UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1994 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-6920
APPLIED MATERIALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1655526
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3050 Bowers Avenue, Santa Clara, California 95054-
3299
Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (408) 727-
5555
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Number of shares outstanding of the issuer's common stock as of
July 31, 1994: 83,734,000
<PAGE> 2
PART I. FINANCIAL INFORMATION
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, Aug. 1, July 31, Aug. 1,
(In thousands, except 1994 1993 1994 1993
per share data)
<S> <C> <C> <C> <C>
Net sales $ 440,228 $ 281,370 $1,192,009 $752,636
Costs and expenses:
Cost of products sold 234,656 155,398 641,067 424,541
Research, development
and engineering 52,494 37,058 135,386 101,072
Marketing and selling 39,851 27,056 113,254 75,652
General and administrative 20,279 16,585 60,500 45,151
Other, net 701 1,365 815 3,443
Income from operations 92,247 43,908 240,987 102,777
Interest expense 3,659 3,373 10,779 10,318
Interest income 2,946 1,514 7,214 4,835
Income from consolidated companies
before taxes and cumulative
effect of accounting change 91,534 42,049 237,422 97,294
Provision for income taxes 32,036 13,876 83,097 32,107
Income from consolidated companies
before cumulative effect of
accounting change 59,498 28,173 154,325 65,187
Equity in net loss of joint
venture 1,362 - 3,727 -
Income before cumulative effect of
accounting change 58,136 28,173 150,598 65,187
Cumulative effect of a change in
accounting for income taxes - - 7,000 -
Net income $ 58,136 $ 28,173 $ 157,598 $65,187
Earnings per share*
Before cumulative effect of
accounting change $ 0.68 $ 0.34 $ 1.78 $ 0.79
Net income $ 0.68 $ 0.34 $ 1.86 $ 0.79
Average common shares and
equivalents* 86,033 82,532 84,654 82,056
* Retroactively restated for a two-for-one stock split in the
form of a 100% stock dividend effective October 5, 1993.
See accompanying notes to consolidated condensed
financial statements.
</TABLE>
<PAGE> 3
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
<TABLE>
<CAPTION>
July 31, Oct. 31,
(In thousands) 1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $73,509 $119,597
Short-term investments 214,503 146,583
Accounts receivable, net 394,214 256,020
Inventories 243,956 154,597
Deferred income taxes 67,894 62,413
Other current assets 43,783 36,706
Total current assets 1,037,859 775,916
Property, plant and
equipment, net 411,211 327,704
Other assets 17,606 16,532
Total assets $1,466,676 $1,120,152
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Notes payable $44,737 $41,645
Current portion of
long-term debt 15,392 7,017
Accounts payable and
accrued expenses 352,359 282,699
Income taxes payable 43,276 49,167
Total current liabilities 455,764 380,528
Long-term debt 112,295 121,076
Deferred income taxes and
other non-current
obligations 25,124 19,786
Total liabilities 593,183 521,390
Stockholders' equity:
Common stock 837 804
Additional paid-in capital 363,257 256,429
Retained earnings 482,827 325,230
Cumulative translation
adjustments 26,572 16,299
Total stockholders' equity 873,493 598,762
Total liabilities and
stockholders' equity $1,466,676 $1,120,152
*Amounts as of July 31, 1994 are unaudited.
Amounts as of October 31, 1993 were obtained
from the October 31, 1993 audited financial
statements.
See accompanying notes to consolidated condensed
financial statements.
</TABLE>
<PAGE> 4
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
July 31, Aug.1,
(In thousands) 1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $157,598 $65,187
Adjustments required to reconcile
net income to cash flows
provided by operations:
Depreciation and amortization 42,223 27,459
Cumulative effect of a change in
accounting for income taxes (7,000) -
Equity in net loss of joint venture 3,727 -
Changes in assets and liabilities:
Accounts receivable (125,005) (40,613)
Inventories (81,181) (35,827)
Other current assets (6,353) (8,751)
Other assets (3,399) (908)
Accounts payable and
accrued expenses 57,860 41,976
Income taxes payable (3,799) 4,211
Other long-term liabilities 4,441 1,409
(118,486) (11,044)
Cash provided by operations 39,112 54,143
Cash flows from investing activities:
Capital expenditures (121,363) (56,435)
Proceeds from short-term investments 115,114 114,180
Purchases of short-term investments (183,034) (189,755)
Cash used for investing (189,283) (132,010)
Cash flows from financing activities:
Short-term borrowing (repayments), net 236 (3,989)
Long-term debt borrowing - 5,505
Long-term debt repayments (3,863) (5,835)
Sales of common stock, net 106,861 1,107
Cash provided by financing 103,234 (3,212)
Effect of exchange rate changes
on cash 849 (310)
Decrease in cash and cash equivalents (46,088) (81,389)
Cash and cash equivalents
at beginning of period 119,597 159,453
Cash and cash equivalents
at end of period $73,509 $78,064
Cash payments for interest expense were $8,355 and $8,006 for the
nine months ended July 31, 1994 and August 1, 1993, respectively.
Cash payments for income taxes were $63,264 and $27,039 for the
nine months ended July 31, 1994 and August 1, 1993, respectively.
See accompanying notes to consolidated condensed
financial statements.
</TABLE>
<PAGE> 5
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NINE MONTHS ENDED JULY 31, 1994
(In thousands)
1) Basis of Presentation
In the opinion of management, the unaudited consolidated
interim financial statements included herein have been
prepared on the same basis as the October 31, 1993 audited
consolidated financial statements and include all
adjustments, consisting of only normal recurring adjustments,
necessary to fairly state the information set forth therein.
Certain amounts in the consolidated statement of cash flows
for the nine months ended August 1, 1993 have been
reclassified to conform with the current year's presentation.
2) Earnings Per Share
Earnings per share is computed on the basis of the weighted
average number of common shares and common equivalent shares
from dilutive stock options.
3) Inventories
Inventories are stated at the lower of cost or market, with
cost determined on the basis of first-in,
first-out (FIFO).
The components of inventories are as follows:
<TABLE>
July 31, 1994 October 31, 1993
<S> <C> <C>
Customer service spares $61,174 $45,584
Systems raw materials 60,614 32,294
Work-in-process 90,429 57,526
Finished goods 31,739 19,193
$243,956 $154,597
</TABLE>
4) Income Taxes
Effective November 1, 1993, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." The Company adopted SFAS
109 prospectively.
<PAGE> 6
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NINE MONTHS ENDED JULY 31, 1994
(In thousands)
4) Income Taxes, continued,
The adoption of SFAS 109 changes the Company's method of
accounting for income taxes from the deferred method, pursuant to
APB 11, to an asset and liability approach. Under APB 11,
deferred taxes are recognized for income and expense items that
are reported in different years for financial reporting purposes.
Under the asset and liability approach of SFAS 109, deferred
assets and liabilities are recognized for the future consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
existing tax bases.
The cumulative effect of adopting SFAS 109 resulted in a one-time
credit of $7,000, or $0.08 per share, and is reported separately
in the Consolidated Condensed Statement of Operations for the
nine month period ended July 31, 1994.
Deferred tax assets (liabilities) at November 1, 1993 relate
to the following:
<TABLE>
Deferred tax assets:
<S> <C>
Financial accruals not currently tax deductible:
Inventory $13,454
Warranty and installation 21,022
Other 19,458
State income taxes 8,135
Other 4,344
Total deferred tax assets 66,413
Deferred tax liabilities:
Depreciation and other (7,193)
Net deferred tax assets $59,220
</TABLE>
5) Notes Payable
On August 1, 1994, the Company's $50,000 revolving credit
agreement expired and was extended through the completion of
a new agreement. On September 8,1994, the Company completed
a new $125,000 revolving credit agreement in the U.S. with a
group of eight banks. The agreement includes facility fees,
allows for borrowings at rates including the lead bank's prime
reference rate, requires compliance with certain financial
covenants and expires in September 1998.
<PAGE> 7
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NINE MONTHS ENDED JULY 31, 1994
6) Long-Term Debt
On September 1,1994, the Company issued $100 million in ten year
non-callable Senior Notes bearing interest at 8% and maturing on
September 1, 2004. The notes were priced at 99.269 percent to
yield 8.108%. The notes contain certain financial covenants that
include limitations on additional borrowings by U.S.
subsidiaries, liens placed on assets, and sale and leaseback
transactions.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the third quarter of fiscal 1994 Applied Materials, Inc. reported
record net sales of $440.2 million. New orders of $503.7 million
were received during the quarter, driven by increased demand for the
Company's Physical Vapor Deposition (PVD) systems, Chemical Vapor
Deposition (CVD) systems and High Temperature Film (HTF) systems and
continued strong demand for Metal Chemical Vapor Depositions (MCVD)
systems and customer support and spares. Backlog at July 31, 1994
was $560.9 million.
Results of Operations
The Company's worldwide net sales for the three and nine month periods
ended July 31, 1994 increased by 56 percent and 58 percent,
respectively, from the corresponding periods in fiscal 1993. This
growth can be primarily attributed to increased unit sales of the
Company's single-wafer, multi-chamber systems and increases in
customer support revenues for all of the regions served by the
Company. Compared with the nine months ended August 1, 1993, Implant
systems, PVD systems, Etch systems, MCVD systems and customer support
and spares sales were all up significantly. Regionally, 61 percent of
the Company's net sales for the third quarter of fiscal 1994 were to
customers located outside North America compared to 63 percent in the
comparable 1993 period. Sales to customers located outside North
America represented 62 percent in the first three quarters of 1994 and
1993. Fiscal 1994 year to date sales to customers located in
Asia/Pacific (excluding Japan) increased 65 percent from the prior
year and accounted for 16 percent of the Company's fiscal 1994 and
1993 year to date sales. This increase in year to date sales was
driven primarily by sales to Korean DRAM manufacturers and sales to
companies in Taiwan and Singapore making investments in logic and
foundry facilities. Sales to customers in Japan during the three and
nine month periods ended July 31, 1994 showed increases of 47 percent
and 61 percent, respectively, over the comparable periods in fiscal
1993 as DRAM manufacturers began expansions of new eight-inch lines.
Sales in Japan represented 27 percent of total fiscal 1994 year to
date sales compared to 26 percent of fiscal 1993 year to date sales.
Fiscal 1994 year to date sales to customers in Europe increased 47
percent over fiscal 1993 year to date sales due to increasing demand
for capacity to produce advanced telecommunication devices and
consumer products. Although the Company has experienced high growth
rates for more than two years, the Company's expectation is that such
rates will moderate due to projected slower growth in capacity driven
demand for semiconductor production equipment.
Gross margin as a percentage of sales for the three and nine month
periods ended July 31, 1994 increased approximately two and three
percentage points, respectively, from the corresponding periods in
fiscal 1993. The continued improvement in gross margin percentage
primarily reflects economies of scale in manufacturing and service and
support operations as net sales reached record levels. However, past
margin trends are not necessarily indicative of future margin
performance.
<PAGE> 9
Operating expenses for the three and nine month periods ended July 31,
1994 decreased approximately three and four percentage points,
respectively, as a percentage of sales compared to the corresponding
periods in fiscal 1993. This improvement was driven primarily by the
Company's record sales levels. The Company intends to continue
investing funds for facilities expansion, information systems
technology and personnel to support higher volumes of business and
thus the Company's expectation is that operating expenses as a
percentage of sales will increase in the fourth quarter of fiscal
1994.
The Company's effective tax rate for the third quarter and first three
quarters of fiscal 1994 was 35 percent, up from 33 percent in fiscal
1993. This increase is due to recently enacted U.S. tax legislation
as well as variations in the Company's worldwide income mix and
foreign taxes. Management anticipates the 35 percent effective tax
rate will continue through the end of fiscal 1994.
Net income of $157.6 million for the nine month period ended July 31,
1994 includes the favorable impact of an accounting change of $7.0
million, or $0.08 per share, from the cumulative effect of the
adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes"(SFAS 109). The Company adopted SFAS 109
prospectively and the cumulative accounting change is reported
separately in the Consolidated Condensed Statements of Operations.
The market served by the Company is characterized by rapid
technological change, increasingly precise customer specifications and
global service requirements. The Company's future operating results
may be affected by inherent uncertainties characteristic of the
worldwide semiconductor equipment industry. Such uncertainties
include, but are not limited to, the development of new technologies,
the anticipated transition to a new generation of microprocessors,
competitive pricing pressures, global economic conditions, and the
availability of needed components. Accordingly, recent historical
operating results should be only one factor in evaluating the future
financial performance of the Company.
Financial Condition, Liquidity and Capital Resources
The Company's financial condition at July 31, 1994 remained strong.
Total current assets at July 31, 1994 were 2.3 times total current
liabilities, compared to 2.0 at October 31, 1993. During the first
three quarters of fiscal 1994, cash, cash equivalents, and short-term
investments increased $22 million. Cash provided by operations since
October 31, 1993 totaled $39.1 million, resulting primarily from net
income and increases in accounts payable and accrued expenses, offset
by increased inventory and accounts receivable levels. The increase in
accounts receivable was due to increased net sales over the prior
period. Inventory levels have increased in order to fulfill customer
orders scheduled for delivery in the fourth quarter of fiscal 1994.
Other uses of cash include
<PAGE> 10
investments in facilities and capital equipment of $121.4 million and
net borrowing reductions of $3.6 million. Capital expenditures are
expected to be approximately $180 million for fiscal year 1994. This
amount is higher than originally planned due to greater than
anticipated growth requiring additional funds for facilities
expansion, investments in demonstration and test equipment,
information systems and other capital expenditures. The Company is
continuing to manage its manufacturing capacity to ensure that
customer demands will be met. Cash provided by financing activities
included proceeds from the sale of 2.3 million shares of the Company's
common stock in the second quarter of fiscal 1994.
At July 31, 1994, the Company's principal sources of liquidity
consisted of $288 million of cash and short-term investments and
$128.7 million in available U.S. and foreign credit facilities. In
addition, the Company filed a shelf registration with the Securities
and Exchange Commission during the second quarter of fiscal 1994 for
the sale of common stock and issuance of debt securities. The Company
received $111.0 million from the sale of 2.3 million shares of common
stock in the second quarter of fiscal 1994 and $98.6 million from the
issuance of Senior notes on September 1, 1994. The Company's
liquidity is affected by many factors, some based on the on-going
operations of the business and others related to the uncertainties of
the industry and global economies. Although the Company's cash
requirements will fluctuate based on the timing and extent of these
factors, management believes that cash generated from operations,
together with the liquidity provided by existing cash balances and
current borrowing arrangements, will be sufficient to satisfy
commitments for capital expenditures and other cash requirements for
the balance of fiscal 1994 and throughout fiscal 1995.
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the first of two lawsuits filed by the Company
against Advanced Semiconductor Materials, Inc., Epsilon
Technology, Inc. (doing business as ASM Epitaxy) and
Advanced Semiconductor Materials International N.V.
(the defendants, together, hereafter referred to as
"ASM"), described in the Company's Annual Report on Form
10-K for its fiscal year ended October 31, 1993 and in
the Company's Form 10-Q for the quarter ended May 1,
1994, Judge William Ingram of the United States District
Court for the Northern District of California in San
Jose issued an injunction against ASM's sale and use of
the ASM Epsilon I epitaxial reactor in the United
States, but also granted a stay of the injunction
pending an appeal by ASM of the Court's earlier decision
that the Epsilon I infringes certain of the Company's
patents. The stay order requires that ASM pay a fee, as
a security for the Company's interests, for each Epsilon
I sold by ASM in the U.S after the date of the
injunction. ASM has filed a Notice of Appeal. Judge
Whyte of the same Court separately ruled that the
proceedings to resolve the issues of damages and willful
infringement, which had been bifurcated for separate
trial, will be stayed pending ASM's appeal of the
infringement issue.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits are numbered in accordance with the Exhibit
Table of Item 601 of Regulation S-K:
10.18 Applied Komatsu Technology, Inc. 1994 Executive
Incentive Stock Purchase Plan, together with forms of Promissory Note,
1994 Executive Incentive Stock Purchase Agreement, and Loan and Security
Agreement.
b) No reports on Form 8-K were filed by the Company during
the quarter ended July 31, 1994.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
APPLIED MATERIALS, INC.
<TABLE>
<S> <C>
September 12, 1994 By: \ s\Gerald F.Taylor
Gerald F. Taylor
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
By: \ s\Michael K. O'Farrell
Michael K. O'Farrell
Corporate Controller
(Principal Accounting Officer)
</TABLE>
<PAGE> 13
INDEX TO EXHIBITS
Exhibits are numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K:
<TABLE>
<S> <C>
Page
10.18 Applied Komatsu Technology, Inc. 1994 Executive 14
Incentive Stock Purchase Plan, together with forms of
Promissory Note, 1994 Executive Incentive Stock
Purchase Agreement, and Loan and Security Agreement.
</TABLE>
Applied Komatsu Technology, Inc.
1994 Executive Incentive Stock Purchase Plan
SECTION 1. PURPOSE.
The purpose of the Plan is to offer selected employees,
directors, statutory auditors and advisors an opportunity to
acquire a participation interest in the success of Applied
Komatsu Technology, Inc. (the "Company"), or to increase such
interest, by purchasing Shares of the Company's Preferred Stock.
The Plan provides for the direct sale of Shares.
SECTION 2. DEFINITIONS.
(a) "Shareholders Committee" shall mean the Shareholders
Committee of the Company, as constituted from time to time.
(b) "Code" shall mean the United States Internal Revenue
Code of 1986, as amended.
(c) "Committee" shall mean a committee of the Shareholders
Committee, as described in Section 3(a).
(d) "Company" shall mean Applied Komatsu Technology, Inc.,
a Japanese corporation.
(e) "Employee" shall mean (i) any individual who is an
employee of the Company or of a Subsidiary, (ii) a member of the
Shareholders Committee or (iii) an advisor who performs services
for the Company or a Subsidiary. Employee shall also include
those full-time personnel on a seconded basis, as designated by
the Committee.
(f) "Fair Market Value" shall mean the fair market value
of a Share, as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(g) "Offeree" shall mean an individual to whom the
Committee has offered the right to acquire Shares under the
Plan.
(h) "Plan" shall mean this Applied Komatsu Technology,
Inc. 1994 Executive Incentive Stock Purchase Plan.
(i) "Purchase Price" shall mean the consideration for
which one Share may be acquired under the Plan, as specified by
the Committee.
(j) "Service" shall mean service as an Employee.
(k) "Share" shall mean one share of Stock, as adjusted in
accordance with Section 8 (if applicable).
(l) "Stock" shall mean the nonvoting Preferred Stock of
the Company and the Common Stock of the Company into which the
Preferred Stock may convert in accordance with the Articles of
Incorporation of the Company and the Stock Purchase Agreement.
(m) "Stock Purchase Agreement" shall mean the agreement
which contains the terms, conditions and restrictions pertaining
to the acquisition of such Shares.
(n) "Subsidiary" shall mean any corporation, if the
Company and/or one or more other Subsidiaries own not less than
50 percent of the total combined voting power of all classes of
outstanding stock of such corporation. A corporation that
attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of
such date.
SECTION 3. ADMINISTRATION.
(a) Committee Membership. The Plan shall be administered
by the Committee, which shall consist of two or more members of
the Shareholders Committee. The members of the Committee shall
be appointed by the Shareholders Committee. If no Committee has
been appointed, the entire Shareholders Committee shall consti-
tute the Committee.
(b) Committee Procedures. The Shareholders Committee
shall designate one of the members of the Committee as chairman.
The Committee may hold meetings at such times and places as it
shall determine. The Committee may only act by unanimous
agreement of all of its members.
(c) Committee Responsibilities. Subject to the provisions
of the Plan, the Committee shall have full authority and discre-
tion to take the following actions:
(i) To interpret the Plan and to apply its
provisions;
(ii) To adopt, amend or rescind rules, proce-
dures and forms relating to the Plan;
(iii) To authorize any person to execute, on
behalf of the Company, any instrument required to
carry out the purposes of the Plan;
(iv) To determine when Shares are to be offered
for sale under the Plan;
(v) To select the Offerees;
(vi) To determine the number of Shares to be
offered to each Offeree;
(vii) To prescribe the terms and conditions of
each sale of Shares, including (without limita-
tion) the Purchase Price, and to specify the
provisions of the Stock Purchase Agreement relat-
ing to such sale;
(viii) To amend any outstanding Stock Purchase
Agreement, subject to applicable legal
restrictions and to the consent of the Offeree
who entered into such agreement; and
(ix) To take any other actions deemed necessary
or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the
Committee shall be final and binding on all Offerees and all
persons deriving their rights from an Offeree. No member of the
Committee shall be liable for any action that he or she has
taken or has failed to take in good faith with respect to the
Plan or Shares purchased thereunder or any right to participate
or purchase Shares under the Plan.
SECTION 4. ELIGIBILITY.
Only Employees, as defined in Section 2(e), shall be eligi-
ble for designation as Offerees by the Committee.
SECTION 5. STOCK SUBJECT TO PLAN.
Shares offered under the Plan shall be authorized but
unissued Shares. The aggregate number of Shares which may be
issued under the Plan shall not exceed 976 Shares, subject to
adjustment pursuant to Section 8. The Company, during the term
of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
Shares acquired by Applied Materials, Inc. and Komatsu Ltd.
pursuant to the exercise of the put, call and loan foreclosure
rights that are set forth in a Stock Purchase Agreement shall be
available again for sale under the Plan.
SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Purchase Agreement. Each sale of Shares under
the Plan shall be evidenced by a Stock Purchase Agreement
between the Offeree and the Company, or Applied Materials, Inc.
and Komatsu Ltd. in the case of Shares that have been acquired
by Applied Materials, Inc. and Komatsu Ltd. pursuant to the
terms of a Stock Purchase Agreement. Such sale shall be subject
to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not incon-
sistent with the Plan and which the Committee deems appropriate
for inclusion in a Stock Purchase Agreement. The provisions of
the various Stock Purchase Agreements entered into under the
Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights.
Any right to acquire Shares under the Plan shall automatically
expire on the day after the date specified in the Stock Purchase
Agreement unless said right is exercised by the Offeree no later
than the date specified in the Stock Purchase Agreement. The
Board of Directors of the Company must approve each grant by the
Committee before the time it is communicated to the Offeree.
The right to acquire shares under the Plan shall not be
transferable and shall be exercisable only by the Offeree to
whom such right was granted.
(c) Purchase Price. The Purchase Price of Shares to be
offered under the Plan shall not be less than 100 percent of the
Fair Market Value of such Shares. The Purchase Price shall be
payable in a form described in Section 7.
(d) Withholding Taxes. As a condition to the purchase of
Shares, the Offeree shall make or enter into such arrangements
as the Committee may require for the satisfaction of any
national, federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase or
the payment of any dividends with respect to the Shares.
(e) Restrictions on Transfer of Shares. Any Shares
awarded or sold under the Plan shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first
refusal, put and call rights and other transfer restrictions as
the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Purchase Agreement and shall apply
in addition to any restrictions that may apply to holders of
Shares generally.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Purchase Price of Shares
issued under the Plan shall be payable in cash.
(b) Promissory Note. To the extent that a Stock Purchase
Agreement so provides, and subject to the approval of the
Committee, payment must be made all or in part with the proceeds
of a loan from a lender approved by the Committee (a "Lender").
Such loan shall be evidenced by a full recourse promissory note
with the Lender executed by the Offeree. The interest rate and
other terms and conditions of such note shall be determined by
the Lender, but approved by the Committee. The Lender must
require that the Offeree pledge or assign as security his or her
Shares to the Lender, pursuant to agreement(s) in form satis-
factory to the Lender and the Committee, for the purpose of
securing the payment of such note. In no event shall the stock
certificate(s) representing such Shares be released to the
Offeree until such note is paid in full.
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the out-
standing Stock, a declaration of a dividend payable in Shares, a
combination or consolidation of the outstanding Stock into a
lesser number of Shares, a recapitalization, a reclassification
or a similar occurrence, the Committee shall make appropriate
adjustments in the number of Shares available for future grants
under Section 5 to reflect such event. In the case of any such
event, appropriate adjustments will be effected in the number of
Shares outstanding under the Plan.
(b) Reservation of Rights. Except as provided in this
Section 8, an Offeree shall have no rights by reason of (i) any
subdivision or consolidation of shares of stock of any class,
(ii) the payment of any dividend or (iii) any other increase or
decrease in the number of shares of stock of any class.
SECTION 9. LEGAL REQUIREMENTS.
Shares shall not be issued under the Plan unless the issu-
ance and delivery of such Shares complies with (or is exempt
from) all applicable requirements of law, including (without
limitation) the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder, foreign and state secur-
ities laws and regulations, and the regulations of any stock
exchange on which the Company's securities may then be listed.
SECTION 10. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any right granted under the
Plan, shall be construed to give any person any right to become,
to be treated as, or to remain an Employee. The Company and its
Subsidiaries reserve the right to terminate any person's Service
at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein,
shall become effective on the date of its adoption by the Share-
holders Committee. The Plan shall terminate on January 31, 2004
and may be terminated on any earlier date pursuant to Subsection
(b) below.
(b) Right to Amend or Terminate the Plan. The Share-
holders Committee may amend, suspend or terminate the Plan at
any time and for any reason.
(c) Effect of Amendment or Termination. No Shares shall
be issued or sold under the Plan after the termination thereof.
The termination of the Plan, or any amendment thereof, shall not
affect any Share previously issued under the Plan.
SECTION 12. EXECUTION.
To record the adoption of the Plan by the Shareholders
Committee on the ____ day of __________, 199_, the Company has
caused its authorized officer to execute the same.
APPLIED KOMATSU TECHNOLOGY, INC.
By
Tetsuo Iwasaki, President
APPLIED MATERIALS, INC.
By
James C. Morgan, Chairman and
Chief Executive Officer
KOMATSU LTD.
By
Tetsuya Katada, President
For use with loans to
AKT & AKTA "EIP Participants"
PROMISSORY NOTE
[__________________]
date signed
FOR VALUE RECEIVED, the undersigned, _____________
("Borrower"), promises to pay to the order of _____________
("Lender"), the principal sum of _____________ (________),
with interest on the principal from the date of disbursement
hereof at the rate of _______________________ (___%) percent
per year.
This Note shall be repaid as follows:
1) commencing on January 31, 199__, and on each January 31
thereafter, all accrued and unpaid interest on the unpaid
principal under this Note shall be due and payable and 2) on
January 31, 2004, the entire unpaid balance of principal and
interest hereunder shall be due and payable. Any interest
not paid when due shall continue to be due and shall bear
interest until paid at the interest rate set forth in the
first paragraph. All payments hereunder shall be in lawful
money of ______ and shall be applied first to outstanding
interest obligations and then to principal.
Borrower shall not have the right to, and shall
not, prepay all or any part of the unpaid principal balance
of this Note prior to the effective date of an initial
public offering of the Common Stock of Applied Komatsu
Technology, Inc., a Japanese corporation ("AKT"), on any
stock exchange or stock quotation system (a "Company IPO"),
except as may be permitted by the next sentence or as may be
consented to in writing by Lender. On each date an interest
payment is due under this Note, the Borrower may make a
partial principal prepayment on this Note in an amount not
to exceed the outstanding principal balance of this Note as
of that date, divided by the number which is equal to ___
(___) minus the number of installment payments of interest
previously due as provided above. Borrower also may prepay
this Note, in whole or part, without penalty or limitation
at any time on or after the effective date of a Company IPO.
If Borrower resigns or is removed, or is
terminated voluntarily or involuntarily, as an officer,
employee or advisor of AKT and its subsidiaries or dies
prior to January 31, 2004, then the entire outstanding
principal balance of this Note, together with all accrued
unpaid interest thereon, shall become immediately due and
payable at the option of Lender, upon written notice to
Borrower. This Note, however, is not an employment
agreement, and neither this Note nor any failure to give
such notice shall give Borrower the right to be employed or
retained by AKT and its subsidiaries in any capacity or for
any length of time.
If default shall be made in the payment of
principal and/or interest when due, then the entire
outstanding principal balance of this Note, together with
all accrued unpaid interest thereon, shall become
immediately due and payable at the option of Lender, upon
written notice to Borrower. The Lender will not accelerate
payment of the Note prior to maturity for nonpayment of
interest. If this Note remains unpaid ten (10) days after
written demand for payment in full and if action thereafter
is instituted to collect on this Note, then Borrower agrees
to pay Lender reasonable attorneys' fees and costs of suit,
as fixed by Japanese law.
This Note is a full-recourse note secured by
shares of nonvoting preferred stock of AKT pursuant to the
terms of a Loan and Security Agreement by and between
Borrower and Lender that create a security interest in the
shares ("Joto-Tampo"), the terms of which are incorporated
herein by reference. In accordance with the Joto-Tampo,
Lender shall receive any dividends paid on the shares on
Borrower's behalf and apply the same to the payment of
interest hereunder as it comes due. Prior to the due date
of each interest installment under this Note, Lender shall
notify Borrower of the net amount of interest (including any
late interest) due on the next scheduled payment date, after
application of any dividends paid on the shares against
accrued interest hereunder. Said preferred shares are
convertible into AKT's common stock in accordance with AKT's
Articles of Incorporation and the terms of the Joto-Tampo.
This Note shall be governed by and construed in
accordance with the laws of Japan; provided, however, the
English language version of this Note will prevail and
control. Borrower hereby irrevocably submits to the
jurisdiction of the Tokyo District Court in connection with
enforcement of this Agreement and/or any disputes hereunder.
IN WITNESS WHEREOF, Borrower has executed this
Note as of the date and year first above written.
________________________________
APPLIED KOMATSU TECHNOLOGY, INC.
1994 EXECUTIVE INCENTIVE STOCK PURCHASE AGREEMENT
Description of Shares
The shares you purchase will be the nonvoting
Preferred Stock of Applied Komatsu Technology,
Inc. ("Company") with rights and privileges,
including conversion into the Common Stock of
the Company, as set forth in the Company's
Articles of Incorporation.
Payment for Shares
You must pay to the Company the fair market
value of the shares of Preferred Stock you
receive (taking into account the fact that the
Preferred Stock is convertible into Common
Stock) ("Shares"), as determined by the
Committee. The number of Shares you are
purchasing and the fair market value per share
are shown on the cover sheet of this Agreement.
The purchase price must be paid in full, in
cash, using the proceeds of the mandatory loan
described below.
Funds necessary to purchase your Shares will be
loaned to you by Applied Materials, Inc. and
Komatsu Ltd. (the "Lenders"), in equal amounts
unless they agree among themselves to a
different lending ratio. Your indebtedness
must be evidenced by a full recourse promissory
note with each of the Lenders in the form
attached ("Note"), secured by an assignment for
security to each Lender under Japanese law
("Joto-Tampo"), in the form attached, of all
the Shares purchased by you. You must sign the
attached Note(s) and the attached Loan and
Security Agreement(s) when you sign this
Agreement. You must make use of this secured
loan to purchase your Shares, and you may not
purchase your Shares if you do not sign your
Note and Loan and Security Agreement with the
Lender(s).
The Notes are payable interest only, annually,
with a balloon payment of all outstanding
principal and interest on January 31, 2004.
The interest rate on your notes will be the
lowest rate required by U.S. tax law to prevent
a U.S. taxpayer from incurring imputed
compensation income from a "below market inter-
est rate loan." Any dividends paid on your
Shares will automatically be applied to your
annual and accrued interest obligations, any
partial principal repayments you elect to make
under your Notes and the remainder (if any)
will be distributed to you in cash so long as a
default has not occurred.
As a condition to your right to purchase your
Shares, you agree to make or enter into such
arrangements as the Company may require from
time-to-time for the satisfaction of any
national, federal, state, local or foreign
withholding tax obligations that may arise in
connection with such purchase and/or the
payment of dividends on your Shares.
Note Prepayment
The Notes will not permit prepayment of your
loans to purchase your Shares prior to the
closing of an initial public offering of the
Company's Common Stock on any stock exchange or
stock quotation system approved for listing by
the Shareholders Committee of the Company (a
"Company IPO"), except with the written
approval of the Lenders or as described in the
next sentence. Each Note provides that on each
date an interest payment is due, you may make a
partial principal prepayment in an amount not
to exceed the outstanding principal balance of
your Note as of that date, divided by the
number which is equal to ________ minus the
number of installment payments of interest
previously due under your Note. Each Note also
permits you to prepay your Note, in whole or
part, without penalty or limitation at any time
on or after the closing of a Company IPO.
Stock Certificates
Unless the Lenders agree to a different lending
ratio, your Shares will be held one-half by
each Lender, the assignee under the Loan and
Security Agreement, as collateral for the
repayment of your Notes. You acknowledge and
agree that a default under either Note is a
default under both Notes and that a default
under either Loan and Security Agreement is a
default under both such Agreements. Until the
Notes are paid in full, the Lenders will have
all of the rights pertaining to your Shares,
including the sole right to vote the Shares and
to exercise the conversion privilege. Any
dividends and other distributions paid will be
received on your behalf, and will be applied
against your Notes as described above with any
dividends remaining paid to you. Until the
loans are paid in full, the shareholders'
registry of the Company will reflect the
transfer and assignment of the Shares to the
Lenders pursuant to the Loan and Security
Agreements. After your Notes have been paid in
full, your Shares will be re-assigned to you
and a stock certificate for those Shares will
be provided.
The stock certificate for your Shares will
contain certain legends which restrict your
ability to sell the Shares (see "Stock Legends"
below).
Voting Rights
Until both of your Notes are paid in full, the
Lenders under the Loan and Security Agreements
will have the sole right to vote your Shares.
Conversion to
Common Stock
The nonvoting shares of Preferred Stock that
you purchase are convertible one for one into
shares of the Company's Common Stock in
accordance with the Company's Articles of
Incorporation; provided, however, the Lenders,
as assignees under the Loan and Security
Agreements, shall have the sole right to
exercise the conversion privilege and to vote
the Shares during any period in which your
Notes are not fully paid.
Repurchase Rights (Call Option)
The Lenders may (but are not obligated to) repurchase
some or all of your Shares if any of
the following events occur:
* You resign or are removed, or are terminated
voluntarily or involuntarily, as an officer,
employee or advisor of the Company and its
subsidiaries or die, prior to a Company IPO;
or
* you attempt to prepay either or both Notes
other than as specifically permitted therein
prior to a Company IPO; or
* you attempt to transfer your Shares in
violation of the provisions set forth below
in "Restrictions on Resale."
* You repay either or both Notes in full upon
maturity but there is no Company IPO.
[Add this paragraph for a seconded employee.
If you are seconded to AKT or AKTA by AMAT or
Komatsu, your Shares will automatically be
called if you do not become a direct employee
of AKT or AKTA on or before the earlier of the
day before the commencement of a "restricted
period" with respect to AKT as that term is
defined under Japanese IPO regulations or the
date two years from when you first became
assigned to AKT or AKTA.]
Except in the case where a Note is repaid in
full but there has not been a Company IPO, this
repurchase right (call option) shall be
exercised by written notice to you within one
hundred twenty (120) days after the occurrence
of the event triggering the right to exercise
(the time period for the repurchase rights is
unlimited in the case of your death). In the
case where a Note is repaid in full but there
has not been a Company IPO, the call option
shall be deemed to be automatically exercised
without further notice, and all the Shares must
be repurchased, unless the Lender in question
notifies you in writing, within thirty (30)
days after repayment of the Note, that it has
elected to decline to exercise the call option
by reason of that triggering event. The
purchase price (see below) for any Shares so
repurchased will be first applied against any
amounts that remain due under your Notes and
the remainder (if any) payable in cash within
thirty (30) days after option exercise.
Executive Put Option
The Loan and Security Agreements provide that
you may (but are not obligated to) require the
Lender to purchase all, but not a portion, of
your Shares if any of the following events
occur:
* the Company notifies you in writing on or
before January 1, 1999 that its Shareholders
Committee has determined (without prejudice
to reconsideration of the issue) that the
Company does not intend to commence, at any
time prior to the end of its FY1999, the
process for a Company IPO; or
* the Company does not so notify you, but all
outstanding Shares of Preferred Stock are
not converted to the Company's Common Stock
on or before April 30, 1999, or
* the Company does not so notify you and said
conversion occurs on or before April 30,
1999, but the Company subsequently abandons
and withdraws entirely (without prejudice to
reconsideration of the issue) all intention
and all then pending applications and good
faith efforts to achieve a Company IPO on
any stock exchange or stock quotation
system.
The Company has an affirmative obligation to
notify you of the foregoing events.
This right (put option) shall be exercised by
you with respect to all of the Shares only by
simultaneous written notice to both Lenders at
any time during the term of the Loan and
Security Agreements and during the period which
is (1) after the occurrence of the event trig-
gering the right to exercise the put option and
(2) prior to the date (if any) on which the
Company subsequently has commenced, or re-
commenced, the process for a Company IPO. This
put option shall be reinstated if said Company
IPO is later withdrawn or abandoned prior to
completion. The purchase price (see below) for
any Shares so repurchased will be first applied
against any amounts that remain due under your
Notes and the remainder (if any) payable in
cash within thirty (30) days after option
exercise.
You acknowledge and agree that the Company
and/or its parents reserve all rights not to
commence a Company IPO, to abandon any Company
IPO at any time prior to completion and to
make, in their sole and unfettered discretion,
any and all decisions and determinations
regarding a Company IPO (including, without
limitation, all decisions regarding timing,
pricing and all other terms and conditions and
considerations) and that there shall be no
liability or obligation to you by either the
Company or either parent (other than your right
to exercise this put option on these specific
terms) as a result of any decision or
determination made regarding a Company IPO; if
a Company IPO is not commenced, is commenced
but is withdrawn or otherwise does not occur;
or if a Company IPO occurs at any time after an
exercise of this put option by you.
Purchase Price for Put/Call Options
The purchase price payable for Shares subject
to an exercise of the put option or call option
shall be: 1) if a certain price is required by
applicable Japanese (or other) law and, with
respect to the call option, IPO regulations,
then the lowest price permitted by such
Japanese (or other) law or IPO regulations and
2) if said certain price is not required, then
the fair market value for the Company's Shares
(on an as-converted into Common Stock basis) as
determined by the Committee in its sole
discretion, based on the performance and degree
of success of the Company and its subsidiaries.
The Committee may make reference to at least
three companies that trade during the relevant
time on the U.S. Nasdaq National Market and are
selected by the Committee as being reasonably
comparable to the Company. The valuation
process may also take into account relative,
historical and projected growth rates, capital
structures, industry attractiveness and such
other or alternate factors the Committee deems
relevant. The price/earnings ratio of such
companies may also be among the factors
utilized by the Committee to determine fair
market value.
Restrictions on Resale
By signing this Agreement, you agree not to
sell any of your Shares (or any options or
other rights to acquire the same):
* to a third party other than the Lenders, and
then only pursuant to this Agreement and the
Loan and Security Agreements, at any time
prior to the effective date of a Company
IPO, and
* in any event, at any time when applicable
securities or other laws or IPO regulations
prohibit or restrict the sale of your
Shares.
You also agree, so long as your Notes remain
unpaid, to sell your Shares only as and to the
extent permitted by the Loan and Security
Agreements.
Stock Legends
All certificates representing Shares purchased
under this Agreement shall be endorsed with the
following legends:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY
MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH
THE TERMS OF WRITTEN "LOAN AND SECURITY AGREE-
MENTS" BETWEEN THE LENDERS UNDER SAID
AGREEMENTS, AND THE REGISTERED HOLDER OF THE
SHARES (OR THE PREDECESSOR IN INTEREST TO THE
SHARES). SUCH AGREEMENTS ASSIGN TO THE LENDERS
ALL RIGHTS PERTAINING TO THE SHARES, AS
COLLATERAL FOR THE REPAYMENT OF LOANS TO
PURCHASE THE SAME, GRANTS CERTAIN REPURCHASE
RIGHTS TO THE LENDERS, AND IMPOSES CERTAIN
RESTRICTIONS ON THE RESALE OF THE SHARES. THE
COMPANY WILL UPON WRITTEN REQUEST FURNISH A
COPY OF SUCH AGREEMENTS TO THE HOLDER HEREOF
WITHOUT CHARGE."
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES LAWS AND
REGULATIONS OF EITHER THE UNITED STATES OR
JAPAN AND MAY NOT BE SOLD, PLEDGED, OR OTHER-
WISE TRANSFERRED WITHOUT AN EFFECTIVE REGIS-
TRATION THEREOF UNDER ALL APPLICABLE SECURITIES
LAWS AND REGULATIONS OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE CORPORATION AND ITS COUN-
SEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
"ANY TRANSFER OF THE SHARES OF THE COMPANY
SHALL REQUIRE THE WRITTEN APPROVAL OF THE BOARD
OF DIRECTORS."
U.S. Purchaser Representations
If you are a resident or a citizen of the
United States, you hereby represent and warrant
to the Company as follows, in connection with
the issuance and acquisition of Shares under
this Agreement:
You are acquiring and will hold the Shares
for investment for your account only and not
with a view to, or for resale in connection
with, any "distribution" thereof within the
meaning of the U.S. Securities Act of 1933.
You understand that the Shares have not been
registered under the Securities Act of 1933
by reason of a specific exemption therefrom
and that the Shares must be held
indefinitely, unless they are subsequently
registered under the Securities Act of 1933
or you obtain an opinion of counsel, in form
and substance satisfactory to the Company
and its counsel, that such registration is
not required. You further acknowledge and
understand that the Company is under no
obligation to register the Shares on any
exchange or stock quotation system.
You are aware of the adoption of Rule 144 by
the Securities and Exchange Commission under
the Securities Act of 1933, which permits
limited public resales of securities
acquired in a non-public offering, subject
to the satisfaction of certain conditions,
including (without limitation) the
availability of certain current public in-
formation about the issuer, the resale
occurring not less than two years after the
securities to be sold have been purchased
and paid for, the sale being through an
unsolicited "broker's transaction," and the
amount of securities being sold during any
three-month period not exceeding specified
limitations. You acknowledge and understand
that the conditions for resale set forth in
Rule 144 have not been satisfied and that
the Company has no plans to satisfy these
conditions in the foreseeable future.
You will not sell, transfer or otherwise
dispose of the Shares in violation of the
Securities Act of 1933, the Securities
Exchange Act of 1934, or the rules
promulgated thereunder, including Rule 144
under the Securities Act of 1933.
You have had the opportunity to ask ques-
tions of the Company concerning the
Company's business and financial condition
and to obtain any information which you
consider necessary to make an informed
investment decision with respect to the
acquisition of the Shares. You have
personally discussed the Company's business,
financial condition and future plans, as
well as the terms and conditions of the
issuance and sale of the Shares, with an
officer of the Company and have received
satisfactory answers to all questions.
You are aware that your investment in the
Company is a speculative investment which
has limited liquidity and is subject to the
risk of complete loss. You are able, with-
out impairing your financial condition, to
hold the Shares for an indefinite period and
to suffer a complete loss of your investment
in the Shares.
No Retention Rights
This Agreement is not an employment agreement
and does not give you the right to be retained
by Company or any of its subsidiaries in any
capacity. The Company (and its subsidiaries)
reserve the right to, and may, terminate your
Service at any time and for any reason without
liability or obligation.
Applicable Law
This Agreement will be interpreted and enforced
under the laws of Japan; provided, however, the
English language version of this Agreement, the
Plan, your Note(s), and the Loan and Security
Agreement(s) will prevail and control.
The Plan and Other Agreements
This Agreement, the Plan, your Note(s), and the
Loan and Security Agreement(s) collectively
constitute the entire understanding between you
and the Company regarding this purchase of
Shares and are incorporated herein by
reference. Any prior agreements, commitments
or negotiations are superseded.
By signing the cover sheet of this Agreement, you agree to all
of the terms and conditions described above and in the Plan.
In order to purchase the Shares and participate in the Plan, you
must sign the attached cover sheet, your Loan and Security
Agreement(s) and Note(s) and return them all to AKT or AKTA on
or before _____, 199_.
<PAGE>
Applied Komatsu Technology, Inc.
1994 Executive Incentive Stock Purchase Agreement
Cover Sheet
Name of Participant: _________________________________
Number of Shares Purchased: _________________________________
Purchase Price per Share: _________________________________
Total Purchase Price: _________________________________
_____________________________
Signature
Date: ______________________
For use with loans
to both AKT and
AKTA "EIP Participants"
APPLIED KOMATSU TECHNOLOGY, INC.
1994 EXECUTIVE INCENTIVE STOCK PURCHASE PLAN
LOAN AND SECURITY AGREEMENT ("Joto-Tampo")
THIS AGREEMENT, dated _________, 199_, by and between
___________________ ("Lender"), and ___________ ("Borrower").
WITNESSETH:
WHEREAS, Lender wishes to extend a loan to Borrower, and
Borrower wishes to obtain such loan from Lender so that Borrower
can purchase with the loan proceeds _____________ shares of
nonvoting preferred stock ("Preferred Stock") from Applied
Komatsu Technology, Inc. ("AKT");
WHEREAS, the parties desire that Borrower enter into this
Agreement and transfer to Lender the shares of Preferred Stock
Borrower purchases from AKT, as security for the obligations of
Borrower to Lender under the loan to be extended hereunder:
NOW, THEREFORE, in consideration of the agreements
contained herein and intending to be legally bound hereby, the
parties agree as follows:
1. Extension of Loan Subject to the terms and conditions
hereinafter set forth, Lender shall extend to Borrower a loan
(the "Loan") in the principal sum equal to the initial principal
balance of that promissory note executed by Borrower in favor of
Lender, a copy of which is attached hereto as Exhibit A (the
"Note").
2. Method of Borrowing On the date hereof, Borrower
shall cause the aggregate principal amount of the Loan to be
paid to AKT, in accordance with procedures to be mutually agreed
between Lender and Borrower.
3. Note The Loan shall be evidenced by the Note. The
Note is denominated in Japanese yen if Borrower is not a U.S.
taxpayer and U.S. Dollars if Borrower is a U.S. taxpayer. For
U.S. Dollar denominated Notes, the initial principal balance of
the Note is the appropriate yen amount, converted into U.S.
Dollars based on the average daily Bank of Tokyo - "OPN" rate as
published on Reuter's for the three Japanese banking days
preceding the date the issue price for the Preferred Stock was
determined by a Committee of the Shareholders Committee of AKT
responsible for administering the 1994 Executive Incentive Stock
Purchase Plan (the "Committee").
4. Principal Loan Terms The Loan shall be full
recourse and bear interest as set forth in the Note, which is
incorporated into this Agreement. The terms of the Note shall
prevail if there is any discrepancy, conflict or ambiguity of
interpretation between this Agreement and the Note. Subject to
the terms and conditions contained in the Note, the Loan shall
be repayable by Borrower to Lender as follows:
Interest on the Note shall be payable annually as set
forth therein,
The principal amount evidenced by the Note shall
become due on January 31, 2004, and
The Note may not be prepaid without the prior written
consent of Lender or as specifically provided in the Note.
5. Stock Assignment and Transfer For Security Purposes;
Appointment as Attorney-in-Fact
A. In order to secure Borrower's obligations to Lender
under the Loan evidenced by the Note, promptly after the date
hereof Borrower hereby assigns and transfers to Lender the
shares of Preferred Stock, which shares are convertible into
AKT's common stock in accordance with AKT's Articles of
Incorporation ("Conversion Shares"), represented by stock
certificates ("Share Certificates") as shown in Exhibit B
attached hereto, the originals of which are herewith delivered
to Lender or its agents.
B. Lender shall itself or through its agent hold all
Share Certificates delivered as security for the full and prompt
repayment of any and all sums due to Lender from Borrower under
the Loan evidenced by the Note ("Joto-Tampo"). Such Joto-Tampo
shall continue to exist and be valid with respect to all of the
Preferred Stock and any Conversion Shares until the loan
evidenced by the Note is paid in full in accordance with the
Note and this Agreement. Lender shall not in any manner
encumber, transfer or dispose of the Preferred Stock and any
Conversion Shares except in accordance with the provisions of
this Agreement.
C. Lender and Borrower shall cause AKT to, pursuant to
instructions from Borrower and Lender which are hereby given,
make all necessary and appropriate entries into the shareholders
registry of AKT to reflect the transfer and assignment to Lender
of the Preferred Shares and any Conversion Shares based on the
Joto-Tampo and in accordance with the provisions of this
Agreement.
D. Borrower hereby irrevocably appoints Lender as
Borrower's attorney-in-fact with full power and authority
throughout the term of this Agreement to take such actions as
Lender deems necessary or desirable to arrange for such transfer
and registry, to exercise the conversion privilege and right to
vote as contemplated by Section 7.B, and to otherwise carry out
the provisions and intentions of this Agreement.
6. Representations and Warranties Borrower hereby
represents and warrants to Lender as follows:
As of the date Borrower assigns and transfers the
shares of Preferred Stock to Lender pursuant to Section
5.A, Borrower owns all of the Preferred Stock beneficially
and of record, free and clear of any lien, security
interest, pledge, prior assignment, encumbrance, or other
restriction, other than the Joto-Tampo created by this
Agreement in favor of Lender.
As of the date Borrower assigns and transfers the
shares of Preferred Stock to Lender pursuant to Section
5.A, Borrower has the full and unqualified legal right,
power and authority to sell, transfer and convey complete
and absolute legal and equitable title to the Preferred
Stock, free and clear of any lien, security interest,
pledge, prior assignment, encumbrance, or other restriction
other than the Joto-Tampo created by this Agreement in
favor of Lender.
As of the date hereof, Borrower is not a party to or
bound by any contract or agreement of any nature whatsoever
relating to the ownership, sale, exchange, disposition or
purchase of any of the Preferred Stock, other than the
agreement with AKT pursuant to which the Preferred Stock
was acquired.
7. Rights of Borrower and Lender
A. During the term of this Agreement:
All regular dividends with respect to the Preferred
Stock and any Conversion Shares shall be paid or
distributed by AKT to Lender, which shall receive the same
on behalf of Borrower. Borrower irrevocably instructs, and
Lender agrees, that all such dividends shall be applied by
Lender to the payment of interest and any other sums then
due under the Note; the remainder of such dividends (if
any) shall be distributed by Lender to Borrower so long as
Borrower is not in Default (as defined in Section 8)
hereunder.
Any special dividends, distributions and other amounts
or shares payable or distributable with respect to the
Preferred Stock and Conversion Shares as a result of stock
redemption, consolidation, split, conversion or purchase
shall be paid or distributed by AKT to Lender, which shall
receive the same on behalf of Borrower. Such special
dividends, distributions and other amounts shall be
retained and held by Lender, together with the Share
Certificates, as security for the full and prompt repayment
of any and all sums due to Lender from Borrower under the
Note so long as Borrower is not in Default (as defined in
Section 8) hereunder.
B. During the term of this Agreement, Lender shall have
the sole and exclusive rights pertaining to the Preferred Stock
and the Conversion Shares, including without limitation the sole
and exclusive right to exercise the privilege to convert some or
all of the Preferred Stock into Conversion Shares and the sole
and exclusive right to vote the Preferred Stock and any
Conversion Shares on all corporate questions of AKT on which
such shares are entitled to vote as if it were the outright
owner thereof. Borrower hereby irrevocably authorizes and
instructs Lender to exercise such conversion privilege and right
to vote as and when Lender, in its sole discretion, determines.
C. Lender may (but is not obligated to, except as
provided below) repurchase some or all of the Preferred Stock
and any Conversion Shares, if any of the following events occur:
The Borrower resigns or is removed, or is terminated
voluntarily or involuntarily, as an officer, employee or
advisor of AKT and its subsidiaries or dies prior to an
initial public offering of AKT's Common Stock on any stock
exchange or stock quotation system approved for listing by
the Shareholders Committee of AKT (an "IPO of AKT"); or
The Borrower attempts to prepay the Note other than as
specifically permitted therein prior to an IPO of AKT; or
The Borrower repays the balance of the Note on its
maturity but there has been no IPO of AKT; or
The Borrower attempts to transfer any Preferred Stock
or Conversion Shares in violation of the provisions set
forth below in Article 7.F.
[IF APPLICABLE, ADD: The Preferred Stock and any
Conversion Shares of a Borrower who is a seconded employee
of AKT or Applied Komatsu Technology America, Inc. ("AKTA")
shall be automatically called if such Borrower does not
decide to become a direct employee of AKT or AKTA on or
before the earlier of the day before the commencement of a
"restricted period" with respect to AKT, as that term is
defined in Japanese IPO regulations or the date two years
from when the Borrower first became assigned to AKT or
AKTA.]
Except in the case of death or where the Note is repaid in full
but there has not been an IPO of AKT, this repurchase right
(call option) shall be exercised by written notice to Borrower
within one hundred twenty (120) days after the occurrence of the
above event. The repurchase period shall be unlimited in the
case of death. In the case where the Note is repaid in full but
there has not been an IPO of AKT, the call option shall be
deemed to be automatically exercised without further notice, and
all the Preferred Stock and any Conversion Shares must be
repurchased, unless Lender notifies Borrower in writing, within
thirty (30) days after repayment of the Note, that Lender has
elected to decline to exercise the call option by reason of that
triggering event. The purchase price (see below) for any
Preferred Stock or Conversion Shares so repurchased will be
first applied against any amounts that remain due under the Note
and the remainder (if any) payable in cash within thirty (30)
days after option exercise.
D. Borrower may require Lender to purchase all, but not a
portion, of the Preferred Stock or Conversion Shares if any of
the following events occur:
AKT notifies Borrower in writing on or before
January 1, 1999 that its Shareholders Committee has
determined (without prejudice to reconsideration of the
issue) that AKT does not intend to commence, at any time
prior to the end of its FY1999, the process for an IPO of
AKT, or
AKT does not so notify Borrower, but all outstanding
shares of Preferred Stock are not converted to Conversion
Shares on or before April 30, 1999, or
AKT does not so notify Borrower and said conversion
occurs on or before April 30, 1999, but AKT subsequently
abandons and withdraws entirely (without prejudice to
reconsideration of the issue) all intention and all then
pending applications and good faith efforts to achieve an
IPO of AKT on any stock exchange or stock quotation system.
AKT has an affirmative obligation to notify the Borrower of the
foregoing events.
This right (put option) shall be exercised by Borrower by
written notice to Lender at any time during the term of this
Agreement and during the period which is (1) after the
occurrence of the event triggering the right to exercise the put
option and (2) prior to the date (if any) on which AKT
subsequently has commenced, or re-commenced, the process for an
IPO of AKT. This put option shall be reinstated if said IPO is
later withdrawn or abandoned by AKT prior to completion. The
purchase price (see below) for any shares so repurchased will be
first applied against any amounts that remain due under the Note
and the remainder (if any) payable in cash within thirty (30)
days after option exercise.
E. The purchase price under Subsections C and D shall be:
1) if a certain price is required by applicable Japanese law (or
other applicable law) and, with respect to Subsection C, IPO
regulations, then the lowest price permitted by such Japanese
law (or other applicable law) or IPO regulations and 2) if said
certain price is not required, then the fair market value for
the Preferred Stock and Conversion Shares (on an as-converted
into common stock basis) as determined by the Committee in its
sole discretion, based on the performance and degree of success
of AKT and its subsidiaries. The Committee may make reference
to at least three companies that trade during the relevant time
on the U.S. Nasdaq National Market and are selected by the
Committee as being reasonably comparable to AKT. The valuation
process may also take into account relative, historical and
projected growth rates, capital structures, industry
attractiveness and such other or alternate factors the Committee
deems relevant. The price/earnings ratio of such companies may
also be among the factors utilized by the Committee to determine
fair market value.
F. Borrower agrees not to sell any of the Preferred Stock
or Conversion Shares (or any options or other rights to acquire
the same) 1) to a third party at any time prior to the closing
date of an IPO of AKT and 2) in any event at any time when
applicable securities or other laws or IPO regulations prohibit
or restrict the sale of Preferred Stock or Conversion Shares.
G. Borrower agrees that, if required by applicable IPO
regulations, Conversion Shares may be submitted to the lead
manager of the IPO of AKT and kept in its custody until up to
one year following the effective date of the IPO (or longer, if
such regulations so require), regardless of whether the Note has
been paid in full and regardless of whether this Agreement
remains in effect.
8. Default
A. The occurrence of the following events with respect to
Borrower shall constitute a default hereunder ("Default"):
If Borrower fails to perform any of its obligations
hereunder and such failure continues for more than 10 days
after Borrower receives written notice of such failure from
Lender.
If Borrower fails to perform any of its obligations
under the Note for more than 10 days after Borrower
receives written notice of Lender's election to accelerate
payment of the Note by reason of such failure.
The Lender will not accelerate payment of the Note
prior to maturity for nonpayment of interest.
B. If Borrower is in Default hereunder, then Lender may
declare that all sums lawfully owed by Borrower under the Loan
evidenced by the Note shall be immediately due and payable, and
Lender shall have, in addition to all other rights and remedies
which it may have under Japanese law, all of the following
rights and remedies:
Lender may continue to receive dividends and other
distributions regarding Preferred Stock and Conversion
Shares on behalf of Borrower and exercise all voting and
other rights and give all consents, waivers and
ratifications in respect thereof and otherwise act with
respect thereto as though it were the outright owner
thereof; and/or
Lender may foreclose its security interest hereunder
and obtain outright ownership to all or any Preferred Stock
and Conversion Shares (if the then price of the same
determined in accordance with Article 7.E hereof is greater
than all of the sums owed by Borrower under the Loan, then
Lender shall pay such balance to Borrower within thirty
(30) days thereafter); and/or
Lender may sell, transfer or otherwise dispose of the
Preferred Stock and Conversion Shares and other property
held by Lender or its agent hereunder and apply the
proceeds thereof to any outstanding amount payable by
Borrower hereunder, ten (10) days after prior written
notice to Borrower of Lender's intention to do so.
C. The failure to give any such notice and/or to exercise
any such right or remedy shall not constitute a waiver of any
Default or right associated with any Default and shall be
without prejudice to giving such notice and/or exercise such
right or remedy at any later date.
9. Duration and Termination
A. This Agreement shall continue in effect from the date
hereof until the occurrence of the events prescribed in Section
9B, at which time this Agreement and all of the rights and
obligations of the parties hereto shall terminate.
B. Upon the full payment by Borrower of all sums due
under the Note to Lender, this Agreement shall terminate except
for Sections 7C, 7D, 7E and 7F (which Sections shall survive
such termination until the effective date of an IPO of AKT) and
Section 7G (which Section shall survive such termination until
the end of the period specified therein). Upon such termination
(except as provided in Section 7G), Lender shall return, or have
them returned, to Borrower all of the Preferred Stock and
Conversion Shares and other property held by Lender or its agent
hereunder for security purpose.
10. Miscellaneous
A. This Agreement may only be modified, supplemented or
amended by a written instrument signed by the parties hereto.
B. This Agreement shall inure to the benefit of and be
legally binding upon the parties and their respective heirs,
personal representatives, successors and assigns.
C. This Agreement shall be governed by and construed in
accordance with the laws of Japan; provided, however, the
English language version of this Agreement will prevail and
control. Borrower and Lender acknowledge and agree that the
choice of Japanese law to govern this Agreement is reasonable
and binding, and elected based upon mutually acceptable factors
including the fact that the rights, duties and privileges of a
shareholder of AKT are governed by Japanese law. Borrower
hereby irrevocably submits to the jurisdiction of the Tokyo
District Court in connection with enforcement of this Agreement
and/or any disputes hereunder.
D. If any provision of this Agreement is construed to be
invalid or unenforceable, then the remainder of this Agreement
shall not be affected thereby and shall be enforceable without
regard to the invalid or unenforceable provision.
E. Any heading preceding the text of the Sections hereof
are inserted solely for the convenience of reference and shall
not constitute a part of this Agreement.
F. All notices required or permitted hereunder shall be
given in writing, and either hand delivered, delivered by
courier, or mailed by certified mail, postage prepaid, return
receipt requested, to the parties at their respective addresses
for notice herein. The address for notice for Lender shall be:
to the attention of its General Counsel, at the address of
Lender's corporate headquarters. The address for notice for
Borrower shall be as set forth below on the last page of this
Agreement. Either party may change its address for notices
hereunder by written notice to the other party as provided for
in this Section.
G. Neither party shall, directly or indirectly, assign or
transfer this Agreement or any of the rights and/or obligations
hereunder, in whole or in part, without the prior written
consent of the other party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above
written.
Lender:
By:
As Its:
Borrower:
Address:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 73,509
<SECURITIES> 214,503
<RECEIVABLES> 395,474
<ALLOWANCES> 1,260
<INVENTORY> 243,956
<CURRENT-ASSETS> 1,037,859
<PP&E> 411,211
<DEPRECIATION> 159,395
<TOTAL-ASSETS> 1,466,676
<CURRENT-LIABILITIES> 455,764
<BONDS> 172,424
<COMMON> 837
0
0
<OTHER-SE> 872,656
<TOTAL-LIABILITY-AND-EQUITY> 1,466,676
<SALES> 1,192,009
<TOTAL-REVENUES> 1,192,009
<CGS> 641,067
<TOTAL-COSTS> 641,067
<OTHER-EXPENSES> 309,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,779
<INCOME-PRETAX> 237,422
<INCOME-TAX> 83,097
<INCOME-CONTINUING> 150,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 7,000
<NET-INCOME> 157,598
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
</TABLE>
