [ ] which is equal to
the product of (i) Buyer's forecasted volume of [ ] Slurry Requirements for the
upcoming calendar year (which forecast shall be provided to Supplier 90 days
prior to the commencement of each calendar year), multiplied by (ii) the [ ]
Percentage (set forth in the table below).
[ ] SLURRY VOLUME OBLIGATIONS
<TABLE>
<CAPTION>
CALENDAR YEAR BUYER'S [ ] PERCENTAGE SUPPLIER'S [ ] PERCENTAGE
------------- ---------------------- -------------------------
<S> <C> <C>
1999 [ ] % [ ] %
2000 [ ] % [ ] %
2001 [ ] % [ ] %
</TABLE>
Ninety days prior to the commencement of each calendar year, Buyer shall commit
and obligate itself to purchase from Supplier a specific percentage of its [ ]
Slurry Requirements (which percentage shall be at least as large as the [ ]
Percentage) which it shall purchase from Supplier during the upcoming year. The
amount of [ ] which Buyer will purchase, above the [ ] Percentage, will be
determined according to whether Supplier meets requirements set by Buyer's
Supplier Score Card.
B. [ ]
During the years set forth below, Buyer shall be obligated to purchase from
Supplier a [ ] volume of [ ] which is equal to the product of (i) Buyer's total
requirements for [ ] utilized in [ ] polishing applications associated with
Buyer's [ ] manufacturing processes ("[ ] Requirements"), multiplied by (ii) the
[ ] Percentage (set forth in the table below). During the years specified below,
Supplier shall be obligated to supply to Buyer a volume of [ ] which is equal to
the product of (i) Buyer's forecasted volume of [ ] Requirements for the
upcoming calendar year (which forecast shall be provided to Supplier 90 days
prior to the commencement of each calendar year), multiplied by (ii) the [ ]
Percentage (set forth in the table below). Notwithstanding the foregoing, during
the course of any
-18-
<PAGE> 19
calendar year, Buyer may, by giving 4 months advance written notification to
Supplier, increase its forecasted [ ] requirements for the remainder of the year
(starting after the 4 month notice period), provided, however, such new
forecasted amount may not exceed a volume which is greater than the product of
the remaining volumes from the original forecasted amount, multiplied by [ ].
[ ] SLURRY VOLUME OBLIGATIONS
<TABLE>
<CAPTION>
CALENDAR YEAR BUYER'S [ ] PERCENTAGE SUPPLIER'S [ ] PERCENTAGE
<S> <C> <C>
1999 [ ] % [ ] %
2000 [ ] % [ ] %
2001 [ ] % [ ] %
</TABLE>
90 days prior to the commencement of 2001, Buyer shall commit and obligate
itself to purchase from Supplier a specific percentage of its [ ] Requirements
(which percentage shall be at least as large as the [ ] Percentage) which it
shall purchase from Supplier during 2001. The amount of [ ] which Buyer will
purchase, above the [ ] Percentage, will be determined according to whether
Supplier meets requirements set by Buyer's Supplier Score Card.
C. [ ]
During the years set forth below, Buyer shall be obligated to purchase from
Supplier a [ ] volume of [ ] which is equal to the product of (i) Buyer's total
requirements for [ ] utilized in [ ] polishing applications associated with
Buyer's [ ] manufacturing processes ("[ ] Requirements"), multiplied by (ii) the
[ ] Percentage (set forth in the table below). For each month of this Agreement,
Supplier shall be obligated to supply to Buyer a volume of [ ] which is equal to
the product of (i) the volume of [ ] Buyer purchased from Supplier during the
preceding month, multiplied by (ii) the [ ] Percentage (set forth in the table
below).
[ ] SLURRY VOLUME OBLIGATIONS
<TABLE>
<CAPTION>
CALENDAR YEAR [ ] PERCENTAGE [ ] PERCENTAGE
<S> <C> <C>
1999 [ ] % [ ] %
2000 [ ] % [ ] %
2001 [ ] % [ ] %
</TABLE>
D. [ ]
Neither Buyer nor Supplier have any volume obligations with respect to [ ]
-19-
<PAGE> 20
With respect to all of the above describe Items, in the event Buyer does not
purchase a particular Item for use in its facilities in either [ ] for any [ ],
Supplier shall no longer be obligated to supply such Item to Buyer's facilities
in the relevant geographic region.
-20-
<PAGE> 1
Exhibit 10.12
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406, promulgated under the Securities Act of 1933, as
amended.
SERVICES AGREEMENT
This SERVICES AGREEMENT (the "Agreement"), dated October 27, 1998, by
and among Davies-Imperial Coatings, Inc. ("Davies"), an Indiana corporation
having a place of business at 1275 State Street, Hammond, Indiana, Cabot
Corporation ("Cabot"), a Delaware corporation having a place of business at 75
State Street, Boston, Massachusetts, and, for purposes of Sections 10.1, 11,
13.4, 15, 18, 19, 20.6 and 20.9, Donn Davies, an individual, and JoAnn Davies,
an individual.
WHEREAS, Cabot desires to have Davies provide to Cabot metal oxide
dispersion services; and
WHEREAS, Davies desires to provide metal oxide dispersion services to
Cabot;
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. TERM
This Agreement shall commence on October 27 , 1998, and shall continue
until October 27, 2004 (the "Initial Term"). This Agreement shall thereupon be
automatically renewed for additional one (1) year periods (each a "Renewal
Term", and together with the Initial Term, the "Term"; each year of the Term
referred to herein as a "Term Year"), unless either party gives written notice
of its intention to terminate the Agreement at least 90 days prior to the
expiration of the Initial Term or any Renewal Term.
SECTION 2. SERVICES
2.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, during the Term, Davies shall provide to Cabot, and Cabot shall
purchase from Davies, the Services (as defined below) in such quantities as
specified by Cabot, subject to Section 2.4, below. "Services" means (a) the
manufacturing of the metal oxide dispersions set forth on Schedule A hereto (the
"Products") in accordance with the specifications, formulae and processes
provided by Cabot to Davies and initially as set forth in the materials
specified on Schedule A hereto, (b) the packaging of the Products in accordance
with specifications provided by Cabot from time to time, and (c) such ancillary
services as specified herein. Cabot may amend Schedule A from time to time on 30
days written notice to Davies provided such amendments either do not result in a
material increase in cost to Davies or are agreed to in advance by Davies;
Davies may only amend such schedule with Cabot's prior written consent.
2.2 Materials, Labor, etc.
(a) Subject to the following sentence, Cabot shall supply to Davies all
raw materials, packaging materials and filter media, with the exception of
wooden pallets and nominal filter bags, necessary for Davies to perform the
Services. In the event Cabot requests that Davies purchase specified materials,
Davies shall acquire the specified materials and shall bill Cabot therefor at
Davies' cost, including any handling charges incurred by Davies in connection
therewith. Title to all such materials shall remain with Cabot at all times.
<PAGE> 2
(b) Davies shall supply all materials and services, other than as set
forth in Section 2.2(a), above, necessary to provide the Services, including,
but not limited to, labor, administration, raw materials management, inventory
management, on-site warehousing, security, facility space, utilities,
maintenance, quality control, quality assurance, preparation of certificates of
analysis, order fulfillment, sample fulfillment, wooden pallets, coordination of
shipping and implementation of ISO conformance, as such may be set forth in
greater detail elsewhere in this Agreement. Subject to the following sentence,
Davies shall adequately insure all equipment at its Hammond, Indiana facility,
including the Cabot Assets, as defined below and as set forth on Schedule C
hereto. With respect to Products, as defined herein, Cabot shall adequately
insure all raw materials, finished goods and works-in-process.
2.3 Payment. Davies shall make good faith efforts to invoice Cabot for
its Services and for other charges on or before the second business day of each
month during the Term, but in no event later than the tenth day of such month,
and shall send such invoices to Cabot by express mail or similar means of
delivery. Cabot shall make a good faith effort to pay such invoices as soon as
possible following its first check run after it receives the relevant invoice,
but in any event, payment shall be made within ten (10) days after the date of
invoice.
2.4 Quantity. During each Term Year, Cabot will purchase Services from
Davies for not less than the lesser of (i) [ ] gallons of Product or (ii) [ ]
percent ([ ]%) of the total amount of orders received by Cabot for Products for
shipment to customer locations in North America. Cabot's purchase of Services
from Davies shall reflect its good faith expectations of customer demand and
Cabot shall use its reasonable efforts to distribute substantially evenly the
quantities of its purchases of Services to avoid creating production capacity
problems for Davies.
2.5 Failure to Provide Services. In addition to any other rights and
remedies of Cabot under this Agreement, in the event that Davies fails to supply
Cabot with its requirements for Services for any reason, Cabot shall have the
right to provide such Services for itself or purchase Services from sources
other than Davies. In such event, the amount of Products so provided or
purchased shall count toward the volume requirements of Section 2.4 hereof (each
a "Setoff"), provided, however, than in order for Cabot to be entitled to a
Setoff, Cabot must have provided Davies at least one week lead time on the
relevant order and the relevant order must not be for a quantity in excess of [
] per week.
SECTION 3. SHIPPING; DELIVERY
All Products shall be prepared for delivery to Cabot or a customer of
Cabot, as the case may be, in accordance with Cabot's instructions.
SECTION 4. PRICING
4.1 Prices. Davies shall perform the Services and provide such
miscellaneous services in connection therewith in accordance with the prices set
forth on Schedule B hereto (the "Prices").
4.2 Renegotiation. Cabot and Davies acknowledge that it is their
intention simultaneously to increase the quality of the Products and to decrease
the costs associated with manufacturing the Products, and to share any cost
savings between them. Recognizing that intention, on each two-year anniversary
of the execution of this Agreement, Cabot and Davies shall in good faith
negotiate any necessary changes (increases or decreases) to the Prices.
Necessary changes are changes that reflect changes in Davies' manufacturing
costs. In determining the changes to be made, the parties shall give
consideration to price pressures in the marketplaces of which the relevant
Products are a part. In no event shall the Price for Services relating to any
one Product be increased more than [ ]% per year.
2
<PAGE> 3
SECTION 5. CAPITAL EXPENDITURES
5.1 CapEx Investment. Cabot agrees to invest not less than One Hundred
Fifty Thousand Dollars ($150,000) (the $150,000 minimum referred to herein as
the "CapEx Investment") in capital improvements, capacity expansions and/or
capital expenditures to maintain capacity at Davies' facility relating to the
Services during each Term Year. Prior to making any such capital expenditures,
Cabot will consult with Davies to identify the priorities for such expenditures.
5.2 CapEx Carryover. If Cabot does not spend the total amount of the
CapEx Investment in a given Term Year, Davies may carry over the unspent portion
of such CapEx Investment to the next Term Year, provided, however, that Cabot
may, at its sole option, pay Davies within ninety (90) days of the end of such
Term Year an amount in cash equal to such unspent portion, in which case there
shall be no carryover for such Term Year. Notwithstanding the foregoing
sentence, if in any given Term Year Cabot agrees to spend more than the CapEx
Investment for that Term Year (including any carryover) on capital improvements
and/or capital expansions at Davies' facility, the excess shall be credited
toward the CapEx Investment in future Term Years, beginning with the immediately
succeeding Term Year.
SECTION 6. MAINTENANCE AND IMPROVEMENTS
6.1 Maintenance.
(a) Davies shall be responsible for the proper customary maintenance of
all assets used, directly or indirectly, in its provision of Services, including
the Cabot Assets (as defined below). Notwithstanding the foregoing, Cabot shall
be responsible for costs under third-party maintenance contracts relating to the
[ ] system located at Davies' facility in Hammond, Indiana. The parties
acknowledge that to the extent certain maintenance items are not individually
specified on Schedule A hereto, the cost of such maintenance items are reflected
in the Prices for the Services.
(b) If Cabot makes a good faith determination that Davies is not
complying with Section 6.1(a) hereof, Cabot shall have the right to enter upon
Davies' premises in order to perform the maintenance required by Section 6.1(a).
Any amounts expended by Cabot pursuant to this Section 6.1(b) shall be credited
toward the CapEx Investment for such Term Year. The fact that Cabot makes use of
this Section 6.1(b) shall have no effect on any of its rights and remedies with
respect to Davies' failure to comply with Section 6.1(a).
6.2 Improvements. After taking into account the improvements made
pursuant to Section 5.1 hereof, Davies agrees to make all capital improvements
to its Hammond, Indiana facility that are necessary or advisable in order to
continue to provide the Services in a timely manner.
SECTION 7. RIGHT TO BID
Cabot shall provide Davies the opportunity to bid to provide the
Services with respect to all Cab-O-Sperse(R) and Semi-Sperse(R) metal oxide
dispersions to be manufactured in North America, other than those to be
manufactured solely by Cabot or any Cabot affiliate. As used in this Agreement,
"affiliate" means, with respect to any person or entity, any person or entity,
directly or indirectly controlling, controlled by, or under common control with
any such person or entity.
3
<PAGE> 4
SECTION 8. PROPRIETARY INFORMATION; CONFIDENTIALITY
8.1 Proprietary Information.
(a) Subject to Section 8.1(b) hereof, the term "Proprietary
Information" shall mean, whether disclosed prior to, on or after the date hereof
and whether or not marked or identified as confidential, formulae,
specifications, demographic and trade information, costs, intellectual property
and applications for the same (including, but not limited to, patents,
copyrights, trademarks, trade names, service marks, service names, technology,
know-how, processes, trade secrets, inventions, data and software), names of
investors and customers, and other strategic business, marketing, sales and
financial information relating to the relevant party's business (including, but
not limited to business plans, marketing strategy, and production information).
(b) The term "Proprietary Information" does not include any information
which (i) at the time of disclosure or thereafter is generally available to or
known by the public (other than as a result of the acts by the recipient or its
representatives in breach of this Agreement), (ii) was or becomes available to
the recipient on a non-confidential basis from a source other than the provider
or its advisors, provided that such source is not and was not bound by a
confidentiality agreement with the provider, or (iii) has been independently
acquired or developed by the recipient without violating any of its obligations
under this Agreement.
8.2 Ownership. All information and materials, including Proprietary
Information of Cabot, its subsidiaries and its affiliates and all physical
manifestations thereof, that are received by Davies from Cabot prior to, on or
after the date hereof in connection with the Services or that are or were
created or produced by Davies and are based upon, or are otherwise prepared with
use of or reference to, Proprietary Information of Cabot, shall be and remain
the sole and exclusive property of Cabot. Upon written request by Cabot, Davies
shall return to Cabot all tangible forms of the Proprietary Information of
Cabot, including any and all copies, and all unused samples of materials Cabot
may have provided.
8.3 Confidentiality.
(a) Davies acknowledges, understands and agrees that all Proprietary
Information of Cabot and its subsidiaries and affiliates is confidential and
shall remain the exclusive property of Cabot, its subsidiaries or its
affiliates, as the case may be. Cabot acknowledges, understands and agrees that
all Proprietary Information of Davies is confidential and shall remain the
exclusive property of Davies. Each of Cabot and Davies agrees that for a period
of fifteen (15) years from and after the termination or expiration of the Term,
it shall keep and hold as confidential, and shall require its directors,
officers, employees, agents and representatives, to keep and hold as
confidential, any and all Proprietary Information of the other unless disclosure
is required by applicable law or by terms of a subpoena or other order issued by
a court of competent jurisdiction. Each party shall promptly notify the other of
any such subpoena or order, shall contest any such subpoena or order and shall
(to the extent possible) permit the owner of such Proprietary Information to
contest any such subpoena or order. Except as so required, neither party shall
disclose any Proprietary Information of the other to third parties, or to its
employees or representatives who do not have a need to know it in connection
with the subject of the transactions contemplated by this Agreement, and neither
party shall use (or permit to be used) any Proprietary Information of the other
except for the purposes contemplated hereby. For purposes of this Section 8, the
party providing any of its Proprietary Information is sometimes referred to as
the "provider" and the party receiving any of the other's Proprietary
Information is sometimes referred to as the "recipient."
(b) Davies agrees to cause each of its employees as of the date of this
Agreement, and any person who becomes an employee of Davies during the Term, to
enter into a confidentiality agreement with Cabot that provides for essentially
the same kind and degree of confidentiality as set forth in Section 8.3(a)
hereof with respect to Davies.
4
<PAGE> 5
8.4 Redelivery Upon Termination. The recipient shall deliver or cause
to be delivered to the provider, or destroy, promptly after termination of this
Agreement for any reason any documents containing Proprietary Information and
any copies thereof which the recipient (or others to whom the recipient has
disclosed the same hereunder whether authorized hereby or not) may have and
shall permanently erase or cause to be erased all Proprietary Information from
any computer memory or storage.
SECTION 9. INTELLECTUAL PROPERTY
9.1 Intellectual Property.
(a) With regard to any inventions, improvements and technical
information that are created or produced on or after the date of this Agreement
by any of the parties hereto in connection with the Services, or that are based
upon or suggested by any Proprietary Information of Cabot (the foregoing,
collectively, referred to herein as the "Term IP"), Davies agrees that Cabot
will be the sole and exclusive owner thereof, including all patents, copyrights,
and other intellectual property rights therein. Davies hereby assigns and agrees
to assign, without any additional compensation, all right, title and interest in
and to such inventions, improvements and technical information, including all
patents, copyrights and other intellectual property rights therein, to Cabot.
Davies further agrees, at Cabot's request and expense, to provide assistance to
Cabot in every reasonable way to perfect and vest title in and to such
inventions, improvements and technical information, including all patents,
copyrights and other intellectual property rights therein, in Cabot and to
assist Cabot in every reasonable way in obtaining and enforcing patents,
copyrights, and other intellectual property rights in and to such inventions,
improvements and technical information throughout the world.
(b) The parties acknowledge that over the course of their relationship
and prior to the date of this Agreement, they, individually or jointly, have
created or produced certain inventions, improvements and technical information
relating to the processes and techniques for dispersing metal oxides (the
"Existing IP"). Except as provided in Section 8.2 hereof, the portion of the
Existing IP created or produced solely by Davies is referred to herein as the
"Davies IP." The portion of the Existing IP created or produced solely by Cabot
or jointly by Cabot and Davies, together with the Term IP, is referred to herein
as the "Cabot IP."
9.2 Licenses.
(a) Davies hereby grants to Cabot a fully paid-up, nonexclusive,
irrevocable, world-wide, perpetual license to use the Davies IP, including the
right for Cabot to sub-license the Davies IP to any of its subsidiaries,
affiliates or any third parties (collectively the "Sub-licensees").
Notwithstanding Section 8.3 hereof, the license provided for by this Section
9.2(a) shall include Cabot's and the Sub-licensees' right to use the Proprietary
Information of Davies.
(b) Subject to Section 9.3 hereof, Cabot hereby grants to Davies a
fully paid-up, nonexclusive, irrevocable, world-wide, perpetual license to use
the Cabot IP, provided, however, that Davies may neither transfer any or all of
the Cabot IP to any third party, nor grant a sub-license with respect to any or
all of the Cabot IP.
(c) The licenses granted pursuant to this Section 9.2 shall survive the
termination of this Agreement.
9.3 Use of IP to Benefit Competitors. Davies agrees that from and after
the date hereof, and notwithstanding any termination of this Agreement, it will
not use either the Davies IP or the Cabot IP for the benefit of any entity
which, directly or indirectly, competes with any business carried on by Cabot or
any of Cabot's affiliates.
5
<PAGE> 6
SECTION 10. RIGHT OF FIRST REFUSAL TO PURCHASE DAVIES' BUSINESS
10.1 Offer.
(a) If, at any time, Davies, Donn Davies or JoAnn Davies desires to
sell part or all of the equity of Davies (in an aggregate amount greater than
10% of the total equity) or the assets owned by Davies and used or useful in
connection with its metal oxide dispersion business (in a single transaction or
series of transactions) (the portion of assets or equity, as the case may be,
that Davies, Donn Davies or JoAnn Davies desires to sell referred to herein as
the "Business"), whether by merger, stock sale, asset sale or otherwise or in a
single transaction or a series of transactions, such party or parties shall
submit a written offer (the "Offer") to sell the Business to Cabot as provided
herein. The Offer shall disclose which assets or stock is proposed to be sold,
the terms and conditions, including price and payment terms, of the proposed
sale, and the prospective purchaser of the Business. The Offer shall further
state that Cabot may acquire all but not less than all of the Business for the
price and upon the other terms and conditions set forth therein.
(b) If Cabot wishes to purchase the Business at the price and on the
terms and conditions set forth in the Offer, it shall, within 30 days from the
date of the Offer, notify Davies in writing (the "Acceptance").
10.2 No Transfer Except as Provided. Davies shall not, at any time
during the Term of this Agreement, in any manner convey or transfer the
Business, or any part thereof, except in accordance with the terms and
conditions contained in this Section 10.
10.3 Right to Sell to Third Party. If Cabot does not provide Davies
with an Acceptance within the 30-day period set forth in Section 10.1(b) hereof
(or if Cabot by notice to Davies earlier waives its right to purchase), Davies
shall be free, during the 120-day period following Davies' submission of the
Offer pursuant to Section 10.1(a) hereof, to convey the Business to the third
party identified in the Offer on terms and conditions (including price) no more
favorable to the third party than those contained in the Offer. If Davies does
not sell the Business within such 120-day period, the Business shall again
become subject to this right of first refusal.
10.4 Right to Remove Assets. If Davies enters into an agreement to sell
the Business to such third party in accordance with the provisions of this
Section 10, it shall notify Cabot at least 30 days prior to the closing of such
sale and Cabot shall be permitted at Cabot's expense to remove the Cabot Assets
(as defined below) prior to any such sale.
SECTION 11. NONCOMPETITION AND RELATED PAYMENTS
(a) Each of Davies, Donn Davies and JoAnn Davies (collectively, the
"Davies Group") hereby acknowledges the value each shall receive from the
execution of this Agreement by the other parties hereto, including Cabot, and
the benefits associated therewith. In consideration for such value each member
of the Davies Group hereby agrees that during the Term and the Additional
Non-Compete Period (as defined below), none of the members of the Davies Group
shall provide or assist any other person or entity to provide metal oxide
dispersion services to any Competitor. In the event of a breach of this Section
11(a) by any member of the Davies Group, none of the members of the Davies Group
shall receive any part of the Noncompetition Payment. For purposes of this
Section 11, "Competitor" shall mean any person or entity (other than Cabot and
Cabot's affiliates) that, directly or indirectly, competes with any business
carried on by Cabot or any of Cabot's affiliates. As used herein, "Additional
Non-Compete Period" shall mean (a) if Davies shall give notice of election not
to renew the Agreement in accordance with Section 1 hereof (a "Non-Renewal
Notice") or if Cabot shall terminate this Agreement pursuant to Section 13.1
hereof, a period of [ ] after the termination of the Agreement, or (b) if Cabot
shall give a Non-Renewal Notice or if both Davies and Cabot shall give a
Non-Renewal Notice or if Davies shall terminate this Agreement pursuant to
Section 13.3 hereof, a period of[ ] after the termination of the Agreement.
-6-
<PAGE> 7
(b) If Cabot shall give a Non-Renewal Notice, if Davies shall terminate
this Agreement pursuant to Section 13.3 hereof or if Cabot shall terminate this
Agreement pursuant to Section 13.1(a), 13.1(b) or 13.1(c), Cabot shall pay to
the Davies Group in consideration for such noncompetition covenant the following
total amount (the "Noncompetition Payment"), to be divided equally among those
members of the Davies Group in existence or living at the commencement of the
Additional Non-Compete Period:
(i) [ ] if such notice by Cabot is at the end of the Initial
Term;
(ii) [ ] if such notice by Cabot is at the end of the first
Renewal Term (if at all);
(iii) [ ] if such notice by Cabot is at the end of the second
Renewal Term (if at all); and
(iv) [ ] if such notice by Cabot is at the end of any Renewal
Term thereafter.
The Noncompetition Payment will be payable in two equal installments on the date
of any such termination and on the first anniversary thereof.
SECTION 12. WARRANTIES
12.1 Warranty as to Products. Davies represents and warrants to Cabot
that, when shipped to Cabot or a customer of Cabot, as the case may be, by
Davies, the Products will conform in all respects to the specifications then in
effect and as then set forth in the materials specified on Schedule A hereto.
12.2 Quality Control. Quality control with respect to the Products
shall be performed in accordance with the terms contained in the materials
specified on Schedule A hereto.
12.3 Rejection. Subject to the following sentence, Cabot shall not be
obligated to accept or pay for Services relating to any batch or lot containing
Product not conforming to the specifications then in effect for such Product. If
such non-conformity is the result of materials or formulae provided by Cabot,
Cabot shall pay Davies for the Services relating to such batch or lot and such
amount shall count toward the volume requirements contained in Section 2.4
hereof.
12.4 Warranty as to Violations. Davies represents and warrants that
there is no past or present violation of, and there is no pending or threatened
action, suit or proceeding relating to, any alleged violation of any laws,
ordinances, rules or regulations relating to the environment or otherwise
governing, directly or indirectly, any hazardous substances, wastes or materials
in connection with the business, properties or operations of Davies.
SECTION 13. TERMINATION
Cabot and Davies each acknowledge that in the performance of this
Agreement, including any exercise of termination rights under this Section, it
will act in good faith.
13.1 Davies Default. Cabot may terminate this Agreement in the event of
any one or more of the following occurrences (each a "Davies Default"):
(a) upon Davies' filing a petition for adjudication as a bankrupt, for
reorganization or for an arrangement under any bankruptcy or insolvency law;
(b) if any involuntary petition under any bankruptcy or insolvency law
is filed against Davies, is not dismissed within thirty (30) days thereafter and
is then continuing;
7
<PAGE> 8
(c) if Davies shall make an assignment of all or substantially all of
its assets for the benefit of creditors, or if Davies' interest under this
Agreement shall be taken upon execution;
(d) if Davies shall fail to perform any material covenant or material
obligation hereunder, except as excused under Section 20.10 hereof, and such
failure has not been cured within thirty (30) days following Cabot's written
notice to Davies of such failure; or
(e) in the event that Davies is no longer owned or controlled by either
Donn Davies or JoAnn Davies.
13.2 Continuation of Supply. Notwithstanding any termination of this
Agreement, in the event of a Davies Default, Davies shall nevertheless continue
to have the obligation to perform the Services for Cabot for a period of 120
days after termination of this Agreement by Cabot on the terms and conditions
contained herein.
13.3 Cabot Default. Davies may terminate this Agreement in the event of
any one or more of the following occurrences (each a "Cabot Default"):
(a) upon Cabot's filing a petition for adjudication as a bankrupt, for
reorganization or for an arrangement under any bankruptcy or insolvency law;
(b) if any involuntary petition under such law is filed against Cabot,
is not dismissed within thirty (30) days thereafter and is then continuing;
(c) if Cabot shall make an assignment of all or substantially all of
its assets for the benefit of creditors, or if Cabot's interest under this
Agreement shall be taken upon execution; or
(d) if Cabot shall fail to perform any material covenant or material
obligation hereunder and such failure has not been cured within thirty (30) days
following Davies' written notice to Cabot of such failure.
13.4 Effect of Termination.
(a) Termination of this Agreement, whether by lapse of time, mutual
consent, operation of law, exercise of right of termination or otherwise shall
not affect the ownership interests in the respective proprietary and other
rights of the parties.
(b) Upon any termination of this Agreement, Davies shall continue to
have the obligation to perform the Services to fill any outstanding orders
received by Davies prior to the receipt of notice of termination.
(c) The provisions contained in Sections 8, 9, 10.4, 11, 12, 13.2,
13.4, 14, 15, 18, 19 and 20.9hereof shall survive the termination of this
Agreement.
8
<PAGE> 9
SECTION 14. CABOT ASSETS; PROTECTION OF RIGHTS
14.1 Cabot Assets. The parties acknowledge and agree that Cabot owns
all right, title and interest in (a) the equipment and assets listed on Schedule
C hereto and which are located at Davies' facility in Hammond, Indiana, (b)
those assets purchased with the CapEx Investment pursuant to Section 5 hereof,
(c) all raw materials and packaging materials provided to Davies pursuant to
Section 2.2(a) hereof, and (d) all Products (collectively, the "Cabot Assets").
All of the Cabot Assets shall be subject to removal in accordance with the terms
of this Agreement; provided, however, that all pipes, cables and wiring
installed in the walls, ceilings, roof, floors or subfloors of Davies' facility
and used in connection with the Cabot Assets shall remain property of Davies
whether supplied or installed by Cabot or Davies.
14.2 Protection of Rights. Davies shall do all such things and execute
all such documents (including without limitation, financing statements) as Cabot
deems necessary or desirable to enable Cabot to protect its title to and
preserve its rights in the Cabot Assets.
SECTION 15. REMEDIES
The relationship between Davies, Donn Davies or JoAnn Davies on the one
hand, and Cabot on the other hand, and which is reflected in this Agreement is
unique and has a value which may not be readily measured in monetary terms. Each
of Cabot, Davies, Donn Davies and JoAnn Davies agrees that in the event of a
violation by it of any of its undertakings hereunder, the non-breaching party
shall be entitled (a) to specific performance and injunctive and other equitable
relief; (b) to recover from the breaching party monetary damages caused by any
such violation; and (c) to any other rights and remedies that may be available
at law or in equity, which rights and remedies may be exercised, at the option
of the non-breaching party, concurrently with any other right or remedy provided
in this Agreement. The remedies provided herein shall not be exclusive and shall
be in addition to any other rights or remedies now or hereafter existing at law
or in equity, by statute or otherwise.
SECTION 16. RELATIONSHIP OF PARTIES
Davies and Cabot are each independent contractors. Nothing herein
contained shall be construed to place Davies and Cabot in the relationship of
principal and agent, master and servant, partners, joint venturers, and, except
as otherwise set forth in this Agreement, neither party shall have, expressly or
by implication, the power to represent themselves as having any authority to
make contracts in the name of or binding upon the other, or to obligate or bind
the other in any manner whatsoever.
SECTION 17. COMPLIANCE WITH LAWS
Davies warrants and agrees that during the Term it shall observe and
comply in all material respects with all applicable federal, state, local and
foreign laws, ordinances, statutes, standards, rules, regulations and orders,
including but not limited to those relating to safety and health and the
environment. Davies shall be responsible for obtaining all permits and licenses
from governmental authorities and from private parties that are required in
connection therewith. Davies shall be responsible for the handling, disposal and
release of packaging material waste generated by Davies during the term of this
Agreement. Cabot shall be responsible for the disposal of all off-quality
Product, except for that which is off-quality through no fault of Cabot. Cabot
and Davies shall make good faith efforts to jointly pursue a waste minimization
program in connection with the manufacturing of Products pursuant to this
Agreement.
9
<PAGE> 10
SECTION 18. CONSENTS; NOTICES
Unless otherwise set forth herein, whenever any consent or approval is
required of either party, it must be given to the other party in writing and
delivered in accordance with the provisions of this Section 18. Any notice of a
party shall be in writing and shall be given by (a) telecopier with original
posted first class mail, postage prepaid, within two (2) business days
thereafter; (b) certified or registered mail with an acknowledgment of receipt,
postage prepaid, return receipt requested; or (c) a reputable private courier,
such as Federal Express, which provides evidence of receipt as a part of its
delivery service, and addressed as follows:
If to Cabot: Cabot Corporation
500 Commons Drive
Aurora, IL 60504
Attn: Operations Director
Telecopier: (630) 585-9981
If to Davies: Davies-Imperial Coatings, Inc.
1275 State Street
P.O. Box 790
Hammond, IN 46325
Attn: Donn T. Davies
Telecopier: ___________
If to Donn T. Davies: Donn T. Davies
c/o Davies-Imperial Coatings, Inc.
1275 State Street
P.O. Box 790
Hammond, IN 46325
Telecopier: ___________
If to JoAnn Davies: JoAnn Davies
c/o Davies-Imperial Coatings, Inc.
1275 State Street
P.O. Box 790
Hammond, IN 46325
Telecopier: ___________
or to such other address as may be designated in writing by any of the parties
from time to time in accordance herewith, and shall be deemed delivered two (2)
business days following delivery by hand, by private courier or when so
telecopied and five (5) business days following proper dispatch by certified or
registered mail. A business day is any Monday through Friday on which first
class mail is delivered.
SECTION 19. ATTORNEYS' FEES
If any action or proceeding is brought to enforce or interpret any
provision of this Agreement then, in addition to any other relief to which the
prevailing party may be entitled, the prevailing party shall be entitled to
recover its reasonable costs and attorneys' fees.
10
<PAGE> 11
SECTION 20. GENERAL
20.1 Severability. If any provision of this Agreement shall be found to
be invalid or unenforceable, then such provision or provisions shall not
invalidate or in any way affect the enforceability of the remainder of this
Agreement and such provision or provisions shall be curtailed and limited to the
extent necessary to bring the Agreement within any legal requirement and the
parties shall negotiate in good faith with respect to an equitable modification
of the provision or application thereof held to be invalid.
20.2 Modification; Waivers. Except as expressly provided herein, this
Agreement may be modified or amended only with the written consent of each party
hereto. Neither party hereto shall be released from its obligations hereunder
without the written consent of the other party. The observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) by the party entitled to enforce such
term, but any such waiver shall be effective only if in a writing signed by the
party against which such waiver is to be asserted. Except as otherwise
specifically provided herein, no delay on the part of either party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of either party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
20.3 Succession. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and other
legal representatives and, to the extent that any assignment hereof is permitted
hereunder, their assignees.
20.4 Counterparts. This Agreement may be executed in counterparts. Each
counterpart, including a signature page executed by each of the parties hereto,
shall be an original counterpart of this Agreement, but all of such counterparts
together shall constitute one instrument.
20.5 Further Assurances. Each party agrees to provide any additional
documents and take any such further action as may be reasonably requested by the
other party in order to carry out the purpose and intent of this Agreement.
20.6 Entire Agreement. This Agreement contains the full and complete
undertaking and agreement among the parties hereto with respect to the within
subject matter, and supersedes all other agreements between Cabot on the one
hand, and Davies, Donn Davies, or JoAnn Davies on the other, whether written or
oral except any confidentiality agreements between the parties, which shall, to
the extent such agreements do not contradict the terms of this Agreement,
continue in effect.
20.7 Headings. The headings of the sections and other subdivisions of
this Agreement are for convenient reference only. They shall not be used in any
way to govern, limit, modify, construe this Agreement or any part or provision
thereof nor otherwise be given any legal effect.
20.8 Assignees and Third Parties. This Agreement may not be assigned by
either party without the prior written consent of the other party and any
attempted assignment without such consent shall be null and void; provided,
however, that Cabot may assign this Agreement to a subsidiary or affiliated
company.
20.9 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to principles of conflicts or choice of laws of
Massachusetts or of any other jurisdiction.
11
<PAGE> 12
20.10 Force Majeure. Each of the parties hereto shall be excused from
delays in performing or from failure to perform hereunder to the extent that
such delays or failures result from causes beyond the reasonable control of such
party; provided that, in order to be excused from delay or failure to perform,
such party must act diligently to remedy the cause of such delay or failure.
[remainder of page intentionally left blank]
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have set their hands to this
Agreement as a sealed instrument and have delivered this Agreement as of the day
and year first above written.
DAVIES-IMPERIAL COATINGS, INC.
By: /s/ Donn Davies
------------------------------------
Its: President
CABOT CORPORATION
By: /s/ Matthew Neville
------------------------------------
Its: Vice President and General Manager
Solely for purposes of
Sections 10.1, 11, 13.4,
15, 18, 19, 20.6 and 20.9:
/s/ Donn Davies
------------------------------------
Donn Davies
Solely for purposes of
Sections 10.1, 11, 13.4,
15, 18, 19, 20.6 and 20.9:
/s/ JoAnn Davies
------------------------------------
JoAnn Davies
13
<PAGE> 14
SCHEDULE A
Products, Materials Specifying Specifications, Formulae,
Processes, Quality Control, Maintenance
<TABLE>
<CAPTION>
PRODUCT FORMULA CONTROL PLAN SPECIFICATION DAVIES TEST METHODS
(REVISION DATE) EFFECTIVE DATE/ REVISION LEVEL) (SPECIFICATION NO./ (TEST METHOD NUMBER)
REVISION DATE)
<S> <C> <C> <C> <C>
[ ] 9/19/96 8-5-96, Rev A [ ] 101, 200, 300, 302
[ ] 5/04/95 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 9/27/94 4-28-98, Rev B [ ] 101, 200, 300, 302
[ ] 10/07/94 6-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 9/18/96 6-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 3/28/95 5-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 7-10-98 5-1-97, Rev A [ ] 101, 300
[ ] 5/04/95 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 7/5/94 8-5-96, Rev A [ ] 101, 200, 300, 302
[ ] 2/1/93 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 7/5/93 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 7/6/94 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 7/16/93 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 9/27/94 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 11/18/93 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 5/16/96 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 7/6/94 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 7/6/94 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 8/23/96 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 8/23/96 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 8/23/96 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 9/18/96 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 8/23/96 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 1/12/96 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 1/12/96 5-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 5/04/95 4-28-98, Rev B [ ] 101, 200, 300, 302, 600
[ ] 12-June-98 8-5-96, Rev A [ ] 101, 200, 300, 302, 600
[ ] 5/4/95 4-28-98, Rev B [ ] 101, 200, 300, 302, 600
[ ] 5/13/97 10-1-97, Rev A [ ] 101, 200, 300, 302
[ ] 7/11/97 5-1-97, Rev A [ ] 101, 200, 300, 302, 400,
600, 606
[ ] 5/17/96 N/A [ ] 101, 200, 300, 302, 500
[ ] 5/17/96 8-5-96, Rev A [ ] 101, 200, 300, 302, 500
[ ] 3/21/96 N/A [ ] 101, 200, 300, 302, 500
[ ] 5/23/96 8-5-96, Rev A [ ] 101, 200, 300, 302, 501
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
[ ] 7/02/96 5-1-97, Rev A [ ] 101, 200, 300, 302, 501
[ ] 9/19/96 8-5-96, Rev A [ ] 101, 200, 300, 302
[ ] 12/18/96 8-5-96, Rev A [ ] 101, 200, 300, 302
[ ] 9/19/96 8-5-96, Rev A [ ] 101, 200, 300, 302
</TABLE>
2
<PAGE> 16
SCHEDULE B
Prices
CONVERSIONS CHARGES:
<TABLE>
<CAPTION>
Price/Lb.,
F.O.B.
Hammond, IN
Product Weight per 55-gal. Drum
<S> <C> <C>
[ ] 516 $[ ]
[ ] 500 $[ ]
[ ] 491 $[ ]
[ ] 531 $[ ]
[ ] 505 $[ ]
[ ] 506 $[ ]
[ ] 492 $[ ]
[ ] 548 $[ ]
[ ] 509 $[ ]
[ ] 516 $[ ]
[ ] 506 $[ ]
[ ] 500 $[ ]
[ ] 499 $[ ]
[ ] 500 $[ ]
[ ] 500 $[ ]
[ ] 500 $[ ]
[ ] 500 $[ ]
[ ] 500 $[ ]
[ ] 548 $[ ]
[ ] 492 $[ ]
[ ] 495 $[ ]
[ ] 492 $[ ]
[ ] 613 $[ ]
[ ] 489 $[ ]
[ ] 493 $[ ]
[ ] 536 $[ ]
[ ] 536 $[ ]
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C>
[ ] 531 $[ ]
[ ] 504 $[ ]
[ ] 489 $[ ]
[ ] 480 $[ ]
[ ] 480 $[ ]
[ ] 480 $[ ]
[ ] 480 $[ ]
[ ] 480 $[ ]
[ ] 516 $[ ]
[ ] 515 $[ ]
</TABLE>
MISCELLANEOUS CHARGES:
Monthly Storage $[ ]
Monthly Equipment Maintenance $[ ]
Sample preparation
25 or less $[ ]
over 25 $[ ]
Hazardous Material Labeling Charge $[ ]
Dangerous Goods Preparation $[ ]
Palletizing with 6-way bands $[ ]
Pallets for Bracing Intel Tote Loads $[ ]
Drum Condoms
single $[ ]
double $[ ]
Power Washing
Regular $[ ]
Wash and Insert Dip-Tubes $[ ]
2
<PAGE> 18
Aurora Delivery via Davies truck $[ ]
Recertify Totes and install certification
placard $[ ]
Install metal [ ] Placards on totes
$[ ]
Rebills $$[ ] per invoice
3
<PAGE> 19
SCHEDULE C
Asset List
Cabot Owned Equipment at Davies*
10/27/98
*The parties agree that this schedule is substantially accurate
as of October 27, 1998, but that greater detail, and any assets
inadvertently left off the list, will be added within a
reasonable time after execution of the agreement
DESCRIPTION QUANTITY
10,000 pound Cardinal Scale 1
500 pound scale 1
75 pound scale 1
[ ] 5
[ ] 5
[ ] 10
Clean filling room 2
36,000 BTU air conditioners 4
24,000 BTU air conditioners 2
200,000 BTU furnaces 2
York air handler 2
Stainless steel power washers 5
Brass power washer 1
[ ] 1
[ ] 1
[ ] 3
Single housing filter unit 8
Double housing filter units 5
[ ] 1
[ ] 1
[ ] 1
[ ] 1
[ ] 1
[ ] 3
[ ] 6
Bag dump/compactor units 4
RO equipment only (excludes instrumentation) 1
Mettler Toledo density meter 1
[ ] 1
Weber label printers 2
VWR lab oven 1
[ ] 1
[ ] 2
And lab balance 1
<PAGE> 20
[Letterhead of Fried, Frank, Harris, Shriver & Jacobson]
January 20, 2000 Writer's Direct Line
212-859-8689
(FAX: 212-859-8589)
BY ELECTRONIC TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Cabot Microelectronics Corporation
Ladies and Gentlemen:
On behalf of Cabot Microelectronics Corporation, a Delaware corporation
(the "Company"), and pursuant to the Securities Act of 1933, as amended, we are
filing by direct electronic transmission the Company's Registration Statement on
Form S-1 (the "Registration Statement") relating to the registration of the
Company's common stock. Except as noted on the Registration Statement, all of
the exhibits are included within the direct electronic transmission.
The filing fee of $19,800 was paid by intrabank transfer to the
Securities and Exchange Commission, Account Number 910-8739, Mellon Bank of
Pittsburgh, Pennsylvania, ABA No. 043000261 on January 19, 2000.
Please direct any questions or comments that the Staff may have with
regard to the filing to Thomas Christopher at (212) 859-8831, Gregory Gibson at
(212) 859-8106 or to the undersigned at the above-referenced number.
Very truly yours,
/s/ Joshua Wechsler
-------------------
Joshua Wechsler
Encls.
cc: Matthew Neville
Cabot Microelectronics Corporation
<PAGE> 1
Exhibit 10.14
CABOT MICROELECTRONICS CORPORATION
2000 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this 2000 Equity Incentive Plan (the "Plan") is to
advance the interests of Cabot Microelectronics Corporation (the "Company") and
its stockholders by enhancing the Company's ability to (a) attract and retain
employees, directors, consultants and advisors who are in a position to make
significant contributions to the success of the Company and its subsidiaries;
(b) reward these individuals for these contributions; (c) encourage these
individuals to take into account the long-term interests of the Company and its
stockholders; and (d) reward individuals who have contributed to the Company's
success (including the success of the Company's initial public offering), in the
case of each of (a) through (d), through ownership of shares of the Company's
common stock, par value $.001 per share ("Stock").
2. ADMINISTRATION
(a) Prior to the "IPO Effective Date" (as defined in the Master
Separation Agreement, dated March 28, 2000, to which the Company is a party (the
"Master Separation Agreement")), the Plan shall be administered by the Board of
Directors of Cabot Corporation and the Board of Directors of the Company, or
either of them, and, from and after the IPO Effective Date, the Plan shall be
administered by the Compensation Committee of the Board of Directors (the
"Board") of the Company (the entity that administers the Plan, the "Committee").
The Committee shall hold meetings at such times as may be necessary for the
proper administration of the Plan. The Committee shall keep minutes of its
meetings. If the Committee consists of more than one member, a quorum shall
consist of not fewer than two members of the Committee and a majority of a
quorum may authorize any action. Any decision or determination reduced to
writing and signed by a majority of all of the members of the Committee shall be
as fully effective as if made by a majority vote at a meeting duly called and
held. The Committee shall consist of at least one director of the Company and
may consist of the entire Board; provided, however, that, from and after the IPO
Effective Date, (i) if the Committee consists of less than the entire Board,
then, with respect to any Committee action relating to an Employee who is
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the Committee shall consist of at least two directors of the
Company, each of whom shall be a "Non-Employee Director" as defined in Rule
16b-3(b)(3) promulgated thereunder, and (ii) to the extent necessary for any
Award intended to qualify as "qualified performance-based compensation" under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), to
so qualify, each member of the Committee shall be an "outside director" (as
defined in Section 162(m) and the regulations promulgated thereunder). For
purposes of the preceding sentence, if one or more members of the Committee is
neither a Non-Employee Director nor an outside director and is recused or
abstains from voting with respect to an action taken by the Committee, then the
Committee, with respect to that action, shall be deemed to consist only of the
members of the Committee who are not so
<PAGE> 2
recused and who have not abstained from voting. Subject to applicable law, the
Committee may delegate its authority under the Plan to any other person or
persons.
(b) No member of the Committee shall be liable for any action, failure
to act, determination or interpretation made in good faith with respect to this
Plan or any transaction hereunder. The Company hereby agrees to indemnify each
member of the Committee for all costs and expenses and, to the fullest extent
permitted by applicable law, any liability incurred in connection with defending
against, responding to, negotiating for the settlement of or otherwise dealing
with any claim, cause of action or dispute of any kind arising in connection
with any actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.
(c) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(i) to determine the Employees to whom Awards shall be granted
under the Plan and the number of shares of Stock subject to such Awards; to
prescribe the terms and conditions (which need not be identical) of each such
Award; and to make any amendment or modification to any Award Agreement
consistent with the terms of the Plan;
(ii) to construe and interpret the Plan and the Awards granted
hereunder; to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any defect
or supplying any omission, or reconciling any inconsistency in the Plan or in
any Award Agreement, in the manner and to the extent it shall deem necessary or
advisable; to interpret the Plan and applicable Award Agreements so that the
Plan and its operation complies with Section 16 of the 1934 Act, Sections 162(m)
and 422 of the Code and other applicable law; and otherwise to give full effect
to the Plan;
(iii) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan; and
(iv) generally, to exercise such powers and to perform such
acts as are deemed by it necessary or advisable to promote the best interests of
the Company with respect to the Plan.
All decisions and determinations of the Committee in the exercise of the
foregoing powers shall be final, binding and conclusive upon the Company, its
affiliates, all Employees and all other persons claiming any interest herein.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is adopted by
the Board, subject to the approval of Cabot Corporation as the sole stockholder
of the Company. No Award may be granted under the Plan after the tenth
anniversary of the date on which this Plan was adopted by the Board, but Awards
previously granted may extend beyond that date.
-2-
<PAGE> 3
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 8.6, and subject to the
next following sentence and Section 6.3(a), the maximum number of shares of
Stock that may be delivered under the Plan will be (a) 3,500,000 shares of
Stock; plus (b) any shares of Stock subject to Awards granted under the Plan and
thereafter forfeited; plus (c) without duplication for shares counted under the
immediately preceding clause, a number of shares of Stock equal to the number of
shares repurchased by the Company in the open market or otherwise and having an
aggregate repurchase price no greater than the amount of cash proceeds received
by the Company from the sale of shares of Stock under the Plan; plus (d) any
shares of Stock surrendered to the Company in payment of the exercise price of
Options issued under the Plan. However, in no event shall the Company issue ISOs
(as defined in Section 6.2(a)) under the Plan covering more than 1,750,000
shares of Stock.
Stock delivered under the Plan may be either from authorized but
unissued Stock, from treasury shares or from shares of Stock purchased in
open-market transactions and private sales.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan will be employees,
directors, consultants and advisors of the Company or any of its affiliates
("Employees") who, in the opinion of the Committee, are in a position to make a
significant contribution to the success of the Company and its subsidiaries. An
"affiliate" for purposes of the Plan is an entity that controls, is controlled
by or is under common control with, the Company. A "subsidiary" for purposes of
the Plan is an entity in which the Company owns, directly or indirectly, equity
interests possessing a majority of the total combined voting power of all
classes of equity. The Committee will from time to time select the Employees who
are to be granted Awards ("Participants"), but no Participant shall receive
Awards under the Plan covering more than 300,000 shares of Stock (subject to
adjustment as provided in Section 8.6) in any calendar year.
6. TYPES OF AWARDS
6.1. RESTRICTED STOCK.
(a) Nature of Restricted Stock Award. An Award of Restricted Stock
entitles the recipient to acquire, at such time or times as the Committee may
determine, shares of Stock subject to the restrictions described in paragraph
(d) below ("Restricted Stock"). The Committee may require, as a condition to an
Award of Restricted Stock, that an Employee deliver to the Company a purchase
price in any amount set by the Committee for such Restricted Stock. In no event
shall the Company issue more than 875,000 shares of Restricted Stock under the
Plan.
(b) Payment for Restricted Stock. In the discretion of the Committee,
an Award Agreement evidencing an Award of Restricted Stock may permit the
Participant to pay some or all of the purchase price thereof, or to meet any
Withholding Requirements to be met by the Participant in connection therewith,
in the form of a note from the Participant on such terms as
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the Committee shall determine. Such terms may include forgiveness of all or a
portion of any such note upon such conditions as the Committee may specify.
(c) Rights as a Stockholder. A Participant who receives an Award of
Restricted Stock will have all the rights of a stockholder with respect to the
Stock, including voting and dividend rights, subject to the restrictions
described in paragraph (d) below and any other conditions imposed by the
Committee in the Award Agreement at the time of grant.
(d) Restrictions. The restrictions on each grant of Restricted Stock
will lapse at such time or times, and on such terms and conditions (including
obtaining pre-established performance goals), as the Committee may specify.
Except as otherwise specifically provided by the Plan or by the Committee in any
particular case, until these restrictions lapse, Restricted Stock may not be
sold, assigned, transferred, pledged or otherwise encumbered or disposed of,
except that Restricted Stock may be pledged as security for the purchase price
thereof, or for loans used to fund any or all of the purchase price thereof or
Withholding Requirements met in connection with the purchase thereof. If the
Participant ceases to be an Employee before such restrictions have lapsed, the
Company shall have the right to repurchase the Restricted Stock for the amount
of any consideration (excluding services) it received for the Restricted Stock
plus, if the Committee shall so determine, an amount equal to the Withholding
Requirements met by the Participant in connection with the sale of the Stock, or
for such other consideration as the Committee shall determine, including for no
consideration if no consideration other than services was paid for such
Restricted Stock. The Committee shall not accelerate the time at which the
restrictions on all or any part of a grant of Restricted Stock will lapse,
except as the Committee may determine to be appropriate in connection with a
Participant's termination as an Employee.
6.2. OPTIONS.
(a) Nature of Options. An Option is an Award entitling the recipient on
exercise thereof to purchase shares of Stock at a specified exercise price. Both
incentive stock options (as defined in Section 422 of the Code) ("ISOs") and
Options that are not ISOs may be granted under the Plan.
(b) Exercise Price. The exercise price of an Option shall be determined
by the Committee and set forth in an applicable Award Agreement; provided,
however, that the exercise price of an ISO shall not be less than the Fair
Market Value of a share of the Stock on the date the ISO is granted (110% of the
Fair Market Value of a share of Stock on the date of grant in the case of an ISO
granted to an Employee who owns (within the meaning of Section 422(b)(6) of the
Code) stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Company, or of a parent or a subsidiary (such
person, a "Ten Percent Shareholder")). For purposes of this Plan, "Fair Market
Value" on any date means the closing sales price of the Stock on such date on
the principal national securities exchange on which the Stock is listed or
admitted to trading, or, if the Stock is not so listed or admitted to trading,
the average of the per share closing bid price and per share closing asked price
on such date as quoted on the National Association of Securities Dealers
Automated Quotation System or such other market in which such prices are
regularly quoted, or, if there have been no published bid or
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asked quotations with respect to shares on such date, the Fair Market Value
shall be the value established by the Board in good faith and, in the case of an
ISO, in accordance with Section 422 of the Code; provided that the "Fair Market
Value" of any Option granted prior to the IPO Effective Date shall be the
initial public offering price of the Stock.
(c) Duration of Options. The latest date on which an Option may be
exercised will be the tenth anniversary of the date the Option was granted (five
years in the case of an ISO granted to a Ten Percent Shareholder), or such
earlier date as may have been specified by the Committee in the Award Agreement
at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time
or times, and on such terms and conditions (including obtaining pre-established
performance goals), as the Committee may specify in the Award Agreement for such
Option. The Committee may at any time accelerate the time at which all or any
part of the Option may be exercised.
Subject to the next following sentence, any exercise of an Option must
be in writing, signed by the proper person and delivered or mailed to the
Company, accompanied by (1) any documents required by the Committee and (2)
payment in full for the number of shares for which the Option is exercised. The
exercise price for any Stock purchased pursuant to the exercise of an Option
may, if permitted under the Award Agreement applicable to the Option, be paid in
the following forms: (a) cash; (b) the transfer, either actually or by
attestation, to the Company of shares of Stock that have been held by the
Participant for at least six months (or such lesser period as may be permitted
by the Committee) prior to the exercise of the Option, such transfer to be upon
such terms and conditions as determined by the Committee; or (c) a combination
thereof. In addition, Options may be exercised through a registered
broker-dealer pursuant to such cashless exercise procedures which are, from time
to time, deemed acceptable by the Committee. Any shares of Stock transferred to
the Company as payment of the exercise price under an Option shall be valued at
their Fair Market Value on the day of exercise of such Option. If requested by
the Committee, the Participant shall deliver the Award Agreement to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and return such Award Agreement to the Participant. No fractional shares of
Stock (or cash in lieu thereof) shall be issued upon exercise of an Option, and
the number of shares of Stock that may be purchased upon exercise shall be
rounded to the nearest number of whole shares.
(e) To the extent that the aggregate Fair Market Value (determined as
of the date of the grant) of shares of Stock with respect to which ISOs granted
under the Plan and "incentive stock options" (within the meaning of Section 422
of the Code) granted under all other plans of the Company or its subsidiaries
(in either case determined without regard to this Section 6.2(e)) are
exercisable by a Participant for the first time during any calendar year exceeds
$100,000, such ISOs shall be treated as Options which are not ISOs. In applying
the limitation in the preceding sentence in the case of multiple Options,
Options which are intended to be ISOs shall be treated as Options which are not
ISOs according to the order in which they were granted, such that the most
recently granted Options are first treated as Options which are not ISOs.
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6.3. SUBSTITUTE AWARDS.
(a) The Committee may grant Awards to Employees who hold outstanding
awards of stock options and restricted stock granted under the equity incentive
awards of Cabot Corporation (the "Cabot Awards"), in cancellation of the Cabot
Awards. It is intended that such Awards shall preserve for the Participants the
economic values of the equity incentives for which such Awards are substituted
and shall be subject to substantially similar terms of conditions as the Cabot
Awards (but any such Awards shall reflect the performance of the Stock and not
the performance of Cabot common stock), in each case as determined by the
Committee in its sole discretion. Any cancellation of a Cabot Award pursuant to
this Section 6.3(a) shall be subject to the terms of such Cabot Award.
(b) In connection with any acquisition by the Company or any of its
subsidiaries, the Committee may grant Awards to persons who became Employees in
connection with such acquisition in substitution for equity incentives held by
them in the seller or acquired entity. In such case the Committee may set the
prices and other terms of the substitute Awards at such amounts and in such
manner as it, in its sole discretion, deems appropriate to preserve for the
Participants the economic values of the equity incentives for which such Awards
are substitutes (as determined by the Committee in its sole discretion) or
otherwise to provide such incentives as the Committee may determine are
appropriate.
(c) Unless required by applicable law, any substitute Awards granted
pursuant to Section 6.3 shall not count toward the share limitations set forth
in Section 4.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. TERMINATION OF EMPLOYMENT.
Except as set forth in an applicable Award Agreement, after a
Participant ceases to be an Employee, (i) Options held by a Participant shall
not be exercisable and all rights of the Participant with respect thereto shall
terminate, and (ii) shares of Restricted Stock with respect to which the
restrictions have not lapsed shall be immediately forfeited and must be
transferred to the Company in accordance with Section 6.1.
7.2 CHANGE IN CONTROL.
The Committee shall have the discretion to provide in applicable Award
Agreements that, in the event of a "Change in Control" (as defined in Appendix
A) of the Company, the following provisions will apply:
(a) Each outstanding Option (or such lesser portion of each
Option as is set forth in an applicable Award Agreement) will
immediately become exercisable in full.
(b) Each outstanding share of Restricted Stock (or such lesser
number of shares as is set forth in an applicable Award Agreement) will
immediately become free of the restrictions.
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(c) In the event of a Change in Control which is a merger or
consolidation in which the Company is not the surviving corporation or
which results in the acquisition of substantially all the Company's
outstanding Stock by a single person or entity or by a group of persons
or entities acting in concert, or in the event of a sale or transfer of
all or substantially all of the Company's assets (a "Covered
Transaction"), for the termination of all outstanding Options as of the
effective date of the Covered Transaction, subject to the following: If
the Covered Transaction follows a Change in Control or would give rise
to a Change in Control, no Option will be so terminated (without the
consent of the Participant) prior to the expiration of 20 days
following the later of (i) the date on which the Award became fully
exercisable and (ii) the date on which the Participant received written
notice of the Covered Transaction.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by written instruments prescribed by the
Committee from time to time (each such instrument, an "Award Agreement"). Award
Agreements may be in the form of agreements, to be executed by both the
Participant and the Company, or certificates, letters or similar instruments,
acceptance of which will evidence agreement to the terms thereof and hereof.
8.2. RIGHTS AS A STOCKHOLDER; DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award
will not give a Participant rights as a stockholder, and the Participant will
obtain such rights, subject to any limitations imposed by the Plan or the Award
Agreement, upon actual receipt of Stock. However, the Committee may, on such
conditions as it deems appropriate, provide in an Award Agreement that a
Participant will receive a benefit in lieu of cash dividends that would have
been payable on any or all Stock subject to the Participant's Award had such
Stock been outstanding. Without limitation, the Committee may provide for
payment to the Participant of amounts representing such dividends, either
currently or in the future, or for the investment of such amounts on behalf of
the Participant.
8.3 CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove any restriction from shares of Stock
previously delivered under the Plan (a) until all conditions of the Award have
been satisfied or removed, (b) until, in the opinion of the Company's counsel,
all applicable federal and state laws and regulations have been complied with,
(c) if the outstanding Stock is at the time listed on any stock exchange, until
the shares to be delivered have been listed or authorized to be listed on such
exchange upon official notice of notice of issuance and (d) until all other
legal matters in connection with the issuance and delivery of such shares have
been approved by the Company's counsel. If the sale of Stock has not been
registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations or
agreements as counsel for the
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Company may consider appropriate to avoid violation of such Act and may require
that the certificates evidencing such Stock bear an appropriate legend
restricting transfer.
8.4. TAX WITHHOLDING.
The Company will withhold from any payment made pursuant to an Award an
amount as may be necessary sufficient to satisfy all minimum federal, state and
local withholding tax requirements (the "Withholding Requirements").
The Committee will have the right to require that the Participant or
other appropriate person remit to the Company an amount sufficient to satisfy
the Withholding Requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock.
If and to the extent that any such withholding is required, the Committee may
permit the Participant or such other person to elect at such time and in such
manner as the Committee provides to have the Company hold back from the shares
to be delivered, or to deliver to the Company, Stock having a value calculated
to satisfy the Withholding Requirements.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for Withholding Requirements with respect to a
disposition of the Stock received upon exercise, the Committee may require as a
condition of exercise that the person exercising the ISO agree (a) to inform the
Company promptly of any disposition of Stock received upon exercise of the ISO,
and (b) to give such security as the Committee deems adequate to meet the
potential liability of the Company for the Withholding Requirements and to
augment such security from time to time in any amount reasonably deemed
necessary by the Committee to preserve the adequacy of such security.
8.5. NONTRANSFERABILITY OF AWARDS.
No Option shall be transferable by a Participant otherwise than by will
or by the laws of descent and distribution or, in the case of an Option other
than an ISO, pursuant to a domestic relations order (within the meaning of Rule
16a-12 promulgated under the Exchange Act), and an Option shall be exercisable
during the lifetime of such Participant only by such Participant or such
Participant's executor or administrator or by the person or persons to whom the
Option is transferred by will or the applicable laws of descent and distribution
(such person, the Participant's "Legal Representative"). Notwithstanding the
foregoing sentence, the Committee may set forth in an Award Agreement evidencing
an Option (other than an ISO), that the Option may be transferred to members of
the Participant's immediate family, to trusts solely for the benefit of such
immediate family members and to partnerships in which such family members and/or
trusts are the only partners, and for purposes of this Plan, such a transferee
of an Option shall be deemed to be the Participant. For this purpose, "immediate
family" shall refer only to the Participant's spouse, parents, children,
stepchildren and grandchildren and the spouses of such parents, children,
stepchildren and grandchildren. The terms of an Option shall be final, binding
and conclusive upon the beneficiaries, executors, administrators, heirs and
successors of the Participant.
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8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
In the event that the outstanding shares of Stock are changed into or
exchanged for a different number or kind of shares of stock, other securities or
other property of the Company, an affiliate or another legal entity, whether
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split-up or other substitution of securities of the Company, an affiliate
or another entity, the Committee shall make appropriate adjustments to the
maximum number and kind of shares of stock or other equity interest as to which
Awards may be granted under the Plan and the number and kind of shares of stock
or other equity interest with respect to which Awards have been granted under
the Plan, the exercise prices for such shares or other equity interest subject
to Options and any other economic terms of Awards granted under the Plan; and
provided, that, in the event of a merger of the Company with or into another
entity, any adjustment provided for in the applicable agreement and plan of
merger (or similar document) shall be conclusively deemed to be appropriate for
purposes of this Section 8.6. The Committee's adjustment shall be final and
binding for all purposes of the Plan and each Award Agreement entered into under
the Plan. Unless the Committee otherwise determines, no adjustment provided for
in this Section 8.6 shall require the Company to issue a fractional share, and,
in such event, with respect to each Award Agreement the total adjustment as to
the number of shares for which Awards have been granted shall be effected by
rounding down to the nearest whole number of shares.
8.7. EMPLOYMENT RIGHTS.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued employment with the Company or any
subsidiary or affect in any way the right of the Company or affiliate to
terminate an employment relationship at any time.
8.8. PAYMENT FOR STOCK; LOANS.
Stock awarded under this Plan as Restricted Stock or received upon
exercise of an Option may be paid for with such legal consideration as the
Committee may determine. If and to the extent authorized by the Committee, the
Company may permit Participants to pay for Stock with promissory notes, and may
make loans to Participants of all or a portion of any Withholding Requirements
to be met in connection with the grant, exercise or vesting of any Award. Any
such extensions of credit may be secured by Stock or other collateral, or may be
made on an unsecured basis, as the Committee may determine.
9. DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
The Committee may at any time discontinue granting Awards under the
Plan. The Board may at any time or times amend the Plan and, with the consent of
the holder thereof, any outstanding Award. The Committee may at any time
terminate the Plan as to any further grants of Awards, provided that (except to
the extent expressly required or permitted by the Plan) no such amendment will,
without the approval of the stockholders of the Company, (a) increase the
maximum number of shares available under the Plan, (b) extend the time within
which Awards may be granted, or (c) amend the provisions of this Section 9, and
no amendment or termination
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of the Plan may adversely affect the rights of any Participant (without his or
her consent) under any Award previously granted.
CABOT MICROELECTRONICS CORPORATION
By /s/ Matthew Neville
--------------------------
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APPENDIX A
A "Change in Control" shall be deemed to have occurred if, following the
"Distribution" (as defined in the Master Separation Agreement):
(a) any "person" as such term is used in Sections 13(d) and 14(d) of
the 1934 Act (other than (i) the Company, (ii) any subsidiary of the Company,
(iii) any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or of any subsidiary of the Company, or (iv) any
company owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Section 13(d) of the 1934
Act), together with all Affiliates and Associates (as such terms are used in
Rule 12b-2 of the General Rules and Regulations under the 1934 Act) of such
person, directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding securities;
or
(b) the stockholders of the Company approve a merger or consolidation
of the Company with any other company, other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, at least 65% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
after which no "person" (with the method of determining "beneficial ownership"
used in clause (a) of this definition) owns more than 25% of the combined voting
power of the securities of the Company or the surviving entity of such merger or
consolidation; or
(c) during any period of two consecutive years (not including any
period prior to the execution of the Plan), individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has conducted or threatened a proxy contest, or has
entered into an agreement with the Company to effect a transaction described in
clause (a), (b) or (d) of this definition) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved cease for any reason to constitute at least
a majority thereof; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
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Exhibit 10.15
CABOT MICROELECTRONICS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.01 Purpose. The purpose of the Cabot Microelectronics Corporation Employee
Stock Purchase Plan (the "Plan") is to provide employees of Cabot
Microelectronics Corporation (the "Company") and its Designated Subsidiary
Corporations with an opportunity to purchase Common Stock of the Company
through accumulated payroll deductions.
1.02 Rules of Interpretation. It is the intention of the Company to have the
Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the provisions
of the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section
of the Code; provided, however, that the Committee shall have the
discretion to cause the options granted in one or more Offering Periods
under the Plan to be options to which Section 423 of the Code does not
apply.
ARTICLE II
DEFINITIONS
2.01 "Board" shall mean the Board of Directors of the Company.
2.02 "Change in Capitalization" shall mean any increase or reduction in the
number of shares of Common Stock, or any change (including, but not
limited to, in the case of a spin-off, dividend or other distribution in
respect of shares of Common Stock, a change in value) in the shares of
Common Stock or exchange of shares of Common Stock for a different number
or kind of shares, other equity interests or other property of the Company
or another entity, by reason of a reclassification, recapitalization,
merger, consolidation, reorganization, spin-off, split-up, issuance of
warrants or rights or debentures, stock dividend, stock split or reverse
stock split, cash dividend, property dividend, combination or exchange of
shares, repurchase of shares, change in corporate structure or otherwise.
2.03 "Change in Control" shall be as defined in Appendix A.
2.04 "Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE> 2
2.05 "Common Stock" shall mean the Common Stock of the Company.
2.06 "Company" shall mean Cabot Microelectronics Corporation, a Delaware
corporation.
2.07 "Compensation" shall mean the gross cash compensation (including base
salary, shift premium, overtime earnings and cash bonuses exclusive of
relocation and sign-on bonuses) paid by the Company or a Designated
Subsidiary Corporation in accordance with the terms of employment, but
excluding all bonus payments, expense allowances and compensation paid in
a form other than cash.
2.08 "Committee" shall mean the committee described in Article XI.
2.09 "Designated Subsidiary Corporation" shall mean any Subsidiary of the
Company which has been designated by the Committee from time to time in
its sole discretion as eligible to participate in the Plan.
2.10 "Employee" shall mean any individual who is a common law employee of the
Company or a Designated Subsidiary Corporation for tax purposes whose
customary employment with the Company is at least twenty (20) hours per
week and more than five (5) months in any calendar year.
2.11 "Enrollment Date" shall mean the first day of each Offering Period.
2.12 "Exercise Date" shall mean the last day of each Offering Period.
2.13 "Fair Market Value" shall mean, as of any date, the value of a share of
Common Stock determined as follows:
2.13.1 If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for
a share of Common Stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system on the date of such
determination, as reported in The Wall Street Journal or such
other source as the Committee deems reliable, or;
2.13.2 If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for a share
of the Common Stock on the date of such determination, as reported
in The Wall Street Journal or such other source as the Committee
deems reliable, or;
<PAGE> 3
2.13.3 In the absence of an established market for the Common Stock, the
Fair Market Value of a share thereof shall be determined in good
faith by the Committee.
2.13.4 Notwithstanding the above, in the case of the first day of the
initial Offering Period, Fair Market Value shall mean the public
offering price in the Initial Public Offering.
2.14 "Initial Public Offering" shall mean the first public offering of the
Common Stock pursuant to the Securities Act of 1933, as amended.
2.15 "Offering Period" shall mean a period of approximately six (6) months
commencing on the first Trading Day on or after January 1st and
terminating on the last Trading Day in the period ending the following
June 30th, or commencing on the first Trading Day on or after July 1st and
terminating on the last Trading Day in the period ending the following
December 31st, provided, however, that the first Offering Period under the
Plan shall commence on the first date on which quotations are available
for the Common Stock on any established stock exchange or a national
market system and shall end on a Trading Day selected by the Committee
consistent with Section 423 of the Code. The duration of Offering Periods
may be changed pursuant to Sections 13.05 and 13.06.
2.16 "Plan Representative" shall mean any person designated from time to time
by the Committee to receive certain notices and take certain other
administrative actions relating to participation in the Plan.
2.17 "Plan" shall mean the Cabot Microelectronics Corporation Employee Stock
Purchase Plan.
2.18 "Purchase Price" shall mean an amount set by the Committee, but not less
than the lesser of 85% of the Fair Market Value of a share of Common Stock
on the Enrollment Date or on the Exercise Date, whichever is lower;
provided, however, that the Purchase Price may be adjusted by the Board
pursuant to Section 13.06.
2.19 "Subsidiary" shall mean a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
2.20 "Trading Day" shall mean a day on which national stock exchanges and the
Nasdaq System are open for trading.
<PAGE> 4
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Eligibility. Each Employee on an Enrollment Date of an Offering Period
shall be eligible to participate in such Offering Period. Persons who are
not Employees shall not be eligible to participate in such Offering
Period. Employees of Cabot Corporation and its subsidiaries, other than
the Company and its Designated Subsidiary Corporations, are not eligible
to participate in the Plan.
3.02 Restrictions on Participation. Notwithstanding any provision of the Plan
to the contrary, no Employee shall be granted an option to purchase shares
of Common Stock under the Plan:
3.02.1 If, immediately after the grant, such Employee would own stock
and/or hold outstanding options to purchase stock possessing 5% or
more of the total combined voting power or value of all classes of
stock of the Company (for purposes of this paragraph, the rules of
Section 424(d) of the Code shall apply in determining stock
ownership of any Employee); or
3.02.2 If such Employee's rights to purchase stock under all employee
stock purchase plans of the Company accrue at a rate which exceeds
$25,000 of Fair Market Value of the stock (determined at the time
such option is granted) for each calendar year in which such
option is outstanding at any time.
3.03 Commencement of Participation. An Employee may become a participant by
completing an authorization for payroll deductions on the form provided by
the Company and filing the completed form with the Plan Representative on
or before the filing date set therefor by the Committee, which date shall
be prior to the next Enrollment Date. Payroll deductions for a participant
shall commence on the next following Enrollment Date after the Employee's
authorization for payroll deductions becomes effective and shall continue
until termination of the Plan, the participant's earlier termination of
participation in the Plan, or the participant's change in payroll
deductions pursuant to Section 5.03. Each participant in the Plan shall be
deemed to continue participation until termination of the Plan or such
participant's earlier termination of participation in the Plan pursuant to
Article VIII below.
ARTICLE IV
STOCK SUBJECT TO THE PLAN AND OFFERINGS
4.01 Stock Subject to the Plan. Subject to the provisions of Section 13.03 of
the Plan, the Board shall reserve for issuance under the Plan an aggregate
four hundred seventy-five thousand (475,000) shares of the Company's
Common Stock, which shares shall be authorized but unissued shares of
Common Stock, treasury
<PAGE> 5
shares, or shares of Common Stock purchased by the Company or the Plan on
an established stock exchange or a national market system.
4.02 Offerings. The Plan will be implemented by two annual offerings of the
Company's Common Stock each calendar year. Each offering will be
outstanding during the applicable Offering Period.
ARTICLE V
PAYROLL DEDUCTIONS
5.01 Amount of Deduction. The form described in Section 3.03 will permit a
participant to elect payroll deductions of any whole percentage from one
percent (1%) through ten percent (10%) of such participant's Compensation
for each pay period during an Offering Period.
5.02 Participant's Account. All payroll deductions made for a participant shall
be credited to an account established for such participant under the Plan.
A participant may not make any separate cash payment into such account.
5.03 Changes in Payroll Deductions. A participant may reduce or increase future
payroll deductions (within the limits described in Section 5.01) by filing
with the Plan Representative a form provided by the Company for such
purpose. The effective date of any increase or reduction in future payroll
deductions will be the next following payroll period succeeding processing
of the change form.
ARTICLE VI
GRANTING OF OPTION
6.01 Number of Option Shares. On an Enrollment Date each participant shall be
deemed to have been granted an option to purchase a number of shares of
Common Stock determined by dividing the participant's accumulated payroll
deductions on the Exercise Date by the lower of (i) 85% of the Fair Market
Value of a share of Common Stock on the Enrollment Date or (ii) 85% of the
Fair Market Value of a share of Common Stock on the Exercise Date;
subject, however, to any applicable limitations contained in this Plan. In
addition, the maximum number of shares a participant may purchase with
respect to any Offering Period is that number of shares determined by
dividing $12,500 by the Fair Market Value of a share of Common Stock on
the Enrollment Date; provided, however, the maximum number of shares a
participant may purchase with respect to the first Offering Period is that
number of shares determined by dividing $25,000 by the Fair Market Value
of a share of Common Stock on the Enrollment Date.
<PAGE> 6
ARTICLE VII
EXERCISE OF OPTION
7.01 Automatic Exercise. Subject to the next following sentence, each Plan
participant's option for the purchase of stock with payroll deductions
made during any Offering Period will be exercised automatically on the
applicable Exercise Date for the purchase of the number of full and deemed
fractional shares of Common Stock which the accumulated payroll deductions
in the participant's account at the time will purchase at the Purchase
Price (but not in excess of the maximum number of shares determined
pursuant to Section 6.01), and any excess accumulated payroll deductions
which, but for this limitation, would have been used to purchase shares,
will be held for the purchase of Common Stock on the next following
Exercise Date without interest. The Committee shall have the discretion to
reduce the number of shares of Common Stock to be purchased by
participants with respect to an Offering Period and to allocate such
reduced number of shares of Common Stock among participants in such
Offering Period, so long as such reduction and allocation is done in a
manner consistent with Section 423 of the Code. Any payroll deductions not
applied to the purchase of shares of Common Stock by reason of the
reduction pursuant to this Section 7.01 shall be promptly refunded to
participants after the Exercise Date of the Offering Period to which such
reduction applies.
7.02 Withdrawal of Account. No participant in the Plan shall be entitled to
withdraw any amount from the accumulated payroll deductions in his or her
account; provided, however, that a participant's accumulated payroll
deductions shall be refunded to the participant as and to the extent
specified in Section 8.01 below upon termination of such participant's
participation in the Plan.
7.03 Fractional Shares. Fractional shares of Common Stock will not be issued
under the Plan. Any deemed fractional share of Common Stock purchased by a
Participant pursuant to Section 7.01 hereof will be combined with any
deemed fractional shares purchased by the Participant in subsequent
Offering Periods and whole shares of Common Stock then issued therefor.
The Fair Market Value of all deemed fractional shares shall be paid in
cash.
7.04 Exercise of Options. During a participant's lifetime, options held by such
participant shall be exercisable only by such participant.
7.05 Delivery of Stock. As promptly as practicable after each Exercise Date,
the Company will deliver to each participant the shares of Common Stock
purchased upon exercise of such participant's option. The Company may
deliver such shares in certificated or book entry form, at the Company's
sole election.
<PAGE> 7
ARTICLE VIII
WITHDRAWAL
8.01 In General. A participant may stop participating in the Plan at any time
by giving written notice to the Plan Representative. Upon processing of
any such written notice, no further payroll deductions will be made from
the participant's Compensation during such Offering Period or thereafter,
unless and until such participant elects to resume participation in the
Plan by providing written notice to the Plan Representative pursuant to
Section 3.03 above. Such participant's payroll deductions accumulated
prior to processing of such notice shall be applied toward purchasing full
and deemed fractional shares of Common Stock in the then-current Offering
Period as provided in Section 7.01 above unless the participant requests
in writing to have the accumulated payroll deductions and cash in lieu of
deemed fractional shares returned to him or her.
8.02 Effect on Subsequent Participation. A participant's withdrawal from any
Offering Period will not have any effect upon such participant's
eligibility to participate in any succeeding Offering Period or in any
similar plan which may hereafter be adopted by the Company and for which
such participant is otherwise eligible.
8.03 Termination of Employment. Upon termination of a participant's employment
with the Company or any Designated Subsidiary Corporation (as the case may
be) for any reason, including retirement but excluding death, the
participant's payroll deductions accumulated prior to such termination, if
any, shall be applied toward purchasing full and deemed fractional shares
of Common Stock in the then-current Offering Period so long as the
Exercise Date with respect to such Offering Period occurs on or within
three months following such termination; provided, however, that (1) the
participant may request in writing to have the accumulated payroll
deductions and cash in lieu of deemed fractional shares returned to him or
her, and (2) upon termination of a participant's employment with the
Company or any Designated Subsidiary Corporation (as the case may be) as a
result of the participant's death, the participant's payroll deductions
accumulated prior to such termination and cash in lieu of deemed
fractional shares shall be paid to his or her estate.
ARTICLE IX
INTEREST
9.01 Payment of Interest. No interest will be paid or allowed on any money paid
into the Plan or credited to the account of or distributed to any
participant.
<PAGE> 8
ARTICLE X
STOCK
10.01 Participant's Interest in Option Stock. No participant will have any
interest in shares of Common Stock covered by any option held by such
participant until such option has been exercised as provided in Section
7.01 above.
10.02 Registration of Stock. Shares of Common Stock purchased by a participant
under the Plan will be recorded in the name of the participant, or, if the
participant so directs by written notice to the Plan Representative prior
to the applicable Exercise Date, in the names of the participant and the
participant's spouse as joint tenants with rights of survivorship or as
tenants by the entireties, to the extent permitted by applicable law.
10.03 Restrictions on Exercise. The Board may, in its discretion, require as
conditions to the exercise of any option that the shares of Common Stock
reserved for issuance upon the exercise of such option shall have been
duly listed, upon official notice of issuance, upon a stock exchange or
market, and that either:
10.03.1 a registration statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or
10.03.2 the participant shall have represented at the time of purchase,
in form and substance satisfactory to the Company, that it is his
or her intention to purchase the shares for investment and not
for resale or distribution.
ARTICLE XI
ADMINISTRATION
11.01 Appointment of Committee. The Plan shall be administered by the Board or
a Committee of members of the Board appointed by the Board. The Board or
its Committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Plan.
Every finding, decision and determination made by the Board or its
Committee shall, to the full extent permitted by law, be final and
binding upon all parties.
11.02 Authority of Committee. Subject to the express provisions of the Plan,
the Committee shall have plenary authority in its discretion to interpret
and construe any and all provisions of the Plan, to adopt rules and
regulations for administering the Plan, and to make all other
determinations deemed necessary or advisable for administering the Plan.
The Committee's determination of the foregoing matters shall be
conclusive. Except as otherwise prohibited by
<PAGE> 9
applicable law, the Committee may delegate some or all of its authority
specified herein to the Plan Representative.
11.03 Rules Governing the Administration of the Committee. The Board may from
time to time appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee may select one of its members as
its chairman, shall hold its meetings at such times and places as it
shall deem advisable, and may hold telephonic meetings. All
determinations of the Committee shall be made by a majority of its
members. A decision or determination reduced to writing and signed by a
majority of the members of the Committee shall be as fully effective as
if it had been made by a majority vote at a meeting duly called and held.
The Committee may appoint a secretary and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
11.04 Rules and Procedures Applicable to Offering Periods. The Committee shall
have the authority and discretion to adopt rules and procedures
applicable to one or more Offering Periods under the Plan. Any such rules
and procedures shall be established by the Committee and communicated to
participants in advance of any Offering Period to which they apply. Such
rules and procedures may, in the discretion of the Committee, cause the
options granted under any such Offering Period to be options to which
Section 423 of the Code does not apply.
ARTICLE XII
FOREIGN JURISDICTIONS
Notwithstanding any other provision in this Plan, the Committee may adopt
rules or procedures relating to the operation and administration of the Plan to
accommodate the specific requirements of local laws and procedures. Without
limiting the generality of the foregoing sentence, the Committee is specifically
authorized to adopt rules and procedures regarding handling of payroll
deductions, payment of interest, conversion of local currency, payroll tax,
withholding procedures and handling of stock certificates which vary in
accordance with the requirements of such local law and procedures. To the extent
that any such rules or procedures are adopted with respect to options granted in
an Offering Period to which Section 423 of the Code is intended to apply, the
Committee shall cause such rules and procedures to be consistent with Section
423 of the Code.
ARTICLE XIII
MISCELLANEOUS
13.01 Transferability. Neither payroll deductions credited to any participant's
account nor any option or other rights with regard to the exercise of an
option to receive Common Stock under the Plan may be assigned,
transferred, pledged, or
<PAGE> 10
otherwise disposed of in any way by the participant other than by will or
the laws of descent and distribution. Any such attempted assignment,
transfer, pledge or other disposition shall be without effect except that
the Company may, in its discretion, treat such act as an election to
withdraw from participation in the Plan in accordance with Section 8.01.
13.02 Use of Funds. All payroll deductions received or held by the Company under
the Plan may be used by the Company for any corporate purpose. The Company
shall not segregate such payroll deductions.
13.03 Adjustment Upon Changes in Capitalization; Change in Control.
13.03.1 Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the Reserves, the
maximum number of shares each participant may purchase per
Offering Period (pursuant to Section 6.01), as well as the
Purchase Price and the number of shares of Common Stock
covered by each option under the Plan which has not yet
been exercised shall be proportionately adjusted for any
Change in Capitalization. Such adjustment shall be made by
the Board, whose determination in that respect shall be
final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of
stock of any class shall affect, and no adjustment by
reason thereof shall be made with respect to, the number or
Purchase Price of shares of Common Stock subject to an
option.
13.03.2 Change in Control. In the event of a Change in Control, the
Offering Period during which the Change in Control would
otherwise occur shall be accelerated and shall end on the last
payroll date immediately preceding the Change in Control.
13.04 Amendment or Termination. The Board shall have complete power and
authority to terminate or amend the Plan; provided, however, that the
Board shall not, without the approval of the shareholders of the Company,
alter (i) the aggregate number of shares of Common Stock which may be
issued under the Plan (except pursuant to Section 13.03 above), or (ii)
the class of Employees eligible to receive options under the Plan, other
than to designate Subsidiaries as Designated Subsidiary Corporations; and
provided further, however, that, subject to Section 13.05 no termination,
modification, or amendment of the Plan may, without the consent of an
Employee then having an option under the Plan to purchase shares of Common
Stock, adversely affect the rights of such Employee under such option. In
addition, and notwithstanding anything contained in this Plan to the
contrary, to the extent necessary under Section 423 of the Internal
Revenue Code (or any successor rule or provision or any applicable law or
<PAGE> 11
regulation), the Company shall obtain stockholder approval in such a
manner and to such a degree as so required.
13.05 The Committee shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding
in excess of the amount designated by a participant in order to adjust for
delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are
consistent with the Plan, in each case so long as any such action is
consistent with Section 423 of the Code. None of the foregoing actions
shall be considered to have adversely affected any right of any
participant.
13.06 In the event that the Committee determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the
Committee may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:
13.06.1 changing the Purchase Price for any Offering Period including
an Offering Period underway at the time of the change in
Purchase Price;
13.06.2 shortening any Offering Period so that the Offering Period
ends on a new Exercise Date, including an Offering Period
underway at the time of such action; and
13.06.3 allocating shares of Common Stock to participants pursuant to
Section 7.01 hereof.
None of the foregoing actions shall be considered to have adversely
affected any right of any participant.
13.07 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 by the Plan
Representative.
13.08 Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as
<PAGE> 12
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance. As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable
provisions of law.
13.09 Effective Date. The Plan shall become effective as of its adoption by the
Board, subject to approval by the holders of a majority of the shares of
Common Stock, and shall continue in effect until the shares of Common
Stock reserved for issuance under the Plan have been depleted, unless
sooner terminated under Section 13.04 hereof. If the Plan is not so
approved, the Plan shall not become effective.
13.10 No Employment Rights. The Plan does not, directly or indirectly, create in
any person any right with respect to employment or continuation of
employment by the Company or any Subsidiary, and it shall not be deemed to
interfere in any way with the Company's or any Subsidiary's right to
terminate, or otherwise modify, any Employee's employment at any time.
13.11 Effect of Plan. The provisions of the Plan shall, in accordance with its
terms, be binding upon, and inure to the benefit of, all successors of
each Employee participating in the Plan, including, without limitation,
such Employee's estate and the executors, administrators or trustees
thereof, heirs and legatees, and any receiver, trustee in bankruptcy or
representative of creditors of such Employee.
13.12 Governing Law. The law of the State of Delaware will govern all matters
relating to this Plan except to the extent superseded by the federal laws
of the United States.
APPENDIX A
A "Change in Control" shall be deemed to have occurred if, following the
"Distribution" (as defined in the Master Separation Agreement, dated March 28,
2000, to which the Company and Cabot Corporation are parties):
(a) any "person" as such term is used in Sections 13(d) and 14(d) of the
1934 Act (other than (i) the Company, (ii) any subsidiary of the Company, (iii)
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company or of
<PAGE> 13
any subsidiary of the Company, or (iv) any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Section 13(d) of the 1934 Act), together with
all Affiliates and Associates (as such terms are used in Rule 12b-2 of the
General Rules and Regulations under the 1934 Act) of such person, directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities; or
(b) the stockholders of the Company approve a merger or consolidation of
the Company with any other company, other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, at least 65% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
after which no "person" (with the method of determining "beneficial ownership"
used in clause (a) of this definition) owns more than 25% of the combined voting
power of the securities of the Company or the surviving entity of such merger or
consolidation; or
(c) during any period of two consecutive years (not including any period
prior to the execution of the Plan), individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has conducted or threatened a proxy contest, or has
entered into an agreement with the Company to effect a transaction described in
clause (a), (b) or (d) of this definition) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved cease for any reason to constitute at least
a majority thereof; or
(d) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
(No. 333-95093) of our report dated November 5, 1999 relating to the financial
statements of Cabot Microelectronics Materials Division, a division of Cabot
Corporation, which appears in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 27, 2000
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